Dr Pepper Snapple Group, Inc (DPS)

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Dr. Pepper Snapple Group, Inc. (DPS)

Q1 2009 Earnings Call

May 13, 2009 11:00 am ET


Aly Noormohamed – Senior Vice President Finance and Investor Relations

Larry D. Young – President and Chief Executive Officer

John O. Stewart – Chief Financial Officer


Bill Pecoriello - Consumer Edge Research

Judy Hong - Goldman Sachs & Company, Inc.

[Bill Leach – TIAA CREF]

Damian Witkowski - Gabelli & Company

Andrew Kieley - Deutsche Bank Securities

Mark Swartzberg - Stifel Nicolaus & Company, Inc.

John Faucher - J.P. Morgan



Good morning and welcome to Dr. Pepper Snapple Group’s first quarter 2009 earnings conference call. (Operator Instructions) Today’s call is being recorded and includes a slide presentation which can be accessed at www.drpeppersnapple.com. The call and slides will also be available for replay and download after the call has ended.

It is now my pleasure to introduce Mr. Aly Noormohamed, Senior Vice President Finance and Investor Relations. Sir you may begin.

Aly Noormohamed

Thank you [Brandy] and good morning everyone. Before we begin I would like to direct your attention to the Safe Harbor statement and remind you that this conference call contains forward-looking statements including statements concerning our future financial and operational performance. These forward-looking statements should also be considered in connection with cautionary statements and disclaimers contained in the Safe Harbor statement in this morning’s earnings press release and our SEC filings. Our actual performance could differ materially from these statements and we undertake no duty to update these forward-looking statements.

During this call we may reference certain non-GAAP financial measures which we believe provide useful information for investors. Reconciliations of those non-GAAP measures to GAAP can be found in our earnings press release and on the Investor Relations page at www.drpeppersnapple.com.

This morning’s prepared remarks will be made by Larry Young, Dr. Pepper Snapple’s President and CEO and John Stewart, our CFO. Following our prepared remarks we will open the call for your questions.

With that let me turn the call over to Larry.

Larry D. Young

Thanks Aly and good morning everyone. As I’m sure you saw in our earnings press release this morning, the positive momentum we witnessed in the first two months of the year continued and in fact accelerated in March. CSDs and value juice performed extremely well in a pricing environment that remains rational. At the same time we’ve seen sequential improvement in North American LRBs and a positive shift in consumer and market sentiment.

With ever increasing consumer demands, a strong aligned and flexible route to market is paramount. Regardless of the structure it requires relentless focus to insure that all participants contribute to and share equally in a growing profit pool. We believe the model we have built at DPS combined with winning bottler, customer and supplier relationships provides us necessary strength and flexibility. DPS remains committed to executing its focused strategy in making sure we’re the best we can be.

Before I walk you through the results for the quarter, let me take a moment to tell you how pleased I am with our new segment reporting. I think it provides clarity and transparency, and over time will allow us to share and then report on the segment specific metrics that drive our business. For the quarter and on a comparable currency neutral basis that excludes the impact of Monster and 2008 restructuring items, our business grew volumes 5%, net sales 4% and delivered $0.37 per share in earnings. In addition to solid performance in our Dr. Pepper and Core 4 business which was up low single digits, expanded distribution of Crush across the U.S. contributed three points of growth. This business has more than tripled in size and we’re thrilled to report that Crush has become the number two orange CSD behind Sunkist. We’re also pleased to see continued improvement in 7UP trends which were up 3% in the quarter. In fountain our business was up 2% with regular and diet Dr. Pepper both growing.

Our non-carbs were fueled by strong growth of Hawaiian Punch which benefited from strong consumer demand for value, ongoing promotional activities and a favorable comparison to prior year, which was down 15%. Premium beverages declines, they were accelerated in the quarter as consumers continued their migration to value.

In Mexico new flavors, 2.3 liter P&T and value pricing more than doubled Crush volume. Squirt grew 2%. Solid CSD growth was offset by a double digit decline in Aquafiel, which despite continued pricing pressures posted sequential improvements in its trims.

Better than expected 2 liter CSD and Hawaiian Punch activity in March helped offset the impact of Easter shift. In fact, DPS LRBs in the eight week Nielsen period ending April 18 grew six points faster than the overall category.

Sales volume growth exceeded our BCS growth by about a point as third party bottlers built an estimated 6 million cases of Crush inventory.

Moving on to net sales, we once again demonstrated our ability to take pricing despite a challenging macroeconomic backdrop. CSD concentrates, 12 pack cans, Snapple Premium and Motts all experienced low to high single digit price increases. However, with a significant shift in product mix towards lower revenue per case items, net sales grew at a slower pace to volumes.

Segment operating profit benefited from higher net sales as well as lower packaging, ingredient and field costs. Strong volume growth led to significant fixed cost leverage with operating equipment effectiveness up five points in the quarter. Strong cost control discipline offset higher marketing investments and the cost of new routes added in Mexico. Foreign currency headwinds reduced net sales by almost 3% and segment profit by 5%.

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