The Pepsi Bottling Group, Inc. Q3 2009 Earnings Call Transcript

The Pepsi Bottling Group, Inc. (PBG)

Q3 2009 Earnings Call

October 6, 2009 11:00 am ET

Executives

Jeff Danke – Director, Public Relations

Eric J. Foss - Chief Executive Officer

Alfred H. Drewes - Chief Financial Officer

Robert C. King - Executive Vice President; President, North America

Analysts

Judy Hong - Goldman Sachs & Co.

Lauren Torres - HSBC

William Picarello - Consumer Edge Research

Kaumil Gajrawala - UBS

Mark Swartzberg - Stifel, Nicolaus & Company

John Faucher - JPMorgan

Judy Hong - Goldman Sachs & Co.

Presentation

Operator

Welcome to the Pepsi Bottling Group’s third quarter earnings conference call. (Operator Instructions) As a reminder, today's conference is being recorded, Tuesday, October 6, 2009. Please note the company’s cautionary statement. Statements made in this conference call that relate to future performance or financial results of this company are forward-looking statements, which involve uncertainties that could cause actual performance or results to materially differ. PBG undertakes no obligation to update any of these statements. Listeners are cautioned not to place undue reliance on these forward-looking statements, which should be taken in conjunction with the additional information about risk and uncertainties set forth in the company’s annual report on Form 10-K for the year ended December 27, 2008.

I would now like to turn the conference over to Jeff Danke, Director of Public Relations of the Pepsi Bottling Group.

Jeff Danke

Thanks, everyone, for joining us. Eric Foss, our Chairman and CEO; Al Drewes, our CFO; and Rob King, President of PBG North America are on the call this morning. Our call is being recorded and will be available for playback on our Web site at pbg.com. We are also broadcasting the call live on our Web site.

Please keep in mind that all numbers referenced, unless specifically stated otherwise, are on a comparable basis. The items that impact our comparability are laid out in our non-GAAP reconciliation, which is available on the Investor Relations section of our Web site.

As we’ve asked of each of you, when it comes to Q&A, please try to limit yourselves to one theme of questioning at a time so everyone has a chance to ask what is on their mind. If you would like to ask a second question, please get back in the queue.

I would ask that you take note of our cautionary statement that Kate just read.

With that, let me turn the call over to Eric.

Eric J. Foss

Good morning. We're pleased you joined us to discuss PBG's third quarter results. As you saw in today's press release, PBG delivered a solid set of results in the quarter. We are encouraged by our performance for a number of reasons.

For starters, we delivered sequential improvement in our top-line volume and operating profit results versus the first half of 2009. In the third quarter our currency-neutral top-line performance had a two point higher growth rate versus the first half of the year. We also improved our volume run rate three points, and comparable currency-neutral operating profit improved ten points.

This is attributable to the progress we continue to make against our three strategic platforms for growth, which I will talk more about in a few minutes, as well as stabilization in the macroeconomic environment.

We also delivered solid year-over-year comparable results in the quarter. We achieved operating income growth of 10% on a comparable currency-neutral basis, our top-line was up 2% on a currency-neutral basis, as we grew our profits and top-line in each of our reporting segments, reflecting the successful execution of our strategy across each of our markets.

We continue to generate very good operating free cash flow, which we now expect to be about $550.0 million for the full year, excluding advisory fees related to our pending transaction with Pepsico. This is an increase of $100.0 million since the start of the year. And our cost and productivity initiatives will deliver over $265.0 million in savings for full-year 2009.

All of this enabled us to deliver comparable earnings per share of $1.06 in the quarter, which was in line with our expectations. It also has us on track to deliver full-year 2009 EPS growth in the mid-single-digit range on a comparable basis, a number we're very pleased with in light of just how challenging the external environment has been throughout the year.

There's also a lot to like with how we perform in each of our geographies in the quarter. Most notable, we delivered very good results in Mexico and Europe. In Mexico, our volume grew 1%, our top-line was up 8% on a currency-neutral basis, and we drove double-digit comparable currency-neutral operating profit growth in the quarter.

We also generated double-digit comparable currency-neutral operating profit growth in Europe, which includes the impact of acquisitions as well as significant sequential improvement in volume versus the first half of the year.

