Dr Pepper Snapple Group Reports First Quarter 2015 Results

PLANO, Texas–(BUSINESS WIRE)–Dr Pepper Snapple Group, Inc. (NYSE: DPS) reported first quarter 2015 EPS of $0.81 compared to $0.78 in the prior year period, an increase of 4%. Core EPS were also $0.81, compared to $0.74 in the prior year, an increase of 9%.

For the quarter, reported net sales increased 4%, as a sales volume increase of 2% and favorable segment and product mix were partially offset by 1 percentage point of unfavorable foreign currency translation. Reported segment operating profit (SOP) increased 7%, or $23 million, on net sales growth, ongoing productivity improvements and a planned reduction in marketing investments. On a currency neutral basis, SOP increased 10%.

Reported income from operations for the quarter was $270 million, up 4% compared to the prior year period, including a $1 million unrealized commodity mark-to-market loss. Reported income from operations was $260 million in the prior year period, including $12 million of unrealized commodity mark-to-market gains. Core income from operations was $271 million, up 9% compared to the prior year period.

DPS President and CEO Larry Young said, “We had a strong start to 2015. Our teams continued to persevere though a challenging environment by executing against our key priorities of building our brands with consumers and executing with excellence in the marketplace. We grew both dollar and volume share in CSDs in Nielsen-measured markets, outperforming the category. We expanded distribution and availability across our tea and juice portfolios and launched relevant innovation to address consumers’ changing needs. Our Rapid Continuous Improvement (RCI) capabilities continue to develop across the organization and are helping to drive top-line growth, and we still have a tremendous amount of runway ahead of us.”

EPS reconciliation First Quarter
2015 2014 Percent

Change

Reported EPS $0.81 $0.78 4
Unrealized commodity mark-to-market
net (gain) (0.04)
—— ——
Core EPS $0.81 $0.74 9

EPS – earnings per share

Net sales and SOP in the tables and commentary below are presented on a currency neutral basis. For a reconciliation of non-GAAP to GAAP measures see pages A-5 through A-8 accompanying this release.

Summary of 2015 results

(Percent change)

First Quarter
As Reported

Currency
Neutral

BCS Volume 3 3
Sales Volume 2 2
Net Sales 4 5
SOP 7 10

BCS – bottler case sales

BCS Volume

For the quarter, BCS volume increased 3% with carbonated soft drinks (CSDs) increasing 3% and non-carbonated beverages (NCBs) increasing 5%.

By geography, U.S. and Canada volume increased 2%, and Mexico and the Caribbean volume increased 13%.

In CSDs, Peñafiel increased 20% on distribution gains. Our Core 4 brands increased 4%, as a double-digit increase in Canada Dry was partially offset by low-single-digit declines in Sunkist soda and 7UP. A&W was flat in the quarter. Squirt increased 15%, and Schweppes increased 8%. These increases were partially offset by a 1% decline in brand Dr Pepper on continued declines in diet. Fountain foodservice volume increased 1% in the quarter.

In NCBs, Hawaiian Punch volume increased 7% on increased promotional activity and package innovation. Clamato increased 20%, and our water category increased 9%. Snapple increased 5%, driven primarily by high-single-digit growth in Snapple Premium, which was partially offset by our de-emphasis of our value products.

Sales Volume

Sales volumes increased 2% for the quarter.

2015 Segment results (Percent Change) First Quarter
As Reported Currency Neutral

Sales
Volume

Net
Sales

SOP

Sales
Volume

Net
Sales

SOP

Beverage Concentrates (2) 1 5 (2) 2 6
Packaged Beverages 4 5 8 4 5 10
Latin America Beverages 13 2 31 13 14 89
Total 2 4 7 2 5 10

Beverage Concentrates

Net sales for the quarter increased 2%, as concentrate price increases taken at the beginning of the year and lower discounts in the quarter were partially offset by a 2% decline in concentrate shipments. SOP increased 6% on net sales growth, a planned reduction in marketing investments and lower IT costs.

Packaged Beverages

Net sales for the quarter increased 5%, as a sales volume increase of 4% and favorable product mix were partially offset by increased promotional activity in the quarter. SOP increased 10% on net sales growth and ongoing productivity improvements.

Latin America Beverages

Net sales for the quarter increased 14%, driven primarily by a 13% increase in sales volumes. SOP increased 89% as net sales growth and ongoing productivity improvements were partially offset by increases in logistics costs and other operating expenses.

