“With all the moving pieces, we still need more color on many variables to get comfort that management guidance isn’t overly optimistic for FY08,” wrote Morgan Stanley Research Analyst Bill Pecoriello.
Pecoriello tentatively rated the company to increase its revenue per case by 2 percent for the year, but “we have a lot more questions that need to be answered.”
Amid those concerns, the company offered a less-than-stellar inaugural first quarter report. Bottler case sales fell 3 percent, with CSDs falling 2 percent and non carbonated drinks down 8 percent – or 4 percent, excluding the loss of glaceau, which it distributed before the product was brought into the Coke system.
In CSDs, Dr Pepper declined by 2 percent, while 7UP, Sunkist, A&W and Canada Dry collectively declined by 5 percent – though the company blamed that, in part, on inflated Q1 2007 7UP sales fueled by heavy promotional activity at the time.
In non-carbonated drinks, Snapple’s volume rose 3 percent and Mott’s increased its volume by 6 percent, but Hawaiian Punch declined by double digits.
Despite those volume losses, the company’s revenue grew by 3 percent, which was bolstered by acquisitions, but hurt by the loss of glaceau.
Pecoriello predicted that DPSG would lose 2 percent of its CSD volume over the entire year, and gain 1 percent of non-carbonated volume, but listed risks that could hurt the recently-spun-off company’s outlook. The risks included commodity pressure from fueled by high corn, metal and oil prices, the inability to increase prices due to competition and the CSD market’s general softness.
UBS Bank Analyst Kaumil Gajrawala expressed similar caution.
“While 1Q results met our expectations,” he wrote, “we believe it is still too early to assign a probability of success.”