Dr Pepper Snapple Group Reports Second Quarter 2017 Results

PLANO, Texas, July 27, 2017

DPS President and CEO Larry Young said, "I'm proud of our teams for delivering strong top-line results for the quarter. We remain committed to our priority brand strategy, as demonstrated by our increased marketing investment. We also invested further in activities to deliver increased trial of Bai and are encouraged by the results so far. Our CSD portfolio once again outperformed the category, growing both dollar and volume share in IRi measured markets. Our allied brands continue to contribute strong growth to our business, and we're driving growth and productivity with Rapid Continuous Improvement."

For the quarter, sales volumes increased 4%, inclusive of the Bai acquisition. Reported net sales increased 6%, including the Bai acquisition, which accounted for just over 1 percentage point of net sales growth. Total Bai brand sales growth contributed just over 2 percentage points of net sales growth. Organic net sales growth was driven by an increase in organic sales volumes and favorable product and package mix, which were partially offset by the termination of the Rockstar distribution agreement.

Reported gross profit margin decreased 50 basis points primarily on an unfavorable $19 million comparison of unrealized mark-to-market activity. Core gross profit margin increased 70 basis points to 60.4% as the flow-through from organic net sales growth and $33 million of incremental gross profit from the Bai acquisition were partially offset by higher commodity costs, increases in certain manufacturing costs and unfavorable foreign currency translation and transaction impacts.

Selling, general and administrative expenses (SG&A) increased $93 million in the quarter. The acquisition of Bai added $40 million, including $20 million in marketing investments, and $1 million of transaction expenses. A further marketing investment increase of $16 million behind our other priority brands, continued planned investment behind our DSD front-line sales, delivery, and merchandising workforce, and an unfavorable $18 million comparison of unrealized commodity mark-to-market activity also increased SG&A. Core SG&A increased $74 million in the quarter, which excludes the aforementioned unfavorable comparison of unrealized mark-to market activity.

Other operating income increased $1 million in the quarter due primarily to the gain on the termination of the Rockstar distribution agreement.

Reported income from operations declined by $39 million, or 9%, in the quarter. The unfavorable comparison of unrealized commodity mark-to-market activity contributed $37 million of this decline, and the acquisition of Bai reduced reported income from operations by $10 million, including $2 million of amortization of intangibles and $1 million of transaction expenses. These declines, as well as substantially higher marketing investments behind our other priority brands and increases in certain other operating expenses, were partially offset by strong top-line growth. Core income from operations of $386 million was essentially flat to prior year.