Keurig Dr Pepper Inc (KDP) 2010 Q1 法說會逐字稿

Good morning, and welcome to the Dr. Pepper Snapple Group's first quarter 2010 earnings conference call. Your lines have been placed on listen-only 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. Sir, you may begin.

Thank you, operator, 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 statement and 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 non-GAAP financial measures that reference the way we evaluate the business and which we provide useful information for our 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 new CFO. Following our prepared remarks, we will open the call for your questions. With that, let me turn the call over to Larry.

Thank you, Aly, and good morning, everyone. Let me start with a quick update on where we are with both the completed PepsiCo Bottler transaction and the pending Coca-Cola deal. We completed the license agreement with PepsiCo on February 26, 2010.

Extensive planning on both sides resulted in a seamless transfer of DPS brands across the system and I am thrilled to report that the brands continue to post industry-leading growth. The investments and decisions we have made have resulted in a flexible, balanced and cost effective manufacturing and distribution footprint that gives us a solid foundation for growth.

Our brands continue to gain relevance and are growing. With regards to the Coca-Cola transaction, we're in the very early stages of the process. Our guiding principles here is unchanged; do what's best for our brands, our customers, our consumers, and ultimately you, our stockholders.

As I've said before, discussions of this nature are best handled in private. We'll come back to you with more news when we have something to share.

Now turning to our first quarter results. Despite unseasonably cold weather in January and February, our business delivered another quarter of solid results with BCS volume growing 3% and dollar share up almost a full point. CSDs were up 2% led by 3% growth in Dr. Pepper on the continued success of Dr. Pepper Cherry and Dr. Pepper Heritage in the Pepsi system.

Crush was up 22% as we continued to expand distribution and bring in new users with innovation like Cherry Crush in the U.S. and the 2.3-liter value line in Mexico. Canada Dry grew 10% supported by TV advertising and targeted marketing programs. Our fountain volume is up 2% with trends improving sequentially through the quarter.

During the quarter, we installed over 5,000 incremental valves and our McDonald's rollout is on track. In noncarbs, Snapple grew 17% as we continue to gain distribution in 16-ounce premium glass, 16.9-ounce value PT, and $0.79 value cans. We're seeing these gains in both measured and in particular non-measured channels.

Mott's grew 14% on expanded distribution and strong brand support while Hawaiian Punch was up 7%. These results demonstrate our ability to grow share through innovation and pull marketing campaigns and we will continue to drive these investments. As we highlighted during our fourth quarter call, Q1 was our toughest quarter for a comp perspective. Sales volume lagged BCS by 600 basis points.

Of that amount, bottlers working through a concentrate inventory build into the first quarter of 2010 were about 200 basis points. A decline in contract manufacturing, as we continue to deemphasize this low-margin business, accounted for another 200 basis points. The unfavorable comparison related to the successful Crush launch was another 100 basis points.

As a result of these factors, net sales on a currency-neutral basis were down 2% for the quarter. Our U.S. and Canada business posted solid price and mix growth while product and channel mix in Mexico resulted in negative price and mix there. Segment operating profit on a currency-neutral basis declined 1% in the quarter.

The business benefited from lower packaging ingredient cost as well as a relentless focus on cost controls and productivity initiatives. Our supply chain team once again raised the bar, driving almost 3 points of improvement in overall equipment effectiveness. We continue to invest in our brands and in the start-up of our Victorville facility.

Our critical cold drink expansion program continues to gain momentum and despite a challenging economic environment, we placed almost 4,500 incremental coolers in vendors. Looking ahead, we are encouraged by the trends we saw in late March and through April, especially in the critical immediate consumption and fountain foodservice channels. We are also very pleased with the overall pricing environment. It remains rational and we believe this will continue.

I am thrilled to share with you that our fifth regional center located in Victorville, California is officially open for business, on time, and on budget. Victorville will also be the first of our facilities to be LEED certified. Four of our five lines are now up and running with the fifth line coming on-stream within the next few weeks.

