Keurig Dr Pepper Inc (KDP) 2010 Q2 法說會逐字稿

Good morning, and welcome to Dr. Pepper Snapple Group's second 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 Paula, and good morning, everyone. Before we begin I would like to direct your attention to the Safe Harbor Statements 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 in this morning's earnings press release and our SEC filings. Our actual performance could differ materially from these statements, and we undertake no duty to update these forward-looking statements.

During the 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 calls for your questions. With that, let me turn the call over to Larry.

Thanks Aly, and good morning to everyone. As many of you know, on June 7, we announced an agreement with the Coca-Cola Company on how we'll handle the distribution of our brands currently licensed to Coca-Cola Enterprises. I'd like to begin today by highlighting a few key elements of the agreements.

Upon completion of their acquisition, DPS will receive a one time, up front payment of $715 million before taxes, fees and other expenses. Consistent with our Pepsi deal, these agreements will have an initial term of 20 years with 20-year renewal periods, and will require Coke to meet certain performance conditions. We will record the up front payment as deferred revenue and recognize it over a 25-year life.

In the US, Coke will distribute Dr. Pepper across all markets and Canada Dry in northeast markets, where both these brands are currently being distributed by CCE. In Canada, distribution remains unchanged. Coke will also include Dr. Pepper and Diet Dr. Pepper on its revolutionary Freestyle Fountain Dispenser, and will offer Dr. Pepper and Diet Dr. Pepper in local fountain accounts currently serviced by CCE. Additionally, in US territories where we have our own manufacturing and distribution footprint, we'll repatriate certain brands.

In total, this transfer will result in the repatriation of approximately 16 million cases back to DPS. Combined with the cases from the Pepsi system, approximately 25 million cases are expected to come back into our system. This adds eight points of growth to our packaged beverage CSD business and will provide much needed scale and efficiencies in key package beverage markets. The consolidation of these brands under PB will also enable us to focus our efforts on growing volume and distribution, while driving greater returns on local marketing efforts.

We view these agreements with Coke as yet another positive step for our Company and our brands. We're already seeing the benefits from our new agreements with PepsiCo. In Q2, this business was up 6%, driven by increased distribution and flawless execution of both Dr. Pepper and Crush.

Before I recap our second quarter results, let me share some of the great wins we've had in brand activation during the quarter. We invested an incremental $12 million, or 11%, over the prior year with key activities, such as Dr. Pepper Iron Man promotion, new advertising supporting the launch of Sunkist Solar Fusion. We continue to drive investments in media, with GRPs up over 50%. It's worth noting that with noticeably higher levels of retailer-led price promotion, our teams aggressively shifted activities from the second quarter into the third quarter to maximize our marketing returns.

Snapple's integration into this season's Final Board Challenge on the highly rated Celebrity Apprentice created more than 100 million impressions and drove strong retailer execution, resulting in increased brand awareness and accelerated growth. The two Celebrity Apprentice inspired flavors were a hit. Bret Michael's Diet Troparocka was our number three selling six-pack, followed by Holly Robinson Pete's All Natural Compassion Berry at number four. In fact, these two flavors are contributing almost two percentage points of Snapple's year-to-date growth, and they're selling so well that we just scheduled our third production run of Troparocka.

Great activation drove 53% ACV in Grocery for each of the Celebrity Apprentice flavors. Household penetration also increased, with 60% of the sales incremental to the trademark. Troparocka also grew the tea category, as 24% of the households buying it were new to the category. These great flavors are not only bringing excitement to the Snapple trademark, but they are driving awareness for each of the celebrities' charities, the American Diabetes Association, and the HollyRod Foundation.

In the second half of 2009, we reinvented Canada Dry, highlighting its better-for-you ingredients, natural flavors, and the little known fact that Canada Dry is made with real Ginger. For the first time in 10 years, we also began investing behind the brand, with new consumer preferred graphics, national account activity, sampling, branded entertainment on Mad Men and TV advertising, and we're seeing the benefits from these investments in 2010. Year-to-date, Canada Dry's share of Ginger Ale's segment is up three points, and our BCS volume is up 13% for the quarter and 12% year-to-date. Display activity has increased 15%, while inventory on display is up 17%, and household penetration grew five points.

