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Dr Pepper Snapple Group (NYSE:DPS)

Q1 2011 Earnings Call

April 27, 2011 11:00 am ET

Executives

Aly Noormohamed - Senior Vice President of Investor Relations

Martin Ellen - Chief Financial Officer and Executive Vice President

Larry Young - Chief Executive Officer, President, Director, Member of Special Award Committee and Member of Capital Transaction Committee

Analysts

Judy Hong - Goldman Sachs Group Inc.

John Faucher - JP Morgan Chase & Co

Kaumil Gajrawala - UBS Investment Bank

Mark Swartzberg - Stifel, Nicolaus & Co., Inc.

Ann Gurkin - Davenport & Company, LLC

Christine Farkas - BofA Merrill Lynch

William Pecoriello - Consumer Edge Research, LLC

Wendy Nicholson - Citigroup Inc

Damian Witkowski - Gabelli & Company, Inc.

Carlos LaBoy - Crédit Suisse AG

Andrew Kieley - Deutsche Bank AG

Brett Cooper

Caroline Levy - Credit Agricole Securities (NYSE:USA) Inc.

Stephen Powers

Operator

Good morning, and welcome to Dr Pepper Snapple Group's First Quarter 2011 Earnings Conference Call. [Operator Instructions] 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. Sir, you may begin.

Aly Noormohamed

Thank you, Art, 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 the cautionary statements and disclaimers contained in the Safe Harbor statement in this morning's earnings press release and our SEC filings. Our actual performance can 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 measures that reflect the way we evaluate the business, and 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 Marty Ellen, our CFO. Following our prepared remarks, we will open the line for your questions.

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

Larry Young

Thanks, Aly, and good morning, everyone. As I hope you saw in this morning's earnings press release, we're off to a fast start in 2011. The investments we have made in our supply chain, our organization, technology and, most recently, Rapid Continuous Improvement are providing a solid foundation, allowing us to capture the latent potential of our brands in this business.

For the quarter, bottler case sales increased 1%, lapping double-digit growth in Crush, Snapple and Mott's. Dr Pepper was up 1% on strong Fountain gains. Sun Drop achieved 89% ACV distribution in grocery for the 4 weeks ended March 26, adding $3 million incremental cases in the quarter.

Given a still value-conscious consumer, we continue to see strong growth in Hawaiian Punch. Snapple was up 10% as we rolled out the 64-ounce package nationally and the leverage the tie in with The Amazing Race. Mott's declined 8% as we lapped 14% growth in the prior year and double-digit price increases took effect at the beginning of March.

For the quarter, currency neutral net sales grew 6%, reflecting solid volume growth, 3 points of growth related to the Pepsi Coke licensing fees and repatriate cases and 2 points of growth from pricing.

Segment operating profit on a currency-neutral basis was flat as we absorbed almost $50 million of input and transportation cost inflation in the quarter.

Additionally, margin investments increased $14 million to support a front-half loaded innovation calendar, as well as Diet Dr Pepper's integration into Cougar town and national advertising for Canada Dry.

With strong performance below the segment operating profit line, specifically corporate, interest expenses and taxes and with an 11% reduction in share count, diluted earnings per share grew 25% to $0.50 per share.

As we shared on our February earnings call, we kind of kicked off 2011 with a very strong pipeline of new products, including the national launch of Sun Drop. I'm thrilled with our progress on Sun Drop. It's not only gaining share and driving growth in the Citrus segment, it's also quickly becoming a fan favorite with over $4 million views of its TV spot on YouTube during its first 4 weeks on the air. Consumers also love its thirst-quenching citrus flavor, with repeat purchases outpacing the launch of Dr Pepper Cherry.

And Snapple, our 64-ounce multiple-serve packages is a home run, driving almost half of Snapple's volume growth in the quarter. ACV in grocery reached 34% in March, leaving us plenty of room for more growth. With its bold taste and unique innovative blend of sweeteners, Dr Pepper 10 is having a positive impact in its 6 test markets. The mail-oriented advertising campaign and our very own mobile "man cave" are driving trial and awareness. Consumer feedback and repeat rates are strong, so we may look to launch the product nationally in Q4.

Hawaiian Punch's new 10-ounce 6-pack offering is bringing new users into the franchise and is allowing families to enjoy the great taste and value of Hawaiian Punch on the go.

Now let me highlight some of our current and upcoming activation plans, which will keep the strong momentum going through the summer. To further engage the Hispanic consumer, Dr Pepper recently named platinum recording artist, Pittbull, as the brand's spokesperson for the 2011 VITA 23 marketing campaign. We also unveiled our newly designed Dr Pepper Club23, a fully customized traveling club where fans can sample the 23 flavors of Dr Pepper while dancing to the sounds of DJ Nino and enjoying the latest gaming technology. As part of its summer tour, Dr Pepper Club23 will make stops in Miami, New York, Chicago, Los Angeles and Houston.

Snapple's season-long partnership with CBS's The Amazing Race culminated with the unveiling of 2 limited time offers, regular and diet Papaya Mango Tea. Snapple was fully integrated into the show's March 27 episode as the teams travel to India to collect ingredients to create the perfect tea. This product is already a huge hit with consumers and is driving incremental growth for the trademark. We will continue to support the brand with TV advertising throughout The Amazing Race season and with national sampling activities. Snapple is also sponsoring The Amazing Race 10-year anniversary celebration in Miami on May 7.

7UP is partnering with The Celebrity Apprentice to get fired up. This promotion will give consumers the chance to win a VIP trip for 2 to attend The Celebrity Apprentice live boardroom finale and after show party.

And finally, we're partnering with Marvel Studios to bring audiences the two biggest movies of the summer, Thor, opening nationwide on May 6, and Captain America, opening nationwide on July 22.