The opening of this facility marks another key milestone in the DPS journey as it enables our Win the West strategy, our plan to make Mott's and Hawaiian Punch the share leader in their respective categories while extending share leadership held by Mr. and Mrs. T's. Providing cost-advantaged product is only part of the equation. We're also stepping up our marketplace investments in-store, print, and on air.

We're targeting the Mott's mom and Hispanic moms with strong local media programs tied to retail execution as well as co-branded activities including the 7UP sponsorship of the Latin grammy awards. Mott's recent WIC certification in California also expands the brand to more than 1.4 million new users. As brand owners, we know that increasing the relevance and awareness of our brands and investing incrementally are key to our long-term success.

Our first quarter media investment was up 25% over the prior year period and contributed to strong sales growth for Snapple, Dr. Pepper and Canada Dry . To continue this momentum and to support new program and tie-ins, we'll spend an additional $25 million in marketing in the second quarter compared to the same period a year ago.

With the great taste of Mott's juice, our new Mott's Medleys will help mom provide more convenient nutrition to her family with two fruit and vegetable servings in each eight-ounce portion. We're supporting this launch with new TV, print, and online advertising featuring Marcia Cross. We're bringing powerful energy at the price of a CSD to Sunkist soda with the launch of Sunkist Solar Fusion combining a delicious Mandarin flavor with caffeine and B vitamins.

We'll engage our target consumer with new advertising, airing June through August, on shows like "The Hills", "Laguna Beach", and MTV. The Mr. and Mrs. T's Refresh is going extremely well with volume up 10% in Q1. And in Mexico, we've launched a lightly carbonated Snapple Natural Tea targeting the health conscious female consumer. Snapple was up almost 30% in Mexico for the quarter.

Dr. Pepper sponsorship of ACMAs on April 18 combined TV advertising with online social media generating over 200 million impressions and national TV advertising has already started for Dr. Pepper's partnership with the biggest movie release of 2010, Iron Man 2, which premiers in the U.S. tomorrow. This integrated marketing campaign offers fans a chance to win an unrivaled collection of multimedia equipment.

And building on the success of its relaunch, Snapple has embarked on its biggest ever merchandising event joining forces with Donald Trump on one of NBC's most highly rated shows, "The Celebrity Apprentice." This fully integrated event features media, product integration, merchandising, consumer promotions and two celebrity apprentice-inspired products. And these are just a sample of the exciting things we are doing to engage the consumer and drive traffic for our retail customers.

Healthcare reform and beverage tax legislation continue to be significant concerns at the national and state level. As an industry, we're coming together to help consumers understand the role of our products in their lives. While we're assessing the impact the proposed healthcare legislation may have on our business, let me take a moment to tell you how DPS is taking action to encourage an active and balanced lifestyle.

In February, we joined with other leading beverage companies to support First Lady Michelle Obama's Let's Move campaign by adopting U.S. product labeling that will list calories more prominently on containers, vending machines and fountain equipment. We've extended our partnership with the non-profit KaBOOM! We'll turn ten vacant lots into playgrounds in underserved communities this year.

Mott's will be the lead sponsor of the Play Date program, and initiative to design to inspire communities around the U.S. to lead local events that promote and celebrate the importance of play. Consumers want choices and our portfolio of diets, juices and waters drive 26% of our sales. We continue to roll out new products like Mott's Medleys that meet consumer needs.

Internally, we are leading by example, encouraging our employees to take action for their health through annual checkups and other health and wellness programs. Now, let me introduce our new CFO, Marty Ellen, to walk you through some of the below-line items in our 2010 guidance. Marty, I am thrilled to have you on the

Thanks, Larry. It's great to be on this team and back in the industry. I know many of you on this call and look forward to meeting all of you in person soon.