This year we've step up the activity to include incremental investment in five key expansion markets. We're targeting these low per capita areas with local radio, account specific activity, sampling, displays, and sales incentives to drive flavor and package expansion. Year-to-date, these markets are driving 25% of Canada Dry's national growth, with strong ACV gains in Grocery.

We're not just winning with consumers. We're also winning with our customers. Beverage Forum named us 2010 Company of the Year, for outstanding performance, flavor leadership, and innovation, and Wal-Mart just named us Supplier of the Year for 2009. At Wal-Mart, we were recognized as an innovator for our Focus on Flavor Expansion, improving our route to market, developing the Wal-Mart Exclusive Football Bottle, and our support of environmental sustainability and nutritional awareness.

Now moving on to the second quarter, the business delivered another quarter of solid results, with BCS volume up 3%. Consumers in North America continue to worry about the lack of job and income growth, and this is weighing on their spending decisions. Retail sales, which had shown signs of life earlier in the year, are now showing weakness.

We remain cautiously optimistic that the recovery has legs; however, as you would expect, we're monitoring the situation very closely, while making investments that benefit us over the long-term. And while manufacturer pricing remains rational, during the quarter, we saw a significant increase in retailer-led price off and promotional activity, driving consumers to stock up their pantries.

For the quarter, CSD volume was up 3%, led by 3% growth in Dr. Pepper, with increases in both Regular and Diet. Crush grew 21%, lapping triple digit growth in the prior year on strong innovation and continued excellent execution by the new Pepsi Beverages Company. And as I mentioned earlier, Canada Dry continues to respond extremely well to increased marketplace investments, with volume up 13%.

Our Fountain volume was up 4% for the quarter, driven by Dr. Pepper, and year to date, we're on track to hit our goal of installing 30,000 incremental valves. We continue to expect regular Dr. Pepper to be in 100% of McDonald's outlets by the end of the year, and we now expect Diet to be in 40% of the outlets, as our teams continue to sell each store on the merits of having the best tasting Diet on tap. We're also encouraged by continued sequential improvements in restaurant traffic, with traffic down less than 2% in the latest quarter.

In Non-Carbs, Snapple grew 9% with continued distribution gains in our Premium Glass, Value PT and Pre-price Canned business. Continued pressure in our Snapple Super Premium line reduced Snapple volume growth by two percentage points. We're currently looking to strategies to right this piece of the business.

Hawaiian Punch grew 7%, with increased promotional activity in the Grocery channel. Gains in Snapple and Hawaiian Punch were partially offset by a 10% decline in Aquafiel. Our Contract Manufacturing business declined 22%, as we continued to free up capacity for branded product growth.

Net sales on a currency neutral basis were up 1% for the quarter, and included $9 million recognized under the new Pepsi licensing agreement. Favorable pricing in Beverage Concentrate was offset by increased promotional activity and negative mix in Packaged Beverages, and by negative product and channel mix in Mexico. Finally, the loss of low margin Contract Manufacturing reduced net sales growth by over one percentage point. Segment operating profit on a currency neutral basis increased 3%, as net sales growth combined with continued supply chain efficiencies were partially offset by higher marketplace and productivity office investments. I know you've received questions on the strike at one of our northeast facilities.

Let me assure you that we will reach a workable solution. In the meantime, we are operating the facility and supporting the Mott's business. Year-to-date, the Mott's trademark is up 8%, and we've gained a full point of Juice and Soft Share.

Our second half innovation and activation plans are strong and designed to increase the relevance and awareness of our brands, while building on the elements of fun, functionality, and flavor. We'll continue to celebrate Dr. Pepper's 125th anniversary with the introduction of Dr. Pepper made with real sugar in six collectible cans featuring legacy artwork and popular advertising slogans like "I'm a Pepper" and "10-2-4". This packaging is available now through early September.

