Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Dr. Pepper Snapple Group, Inc. (NYSE:DPS)

Q4 2009 Earnings Call Transcript

February 25, 2010 11:00 am ET

Executives

Aly Noormohamed – SVP, Finance and IR

Larry Young – President and CEO

John Stewart – EVP and CFO

Analysts

Bill Heckloriello – Consumer Edge

Judy Hong – Goldman Sachs

Mark Swartzberg – Stifel Nicolaus

Andrew Keeley – Deutsche Bank

Caroline Levy – CLSA

Kaumil Gajrawala – UBS

Damian Witkowski – Gabelli & Company

Operator

Good morning, and welcome to Dr. Pepper Snapple Group's fourth quarter and full-year 2009 earnings conference call. Your lines have been placed on a listen-only mode until the question-and-answer session. 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 Mr. Aly Noormohamed, Senior Vice President, Finance and Investor Relations. Sir, you may begin.

Aly Noormohamed

Thank you, Melissa, 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 statements 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 restaurant measures that reflect the way we evaluate the business, and in 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 John Stewart, our CFO. Following our prepared remarks, we'll open the call for your questions. With that, let me turn the call over to Larry.

Larry Young

Thanks, Aly, and good morning, everyone. It was great to see a lot of you at CAGNY last week. We certainly covered a lot of material there. So beyond our Q4 results, the majority of our comments will focus on our outlook for 2010. I'm sure many of you have questions regarding what impact the acquisition of Coca-Cola Enterprises North America may or may not have for our business. This potential transaction is yet another great example of the strategic importance and growth potential of the North American beverage market.

As I've said before, our guiding principal is to always do what's best for our brands, our customers, our consumers, and ultimately you, our stockholders. As I'm sure you'll appreciate, discussions with customers or potential customers are something best handled in private. Therefore, it would be premature and certainly inappropriate for us to comment on this transaction for the time being. We'll come back to you with more news when we have something to share.

Now, turning to our fourth quarter and full-year results. Despite a tough economy, I'm proud of our accomplishments in our first full year as a stand-alone company. We executed against our focus strategy, and as a result, we've delivered solid results. We've expanded consumption and availability of our products with wins in key fountain accounts like McDonald's and Jack in the Box.

And we exceeded our year one cold drink equipment program goals with placements of almost 36,000 incremental coolers, including wins in Dollar General, Hess, and Wal-Mart. Leveraging our broad and flexible route to markets, we teamed up with the Pepsi bottlers to significantly expand Crush distribution across the US. Flawless execution catapulted this brand to the number two position in fruit-flavored CSD space.

Additionally, we were very happy with the license agreement we reached with PepsiCo, pending their acquisition of the Pepsi Bottling Group and PepsiAmericas. We're the only major beverage company in North America to grow CSD and LRB volume and volume share in 2009. Our CSD share grew 1.2 points, and our LRB share was up 0.7 of a point. During the year, we invested in our infrastructure, our brands, and our people to realize the full potential of the business. Our fifth regional center in Victorville, California is on track and on budget. The first phase of our SAP upgrades covering our DSD business, and the roll out of our handhelds are almost complete.

We further engaged our employees through call to action workshops and by tying their incentive plans to key operational metrics. While we've made great progress and established a solid base, we still have more to do.

Moving on to Q4 and full-year results, the business delivered another quarter of solid results, and we delivered on our full-year commitments. North American beverages remain challenging and consumer spending remained weak. Pricing remains rational, and we're continuing to see a bias toward promotional activity versus price off. Excluding the loss of Hansen's product distribution in the prior year, volume grew 4% for both the quarter and the full year.

For the quarter, CSD volume was up 4%, with Crush adding a 12 million incremental cases. Canada Dry and 7UP grew high single digits as we stepped up our marketing investments behind them. Dr. Pepper declined less than 1%, driven by our fountain business with QSR traffic down 3%. Excluding fountain, Dr. Pepper grew 3%.