Before I cover first quarter items, as well as our 2010 guidance, I want to take a moment to share with you some of my observations during my first month here. First and without a doubt, we have a terrific portfolio of powerful, well-loved brands. The teams have put together a road map that is robust and ensures that we exploit the full potential of this business.

I wouldn't be here if I didn't believe this potential was achievable. Second, Larry has assembled one of the finest collections of leaders I have seen in my many years, both in the beverage industry and in other successful businesses. What differentiates them is a true sense of entrepreneurship together with demonstrated execution.

The industry is further consolidating and integrating. We have already done much of the heavy lifting. Now that we are standalone Company, we have undistracted focus on our objectives. Third, I have a great team of finance and IT professionals with enormous capability to drive improvements throughout the business.

As we speak, we are embarking on a number of continuous improvement initiatives to do so. I know first hand the power of a lean, continuous improvement culture and we're building it here. All of this capability, coupled with rigor around financial management of shareholder capital, leads me to the unequivocal conclusion that we have enormous potential to grow the value of this enterprise.

Now, turning to our results for the quarter. We had a number of items that impacted us below the segment operating profit line. First, stock-based compensation costs were $3 million higher year-over-year. As a reminder, 2010 is the third and final year of our step-up in stock-based compensation costs. For the full year, these costs will be $12 million higher.

Second, we have spent $8 million in the quarter for costs related to the PepsiCo licensing agreement. Third, we invested $9 million in productivity office initiatives, impacting both our segment operating profit and corporate expenses. You should recall almost all of our 2009 productivity office investments were incurred in the second half of last year.

Fourth, we recorded unrealized commodity related mark-to-market losses of $1 million in the quarter compared to a $1 million gain a year ago. Our reported tax rate for the quarter was 43.3%. It was increased by a $13 million revaluation of certain deferred tax assets established in Canada at the time of our separation.

Continued great execution by our tax team resulted in better-than-expected tax benefits in other areas which will benefit the full year. Cash provided by operating activities totaled $987 million. This includes the one-time payment from PepsiCo of $900 million.

Our cash flow was also impacted by the timing of our annual incentive payments. We paid these in the first quarter of 2010 versus the second quarter last year. Net capital spending of $55 million is tracking in line with full-year guidance of approximately 5% of net sales. And finally in the quarter, we repaid $405 million of debt achieving our target capital structure.

We returned $240 million to shareholders comprising $38 million in dividends and $202 million in the form of share repurchases. As Larry mentioned, we're still dealing with a fairly fragile consumer and macroeconomic backdrop.

At the same time, we're encouraged by the sequential improvements we're seeing particularly toward the end of March and through April. We have now lapped those items already mentioned which adversely affected first quarter sales comparisons.

As a result, we expect to achieve 3% to 5% net sales growth in 2010 driven by continued investments and strong trends in flavored CSDs, Snapple, Hawaiian Punch and Mott's. Also, as immediate consumption and premium price beverages rebound, we expect to benefit from the improvement associated with this positive price mix.

As a reminder, the repatriation of certain brands from the Pepsi system as well as the amortization of the $900 million of deferred revenue, will add about a point of reported net sales growth for the year. On the contract manufacturing side, we continue to deemphasize this non-core business, consciously trading off those sales for higher margins.

And finally, the weaker dollar is giving us some benefit in reported sales comparisons. As you saw in this morning's press release, our reported full-year tax rate is still to be expected approximately 38%. Essentially, certain favorable tax opportunities of around $0.02 to $0.03 per share are partially offsetting the foreign tax item we recorded in the first quarter and the result is a reported tax rate that is still about 38%.

In terms of our input cost outlook, we are experiencing slightly better trends compared to our beginning-of-the-year expectations. At current prices, packaging and ingredients would increase total COGS by less than 1% for the full year on a constant product mix basis.

We continue to aggressively manage our total cost basket and look for ways to drive additional supply chain efficiencies. Our current expectations include certain planned investments in our brands. We would also expect to invest any additional upsides from top line performance and cost improvements in our brands just as we did in 2009.

