Responding to the Aug. 9, 2011 filing by Dr Pepper Bottling Co. of Dublin, Texas, in U.S. District Court in the Eastern District of Texas, Dr Pepper Snapple Group, Inc. issued the following statement:
Signed contracts matter, and we are disappointed that Dr Pepper Bottling Co. of Dublin, Texas, refuses to keep its promises and honor its agreement. We’re not seeking money or to prevent Dublin from selling Dr Pepper made with cane sugar. We simply want them to sell only within their six-county territory and stop marketing and packaging Dr Pepper as “Dublin Dr Pepper.”
Dublin’s conduct dilutes our trademark and creates confusion in the marketplace, because their product is no different than any other Dr Pepper made with cane sugar and sold by several other bottlers. In fact, Dublin’s filing ignores the reality that almost all of the product they sell isn’t even made in Dublin. It’s made by Temple Bottling Co. of Temple, Texas, and is the same cane sugar-sweetened Dr Pepper that DPS sells in distinctive 8 oz. glass packaging throughout Dallas/Fort Worth, Houston and Waco.
We tried to resolve these issues with Dublin without turning to the courts. We even offered alternative packaging that promotes their heritage and their use of cane sugar, but in a way that stays true to the famous Dr Pepper trademark. They not only refused this compromise but actually demanded money to honor their agreement, which left us no choice but to file suit.
Whether you’re the oldest bottler or the newest, the largest or the smallest, no bottler is bigger than the Dr Pepper brand or above the agreement it signed. Unfortunately, unlike the other 170-plus Dr Pepper bottlers, Dublin steadfastly refuses to live up to the contract they signed in 2009.
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"During the last six months, we have made significant strides toward creating two pure-play companies which are poised for success,” said Sara Lee Executive Chairman Jan Bennink in a prepared statement.
“Our objective of building two simpler, faster and more entrepreneurial businesses is being realized. We have defined the organizational framework for our new companies and are continuing to build and restructure our teams for the future. Through our strategic divestments, we are achieving our objective of streamlining the portfolios to provide the best foundation for strong and focused businesses moving forward. We are heartened by the fact that we have been able to deliver solid results for fiscal 2011 while managing difficult commodity conditions and the internal challenges of the spin off. The inherent strength of these two businesses, combined with a new focus and orientation, give me confidence that the two companies will be highly successful when they separate in the first half of calendar 2012."
Chief Executive Officer Marcel Smits added, “Throughout fiscal 2011, our businesses have remained focused on operational performance. We delivered our updated guidance for adjusted EPS, adjusted operating income and net sales. We’ve also maintained a focus on cost reduction activities, lowering our corporate expenses by nearly $100 million over our prior fiscal year. We have introduced new products like Jimmy Dean Jimmy D’s and expanded successful brands like L’OR EspressO and Senseo into new geographies. I’m excited about the progress that we have made this year and continue to have great confidence in the long-term prospects of our businesses.”
The company continues to streamline operations as it progresses toward the spin off. The summary below provides an update on the decisions made to date.
On Aug. 9, the company announced a signed agreement to sell its North American refrigerated dough (Store Brands) business to Ralcorp for $545 million. The sale is expected to close by the end of calendar year 2011. This business was classified as a discontinued operation in the fourth quarter of fiscal 2011.
The sale of the North American Fresh Bakery to Grupo Bimbo is expected to close before the end of September.
Sara Lee decided in August to divest the Spanish bakery and French refrigerated dough businesses. For both, a sales process is underway and numerous bids have been received. These businesses will be reclassified to discontinued operations in the first quarter of fiscal 2012. The Australian frozen desserts business remains under strategic review.
The North American Retail segment reported a 4 percent increase in adjusted net sales to $715 million, primarily driven by pricing actions. The segment reported strong new product performance with growth from Jimmy Dean Jimmy D's and Hearty Crumbles, and Hillshire Farm Low Sodium and Family Size. Ball Park maintained its share leadership behind the successful introduction of New York Deli Style Beef Franks. These launches were more than offset by the negative volume impact from early pricing actions taken to offset commodity cost increases and the rationalization of lower margin promotional programs. Mix was marginally positive. On a reported basis, net sales declined 2 percent largely due to last year’s 53rd week.