Dr Pepper's Quest for the Can promotion is already underway and offers 4 fans the opportunity to win superpowered experiences, including the opportunity to ride in a fighter jet or a supercar.

Core 4's Captain America promotional offer consumers the opportunity to win 1 of 13 Harley-Davidson motorcycles during the 13 weeks of summer. Both promotion features limited edition collectible cans and, as an added bonus, fans will also receive a free 1-month subscription to Marvel Digital Comics when registering for the promotion.

Now let me turn the call over to Marty to walk you through some of our below-the-line items and 2011 guidance.

Martin Ellen

Thanks, Larry, and good morning, everyone. I'd like to take you through our full year guidance and give you an update on the great progress we're making in Rapid Continuous Improvement.

Before I do that, however, let me review below the line P&L and cash flow items impacting the quarter. Corporate costs were $10 million lower compared to the same period last year. The absence of PepsiCo transaction-related fees reduced corporate costs by $8 million. Other favorable comparisons include lower productivity office investments and a $3 million favorable savings in mark-to-market commodity hedges. Partially offsetting these were higher industry association fees and increased stock compensation costs.

Net interest expense was $7 million lower as we benefited from lower interest rates, primarily driven by the tender offer and refinancing transaction we completed in January. Our effective tax rate for the quarter was 36%. This included a $3 million or 170 basis point benefit related to the PepsiCo and Coke transactions.

With respect to our focus on working capital, we continue to drive improvements in our cash conversion cycle, and we're tracking well ahead of our 3-day improvement goal for the year.

For the quarter, capital spending totaled $54 million, and we returned $156 million to our shareholders in the form of dividends and share repurchases.

As you saw in today's press release, we continue to believe that we can achieve 3% to 5% net sales growth in 2011 and full year diluted earnings per share in the range of $2.70 to $2.78.

Despite rising commodity costs, higher gas prices and continued other macroeconomic pressures, we see reasonably steady consumer purchasing patterns, notwithstanding the price increases taken by us and our retail partners.

Given our encouraging first quarter performance, our strong innovation pipeline, Sun Drop's national expansion, our other targeted brand initiatives and our opportunity to further improve distribution and availability, we believe we can achieve 1% to 2% volume growth this year while also realizing low single-digit price increases.

With oil up more than 25% since our last earnings call, we're clearly seeing the impact of higher PET, fuel and even corn costs. At forward prices for our unhedged positions, we now expect packaging and ingredients to increase total cost of goods by 7% to 9% on a constant volume mix basis.

Transportation costs, included in SG&A, are now expected to increase approximately $35 million for the year, assuming current prices for fuel. Partially offsetting this approximately $15 million increase in packaging, ingredient and transportation costs since our earlier guidance, include the momentum we achieved in the first quarter, about 50 basis points of incremental pricing balance of the year. Incremental productivity in manufacturing and in general and administrative expenses has a favorable impact of foreign currency.

With better-than-expected performance in the first quarter, we're also looking at incremental opportunities to invest in our brands, and this investment could be $10 million to $20 million.

We continue to expect our full year tax rate to be approximately 35%, which includes an $18 million 1-time benefit related to the PepsiCo and Coke transactions.

For modeling purposes, let me remind you that Q2 remains our most challenging quarter for the year. We expect packaging, ingredients and transportation costs to be up almost $70 million on a constant volume/mix basis compared to the second quarter last year, and marketing costs to be up low double digits to support a front-half loaded innovation calendar.

In terms of cash flow, we will continue to drive improvements in our cash conversion cycle, targeting at least a 3-day improvement in 2011. Capital spending is expected to be approximately 4.5% of net sales.

Finally, we remain on track to repurchase approximately $400 million to $500 million of our common stock in 2011, subject to market condition.

With respect to Rapid Continuous Improvement, we are very encouraged by the changes occurring throughout the organization underpinned by RCI. We're eliminating waste in all aspects of the business, in the selling process, in marketing and promotional execution, in delivery and manufacturing and in back-office functions.

In the quarter, we completed 25 improvement events. So let me take a moment to just highlight a few.

In one region, we reduced non-value selling time by 1 hour per day and improved our backroom footprint for the customer. This wind can be replicated across the entire DSD business.

We learned how to accelerate the deployment of cold drink equipment, and, in marketing, we completed a project that will allow us to accelerate the implementation of various marketing programs that increases our speed to market.

We've had many supply chain improvements. Here, let me share 1 data point as a measure of improvement. In our Warehouse Direct business, cases in inventory at the end of March were down almost 10% from March of last year, while sales volume in cases was up 4% for the quarter. This will also significantly lower transportation and warehousing costs.

2011 is our initial year. The organization is learning the tools of RCI and is developing the right mindset. The engagement from Larry and the entire senior management team, down to our shop floor employees, is beginning to create an organization aligned around improving all aspects of value-creating activities. We are still in the very early days of RCI, but we're very pleased with our results.

With that, let me turn the call back to Larry.

Larry Young

Thanks, Marty. Before we open the lines for questions, let me leave you with these few thoughts. We entered 2011 stronger than ever. We're executing our focused strategy and it's continuing to pay dividends. We're gaining distribution and availability, increasing our share of immediate consumption occasions and taking full advantage of the cases we repatriated from the Pepsi and Coke systems. It's no secret that higher input and fuel costs post a significant threat to an increasingly healthy but still fragile consumer. We are balancing volume growth with measured pricing and are continuously looking for ways to drive productivity and invest incrementally in our brands.

Finally, our organization is embracing RCI, improving safety, quality and delivery while eliminating waste. The breakthroughs we've seen, so far, are truly inspiring, and as we systematically replicate them across the company, we will unleash resources to fuel growth in 2011 and beyond. Operator, we're ready for first question.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question is coming from Wendy Nicholson of Citi Investment [Citigroup Inc, Research Division].

