Dr Pepper Snapple Group, Inc (DPS)

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Dr Pepper Snapple Group (DPS)

Q4 2010 Earnings Call

February 17, 2011 11:00 am ET

Executives

Aly Noormohamed - Senior Vice President of Investor Relations

Martin Ellen - Chief Financial Officer

Larry Young - Chief Executive Officer, President, Director, Member of Special Award Committee and Member of Capital Transaction Committee

Analysts

Judy Hong - Goldman Sachs Group Inc.

John Faucher - JP Morgan Chase & Co

Mark Swartzberg - Stifel, Nicolaus & Co., Inc.

Christine Farkas - BofA Merrill Lynch

Bill Leach - Neuberger Berman

Damian Witkowski - Gabelli & Company, Inc.

Andrew Kieley - Deutsche Bank AG

Caroline Levy - Credit Agricole Securities (USA) Inc.

Stephen Powers

Presentation

Operator

Good morning, and welcome to Dr Pepper Snapple Group's Fourth Quarter 2010 Earnings Conference Call. [Operator Instructions] It is now my pleasure to introduce Mr. Aly Noormohamed, Senior Vice President, Finance. Sir, you may begin.

Aly Noormohamed

Thank you, Jackie, 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 the call, we may reference certain non-GAAP financial measures that reflect the way we evaluate the business, and 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 Group's President and CEO; and Marty Ellen, 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 Young

Thanks, Aly, and good morning, everyone. Before I share our goals and priorities for 2011, it's probably worth spending a few minutes recapping our 2010 achievements, as well as my views on the overall health of the economy and the consumer.

2010 marked the third and final year of our key foundational investments. We built efficient hub-and-spoke supply chain model, culminating the opening of our Victorville, California regional center. This plant added much-needed juice capacity in the West, which has enabled us to serve accounts faster and compete more effectively. We also made significant information technology upgrades, enabling better business decisions, and did it without any business interruption.

We standardized handhelds and SAP across our DSD business and earlier this month, we went live with our warehouse direct SAP upgrade. We're also making great progress in Mexico. I'm also thrilled with the capabilities we've added in revenue margin management, marketing return on investment and under Marty's leadership, Rapid Continuous Improvement.

RCI has gained momentum across the organization, and I'm seeing visible engagement by the teams. To share one recent RCI example, our Aspers plant recently reduced package change-over time on the Hawaiian Punch line from 87 minutes to 24 minutes, a 72% reduction. This gives the plant more flexibility to meet customer demand, enabling it to reduce inventory and inventory handling and storage costs.

And finally, through new agreements with Coke and Pepsi, not only have we secured the distribution of Dr Pepper, Crush, Canada Dry and Schweppes but by the end of 2011, we will have repatriated approximately 25 million cases annually to our company-owned DSD business. This gives us critical scale in key markets and gives us the opportunity to grow some of these brands nationally.

While we continue to operate in a challenging macroeconomic environment, the positive trends I shared with you last quarter had continued. We're seeing sequential improvements in restaurant traffic, immediate consumption and consumer discretionary spending. In the fourth quarter, BCS volume grew 1%, lapping 4% growth in the prior year, with our key trademarks posting solid gains.

Dr Pepper grew 3%. Our Core 4 plus Crush grew 1%, Hawaiian Punch was up 3% and Snapple was up 4%. Mott's declined 6%, however, this was on the heels of 23% growth in the prior year.

For the full year, BCS volume grew 2%, also lapping 4% growth in the prior year. Trademark Dr Pepper grew volume 3%, lapping 2% growth in the prior year. The successful restage of Snapple continues to demonstrate our team's ability to both fix and profitably grow brands we inherited from our former parent.

AC distribution of our six-pack reached 86% in grocery, with 22 markets now over 90%. Share grew 240 basis points and profit per case is up double digits. And just as important, both consumers and retailers tell us they love the changes.

2010 also highlighted our ability to gain solid traction against our long-term growth priorities, namely: Build the brands, grow per caps and RCI. In both grocery and convenience, we increased the availability of our core SKUs of our key brands. That momentum continued as we reached 100% distribution of regular Dr Pepper in McDonald's and installed 43,000 incremental valves, lapping 51,000 stalls in 2009.

We also made significant progress against our cold drink expansion strategy, with 31,000 net new placements despite an unprecedented level of business closings. Our brand investments are paying off with brand equity scores of 320 basis points, lapping strong gains in 2009.

Increased distribution and availability, stepped up consumer communications and continued share gains have resulted in healthy per capita consumption increases, ranging from 0.2 servings to 1.4 servings across our key trademarks. Clearly, the investments we've made over the last three years are paying off.

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