Corporate and Other Items

For the quarter, corporate costs totaled $71 million, including a $1 million unrealized commodity mark-to-market loss. Corporate costs in the prior year period were $57 million, including a $12 million unrealized commodity mark-to-market gain.

Net interest expense increased $2 million for the quarter compared to the prior year.

For the quarter, the reported effective tax rate was 35.7%. The prior year effective tax rate was 34.3%, as a $2 million deferred tax benefit due to a New York State law change decreased the effective tax rate by 0.9%.

Cash Flow

For the quarter, the company generated $101 million of cash from operating activities compared to $129 million in the prior year period. Capital spending totaled $20 million compared to $37 million in the prior year period. The company returned $214 million to shareholders in the form of stock repurchases ($135 million) and dividends ($79 million).

2015 Full-Year Guidance

The company continues to expect full-year reported net sales to be up approximately 1% and core EPS to be in the $3.80 to $3.88 range after the impact of foreign currency, which is now expected to negatively impact net sales and core EPS growth by approximately 1% and 3%, respectively.

Packaging and ingredient costs are expected to decrease COGS by about 1% on a constant volume/mix basis.

The company expects its core tax rate to be approximately 35.5%.

The company continues to expect capital spending to be approximately 3% of net sales.

The company expects to repurchase $500 million to $550 million of its common stock.

Definitions

Bottler case sales (BCS) volume: Sales of finished beverages, in equivalent 288 fluid ounce cases, sold by the company and its bottling partners to retailers and independent distributors and excludes contract manufacturing volume. Volume for products sold by the company and its bottling partners is reported on a monthly basis, with the first quarter comprising January, February and March.

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 and includes contract manufacturing volume.

Pricing refers to the impact of list price changes.

Unrealized mark-to-market: We recognize the change in the fair value of open commodity derivative positions between periods in corporate unallocated expenses, as these instruments do not qualify for hedge accounting treatment. As the underlying commodity is delivered, the realized gains and losses are subsequently reflected in the segment results.

EPS represents diluted earnings per share.

Core financial measures are determined utilizing reported financial numbers adjusted for the unrealized mark-to-market impact of commodity derivatives and certain items that are excluded for comparison to prior year periods.

Core metrics are determined based on the core financial measures.

Forward-Looking Statements

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 including earnings estimates, 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, 2014, 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. (CDT) today, the company will host a conference call with investors to discuss first quarter results and the outlook for 2015. The conference call and slide presentation will be accessible live through DPS’s 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 through A-8 accompanying this release and under “Financial Press Releases” on the company’s website at http://www.drpeppersnapple.com in the “Investors” section.

About Dr Pepper Snapple Group

Dr Pepper Snapple Group (NYSE: DPS) is a 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 13 of our 14 leading brands are No. 1 or No. 2 in their flavor categories. In addition to our flagship Dr Pepper and Snapple brands, our portfolio includes 7UP, A&W, Canada Dry, Clamato, Crush, Hawaiian Punch, Mott’s, Mr & Mrs T mixers, Peñafiel, Rose’s, Schweppes, Squirt and Sunkist soda. To learn more about our iconic brands and Plano, Texas-based company, please visit www.DrPepperSnapple.com. For our latest news and updates, follow us at www.Facebook.com/DrPepperSnapple orwww.Twitter.com/DrPepperSnapple.

DR PEPPER SNAPPLE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
For the Three Months Ended March 31, 2015 and 2014
(Unaudited, in millions, except per share data)
For the
Three Months Ended
March 31,
2015 2014
Net sales $ 1,451 $ 1,398
Cost of sales 602 554
Gross profit 849 844
Selling, general and administrative expenses 552 554
Depreciation and amortization 27 29
Other operating expense, net 1
Income from operations 270 260
Interest expense 27 26
Interest income (1 )
Other income, net (1 ) (1 )
Income before provision for income taxes and equity in earnings of unconsolidated subsidiaries 244 236
Provision for income taxes 87 81
Income before equity in earnings of unconsolidated subsidiaries 157 155
Equity in earnings of unconsolidated subsidiaries, net of tax
Net income $ 157 $ 155
Earnings per common share:
Basic $ 0.82 $ 0.78
Diluted 0.81 0.78
Weighted average common shares outstanding:
Basic 193.0 197.9
Diluted 194.6 199.5