Wendy Nicholson - Citigroup Inc

I wanted to follow up with the guidance for the full year on the top line and given how strong the first quarter was

[Technical Difficulty]

The question is regarding the top line guidance and the maintaining of the range, if you will, for the full year, why you're not either raising that range or leaning towards the higher end, given the strength in the first quarter? And I'm wondering if some of the strength in the first quarter was just inventory fill, so are inventories currently inflated at retail? Or where do you see that standing?

Martin Ellen

Wendy, it's Marty. No, I think there's no inventory build. There's no excess inventory in the channels that we can identify. So we don't see that as a factor. Again, our guidance is based on the fact that we see 1% to 2% underlying volume growth. As I said in my prepared remarks, we expect to take a little more pricing balance this year, and we'll have a 2 to 2.5 points. So that will give us 2 to 2.5 points of pricing for the year, and, more or less, that keeps us in the range. FX, so far, has been a little favorable. So if rates stay where they are, that should continue. But it keeps us within the range of the 3% to 5%. And with respect to costs, and while costs are up and we talked about them being up now 7% to 9% of the COGS line and $35 million in transportation, again, a little pricing against that, productivity improvement against that, when we put it altogether, we still see us coming in within our range.

William Pecoriello - Consumer Edge Research, LLC

And just 2 follow-up questions to that. I mean first in terms of kind of where we are, a third of the way through the year. The promotional environment and how much it's costing you to compete, would you say that it's marginally less favorable or more favorable than you had expected maybe back in January? And then second thing, on the incremental investment you talked about, maybe having the flex to spend a little more, would that be more on the promotional side? So a contra-revenue item or more on the advertising line? Thanks.

Larry Young

No. On the pricing, I mean, we're still seeing very disciplined pricing out there, very rational. I would say it's not really changed that much from what we saw in the fourth quarter and what we were looking at. I think another 1 of the pieces there, and you talk about the reinvestment, as Marty talked, we may look at spending $10 million to $20 million on our brands. I talked about the success of Dr Pepper 10, I mean that's going to take some money if we pull that forward. So a lot of it's still work in progress, Wendy, but I would say you're going to see most it actually going towards the brand.

Wendy Nicholson - Citigroup Inc

Terrific. Thank you so much.

Operator

Your next question comes from Steven Powers of Bernstein.

Stephen Powers

Outside of Dr Pepper, Canada Dry and Sun Drop, the strength of which you called out in the release, CSD volumes, where we are, remain kind of notably negative across the rest of the Core 4 and including Crush now. I guess if you could give us a little bit of sense for how you expect -- is that in line with your expectations, below or not? And then, how you expect the growth trajectory of those brands to trend as you look out over the remainder of the year and into '12?

Larry Young

As we look at -- I mean they're lapping some very strong numbers in Q1 and Q2. And so we're not really concerned about it. We've got great plans in place, as I mentioned in my prepared remarks. You saw where we're going to be doing some things with 7UP. So were going to be seeing that come in. We look at our CSDs, we really haven't changed, that they're going to be flat to up 1%. And then our non-carb business is going to be up 2% to 3%. So it pretty well falls right into place where we were looking. We also want our pricing, and what we can get on pricing, will do very opportunistically.

Stephen Powers

And then, with brand Dr Pepper, I think if you X out of the Fountain foodservice volume growth, that brand, too, experienced a decline. Do you expect that brand to grow out, excluding the Fountain foodservice gains over the course of the year?

Larry Young

Yes, the Fountain foodservice continues to do real well. We've got a lot of programs on our Dr Pepper. Dr Pepper was lapping some strong numbers in the first quarter. Plus, also, we had the activity with a lot on the Cherry Dr Pepper. So we feel very good. But our partners are all doing a great job. They have great plans in place. We've got a lot of good summer promotional activity out there. And our caps are still looking good and growing. So we're happy with that.

Stephen Powers

Great. And lastly, on RCI, the incremental kind of opportunity you're identifying this year. How much of that do you see with just the maturation of that process internally versus kind of a sense of the urgency due to the commodity cost environment? How much of this could you think would have happened regardless versus driven by the environment?

Aly Noormohamed

Well, firstly, you say maturation, we've only been at it 3 months. And so I would say we couldn't -- I mean I wish we had started sooner like given the cost environment because cost will clearly benefit, cost reductions will occur as a result. My view, and Larry's view, the team's view, is we have gotten probably -- we are quite further ahead now than, at least, I would've thought we would've been at this point in terms of engagement. I shared a few highlights, and those highlights talk to the breadth of we can actually grow sales. We can actually speed time to market which grows sales. We can actually make things more efficient in the supply chain. And why I didn't say it in my prepared remarks, I'll say it now, we clearly stand behind the $150 million of productivity improvement that we have said we will get over 3 years beginning of this year. And I would say results, so far, this quarter are very, very encouraging towards that goal. And sure, the results, to the extent we eliminate waste and reduce costs, it does certainly help us offset the headwinds of commodity inflation. And we've said, we do have productivity, some level of productivity savings built into our guidance to offset the increase in commodity costs. One of the factors that allows us to keep our guidance where it is.

Stephen Powers

Great. I mean it's too early to say, but that $11 million or $15 million number that you've shown out there a couple of times, the last couple of quarters, it sounds like -- and is it pulling forward that opportunity in 2011? Or is this likely incremental to that over time?

