Dr Pepper Snapple Group, Inc (DPS)

DPS 
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Dr Pepper Snapple Group (DPS)

Q3 2012 Earnings Call

October 24, 2012 11:00 am ET

Executives

Carolyn Ross - Vice President of Investor Relations

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

Martin M. Ellen - Chief Financial Officer and Executive Vice President

Analysts

John A. Faucher - JP Morgan Chase & Co, Research Division

Judy E. Hong - Goldman Sachs Group Inc., Research Division

Bryan D. Spillane - BofA Merrill Lynch, Research Division

Stephen Powers - Sanford C. Bernstein & Co., LLC., Research Division

William Schmitz - Deutsche Bank AG, Research Division

Kevin M. Grundy - Morgan Stanley, Research Division

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

Damian Witkowski - Gabelli & Company, Inc.

Caroline S. Levy - Credit Agricole Securities (USA) Inc., Research Division

Presentation

Operator

Good morning, and welcome to Dr Pepper Snapple Group's Third Quarter 2012 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. [Operator Instructions] It is now my pleasure to introduce Carolyn Ross, Vice President, Investor Relations. Carolyn, you may begin.

Carolyn Ross

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 this 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 D. Young

Thanks, Carolyn, and good morning, everyone. I'll start this morning by saying that we continue to operate in an unpredictable and uncertain macro environment. Consumers' wallets continue to be strained, making them more cautious as we move closer to the upcoming presidential election. In this environment, providing value to our consumers, retailers and bottling partners while ensuring that we drive profitable volume remains key to our strategy.

During the quarter, we continued to execute disciplined pricing in the marketplace, and we invested in our well-loved brands to ensure long-term, sustainable brand health. And once again, Rapid Continuous Improvement produced tangible financial results, including improved cash flow, which we will return to our shareholders.

For the quarter, bottler case sales declined 3% on 4 percentage points of price and mix. CSD volumes declined 2% in the quarter. Dr Pepper decreased 1%, as declines on our base business were only partially offset by growth from both Dr Pepper TEN and our fountain business. Our Core 5 brands declined 6% for the quarter, as we made conscious decisions not to repeat some aggressive pricing on specific packages in certain channels from the prior year.

Hawaiian Punch declined 14% in the quarter, as one of our largest retailers did not pass through our July 2011 price increase to consumers until just after Labor Day in 2011. Snapple grew 4% for the quarter, as our targeted local market expansion strategy continues to ensure that Snapple is enjoyed by consumers across the country. Diet Half 'n Half Lemonade Iced Tea continues to gain distribution and has quickly become one of the top 4 selling SKUs in our Snapple lineup. And the initial results from our partnership with America's Got Talent are very encouraging.

Mott's declined 10% in the quarter with juice down 12%, as we again made a deliberate decision not to repeat a hot promotion at a large retailer. Our sauce business declined 6% on price increases we took this quarter to help offset the increased cost of apples resulting from the spring freeze in the Northeast.

Year-to-date, bottler case sales declined 1% on 4 percentage points of price and mix. Our flagship Dr Pepper grew 1% on growth from Dr Pepper TEN and our fountain business. Our Core 5 brands decreased 1%. And in line with our expectations, both Hawaiian Punch and Mott's posted volume declines of 19% and 10%, respectively, due to the significant pricing actions we took in mid-2011. Our Snapple business increased 3% year-to-date.

Moving on to our financial results. Our volume results clearly demonstrate our commitment to disciplined pricing, and I'm happy to say we're seeing positive benefits from our actions on the bottom line. On a currency neutral basis, our net sales were flat for the quarter, as 4 percentage points of price/mix were offset by volume declines and unfavorable segment mix, specifically the net sales per case difference between our packaged beverage business and our concentrate business.

Segment operating profit increased 4% in the quarter with the benefits of price and mix and RCI productivity improvements partially offset by lower volumes and higher marketing investment of $9 million. Reported earnings per share were $0.84 for the quarter versus $0.71 in the prior year. Core earnings per share, which excludes commodity-related gains and losses, were $0.79 for the quarter versus $0.74 in the prior year.

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