Adjusted operating margins improved by 590 basis points over the prior year’s fourth quarter, increasing to 11.4 percent. Reported operating margin for the quarter was 10.1 percent. For the second straight quarter, commodity cost increases were recovered through cost savings initiatives and pricing actions. The net commodity recovery along with lower MAP spending (versus significant investment in the fourth quarter of last year) and a reduction in SG&A expense drove an adjusted operating segment income increase of $44 million versus last year. Reported operating segment income increased $32 million. The implementation of SAP across all meat plants is now complete and is expected to generate efficiencies and cost savings in fiscal 2012.
In the North American Foodservice segment, adjusted net sales increased 9 percent to $400 million, driven largely by pricing actions taken across the portfolio. This marks the second straight quarter of strong top-line growth in the segment. Reported net sales grew by 2.1 percent. Segment volumes were down as declines in roast and ground coffee and diversified bakery more than offset volume growth in meats, frozen bakery and liquid coffee. The segment posted particularly strong results for Jimmy Dean breakfast sausages, pre-sliced pies and cakes and branded meats distributed through convenience stores.
Adjusted operating segment income increased 37 percent driven by cost savings and strong business performance in meats, frozen bakery and liquid coffee. Adjusted operating margin expanded 100 basis points over the prior year to 5.0 percent driven by manufacturing efficiencies and favorable sales mix. This growth was achieved despite the loss of the low-volume, high-margin liquid coffee contract during last year’s fourth quarter. Reported operating segment income declined $6 million due to impairment charges and spin off related costs while the reported operating margin decreased 150 basis points to 0.1 percent.
Adjusted net sales of the international beverage segment increased 14 percent to $978 million in the fourth quarter. The increase was driven by pricing and sales mix of 17 percent and higher green coffee export sales from Brazil, partially offset by volume softness. The volume decline mainly reflects the multiple price increases that were put through in the majority of markets to offset commodity price increases. Price increases and cost savings are expected to have fully offset commodity price increases by the second quarter of fiscal 2012. Volumes were also impacted by a slight decline in the overall coffee market in the Netherlands and a deliberate choice to end private label production in France. Reported net sales increased 24 percent to $996 million.
L’OR EspressO continues to perform well in France and initial results from the Netherlands, Spain and Belgium are promising and reaffirm the growth potential of this product. L’OR EspressO capsules are now sold through more than 15,000 retail stores in Europe. In Brazil, Senseo was successfully launched in Rio de Janeiro following the promising results of the initial introduction of Senseo in São Paulo. The integration of Brazilian Damasco is ahead of plan, with better than expected synergies and growth. Australia successfully launched two new products, Piazza D’Oro and Moccona Café Classics Frappé, which helped to reach a record-high value share of 67 percent in the freeze-dried instant coffee segment. In Foodservice, the trend in machine placements picked up in the quarter and the recent successful roll-out of Cafitesse Excellence contributed to the positive momentum.
The international beverage business is making good progress in aligning its organizational structure with its future growth ambitions. As part of this process, the marketing and R&D functions are being redesigned to optimize the innovation process and allow for a faster product to market process.
Adjusted operating segment income decreased 13 percent to $121 million resulting in an adjusted operating margin of 12.4 percent which largely reflects the time lagging effect between commodity cost increases and subsequent price increase. MAP spending in the fourth quarter was below the significant investment in the prior-year period which in large part is attributable to last year’s launch of L'OR EspressO in France. On a full year basis, MAP investment was up 3 percent providing adequate support to the coffee and tea brands. Reported operating segment income declined 4 percent to $119 million.
Adjusted net sales for international bakery declined 8 percent to $182 million mainly due to difficult macro-economic and competitive conditions in Spain. Reported net sales declined 1 percent to $182 million.
Adjusted operating segment income was $13 million lower than the prior year while reported operating segment income declined $10 million. In Spain, further price reductions were required to maintain market share, which led to additional short-term margin pressure. Restructuring activities to transform the company’s sales force to independent operators are progressing as planned.
In the fourth quarter corporate expenses, excluding significant items, were $33 million lower than the prior-year period. For the full year, corporate expenses, excluding significant items, declined $94 million primarily attributable to the impact of headcount reductions, lower employee benefits costs, the sale of the company plane and a reduction in franchise taxes