In non-carbs, Mott's grew 23% on strong promotional activity, as well as favorable comparisons to the prior year, and Hawaiian Punch grew 4%. Premium price beverages were flat for the quarter, stabilizing for the first time this year. And I'm happy to report that Snapple Premium was up 3%, and our value tea business more than doubled. This growth was partially offset by continued declines in our super premium tea business.

Net sales, as adjusted were flat for the quarter and up 2% for the year. Pricing taken earlier in the year combined with continued strong volume trends were offset by the negative mix from higher sales of CSD concentrates and value juices. Additionally, the loss of certain contract manufacturing, higher marketplace investments, and higher than expected concentrate buy-in ahead of our January price increase further impacted our sales for the quarter.

Segment operating profit, as adjusted, grew 6% in the quarter and 17% for the year. We continued to benefit from favorability in packaging, ingredients, and transportation costs. At the same time, we stepped up the level of marketing and productivity office investments in the quarter to drive long-term brand health and continuous improvement.

As a brand owner, we know in tough economic times like these, increasing the relevance and awareness of our brands and investing in the business are critical to fuel our long-term success. Our 2009 market investments were up over $50 million with a majority of the spend in the fourth quarter. In fact, GRP growth almost tripled as we increased our ads for 7UP, Canada Dry, Dr. Pepper, and Snapple. Targeted coastal programming for Dr. Pepper drove per capita consumption increases in 80% of the markets. And a one liter rack program for Canada Dry drive drove strong volume performance in the quarter.

As I've said before, the productivity office is all about a lot of small projects. For example, in Q4, we invested in building revenue and margin management capabilities. We consolidated legal entities to enable better tax planning. We outsourced certain IT applications and hardware support, and we continued to tweak the organization to improve customer alignment.

Our 2010 priorities are simple and clearly aligned with our focused strategy. We'll continue to grow per capita consumption, while expanding distribution and availability through targeted coastal and Hispanic programming and feet on the street initiatives. Our new manufacturing facility in Victorville, California, adds much needed juice and mixer capacity to fuel our West Coast expansion. We'll increase our single serve mix through wins in fountain, including the rollout of Dr. Pepper in all McDonald's. We are in the second year of a five-year cold drink equipment program, and we expect to place another 35,000 incremental units.

Infrastructure investments will include the completion of our SAP upgrade and handheld rollouts in DSD. The start-up of our new Victorville facility, the second phase of our SAP upgrades in the warehouse direct and Mexico businesses, as well as expansion of our Midwest regional center. We'll continue to build our bench strength and still a set of behaviors that are truly DPS, leveraging an online training program designed to develop leaders as coaches.

We'll continue to invest in the marketplace, to increase the relevance and awareness of our brands. Our 2010 innovation pipeline is strong and builds on our 2009 successes. Our focus on fun, functionality, and flavor will ensure our products meet changing consumer needs. The licensing of certain brands to PepsiCo is expected to be completed by the end of February.

As we announced this morning, our Board authorized the repurchase of up to $1 billion of our common stock. As we achieve our target capital structure, our focus will shift from debt reduction to returning excess cash to our shareholders. Now, let me turn the call over to John to walk you through some of our below-the-line items and our 2010 guidance.

John Stewart

Thanks Larry, and good morning, everyone. Before I cover fourth quarter items and 2010 guidance, I wanted to take this opportunity to congratulate our entire organization for all their hard work as we achieved full SOX compliance in our first full year as a public company.

For the quarter, we invested $11 million in productivity office initiatives bringing the full year to $29 million. We expect these investments will drive over $80 million of cumulative savings over the next five years. We recognize commodity-related mark-to-market gains of $6 million in the quarter bringing the full-year gains to $18 million.

In December, we took advantage of very attractive market conditions to refinance a portion of our debt and raised $850 million, consisting of $400 million of 1.7% senior notes due in 2011 and $450 million of 2.35% senior notes due in 2012. Proceeds from the issuance were used to pay down our floating rate term loan, and that resulted in us accelerating the recognition of deferred financing costs of $30 million in Q4.