Martin Ellen

I'm not going to change that or try to bucket it for you. I will remind everybody, it is $150 million of productivity, not all costs. So that includes working capital efficiency, capital spending efficiency. Again, I called out that in 1 part of the business, WD, I mean cases on the floor down 10% while sales growing in to business, and, of course, that goes without saying with even higher service levels to our customers. I think when you translate that across the business, almost every inventory location where we have done projects to, in essence, improve -- deliveries haven't been a problem, we focus on delivery, how to get product to the customer faster, eliminate a lot of the waste. Almost every location from warehouses to distribution centers to even some plants, after about 1 week or 2 weeks' time, what we're seeing days in inventory drop by 70%. So that's something that is large, right? It's not 10%, it's not 20%, it's 70%. Now I'm not saying that we can operate the business on a $100 million of inventory either, but if you think about it, you might be able to, I'm not predicting that, but it's compelling.

Stephen Powers

Great. Thanks very much.

Operator

And your next question comes from Christine Farkas from Bank of America.

Christine Farkas - BofA Merrill Lynch

Larry, I wanted to get back to your comments, that consumer patterns appear to be steady despite price hikes taken by manufacturers, and I guess higher gas prices as well. We've seen Snapple growing. I'm wondering if you can comment a little bit on the dynamics of pack sizes or channel performance. Has gas prices impacted your C-Store trends or immediate consumption trends at all?

Larry Young

No, our single-serve is still doing very well, Christine. I think a lot of the -- as we'd look at the consumer, we're still seeing traffic in the CNG. We're seeing the trend to be spending a little bit more, a little uptick there in CNG and quick-serve restaurants. I think a lot of times, when we'd look at the gas prices, they're not as high as they were. They vary by geographic territory, but I think a lot of it was whenever the prices got high last time, I've said before, the entire -- the markets have crashed. Everything, the economy was bad. I think people are feeling better about the economy. They're feeling that there is some upside. And when you look at the CNG, so much of that lost in '08 was construction. So I mean as we kind of factor that out and look at it, I still have a positive feel out there. We're cautiously optimistic but we're seeing the right trends. The pricing hasn't seemed to really affect it that much. We track the pricing very close and measure our promotions. And our business is looking pretty steady right now.

Christine Farkas - BofA Merrill Lynch

And on the back of that, Larry, when you talk about pricing not impacting those trends, I guess one question is, were the elasticity expectations just super low as the manufacturers took pricing? Or are you actually seeing elasticity improve this cycle or just come in better than expected? Because yourself and Coke as well are talking about accelerated pricing in the remainder of 2011.

Larry Young

Right, exactly. And I think the biggest thing here, Christine, is that it's not just us taking pricing, everybody has taken pricing, I mean across the board. And if you look at ours, I mean the main prices are in juice. We have double-digit pricing there. But it's across-the-board in all of the channels of the pricing. It's something we watch constantly. We do a lot with our packages. I mean we do package mix changes, but our single-serve is one of them that really makes us happy. The elasticity is holding I'd say right now kind of in the low single-digit.

Christine Farkas - BofA Merrill Lynch

Okay, that's helpful. And then just a clarification, Marty, on the guidance. I'm just looking at your corporate expense or outlook for 2011, do you expect that number to be higher this year versus a year ago?

Martin Ellen

Let me clarify corporate spending. We need to go back to the beginning of the year. At the beginning of the year we said corporate cost would go up $18 million, and that hasn't changed. The increase costs were industry association fees, some of our philanthropic programs, as well as higher stock-based compensation. All that was roughly $21 million. Against that last year, we had net $3 million of higher costs. The Pepsi and Coke fees on the one hand were $11 million cost, and we had in total about $8 million of some one-time pension gains last year. So we had a net $3 million in cost last year versus the $21 million and net the $18 million. And that's not changed.

Christine Farkas - BofA Merrill Lynch

Okay. So the timing of the first quarter, in terms of your year-over-year comparison, is really just that, it's timing and the corporate expense it should still be up slightly year-over-year?

Martin Ellen

Well, yes. And some of these costs were already in the quarter. I mean stock-based compensation was in the quarter and is up a couple of million. So these costs are occurring so to the extent, they are in there, we have had some other cost reductions.

Christine Farkas - BofA Merrill Lynch

Okay, great. That's helpful. Thanks so much.

Operator

Your next question comes from Kaumil Gajrawala of UBS.

Kaumil Gajrawala - UBS Investment Bank

If we can talk a little bit about Sun Drop, it looks like the rollout went well or is going well. Is it too early or could you use some context on what the repeat rates are looking like?

Larry Young

Yes, it is still early. I mean you're correct there, but we are just thrilled with the performance we're seeing. We actually got the execution, the distribution out there ahead of plan. As I mentioned earlier, I mean we got 89% grocery ACV or 42% in our convenience channels. So there's still lots of opportunity in the C-Store. The Sun Drop is really getting a lot of hits, a lot of news. The social media is really playing well on it. So we're excited about it. I mean it's a long-term brand. It's something that we are just not going out there in and out of boom, splat. We've got the relationship with MTV, that's going to be handling the marketing and promotion, and that just continues to build. We're seeing lots of positive momentum there. And the repeat, I mean it's selling better right now, the repeat is better than what we had on Dr Pepper Cherry, which is just very, very encouraging because that was one of the best we've had. So other than the market last week, it went out across some of the Midwest markets, it's exciting to see the citrus category really kind of exploding.

Kaumil Gajrawala - UBS Investment Bank

Got it. If I could ask a little bit more on the $10 million to $20 million of incremental spend, is that splayed for any particular brand?

Larry Young

It's kind of a work in progress right now, but as I mentioned a moment ago, if we pull Dr Pepper 10 forward, that would be some of it there.

Kaumil Gajrawala - UBS Investment Bank

And then final question related to C-Stores, you mentioned the consumers holding up despite gas prices and price increases, but could you be a little bit more specific on C-Stores and what you're seeing there?

