Plano, Texas, Aug. 13 - Dr Pepper Snapple Group, Inc. reported second quarter 2008 earnings of $0.42 per share compared to $0.54 per share in the prior year period. The Company's results reflect the impact of certain related party transactions with Cadbury that continued until separation on May 7, 2008. Excluding restructuring costs in both years and transaction and separation related costs in the second quarter of 2008, the Company earned $0.60 per share, an increase of 7% compared to the same period last year. Net sales increased 1%, as higher pricing more than offset sales volume declines. Segment operating profit declined 2%, primarily due to the absence of glaceau distribution. Income from operations declined 4%. Year-to-date the company earned $0.80 per share compared to $0.81 per share in the prior year period. Excluding restructuring and separation related items, the Company earned $1.01 per share, an increase of 16% compared to the same period last year.
DPS President and CEO Larry Young said, "It's no secret that the beverage industry continues to face significant headwinds. Higher prices at the gas pump and at retailers across the country have impacted our consumers and their shopping habits. At DPS, we will continue to look for ways to leverage our strong flavor portfolio, customer partnerships and vertically integrated business model to expand our distribution footprint and provide preferred and affordable brands to more consumers in more outlets.
"During the quarter, we marked the official separation of our business from Cadbury on May 7, 2008. So in addition to winning on the streets, our corporate teams worked tirelessly to separate the business and establish our stand-alone financial statements. There's still a lot left to do, but I am immensely proud of the progress we have made."
Summary of 2008 results % Growth vs 2007 % Growth vs 2007
Second Quarter Year to Date
-------------- --------------
Volume (BCS) (4) (4)
Net sales ($)
Beverage Concentrates 1 (1)
Finished Goods 6 8
Bottling Group (2) -
Mexico and the Caribbean 4 6
--- ---
Net sales as reported 1 2
Segment Operating Profit (2) -
Reported EPS (21) (1)
EPS excluding certain items 7 16
BCS - bottler case sales
Earnings per share Second Quarter Year to Date
reconciliation ------------------ ------------------
2008 2007 % 2008 2007 %
------------------ ------------------
Reported EPS $0.42 $0.54 (21) $0.80 $0.81 (1)
Items affecting comparability
- Restructuring costs 0.03 0.03 0.06 0.06
- Transaction and separation
costs 0.05 - 0.05 -
- Bridge loan fees and expenses 0.06 - 0.06 -
- Separation related tax items 0.04 - 0.04 -
------ ------ ------ ------ ------ ------
EPS excluding certain items $0.60 $0.56* 7 $1.01 $0.87 16
* Does not sum due to rounding
Volume (BCS)
Volume declined 4% reflecting higher pricing and a challenging macro-economic environment. Carbonated soft drinks (CSDs) declined 3% and non-carbonated beverages (NCBs) declined 8%.
In CSDs, Dr Pepper volume declined 1%. "Core 4" brands -- 7UP, Sunkist, A&W and Canada Dry -- declined 5% driven primarily by 7UP, as it cycled the final stages of launch support for 7UP with 100% Natural Flavors and the re-launch of Diet 7UP. In Mexico, Squirt and Penafiel declined high single-digits reflecting necessary pricing taken towards the end of first quarter 2008.
In NCBs, Hawaiian Punch volume increased low double-digits and Mott's was up 4%. Snapple declined mid single-digits as it cycled significant promotional activity in the prior year period, which for profitability reasons, was not repeated in 2008. In Mexico, Aguafiel declined 21% reflecting high single-digit price increases and a more competitive environment. The loss of the distribution agreement for glaceau products (November 2007) reduced NCB growth by 8 percentage points in the quarter.
In North America, volume declined 3% and in Mexico and the Caribbean, volume declined 9%.
Sales Volume
Sales volume was down 3% reflecting BCS declines which were partially offset by a change in the timing of concentrate price increases from April in 2007 to February in 2008.
