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For the quarter, reported net sales were down 4%. Net sales increased 2% on a currency neutral basis and excluding the loss of Hansen product distribution. Pricing actions taken earlier in the year combined with 4% sales volume growth were offset by negative mix from higher sales of carbonated soft drink (CSD) concentrate and value juice. Segment operating profit, as adjusted, increased 31% reflecting lower packaging, ingredient and transportation costs, operating efficiencies, and favorable comparisons to discounts and inventory adjustments in the prior year period. Reported income from operations was $272 million compared to $213 million in the prior year period.
DPS President and CEO Larry Young said, "While the economy is showing some signs of recovery, it's still too early to see this translate into higher beverage sales. For the quarter, liquid refreshment beverage trends remained negative. Against this backdrop, we once again demonstrated the power of our portfolio and the flexibility of our routes to market, posting solid top-line and strong bottom-line growth. A year and a half into our life as a public company, we're proud of what we have accomplished so far. Our priorities and strategies remain unchanged and continue to support long-term sustainable growth."
Earnings per share Third Quarter Year-to-Date
reconciliation ------------- ------------
Percent Percent
2009 2008 Change 2009 2008 Change
--------------------- ---- ---- ------ ---- ---- ------
Reported earnings per
share $0.59 $0.41 44 $1.73 $1.21 43
Items affecting
comparability
- Net gain on
Hansen termination
and sale of certain
distribution rights - - (0.15) -
- Transaction and
separation costs - 0.02 - 0.07
- Bridge loan
fees and expenses - - - 0.06
- Separation-related
tax items (0.05) - (0.05) 0.04
- Restructuring costs - 0.03 - 0.07
EPS excluding certain ----- ----- --- ----- ----- ---
items $0.54 $0.45* 20 $1.53 $1.46* 5
--------------------- ----- ----- --- ----- ----- ---
* Does not sum due to rounding.
Volume (BCS), sales volume, net sales and segment operating profit, as adjusted, in the tables and commentary below exclude the loss of Hansen product distribution and are on a currency neutral basis. For a reconciliation of non-GAAP to GAAP measures see pages A-5 and A-6 accompanying this release.
Summary of 2009 results As reported As adjusted
(Percent change) ----------- -----------
Third Year-to- Third Year-to-
Quarter Date Quarter Date
------------ ------- ---- ------- ----
Volume (BCS) 3 4 4 4
------------ --- --- --- ---
Net Sales (4) (4) 2 3
--------- --- --- --- ---
Segment Operating Profit 21 11 31 22
----------------- --- --- --- ---
BCS - bottler case sales
Volume (BCS)
For the quarter, BCS volume increased 4% with CSDs growing 5% and non-carbonated beverages (NCB) up slightly.
In CSDs, Dr Pepper volume increased 3%. "Core 4" brands - 7UP, Sunkist soda, A&W and Canada Dry - were down 3%. Canada Dry and 7UP grew 4% and 1%, respectively, while A&W was down 1% and Sunkist soda declined double-digits. Crush volume more than doubled, adding 13 million cases, on expanded third-party distribution in the U.S. and the launch of Crush value offerings in Mexico. Fountain foodservice volume increased 2%. Penafiel increased 10% on expanded distribution and a restage of Penafiel flavors.
In NCBs, Hawaiian Punch volume increased 3%, lapping strong double-digit growth in the prior year. Pressure on the company's premium products continued. Snapple declined 6%, but improved sequentially for the second straight quarter.
By geography, U.S. and Canada volume increased 4%, and in Mexico and the Caribbean, volume increased 9%.
Across all measured channels, as reported by The Nielsen Company, the company grew U.S. CSD dollar share 1.1 percentage points and flavored CSD dollar share by 1.6 percentage points year-to-date.
Sales volume
For the quarter, sales volume increased 3%. Sales volume, as adjusted, increased 4% and was in-line with BCS volume. Year-to-date adjusted sales volume and BCS volume increased 4% each.
