Dr. Pepper Swings to Q4 Profit

The licensing of certain brands to PepsiCo, Inc. following PepsiCo's acquisitions of The Pepsi Bottling Group, Inc. (PBG) and PepsiAmericas, Inc. (PAS) is expected to be completed by the end of February.

26 Feb 2010 --- Dr. Pepper Snapple Group, Inc. has reported fourth quarter 2009 diluted earnings of $0.44 per share compared to a reported loss of $2.44 per share in the prior year period.  The prior year period included non-cash impairment charges, separation-related costs and restructuring items totaling $2.83 per share.

For the quarter, reported net sales were down 1%.  Net sales were flat on a currency neutral basis and excluding the loss of Hansen product distribution. Concentrate pricing taken earlier in the year combined with 4% sales volume growth were offset by the loss of certain contract manufacturing and negative mix from higher sales of carbonated soft drink (CSD) concentrates and value juices.  Segment operating profit (SOP), as adjusted, increased 6% reflecting lower packaging, ingredient and transportation costs partially offset by increased marketplace investments.  Reported income from operations was $251 million compared to a loss of $836 million in the prior year period.

For the year, reported net sales were down 3%. Net sales were up 2% on a currency neutral basis and excluding the loss of Hansen product distribution. The company reported diluted earnings per share of $2.17 compared to a loss of $1.23 per share in the prior year period.  Excluding certain items, the company earned $1.97 per share compared to $1.85 per share in the prior year.  The company generated $865 million of cash from operating activities and repaid $550 million of debt.

The licensing of certain brands to PepsiCo, Inc. following PepsiCo's acquisitions of The Pepsi Bottling Group, Inc. (PBG) and PepsiAmericas, Inc. (PAS) is expected to be completed by the end of February.  As part of the transaction, the company will receive a one-time cash payment of $900 million before taxes and other related fees and expenses.

The company expects to use a portion of the proceeds to reduce its total debt obligations to $2.55 billion, in-line with its target capital structure of approximately 2.25 times total debt to EBITDA after certain adjustments. 

Additionally, the Board of Directors authorized the repurchase of an additional $800 million of the company’s outstanding common stock, bringing the total share repurchase authorization to $1 billion.

DPS President and CEO Larry Young said, “Despite tough economic conditions, I’m extremely proud of our accomplishments in our first full year as a stand-alone company.  A lot has changed, and continues to change, since we went public in May 2008.  We remain committed to executing against the same focused strategy.  We’re investing heavily in our brands, our infrastructure and our people to realize the full potential of this business.  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.  This commitment to invest behind our brands will ensure our portfolio of leading flavored CSDs, juice and juice drinks, premium teas and mixers is well positioned to exploit the significant opportunities we see over the coming years.”

Young continued, “The licensing agreements with PepsiCo mark a key milestone in the DPS journey and we’re excited about growing our great brands together.”

The company expects full year net sales to increase 3% to 5% and diluted earnings per share to be in the $2.27 to $2.35 range.

Partial-year benefits related to the pending licensing agreements with PepsiCo, Inc. are expected to be partially offset by planned losses related to exiting certain contract manufacturing agreements and unfavorable comparisons related to concentrate purchases in fourth quarter 2009.

Packaging and ingredient costs are expected to increase COGS between 1% and 2%. 

The company expects the all-in interest rate on its total average debt obligations to be approximately 5% and its tax rate to be approximately 38%, including approximately $15 million of items indemnified by Kraft.

The company also expects net capital spending to be approximately 5% of net sales.