Dr Pepper Snapple Group Reports Third Quarter 2010 Results

DPS President and CEO Larry Young said, "Our portfolio of CSDs and value juices continued to post solid volume and share gains, further demonstrating their value to consumers.

Oct 28 2010 --- Dr Pepper Snapple Group, Inc. reported third quarter 2010 diluted earnings of $0.60 per share, including $0.04 of strike-related costs, compared to $0.59 per share in the prior year period. Diluted earnings per share were $0.60 compared to $0.54 in the prior year excluding separation-related tax items.  Year-to-date, the company reported earnings of $1.68 per diluted share compared to $1.73 per share in the prior year period.  Excluding a separation-related foreign deferred tax charge in the current year and a net gain on certain distribution agreement changes and separation-related tax items in the prior year, the company earned $1.73 per diluted share, an increase of 13%, compared to $1.53 in the prior year-to-date period.

For the quarter, sales volume increased 1%.  Branded sales volume grew 3% and was partially offset by a 32% decline in contract manufacturing as the company continued to de-emphasize this business.  Net sales increased 2% reflecting sales volume growth and revenue recognized under the PepsiCo, Inc. (PepsiCo) licensing agreements.  Concentrate pricing taken earlier in the year was more than offset by increased promotional trade spending and the continued impact of negative product mix on sales.  Segment operating profit (SOP) decreased 6% as net sales growth and supply chain productivity benefits were more than offset by higher packaging, ingredient and transportation costs, incremental costs of $15 million to meet customer demand during a strike at a Northeast manufacturing facility and higher marketplace investments. Reported income from operations for the quarter was $260 million compared to $272 million in the prior year period and $757 million year-to-date compared to $834 million in the prior year period.

DPS President and CEO Larry Young said, "Our portfolio of CSDs and value juices continued to post solid volume and share gains, further demonstrating their value to consumers.  During the quarter, we saw continued strong growth in Snapple, we launched a refreshed crisp, clean 7UP, kicked off a number of important Rapid Continuous Improvement (RCI) initiatives that we believe will further strengthen our integrated operating platform and, on Oct. 4, 2010, completed the licensing of certain brands to The Coca-Cola Company.  We also successfully concluded labor negotiations at our Williamson, N.Y., manufacturing facility making its long term cost structure more competitive.  With improving LRB trends in the U.S., we remain focused on delivering on our commitments for 2010, while building solid plans for 2011 and beyond."

BCS Volume

For the quarter, BCS volume increased 2% with carbonated soft drinks (CSDs) growing 1% and non-carbonated beverages (NCBs) up 5%.  Year-to-date, BCS volume increased 3%, with CSDs growing 2% and NCBs up 4%.

In CSDs, Dr Pepper volume increased 2%.  "Core 4" brands – 7UP, Sunkist soda, A&W and Canada Dry – declined 1%.  Canada Dry and Crush grew double digits and A&W grew low-single digits while 7UP and Sunkist soda declined mid-single digits.  Fountain foodservice volume increased 5%.

In NCBs, Hawaiian Punch volume grew 7%, Snapple grew 10% and Mott's grew 3%.

By geography, volume increased 3% in the U.S. and 2% in Canada while volume declined 3% in Mexico and the Caribbean.

Across all measured channels year-to-date, the company grew U.S. CSD dollar share and flavored CSD dollar share by 0.4 percentage points.

Sales volume

For the quarter, sales volume increased 1%.  Branded sales volume grew 3% while contract manufacturing declined 32%, as the company continued to de-emphasize this business.  Year-to-date sales volume was flat.  Branded sales volume grew 2% while contract manufacturing declined 28%.

Beverage Concentrates

Net sales for the quarter increased 7% reflecting 3% sales volume growth and revenue recognized from the PepsiCo licensing agreements.  Low-single digit concentrate price increases taken at the beginning of the year were fully offset by increased marketplace spending.  Segment operating profit increased 14% reflecting net sales growth as well as continued positive cost performance.

Packaged Beverages

Net sales for the quarter were up slightly.  Low-single digit volume growth in CSDs and Mott's and double-digit volume growth in Snapple and Hawaiian Punch were fully offset by lower contract manufacturing activity, higher levels of promotional trade spending and the continued impact of negative product mix.  Segment operating profit decreased 21% as net sales growth and ongoing supply chain productivity benefits were more than offset by higher packaging, ingredient and transportation costs, incremental costs of $15 million incurred to meet customer demand during a strike at a Northeast manufacturing facility and higher marketing investments. 

Latin America Beverages

Net sales for the quarter decreased 3% as sales volume growth was more than offset by increased promotional trade spending. Segment operating profit declined 67% reflecting lower net sales, higher marketing investments and increased costs related to company-owned route expansion and IT infrastructure upgrades.

Corporate and other items

For the quarter, corporate costs totaled $63 million including $4 million of unrealized commodity-related mark-to-market gains. Corporate costs in 2009 were $65 million, including $3 million of unrealized commodity-related mark-to-market gains.

For the quarter, productivity office investments recorded in the segments as well as corporate were $7 million. 

Net interest expense decreased $19 million during the quarter reflecting lower net debt and lower interest rates.

For the quarter, the effective tax rate was 37.7%.  The tax rate also included a $3 million tax expense related to certain tax items indemnified by Kraft Foods Inc. and/or one of its subsidiaries (Kraft) as well as ongoing tax planning benefits.