2009 Segment results As reported
(Percent Change) -----------
Third Quarter Year-to-Date
------------- ------------
Sales Net Sales Net
Volume Sales SOP Volume Sales SOP
-------- ------ ----- --- ------ ----- ---
Beverage
Concentrates 7 13 25 6 9 15
------------- --- --- --- --- --- ---
Packaged
Beverages (3) (6) 28 0 (5) 19
---------- --- --- --- --- -- --
Latin America
Beverages 9 (15) (33) 3 (20) (47)
------------- --- --- --- --- --- ---
Total 3 (4) 21 3 (4) 11
----- --- --- --- --- --- ---
2009 Segment results As adjusted
(Percent Change) -----------
Third Quarter Year-to-Date
------------- ------------
Sales Net Sales Net
Volume Sales SOP Volume Sales SOP
-------- ------ ----- --- ------ ----- ---
Beverage
Concentrates 7 14 25 6 9 17
------------- --- --- --- --- --- ---
Packaged
Beverages (1) (1) 42 2 1 34
---------- --- --- --- --- --- ---
Latin America
Beverages 9 9 0 3 3 (20)
------------- --- --- --- --- --- ---
Total 4 2 31 4 3 22
----- --- --- --- --- --- ---
SOP - Segment Operating Profit
Beverage Concentrates
Net sales for the quarter increased 14% reflecting sales volume growth led by expanded Crush distribution and favorable comparisons to certain discounts in the prior year period. Mid-single-digit price increases taken at the beginning of the year were partially offset by higher coupon spending and increased fountain foodservice contractual discounts. Segment operating profit increased 25% reflecting net sales growth and favorable comparisons to inventory adjustments in the prior year period, partially offset by increased marketplace investments and higher compensation-related costs.
Packaged Beverages
Net sales for the quarter decreased 1% reflecting a 1% decline in sales volume. Mid-single-digit declines in premium-priced beverages and double-digit declines in Sunkist soda were partially offset by a low single-digit increase in Hawaiian Punch. Price increases in CSDs and Snapple, taken earlier in the year, were offset by the impact of negative mix. Segment operating profit increased 42% due to lower packaging, ingredient and transportation costs and continued operating efficiencies, partially offset by higher marketing, SAP upgrade and handheld roll-out expenses.
Latin America Beverages
Net sales for the quarter increased 9% reflecting sales volume growth driven by route expansion, the new Crush value offerings and the restage of Penafiel flavors. Segment operating profit was flat as net sales growth was offset by higher selling and distribution costs related to new routes and the negative impact of channel mix.
Corporate and other items
For the quarter, corporate costs totaled $65 million including $3 million of unrealized commodity-related mark-to-market gains as well as continued productivity office investments. Corporate costs in 2008 were $69 million, including $9 million related to one-time transaction and separation-related costs.
Net interest expense decreased $6 million principally reflecting a lower debt balance.
The effective tax rate was 38%. This included a tax expense of $3 million related to certain tax items indemnified by Cadbury. During the quarter, we also recorded one-time, separation-related benefits of $13 million, net of taxes, driven by indemnified audit settlements and foreign tax items.
Cash flow
Year-to-date, the company generated $701 million of cash from operating activities, including a $42 million contribution to its pension and post-retirement benefit plans. Year-to-date net capital spending totaled $218 million. The company made optional principal repayments of $200 million of its floating rate term loan in the quarter. Year-to-date, the company repaid $480 million covering all of its debt obligations through the first half of 2011.
2009 full-year guidance
The company now expects full year net sales to be down 3% to 4%. Excluding the loss of Hansen product distribution and on a currency neutral basis, the company expects net sales to grow approximately 2%.
2009 reported earnings per share are expected to be in the $2.12 to $2.16 range. This reflects:
-- Lower packaging and ingredient costs, now expected to reduce COGS by
less than 4%;
-- Continued strong marketplace and productivity office investments; and
-- A full-year tax rate of approximately 38%, including approximately $12
million of items indemnified by Cadbury and $3 million of other
separation-related tax items.