We'll continue to support the national launch of Mott's Medleys, with new TV advertising featuring Marcia Cross during high profile shows. Marcia also helped us promote and celebrate the importance of play by celebrating the Mott's team for a KaBOOM! playground build in California.

The Lemon-Lime landscape has changed. In September, we're bringing big news to 7UP. We'll revive, re-charge and re-up the brand by introducing a new based formula with a clean, crisp taste, new graphics and all new advertising. The launch will be supported with a national FSI, strong retailer engagement, and sampling.

Hispanic activation will include a partnership with the Latin Grammys, offering consumers the opportunity to win an all-expense paid trip to the award show and the after party. We'll drive execution with display contests and tailored retailer activity, and to further incent our salesforce, I will be traveling around the country to reward excellence in execution.

Dr. Pepper will continue its role as a major supporter of college football for the 14th year. Dr. Pepper will again kick off the season as the presenting sponsor of the BCS Championship Coach's Trophy, and this year we're giving away $1 million in free tuition. Crush will [own] Halloween, with the launch of fun, fruity taste of Crush Lime and a limited time offer, supported by theme display activity. And these are just a few of the exciting things we have planned for the second half. Now let me turn the call over to Marty to walk you through some of our below the line items and our 2010 guidance.

Thanks Larry, and good morning everyone. Below the segment operating profit line, we had a number of noteworthy items that impacted corporate costs, interest expense, and taxes. In corporate, let me highlight four items impacting comparability. First, we continued to make productivity office investments to streamline processes and drive efficiencies. We remain on track to invest at a similar level to 2009. But if you recall, we're spending more evenly over this year.

In Q2, we invested approximately $8 million, split evenly between the segments and corporate. This brings our year-to-date investments to $17 million. Building on our Productivity Office Program, we recently expanded our Rapid Continuous Improvement initiative or RCI for short. I talked to many of you about this at our recent Investor Day Meeting.

I'm thrilled that one of our most skilled executives at RCI has agreed to lead this initiative across the entire organization. We already have some good experience and successes with our Lean Six Sigma Program in our supply chain, so we'll leverage and expand this capability throughout the entire organization, in sales, innovation, operations, and administration.

RCI is all about improving at every level with complete organizational engagement. By eliminating waste, we will improve on all dimensions that add value to our customers. This creates new growth opportunities and provides incremental people and financial resources to reinvest back into the business.

The second item impacting our corporate expenses was $5 million of mark to market losses related to aluminum and heating oil commodity hedges. If you recall, we recorded $8 million of gains in the same period last year.

Third, we had non-cash pension settlement and curtailment charges of $4 million related to certain US defined benefit plans. Fourth, we had about $2 million of higher year-over-year stock compensation costs.

On the interest expense line, a combination of lower average debt and lower average interest rates resulted in a $23 million reduction in total interest expense. For the quarter, our effective tax rate was 35.9%. We still expect the full year effective tax rate to be approximately 38%.

Moving on to cash, we continue to generate strong operating cash flows. As I mentioned on our first quarter call, our 2010 operating cash flows include the $900 million one time payment from PepsiCo. Working capital continues to improve. Year-to-date, we've taken seven days out of our cash conversion cycle through a number of process improvements.

Operating cash was also negatively impacted by the timing of certain prepaid items, as well as compensation related payments. For the first half, our capital spending of $114 million is slightly below our expectations, but is in line with our approximate target of 5% of net sales for the full year. During the quarter, we sold a distribution facility on the West Coast for $16 million and recorded a gain of $4 million on that sale.

Year-to-date, we have repurchased $557 million or 15.6 million shares of our common stock. We're on track to purchase a total of $1 billion of our stock in 2010 subject to market conditions. On July 12th, our Board authorized the repurchase of another $1 billion of common stock. This new authorization should cover our repurchased activity through the early part of 2013.

