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Keurig Dr Pepper Reports Q1 2022 Results and Raises Full-Year Net Sales Guidance

·18 min read

Top-line Results Remain Strong, with Double-Digit Growth Reported in three Business Segments in Q1

Company also Reaffirms EPS Guidance for 2022

BURLINGTON, Mass. and FRISCO, Texas, April 28, 2022 /PRNewswire/ -- Keurig Dr Pepper Inc. (NASDAQ: KDP) today reported financial results for the first quarter ended March 31, 2022 and raised its guidance for net sales growth in 2022 to the high-single-digit range, from the previous mid-single-digit range. The Company also reaffirmed its guidance for Adjusted EPS for the year.


Reported GAAP

Basis

Adjusted

Basis1




Q1

Q1

Net Sales

% vs Prior Year

% vs 2020

$3.08 bn

6.1%

17.8%

$3.08 bn

6.1%

17.5%

Diluted EPS

% vs Prior Year

% vs 2020

$0.41

78.3%

272.7%

$0.33

0.0%

13.8%

Commenting on the announcement, Chairman and CEO Bob Gamgort stated, "We delivered another quarter of strong revenue growth, reflecting the power of our brand portfolio and the quality of our execution at retail. Margins were impacted by accelerating inflation, which outpaced the timing of pricing actions, and the previously discussed coffee supply chain disruption. We made significant progress during the quarter on increasing coffee production and rebuilding inventories, and we implemented additional pricing actions across most categories. Consequently, we now expect to deliver net sales growth in the high-single-digit range and continue to expect to deliver Adjusted EPS growth in the mid-single-digit range for the year."

First Quarter Consolidated Results
Net sales for the first quarter of 2022 increased 6.1% to $3.08 billion, compared to $2.90 billion in the year- ago period, reflecting exceptionally strong growth in Packaged Beverages, Beverage Concentrates and Latin America Beverages, partially offset by an expected decline in Coffee Systems. Driving the consolidated net sales growth was favorable net price realization of 6.3%, slightly offset by lower volume/mix of 0.2%. On a two-year basis, constant currency net sales advanced 17.5% versus 2020.

KDP in-market performance in the Liquid Refreshment Beverages (LRB) category remained strong in the quarter, with retail dollar consumption2 advancing 9.9% and market share growth registered in over 87% of the Company's cold beverage portfolio, largely reflecting strength in CSDs3, coconut water and seltzers, teas, apple juice and fruit drinks. This performance was driven by Dr Pepper, Sunkist, Canada Dry, A&W and Squirt CSDs, Vita Coco, Polar seltzers, Snapple, and Mott's. On a two-year basis, KDP grew retail dollar consumption by 21% and gained market share in 78% of its cold beverage portfolio.

In coffee, retail dollar consumption of single-serve pods manufactured by KDP in IRi tracked channels increased 3.6%, while Coffee Systems net sales declined 4.3%, as production was prioritized to rebuilding inventory following supply chain disruption in late Q4 and early Q1. During the quarter, the Company sequentially improved manufacturing output through a focused supply chain recovery program. KDP manufactured share remained strong at 82.5%. Performance in away-from-home pods continued to improve versus year-ago, but remained below pre-COVID levels, as return to offices has lagged recovery in other sectors. On a two-year basis, retail consumption of single-serve pods manufactured by KDP increased 8.2% in IRi tracked channels.

GAAP operating income increased 51% to $966 million in the first quarter of 2022, compared to $640 million in the year-ago period. This performance reflected the strong net sales growth and continued productivity, as well as a $38 million benefit from the Company's strategic asset investment program, lower non-cash stock compensation expense and legal fees. Partially offsetting these positive drivers were the impacts of accelerating, broad-based inflation and significant supply chain disruption across manufacturing, logistics, material inputs and labor availability, leading to higher than anticipated costs to meet continued strong consumer demand. Also impacting the comparison was the favorable year-over-year impact of items affecting comparability, including a $299 million gain on the Company's successful resolution of the litigation with BodyArmor in the quarter.

Adjusted operating income in the quarter declined 1.2% to $732 million. On a percent of net sales basis, Adjusted operating income was 23.8% in the quarter, compared to 25.5% in the year-ago period. On a two-year basis, first quarter Adjusted operating income advanced 6.7% versus 2020.