Excluding net gains related to distribution agreement changes and separation-related tax items, the company expects 2009 earnings per share to be in the $1.92 to $1.96 range.
Consistent with its previous guidance, the company expects to make cash contributions totaling $43 million to its pension and post-retirement benefit plans in 2009 and expects net capital spending to be approximately 5% of net sales.
The company remains committed to using its free cash flow to pay down debt and now expects to reduce its debt obligations by $550 million in 2009. This reflects an increase of $150 million from its beginning of the year guidance.
Forward-looking statement
This release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including, in particular, statements about future events, future financial performance, plans, strategies, expectations, prospects, competitive environment, regulation, and cost and availability of raw materials. Forward-looking statements include all statements that are not historical facts and can be identified by the use of forward-looking terminology such as the words "may," "will," "expect," "anticipate," "believe," "estimate," "plan," "intend" or the negative of these terms or similar expressions. These forward-looking statements have been based on our current views with respect to future events and financial performance. Our actual financial performance could differ materially from those projected in the forward-looking statements due to the inherent uncertainty of estimates, forecasts and projections, and our financial performance may be better or worse than anticipated. Given these uncertainties, you should not put undue reliance on any forward-looking statements. All of the forward-looking statements are qualified in their entirety by reference to the factors discussed under "Risk Factors" in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2008, and our other filings with the Securities and Exchange Commission. Forward-looking statements represent our estimates and assumptions only as of the date that they were made. We do not undertake any duty to update the forward-looking statements, and the estimates and assumptions associated with them, after the date of this release, except to the extent required by applicable securities laws.
Conference Call
At 10 a.m. (CST) today, the company will host a conference call with investors to discuss third quarter 2009 results and the outlook for 2009. The conference call and slide presentation will be accessible live through DPS' website at http://www.drpeppersnapple.com and will be archived for replay for a period of 14 days.
In discussing financial results and guidance, the company may refer to certain non-GAAP measures. Reconciliations of any such non-GAAP measures to the most directly comparable financial measures in accordance with GAAP can be found on pages A-5 and A-6 accompanying this release and under "Financial Press Releases" on the company's website at http://www.drpeppersnapple.com in the "Investors" section.
Definitions
Volume (BCS) or bottler case sales: Sales of finished beverages, in equivalent 288 fluid ounce cases, sold by the company and its bottling partners to retailers and independent distributors. Volume for products sold by the company and its bottling partners is reported on a monthly basis, with the third quarter comprising July, August and September.
Sales volume: Sales of concentrates and finished beverages, in equivalent 288 fluid ounce cases, shipped by the company to its bottlers, retailers and independent distributors.
Pricing refers to the impact of list price changes.
About Dr Pepper Snapple
Dr Pepper Snapple Group, Inc. (NYSE: DPS | Quote | Chart | News | PowerRating) is the leading producer of flavored beverages in North America and the Caribbean. Our success is fueled by more than 50 brands that are synonymous with refreshment, fun and flavor. We have 6 of the top 10 non-cola soft drinks, and 9 of our 12 "power brands" are No. 1 in their flavor categories. In addition to our flagship Dr Pepper and Snapple brands, our portfolio includes Sunkist soda, 7UP, A&W, Canada Dry, Crush, Mott's, Squirt, Hawaiian Punch, Penafiel, Clamato, Schweppes, Venom Energy, Rose's and Mr & Mrs T mixers. To learn more about our iconic brands and Plano, Texas-based company, please visit www.drpeppersnapple.com.