A-1

DR PEPPER SNAPPLE GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
As of March 31, 2015 and December 31, 2014
(Unaudited, in millions, except share and per share data)
March 31, December 31,
2015 2014
Assets
Current assets:
Cash and cash equivalents $ 93 $ 237
Accounts receivable:
Trade, net 572 556
Other 65 61
Inventories 228 204
Deferred tax assets 73 67
Prepaid expenses and other current assets 163 86
Total current assets 1,194 1,211
Property, plant and equipment, net 1,115 1,141
Investments in unconsolidated subsidiaries 13 14
Goodwill 2,990 2,990
Other intangible assets, net 2,680 2,684
Other non-current assets 193 159
Non-current deferred tax assets 67 74
Total assets $ 8,252 $ 8,273
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable $ 350 $ 289
Deferred revenue 64 64
Short-term borrowings and current portion of long-term obligations 504 3
Income taxes payable 50 10
Other current liabilities 587 672
Total current liabilities 1,555 1,038
Long-term obligations 2,113 2,588
Non-current deferred tax liabilities 828 801
Non-current deferred revenue 1,232 1,250
Other non-current liabilities 303 302
Total liabilities 6,031 5,979
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $0.01 par value, 15,000,000 shares authorized, no shares issued
Common stock, $0.01 par value, 800,000,000 shares authorized, 192,342,028 and 192,957,696 shares issued and outstanding for 2015 and 2014, respectively 2 2
Additional paid-in capital 546 658
Retained earnings 1,835 1,771
Accumulated other comprehensive loss (162 ) (137 )
Total stockholders’ equity 2,221 2,294
Total liabilities and stockholders’ equity $ 8,252 $ 8,273

A-2

DR PEPPER SNAPPLE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31, 2015 and 2014
(Unaudited, in millions)
For the
Three Months Ended
March 31,
2015 2014
Operating activities:
Net income $ 157 $ 155
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation expense 48 50
Amortization expense 8 10
Amortization of deferred revenue (16 ) (16 )
Employee stock-based compensation expense 9 11
Deferred income taxes 15 14
Other, net (17 ) (19 )
Changes in assets and liabilities, net of effects of acquisition:
Trade accounts receivable (19 ) 6
Other accounts receivable (4 ) (5 )
Inventories (26 ) (26 )
Other current and non-current assets (81 ) (66 )
Other current and non-current liabilities (99 ) (55 )
Trade accounts payable 67 32
Income taxes payable 59 38
Net cash provided by operating activities 101 129
Investing activities:
Purchase of property, plant and equipment (20 ) (37 )
Purchase of cost method investment (15 )
Proceeds from disposals of property, plant and equipment 1
Other, net (6 ) (1 )
Net cash used in investing activities (40 ) (38 )
Financing activities:
Net issuance of commercial paper 85
Repurchase of shares of common stock (135 ) (60 )
Cash paid for shares not yet received (90 )
Dividends paid (79 ) (75 )
Tax withholdings related to net share settlements of certain stock awards (26 ) (15 )
Proceeds from stock options exercised 19 24
Excess tax benefit on stock-based compensation 19 8
Net cash used in financing activities (202 ) (123 )
Cash and cash equivalents — net change from:
Operating, investing and financing activities (141 ) (32 )
Effect of exchange rate changes on cash and cash equivalents (3 ) (1 )
Cash and cash equivalents at beginning of period 237 153
Cash and cash equivalents at end of period $ 93 $ 120

A-3

DR PEPPER SNAPPLE GROUP, INC.
OPERATIONS BY OPERATING SEGMENT
For the Three Months Ended March 31, 2015 and 2014
(Unaudited, in millions)

For the Three Months Ended
March 31,

2015 2014
Segment Results – Net sales
Beverage Concentrates $ 285 $ 281
Packaged Beverages 1,053 1,006
Latin America Beverages 113 111
Net sales $ 1,451 $ 1,398

For the Three Months Ended
March 31,

2015 2014
Segment Results – SOP
Beverage Concentrates $ 183 $ 174
Packaged Beverages 141 131
Latin America Beverages 17 13
Total SOP 341 318
Unallocated corporate costs 71 57
Other operating expense, net 1
Income from operations 270 260
Interest expense, net 27 25
Other income, net (1 ) (1 )
Income before provision for income taxes and equity in earnings of unconsolidated subsidiaries $ 244 $ 236

A-4

DR PEPPER SNAPPLE GROUP, INC.
RECONCILIATION OF GAAP AND NON-GAAP INFORMATION
(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 results:

Net sales and Segment Operating Profit, as adjusted to currency neutral: Net sales and Segment Operating Profit are on a currency neutral basis.