GAAP net income in the first quarter of 2022 increased 80% to $585 million, or $0.41 per diluted share, compared to GAAP net income of $325 million, or $0.23 per diluted share, in the year-ago period. This performance was driven by the growth in operating income, partially offset by a higher effective tax rate. Also benefitting the performance was the favorable year-over-year impact of items affecting comparability, including the after-tax gain on the Company's successful resolution of litigation with BodyArmor and costs associated with the early extinguishment of debt.

Adjusted net income advanced 0.8% to $474 million in the first quarter of 2022. Adjusted diluted EPS was $0.33, essentially in line with the year-ago period and, on a two-year basis, Adjusted diluted EPS in the quarter grew 13.8% versus 2020.

Operating cash flow increased to $663 million in the quarter, and free cash flow totaled $632 million, primarily reflecting the growth in earnings and ongoing effective working capital management. This continued strong free cash flow performance enabled KDP to reduce financial obligations by $350 million in the first quarter of 2022 and end the period with $592 million of unrestricted cash on hand. As a result, the Company's management leverage ratio declined 0.1x, ending the first quarter at 2.8x.

1 Adjusted financial metrics presented in this release are non-GAAP and on a constant currency basis. See reconciliations of GAAP results to Adjusted results on a constant currency basis in the accompanying tables.

2 Retail consumption data based on Keurig Dr Pepper's custom IRi category definitions for the 13-week period ending 3/27/2022.

3 CSDs refer to "Carbonated Soft Drinks".

First Quarter Segment Results

Coffee Systems
Net sales for the first quarter of 2022 totaled $1.09 billion, compared to $1.14 billion in the year-ago period, a decline of 4.3%, primarily reflecting the impact of supply chain challenges. Net price realization increased by 3.2%, which was offset by lower volume/mix of 7.5%. On a two-year basis, constant currency net sales advanced 11.8% versus 2020.

The higher net price realization in the quarter was driven by pricing actions taken late 2021 and in the first quarter of 2022, combined with sequentially lower customer fines incurred due to improving, but still somewhat challenged service levels.

The volume/mix decrease of 7.5% in the quarter reflected lower pod and brewer shipment volume, both of which declined 5.2% versus the year-ago period. The pod performance reflected the prioritization of production to rebuild inventory and resulted in first quarter shipments that trailed consumption. Also impacting the pod performance was comparison to the very strong pod shipment volume growth of 13.7% in the year-ago period. The brewer performance largely reflected comparison to the exceptionally strong brewer shipment growth of 61% in the year-ago period.

GAAP operating income declined 27% to $268 million in the first quarter of 2022, compared to $368 million in the year-ago period, largely reflecting the net sales decline and the impacts of the accelerating, broad-based inflationary pressures and supply chain challenges, including incremental costs associated with rebuilding inventory. Partially offsetting these drivers were continued productivity and lower marketing expense, as the Company reduced demand generating marketing investment due to its focus on increasing manufacturing output and rebuilding inventory levels. Also impacting the comparison was the slightly favorable year-over-year impact of items affecting comparability.

Adjusted operating income declined 24% to $319 million in the quarter and, on a percent of net sales basis, was 29.2%, compared to 36.9% in the year-ago period. This performance largely reflected the broad-based inflationary environment and increased costs to rebuild inventory.

Packaged Beverages
Net sales for the first quarter of 2022 increased an exceptionally strong 13.2% to $1.48 billion, compared to $1.31 billion in the year-ago period, reflecting higher net price realization of 8.3% and higher volume/mix of 4.9%, due to continued strong in-market execution and market share expansion across the portfolio. On a two-year basis, constant currency net sales increased 21.4% versus 2020.

Leading the net sales performance were Canada Dry, Dr Pepper, 7UP, A&W, Sunkist and Squirt CSDs, Mott's, and Snapple, as well as growth in CORE Hydration, Polar seltzers, Hawaiian Punch and Vita Coco.