Moving on to guidance, we are essentially unchanged from our first quarter update. As Larry mentioned, the current economic climate and its impact on consumer behavior continues to create a degree of uncertainty. Against this backdrop, we continue to expect 2010 net sales to grow in line with our long-term guidance of 3% to 5%. As a reminder, we expect foreign currency benefits, deferred revenue and repatriated cases related to the PepsiCo license agreement to add about a point and a half to net sales growth, while the loss of certain contract manufacturing and the negative mix from higher Concentrate sales and Value Juice will reduce net sales by more than two percentage points.

We continue to expect packaging and ingredients to increase cost of goods sold by less than 1% for the year on a constant product mix basis. Please note that in terms of quarterly earnings comparisons, we expect Q3 will be our toughest comparison with respect to COGS inflation and transportation and freight rates.

For the year, we're on track to invest $30 million incrementally to support our brands. We invested $12 million of this in Q2, which was $0.03 per share lower than our beginning of the quarter expectations. This reflects our team's continued focus on maximizing marketing return on investment.

GRPs were up over 50% in the quarter, and with the shift of dollars to Q3, we expect GRPs to be up over 50% again. For the year then, we expect diluted earnings per share, excluding the first quarter tax item, to be in the $2.34 to $2.42 range, unchanged from our first quarter update. Our guidance today excludes the impact from the Coke licensing agreement, which is subject to Coke completing its planned acquisition of CCE's North American Bottling business. With that, 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. We're continuing to execute against our focused strategy, and our results show that it is working. Our new agreements with Pepsi and Coke are creating and will create new opportunities for growth.

Despite a continued weak macroeconomic environment, we are increasingly confident that we'll deliver our commitments for the year, while we continue to invest in the business and our brands for the long-term. We believe our portfolio of leading and preferred flavor CSDs, teas, and juices, combined with strong execution, will continue to drive strong growth in the years ahead. Operator, we're ready for our first question.

Thank you. (Operator Instructions) Our first question comes from Judy Hong of Goldman Sachs.

Thanks. Good morning, everyone.

Good morning, Judy.

Good morning.

Larry, just in terms of the second quarter, you've obviously called out the intense retailer driven promotional activity that you saw in the quarter, do you have a sense of how much that may have boosted the overall industry or your volume performance as consumers may have stocked up? And then as you think about the second half of the year, as the promotional environment becomes a little bit more rational, do you think that you'll see somewhat softer volume going forward? Just wanted to get your views on that.

Well, I think, Judy, we've been working really hard to reset CSD pricing and the pricing architecture, and I really believe heavy discounting isn't the way to go on that. It drove a tremendous shift in our business to cans, which I think everybody can see in our Packaged Beverage business, which took away from our two-liter and six pack half liter that drove a lot more top line end margin. I think the promotions as they got back up, they were very hot for Memorial Day. They got a little more rational for 4th of July. And I think we're starting to see - - pull through in July.

But I think we're going to see much more rational pricing on the retailer front. I think all of us have been rational on our pricing. It's just that retail price we've got to watch. So we're already seeing the shift kind of going back to where it was before, not as heavy on the canned volume. And I think our volume is going to be okay for the second half.

So it's more of a shift to cans, it's not like you're going to see sort of the category or your trends soften because consumers have a lot in their pantries and they're going to cut back on the purchases in the third quarter?

I think they had a lot when it got down there real deep, but I think as the prices came back up a little more reasonable 4th of July, pulled it through.

Okay. And then just on Snapple, because it stills seemed like sequentially you've shown a sizeable deceleration. You've called out the Super Premium having some issues. Can you just talk about kind of in the second quarter what happened to Snapple overall, and then what do you think will happen as you kind of look out for the balance of the year? Are we going to get back to the performance that we saw in the first quarter or is it the Premium side continues to be challenging?

The Premium, we have to kind of break out what I'd mentioned being soft was the Super Premium, and I think everybody has to remember that's a very, very small segment of the category. Our Premium business, which we relaunched for the quarter, was up 16%, and our value teas were up 22%. So we're very happy with the performance of the Snapple brand.

It's small on the Super Premium, but we definitely want to get that turned around. And a lot of the Super Premium being the higher priced is some of the macroeconomic conditions. And also I think people have to remember our value tea being up 22% is lapping the introduction last year with strong numbers out there on volume.