DR PEPPER SNAPPLE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three and Nine Months Ended September 30, 2009 and 2008
(Unaudited, in millions, except per share data)
For the Three For the Nine
Months Ended Months Ended
September 30, September 30,
------------- -------------
2009 2008 2009 2008
---- ---- ---- ----
Net sales $1,434 $1,494 $4,175 $4,334
Cost of sales 579 709 1,706 1,968
--- --- ----- -----
Gross profit 855 785 2,469 2,366
Selling, general and administrative
expenses 547 542 1,596 1,586
Depreciation and amortization 29 28 84 84
Restructuring costs - 7 - 31
Other operating expense (income), net 7 (5) (45) (3)
--- --- --- ---
Income from operations 272 213 834 668
Interest expense 51 59 158 199
Interest income (1) (3) (3) (30)
Other income (20) (7) (25) (8)
--- --- --- ---
Income before provision for income taxes
and equity in earnings of unconsolidated
subsidiaries 242 164 704 507
Provision for income taxes 92 59 265 199
--- --- --- ---
Income before equity in earnings of
unconsolidated subsidiaries 150 105 439 308
Equity in earnings of unconsolidated
subsidiaries, net of tax 1 1 2 1
--- --- --- ---
Net income $151 $106 $441 $309
==== ==== ==== ====
Earnings per common share:
Basic $0.59 $0.41 $1.73 $1.21
Diluted $0.59 $0.41 $1.73 $1.21
Weighted average common shares outstanding:
Basic 254.2 254.2 254.2 254.0
Diluted 255.4 254.2 255.0 254.0
A-1
DR PEPPER SNAPPLE GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
As of September 30, 2009 and December 31, 2008
(Unaudited, in millions except share and per share data)
September 30, December 31,
2009 2008
---- ----
Assets
Current assets:
Cash and cash equivalents $282 $214
Accounts receivable:
Trade (net of allowances of $7 and $13,
respectively) 532 532
Other 45 51
Inventories 275 263
Deferred tax assets 78 93
Prepaid expenses and other current assets 71 84
--- ---
Total current assets 1,283 1,237
Property, plant and equipment, net 1,041 990
Investments in unconsolidated
subsidiaries 14 12
Goodwill 2,982 2,983
Other intangible assets, net 2,704 2,712
Other non-current assets 566 564
Non-current deferred tax assets 150 140
--- ---
Total assets $8,740 $8,638
====== ======
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses $851 $796
Income taxes payable 21 5
-- -
Total current liabilities 872 801
Long-term debt 3,039 3,522
Deferred tax liabilities 1,004 981
Other non-current liabilities 747 727
--- ---
Total liabilities 5,662 6,031
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value,
15,000,000 shares authorized, no
shares issued - -
Common stock, $.01 par value, 800,000,000 shares
authorized, 254,051,752 and 253,685,733 shares
issued and outstanding for 2009 and 2008,
respectively 3 3
Additional paid-in capital 3,147 3,140
Retained earnings (deficit) 11 (430)
Accumulated other comprehensive loss (83) (106)
--- ----
Total stockholders' equity 3,078 2,607
----- -----
Total liabilities and stockholders'
equity $8,740 $8,638
====== ======
A-2
DR PEPPER SNAPPLE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 2009 and 2008
(Unaudited, in millions)
For the
Nine Months
Ended
September 30,
-------------
2009 2008
---- ----
Operating activities:
Net income $441 $309
Adjustments to reconcile net income to net cash provided
by operations:
Depreciation expense 121 102
Amortization expense 30 36
Amortization of deferred financing costs 14 8
Gain on disposal of intangible assets and property (63) (1)
Employee stock-based compensation expense 13 5
Deferred income taxes 48 58
Write-off of deferred loan costs - 21
Other, net 4 10
Changes in assets and liabilities:
Trade and other accounts receivable - 3
Related party receivable - 11
Inventories (11) (6)
Other current assets 19 (32)
Other non-current assets (27) (9)
Accounts payable and accrued expenses 127 30
Related party payable - (70)
Income taxes payable 11 47
Other non-current liabilities (26) 1
--- ---
Net cash provided by operating activities 701 523
Investing activities:
Purchases of property, plant and equipment (223) (203)
Purchases of intangible assets (7) -
Proceeds from disposals of property, plant and equipment 5 3
Proceeds from disposals of investments and other assets 68 -
Issuances of related party notes receivables - (165)
Proceeds from repayment of related party notes receivables - 1,540
--- -----
Net cash (used in) provided by investing activities (157) 1,175
Financing activities:
Proceeds from issuance of related party long-term debt - 1,615
Proceeds from senior unsecured credit facility - 2,200
Proceeds from senior unsecured notes - 1,700
Proceeds from bridge loan facility - 1,700
Repayment of related party long-term debt - (4,664)
Repayment of senior unsecured credit facility (480) (295)
Repayment of bridge loan facility - (1,700)
Deferred financing charges paid - (106)
Cash distribution to Cadbury - (2,065)
Change in Cadbury's net investment - 94
Other, net (3) (2)
--- ---
Net cash used in financing activities (483) (1,523)
Cash and cash equivalents - net change from:
Operating, investing and financing activities 61 175
Currency translation 7 (3)
Cash and cash equivalents at beginning of period 214 67
--- ---
Cash and cash equivalents at end of period $282 $239
==== ====
A-3
DR PEPPER SNAPPLE GROUP, INC.