For the year, we now expect diluted earnings per share, excluding the separation-related foreign deferred tax charge, to be in the range of $2.34 to $2.42. This represents a $0.07 increase from our beginning-of-the-year guidance driven by greater below-the-line leverage from higher share repurchases and the favorable tax opportunities I mentioned earlier.

As we said on our previous earnings call, we expect to see a much stronger second half compared to the first half. In particular, as it relates to modeling SG&A, I would highlight that marketplace investments in the second quarter will be $25 million higher compared to the same period a year ago to support an extremely strong innovation and marketing calendar.

Moving onto cash flow, we continue to expect net capital spending to be approximately 5% of net sales. With our target debt capital structure achieved and with a strong cash position, we continue to execute our previously announced plan to purchase $1 billion of our common stock in 2010. However, as referenced in our March 16 8-K filing, our purchases are subject to market conditions and certain other repurchase parameters.

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

Thanks, Marty. Before we open the lines for questions, let me leave you with a few thoughts. Our results for the quarter and our outlook for the year demonstrate the progress we're making against the priorities I outlined for you at the beginning of the year.

With our plan squarely focused on organic growth only, we're growing per capita consumption while expanding distribution and availability. We're increasing our single-serve mix through continued incremental cold drink asset placements and fountain installs.

We're meeting consumer needs with innovation that is both relevant and delivers value. We're strengthening our infrastructure with Victorville and key IT investments. We're investing in the marketplace and driving relevance and awareness.

At the same time, we're relentless in optimizing our processes to enhance customer value, eliminate waste and reduce cost. Finally, having achieved our target capital structure, we expect to return excess cash to shareholders. It is these things that give me confidence in our guidance for the year and the growth in the years ahead.

Operator, we're ready for our first question.

Thank you. (Operator Instructions) Our first question is coming from Wendy Nicholson with Citi Investment Research.

My first question has to do with the spending, the $25 million of incremental advertising that you're spending in this second quarter. Why is that not going to run through the back half? Were advertising levels inflated in the back half of last year or is this just a particular ad campaign that is relatively short-lived?

When you look it, it's our Dr. Pepper, our Snapple, our innovation, we built heavy towards the end of last year to get started this year. And you can see the results we had from Q1 tell us that these investments are giving us some great returns, driving volume.

So as we drive the Snapple piece to continue with the Dr. Pepper and more innovation along the line of Mott's and some of our other brands, it's critical to get it into Q2 to get the results in the second half.

But it's also clearly a situation of easy comps on the ad spending side, if you will, relative to the back half of last year?

No, it's incremental.

Okay. But in the second half you spent more, so that year-over-year third quarter 2010, fourth quarter 2010, you've got easier comps in terms of the rate of you're spending? Is that fair?

It will be flat.

Okay, okay, fair. And then my last question is just on the share repurchase -- obviously, you bought back a lot of stock but your average number of shares outstanding didn't go down -- is that because the share repurchases were weighted towards the end of the first quarter?

Wendy, it's Marty. Yes.

Okay. Terrific. Thank you very much.

Your next question comes from the line of Judy Hong with Goldman Sachs.

Thanks. Good morning.

Good morning, Judy.

Good morning.

Larry, just, your comment about the improvement that you're seeing in late March and into April -- can you just elaborate that and talk about whether it's really more of a category-wide trend? Are you seeing trends between sparkling versus still and whether you think that's weather-driven or if you're really starting to see an underlying improvement in terms of the categories?

Absolutely, Judy. No, as I've said before, I'm cautiously optimistic. This one we have seen a couple of upticks at the end of last year and the first quarter. But this one, Judy, has been a little more consistent. We have seen six weeks of it.

I'm seeing it across CSDs, I'm seeing it with noncarbs, and as you know me, the biggest thing I watch is the immediate consumption. Watch the traffic, see what the 20-ounce is doing. And, of course, the quick-serve restaurants.

