Thursday, February 25, 2010

Dr Pepper Snapple -- Wealth Creation Conundrum

Dr Pepper Snapple (DPS) reported better results. They also announced that the $900 million windfall from the licensing of certain products to Pepsi will essentially be used to buy back shares. DPS President and CEO Larry Young did say “While we have made a lot of progress, we still have opportunities to optimize our supply chain, standardize our IT platforms and get our products in more consumers’ hands every day. “

What the CEO is saying is that they have to spend a lot of money on infrastructure which is currently not working. What is the price tag? This will be an enormous financial engineering project as shares are repurchased, squeezing EPS upwards while serious infrastructure spending occurs.

On paper this looks good to some. But is this really wealth creation?