01—Abstract
Summary
Summary of the 10-K filed February 14, 2017. Cited figures are marked; the original filing is the authoritative source.
Dr Pepper Snapple Group, Inc. reported 2016 net sales of $6,440 milliona, up from $6,282 million in 2015, with net income of $847 million compared with $764 million the prior year and diluted earnings per share of $4.54 versus $3.97.
Income from operations rose to $1,433 millionb from $1,298 million, driven by higher gross profit and a favorable change in other operating items, partly offset by higher SG&A expenses. The company describes itself as the #1 flavored CSD company in the U.S. by IRi retail sales, with approximately 83% of 2016 bottler case sales volume coming from brands ranked #1 or #2 in their category. Net sales were 90% U.S., 7% Mexico and the Caribbean, and 3% Canada.
The balance sheet expanded materially in late 2016 and early 2017. The company issued $1,950 millionc of senior unsecured notes during 2016, including $1,550 million in December, to fund the Bai Brands Merger, which was completed on January 31, 2017 for a preliminary purchase price of $1,649 million net of the company's previous ownership interest. Cash and cash equivalents rose to $1,787 million at year-end 2016 from $911 million, while total indebtedness was $4,478 million.
Management expects 2017 net sales to increase approximately 4.5%, including a 3.0% contribution from the Bai Brands Merger, and expects to repurchase $450 million to $500 milliond of common stock during 2017. Shareholder returns remained a priority. Dividends declared were $2.12 per share in 2016, up from $1.92 in 2015, and the Board declared a first-quarter 2017 dividend of $0.58 per share.
Share repurchases totaled approximately $519 million in 2016. Investors should weigh the higher debt load and goodwill and intangible assets, which the filing notes will increase further after the Bai Brands acquisition, against the company's stable cash flows and its concentration in the U.S. carbonated soft drink and non-carbonated beverage markets.
02—Key points
Key Highlights
- Net sales of $6,440 million in 2016, up from $6,282 million in 2015; income from operations of $1,433 million, up from $1,298 million.
- Net income of $847 million in 2016 versus $764 million in 2015; diluted EPS of $4.54 versus $3.97.
- Completed the $1.7 billion Bai Brands Merger on January 31, 2017, with a preliminary purchase price of $1,649 million net of prior ownership interest, funded by $1,550 million of December 2016 senior notes and cash on hand.
- Total indebtedness of $4,478 million at December 31, 2016; cash and cash equivalents rose to $1,787 million from $911 million.
- Dividends declared of $2.12 per share in 2016 (versus $1.92) and a first-quarter 2017 dividend of $0.58 per share; approximately $519 million of stock repurchased in 2016.
- 2017 guidance calls for net sales growth of approximately 4.5%, including a 3.0% contribution from Bai Brands and a 1.0% unfavorable foreign currency translation impact.
- Approximately 83% of 2016 bottler case sales volume came from brands ranked #1 or #2 in their category, supporting the company's brand-ownership model.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2016, Keurig Dr Pepper kept $0.13.
- Revenue$6.44B100.0%
- Cost of revenue−$2.58B40.1%
- Gross profit$3.86B59.9%
- Operating costs−$2.42B37.7%
- Operating income$1.43B22.3%
- Interest, other & tax−$586.0M9.1%
- Net income$847.0M13.2%
Where FY2016 revenue went
$6.44B- Cost of revenue: $2.58B, 40% of revenue
- SG&A: $2.33B, 36% of revenue
- Net income: $847.0M, 13% of revenue
- R&D: $20.0M, 0.3% of revenue
- Other operating costs: $76.0M, 1.2% of revenue
- Interest, other & tax: $586.0M, 9.1% of revenue
Kept 13% as net incomeR&D $20.0M · 0.3%Other operating costs $76.0M · 1.2%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2016filed February 14, 2017Financial Statements
FY2016 against FY2015
| Line item | FY2016FY2015 | Change |
|---|---|---|
| Revenue | $6.44B$6.28B | +2.5% |
| Cost of Revenue | $2.58B$2.56B | +0.9% |
| Gross Profit | $3.86B$3.72B | +3.6% |
| R&D Expenses | $20.00M$19.00M | +5.3% |
| SG&A Expenses | $2.33B$2.31B | +0.7% |
| Operating Income | $1.43B$1.30B | +10.4% |
| Interest Expense | $147.00M$117.00M | +25.6% |
| Net Income | $847.00M$764.00M | +10.9% |
| EPS (Basic) | $4.57$4.00 | +14.3% |
| EPS (Diluted) | $4.54$3.97 | +14.4% |
| Shares Outstanding (Basic) | 185.40M190.90M | −2.9% |
| Shares Outstanding (Diluted) | 186.60M192.40M | −3.0% |
05—Questions
Frequently Asked Questions
How did Dr Pepper Snapple Group perform financially in 2016?
Net sales rose to $6,440 million from $6,282 million, gross profit increased to $3,858 million from $3,723 million, and income from operations increased to $1,433 million from $1,298 million. Net income was $847 million, compared with $764 million in 2015, and diluted EPS was $4.54 versus $3.97.
What was the Bai Brands Merger and how was it financed?
The company agreed on November 21, 2016 to acquire Bai Brands LLC for a cash purchase price of $1.7 billion and completed the merger on January 31, 2017. It paid $1,548 million net of its previous ownership interest, with $103 million held in escrow. The merger was funded with the net proceeds from $1,550 million of senior unsecured notes issued in December 2016 and cash on hand.
How much debt does the company carry and how is it managed?
As of December 31, 2016, total indebtedness was $4,478 million, including senior unsecured notes of $4,325 million and capital lease obligations of $153 million. The company maintains a $500 million revolving credit facility maturing September 25, 2017, which it was negotiating to replace, and a $500 million commercial paper program, with no commercial paper outstanding at year-end. Debt ratings were Baa1 from Moody's and BBB+ from S&P, both with stable outlooks.
What returns are shareholders receiving?
The Board declared dividends of $2.12 per share for 2016, up from $1.92 in 2015. The company repurchased approximately 5.7 million shares for about $519 million in 2016 and expects to repurchase $450 million to $500 million of stock during 2017. A $1,132 million repurchase authorization remained available as of December 31, 2016.
What are the main risks highlighted in the filing?
Key risks include changing consumer preferences toward health and wellness and away from carbonated soft drinks, intense competition from Coca-Cola and PepsiCo, which together hold approximately 43.3% of the U.S. LRB market by retail sales, dependence on large retailers such as Walmart, which accounted for approximately 12% of consolidated net sales in 2016, and reliance on third-party bottlers. The filing also cites new or proposed sugar-sweetened beverage taxes, commodity cost volatility, and goodwill and intangible asset impairment risk, which will increase after the Bai Brands acquisition.
06—Continue