Okay. Thanks.

Your next question comes from Caroline Levy of CLSA.

Good morning everybody.

Good morning.

I have a couple of questions, just following up on July, it doesn't sound like you really feel there is a whole lot of pantry load left, and so I'm just wondering if you've seen a good start to the quarter, or if you really are still very cautious, which it what it sounds like, that you are cautious, just given what we've seen in the economy.

Yes, it's just the middle of the summer selling season, so I don't know if cautious is the right word. But we're cautiously optimistic but we're seeing some weakness in the consumer.

And is that C-stores very much, or is that just across the board?

I think it's pretty well across the board, Judy with the customers I - - I'm sorry Caroline - -

Caroline. That's okay.

Yes, I'm sorry, the customers I talk to pretty well across all of the channels are - - we saw the economy - - we saw a little uptick. We're not saying it's going down, but we're just saying it seems a little weaker out there, and we're just really hoping it has some legs behind it.

Right, right. And if I might ask about price mix, because if you look, and maybe this is a question for Marty, but if you look at the specific businesses, it looks like in Beverage Concentrate you had some big upside and Aly walked us through some of it. But in Packaged Beverages, price mix if you try to strip out everything else, looks like it was down a bit. Is that right, and why?

That's correct. And just to clarify in Packaged Beverages, if you ignore the - - let's talk about the volume at will the same time - - when you talk about [eliminate] the Contract business, the core of our business there was up almost 3%, and that was offset by what we'll refer to as the price mix factor, really caused by two things, heavy can activity in the quarter, [we're] coming in at a lower NSV, and some of that is package related. And then some of the product related, as we mentioned Hawaiian Punch was up. That's good. It's a relatively lower NSV product for us.

So the combination of those two resulted in about 2.5 points of net negative there, which offset the volume upside if you ignore the effects of the Contract business. That's really the [PV] story of the quarter.

Okay, and then so should we expect that maybe to continue for the balance of the year, or how should we think about price mix in both of those big divisions?

Well, one, we've made a conscious decision and shared it with everybody that we're going to get out of some of the Contract pack that's much lower margin, to free up capacity for our brands, but I think it's not going to be as heavy. Whenever you take the pricing that was out there during the second quarter, that has quite an impact on some of the private label and store brands when you can buy the premium brands at $3.88 to $5.00 a case.

Right. Right. And then if I might just ask you, originally I think you had guided us to about $25 million of marketing spend in the second quarter. You spent about $12.5 million. Should we assume all of the catch up in the third quarter, and how are you allocating that spending? Which brands are going to really benefit?

Yes, we're going to put it into the third quarter. The team did a fabulous job of pulling that back and shifting it to the third, and you'll see the major focus there will be on CSDs.

Okay. And the final question, the gross margin outlook is a little [tougher] in the third quarter because of the commodity comps, I guess. Are you saying it just won't go up as much, or that it would actually be negative?

No, it will be negative. It will be up. Costs will be up.

And the gross margin itself would be down a bit?

Yes. I mean, assuming you hold everything else constant.

Okay. Thank you very much.

Your next question comes from Kaumil Gajrawala of UBS.

Two questions, first one a quick one, if you can give us a read just on how brand Dr. Pepper did over the quarter. And then, second one, the rationalization of the co-packing agreements, are you happy with where you are now, or is it something that over the next couple of years there's a longer set of brands that you would like to slowly rationalize?

I think first, Dr. Pepper had a great quarter, up 3%. Our Fountain Food Service was up 4%, mainly driven by Dr. Pepper, so we're very pleased with the Dr. Pepper performance across the quarter. On Contract Pack, that is one of those that you just kind of manage as you go along. You look at what you need for operating efficiency, as your capacity comes up or you need more volume, you can trim some of it back down. And it's one of the reasons why we've never went into really long-term agreements on Contract Pack.