Net sales
Net sales increased 1% as mid single-digit price increases more than offset sales volume declines and a slight negative shift in mix. Beverage Concentrates and Finished Goods price/mix increased low single-digits, Bottling Group price/mix increased mid single-digits and Mexico and the Caribbean price/mix increased low double-digits. The acquisition of SeaBev in July 2007 positively impacted net sales growth by 2 percentage points, while the loss of the distribution agreement for glaceau products negatively impacted net sales growth by 4 percentage points.
Across all measured channels, as reported by ACNielsen, the Company continues to lead the CSD category with U.S. dollar share up 0.4 percentage points year-to-date.
Segment operating profit, corporate and other
Gross profit was flat for the quarter reflecting net sales gains offset by higher commodity costs. COGS per case increased 6%. The net impact of the SeaBev acquisition and absence of glaceau reduced COGS per case growth by 4 percentage points.
Segment operating profit declined 2%. The loss of the distribution agreement for glaceau products negatively impacted segment operating profit growth by 4 percentage points. The acquisition of SeaBev had no impact to segment operating profit.
Income from operations decreased 4% reflecting segment operating profit declines and the net impact of: lower unallocated general and administrative expenses; lower stock-based compensation expenses; favorable gains in other adjustments versus a loss last year; and transaction and other one-time separation costs totaling $20 million. Restructuring costs related to previously announced actions were $14 million for the quarter.
Net interest expense increased $21 million as the Company incurred $24 million of fees and interest expense in connection with the termination of a bridge loan facility established to effect the separation from Cadbury.
The effective tax rate for the quarter was 42.6%, which included $10 million of items that were mainly identified on separation as we established our stand-alone financial statements and $2 million related to certain tax items that are indemnified by Cadbury. Year-to-date the effective tax rate was 40.8%, which included $13 million of separation related and indemnified items.
2008 full-year guidance
The Company continues to expect 3% to 5% net sales growth. The Company now expects earnings per share of at least $1.65, which assumes commodity cost inflation, interest rates and tax rate as noted below. The earnings per share guidance includes approximately $0.29 per share comprising transaction and separation related costs ($0.08 per share), bridge loan fees and net interest in connection with the spin-off from Cadbury ($0.06 per share), previously announced restructuring costs ($0.10 per share) and separation related tax items ($0.04 per share). Excluding these items, the Company expects earnings per share of at least $1.94.
In line with previous guidance, the Company expects commodity cost inflation to increase COGS by approximately 6% and fuel to add approximately $40 million to distribution costs which are recorded in SG&A.
While the company is realizing substantially all of the benefits from its 2007 restructuring actions, these benefits are being offset by the higher fuel costs, the consolidation impact of the SeaBev acquisition and new stand-alone costs arising from the spin-off.
On May 7, 2008 DPS completed its separation from Cadbury. On this date, all payables to and loans from Cadbury were settled. The net balance due to Cadbury was paid using the proceeds of new unsecured senior credit totaling $3.9 billion. Based on current LIBOR, the 2008 blended interest rate on the new capital structure is approximately 6.3%, which includes 50 basis points related to the amortization of certain fees and expenses associated with establishing the new facilities. Cash will be managed to the liquidity needs of the business, with excess cash being used to pay down debt. We expect interest income for the remainder of the year to be minimal.
The earnings per share guidance assumes a full-year 2008 tax rate of about 40%, which includes approximately $10 million of charges related to certain tax items that are indemnified by Cadbury. A corresponding amount to reflect the indemnity is recorded as other income. Combined, these two items have no impact on our total results. The full year tax rate also includes $11 million of items that were mainly identified on separation as we established our stand-alone financial statements.
Capital spending is expected to be about 5% of net sales.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 second quarter comprising April, May and June.
Sales volume: Sales of concentrate and finished beverages, in equivalent 288 fluid ounce cases, shipped by the Company to its bottlers, retailers and independent distributors.
Price/mix refers to the combined impact of list price changes, discounts and allowances and the relative mix of the brands, products, packages and channels. Pricing refers to the impact of list price changes.