Larry Young

Yes. I think the one I'd start with there is we have a lot more opportunity in the C-Stores. We just talked about Sun Drop. We're doing a lot of things with different packaging and new packaging. We've got traffic driving activities for the balance of the year, and then we've got a lot of strong movie tie-ins. So we've got a lot of activity out there to help us to keep closing some of the gaps we have out there. Our immediate consumption in our company-owned is up around 1%. So I mean, that's encouraging. As everybody knows, that's where we make some good money on those. There's still availability in distribution voids out there, but we're closing and these activities will help us do that.

Kaumil Gajrawala - UBS Investment Bank

And from a market perspective, do you feel that the consumer still is fine, nothing is derailed even the gas prices?

Larry Young

It is not derailed. Like I said, it's healthy, but still somewhat fragile. When I'm out with certain customers in some of our chains, I think everybody is getting a lot better feeling about it. We're going to have some more pricing out there that this kind of goes in with the basket of everything that's going on, but it has actually benefited CSDs. If we look at '08, I think when everything, the economy kind of crashed and people were so concerned, we really watched a lot of people come back into carbonated soft drinks, and truly see the value of carbonated soft drinks. And I think we're starting to see some of that again.

Kaumil Gajrawala - UBS Investment Bank

Got it. Thank you very much.

Operator

Our next question comes from John Faucher of JPMorgan.

John Faucher - JP Morgan Chase & Co

I guess I'm going to ask you a question I asked Coke yesterday as well, which is if we look a lot of the scanner data and it maybe doesn't include all the convenience store data, the pricing in CSDs generally doesn't look as rational as you're discussing it. So can you talk a little bit about sort of what we're not seeing in the pricing and why it's better than maybe what it appears from the scanner data? And then, can you also -- you talked a little bit about the different pricing levels across the categories, can you give us -- sequentially as we look at pricing, should we expect more of an improvement on the juice side, which tends to be more on material focused or more of sequential improvement on CSDs? Thanks.

Larry Young

You're exactly right, John. The Neilsen's and the IRI don't even cover 50% of the market, but it also doesn't pick up and tell the true story when you have a retailer that is investing in an ad. So we look at the pricing that's going in and not necessarily what the retail price is that a certain retailer would pick on that. So I think that distorts it a little bit. We see a lot of amusing carbonated soft drinks in certain geographic territories to drive traffic. And so with that and the activities we're doing on promotion to drive traffic, I think it's going to keep our brands very healthy in there. Also on the talk on Nielsen on PIII, the year-to-date, total category CSDs were up a couple of points and teas were about flat, but the juices up 2. The juice increases we put are in -- like I said, they were double digits. You saw a little bit of a hit on Mott's coming across the 14% over a year ago. But we feel very confident with the plans that we have behind Mott's that we can bring that thing back in with the prices.

John Faucher - JP Morgan Chase & Co

Okay, got it. And then a little bit more on the timing from that standpoint. I mean given the raw materials impact you are looking for in the second quarter, and then a slightly more difficult comparison from a volume standpoint. And then also the potential for corporate higher year-over-year. If you look at it, it sounds like that's going to be easily your toughest quarter. And it looks as though we should look at that. Is the way to look at that the big beneficiary from an earnings growth standpoint in that quarter is going to be just simply the repurchase and everything else is going to sort of offset the share repurchase, is that the right way to look at numbers for next quarter?

Larry Young

No. I'll let Marty answer part of that. I mean first on -- I'd kind of help you with the pricing. If you look at our warehouse direct, we took our first round of the pricing there went in effect March 1. The second round will be around June 1. And then our CSD business, it's very opportunistic. I mean it varies by geographic territory, but it's been, some have already pricing in. We're not seeing a lot of pushback on it, and we haven't really seen the volumes get affected by it. I'll let Marty answer the second half of that question.

Martin Ellen

John, as I said in my remarks, Q2 is clearly the most challenging because we're going to lap low cost from last year, and that's going to be a $70 million increase this year. We will and we are continuing to purchase shares through the quarter. And as we said, we're still looking to do $400 million to $500 million this year. We're not going to comment specifically on numbers by quarter other than to say that if you think through the higher costs, you can do what you guys will all model whatever you want to model for the effect on EPS or share repurchases. You'll get to some number for the quarter. It's clearly going to be the most challenging.

John Faucher - JP Morgan Chase & Co

Okay, great. Thank you.

Operator

Our next question comes from Judy Hong of Goldman Sachs.

Judy Hong - Goldman Sachs Group Inc.

Just following up on the volume question. I guess in the quarter U.S. volume was flatfish. You're still expecting acceleration to 1% to 2%. So just wondering in the back half and which brand, is it more Snapple that continues to sort of carry the momentum? Or if you are more confident in some of the CSD brands that you think will carry deceleration on the volume fund as the year progresses. And then in terms of your market share performance, in the first quarter you did call out that you lost share in CSD. So just wondering if you can give some perspective on the market share situation, and how you see that progressing as the year progresses?

Larry Young

Yes, on the volume, Judy, we see -- of course, we've got Sun Drop out there, and we're testing the Dr Pepper 10, there's going to be some more of that towards the end of the year. But the majority of our volume has been driven by Dr Pepper, Snapple. We see a lot that we're going to be able to do with the Mott's brand. As a total, our Hawaiian Punch continues to do well, and we are just thrilled to death with what Canada Dry has been doing. So that's going to drive a lot of it for us. If you look at what we're lapping in Q1, I mean the Nielsen numbers, we did call out that we lost a little bit of share there. But it was just what we were lapping in the first quarter before. As I mentioned, I mean Mott's was up 14%, Snapple was up 17%, Crush was up 22%. And if you take the total share, I mean we gained in all channels except convenience. And in the convenience channel, the Sun Drop and Mountain Dew are feeling strong. Growth in citrus, it's up 6%. And as I mentioned a moment ago, we still have a tremendous amount of opportunity in convenient and gas.

Judy Hong - Goldman Sachs Group Inc.

