October 24, 2012

Dr Pepper Snapple Group Reports Third Quarter 2012 Results

Net sales were flat for the quarter.

Reported EPS were $0.84. Core EPS were $0.79.

Year-to-date, the company repurchased $262 million of its common stock and expects to repurchase approximately $400 million for the year.

Company reaffirms full year 2012 Core EPS in the $2.90 to $2.98 range.

PLANO, Texas--(BUSINESS WIRE)-- Dr Pepper Snapple Group, Inc. (NYSE: DPS) reported third quarter 2012 EPS of $0.84 compared to $0.71 in the prior year period. Excluding $18 million of unrealized commodity mark-to-market gains in the current year and $11 million of unrealized commodity mark-to-market losses in the prior year period, Core EPS were $0.79 compared to $0.74 in the prior year. Year-to-date, the company reported earnings of $2.15 per diluted share compared to $1.97 per diluted share in the prior year period. Excluding certain items affecting comparability and an unrealized commodity mark-to-market gain in the current year and a $16 million unrealized commodity mark-to-market loss in the prior year period, Core EPS were $2.10 compared to $2.02 in the prior year period.

For the quarter, reported net sales were flat. Shipment volumes were down 3%. Product and package price/mix was up 4%, while volume mix shift across the segments lowered net sales by 1%. Reported segment operating profit (SOP) increased 3%, or $10 million, as the contributions from favorable price/mix were partially offset by lower volumes and a $9 million increase in marketing investments. Foreign currency reduced net sales by less than 1% in the quarter and lowered SOP by 1 percentage point. Reported income from operations for the quarter was $308 million, including $18 million of unrealized commodity mark-to-market gains. Reported income from operations was $261 million in the prior year period, including $11 million of unrealized commodity mark-to-market losses.

Year-to-date, reported net sales increased 2%. Reported income from operations was $800 million, including $18 million of unrealized commodity mark-to-market gains compared to $753 million in the prior year period, including $16 million of unrealized commodity mark-to-market losses. Reported net income was $459 million compared to $440 million in the prior year period.

DPS President and CEO Larry Young said, "We continue to operate in an uncertain economic and cautious consumer environment. I am proud of the team's commitment to execute our focused strategy of driving profitable volume through disciplined pricing and continued investment in our brands to drive relevance and awareness with our consumers. Rapid continuous improvement (RCI) is gaining momentum across the organization and is delivering improvements in operating profitability and cash flow, resulting in returns for our shareholders."

   
EPS reconciliation Third Quarter Year-to-Date
    2012       2011   Percent

Change

    2012       2011   Percent

Change

Reported EPS $ 0.84   $ 0.71   18 $ 2.15   $ 1.97   9
 
Unrealized commodity mark-to-market net (gain)/loss (0.05 ) 0.03 (0.05 ) 0.05
 
Items affecting comparability

- Foreign deferred tax benefit

- - (0.02 ) -

- Depreciation adjustment on capital lease

- - 0.02 -

 

------ ------ ------ ------ ------ ------

Core EPS

  $ 0.79     $ 0.74   7   $ 2.10     $ 2.02   4

EPS — earnings per share

 

Net sales and SOP in the tables and commentary below are presented on a currency neutral basis. For a reconciliation of non-GAAP to GAAP measures see pages A-5 through A-9 accompanying this release.

   
Summary of 2012 results

(Percent change)

As Reported Currency Neutral
  Third

Quarter

  YTD   Third

Quarter

  YTD
BCS Volume   (3 )   (1 )   (3 )   (1 )
Sales Volume   (3 )   (2 )   (3 )   (2 )
Net Sales   -     2     -     2  
SOP   3     1     4     2  

BCS - bottler case sales

 

BCS Volume

For the quarter, BCS volume declined 3% with carbonated soft drinks (CSDs) declining 2% and non-carbonated beverages (NCBs) declining 5%.

