Peltz Pressures Dr Pepper

Nelson Peltz, the activist investor whose hectoring of management often leads to big changes, nearly tripled his stake in Dr Pepper Snapple last week, and the hectoring commenced: Dr Pepper, he said, needs to sell off its bottling division and concentrate on its brands.

That's what Coca-Cola and PepsiCo do: manage their brand marketing and sell concentrate for others to bottle and sell to retailers. Bottling is a low-margin business, and in Dr Pepper's case, it's dragging down earnings, says Peltz, who now owns about 7.2 percent of the company.

In a filing with the Securities and Exchange Commission, Peltz's Trian Fund Management noted that since Cadbury spun Dr Pepper off in May (a move that itself was forced by Peltz), its return to investors has sunk by about 40 percent, compared with a drop of about 15 percent for the beverage sector as a whole.

According to the filing, Trian recently "shared" with management a number of concerns. Investors, Trian believes, see Dr Pepper "as more of a beverage bottler than a branded beverage company." And the bottling division "contributed less than 5 percent to underlying operating profit" over the past year.

Dr Pepper hasn't commented, though executives last month extolled the virtues of the bottling division. Sales of its soda brands are flat at best, and sales of Snapple are down by 10 percent in its most current quarter. Its answer to this, also revealed last week, is to reconfigure its branding of Snapple drinks as wholesome and healthy. They now contain real sugar instead of high fructose corn syrup, for example.

More dramatic moves, such as that suggested by Peltz, would seem to be in order. Given that CEO Larry Young last week indicated that Dr Pepper won't be buying or selling any brands any time soon, there don't seem to be many other options.