As you think about the unusual items in the quarter, the accelerated expensing of deferred financing costs was essentially offset by higher than expected concentrate buy-ins ahead of the January 2010 price increase, as well as a 30.5% tax rate compared to the 38% we guided to in our third quarter call. Our fourth quarter tax rate primarily reflected favorable deferred tax items.

Full-year cash provided by operating activities was $865 million, cash flow growth was driven by net income gains, distribution agreement termination payments, and the absence of separation-related items. Net capital spending of $312 million reflects continued strong investment in our supply chain and IT infrastructure as well as cold drink assets [ph].

At the end of the year, our debt obligations totaled $2.955 billion, down $550 million from our beginning of the year balance. As Larry mentioned earlier, we continued to operate in a fairly challenging macroeconomic environment. However, our portfolio of leading brands is well positioned to capture the continued shift to flavored CSDs and the potential recovery in premium price beverages toward the end of 2010.

In line with our long-term algorithm, we expect net sales to increase 3% to 5% in 2010. There are a number of drivers here, so let me take a moment to elaborate. We expect continued positive flavored CSD trends, expansion of fountain, Snapple's turnaround, and the recovery in our premium price beverages to drive volume growth in both our CSD and non-carb portfolio. This growth will be partially offset by the planned loss of certain contract manufacturing, and unfavorable comparisons related to the concentrate buy-in ahead of the January price increase. We also expect that the repatriation of certain brands from Pepsi Bottling Group and PepsiAmericas following their acquisition by PepsiCo will result in a shift of volume between segments.

Let me remind you of the mechanics of this brand repatriation. Today, our beverage concentrate segment sells concentrate to PBG and PAS. As we bring the brands back in house, we will cease selling the associated concentrate and begin manufacturing and distributing finished product in our packaged beverages segment. This results in a shift of volume and concentrate profit, as well as the incremental distribution margin made by our DSD system. We continue to see irrational pricing environment. This, combined with low single digit concentrate price increases taken January first, as well as the mix benefits from continued single serve expansion and a late second half recovery in premium price beverages, will result in low single digit price mix growth.

Additionally, net sales will also benefit from the one-time cash payment of $900 million that we expect to receive from PepsiCo. This will be deferred and recorded as net sales in our beverage concentrate segment and will be recognized over 25 years. There is no cost associated with this revenue stream, so it flows right through the P&L.

For the year, we expect diluted earnings per share to be in the $2.27 to $2.35 range. This reflects healthy top line growth, continued strong management in the middle of the P&L, and continued investments in our brands to support the long-term health of the business. To the extent that our portfolio overdelivers, we would expect to make further investments in our brands similar to 2009.

Below the line, we're not seeing significant leverage in interest expense. Rapid debt reduction in 2009 and 2010, combined with the highly opportunistic bond deal we did this past December, results in an all-in interest expense of approximately 5%. Additionally, our average debt balance is $500 million lower year-over-year. Our full-year tax rate is expected to be approximately 38%, which includes $15 million related to items indemnified formerly by Cadbury and now by Kraft. This is much more in line with our ongoing tax rate and reflects the absence of favorable deferred tax items and foreign tax credits that we recorded in 2009.

In terms of capital expenditures, we continue to expect net spending in the 5% of net sales range – as we complete Victorville, enter year two of our five-year cold drink expansion strategy, upgrade our warehouse and Mexico businesses to SAP 6.0, and continue to invest in supply chain optimization initiatives.

As we announced in this morning's earnings press release, our Board of Directors has increased their share repurchase authorization to $1 billion. While we have no plans to set a specific repurchase level for 2010, we do expect to commence repurchasing our shares as soon as we hit our target capital structure. As you know, we had significant packaging and ingredients favorability in 2009. Based on the cover we have taken to date and at today's prices, we expect packaging ingredients to increase total COGS between 1% and 2% on a constant product mix basis. This is slightly worse than the 1% we had indicated on our third quarter earnings call, as we have seen further cost pressure in apples, juice concentrates, and other packaging items.

As a basket, aluminum favorability is more than offset by PET, apples, juice concentrates, and other ingredient inflation. As we indicated, we have a number of items that are embedded in our full-year guidance that in some cases also have an impact on our phasing. Consumer trends continued to be weak, however, we believe that we will start to see a recovery in the third trimester of 2010.