So those are some of the things we have. We also have some where, if you remember we mentioned last year that we have some of the Gatorade away. We're still happening lapping some of that, so I expect to see it kind of smooth out there, Kaumil.

And then, as we think about Victorville coming on and the capacity there, is there a scenario where there are some things you may pick up when there are other things that you drop, and net-net there would be a little bit of drag on top line, or is it in general you're looking to?

No, no. With our win the west on the West Coast with our Mott's brands and juices we don't see any drag with Victorville.

Got it, thank you.

Your next question comes from Mark Swartzberg with Stifel Nicolaus.

Thanks, hi guys. I know I'm belaboring the point, but on July, is it possible to be a little more specific about how your carb trends and your non-carb trends compared to what we saw in the second quarter? Are we seeing them slower, faster, same, can you just be a little more specific there?

The biggest thing we're seeing for July is the mix shift going back to where we had managed it to, so it's timed much better to our pricing architecture, the plan we had laid out for the year. It's still early there. But we feel positive with it.

So when you say [mix], you're talking about the channel mix being a little different than where it was in the second quarter?

Or the package.

And the package. Fair enough. Okay, great. And then on Snapple, the six packs of the Premium having the strength they're having, it sounds like the ACV is now at a pretty high level now around 85%. I guess, A, is that about right, and B, as you look at the velocities you're seeing on that particular pack, what are you seeing and what kind of opportunity do you think you have there going forward?

We think we're just in the beginning of this. We're very excited about it. We're showing strong acceptance and a lot of repeat. We're picking up new channels and distribution. We're very excited about the re-stage of the Premium, and not just the volume, but by restaging and going to the six pack, we have great volume up and our pricing is up also.

Great. And then lastly, Larry, or maybe Marty, but I wonder if you could give us a bit of a kind of state of the union, a characterization of how you're [wholly unbottling] operations look today now that they have some incremental volume coming back from Pepsi and soon to be coming back from the Coke bottlers, and particularly as it relates to the opportunity to see these core four trends go from the negatives we're seeing to positives over some time frame?

Yes. I think one, we're really excited about some of the brands we're bringing back, mainly so there can be a more focused local marketing programs and execution put behind them.

I think something, too, Mark, is people kind of look at the second quarter. If you look at the pricing activity, the heavy discounting that went on, a lot of our Core Four was not included in that, and so that had quite an impact for the second quarter. Those are some of the things that are coming back. So I think we're excited about what we have coming back in, especially what we can do with Canada Dry, what we can do with the Squirt, and also with some of the Sundrop brands that come in, and so the team is working very strong now in putting programs together to drive those for next year.

Great. And I guess I'll throw one last quick one in, Marty, on RCI. Do you think we'll get some numbers from you, end of year, in terms of how impactful that might be to margins over some future time frame?

Mark, maybe. It's too early. I talked to you guys at the Investor Day Conference, and when I spoke with those of you I spoke with, I talked about the time, my focus initially being in the areas I'm responsible for. And as I said this morning, we have since expanded that to take in not just our supply chain people, but to touch every part of the organization.

I will build on your question to Larry, which is the operational improvement opportunities we have in our system that, as you know, came together through the acquisition of a number of different bottlers, we're pretty much done with getting an underlying common IT system in, but really the opportunity drives [some] operational improvements through that system, we believe, are fairly substantial. And I think I'll commit to you that as we make progress in areas, I'll try to make an effort to try to point them out to you so you can see some tangible results from the activities.

But there is a lot of opportunity. I don't want to create expectations that are too high at this point. I never have. And so right now I think you just ought to take away that it's going to be a big part of our focus. We're putting a little money into it by staffing a group of people that are really capable in this area, who I'm confident can really drive some executional improvements throughout the entire organization, and more to come as we make progress.

Great. Okay. Thanks a lot, guys.

The next question comes from Christine Farkas from Banc of America.

Thank you very much. Good morning.

Good morning.

I have a couple of questions. Just back on Snapple, it wasn't clear to me why the growth slowed, given the strength in the value and the Premium, was it the Super Premium that decelerated or was it something else?

