From: Reuters
Published May 7, 2008 04:17 PM

Dr Pepper Snapple shares get tepid reception

By Martinne Geller

NEW YORK (Reuters) - Dr Pepper Snapple Group Inc <DPS.N> shares began trading in New York on Wednesday at a lower-than-expected $25, showing that U.S. investors are hesitant to invest in the country's third-largest soft drink maker.

But the shares of Dr Pepper Snapple, which was just separated from British confectionary company Cadbury Plc <CBRY.L>, are trading on the New York Stock Exchange in line with where its "when issued" shares were trading. Ahead of the spinoff, when-issued shares made their debut last week at $29 and fell 13.6 percent to close on Tuesday at $25.05.

After being relatively flat most of the day, the maker of Schweppes ginger ale, Hawaiian Punch and Mott's apple juice, saw a flurry of late afternoon buying, which sent its shares up 45 cents, or 1.8 percent, to close at $25.50 on the New York Stock Exchange.


"The Street seems to be pretty negative overall on the company and neutral on the stock," said Morningstar analyst Mitchell Corwin, noting that Dr Pepper has not given any near-term earnings guidance, which has created "a certain lack of transparency.

"I think a lot of people are in 'wait-and-see' mode. The company is really going to have to prove itself in the next couple of quarters, when it starts posting results as an independent company, I think, to generate more interest in the stock."

Dr Pepper Snapple has said its longer-term target is to increase annual revenue by 3 percent to 5 percent and earnings-per-share by 7 percent to 9 percent.

But analysts are skeptical about its prospects, since Dr Pepper lacks the scale and portfolio of rivals such as Coca-Cola Co <KO.N> and PepsiCo Inc <PEP.N> and its business is almost all in the United States, where soft drink sales are slipping amid rising health consciousness.


Despite having only 15 percent of the U.S. market for carbonated soft drinks in 2007, compared with Coke's 43 percent and Pepsi's 31 percent, Dr Pepper Chief Executive Larry Young seemed unfazed during an interview on Wednesday.

"We have great brands, great people and are focused on delivering great results," he said. "We'll let the market take care of the price."

Young said Dr Pepper is putting together a 5-year plan for its business in Latin America. But getting more people in the U.S. to drink more Snapple and Dr Pepper is a main goal, Young said.

"We've got a lot to focus on right here in the Americas and we want to focus on that first," Young said. He noted that two of its key brands, Snapple and Dr Pepper, are strong in certain parts of the country but still have a lot of room to grow.

Dr Pepper will also launch Venom, an energy drink, in the next couple of weeks, as it tries to capture a piece of the market for highly caffeinated drinks, which is growing faster than the market for traditional soft drinks.

U.S. sales of traditional carbonated soft drinks have fallen in the last few years as health-conscious consumers pick drinks they see as healthier or beneficial. Like its rivals, Young said Dr Pepper is seeing some softening of cold drink sales at convenience stores as the weak U.S. economy causes people to cut back on impulse purchases. But Dr Pepper's range of flavored soft drinks, such as Sunkist, 7UP and A&W, lets it outperform the market, Young said.

"Any time you have issues with the economy ... people will change their shopping habits," Young said. But he said beverages' relatively small price tag keeps them alive even when sales of more expensive products fall.

"People may not buy a new Mercedes or big-screen television set but they're still going to buy their favorite cold beverage," Young said.

But soft drink makers have had to raise prices lately in an effort to pass on soaring costs for corn used in sweetener, aluminum used in cans and fuel used in production and delivery.

"You have to take pricing when you have input costs going up the way they are," Young said. Looking forward, Young said: "I'm sure we will be taking more pricing as these input costs continue (to rise)."

(Editing by Andre Grenon, Phil Berlowitz)

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