That's quite a great indicator, I think, for everybody in this industry because it's one of the last to go down and first to come back. We're seeing a little more traffic there, a little more uplift in sales, as you can see by our number, up 2%. But just very encouraged by what I'm seeing, it's not where we want it at yet, but it's going in the right direction.

In terms of your net price realization, looks like in the first quarter it was negative so can you just elaborate on the mix versus rate? And then just as the year progresses, are you expecting pricing to be more positive than kind of what you saw in the first quarter?

Judy, it's Marty. Good morning. Actually, we had about a point in the quarter of positive price. And actually, a small amount, 20 basis points of so, of improvement in mix. In terms of our overall numbers.

Okay. Does that become more positive as the year progresses in terms of the mix component?

Well, as I said in my remarks, to the extent we get the improvement in the noncarb categories that I talked about -- that for us drives positive price mix.

Okay. And then just finally in terms of your guidance increase, that assumes you do the billion dollar buyback this year?

Yes, it does.

Okay. Thank you.

Your next question comes from the line of John Faucher with JPMorgan.

Yes, thank you. In terms of looking at our outlook for improvement in the category, can you talk a little bit about sort of how we should think about your share trends versus the overall improvement in the category?

And then can you talk a little bit about, Coke and Pepsi seem to make some comments about some higher levels of promotional spending, maybe some lower price points, some more discounting in the first quarter -- is that something you see going through or do you feel the pricing environment, now that we will have integrated bottlers with both of your major competitors that that will remain relatively rational going forward? Thanks.

Absolutely. John, I'll start with your last one there. We feel very good about the pricing right now. I heard some of the other comments, haven't really seen it.

Doesn't really show on Nielsen. But I see more promotional activity. As you know, I like the promotional activity more than just price off. I mean that's really where we do our battle. I feel good about the pricing out there. I think it will continue.

As far as share and looking at what we're seeing across the channels, I think you could expect to see what we have been doing to continue to grow. We expect to see a one-point growth year-to-date. There's nothing showing us that what we've been able to do the last 20-plus months wouldn't continue. Especially with the flavor growth that we're seeing out there, John.

Okay, so nothing that you have seen from Coke and Pepsi -- obviously, Coke hasn't merged yet -- but nothing there where you say, okay, they will take a different view in terms of trying to get more of the volume leverage -- you think it's just more of the same at that point?

I've not. I've seen some great execution out there. Retail execution, display programs, promotional activity, which is very healthy for the marketplace, it helps everybody.

Okay, great. Thank you.

Your next question comes from the line of Christine Farkas with Banc of America Merrill Lynch.

Thank you very much. Good morning.

Good morning.

Good morning.

Okay, a couple of quick questions -- just a follow-up on the pricing environment, can we assume that you already know what plans might be in place for Memorial Day and your comments about the rational environment is including the landscape over the next few weeks -- is that fair?

Well, I know what mine are. We've not -- that's quite a ways out yet. We've not heard a lot about it, but we're not hearing any negative noise.

Okay.

That's always good.

Fair enough. Secondly, moving to the Victorville plant, was there a boost in your Mott's volumes or other products because of these lines running or would you say the takeaway is more normal and a reflection of the marketplace and the demand in the marketplace?

No. I think it was too early for the Victorville plant to have that kind of an impact. We were just commissioning the line. So it's a -- we'll see more of the Victorville plant volume coming on board the second half.

And that's largely Mott's then?

Mott's and Hawaiian Punch.

And Hawaiian Punch, okay. And then lastly, on your buyback program, you have indicated your commitment to the billion dollars this year. You also talked about reaching your capital structure targets and any excess cash would go back to shareholders. Could that imply then that your buyback could be, in fact, larger than what is in place right now?

That's the authorized repurchase program right now.

But the intent is, of course, as -- if things were to come in better than expected or you have excess cash like you indicated, the goal would be to return that to shareholders, correct?

