Dr Pepper Snapple Group Inc. (NYSE: DPS) reported third quarter 2014 EPS of $0.96 compared to $1.01 in the prior year period. Core EPS were $0.98, up 11 percent, compared to $0.88 in the prior year. Year-to-date, the company reported earnings of $2.79 per diluted share compared to $2.28 per share in the prior year period. Core EPS were $2.77, up 23 percent, compared to $2.25 in the prior year period.
For the quarter, reported net sales increased 3 percent driven by favorable segment mix, product and package mix and net pricing. Reported segment operating profit (SOP) increased 4 percent, or $15 million, on favorable commodity costs and ongoing productivity improvements that were partially offset by higher transportation and manufacturing costs. SOP was also negatively impacted by an unfavorable year-over-year LIFO comparison of $7 million and an unfavorable comparison to a $6 million adjustment to a legal provision in the prior year.
Reported income from operations for the quarter was $316 million, which includes a $2 million unrealized commodity mark-to-market loss. Reported income from operations was $300 million in the prior year period, which included a $1 million unrealized commodity mark-to-market gain. Core income from operations was $318 million, up 6 percent compared to the prior year period.
Year-to-date, reported net sales increased 2 percent, and reported income from operations was $924 million, including $10 million of unrealized commodity mark-to-market gains. Reported income from operations was $782 million in the prior year period, which included $13 million of unrealized commodity mark-to-market losses. Core income from operations was $914 million, up 14 percent compared to the prior year period.
DPS President and CEO Larry Young said, “Our teams posted yet another quarter of solid performance in what continues to be an extremely challenged environment. We remained focused on our strategy of building our brands with consumers and executing with excellence in the marketplace.”
Young continued, “Rapid Continuous Improvement (RCI) has become the foundation of our business, and it continues to yield improvements across the organization.”
For the quarter, BCS volume increased 1 percent with carbonated soft drinks (CSDs) and non-carbonated beverages (NCBs) both increasing 1 percent.
In CSDs, Peñafiel volume increased 25 percent on product innovation. Our Core 4 brands increased 3 percent driven primarily by a high-single-digit increase in Canada Dry. Sunkist soda increased low-single-digits, while 7UP and A&W were both flat in the quarter. Schweppes increased 8 percent and Dr Pepper volume declined 2 percent, driven primarily by declines in our diet products. Fountain foodservice volume grew 1 percent for the quarter.
In NCBs, Clamato volume increased 7 percent, and our water category grew 3 percent for the quarter. Snapple grew 2 percent for the quarter, driven primarily by mid-single-digit growth in Snapple Premium, which was partially offset by our de-emphasis on our value products. Hawaiian Punch volume decreased 2 percent in the period, and Mott’s declined 1 percent on lower sauce volumes.
By geography, U.S. and Canada volume was flat, and Mexico and the Caribbean volume increased 10 percent.
Net sales for the quarter decreased 1 percent as concentrate price increases taken earlier in the year were more than offset by a 3 percent decline in concentrate shipments. SOP for the quarter was flat as the decline in net sales and increases in certain operating costs were offset by planned reductions in marketing investments of $2 million and favorable cost of goods trends.
Net sales for the quarter increased 2 percent on higher sales volume. Favorable product and package mix was offset by increased promotional activity in the quarter. SOP increased 8 percent as a result of favorable cost of goods trends and ongoing productivity improvements, which were partially offset by an unfavorable comparison to a $6 million adjustment to a legal provision in the prior year and increased manufacturing and logistics costs in the current year.
Latin America Beverages
Net sales for the quarter increased 21 percent on a 10 percent increase in volume driven primarily by Peñafiel innovation, higher pricing associated with the pass-through of the sugar tax in Mexico and favorable mix. SOP increased 38 percent as net sales growth and ongoing productivity improvements were partially offset by increases in logistics and operating costs.
Corporate and other items
For the quarter, corporate costs totaled $76 million, which includes a $2 million unrealized commodity mark-to-market loss and higher incentive compensation costs. Corporate costs in the prior year period were $75 million, including a $1 million unrealized commodity mark-to-market gain and a $7 million restructuring charge.
Net interest expense declined $2 million compared to the prior year period.
For the quarter, the reported effective tax rate was 34.0 percent. The reported effective tax rate for the prior year period was 231.8 percent as the completion of an IRS audit increased our effective tax rate by 195.5 percent.
Year-to-date, the company generated $769 million of cash from operating activities compared to $616 million in the prior year. Capital spending totaled $103 million compared to $111 million in the prior year period. The company returned $513 million to shareholders in the form of stock repurchases ($276 million) and dividends ($237 million).
2014 full-year guidance
The company now expects full-year reported net sales to be up approximately 1 percent and expects core EPS to be in the $3.56 to $3.62 range.
Packaging and ingredient costs, including LIFO impacts, are now expected to decrease COGS by 2.5 percent on a constant volume/mix basis.
The company now expects its core tax rate to be approximately 35.0 percent.
The company continues to expect capital spending to be approximately 3 percent of net sales.
The company expects to repurchase $375 million to $400 million of its common stock.