Okay. And then as you think about your brand portfolio, as we're coming out of the recession, I think you're seeing acceleration in growth in some of the non-carbs categories that historically has been growing much faster, whether it's enhanced water or ready-to-drink coffee or energy, et cetera. So wondering, at this point, if you're looking to participate more actively in some of those non-carbs categories. Obviously, you've got Snapple, but outside of the tea categories.

Larry Young

We're still very happy with our portfolio where we can play across from the juices. Our Snapple -- I mean, regionally, we play in water spreads in the Southwest with our Deja Blue. Our Venom Energy, we've got programs behind it for the year to play in the energy category. But we're still very -- we stay focused on the total portfolio, but we're putting a lot of emphasis right now on our carbonated soft drinks. As I mentioned a moment ago, I think with the tough economic times, we're going see people come back in and recognize that value. That's where we're -- to put in a strong focus. The Snapple, we think will just continue as it is. It's been a great success story for us, and the Hawaiian Punch, as the economy is tough, Hawaiian Punch is a favorite of moms out there everywhere.

Judy Hong - Goldman Sachs Group Inc.

Okay, thank you.

Operator

Your next question comes from Caroline Levy of CLSA.

Caroline Levy - Credit Agricole Securities (USA) Inc.

Question on the outlook for costs for 2012. If prices of inputs were to stay -- if prices of inputs stay at current levels, what are your hedged positions like on 2012? And it seems like you've been hit a little harder than some people this year, could there be some relative benefit to you next year, do you think?

Martin Ellen

We're not going to -- we've never really comment in our hedged position other than we do have some positions that go out into 2012. I can't take that's hard to dissect. Everybody is in the space. Everybody's inflation numbers, they're talking about them. So what we've seen would sort of say that increases others are experiencing proportionate to us are about having about the same impact. We're reasonably hedged. I would say we have good visibility out next 3 to 6 months. And we feel good about that beyond that. We got some hedges, and we'll look to change those positions over time, as we normally would. But that's all I can say at this point.

Caroline Levy - Credit Agricole Securities (USA) Inc.

Okay. And then if I go to price mix in the quarter, can you help us understand how much was price? How much was mix?

Martin Ellen

We had about 2 of them priced in the quarter.

Caroline Levy - Credit Agricole Securities (USA) Inc.

So does that suggest mix was negative?

Martin Ellen

No, it was about flat. So again if you look, I think we laid it out in the press release, but let's just go through the almost 7 points of our reported sales growth, you get about 2 in pricing. If you look at the total effect of the Pepsi, Coke licensing agreements, so both the effect of the deferred revenue amortization as well as the top line impact associated with the repatriated cases, since those are now DSD cases and not concentrate cases, the combined effect of those 2 were 3. So and then you get a little bit of volume and a little bit of FX should reconcile to your 7%.

Caroline Levy - Credit Agricole Securities (USA) Inc.

Okay. Just to clarify, but mix was slightly positive, is that what you're saying?

Martin Ellen

It's past flat. It's positive.

Larry Young

Maybe slightly.

Caroline Levy - Credit Agricole Securities (USA) Inc.

Because you have talked about single-serve growing and C-Stores doing well, so why would mix not be more positive?

Martin Ellen

The mix for us -- that channel mix is good, but one of the biggest mix factors for us is both across the components of PB, and within those. So, for example, HP Is doing very well, as most of you know it's a pretty low end of the per case product.

Caroline Levy - Credit Agricole Securities (USA) Inc.

Okay. And then if I could also just clarify, the $70 million incremental cost in 2Q, how much is it in COGS? And how much is in SG&A?

Martin Ellen

I think you're going to roughly come into about $40 million to $50 million in COGS.

Caroline Levy - Credit Agricole Securities (USA) Inc.

Okay. And then finally, just looking at brands. Within Dr Pepper, can you sort of explain the moving parts there, where, I think, the base Dr Pepper is growing? What's happening on Diet and Cherry and is 10 just as tiny test at this point?

Larry Young

Yes. I mean we're happy with all the portfolio, Caroline. We've had -- the 10 is in 6 markets. Like I said, I mean the results are fantastic. We're very happy with it, but it's very small whenever you look at the base of Dr Pepper. Our Fountain foodservice is doing very well. On the Diet, Dr Pepper, is also coming in on the Fountain. So the Cherry is as stabilized out there. But we're still seeing great growth in the coastal markets and our lower per cap markets where we really came out with the Dr Pepper Cherry for those markets. So I think it's a good balance across the trademark. And we're going to have some great activities for the summer. I mean we're going to see a lot of traffic driving promotions, and we're pretty pleased with it. We're looking at saying, it's about where we planned, and it's falling in line.

Caroline Levy - Credit Agricole Securities (USA) Inc.

Okay. I was excited to hear about some of the Hispanic marketing you're doing. But do you have a sense of whether you brands skew particularly favorably or which brands do amongst the Hispanic community?

Larry Young

Very favorably, very favor flavors.

Caroline Levy - Credit Agricole Securities (USA) Inc.

Which is everything, basically, juices, too?

Larry Young

Yes. I mean 7UP, our Sunkist, Dr Pepper, especially with us coming out with Pitbull. As everyone knows, I mean probably the top brand is Squirt, not only with the Hispanics in the U.S. but also in Mexico. So we've got a really great portfolio that has been playing well in our 21 targeted Hispanic markets.

Caroline Levy - Credit Agricole Securities (USA) Inc.

Great. Final question, I expected you to buy more stock back in the quarter, but do you think this is just a reasonable run rate for the full year? Or maybe you'll pick up a little bit to get to your $500 million?

Martin Ellen

$400 to $500 million for the year. So we spent $100 million. So you would obviously expect that to be up a little balanced on a quarterly basis.

Caroline Levy - Credit Agricole Securities (USA) Inc.

Okay. Thank you very much.