Our 2009 productivity office initiatives were second half-weighted. This should be more balanced than 2010, and we should also see around $15 million of productivity savings over the year. Victorville's start-up expenses will be first half-weighted while transportation savings will ramp up in the second half. Depreciation on the facility has now started and is expected to grow slightly as new lines come on stream.

2010 is the third and final year of our stock-based compensation cost step-up. These costs are expected to increase $12 million, bringing our ongoing annual expense to around $31 million. Based on current spot prices, foreign currency adds about 50 basis points to net sales growth and around $0.03 to EPS. Most of this benefit is expected to occur in the first half of the year.

Finally, as a reminder, we recorded $18 million of commodity-related, mark-to-market gains in 2009, mainly, second quarter and fourth quarter. While we continue to add to our hedges, we have the potential to have commodity-related, mark-to-market losses in 2010. Clearly, a number of items are impacting our growth rates over the year. But I would say in summary that we expect to see a much stronger second half compared to the first half.

And with that, let me turn the call back to Larry.

Larry Young

Thanks, John. Before we open the lines for questions, let me leave you with a few thoughts. I'm very proud of the team's accomplishments in our first full year as a stand-alone company. We're executing against our focused strategy, and our results so far show that it is working. We continue to invest heavily in the business and our brands for the long-term. We're confident that our brands plus strong execution will drive long-term growth. And as I said at the beginning of the call, it's certainly too early to be commenting on the Coke, CCE news this morning. We will come back to you with more news when we have something to share.

Operator, we're ready for our first question.

Question-and-Answer Session

Operator

Thank you. (Operator instructions) Your first question comes from Bill Heckloriello of Consumer Edge.

Bill Heckloriello – Consumer Edge

Hi, Larry, how are you?

Larry Young

I'm good, Bill, how are you?

Bill Heckloriello – Consumer Edge

Okay. I have a question regarding the changing landscape in the US. As we might see changes en route to market going forward, you already own the majority of your bottling volume to your brand, but then Dr. Pepper is split across the three systems. So if the Coke and Pepsi systems begin to try to make changes down the road with route to market, even testing warehouse delivery, let's say, of CSDs to large format. What are the challenges of trying to coordinate that for you with the independent bottlers? And then Dr. Pepper which is split across Coke, Pepsi and your own system? Is this something that you think retailers will be asking for? And will the systems be able to coordinate down the road?

Larry Young

I think still, Bill, that the majority of our business, especially the base – our customers, our retailers. They love the DSD model. DSD is the right way for CSDs to be going out there. I think as we go forward and start looking to the future, possibly some of the innovation and some new non-carb beverages might be able to work going through warehouse direct. And if that does happen, I think we're all pretty well positioned to do that with this new changing landscape.

Bill Heckloriello – Consumer Edge

Great. Is that something that you might proactively test then with some of your new brands – your new innovations?

Larry Young

We have right now – our split. We do about 10% of our business through warehouse direct right now, but really no intention of doing anything with CSDs in that way.

Bill Heckloriello – Consumer Edge

Okay. Great. Thanks.

Operator

Your next question comes from John Faucher of JP Morgan. John, you line is open.

Larry Young

Good morning, John.

Operator

Your next question comes from Judy Hong of Goldman Sachs.

Judy Hong – Goldman Sachs

Hi guys, how are you?

Larry Young

Good, Judy.

Judy Hong – Goldman Sachs

So Larry, I know you don't want to comment on the CCE transaction. But just, can you confirm for us – is the distribution agreement that you have with CCE basically structured the same way for the most part as the one you had with the Pepsi bottlers?

Larry Young

They're all very similar.

Judy Hong – Goldman Sachs

Okay. And then just in terms of the question about the volume in the quarter, you talked about Dr. Pepper volume down 1%. What happened with the fountain food service there?

Larry Young

Well, it's just the QSR traffic was down. We were down one, as a channel, it was basically down three. So we outperformed, but just a little less traffic going through those outlets.