In the U.S. and Canada strong cost performance continued to drive solid profit growth in the quarter with comparable currency-neutral operating profit of 2%. Our productivity initiatives are ahead of our plans and we expect to deliver over $200.0 million in full-year savings across the U.S. and Canada.

Category and volume trends in the U.S. remain challenging. Our local currency-neutral top-line growth of 1% in the quarter is consistent with our full-year guidance. Overall, our success in the quarter, and really throughout the first nine months of the year, has really been driven by the progress we have made against our three strategic priorities.

First, we continue to strengthen and reposition our brand portfolio. Pepsico's "Refresh Everything" campaign continues to re-engage consumers and revamp brand Pepsi for today's marketplace. This has had a positive impact on our cola business where we gained share versus our primary competitor in third quarter.

We also continue to perform well in flavors. The addition of Crush has enabled us to make major inroads in the fruit-flavored CSD category, where we now hold the number-one or number-two position in most of our markets. Crush, combined with Mountain Dew and Sierra Mist, really does give us a compelling flavor lineup.

In non-carbs, SoBe Life Water had a terrific quarter. Volume was up more than 70% and Life Water gained share in the enhanced water category. Our zero-calorie, naturally sweetened SoBe Life Water lineup has been a big driver of these results.

And in the energy category, the combination of AMP and Rock Star has significantly enhanced our position. Our energy portfolio was up over 20% in the quarter and we have gone from having the number-four share of the category last year, to having the number-two share today.

This momentum within our brand portfolio, combined with the success of our global pricing strategy and great execution at the point of sale, drove positive top-line performance in Q3 and will continue to fuel our success during the balance of the year.

The last thing I'll highlight within our brand portfolio is the progress we're making with our learning labs program. As you will recall, learning labs are designed to enable us to test emerging niche-segment beverage brands in incubation territories to determine their viability within a bigger distribution system. This will provide us with early-stage access to new brands in growing categories.

And one such category that's captured a lot of attention recently is the coconut water category. We have been assessing this opportunity for some time and we are pleased to announce a distribution agreement and an equity investment in ONE last month. ONE is promising coconut water brand with significant growth potential and we will begin distributing it in Southern California and South Florida later this year. We expect our work in these markets to tell us a lot about ONE's potential within our system broadly.

Our second strategic priority is transforming our performance through operational excellence. And as I mentioned a moment ago, we're on track to deliver more than $265.0 million in cost and productivity savings. That's being driven by our efforts to optimize our manufacturing costs, transform our warehouse operations, and maximize our go-to-market effectiveness.

And just because the economy has shown a few early signs of recovery, it doesn't mean our commitment to operational excellence will become any less important as we move forward. The efficiency of our go-to-market system has always given the Pepsi enterprise a competitive edge in the market and our focus in cost and productivity won't diminish.

Another unwavering focus is on delivering consumer value and we continue to tailor and tweak our price and package offerings to better satisfy the unique consumer shopping behaviors across channels.

In single-serve we continue to be encouraged by the results we are seeing from 16-oz. can package and for the quarter we grew our single-serve CSP share in the convenience and gas segment. In take-home, we continue to build a more flexible package in value offering that will increase the number of value weeks for consumers, drive value, and expand price margin runway.

We expect consumers to remain very value-conscious for the foreseeable future and enhancing our value package portfolio will be a key priority in Q4 and 2010.

Our third strategic priority is to capitalize on geographic growth opportunities. In the U.S. we've done this by leveraging the accelerated pace of bottler consolidation, we have completed four domestic bottler acquisitions since the start of 2008, and each of those has given us access to new markets, expanded our footprint continuous geographies, and unlocked top- and bottom-line growth.

Outside the U.S. our strong third quarter performance in Mexico and Europe really reflects the progress we continue to make in building our revenue and margin-management capabilities in these international markets. We expect our international business to continue to strengthen as economies begin to recover.

In Russia, we also continue to make improvements in our [JSC] Lebedyansky acquisition where we once again gained share in the third quarter as the result of enhanced consumer value proposition and good execution at the point of sale.