Free Cash Flow: Free cash flow is defined as net cash provided by operating activities adjusted for capital spending and certain items excluded for comparison to prior year periods. For the three months ended March 31, 2015 and 2014, there were no certain items excluded for comparison to prior year periods.

Core earnings: Core earnings is defined as net income adjusted for the unrealized mark-to-market impact of commodity derivatives and certain items that are excluded for comparison to prior year periods. For the three months ended March 31, 2015 and 2014, there were no certain items excluded for comparison to prior year periods.

The tables on the following pages provide these reconciliations.

A-5

RECONCILIATION OF NET SALES AND SOP
AS REPORTED TO AS ADJUSTED TO CURRENCY NEUTRAL
(Unaudited)
For the Three Months Ended March 31, 2015
Beverage Packaged Latin

America

Percent change Concentrates Beverages Beverages Total
Reported net sales 1 % 5 % 2 % 4 %
Impact of foreign currency 1 % % 12 % 1 %
Net sales, as adjusted to currency neutral 2 % 5 % 14 % 5 %
For the Three Months Ended March 31, 2015
Beverage Packaged Latin

America

Percent change Concentrates Beverages Beverages Total
Reported SOP 5 % 8 % 31 % 7 %
Impact of foreign currency 1 % 2 % 58 % 3 %
SOP, as adjusted to currency neutral 6 % 10 % 89 % 10 %
RECONCILIATION OF NET CASH PROVIDED BY OPERATING ACTIVITIES TO FREE CASH FLOW
(Unaudited, in millions)
For the
Three Months Ended
March 31,
2015 2014 Change
Net cash provided by operating activities $ 101 $ 129 $ (28 )
Purchase of property, plant and equipment (20 ) (37 )
Free Cash Flow $ 81 $ 92 $ (11 )

A-6

RECONCILIATION OF NET INCOME TO CORE EARNINGS
(Unaudited, in millions, except per share data)
For the Three Months Ended March 31, 2015
Reported

Mark to
Market

Core
Net sales $ 1,451 $ $ 1,451
Cost of sales 602 (2 ) 600
Gross profit 849 2 851
Selling, general and administrative expenses 552 1 553
Depreciation and amortization 27 27
Other operating expense, net
Income from operations 270 1 271
Interest expense 27 27
Interest income
Other income, net (1 ) (1 )
Income before provision for income taxes and equity in earnings of unconsolidated subsidiaries 244 1 245
Provision for income taxes 87 87
Income before equity in earnings of unconsolidated subsidiaries 157 1 158
Equity in earnings of unconsolidated subsidiaries, net of tax
Net income $ 157 $ 1 $ 158
Diluted earnings per common share $ 0.81 $ $ 0.81
Effective tax rate 35.7 % 35.5 %
Operating margin 18.6 % 18.7 %

A-7

RECONCILIATION OF NET INCOME TO CORE EARNINGS – (Continued)
(Unaudited, in millions, except per share data)
For the Three Months Ended March 31, 2014
Reported

Mark to
Market

Core
Net sales $ 1,398 $ $ 1,398
Cost of sales 554 12 566
Gross profit 844 (12 ) 832
Selling, general and administrative expenses 554 554
Depreciation and amortization 29 29
Other operating expense, net 1 1
Income from operations 260 (12 ) 248
Interest expense 26 26
Interest income (1 ) (1 )
Other income, net (1 ) (1 )
Income before provision for income taxes and equity in earnings of unconsolidated subsidiaries 236 (12 ) 224
Provision for income taxes 81 (4 ) 77
Income before equity in earnings of unconsolidated subsidiaries 155 (8 ) 147
Equity in earnings of unconsolidated subsidiaries, net of tax
Net income $ 155 $ (8 ) $ 147
Diluted earnings per common share $ 0.78 $ (0.04 ) $ 0.74
Effective tax rate 34.3 % 34.4 %
Operating margin 18.6 % 17.7 %

A-8