Dr Pepper Snapple Group's CEO Discusses Q1 2012 Results - Earnings Call Transcript

Dr Pepper Snapple Group (DPS)

Q1 2012 Earnings Call

April 25, 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

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

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

Brett Cooper - Consumer Edge Research, LLC

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

William Schmitz - Deutsche Bank AG, Research Division

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

Bryan D. Spillane - BofA Merrill Lynch, Research Division

Brendan Metrano - Wells Fargo Securities, LLC, Research Division

Dara W. Mohsenian - Morgan Stanley, 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 First 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 Relation. 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. As I'm sure you saw in this morning's earnings press release, our results for the first quarter came in consistent with our expectations. Our brands continued to perform well in the marketplace this quarter despite the fact that our pricing is up across both our CSD and juice portfolios. We grew both volume and dollar share in our CSD and Tea categories and outperformed the industry. Our teams continue to make our brands top of mind and close at hand for consumers. And with the traction building on RCI everyday, I am confident that we will achieve our expectations for the year.

For the quarter, bottler case sales were flat on 4 points of price/mix lapping 1% growth in the prior year. CSDs grew 2%, led by our flagship Dr Pepper, which also grew 2%, driven primarily by Dr Pepper TEN, which we launched nationally in Q4 of 2011 and continued growth in our Fountain business.

Our Core 5, which are our Core 4 plus Sun Drop, grew 3% in the quarter, fueled by the continued strength of Canada Dry and mid single-digit increases in A&W and Sunkist. 7UP grew 1%. These increases were partially offset by a double-digit decline in Sun Drop as we cycled the national launch in the first quarter of 2011. Together with Crush, these brands grew 1% for the quarter.

As expected, both Hawaiian Punch and Mott's declined double digits on larger relative price increases than were implemented in mid-2011. We would expect these trends for Hawaiian Punch and Mott's to continue in the second quarter.

Once again, Snapple continued its momentum, posting a 5% increase while lapping 10% growth in the prior year. I'm proud to say that Snapple continued to outperform the category while providing value to our consumers with new flavor and package innovation.

Our other brands increased 5%, fueled by growth in our Hispanic portfolio, including Peñafiel, Clamato and Squirt from our CSD value strategy and 2-liters and 20-ounce on brands such as RC Cola, Tahitian Treat, Cactus Cooler and Nehi. We also saw growth in our allied brands, most significantly VitaCoco and Neuro.

On a currency-neutral basis, our net sales increased 3% for the quarter, reflecting 4 points of price/mix partially offset by lower branded sales volume and a reclassification of certain customer transportation allowances from SG&A expenses. Segment operating profit decreased 3% for the quarter, with sales growth and productivity improvements more than offset by $31 million of higher packaging and ingredient cost, other operating cost, inflation and the higher market investments of $8 million. Reported earnings per share were $0.48 for the quarter, a 4% decline versus prior year.

As I look to our plans for the second trimester, I am confident that our activation lineup and new products will engage our target consumers and increase awareness of our brands. Once again, Dr Pepper is teaming up with the hottest movie this summer, The Avengers. And just like Dr Pepper, The Avengers are all one of a kind. We're running a national co-branded TV and radio campaign, reaching over 90 million of our target consumers. We'll have promotional packaging and collectible cans for take-home consumption, coupled with an x mark [ph] program for immediate consumption.

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