The Super Premium brought the total Snapple down basically 2%. But I think also if you look at the second quarter and look at the CSD pricing that was out there, that took - - I think a lot of LRB may have moved into some of that pricing.

Certainly. I guess I'm thinking also of warm weather that might have helped the Single Serve business, and I'm curious if you saw an impact from that.

Well, our Single Serve business, yes, is doing very well. I think if you look at the total Single Serve across all of our brands, it was up, I think it was a little over 1%. But the hot weather helped a lot, but I still think we had a tremendous amount of activity going into the stock up.

Okay. Great. Moving on to the Pepsi recognition, I just want to understand that $9 million was buried in the Concentrate revenues. Was it also in the Concentrate profits or is that the separate and other income below the line?

It's in both. It's in the top line for BC and in their segment operating profit.

Okay. In the first quarter, did you pull that out separately and this quarter it changed a little bit?

No.

Okay.

Remember, there's only one month. It was only $3 million in the first quarter.

Right, right. Okay. I'll look at that. On Mott's, I just want to understand based on your year-to-date performance of flat, if I read the release correctly, which suggested the second quarter a little bit lighter or materially lighter than the first quarter, can you just talk about shipments versus the retail take away?

Let's get the data straight on Mott's. The BCS on Mott's was actually just under 3%.

Okay, for the quarter?

In the second quarter, that's correct.

Okay, and looking at the growth in the first quarter which was close to mid-teens, I guess I'm trying to understand if the impact from your operations or labor is coming [through a] volume at all?

No, no. There is no impact there. If you look at what we're doing up there with our other locations and some Contract Pack, we actually last week produced more than what we would have at that facility.

So if I think if you look at what we've got going forward, there is going to be a big push on back to school. A lot of times on some of these products, there's a little more seasonality to it, but we're running right where - - we're delivering the demand. We're delivering what our consumer and our customer needs are, and we're very right on plan with it ,so we're very happy with it.

Okay. Great. That's it for me. Thank you.

Your next question comes from the line of Andrew Kieley of Deutsche Bank.

Hi. Good morning. Larry, I was wondering on the Coke, the new Coke Fountain agreements, could you help us, give us a sense of the opportunity there. I don't know, maybe new valves versus number of valves you serve now in that channel, and just how we should think about that opportunity?

Yes. I think especially with the new Freestyle it's going to create a lot of excitement, and I'm very bullish on it. As far as really dimensionalizing what we have out there, as everyone knows, the Freestyle is still kind of in a test mode, but where we have them and where we're participating, we're excited about it. As it gets kind of more into the rollout and everything kind of gets finalized and the deal closed, we'll get back with everybody on what type of an impact we think that will have.

Okay. And then I just wanted to go back to mix, product mix in the Packaged segment. How do you think about, because I think earlier you were saying some of the higher priced juices and non-carbs might pick up in the second half of the year, is that still the expectation or has that slowed a bit?

Since last year, we've been saying we thought it would be soft in the first trimester, basically flat in the second, and then kind of come back in the third. We're still staying with that. I think you can see from some of our numbers it's kind of still working that way. So even though we're cautiously optimistic, we still feel our plan is in place. Okay.

And then just lastly for Marty, in terms of the cost of goods [in] the ingredients out look, can you let us know where the sensitivity there is now, maybe where you're covered versus not covered? And secondly, just where Victorville savings are coming in for the year, has that projection changed at all?

No, the Victorville savings projection has not changed. We still had some startup costs in the quarter, roughly around $6 million in total, and we're still expecting transportation savings in the back half in the $9 million to $10 million range, so that has not changed. In terms of commodity cost inflation, we're fairly well covered through the balance of the year for aluminum. I will stay that, when I spoke all of you, I think in June, we were seeing softening in spot aluminum prices, they have since firmed. And obviously aluminum PET is sort of the 80/20 in terms of the composition of our ingredients.

We're a little light on coverage in corn, and corn took a bounce up at the end of June, but that is not a huge dollar value impact item to us. So that's pretty much on the commodity front. We're [good covered on] aluminum; that's the important one. And so our view on cost inflation is consistent with where we had it. And as I said in my remarks, unfavorability in Q3 needs to be factored into all of your thinking.