Judy Hong – Goldman Sachs

Okay. And then as you think about volume outlook for 2010, you know obviously, you had a very good year in 2009, and as you think about ‘10 from the standpoint of you are lapping the Crush distribution – potentially competitive landscape getting a little bit more promotional. How do those kind of play out in your assumption about sustaining the kind of the volume momentum that you have on your

CSD business?

Larry Young

When I look at the industry trends, Judy, I think we're going to see – basically, CSDs flat in 2010. With flavors growing, and then colas declining. Over time that will probably go flat to maybe – you can kind of look at this – I've never seen the visibility where it is today, but plus or minus one. I think LRBs are going to be flat to down one in 2010 and then recovering up to over time, back to the 1% to 2%. And I think if you look at our brands with flavors growing, that's where we have the confidence that we can continue to outperform the industry and drive that flavored CSD growth.

Judy Hong – Goldman Sachs

Okay. Then just finally John, how should we think about the phasing of the $1 billion share repurchase authorization? And what are you assuming in terms of your guidance for 2010?

John Stewart

Well, as I said in my comments, we haven't given specific targets for the share repurchase in 2010, other than I would steer you to a couple things. First, our EPS guidance does include some benefit from the repurchases. And secondly, we've made the commitment to return excess cash to shareholders. We intend to maintain a modest cash balance for financial flexibility especially in the current economic environment. And we're going to start those repurchases as soon as we hit that 2.25 debt to EBITDA target.

So you could expect that pretty soon given the expectation of the Pepsi deal closing in the next few days. We're executing this program for the first time as well. So we'll obviously come back to you quarter-by-quarter and indicate what we have purchased. But that's all the guidance we're prepared to give at this time.

Judy Hong – Goldman Sachs

Okay. Thanks.

Operator

Your next question comes from Mark Swartzberg of Stifel Nicolaus.

Larry Young

Good morning, Mark.

Mark Swartzberg – Stifel Nicolaus

Oh, thanks. Hey Larry, great stuff here. I guess, as we think about the potential for brands, like Crush – not Crush, but other brands with the potential to have the kind of performance we saw out of Crush. Maybe not order of magnitude. But I guess 7UP grew in the quarter. Can you talk about the opportunity for some of those brands to step up in performance? And how the Pepsi relationship might allow you to do that?

Larry Young

Well, the Pepsi relationship is going great. We are just now starting to lap the rollout of the Crush from last year, still seeing some strong performance. As you said, 7UP grew. We've been spending behind 7UP, Canada Dry. We're seeing a definite impact on that. And then we have the team every day – with having over 50 brands, we're constantly looking for what could the next Crush be?

Mark Swartzberg – Stifel Nicolaus

Okay. Fair enough. And then, as we look at this comment you made about taking any upside and reinvesting it in 2010 to the extent you did in 2009. Could you share with us how much reinvestment you think there was in 2009? You kind of talked about it as you moved into the second half, but what kind of numbers are we talking about?

Larry Young

In '09, it was about $50 million. And you know what, we look at in 2010 as we outperform – exceed our expectations, then we look at investing back. And we're hoping that we will be looking at somewhere around $30 million to put back into our business.

John Stewart

I think it's also important to stress that that's on top of a higher base, so we're compounding off of the $50 million incremental that we invested in 2009.

Mark Swartzberg – Stifel Nicolaus

So to be clear, 2009 had $50 million on top of what you originally planned for '09. And then, you're saying 2010 would be $30 million on top of that '09 base?

Larry Young

Yes.

Mark Swartzberg – Stifel Nicolaus

Great. Thank you, guys.

Larry Young

How is China?

Mark Swartzberg – Stifel Nicolaus

Beijing is great. It's a little bit late, but it's a great place to visit.

Larry Young

Okay.

Operator

Your next question comes from Andrew Keeley of Deutsche Bank.

Andrew Keeley – Deutsche Bank

Larry, I was just wondering if – your comment that you expect consumer environment and the purchasing environment to improve in the second half of the year. Could you just talk about what gives you confidence in that happening? Is it just a function of comps for the industry getting easier? Is there some sign of an improvement in the underlying consumer behavior?