Operator

Your next question comes from Brett Cooper of Consumer Edge Research.

Brett Cooper

Just a question on the incremental pricing you guys are expecting. You've talked about 50 basis points relative to the original guidance you gave at the beginning of the year, was the June juice price increase included in the original number?

Martin Ellen

No.

Larry Young

No.

Brett Cooper

And is that the source of the 50 basis points?

Larry Young

It's a large piece of it, but it's not all of it. Because we've got in CSDs. I would say you would be looking at probably a 65/35 split and may be somewhere in there. Good third of it in our DSD, CSD business.

Brett Cooper

And so would you expect to be sort of an industry price increase post Labor Day? Or are you going to look to take CSD pricing over the course of the summer?

Larry Young

As I said we'll do it opportunistically. I don't really have the visibility to say exactly when it would be. We have markets that have already taken it, and we have markets that have plans in the next 2 to 6 weeks.

Brett Cooper

Thank you.

Operator

Our next question comes from Ann Gurkin of Davenport.

Ann Gurkin - Davenport & Company, LLC

Just wanted to get an update on where we are with cooler placements. Are you getting the lists from these incremental placements?

Larry Young

We are. We're on track. I just had a meeting -- as I said I was in the field last week. I was with the guys. We are in our third year. And as I had mentioned, last year -- the first 3 years are always the easiest. So we're very happy with how they're coming in. We're going to stay with that strategy. We're going to continue it. But as we get into the year 4 and 5 we're going to be a lot more disciplined to make sure you're still getting the returns that we expect. The returns have been great, and we want to make sure that we'd maintain that. That we don't start eroding our own margins on our cold drink.

Ann Gurkin - Davenport & Company, LLC

Right. And then, just a clarification, the $10 million to $20 million potential increase in brand investment, is that already in your numbers?

Martin Ellen

Yes.

Larry Young

Yes, it's in our numbers.

Ann Gurkin - Davenport & Company, LLC

Okay, great. Thanks very much.

Operator

Your next question comes from Andrew Kieley of Deutsche Bank.

Andrew Kieley - Deutsche Bank AG

I just wanted to ask about the foodservice, that's been a good growth driver for brand Dr Pepper. If you could talk about what inning or what penetration level we're in with the brand and that foodservice channel as a driver going forward. And then your commentary just now about the C-Store trends, it looks like they've softened a little bit in terms of market share. Can you just talk about what you think is behind that?

Larry Young

I'll start with the Fountain piece. So if you look at where we are right now on regular Dr Pepper, we're probably somewhere around 50% and then about 20% on Diet. So I mean that gives us a long, long run way of opportunities right there. And the Fountain foodservice team just keeps amazing us on how many new valves and voids they close each year. And with -- the momentum just continues to build as we get them out there. We get a halo effect from the competitors that are around them wanting the Pepper and the Diet Pepper on also. The other part of the question on convenience. Our convenience is continuing to grow. Our single-serve is growing. We did -- on Neilsen show some numbers. That was the only channel we really lost in. But it really hasn't concerned us. I mean we watch it constantly, but we watch much more the volumes, what our velocities are doing and how we continue to close distribution voids and close those gaps.

Andrew Kieley - Deutsche Bank AG

Okay. And then I just want to go back to the Core 4 and how the competitors are sort of looking at the flavored category. And, I guess, specifically, on fruit flavors, do you see -- it seems like more attention is going there. Do you see that? And how would a brand like Fanta -- what's the interaction on something like that versus Crush, for example?

Larry Young

Yes. All the attention is good. I mean it drives more people into the category, and we get more traffic. Fanta is a great brand. I mean you get out there. It's what we've done all of our lives. You know you find it on the street each brand. And so I think it's going to be good for the categories. We're going to make those segments grow. We're very comfortable with our brands because they're #1, #2 in their categories. We've done a lot of promotions behind them. As I mentioned a moment ago, 7UP is getting ready to do some things with Celebrity Apprentice. We've got movie tie-ins with our Core 4 this time, but our bottlers are very excited. Our tie-ins have usually always been with Dr Pepper, and now we've got them with the core. So I mean, we've got a lot of plans in place that will continue to build, help close the distribution voids and keep giving us our volume growth.

Andrew Kieley - Deutsche Bank AG

Okay. And then just a last question on the SG&A and the marketing spend. This quarter, on a relative basis, it was down a good control over the SG&A line. Even with the stepped up marketing activity. In some of the recent commentary at the comps because it seems like, there is some new discussions about keeping the marketing budgets or marketing dollars flat for the year. And so is that a function of the commodity pressure? And do you feel you have enough flexibility in terms of marketing dollars for the year? Any constraints there?

Martin Ellen

I mean, first of all, we said this morning we could take marketing up $10 million to $20 million. So that's maybe new information because we had talked about flat marketing. It is unrelated to what's happening with the commodities. We have opportunities to invest properly in -- particularly, if we accelerate Dr Pepper 10, we're not going to withhold the investments simply because commodity prices are up in the short-term.

Larry Young

All right. When we see brands respond to spend, I mean that's what we really look at and say, "Can we drive more growth?" And then, to Marty's point, the success we've seen with 10, we may pull that forward.

Andrew Kieley - Deutsche Bank AG

Okay. Maybe one more for Marty. In the release they say, in the concentrate segment, there is a mention of unfavorable discount timing, I was just wondering what that refers to?

Martin Ellen

Yes, that refers to a carryover effect from the fourth Quarter, and it's the difference between accruing their spend back to bottlers on BCS, which is the shipments out of the bottlers versus our shipments into the bottlers. So you're always going have a little bit of increase or decrease due to timing of what really is an accounting accrual.

Andrew Kieley - Deutsche Bank AG

Okay. Thanks very much.

Operator

Your next question comes from Carlos LaBoy of Credit Suisse.