Lebedyansky's financial performance in the quarter was also above expectations and we continue to feel good about the long-term growth potential of the Russia market, broadly, and the Russia juice market specifically.

So to summarize, the progress we've made against our three strategic priorities fueled our success in the third quarter, it will enable us to deliver a very good 2009, and it will bring tremendous value to the Pepsi enterprise well into the future.

But truly great companies do more than simply manage through challenging times. They also seize opportunities and take decisive steps to reshape industry boundaries and transform business models so that they can achieve sustainable long-term growth. And that's exactly what we've done by entering into a merger agreement with Pepsico.

As I said back in August, we believe that the strategic rationale for this transaction is enormous. For starters, today's marketplace looks very different than it did ten years ago. Our customer needs have changed, placing new demands on us as a service provider. Consumer beverage needs states have evolved, introducing greater variety, complexity, and choice across the brand portfolio.

Both top-line and bottom-line growth have become more challenging to deliver and I firmly believe that the pending Pepsico transaction is the best way for us to not only meet these challenges, but to thrive in the years to come. We believe this field benefits all of PBG's key stakeholder groups. A combined company will enable us to present a single voice and single face to our customers. It will also provide greater speed and flexibility when it comes to meeting and exceeding customer needs. In short, this transaction will reshape the Pepsi system in ways that give us a significant advantage in the marketplace.

This transaction also delivers significant value to PBG shareholders. The purchase price represents a substantial premium and the cash and stock mix offers upfront liquidity as well as the option of continuing as owners of the combined entity. And PBG employees will benefit from the many new opportunities for career growth and professional development that Pepsico has to offer.

Now here's what I can tell you in terms of where the transaction currently stands. As you know, the deal requires regulatory and shareholder approval. We filed our Hart-Scott-Rodino notification with the Federal Trade Commission on September 11, 2009. The Form S-4 was filed with the Securities and Exchange Commission on October 1, 2009. Both of the filings are now in the process of being reviewed by the FTC and SEC. In addition, following the necessary regulatory approvals, we will seek the approval of PBG shareholders. More detailed information about the entire approval process is disclosed in the S-4.

At the same time, planning for the integration of our companies is well underway. Yesterday Pepsico announced plans to form a new entity called the Pepsi Cola Bottling North America, effective upon the closing of the transactions with both PBG and Pepsi Americas.

And I am extremely excited to have the opportunity to lead this new entity and I look forward to working with the talented people across Pepsi Americas, Pepsi Bottling Group, and Pepsico to re-energize our North America beverage business, provide profitable growth for our customers, and sustain a high performance and compelling environment for our people.

We continue to expect this transaction to be completed in late 2009 or early 2010, and once that happens we believe the unified beverage company will be well positioned to win in the marketplace for many years to come.

Now, before I turn the call over to Al, I would like to say just a few words about the past ten years at PBG, because while I'm excited about the future for the Pepsi system, I am also extremely proud of what our people have accomplished since 1999. Our strong performance year-to-date really caps a ten-year run for PBG, during which we've established ourselves as a world-class operating company.

It has been a decade of meeting the needs of our customers, improving our service at the point of sale, and achieving greater customer loyalty. Most importantly though, we've helped our customers to grow their business, something we believe we'll become even better at in the future.

It's also been a decade of creating wealth for our shareholders, with the PBG stock price rising nearly 3.5 times since our IPO in 1999. And it's been a decade of building careers for our employees. Along the way, we've nearly doubled the size of our workforce, we created a diverse and inclusive work environment, we've introduced award-winning employee programs, and we have created a culture of recognition and appreciation throughout the company.

All of this had led to employee insight satisfaction scores that have increased each of the last seven years. And I would like to end on that last point because during the course of this journey we've been on as a company, the men and women of PBG have been the engine consistently moving this business forward. I'm talking about people like the Bivens family in Knoxville, Tennessee, whose members have collectively dedicated almost 600 years to serving the Pepsi system. Or Mario Geteris who is in his fifth decade with Pepsi, and at age 69 still arrives at our Miami facility at 5:30 every morning, before hitting the trade to meet with customers.