COGS per case: Cost of sales as reported divided by the sales volume in the quarter.
About Dr Pepper Snapple Group
Dr Pepper Snapple Group, Inc., (NYSE: DPS) is an integrated refreshment beverage business marketing more than 50 beverage brands to consumers throughout North America. In addition to its flagship Dr Pepper and Snapple brands and trademarks, the company's portfolio includes 7UP, Mott's, A&W, Sunkist Soda, Hawaiian Punch, Canada Dry, Schweppes, Squirt, RC Cola, Diet Rite, Penafiel, Rose's, Yoo-hoo, Clamato, Mr & Mrs T and other well-known consumer favorites. Based in Plano, Texas, Dr Pepper Snapple Group employs approximately 20,000 people and operates 24 bottling and manufacturing facilities and more than 200 distribution centers across the United States, Canada, Mexico and the Caribbean.
DR PEPPER SNAPPLE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three and Six Months Ended June 30, 2008 and 2007
(Unaudited, in millions, except per share data)
For the For the
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- ------------------
2008 2007 2008 2007
---------- --------- -------- --------
Net sales $1,557 $1,543 $2,864 $2,812
Cost of sales 706 693 1,283 1,265
--------- --------- -------- --------
Gross profit 851 850 1,581 1,547
Selling, general and administrative
expenses 536 532 1,044 1,031
Depreciation and amortization 28 25 56 48
Restructuring costs 14 12 24 25
Loss on disposal of property and
intangible assets, net 4 - 2 -
--------- --------- -------- --------
Income from operations 269 281 455 443
Interest expense 92 71 140 132
Interest income (10) (10) (27) (19)
Other (income) expense (1) - (1) 1
--------- --------- -------- --------
Income before provision for income
taxes and equity in earnings of
unconsolidated subsidiaries 188 220 343 329
Provision for income taxes 80 84 140 125
--------- --------- -------- --------
Income before equity in earnings
of unconsolidated subsidiaries 108 136 203 204
Equity in earnings of
unconsolidated
subsidiaries - - - 1
--------- --------- -------- --------
Net income $108 $136 $203 $205
========= ========= ======== ========
Earnings per common share:
Basic $0.42 $0.54 $0.80 $0.81
Diluted $0.42 $0.54 $0.80 $0.81
Weighted average common shares
outstanding:
Basic 254.0 253.7 253.8 253.7
Diluted 254.0 253.7 253.8 253.7
DR PEPPER SNAPPLE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, 2008 and 2007
(Unaudited, in millions)
For the Six Months Ended
June 30,
------------------------
2008 2007
------------ -----------
(As Restated)
(1)
Operating activities:
Net income $203 $205
Adjustments to reconcile net income
to net cash provided by operations:
Depreciation expense 69 69
Amortization expense 30 22
Employee stock-based expense, net of
tax benefit 3 20
Deferred income taxes 37 15
Write-off of deferred loan costs 21 -
Other, net 15 2
Changes in assets and liabilities:
Trade and other accounts receivable (51) (105)
Related party receivable 11 1
Inventories (22) (49)
Other current assets (74) 5
Other non-current assets (1) 4
Accounts payable and accrued expenses 60 7
Related party payables (70) 49
Income taxes payable 47 (7)
Other non-current liabilities - (1)
------- -------
Net cash provided by operating activities 278 237
Investing activities:
Purchases of property, plant and equipment (142) (80)
Issuances of related party notes receivables (165) (255)
Repayment of related party notes receivables 1,540 306
Other, net 3 (2)
------- -------
Net cash provided by (used in)
investing activities 1,236 (31)
Financing activities:
Proceeds from issuance of related
party long-term debt 1,615 2,690
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) (2,838)
Repayment of senior unsecured credit facility (55) -
Repayment of bridge loan facility (1,700) -
Deferred financing charges paid (106) -
Change in Cadbury's net investment (1,971) (68)
Other, net (1) 2
------- -------
Net cash used in financing activities (1,282) (214)