Larry Young

It's a combination of both. Like I said at CAGNY, I mean I'm cautiously optimistic we're seeing a little up-tick – a little more positive out there. We've got a lot of programs in place to help deliver and drive value plus drive traffic for our consumers out there. I've been pretty bullish all along. I think we'll see 2010 just kind of gradually increase through the year.

Andrew Keeley – Deutsche Bank

Okay. And then secondly just wanted to ask on the new Pepsi distribution agreement, is there any reservation on your part that the Pepsi Bottlers lose any focus on your brands as they are absorbed by Pepsi? Or do you feel confident enough with the performance guarantees that you have and those sorts of things that that's a good enough backstop?

Larry Young

Very confident. Great partners. We plan together. We've got great plans out there in place, and then, the guarantees and performance are just kind of a safety net there. I don't worry about that.

Andrew Keeley – Deutsche Bank

Okay. And then just last one for John. You have said now that you'll start to redirect – I think the bulk of your free cash flow back to shareholders each year. Is there a hard percentage target that you have? And then secondly, would you look to hold anything back for acquisition opportunities that you might want to pursue?

John Stewart

Well, I'll take the last piece first. No. Our growth is going to be organic growth. We may target some very small distributors indeed as we have done this past year, but they are rounding differences. Our strategy is to build the business organically not through M&A. Our share – our cash returns structure is going to be a combination of dividends and share repurchases. Obviously with our dividends, we're going to announce them quarter-by-quarter. We'll review the approach and the payout level on a regular basis. And as I said in the earlier answer to Judy's question, we're getting ready to begin as soon as the Pepsi transaction closes.

Andrew Keeley – Deutsche Bank

Okay. Thanks very much.

Operator

Your next question comes from Caroline Levy of CLSA.

Caroline Levy – CLSA

Good morning, Larry and John and Aly.

Larry Young

Good morning.

John Stewart

Hello, Caroline.

Caroline Levy – CLSA

All this good news, my goodness. Couple of quick questions, CNG volumes, I think you talked about just food service being weak. Was convenience down equally?

Larry Young

Yes.

Caroline Levy – CLSA

Okay. And do you see any change in January, February, or just more of the same?

Larry Young

Well, it's – January, February, is pretty tough to look at. I hate to ever give a weather report, but we have had some unbelievable weather conditions. It's still down. We're looking – I think Nielsen is showing CNG down about 5.9%, but DPS, CSDs are outperforming. They're up 2.1%.

Caroline Levy – CLSA

Okay. That's great. And then just looking at Snapple, and I know you won your bet. I hope you had a nice steak dinner, but –

Larry Young

He hasn't paid up yet.

Caroline Levy – CLSA

Oh, we have got to get him before he leaves. What does this mean for margins at Snapple? You talked about premium growing, values growing like a weed, and then super premium not growing. So, how can we think about modeling margins in that business?

Larry Young

I think you'll see the margins being very persistent in there. The premium and the value – the margins are very similar. And the growth is helping us to overcome the loss in the super premium.

Caroline Levy – CLSA

Okay. And then, can I just ask for a little clarity on the cost – how much of your inputs are hedged and aren't hedged? And if we were to see, let's say PET move up another 10%, or I guess maybe you've locked in there. But something moves up another 10%. How do we figure out what that does to your earnings?

John Stewart

Well, the story with PET, we're on Camdata [ph], and that's unhedgeable. So variations there, we'll just update you as we go. But we have the majority of the year covered, and implicit in the forecast guidance of 1% to 2% increase in aluminum, in corn, and in essentially our proxies for our cost of diesel and unleaded through heating oil and unleaded. And also, we have the majority of our natural gas covered. So we feel pretty good about the level of coverage we've got, and thereby the implicit guidance of 1% to 2%.

Caroline Levy – CLSA

Thank you. I think that was it. Thank you very much.

Operator

Your next question comes from Ann Gurkin of Davenport. Ann, your line is open. Ann, you're line is open.

Aly Noormohamed

We'll just have the next question, Operator.