These types of stories are not uncommon, as I visit our facilities around the world and yet they never cease to impress or humble me. PBG has always been fortunate to have a portfolio of strong brands and a powerful go-to-market system but the reality is that we could not have built the company that we are today without such a talented and motivated workforce. We have taken great pride in building the right culture for success and the result is what I call PBG's unquenchable spirit that so many of our employees epitomize.

Our decade of success is the byproduct of their hard work and dedication and I have no doubt that they will continue to lead the Pepsi system forward in the future. When we combine the unquenchable spirit of PBG with the tremendous talent within PAS and Pepsico, the result will be a bigger, stronger, and faster bottling enterprise than ever before.

And with that, let me turn the call over to Al.

Alfred H. Drewes

I am going to provide additional commentary on our Q3 results, as well as update you on our guidance.

To build on what Eric just said, this was a very good quarter for PBG. We have seen sequential improvement in our business versus the first half of the year and we are on track to meet our full-year earnings objectives. Our comparable diluted EPS of $1.06 in the quarter was in line with expectations. You will recall that we had previously improved our full-year EPS guidance 3.0x and this quarter's results confirm our full-year outlook.

With three quarters of the year now behind us, including our peak summer selling season, I thought it would be worthwhile to take a look at how 2009 has developed thus far.

When we spoke about our 2009 outlook back in February, we were facing a challenging set of global macros. Our forecast called for declining GDP and LRB category growth in all of our countries. Foreign currencies have devalued substantially and the financial markets were very challenged.

Back then we talked about several things we were going to do in order to manage through the economic downturn effectively. First, we adopted a more dynamic iterative planning process that prepared us for a wider range of scenarios; second, we heightened our focus on productivity; third, we took an even more disciplined approach to working capital management and capital budgeting; and fourth, given the ForEx uncertainty, we asked our teams in Europe and Mexico to strive for local currency profit growth by activating initiatives to cover the significant transactional ForEx pressures impacting COGS.

With these four priorities in mind, we then identified a short list of objectives by which we would measure our progress and our success. These objectives included comparable, currency-neutral top-line and operating profit growth in the low single digits, productivity savings of $250.0 million, and operating free cash flow of $450.0 million.

We have gone on to execute our plans very well in each of these areas and we are on track to achieve or exceed all of the objectives I've just mentioned. As Eric said earlier, we delivered currency-neutral top-line growth of 2% and comparable currency-neutral operating profit growth of 10% in the third quarter.

Both of these numbers represent a meaningful improvement versus the first half of the year. Our productivity savings have surpassed expectations while the aggressive approach we took towards working capital management and capital budgeting has given us ample financial flexibility and we have taken local currency pricing actions to cover COGS, which is reflected by our currency-neutral worldwide marginal contribution growth of 2% in the third quarter.

In addition, while the macro environment remains challenging, it is improved relative to the beginning of the year. Commodity and foreign currency headwinds have moderated as the year has unfolded and although the LRB category hasn't returned to growth, our worldwide fiscal case volume being down 2% in the third quarter represents a substantial improvement from the mid-single-digit decline of the first half.

Before I turn to our guidance let me comment on the items excluded from our third quarter comparable results. These include our previously announced Structured to Succeed workforce realignment as well as advisory fees related to the pending Pepsico transaction. We also benefitted from the settlement of tax audits in some international jurisdictions.

Lastly, back in February I told you that we were changing our segment reporting to include a corporate unallocated segment and that we would be booking mark-to-market adjustments related to our commodity hedges in this segment. You see this reflected in our Q3 segment reporting. Reconciliations for all of these items are attached to our press release and can be found on our Web site.

Now let me turn to our guidance. To start, our financial guidance remains unchanged from Q2, except that we've improved our cash flow outlook to $550.0 million. For the full year, our currency-neutral comparable guidance is as follows. We expect top-line growth in the low single digits, we are forecasting COGS per case to be up 6% to 7% and we expect operating profit growth in the low- to mid-single digits.

Our full-year comparable guidance in U.S. dollars is as follows: top line down low- to mid-single digits; COGS per case will be about flat; operating profit will be about flat; EPS will be near the high end of our existing guidance range of $2.30 to $2.40; and, as I just mentioned, we are now operating free cash flow to be about $550.0 million, excluding advisory fees related to the Pepsico transaction.