That would be our expectation. We do subscribe to the view that cash is the lowest-earning asset on the balance sheet and absent any use for it and our plans are clear growth through organic means. We would expect to return excess cash to our shareholders and we're clear about that.

Yes, you are. Thank you very much. That's it for me.

Your next question come from the line of Mark Swartzberg with Stifel Nicolaus.

Good morning, gentlemen.

Good morning, Mark.

Good morning, Mark.

I guess a couple of things. First, in your guidance, it looks like your definition of comparable earnings includes the costs in the quarter of negotiating with Pepsi. Is it fair to assume that any Coke-related negotiating costs are included in your idea of earnings for the year?

Mark, I would say we have enough coverage in that guidance to probably cover that.

Okay, fair enough. And then, secondly, Larry, on Victorville, sounds encouraging.

As you look at the theoretical risk that it disappoints, at least initially, just getting a big plant up and running -- can you tell us a little bit about having these four or five lines on -- do you have enough visibility now that you're up and running to kind of comment on how that risk, how effectively you're managing that risk heading into peak season?

Yes. Basically, Mark, we don't have any. It's just been absolutely seamless, our supply team chain has done a great job, as I said, on-time, on budget. The lines are running great. It's also going to help us with some distribution out there.

Just not the line there but we put in quite a large distribution system that's going to save us about $10 million in transportation for the second half. We're going to be able to consolidate some of the distribution centers and we've not seen anything that would tell us that we had any risk at all.

Fair enough. And then Latin America, Larry, it's kind of some mixed signals these last two quarters -- profits down this quarter but volumes pretty healthy. Looks like you're investing there. Are we near an inflection in terms of profit performance for that market, or is it just going to be a struggle for the rest of the year?

It's a tough market but the one thing -- you're absolutely correct, Mark. We will continue to invest and when it does turn around, we're going to be ready. We're getting a lot of white space covered right now. It's a market that's hard to say when does it kind of flatten out or get to normal where the growth will be there with the profitability.

As I've said before, I'm very bullish on Mexico. We'll continue to invest and we'll be ready when everything kind of gets back to where it will be a profitable business again.

Got it. And then lastly on commodities, Marty, can you share with us to what extent you're hedging and what your attitude is towards hedging looking at 2011?

Yes. We've got -- we've got a fair degree of coverage for the balance of 2010. We are also already somewhat extended out into 2011. I think we've done a fairly good job there. I think we have a good process internally here from what I can tell in my first month here.

So we've got good coverage for this year. Fairly substantial for this year. We've already extended out partially into 2011.

And can you give us any idea of what that coverage is for 2011?

No. I'd just tell you that we're probably 70% or so covered in 2010. Obviously, less so so far for 2011.

Fair enough. Okay, thanks, guys.

Your next question comes from the line of Caroline Levy with CLSA.

Good morning. Question on the percentage increase in marketing spending -- the $25 million. How much is that up year-over-year or so, what would the full-year increase look like?

That's about 20%, Caroline.

Okay. That's great. Thanks. I'm also wondering, your strategy was to drive per capita consumption on the coasts and in places where it isn't as robust as it is in Texas, say.

Are you seeing a significant disconnect between the rate of growth in different regions around the country, maybe you could talk to us a little bit about that?

We're seeing a nice balanced growth but, of course, in those low per cap markets we're seeing a lot more. But it's off of a small base, so we're very encouraged by the plans we have in place. Whenever you see good growth coming off the coast, the Northeast, the Northwest, we're just thrilled to death of what we're seeing Dr. Pepper Cherry do in Southern California.

It's encouraging whenever you pull all the numbers together and say, you know what? We're growing everywhere across the board. Some of them much higher but we are very encouraged by our increasing per cap plan.

What's your read, Larry, on the consumer's view of carbonated soft drinks? We have seen a sort of -- seems to be something of a migration back towards them. Or they declined less than noncarbs. What do you think is going to happen as we move forward?