OPERATIONS BY OPERATING SEGMENT
For the Three and Nine Months Ended September 30, 2009 and 2008
(Unaudited, in millions)
For the Three For the Nine
Months Ended Months Ended
September 30, September 30,
------------- -------------
2009 2008 2009 2008
---- ---- ---- ----
Segment Results - Net Sales
Beverage Concentrates $260 $231 $784 $722
Packaged Beverages 1,077 1,149 3,126 3,279
Latin America Beverages 97 114 265 333
--- --- --- ---
Net sales $1,434 $1,494 $4,175 $4,334
====== ====== ====== ======
Segment Results - SOP
Beverage Concentrates $158 $126 $492 $426
Packaged Beverages 168 131 445 375
Latin America Beverages 18 27 41 78
--- --- --- ---
Total segment operating profit 344 284 978 879
Unallocated corporate costs 65 69 189 183
Restructuring costs - 7 - 31
Other operating expense (income) 7 (5) (45) (3)
--- --- --- ---
Income from operations 272 213 834 668
Interest expense, net 50 56 155 169
Other income (20) (7) (25) (8)
Income before provision for income
taxes and equity in earnings of ---- ---- ---- ----
unconsolidated subsidiaries $242 $164 $704 $507
==== ==== ==== ====
A-4
DR PEPPER SNAPPLE GROUP, INC.
RECONCILIATION OF GAAP AND NON-GAAP INFORMATION
For the Three and Nine Months Ended September 30, 2009 and 2008
(Unaudited)
The company reports its financial results in accordance with U.S. GAAP.
However, management believes that certain non-GAAP measures that reflect
the way management evaluates the business may provide investors with
additional information regarding the company's results, trends and
ongoing performance on a comparable basis. Specifically, investors
should consider the following with respect to our quarterly and year-end
results:
Net sales and Segment Operating Profit, as adjusted: Net sales and
Segment Operating Profit exclude the loss of Hansen product distribution
and are on a currency neutral basis.
For the Three Months Ended September 30, 2009
---------------------------------------------
Latin
Beverage Packaged America
Percent change Concentrates Beverages Beverages Total
------------- ---------- ---------- -----
Net sales, as reported 13% (6)% (15)% (4)%
Impact of loss of
Hansen product
distribution - 5% 5% 4%
Impact of foreign
currency 1% - 19% 2%
--- --- --- ---
Net sales, as adjusted 14% (1)% 9% 2%
=== === === ===
For the Three Months Ended September 30, 2009
---------------------------------------------
Latin
Beverage Packaged America
Percent change Concentrates Beverages Beverages Total
------------- ---------- ---------- -----
Segment Operating
Profit, as reported 25% 28% (33)% 21%
Impact of loss of
Hansen product
distribution - 12% 7% 6%
Impact of foreign
currency - 2% 26% 4%
--- --- --- ---
Segment Operating
Profit, as adjusted 25% 42% -% 31%
=== === === ===
For the Nine Months Ended September 30, 2009
--------------------------------------------
Latin
Beverage Packaged America
Percent change Concentrates Beverages Beverages Total
------------- ---------- ---------- -----
Net sales, as
reported 9% (5)% (20)% (4)%
Impact of loss of
Hansen product
distribution - 5% 4% 5%
Impact of foreign
currency - 1% 19% 2%
--- --- --- ---
Net sales, as
adjusted 9% 1% 3% 3%
=== === === ===
For the Nine Months Ended September 30, 2009
--------------------------------------------
Latin
Beverage Packaged America
Percent change Concentrates Beverages Beverages Total
------------- ---------- ---------- -----
Segment Operating
Profit, as reported 15% 19% (47)% 11%
Impact of loss of
Hansen product
distribution - 12% 4% 6%
Impact of foreign
currency 2% 3% 23% 5%
--- --- --- ---
Segment Operating
Profit, as adjusted 17% 34% (20)% 22%
=== === === ===
A-5
DR PEPPER SNAPPLE GROUP, INC.