Our positive operating free cash flow performance continues to improve due to our focus on working capital management as well as continued capital discipline.

Reported COGS per case declined 2% in the third quarter while COGS per case increased 6% on a comparable currency-neutral basis.

The ruble, peso, and other foreign currencies have also remained at stronger levels relative to their first quarter lows.

Overall, we are pleased with both our Q3 and year-to-date performance. We are also cautiously optimistic about the outlook for the external environment and as Eric mentioned, we are excited about the future of the Pepsi system. PBG's operating strengths, combined with the strategic benefits associated with the pending Pepsico transaction, give us confidence as we look ahead to 2010 and beyond.

And with that, I will turn the call back to Eric.

Eric J. Foss

So to summarize, our third quarter results were in line with expectations, we are very pleased with the strength of our year-to-date results, and we are on track to deliver another very good year in 2009.

So with that, we would be happy to take any questions you may have.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Judy Hong - Goldman Sachs & Co.

Judy Hong - Goldman Sachs & Co.

Eric, I was wondering if you could give us a little bit more color in terms of the volume trend in the U.S., CSD versus non-carbs and then by channel, the single-server or versus take-home.

And then you've talked about the LRB category hasn't really returned to growth at this point. Do you have any expectation in terms of when the category will return to growth?

Eric J. Foss

Let me have Rob take that.

Robert C. King

The category in the third quarter, total LRBs in our markets, was down about 2% versus prior year. And that's relatively consistent with year-to-date trends.

The CSD business is performing a little bit better than the non-carb business. CSDs were down low-single digits. Our CSD business was actually flat in the quarter so we gained share.

The water business is about flat overall, when you combine measured and unmeasured channels. And then the non-carb business was flat to down modestly.

So the category is still under pressure as consumer spending is still relatively weak in the marketplace. I think consistent with what we've seen throughout the first couple of quarters as well, we're seeing healthier trends in our channels for at-home consumption. So the grocery business and the large format business where consumption is for home, those channels are healthier, while away-from-home consumption, like food service, tends to still be weak.

So what I would suggest is overall, the category still has a little bit of pressure in the marketplace but we feel very good about our progress. We've been focused on leveraging our brand portfolio and particularly pleased with our progress in CSDs. We stay focused on execution and service and winning at the point of sale. And I think you've seen that we've continued to focus on driving the right type of value and managing our revenue and margins in the marketplace and really leveraging our costs to get to solid business performance in the marketplace.

Eric J. Foss

And the only thing I would add is that obviously the continued economic conditions, GDP, unemployment, consumer concerns in the U.S. are continuing to not just put pressure on the LRB category, but other categories. And so I think Rob described the category dynamic well.

Operator

Your next question comes from Lauren Torres – HSBC.

Lauren Torres - HSBC

My question is a follow-up on trends with your non-U.S. markets. We actually did see volumes positive in the quarter in Mexico, so just curious about what you're seeing there.

And you didn't really touch upon what is going on in Russia, so any update on that market would be helpful.

Eric J. Foss

Let me just start in Europe. If you look at our first half, what we saw was macro pressures, category pressures, and fairly significant volume pressures to the tune of double-digit declines in our Europe business, volumetrically. I think third quarter we were down mid-single digit. Our bottom-line was up double-digit, looked really, really good, strong in Russia, Turkey, Spain.

All of our countries in Europe saw improved volume run rates in third quarter versus the first half. Turkey and Greece were up mid-single digit in third quarter versus down volume. Turkey was down double digit the first half. Spain saw improvement in the trends. They were down double digit the first half. They were down low-single digit in the third quarter.

Russia is the one that continues to face a lot of macro pressures. And so the category continues to be down double digit, unemployment high single digit. So again, long term we love the Russian market and what opportunities it presents, but it's probably the one country that is continuing to be most pressured by the macroeconomic conditions.

In Mexico we were very pleased with third quarter. Our top line was up 8%, volume was positive. You know, we continued to execute the plan that Rob and Brent and the team have executed so well year-to-date. We saw our CSD business grow, our non-carb business grow. Good bottom-line profitabilities. So I think Mexico was extremely encouraging.