GAAP operating income increased 172% in the first quarter of 2022 to $486 million, compared to $179 million in the year-ago period, reflecting the strong net sales growth, the aforementioned $38 million benefit from the Company's strategic asset investment program, continued productivity and the favorable year-over-year impact of items affecting comparability, including the gain that benefitted the segment on the successful resolution of litigation with BodyArmor. Partially offsetting these favorable drivers were the unfavorable impacts of broad-based inflation across the business and supply chain challenges that drove higher than anticipated costs to meet continued strong consumer demand.

Adjusted operating income increased 16.9% to $235 million and, on a percent of net sales basis, Adjusted operating income in the first quarter of 2022 was 15.9% in the quarter, compared to 15.4% in the year-ago period.

Beverage Concentrates
Net sales for the first quarter of 2022 increased 9.5% to $359 million, compared to $328 million in the year-ago period reflecting higher net price realization of 7.6% and favorable volume/mix of 1.9%. The volume/mix performance primarily reflected higher fountain foodservice shipments, driven by increased consumer mobility in the restaurant and hospitality channels. On a two-year basis, constant currency net sales advanced 16.7% versus 2020.

Total shipment volume versus year-ago increased 1.9% in the quarter, as increases in Dr Pepper and Sunkist were partially offset by declines in Crush. Bottler case sales volume increased 2.2% in the quarter compared to the year-ago period.

GAAP operating income in the first quarter of 2022 increased 2.5% to $244 million, compared to $238 million in the year-ago period, reflecting the benefit of the higher net sales, partially offset by the impacts of the broad-based inflationary environment, a significant increase in marketing investment and the unfavorable year-over-year impact of items affecting comparability.

Adjusted operating income increased 3.3% to $247 million in the quarter and, on a percent of net sales basis, adjusted operating income was 68.8%, compared to 72.9%, reflecting the significant increase in marketing investment and the broad-based inflationary environment.

Latin America Beverages
Net sales for the first quarter of 2022 increased 16.8% to $146 million, compared to net sales of $125 million in the year-ago period and, on a constant currency basis, net sales increased 17.6%. This performance was driven by higher net price realization of 9.6% and increased volume/mix of 8.0%. Leading the strong net sales growth in the quarter were Peñafiel, Clamato, Mott's and Squirt. On a two-year basis, constant currency net sales increased 26.5% versus 2020.

GAAP operating income in the first quarter of 2022 increased 13.6% to $25 million, compared to $22 million in the year-ago period, reflecting the strong growth in net sales, continued productivity and the slightly favorable year-over-year impact of items affecting comparability. These drivers were partially offset by the broad-based inflationary environment and higher marketing investment.

Adjusted operating income increased 13.0% to $26 million in the quarter. On a percent of net sales basis, Adjusted operating income was 17.7%, compared to 18.4% in the year-ago period, reflecting broad-based inflation and higher marketing investment.

KDP 2022 Guidance
KDP raised its guidance for constant currency net sales growth in 2022 to the high-single-digit range and reaffirmed its guidance for Adjusted diluted EPS growth in 2022 in the mid-single-digit range. The Company continues to expect EPS performance versus 2021 to strengthen throughout the year, with Adjusted diluted EPS growth reaching the high-single-digit range in the second half of 2022, in line with the Company's long-term algorithm.

Investor Contacts:
Steve Alexander
T: 972-673-6769 / steve.alexander@kdrp.com

Media Contact:
Katie Gilroy
T: 781-418-3345 / katie.gilroy@kdrp.com

About Keurig Dr Pepper

Keurig Dr Pepper (KDP) is a leading beverage company in North America, with annual revenue approaching $13 billion and approximately 27,000 employees. KDP holds leadership positions in soft drinks, specialty coffee and tea, water, juice and juice drinks and mixers, and markets the #1 single serve coffee brewing system in the U.S. and Canada. The Company's portfolio of more than 125 owned, licensed and partner brands is designed to satisfy virtually any consumer need, any time, and includes Keurig®, Dr Pepper®, Green Mountain Coffee Roasters®, Canada Dry®, Snapple®, Bai®, Mott's®, CORE® and The Original Donut Shop®. Through its powerful sales and distribution network, KDP can deliver its portfolio of hot and cold beverages to nearly every point of purchase for consumers. The Company is committed to sourcing, producing and distributing its beverages responsibly through its Drink Well. Do Good. corporate responsibility platform, including efforts around circular packaging, efficient natural resource use and supply chain sustainability. For more information, visit www.keurigdrpepper.com.