RECONCILIATION OF GAAP AND NON-GAAP INFORMATION (Continued)
For the Three and Nine Months Ended September 30, 2009 and 2008
(Unaudited)
2009 Effective tax rate excluding certain items: 1) the net gain related
to the Hansen contract termination payment as well as the sale of certain
distribution rights in 2009 and 2) certain separation-related tax items in
2009.
For the Three Months Ended
September 30, 2009
------------------
Separation-
As Related Tax
Reported Items As Adjusted
--------- ----- -----------
Income before provision for income
taxes and equity in earnings of
unconsolidated
subsidiaries $242 $(16) $226
Provision for income
taxes 92 (3) 89
Income before equity
in earnings of unconsolidated ---- ---- ----
subsidiaries $150 $(13) $137
==== ==== ====
For the Nine Months Ended
September 30, 2009
------------------
Net Gain on
Hansen
Termination
and Sale of
Certain Separation-
As Distribution Related Tax As
Reported Rights Items Adjusted
--------- ------ ----- --------
Income before provision
for income taxes and
equity in earnings of
unconsolidated
subsidiaries $704 $(62) $(16) $626
Provision for income
taxes 265 (23) (3) 239
Income before equity
in earnings of
unconsolidated ---- ---- ---- ----
subsidiaries $439 $(39) $(13) $387
==== ==== ==== ====
EPS excluding certain items: Reported EPS adjusted for: 1) the net gain
related to the Hansen contract termination payment as well as the sale of
certain distribution rights in 2009, 2) certain separation-related tax
items in 2009 and 3) restructuring costs in 2008.
For the Three Months For the Nine Months
Ended Ended
September 30, September 30,
-------------- --------------
Percent Percent
2009 2008 Change 2009 2008 Change
---- ---- ------ ---- ---- ------
Reported EPS $0.59 $0.41 43.9% $1.73 $1.21 43.0%
Net gain on Hansen
termination and
sale of certain
distribution rights - - (0.15) -
Transaction and other
one time separation
costs - 0.02 - 0.07
Bridge loan fees and
expenses - - - 0.06
Separation-related
tax items (0.05) - (0.05) 0.04
Restructuring costs - 0.03 - 0.07
--- ---- --- ----
EPS, excluding
certain items $0.54 $0.45* 20.0% $1.53 $1.46* 4.8%
===== ===== ===== =====
* Does not sum due to
rounding.
2009 Net sales and EPS excluding certain items: 2009 expected net sales
adjusted for the loss of Hansen product distribution and on a currency
neutral basis. 2009 expected earnings per share excluding net gains
related to distribution agreement changes and certain separation-related
tax items.
2009 Net Sales Guidance Percentage Growth
-----------------
Net sales, as reported (3)% to (4)%
Impact of loss of Hansen product
distribution 4%
Impact of foreign currency at spot rate 2%
---
Net sales, as adjusted ~2%
2009 Earnings per share guidance 2009
----
Reported earnings per share $2.12 to $2.16
Net gain on Hansen contract termination
payment and sale of certain distribution
rights $0.15
Separation-related tax items $0.05
-----
EPS excluding certain items $1.92 to $1.96
A-6
SOURCE Dr Pepper Snapple Group, Inc.
http://www.drpeppersnapple.com
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