Dr Pepper expecting bigger boost from Bai buy

by Monica Watrous
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Bai beverages
Dr Pepper Snapple has high hopes for Bai's innovation pipeline.

PLANO, TEXAS — The innovation pipeline for Bai is “very attractive,” said Larry Young, president and chief executive officer of Dr Pepper Snapple Group, Inc., which finalized its acquisition of the specialty beverage brand on Jan. 31.

Larry Young, Dr Pepper Snapple Group
Larry Young, president and c.e.o. of Dr Pepper Snapple Group

“With the enhanced waters as the base, the brand has also expanded into the carbonated water category with Bubbles, the coconut water category with Cocofusions, the premium tea category with Super Tea, and most recently, the C.S.D. category with Bai Black, and this is just the beginning,” Mr. Young said during a Feb. 14 earnings call with financial analysts.

He said the operational performance of the business is expected to be stronger than what Dr Pepper Snapple executives communicated in November upon announcing the deal. However, expenses associated with the acquisition are expected to be dilutive to earnings by 10c per share in 2017, up from the previous projection of 3c, as a result of the application of purchasing accounting.

Performance of the brand is expected to ramp up over the course of the year as the company continues to build distribution across new innovation, said Marty Ellen, chief financial officer. A television ad for Bai that aired during the Super Bowl on Feb. 5 garnered “a tremendous amount of positive attention” and drove awareness of the brand, he said.

7UP soda, Dr Pepper Snapple
Dr Pepper Snapple Group is planning to support its struggling 7UP business with new consumer messaging.

“This is the time to invest in this brand,” Mr. Ellen said. “This is the time to educate the consumer, create this enormous pull.” 

Building Bai is a strategic priority of Dr Pepper Snapple Group in the year ahead. The company also is planning to support its struggling 7UP business with new consumer messaging, Mr. Young said. 

“We’re reintroducing consumers to 7UP, the most versatile C.S.D. (carbonated soft drink) in the category,” he said. “The new campaign will encourage consumers to mix it up a little by showcasing the versatility of the brand, whether drinking it straight, using it as a mixer, or an ingredient for cooking.”

Net income in the year ended Dec. 31, 2016, was $847 million, equal to $4.57 per share on the common stock, which was up from $764 million, or $4 per share, in the prior fiscal year. Net sales for the year were $6,440 million, up from $6,282 million.

Dr Pepper Snapple product family
Dr Pepper Snapple's net income in the year ended Dec. 31, 2016, was $847 million.

Fourth-quarter net income was $165 million, or 90c per share, down from $185 million, or 98c, in the year-ago period. Net sales increased to $1,578 million, up from $1,546 million in the fourth quarter of the previous year. 

Sales volumes increased 1% in the quarter and for the year.

“Coming off our solid 2016 performance, we enter 2017 with a lot of momentum, and we expect another solid year of business performance,” Mr. Ellen said. “We’re expecting net sales growth before currency translation of about 5.5%, with 3% of this growth coming from our acquisition of Bai… Our expectation is for flat volume in our C.S.D. portfolio, which we believe will be better than the overall category and for mid-single-digit growth in our non-carb portfolio.”
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