Carlos LaBoy - Crédit Suisse AG

Larry, when do you see positive volume numbers again for 7UP, Sunkist and A&W?

Larry Young

Well, the Sunkist, Carlos, whenever we -- I'll take that one first, whenever we decided to roll Crush nationally, we knew that there was going to be some cannibalization on Sunkist. And I think the thing that we look at is it is actually better than what we thought it would be. So the category is growing, and we look at it and manage the total orange category there. So it's done very well. With the Core 4, we also managed that Core 4 as a portfolio. We have a lot of growth coming with our Canada Dry. We just talked about what we're doing with the 7UP. 7UP had some really great -- a couple of great quarters after we did the refresh and the launch on it, we're going to back that up with The Celebrity Apprentice. And we're seeing a lot of positive momentum in our Hispanic markets. So we feel very good with those. I think we're going to see the brands stabilize in the summer, especially whenever you look at last year, with the hot pricing activity that was out there. Our Core 4 brands were not included in that. So as the summer comes around, we're going to see a lot of upside there, and we feel very positive about that.

Carlos LaBoy - Crédit Suisse AG

Larry, as you cycle your Coke and Pepsi agreement, what's your expected growth rate for the brands that are new to those networks?

Larry Young

There's no new brands in their networks, you mean the...

Carlos LaBoy - Crédit Suisse AG

Try Crush, Canada Dry.

Larry Young

Okay. Well, on the Coke side, I mean we look at it. We don't set volume targets for our partners. I mean we look at it and say, how is the brand performing? And how is that category performing? How is the balance of the country performing? So I mean we still look at it and say -- with our flavors, they all tie together the long-term, we're going to be looking at the total portfolio being up about 1%.

Carlos LaBoy - Crédit Suisse AG

Thank you, Lar.

Operator

Your next question comes from Damian Witkowski of Gabelli & Company.

Damian Witkowski - Gabelli & Company, Inc.

Larry, I just wanted to confirm that your comments on immediate consumption trends are current not just as of the first quarter. You're still seeing pretty good strength in immediate consumption, not just as of the end of March but...

Larry Young

Absolutely.

Damian Witkowski - Gabelli & Company, Inc.

And then, are you seeing a lot of difference in terms of geography? If you look at your big markets, Texas, for example, employment in oceatic I think, is growing quite nicely and the economy is doing a lot better than the U.S. on average, so are you seeing the differences in demand based on the markets that are doing a lot different in the immediate consumption versus others?

Larry Young

Yes. That's really hard to answer, but it is very geographic. If you look at Texas, and, really, the deep dive on Texas. Texas was really delayed coming into the recession. So I mean, we're seeing some markets that are actually stronger than what we're seeing in Texas. We can go all the way up to the Rust Belt, the Iron Belt, where it was hit the hardest, even though it's still down, it's improving. We're seeing a lot of good activity in the Southeast and the Southwest that's starting to come back that was hit the hardest, probably, with building, construction and items like that. Not where anybody wants them, but it's coming off of the base and it's improving, so that encourages us.

Damian Witkowski - Gabelli & Company, Inc.

And then I know your pricing has been rational and hasn't -- you haven't had to discount a lot of it. Do you think you -- do you have any sense whether C-Stores are actually discounting and taking ahead to their margins just to drive traffic a lot more today than they were 6 months ago?

Larry Young

I haven't really seen that. We're doing a lot to drive traffic. Our promotions are to help drive it. They don't really ever do anything on the single-serve, I mean the single-serve pretty well stays at the price points. There could be some activity on some others. In the convenient channel, we're doing some things with 1 liter and with 6-pack, given some variety in there. But, I think, the biggest thing our customers want to see us do is promotions that help drive in, drive the traffic in because once we get them in there, it's not that big a decision and not that big of an out of pocket experience for them and our products will move.

Damian Witkowski - Gabelli & Company, Inc.

And then just lastly, now that you want to really focus on it, but in the first quarter weather, I mean it couldn't have helped, I imagine that. You got a sense of what -- I mean what could have been, I guess?

Larry Young

Well, you'd never can really dimensionalize that, but as everyone knows, I mean February, I mean the entire country had something bizarre going on with weather.

Damian Witkowski - Gabelli & Company, Inc.

Okay, thanks.

Operator

And your final question this morning comes from Mark Schwartzberg of Stifel, Nicolaus.

Mark Swartzberg - Stifel, Nicolaus & Co., Inc.

A question for you on North America bottler case sales. You were basically flat in the quarter, I think there were 2 in the fourth quarter, too, for 10, do you think that you're at the bottom rate in terms of rate of growth slowing? Or do you think it needs to get a little worse because of the Crush laps? Where are we in the kind of this slowdown?

Larry Young

Well, I don't really look at them as in a slowdown. I got some big numbers on the lapping, and I've got the promotions out there right now. As I mentioned a moment ago, Mark, I mean we're lapping Crush at 22% growth, Snapple at 17%, Mott's at 14%. Those are some great numbers and sometimes a little hard to beat those. But what we have going forward, and our plans and our promotions activity, we're very confident.

Wendy Nicholson - Citigroup Inc

So, obviously, the market will bear, but do you think flat is as much as we'll see you'll start bouncing off of flat? Or do you think the Crush issue means it has to get a little more negative before that?

Martin Ellen

No. We're looking at 1% to 2%.

Mark Swartzberg - Stifel, Nicolaus & Co., Inc.

On the bottler case in North America?

Martin Ellen

In North America.

Larry Young

Well, I'd like to thank everybody for joining the call today and for your continued interest in Dr Pepper Snapple.

Operator

And, ladies and gentlemen, that concludes the Dr Pepper Snapple First Quarter 2011 Earnings Conference Call. We appreciate your time. You may now disconnect.

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