Okay, and in terms of the new share repurchase, you're sort of thinking about the timing as evenly spread over 2011, 2012.

Yes. I mean, roughly. I mean, it's going to consume whatever our, I'll say discretionary cash flow is, and I define discretionary as after our dividend, of course.

We bought back 15.6 million shares so far. We're looking at another in total $350 million worth of repurchases right now for the third quarter in total. And as you think about your models and your numbers, you can sort of assume that we will buy back whatever our discretionary cash flow will allow us to do. And as I said in my prepared remarks, our crystal ball says we've got authorization now to carry us through the early part of 2013.

Okay, thank you.

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

Good morning.

Good morning.

A question on the BCS volumes, well the sales volumes you report have been trailing the BCS volumes for this quarter and the first quarter as well, whereas they used to be much closer last year. Is there something to that? Do you expect that gap to close and sort of reverse in the second half of this year?

It's Marty. Good morning. Remember in the first quarter the big discrepancy was the Concentrate price mode, and that occurred in Q4. It showed up in BCS in Q1. Really in Q2 it was the contract, the reduction in volume caused by Contract Pack. That pretty much reconciles your 3% BCS to our 1% reported.

Okay. So if I think about your midpoint revenue guidance for the full year of 3% to 5%, let's say 4%, back of the envelope implies about 6% growth here in the second half on the top line, broadly, will that be coming from volume, price mix? Is there one that is in your - - the way you look at it is going to be driving that in the second half?

Our second half expectation includes continued strong performance in Dr. Pepper and Crush, which have been growing at rates at or above that. We're putting a lot behind the 7UP relaunch which Larry spoke about, and obviously that is where some of the marketing money is going to in the quarter. And obviously continued good performance in Snapple, given where we've been in that, and underlying that continues to be sort of this overall 3% quarter-to-quarter now for bottle or case sales [pull] for our brands.

The wild card will always be what happens to the economy, what happens in Consumer. But it's really the result of sort of the focused programs around some of those key brands where we have had great success that we expect to continue.

And just on the Consumer, Larry, you made some comments that isn't necessarily the consumer is getting weaker, it's just the way I understood it, it's just not as strong as you hoped it would be. And has that sort of gotten worse sequentially as we got through the second quarter?

No. I think you hit it right on the head. It's just not as strong as I thought it would. The trend we were watching has just kind of flattened out. So not really weaker, but there is still a lot of concern out there with the jobs and everything like that.

The biggest thing we're watching, and our focus is to help drive traffic. We've got to get excitement out there, our promotions, our programs where we're driving traffic, getting people in, still showing that value in other ways besides in just price off. And so still cautiously optimistic. We just need to see it get a few more legs.

Okay. And then if I could, the brand Sunkist obviously, it talks about it's still down I think high single digits in the second quarter and there's actually an improvement from the first quarter and some of the volume is being stolen by Crush. And so a two part question, one is I would imagine you would prefer to sell a case of Crush versus Sunkist, you probably have better economics on Crush, just confirm if that's right or wrong. And secondly are you going to do anything with that particular brand in terms of trying to get it growing again?

Absolutely. And on the margin thing they're similar. We want to sell both of them, but I think the big thing people have to look at is how much bigger we made the Orange category. Sunkist is a very, very big piece to our Packaged Beverage business. We've launched the Sunkist Solar Fusion. We have plans behind it. But we knew whenever we went out with the Crush brands and made the deal with Pepsi that there would be some cannibalization of Sunkist, and we're actually running better than what we had modeled.

Okay. And in terms of buy backs, when do your windows typically open? So once you report a quarter, you can start buying back shares again, right?

The window has been opened, given the structure of our program.

Oh, okay. All right. Thank you.

Thank you.

Well, thank you for joining the call today and for your continued interest in Dr. Pepper Snapple Group.

Thank you. This concludes this morning's conference. You may now disconnect.