Robert C. King

I would just offer up is we were particularly pleased with the progress our CSD business made in Mexico, led by trademark Pepsi, which grew about 5% in the quarter. And we saw sequential improvement volumetrically across all of our major categories in the third quarter in Mexico, so very pleased with the trends.

Operator

Your next question comes from William Picarello - Consumer Edge Research.

William Picarello - Consumer Edge Research

Question on the post-Labor Day pricing that you were planning to take. How did that go? Are you seeing competition follow? CC was lapping at 10% increase from year ago. And I know might wait until after the Super Bowl.

And also if you can comment—anything you can say on the commodity outlook on key input costs.

Eric J. Foss

I will comment on the pricing. So consistent with what we've executed, really year in and year out over the past decade, we publish pricing post Labor Day and that pricing is in effect in the marketplace and has been satisfactorily received by our customers. And so we feel good about the actions that we've taken. They are consistent with guidance for the year and we believe it's setting ourselves up for next year as well.

Our pricing right now, according to our customers, is competitive in the marketplace. I'm not going to speculate on what my competitors have done, but what I would say is right now our pricing plans are well established and we are executing them and we are holding them in the marketplace 30 days after Labor Day.

Alfred H. Drewes

With respect to commodities, I think we will table the 20/10 discussion for a few weeks or a couple of months obviously. But I guess the main point would be, you know, we've talked in the past that we average into our hedged positions and that's basically what we've been doing, is to try to leg into our hedge positions and we are locked for this year and then we've been averaging in for next year. So you know what the trend in the spot costs have been and that's what we've been averaging into.

Operator

Your next question comes from Kaumil Gajrawala – UBS.

Kaumil Gajrawala - UBS

Just to follow-up on promotional activity, it seems like we're hearing a lot from the trade that promotional activity has kicked up quite a bit in the fall, so it sounds like pricing has gone into effect. But a good deal of that is being dealt back through promo activity. Could you talk about if anything has changed strategically and if promo activity, sequentially through the year, has picked up?

Eric J. Foss

I would suggest that our pricing is certainly indicative of our ability to take pricing in the marketplace. We were pleased with our progress on pricing and revenue and margin management while still being sensitive to consumer value in the first three quarters of the year. And our price increases post Labor Day have been accepted by the trade and well executed.

What I would say is that certainly given the consumer shopping environment and pressure on overall consumer spending, it shouldn't be surprising to anyone for retailers to look at our categories and our brands as traffic drivers. And so you certainly might see some retail investment in the category to drive the business but our pricing is secure and as I said before, it's executed and we feel good about it.

Operator

Your next question comes from Mark Swartzberg - Stifel, Nicolaus & Company.

Mark Swartzberg - Stifel, Nicolaus & Company

I guess a question for you, Eric, or Rob, can you just give some more color as you think about—on this subject of improving the value in package options in the fourth quarter, specifically how are you thinking about that from a channel perspective? Where will your emphasis be? And then the price points you're trying to hit I presume are lower while still protecting profitability, so any more color you can give on those plans there would be great.

Robert C. King

We've looked this year at reconceptualizing our pricing and packaging architecture across our single-serve business and our take-home business, and we've looked at it across multiple channels. So for example, in the convenience store environment this year, we introduced 16-oz. cans at a target price of $0.99 and that was to enhance our primary offer of 20-oz. single-serve CSDs.

And what we've seen year-to-date is that strategy has worked well. We are growing our share of single-serve CSDs, both thin the third quarter and on a year-to-date basis and we plan to continue to expand that offering and have greater representation on that, not only in the fourth quarter but next year as well.

On the take-home side of the business, we've looked at a couple of initiatives on cans and on take-home plastic. I think you know we've looked at new can pack configurations in an effort to drive consumer value and to increase our volume and share and to ensure we have some margin runway in the future. And we have 8-pack in a number of our markets right now and 18-pack cans broadly across the United States as an LTO.

I think what you'll see in the fourth quarter and next year is that we will match the right package and value offer to specific channels and you'll see us be, I think, much more astute when it comes to matching our package offer and our value offer to shoppers in channels than ever before.