I think people are always going to love their carbonated soft drinks. You saw our carbonated numbers were up 2%. Our share keeps looking good. We're also doing a lot of innovation there, trying to bring functionality to the fun of a carbonated soft drink. We feel very good about the CSDs, especially flavored CSDs continuing to grow.

Thanks. And then, again, do you have some labor issues at Mott's?

At Mott's? Oh, we have a contract up at Williamson but it's just everyday business.

So you're not worrying about supply chain disruption or anything --

Oh, absolutely not. These things are just part of the business we're in. We have 260 locations. There's always something going on with labor.

I think sometimes people got to remember -- if you look at the plant up there, it's actually about 1% of our volume. I mean, we're in very good shape. There's going to be no disruption to supply chain.

Our consumer and customers will always continue their, delivery of their products. Hopefully, it all gets worked out.

Last one is on Mexico. If you could just review a little bit -- I mean, the weakness you're seeing is self-inflicted or it's the general environment?

Oh, I think it's the general environment is the biggest piece of it, Caroline. I'll let Marty touch on some of the macroeconomics and different things that are happening there. We're continuing to expand because -- as you know, we didn't have a complete footprint across Mexico. So we want to get out there and get that white space covered, and, Marty, you got any other things to add to that?

No. Just to elaborate that, again, we are investing in route expansion, that's part of our strategy. In the short run, we've got some IT investments.

We need to get them on a better system platform. We spent some money to do that. Those, I would say, are the two biggest factors when you look at the level of profitability.

It's just that it's been a tale of two cities in cola where Coke's volumes have been very strong and Pepsi has had a long-term problem in trying to make a go of it in Mexico and I just wonder if Coke's scale is such that it's difficult for another CSD brand to really be built up?

I think if you look at -- again, you can look at Mexico. A lot of similarities to our U.S. business with, we have a strong brand in Penafiel that has a great demand. Our Clamato business -- we don't play in the colas. Colas are very strong down there, but it's also a flavor market and there's a tremendous amount of demand for our products.

I think I told everybody a little while back we've put the business under Jim Johnston and the things Jim has been able to do down there, the new plans and how they're doing the distribution, working with our bottlers also working with our Company on distribution. We're seeing great things in our Penafiel, our Crush brand our Squirt brand and especially Clamato.

Thank you so much.

(Operator Instructions) Your next question comes from the line of Andrew Kieley with Deutsche Bank.

Good morning. Larry, I know it's early days, but could you talk about performance of your brands in the Pepsi territories since the new contract went into effect? Are you seeing any acceleration there or how you're performing in those territories?

We're doing very good. As I mentioned earlier, our Crush for the quarter was up 22% after a tremendous launch. Our Dr. Pepper business was up mid-single-digits. Very pleased with that.

Some of the programs we've put together -- we're just really working close and the activation of our different marketing programs, we're very excited about the relationship, Andrew.

Okay. And then secondly, I wanted to ask in the package segment -- CSD volume down mid-single digits, can you talk about that? Is there timing issue there? Is it Sunkist coming off a bit?

It's Sunkist, yes. That's where I would look at it.

Okay. And then lastly, Larry, as you negotiate distribution agreements with your external bottlers, is there a scenario under which you would ever consider giving up change of control rights in those contracts?

No, I can't imagine anybody in this business doing that.

Okay. And then, just last question for Marty, in terms of the commodity cost coverage that you had this year, could you talk about where the variability would be or where you're not covered? Is it just PET at this point?

Well, look. Our greatest input items at risk would be aluminum and PET. And we have got some fairly good coverage there. That's sort of the 80/20 when you worry about cost variability from commodity cost chain. So I think we're in fairly good shape there.

Okay. Great, thank you.

Your next question come from the line of Damian Witkowski with Gabelli & Company.

