01—Abstract
Summary
Summary of the 10-K filed February 20, 2014. Cited figures are marked; the original filing is the authoritative source.
Dr Pepper Snapple Group, Inc. is a leading integrated brand owner, manufacturer and distributor of non-alcoholic beverages in the U.S., Canada and Mexico, with net sales of $5,997 milliona in 2013 (88% U.S., 4% Canada, 8% Mexico and the Caribbean).
Net sales were essentially flat versus $5,995 million in 2012, while net income declined to $624 millionb from $629 million. Diluted earnings per share rose to $3.05 from $2.96, supported by share repurchases of 8.7 million shares (about $400 million). Results were affected by a $56 million non-cash charge for the intended withdrawal from the Soft Drink Industry Local Union 710 Pension Fund, and by tax and indemnity items tied to the conclusion of an IRS audit (a $463 million income tax benefit alongside $430 million of other expense, net, as the company no longer expects to collect those amounts from Mondelēz).
Operating results were mixed across segments. Beverage Concentrates net sales rose to $1,229 million, Packaged Beverages declined to $4,306 millionc, and Latin America Beverages grew to $462 million. Total volume (BCS) fell 2%, with CSD and NCB volumes each down 2%, reflecting category headwinds from health and wellness trends.
Income from operations fell to $1,046 milliond from $1,092 million. Cash from operating activities increased to $866 million from $482 million, largely due to the absence of 2012 tax payments of $531 million related to the PepsiCo and Coca-Cola licensing agreements. Management expects 2014 net sales to be up only 1% versus 2013, and the company declared a $0.41 per share dividend for the first quarter of 2014.
The balance sheet shows total assets of $8,201 million, total debt of $2,574 million, and cash of $153 million at year-end 2013. The company repaid $250 million of 6.12% senior notes in May 2013, and S&P raised its rating to BBB+ in November 2013. The company's largest customer, Wal-Mart, represented approximately 12% of consolidated net sales.
02—Key points
Key Highlights
- Net sales of $5,997 million in 2013, essentially flat versus $5,995 million in 2012; 88% of net sales came from the U.S.
- Net income of $624 million ($3.05 diluted EPS) versus $629 million ($2.96 diluted EPS) in 2012, with diluted EPS up approximately 3%.
- A $56 million non-cash multi-employer pension withdrawal charge related to the intended exit from the Local 710 pension fund reduced income from operations to $1,046 million from $1,092 million.
- IRS audit conclusion produced a $463 million income tax benefit alongside $430 million of other expense, net, which the company no longer expects to collect from Mondelēz.
- Operating cash flow rose to $866 million from $482 million, mainly reflecting the absence of $531 million of 2012 tax payments tied to the PepsiCo and Coca-Cola agreements.
- Returned capital to shareholders through $400 million of share repurchases and $302 million of dividend payments in 2013; dividends declared per share were $1.52, up from $1.36.
- Management expects 2014 net sales to increase only 1% versus 2013, citing category headwinds in CSDs and other uncertainties.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2013, Keurig Dr Pepper kept $0.10.
- Revenue$6.00B100.0%
- Cost of revenue−$2.50B41.7%
- Gross profit$3.50B58.3%
- Operating costs−$2.45B40.9%
- Operating income$1.05B17.4%
- Interest, other & tax−$422.0M7.0%
- Net income$624.0M10.4%
Where FY2013 revenue went
$6.00B- Cost of revenue: $2.50B, 42% of revenue
- SG&A: $2.27B, 38% of revenue
- Net income: $624.0M, 10% of revenue
- R&D: $21.0M, 0.4% of revenue
- Other operating costs: $159.0M, 2.7% of revenue
- Interest, other & tax: $422.0M, 7.0% of revenue
Kept 10% as net incomeNet income $624.0M · 10%R&D $21.0M · 0.4%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2013filed February 20, 2014Financial Statements
FY2013 against FY2012
| Line item | FY2013FY2012 | Change |
|---|---|---|
| Revenue | $6.00B$6.00B | 0.0% |
| Cost of Revenue | $2.50B$2.50B | 0.0% |
| Gross Profit | $3.50B$3.50B | +0.1% |
| R&D Expenses | $21.00M$21.00M | 0.0% |
| SG&A Expenses | $2.27B$2.27B | +0.2% |
| Operating Income | $1.05B$1.09B | −4.2% |
| Interest Expense | $123.00M$125.00M | −1.6% |
| Net Income | $624.00M$629.00M | −0.8% |
| EPS (Basic) | $3.08$2.99 | +3.0% |
| EPS (Diluted) | $3.05$2.96 | +3.0% |
| Shares Outstanding (Basic) | 202.90M210.60M | −3.7% |
| Shares Outstanding (Diluted) | 204.50M212.30M | −3.7% |
05—Questions
Frequently Asked Questions
How did Dr Pepper Snapple Group perform financially in 2013?
Net sales were $5,997 million, up $2 million from 2012. Net income was $624 million, down $5 million, or approximately 1%, from $629 million. Diluted earnings per share increased to $3.05 from $2.96. Income from operations declined to $1,046 million from $1,092 million, principally due to the $56 million non-cash multi-employer pension withdrawal charge and higher SG&A expenses.
Why did reported net income and operating income move the way they did in 2013?
Results were affected by several discrete items. The company recognized a $463 million income tax benefit from completing the IRS audit for 2006-2008 and a $430 million other expense, net, from no longer anticipating collection of amounts from Mondelēz. A $38 million indemnity income item and $50 million of income tax expense related to a Canadian tax law change were also recorded. The $56 million Local 710 pension withdrawal charge reduced operating income. The company also presented results excluding these tax and indemnity items.
What is the company's outlook and capital allocation approach?
Management believes net sales for 2014 could be up only 1% compared with 2013, due to health-related category headwinds, economic factors, competition, and commodity volatility. The company expects capital expenditures of approximately 3.00% of net sales in 2014, funded by operating cash flows. It repurchased $400 million of stock in 2013, with $572 million remaining under its $3,000 million authorization, and declared a $0.41 per share dividend for the first quarter of 2014.
What are the main risks highlighted in the filing?
Key risks include changing consumer preferences and health concerns that have reduced demand for CSDs; new or proposed sugar-sweetened beverage taxes, including a one peso per liter tax in Mexico effective January 1, 2014; intense competition from Coca-Cola and PepsiCo; dependence on large retailers, notably Wal-Mart; reliance on third-party bottlers; raw material and energy cost volatility; rising benefit and multi-employer pension withdrawal costs; and goodwill and intangible asset impairment risk. Total indebtedness was $2,574 million at year-end 2013.
How concentrated is the company's customer and brand base?
Approximately 83% of 2013 volume came from brands ranking #1 or #2 in their category, and Dr Pepper is the company's largest brand. Wal-Mart was the largest retailer, representing approximately 12% of consolidated net sales and accounting for $734 million of direct net sales. PepsiCo and Coca-Cola were the two largest customers of the Beverage Concentrates segment, representing approximately 26% and 21% of that segment's 2013 net sales, respectively.
06—Continue