FORWARD LOOKING STATEMENTS

Certain statements contained herein are "forward-looking statements" within the meaning of applicable securities laws and regulations. These forward-looking statements can generally be identified by the use of words such as "outlook," "guidance," "anticipate," "expect," "believe," "could," "estimate," "feel," "forecast," "intend," "may," "plan," "potential," "project," "should," "target," "will," "would," and similar words. Forward-looking statements by their nature address matters that are, to different degrees, uncertain. These statements are based on the current expectations of our management, are not predictions of actual performance, and actual results may differ materially.

Forward-looking statements are subject to a number of risks and uncertainties, including the factors disclosed in our Annual Report on Form 10-K and subsequent filings with the SEC. We are under no obligation to update, modify or withdraw any forward-looking statements, except as required by applicable law.

NON-GAAP FINANCIAL MEASURES

This release includes certain non-GAAP financial measures including Adjusted operating income, Adjusted net income, Adjusted diluted EPS, free cash flow and financial measures presented on a constant currency basis, which differ from results using U.S. Generally Accepted Accounting Principles (GAAP). These non-GAAP financial measures should be considered as supplements to the GAAP reported measures, should not be considered replacements for, or superior to, the GAAP measures and may not be comparable to similarly named measures used by other companies. Non-GAAP financial measures typically exclude certain charges, including one-time costs that are not expected to occur routinely in future periods. The Company uses non-GAAP financial measures internally to focus management on performance excluding these special charges to gauge our business operating performance. Management believes this information is helpful to investors because it increases transparency and assists investors in understanding the underlying performance of the Company and in the analysis of ongoing operating trends. Additionally, management believes that non-GAAP financial measures are frequently used by analysts and investors in their evaluation of companies, and their continued inclusion provides consistency in financial reporting and enables analysts and investors to perform meaningful comparisons of past, present and future operating results. The most directly comparable GAAP financial measures and reconciliations to non-GAAP financial measures are set forth in the appendix to this release and included in the Company's filings with the SEC.

To the extent that the Company provides guidance, it does so only on a non-GAAP basis and does not provide reconciliations of such forward-looking non-GAAP measures to GAAP due to the inability to predict the amount and timing of impacts outside of the Company's control on certain items, such as non-cash gains or losses resulting from mark-to-market adjustments of derivative instruments, among others.

KEURIG DR PEPPER INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)




First Quarter

(in millions, except per share data)


2022


2021

Net sales


$ 3,078


$ 2,902

Cost of sales


1,428


1,302

Gross profit


1,650


1,600

Selling, general and administrative expenses


1,018


961

Gain on litigation settlement


(299)


Other operating income, net


(35)


(1)

Income from operations


966


640

Interest expense


188


140

Loss on early extinguishment of debt


48


105

Gain on sale of equity method investment


(50)


Impairment of investments and note receivable


6


Other expense (income), net


9


(3)

Income before provision for income taxes


765


398

Provision for income taxes


180


73

Net income including non-controlling interest


585


325

Less: Net loss attributable to non-controlling interest



Net income attributable to KDP


$ 585


$ 325






Earnings per common share:





Basic


$ 0.41


$ 0.23

Diluted


0.41


0.23

Weighted average common shares outstanding:





Basic


1,418.2


1,409.2

Diluted


1,429.7


1,425.6

KEURIG DR PEPPER INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)



March 31,


December 31,

(in millions, except share and per share data)

2022


2021

Assets

Current assets:




Cash and cash equivalents

$ 592


$ 567

Restricted cash and cash equivalents

2


1

Trade accounts receivable, net

1,214


1,148

Inventories

1,045


894

Prepaid expenses and other current assets

637


447

Total current assets

3,490


3,057

Property, plant and equipment, net

2,436


2,494

Investments in unconsolidated affiliates

29


30

Goodwill

20,243


20,182

Other intangible assets, net

23,889


23,856

Other non-current assets

1,119


937

Deferred tax assets

38


42

Total assets

$ 51,244


$ 50,598

Liabilities and Stockholders' Equity

Current liabilities:




Accounts payable

$ 4,510


$ 4,316

Accrued expenses

1,028


1,110

Structured payables

143


142

Short-term borrowings and current portion of long-term obligations


304

Other current liabilities

767


613

Total current liabilities

6,448


6,485

Long-term obligations

11,584


11,578

Deferred tax liabilities

6,054


5,986

Other non-current liabilities

1,647


1,577

Total liabilities

25,733


25,626

Commitments and contingencies




Stockholders' equity:




Preferred stock, $0.01 par value, 15,000,000 shares authorized, no shares issued


Common stock, $0.01 par value, 2,000,000,000 shares authorized,
1,418,462,239 and 1,418,119,197 shares issued and outstanding as of March 31,
2022 and December 31, 2021, respectively

14


14

Additional paid-in capital

21,764


21,785

Retained earnings

3,518


3,199

Accumulated other comprehensive income (loss)

215


(26)

Total stockholders' equity

25,511


24,972

Non-controlling interest


Total equity

25,511


24,972

Total liabilities and stockholders' equity

$ 51,244


$ 50,598

KEURIG DR PEPPER INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)



First Quarter

(in millions)

2022


2021

Operating activities:




Net income attributable to KDP

$ 585


$ 325

Adjustments to reconcile net income to net cash provided by operating activities:




Depreciation expense

106


102

Amortization of intangibles

34


33

Other amortization expense

42


40

Provision for sales returns

12


19

Deferred income taxes

8


11

Employee stock-based compensation (benefit) expense

(15)


25

Loss on early extinguishment of debt

48


105

Gain on sale of equity method investment

(50)


Gain on disposal of property, plant and equipment

(38)


(1)

Unrealized gain on foreign currency

(11)


(10)

Unrealized gain on derivatives


(41)

Equity in losses of unconsolidated affiliates

3


Impairment on investments and note receivable of unconsolidated affiliates

6


Other, net

13


15

Changes in assets and liabilities:




Trade accounts receivable

(73)


(37)

Inventories

(147)


(77)

Income taxes receivable and payables, net

135


25

Other current and non-current assets

(284)


(295)

Accounts payable and accrued expenses

151


121

Other current and non-current liabilities

138


186

Net change in operating assets and liabilities

(80)


(77)

Net cash provided by operating activities

663


546

Investing activities:




Proceeds from sale of investment in unconsolidated affiliates

50


Purchases of property, plant and equipment

(109)


(95)

Proceeds from sales of property, plant and equipment

78


7

Purchases of intangibles

(10)


(12)

Issuance of related party note receivable

(6)


Investments in unconsolidated affiliates

(3)


Other, net

3


1

Net cash provided by (used in) investing activities

3


(99)

Financing activities:




Proceeds from issuance of Notes


2,150

Repayments of Notes

(201)


(1,845)

Proceeds from issuance of commercial paper


120

Repayments of commercial paper

(149)


(120)

Repayments of 2019 KDP Term Loan


(425)

Proceeds from structured payables

38


35

Repayments of structured payables

(37)


(41)

Cash dividends paid

(265)


(192)

Proceeds from issuance of common stock


140

Tax withholdings related to net share settlements

(5)


(125)

Payments on finance leases

(20)


(15)

Other, net

(5)


(37)

Net cash used in financing activities

(644)


(355)

Cash, cash equivalents, and restricted cash and cash equivalents:




Net change from operating, investing and financing activities

22


92

Effect of exchange rate changes

4


2

Beginning balance

568


255

Ending balance

$ 594


$ 349

KEURIG DR PEPPER INC.

RECONCILIATION OF SEGMENT INFORMATION

(UNAUDITED)




First Quarter

(in millions)


2022


2021

Net Sales





Coffee Systems


$ 1,093


$ 1,142

Packaged Beverages


1,480


1,307

Beverage Concentrates


359


328

Latin America Beverages


146


125

Total net sales


$ 3,078


$ 2,902






Income from Operations





Coffee Systems


$ 268


$ 368

Packaged Beverages


486


179

Beverage Concentrates


244


238

Latin America Beverages