Larry, on your comment back to -- and it's now new -- but returning excess cash to shareholders, any preference going forward in terms of doing it via more buybacks versus increasing the dividend?

Well, Damian, you always have to see what the market conditions are and we watch that very closely. It's one of those things that we laugh about. It's a problem our board loves, figuring out which way to give it back to our shareholders and make sure we're shareholder friendly. I wouldn't say we have anything in stone that we prefer.

Okay. And then, not to continue but just -- on Mexico, obviously, it is a tough environment currently. Weather didn't help during the first quarter. You have some very nice strong brands down there. But it's not really contributing much to your earnings, at least not yet.

I'm wondering if at some point it becomes too much of a distraction then you might look to perhaps do something more strategic with it?

No. We don't. That's one of the reasons, Damian, I would put Jim Johnston over that market, seasoned veteran that knows how to really manage a business and how to take a portfolio and drive a strong U.S./Canada, use the Mexican piece as an investment for the future. No plans like that at all.

Okay. And then just -- can you give us more color on the Snapple just -- was it -- what packages were strong and maybe what channels? It's nice to see a positive --

It's just a great story. When you look at the 17% growth, Damian, we had, it was across all channels. Across all of the -- the super premium was still weak because of the price points and the economy. We are actually seeing super premium flatten out. Our premium, our 16-ounce glass is what I am the most excited about. Our turnaround on that has just been phenomenal.

Okay.

The relaunch, put in the six pack -- we've got the customer excited. We've got the consumer excited. They got me excited.

Yes.

But it's a, very happy with it and a tremendous amount of room for more distribution and more access with our value T out there. We are just starting there.

Okay. And are you not discounting your premium stuff at this point or are you sort of still adjusting to the environment?

No, we had -- actually, right now, our prices are 48% higher. On our volume than the 12-packs a year ago.

And just one more thing before I leave,, Larry. I know you're close to this, but the whole legal and tax situation, you highlighted it, I think, for the first time in your prepared remarks -- is that -- we've had the federal last year seemed to be defeated and now we have some bigger states, like New York, try to implement an excise tax on sugared beverages and that seems to be dead as well. Is the environment now worse, about the same, or better for an outlook for a new excise tax?

Well, Damian, I would say it's about the same. We have some questions last couple of calls and so I thought I would add that in there, it's always something we stay on top of. Of course the healthcare reform went through and a lot of people have made statements and put releases out on that and we're still looking at that. It's not much to us.

Yes.

(inaudible) of all the different states, I mean, we won the federal piece of it. That pulled out. But we have to watch those states. And we have for years. It doesn't go away.

Okay, so, yes, that was my question. It doesn't go away. It's just sort of an overhang. But the federal one is unlikely to come back, I would imagine?

I hope not. I think people have -- the consumer spoke up and I think people heard them.

Okay. All right, thanks, Larry.

Thank you.

Your final question this morning comes from Bill Leach with TIAA-CREF.

Good morning.

Good morning, Bill.

How are you?

I'm good.

I was just wondering where the share count stood at the end of the quarter? Your share authorization is roughly 12% of your market cap. What are you assuming when you give EPS guidance for your share count for the year?

Actually, Bill, Marty on. Good morning. I'll help you further along. Actually share count probably as of yesterday or the day before is about 245.7 million shares outstanding.

Okay. What are you assuming for the full year in your guidance?

We have assumed we will do the full repurchase in the guidance.

Just evenly disbursed over the year?

For the most part.

And do you have any guidance for interest expense? That was a big help in the first quarter.

About 5% in terms of average outstanding debt.

And how much is the debt?

2.6 net -- it would be about $130 million of interest expense for the year.

Okay. Great. Thank you very much.

All right, well, thanks for joining the call today and for your continued interest in Dr. Pepper Snapple Group. We're hosting our first ever investor day at our Plano office on June 8. We look forward to seeing you here. Thank you.

Thank you. This concludes today's conference call. You may now disconnect.