Operator

Your next question comes from Kaumil Gajrawala of UBS.

Kaumil Gajrawala – UBS

Hi guys.

Larry Young

Hello, Kaumil.

Kaumil Gajrawala – UBS

First, one question. On pricing, it seems like the commentary has been that pricing has been fairly strong. But over the last week or so, it sounds like in the industry there's some conversations about discounting from PepsiCo. I'm curious on what you're thoughts are there?

Larry Young

You know, we haven't really seen that. Like I've said before, I've been real happy with seeing the discipline that's out there. We're seeing much more promotional activity instead of price-off. I think also with this economy more people are buying on deals than they were in the past. So it kinds of throws it off a little bit. Whenever you look at how when pricing comes in, sometimes there's a little lag. And when it really gets on to the retail price, but the pricing environment to us is remaining very rational.

Kaumil Gajrawala – UBS

And then the second thing is, sounds like Monster might once again become available. You are obviously familiar with the brand. Is that something you'd be interested in?

Larry Young

We're always open to look at anything, but we've had no conversations.

Kaumil Gajrawala – UBS

Okay. Thank you.

Operator

And your final question this morning comes from Damian Witkowski of Gabelli & Company.

Damian Witkowski – Gabelli & Company

Hello, good morning. Can you hear me?

Larry Young

Yes, we can, Damian.

Larry Young

I'm sorry. I got on a little bit late. Did you say anything specifically about Mexico? Just curious, how things are evolving there? In terms of – customer. I know the volumes were fine, but more recent trends and on the competition side.

John Stewart

We didn't call out much specifically, but what I would say is the business is recovering down there. Our key strategy is route expansion, and Larry talked about it last week. So our route expansion strategy is going to be a significant driver of growth in Latin America this year. Also, Penafiel's restages is helping drive it. And a very successful launch last year of Crush in a value size. We'll get a full year's benefit from that. So broadly speaking, we're feeling a lot more optimistic about Mexico, and of course, a reminder that we're putting in a whole new SAP system there that will help facilitate future growth.

Damian Witkowski – Gabelli & Company

Okay. And on the – the part I didn't get in the press release that says that some of the benefit, which is I know is non-cash from the PepsiCo deal, is being offset by certain contracts being – which contracts are you specifically talking about that are affecting you negatively?

John Stewart

It's the loss to cold pack [ph] that's affecting us negatively. That is really nothing to do with Pepsi.

Damian Witkowski – Gabelli & Company

Okay.

John Stewart

We had announced that previously. I think we talked about that in Q4.

Damian Witkowski – Gabelli & Company

Okay. Just wanted to make sure that was the same one. And then, so Victorville is scheduled to open. And have you talked about the immediate benefit of it. I know there are outside expenses. But in terms of even without growing the business on the West Coast, if things were to stay status quo, what would be the cost benefit you would get from just the business today on an annual basis?

John Stewart

Well, we had previously called out we'd expect about $10 million in transportation savings, and I highlighted in my comments that would be in the second half. And that would annualize to $20 million on a full-year basis.

Damian Witkowski – Gabelli & Company

Okay. And that's sort of assuming current fuel costs?

John Stewart

Correct.

Damian Witkowski – Gabelli & Company

Okay. And lastly, and it's more of a – if I look at food stamps are definitely increasing as a percentage of grocery sales. Can – do food stamps allow for soda purchases for your consumers?

Larry Young

You know, I really don't know. Okay.

Damian Witkowski – Gabelli & Company

All right. I didn't mean to stump you there.

Larry Young

I think still the thing – even with food stamps increasing, people are still definitely seeing the value of CSDs even with the pricing that we have taken, and I think there's even more room and still continue that growth and deliver the value.

Damian Witkowski – Gabelli & Company

All right. Thank you. Congratulations.

Larry Young

Thank you. Well, if there are no more questions, I'd like to thank you for your interest in Dr. Pepper Snapple Group.

Operator

Thank you for participating in today's conference. You may now disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Dr. Pepper Snapple Group, Inc. Q4 2009 Earnings Call Transcript
This Transcript
All Transcripts