In CSDs, Dr Pepper volume decreased 1% driven primarily by declines in the base business, partially offset by growth of Dr Pepper TEN and continued fountain availabilities. Our Core 5 brands declined 6% on higher retail pricing and lower promotional activity. 7UP and Sunkist soda both experienced a high-single digit decline, while A&W experienced a mid-single digit decline and Sun Drop experienced a double-digit decline. These declines were partially offset by a mid-single digit increase in Canada Dry, which was cycling a double-digit increase in the prior year period. Fountain foodservice volume grew 2%, cycling 4% volume growth in the prior year.

In NCBs, Hawaiian Punch volume declined 14% on retail price increases and Mott's volume declined 10% due to lower promotional activity. These declines were partially offset by a 4% increase in Snapple.

By geography, U.S. and Canada volume declined 3% and Mexico and the Caribbean volume increased 1%.

Sales volume

For the quarter, sales volume decreased 3%. Branded volume declined 3%, while contract manufacturing volume decreased by 6%.

 
2012 Segment results (Percent Change) As Reported
Third Quarter   Year-to-Date
 

Sales
Volume

 

Net
Sales

 

SOP

 

Sales
Volume

 

Net
Sales

 

SOP

Beverage Concentrates   (2 )   4     1   (2 )   2     (3 )
Packaged Beverages   (6 )   (1 )   3   (2 )   2     4  
Latin America Beverages   1     -     40   1     (4 )   9  
Total (3 )   -   3 (2 )   2   1
 
 
2012 Segment results (Percent Change) Currency Neutral
Third Quarter   Year-to-Date
 

Sales
Volume

 

Net
Sales

 

SOP

 

Sales
Volume

 

Net
Sales

 

SOP

Beverage Concentrates   (2 )   4     1   (2 )   3   (2 )
Packaged Beverages   (6 )   (1 )   4   (2 )   2   5  
Latin America Beverages   1     7     133   1     4   54  
Total (3 )   -   4 (2 )   2   2
 

Beverage Concentrates

Net sales for the quarter increased 4% as concentrate price increases taken earlier in the year, lower discounts and favorable mix were partially offset by a 2% volume decline. SOP increased 1% as the benefits of net sales growth were partially offset by increased marketing investments of $7 million and higher ingredient costs.

Packaged Beverages

Net sales for the quarter decreased 1% as a 6% volume decline was partially offset by favorable mix, price increases and lower discounts. SOP increased 4% as the benefits of price increases, favorable mix and ongoing RCI productivity improvements were partially offset by lower sales volumes, certain increases in labor and benefits costs, a higher LIFO charge of $4 million primarily associated with the increased cost of apples and increased marketing expense of $3 million.

Latin America Beverages

Net sales for the quarter increased 7% reflecting favorable product mix, higher pricing and a 1% increase in sales volumes. SOP increased 133% reflecting net sales growth and favorable operating leverage from ongoing RCI productivity improvements.

Corporate and other items

For the quarter, corporate costs totaled $47 million, including $18 million of unrealized commodity mark-to-market gains. Corporate costs in the prior year period were $82 million, including an $11 million unrealized commodity mark-to-market loss.

Net interest expense increased $2 million compared to the prior year, as the company refinanced low floating rate debt in November 2011.

For the quarter, the effective tax rate was 36.3% compared to 34.7% in the prior year period, which included a $5 million benefit related to the PepsiCo, Inc. (PepsiCo) and The Coca-Cola Company (Coca-Cola) transactions.

Cash flow

Year-to-date, the company generated $264 million of cash from operating activities, including tax payments of $531 million related to the PepsiCo and Coca-Cola licensing agreements. Capital spending totaled $143 million compared to $148 million in the prior year period. The company returned $475 million to shareholders in the form of stock repurchases ($262 million) and dividends ($213 million).

2012 full year guidance

The company now expects full year reported net sales growth to be approximately 2% and Core EPS to be in the $2.90 to $2.98 range.


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