And then last but not least, we launched an 8-pack 12 oz. resealable bottles nationally in the last 100 days and that has a target price value of $2.99, and then you'll see it on the shelf as an everyday value, non-promotion, between $3.49 and $3.99. We think having $0.99 offers out there on single-serve, we think having can offers out there on 8-pack at around $0.99 and a plastic offer between $2.99 and that $3.49 price point really can stimulate new demand in the category and once again allow us to achieve value, volume, and margin growth objectives, not only in Q4 but in 2010 and beyond.

Eric J. Foss

I would say, as you've seen us in the past, one of the things, if there's one word that I think epitomized what we try to do in terms of the whole price value approach, it's balance. And so it's never about volume at all costs or value at the expense of volume and it's balance. And particularly in this environment. This economic environment, this consumer environment, making sure we're balanced is very important, and as Rob just laid out, in terms of some of the specifics, our focus on value and value impression and really one of the things that's a big priority for us is trying to improve our value impression and off add week of volume. So that's a big priority for us.

Operator

Your next question comes from John Faucher – JPMorgan.

John Faucher - JPMorgan

Just a follow-up on the volume piece here. And I apologize, it sounded like your CSD business was down low-single digits. Is that correct? And then can you break that out in terms of, give us a little bit of a clue in terms of how Crush is doing. Are you still seeing a lot of shelf-sell on that? Is that reached a more normalized take-away level and how do you feel about the volume impact from Crush now versus maybe some of the impact we saw in the previous quarters.

Eric J. Foss

I am assuming you're talking about North America volume? We will answer it as North America.

Robert C. King

In the U.S. our CSD business was flat versus prior year, so while the category was down, we are very pleased with our performance and in fact, we grew share in the quarter and we're growing share year-to-date. We are very pleased with Crush and Crush has sustained its position in the marketplace since its launch in February earlier this year. Right now it's about a 2% mix and sustaining that level, and as Eric mentioned in his comments, either a number-one or a number-two broadly in fruit-flavored CSDs across most of our markets.

So I think as we had mentioned earlier this year, revitalizing and re-energizing our CSD business was a key component of our strategy and we feel very, very good about our total CSD portfolio and we certainly feel good about Crush.

We also feel good, though, about our cola business. We're growing share on cola. We feel good about our Mountain Dew brand. And overall the CSD business is certainly exceeding our expectations this year in our U.S. business.

Operator

Your next question is a follow-up from Judy Hong - Goldman Sachs & Co.

Judy Hong - Goldman Sachs & Co.

Eric, I had a follow-up just in terms of now that you'll be heading the bottling unit within Pepsico. I'm wondering if you have any updated views in terms of the strategic importance of carrying some of these non-Pepsi brands. I mean, you've talked about how strong Crush has been and so if you have any views in terms of how important or critical it is to carry some of these brands, even when you are part of Pepsico.

Eric J. Foss

Let me start, I think it's very, very important and I don't think I'm speaking just for myself. I think I'm speaking for Pepsico as well. As you well know, in the bottling business and the DSD business it's a business that's all about volume and scale and so we have had—the great news is that we start with a great portfolio of Pepsico products and we today have a very strong partnership with Dr. Pepper and Larry Young and both the Dr. Pepper brand and the addition of Crush in the last year has just continued to move that partnership closer.

So we would expect to continue to look for brands beyond Pepsico to make sure that we have the most powerful lineup, plenty of scale in terms of leveraging in our direct-store delivered system and to make sure that we're, at minimum, a strong number one or strong number two.

You've heard us talk about this whole making sure we reposition and strengthen our brand portfolio the last year or so, and that's been about closing any of those brand gaps, filling in white space and looking for new brands through this learning lab. So you can expect us to continue to be very interested and exploratory relative to adding brands to our lineup.

Operator

This concludes the Q&A session.

Eric J. Foss

Let me just close by, again, thanking everybody for joining us this morning. We appreciate your continued interest in PBG and look forward to seeing everybody soon.

Operator

This concludes today’s conference call.

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Comments

[JoGuy:]

This is not a fiscal year, but a regular year...

Oct 07 07:13 PM