Cash and cash equivalents - net change from:
Operating, investing and financing activities 232 (8)
Currency translation 1 1
Cash and cash equivalents at beginning of period 67 35
------- -------
Cash and cash equivalents at end of period $300 $28
======= =======
Supplemental cash flow disclosures
of non-cash investing and financing activities:
Settlement related to separation from Cadbury 141 -
Purchase accounting adjustment
related to prior year acquisitions 8 -
Transfers of property, plant and
equipment to Cadbury - 3
Transfers of operating assets and
liabilities to Cadbury - 19
Liabilities expected to be
reimbursed by Cadbury - 12
Reclassifications for tax transactions - 90
Supplemental cash flow disclosures:
Interest paid $94 $154
Income taxes paid 38 24
(1) Prior to the issuance of the Company's audited combined financial
statements as of the year ended December 31, 2007, the Company
determined that the unaudited condensed combined statements of cash
flows for the nine months and six months ended September 30, 2007 and
June 30, 2007, respectively, needed to be restated to reflect the
reclassifications of non-cash tax items. As a result, net cash
provided by operating activities and net cash used in financing
activities decreased by $51 million in each interim period. The
Company's combined financial statements for the year ended December
31, 2007 issued with the Form 10 (effective April 22, 2008)
appropriately reported the non-cash tax reclassifications.
DR PEPPER SNAPPLE GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
As of June 30, 2008 and December 31, 2007
(Unaudited, in millions except share and per share data)
June 30, December 31,
2008 2007
--------- ------------
Assets
Current assets:
Cash and cash equivalents $300 $67
Accounts receivable:
Trade (net of allowances of $16 and $20,
respectively) 625 538
Other 29 59
Related party receivable - 66
Note receivable from related parties - 1,527
Inventories 348 325
Deferred tax assets 69 81
Prepaid and other current assets 143 76
--------- ----------
Total current assets 1,514 2,739
Property, plant and equipment, net 930 868
Investments in unconsolidated subsidiaries 14 13
Goodwill 3,177 3,183
Other intangible assets, net 3,607 3,617
Other non-current assets 565 100
Non-current deferred tax assets 200 8
--------- ----------
Total assets $10,007 $10,528
========= ==========
Liabilities and Equity
Current liabilities:
Accounts payable and accrued expenses $877 $812
Related party payable - 175
Current portion of senior unsecured debt 220 -
Current portion of long-term debt payable to
related parties - 126
Income taxes payable 6 22
--------- ----------
Total current liabilities 1,103 1,135
Long-term debt payable to third parties 3,643 19
Long-term debt payable to related parties - 2,893
Deferred tax liabilities 1,262 1,324
Other non-current liabilities 752 136
--------- ----------
Total liabilities 6,760 5,507
Commitments and contingencies
Stockholders' equity:
Cadbury's net investment - 5,001
Preferred stock, $.01 par value, 15,000,000 shares
authorized, no shares issued - -
Common stock, $.01 par value, 800,000,000 shares
authorized, 253,685,733 shares issued and
outstanding for 2008 and no shares issued for 2007 3 -
Additional paid-in capital 3,169 -
Retained earnings 85 -
Accumulated other comprehensive income (10) 20
--------- ----------
Total equity 3,247 5,021
Total liabilities and equity $10,007 $10,528
========= ==========
DR PEPPER SNAPPLE GROUP, INC.
OPERATIONS BY OPERATING SEGMENT
For the Three and Six Months Ended June 30, 2008 and 2007
(Unaudited, in millions)
For the For the
Three Months Six Months
Ended Ended
June 30, June 30,
---------------- ----------------
2008 2007 2008 2007
------- -------- -------- ------
Segment Results - Net Sales
Beverage Concentrates $373 $371 $672 $676
Finished Goods 449 418 826 761
Bottling Group 829 834 1,526 1,518
Mexico and the Caribbean &nb