Keurig Dr Pepper Q2 2023 net sales rise 6.6%; U.S. Coffee net sales fall 5.7%

Keurig Dr Pepper Inc. (NASDAQ: KDP) today reported results for the second quarter ended 30 June 2023, raised its full year constant currency net sales growth outlook to 5% to 6% and reaffirmed its guidance for adjusted diluted EPS growth of 6% to 7%.

Net sales for the second quarter of 2023 increased 6.6% to USD $3.79 billion, compared to $3.55 billion in the year-ago period. On a constant currency basis, net sales advanced 6.1%, reflecting net price realisation of 8.2%, only slightly offset by lower volume/mix of 2.1%. The volume/mix performance reflected the continued strength of the Burlington, Massachusetts and Frisco, Texas-based company’s brand portfolio and in-market execution, as well as continued modest elasticities across most categories.

U.S. retail dollar consumption (Retail consumption data based on KDP’s custom IRi category definitions for the 13-week period ending 2 July 2023) of KDP Manufactured K-Cup® Pods decreased 2.3% in IRi tracked channels in the quarter, and KDP Manufactured dollar share was approximately 79%. Total at-home coffee category trends during the second quarter continued to be impacted by greater consumer mobility versus the prior year, though the company observed sequential improvement in category consumption towards the end of the second quarter, which continued into the third quarter. The single serve segment continued to gain volume share of the at-home coffee category throughout the period.

GAAP operating income increased 34.4% to USD $769 million, compared to USD $572 million in the year-ago period, reflecting growth in gross profit, as the strong net sales growth and productivity more than offset continued input cost inflation. Also impacting the comparison was the favourable year-over-year impact of items affecting comparability.

Excluding items affecting comparability, adjusted operating income increased 4.4% to $873 million, including a strong double-digit increase in marketing investment, reflecting the strong growth in net sales and adjusted gross profit, which more than offset transportation, warehousing and labour inflation. On a percent of net sales basis, adjusted operating income was 23.0%.

GAAP net income for the quarter increased 130.7% to $503 million, or $0.36 per diluted share, versus $218 million, or $0.15 per diluted share, in the year-ago period. This performance reflected a favorable year-over-year impact of items affecting comparability and the increase in adjusted operating income, partially offset by a higher GAAP effective tax rate. Excluding items affecting comparability, adjusted net income for the quarter advanced 7.0% to $596 million, and adjusted diluted EPS increased 7.7% to $0.42.

During the quarter, the company repurchased approximately 7 million KDP shares at a weighted average price per share of $32.34, totalling approximately $226 million. The company has approximately $3.2 billion remaining under its share repurchase authorisation expiring on 31 December 2025.

Commenting on the announcement, chairman and CEO Bob Gamgort stated, “Our second quarter results demonstrated the strength of KDP’s brand portfolio and our high-quality retail execution. We saw continued momentum in the U.S. Refreshment Beverages and International segments, as well as encouraging intraquarter developments in U.S. Coffee, where we expect a sequential recovery in revenue and a meaningful inflection in margins in the back half.”

Second Quarter Segment Results
U.S. Coffee net sales for the second quarter decreased 5.7% to $970 million, compared to $1,029 million in the year-ago period, reflecting net price realisation of 1.6% and a volume/mix decline of 7.3%.

At-home coffee consumption in the quarter continued to be impacted by year-over-year changes in mobility, with sequential improvement in category volume trends observable each month of the quarter. Pod revenue declined 4.6%, driven by a shipment decline of 7.7% that primarily reflected mobility-driven category softness, the exit of some lower-margin private label contracts and an unfavourable comparison in the prior year during which the company rebuilt trade inventory levels following supply chain constraints. On a trailing twelve-month basis versus the pre-pandemic Q2 2019 period, at-home pod shipments grew 16.9%, representing a mid-single digit compound annual growth rate (CAGR).

Brewer shipments totalled 9.9 million for the twelve months ending 30 June 2023, representing an 11.0% decline year-over-year. Compared against pre-pandemic levels represented by the twelve months ending 30 June 2019, brewer shipments grew 17.8%, representing a mid-single digit CAGR. Brewer shipments in the second quarter continued to be impacted by trade inventory adjustments, which the company believes are now mostly complete, and slower discretionary spending for small appliances.

GAAP operating income decreased 15.3% to $250 million, compared to $295 million in the year-ago period, reflecting broad-based inflationary pressures, the decline in volume/mix and a significant increase in marketing investment. Partially offsetting these drivers were the benefits of productivity, higher net price realisation and a modest year-over-year benefit of items affecting comparability. Excluding these items, adjusted operating income dropped 14.6% to $292 million and, on a percent of net sales basis, totalled 30.1%.

International net sales for the second quarter increased 10.9% to $489 million versus $441 million in the year-ago period and, on a constant currency basis, net sales advanced 7.0%. This strong performance was driven by higher net price realization of 6.1% and volume/mix growth of 0.9% and reflected broad-based momentum in both Mexico and Canada.

GAAP operating income increased a strong 14.3% to $112 million, compared to $98 million in the year-ago period, largely reflecting the benefits of the higher net sales, increased productivity and the year-over-year benefit of items affecting comparability, partially offset by inflationary pressures and a significant increase in marketing investment. Excluding items affecting comparability, Adjusted operating income increased 7.7% to $116 million and, on a percent of net sales basis, totaled 23.7%.

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