Dr Pepper Snapple Reports 3% Decline in Sales Volume

In CSDs, Dr Pepper volume increased 3%. The "Core 4" brands – 7UP, Sunkist soda, A&W and Canada Dry – were down 2%. Canada Dry grew double digits while 7UP and A&W declined low single digits and Sunkist soda declined double digits.

7 May 2010 --- Dr Pepper Snapple Group, Inc. has reported first quarter 2010 diluted earnings of $0.35 per share compared to $0.52 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 in the prior year, the company earned $0.40 per share compared to $0.37 in the prior year period.

For the quarter, bottler case sales (BCS) volume increased 3% reflecting solid growth across the portfolio.  Third-party bottler concentrate buy-in toward the end of 2009, a decline in contract manufacturing and unfavorable comparisons related to the successful Crush launch and related pipeline fill in 2009 resulted in a 3% decline in sales volume.  Reported net sales were down 1%.  Segment operating profit (SOP) was flat reflecting lower packaging and ingredient costs offset by higher marketplace and productivity office investments as well as costs associated with the startup of the Victorville, Calif., facility.  Foreign currency added one percentage point of growth to net sales and SOP.  Reported income from operations was $187 million compared to $265 million in the prior year period.

DPS President and CEO Larry Young said, "Despite the carryover of weak consumer trends, an abnormally wet and cold January and February and our toughest quarter of the year, our portfolio demonstrated resilience with BCS up 3%.  In the quarter, we completed our licensing agreements with PepsiCo, achieved our target capital structure, opened our new West Coast facility and commenced our share repurchase program.  While the U.S. economy remains fragile, we are starting to see improvements in underlying consumer trends including the critical immediate consumption and fountain foodservice channels.  This improvement combined with winning innovation, continued white space and cold drink expansion opportunities and ongoing investments in brand health gives me confidence in our full year outlook and the long-term growth prospects for this business.  We remain focused on completing key infrastructure investments in 2010 and capitalizing on continuous improvement opportunities."

For the quarter, BCS volume increased 3% with carbonated soft drinks (CSDs) growing 2% and non-carbonated beverages (NCBs) up 6%.

In CSDs, Dr Pepper volume increased 3%.  The "Core 4" brands – 7UP, Sunkist soda, A&W and Canada Dry – were down 2%.  Canada Dry grew double digits while 7UP and A&W declined low single digits and Sunkist soda declined double digits.  Penafiel declined 10% on lower third-party distributor sales.  Squirt grew 8% and Crush grew 22% on expanded distribution and strong innovation.  Fountain foodservice volume increased 2%.

In NCBs, Snapple grew 17% on strong growth in premium and value teas.  Mott's volume grew 14% reflecting expanded distribution and continued strong brand support.  Hawaiian Punch grew 7% while third-party brands such as AriZona and Fiji declined double digits.

By geography, volume increased 2% in the U.S. and Canada and 8% in Mexico and the Caribbean.

Across all measured channels through April, the company grew U.S. CSD dollar share 0.6 percentage points and flavored CSD dollar share 0.9 percentage points.

For the quarter, sales volume decreased 3% reflecting third-party bottler concentrate buy-in toward the end of 2009, a decline in contract manufacturing and unfavorable comparisons related to the successful Crush launch and related pipeline fill in first quarter 2009.

Net sales for the quarter decreased 2% as low single-digit concentrate price increases and revenue recognized from the PepsiCo, Inc. (PepsiCo) licensing agreements were more than offset by sales volume declines of 4%. Segment operating profit decreased 4% driven by the decline in net sales and higher marketplace and productivity office investments.

Net sales for the quarter decreased 2% principally reflecting a decline in contract manufacturing.  Volume growth in Snapple, Mott's and Hawaiian Punch was offset by mid single-digit declines in CSDs.  Segment operating profit increased 6% due to lower packaging and ingredient costs and the benefits from ongoing productivity initiatives, partially offset by the startup of the Victorville facility and other operating costs.

Net sales for the quarter decreased 1%.  Strong volume growth was more than offset by the negative impact of product and channel mix and higher marketplace spending.  Segment operating profit declined 30% reflecting the lower sales, increased distribution costs related to company-owned route expansion and higher IT infrastructure upgrade investments.

For the quarter, corporate costs totaled $77 million compared to $63 million in the prior year period. Transaction and other costs related to the PepsiCo licensing agreements added $8 million and stock-based compensation expenses increased $3 million. 

For the quarter, total productivity office investments were $9 million.

Net interest expense decreased $21 million reflecting lower net debt and lower interest rates.

For the quarter, the effective tax rate was 43.3% including a $13 million separation-related foreign deferred tax charge.  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.