First Quarter 2017 Earnings Conference Call April 26, 2017 1
Safe Harbor Statement & Non-GAAP Information Safe Harbor Statement This presentation contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including, in particular, statements about future events, future financial performance including earnings estimates, plans, strategies, expectations, prospects, competitive environment, regulation, and cost and availability of raw materials. Forward-looking statements include all statements that are not historical facts and can be identified by the use of forward-looking terminology such as the words “may,” “will,” “expect,” “anticipate,” “believe,” “estimate,” “plan,” “intend” or the negative of these terms or similar expressions. These forward-looking statements have been based on our current views with respect to future events and financial performance. Our actual financial performance could differ materially from those projected in the forward-looking statements due to the inherent uncertainty of estimates, forecasts and projections, and our financial performance may be better or worse than anticipated. Given these uncertainties, you should not put undue reliance on any forward-looking statements. All of the forward-looking statements are qualified in their entirety by reference to the factors discussed under “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2016 and our other filings with the Securities and Exchange Commission. Forward- looking statements represent our estimates and assumptions only as of the date that they were made. We do not undertake any duty to update the forward-looking statements, and the estimates and assumptions associated with them, after the date of this presentation, except to the extent required by applicable securities laws. Non-GAAP Information These materials include certain non-GAAP financial measures. Please refer to the attachments to our April 26, 2017 earnings release and the “Investors” section of our website at www.drpeppersnapple.com to find a reconciliation of such non-GAAP financial measures to their most direct GAAP counterpart. Definitions Please refer to the definitions included in our April 26, 2017 earnings release and the attachments thereto (the “earnings release”) for the definitions of Core Earnings, Core EPS and certain other terms used herein. 2
Q1, 2017 Price/Mix Up Over 1.5%... Total BCS Volume Up 1% Q1 Volume BCS 1 Change CSD’s +1% NCB’s -2% +1% -6% -2% -2% +5% Flat -2% +80% +8% Growth Allieds +33% +5% All Other -9% +1% All Other -1% 1 BCS (Bottler Case Sales) volume as defined in the earnings release.
T2 Activation and Innovation 4
Bai Platforms Have Significant Growth Potential ACV % Base Bubbles SuperTea Black Food 85 60 4 4 Mass 96 54 21 17 Walmart 97 44 18 11 Drug 76 56 0.4 4 Bai IRi Volume Growth vs PY Convenience 48 5 1 1 Food 42% Mass 42% Walmart 90% Drug 19% Convenience 71% Source(s): ACV based on IRI Scan Data 4 weeks ended 3/26/17 5 Source(s): Volume based on IRI Scan Data 12 weeks ended 3/26/17 vs PY
Bai Sales and Marketing Plans 6
Q1 2017 Results % Change vs. 2016 First Quarter Currency Reported Neutral 1 Volume (BCS) 1% 1% Net sales 2% 2% Segment Operating Profit -10% -10% Core Operating Income 2 -2% -2% Core EPS 3 7% 7% 1 Currency neutral (Translation). Refer to the Definitions section of our earnings release for details on how the company calculates currency neutral metrics. 2 Core Operating Income is a non-GAAP financial measure that is defined as Income from Operations adjusted for the unrealized mark-to-market impact of commodity derivatives and certain items that are excluded for comparison to prior year periods. Reconciliations of non-GAAP financial measures can be found in the attachments to the earnings release and under the “Investors” section of our website at www.drpeppersnapple.com. 3 Core EPS is a non-GAAP financial measure that is defined as EPS adjusted for the unrealized mark-to-market impact of commodity and interest rate derivatives and certain items that are excluded for comparison to prior year periods. Reconciliations of non-GAAP financial measures can be found in the attachments to the earnings release and under the “Investors” section of our website at www.drpeppersnapple.com. 7
Other Financial Items Fav/(Unfav) Change vs. 2016 Below-the-line items ($ million) Q1 ● Corporate ex. mark-to-market ($14) ● Commodity mark-to-market changes (3) ● Net interest expense (6) ● Reported tax rate 28.6% Cash Flow ($ million) Q1 2017 Q1 2016 ● Cash from operating activities $97 $197 ● Capital spending 16 27 ● Investments in allied brands 1 6 ● Cash returns to shareholders – Dividends 97 90 – Share repurchases 28 179 8
2017 Full Year Guidance ● Sales volumes expected to be up approximately 2% Organic volume growth now expected to be up just over 1% – ● Net Sales now expected to be up approximately 4% Foreign currency translation expected to reduce Net Sales by approximately 1%; the Bai acquisition is – now expected to add approximately 2 points of growth to net sales in 2017 ● Full year Core EPS 1 now expected to be approximately $4.56 to $4.66, inclusive of the following items: Impact of Bai acquisition now expected to be $0.02 dilutive to Core EPS , inclusive of the $0.10 gain – recorded in first quarter Collectively, foreign currency translation and transaction are now expected to reduce Core EPS by $0.07, – primarily driven by the Mexican peso Excluding the Bai acquisition, the company continues to expect packaging and ingredient costs to be – inflationary by approximately 0.5% on a constant volume/mix basis. Company now expects to invest $10MM in marketing investments above its previous guidance – Core Tax rate now expected to be approximately 34% – ● Anticipated share repurchases of $450-500MM ● Net CAPEX expected to be approximately 3% of Net Sales 1 Core EPS is a non-GAAP financial measure that is defined as EPS adjusted for the unrealized mark-to-market impact of commodity and interest rate derivatives and certain items that are excluded for comparison to prior year periods. Reconciliations of non-GAAP financial measures can be found in the attachments to the earnings release and under the “Investors” section of our website at www.drpeppersnapple.com. 9
Key Takeaways ● Driving aligned communication, innovation and execution across our key priority brands to meet consumers’ changing needs ● Supporting Bai with the resources necessary to accelerate their strong growth trajectory and innovation pipeline ● Using our allied brand portfolio to participate in rapid growth categories ● Driving improvements in growth and productivity across the business with Rapid Continuous Improvement ● Remain committed to returning excess cash to shareholders over time 10
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