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Keurig Dr Pepper Reports Strong Q2 2021 Results

Keurig Dr Pepper Reports Strong Q2 2021 Results

Company Delivers Double-Digit Growth in Net Sales and Earnings Per Share

2021 Guidance Raised for Net Sales and Reaffirmed for Adjusted diluted EPS

PR Newswire

BURLINGTON, Mass. and FRISCO, Texas, July 29, 2021  /PRNewswire/ -- Keurig Dr Pepper Inc. (NASDAQ: KDP) today reported strong and balanced financial results for the second quarter ended June 30, 2021. The Company also raised its 2021 guidance for constant currency net sales growth to a range of 6% to 7%, from the previous 4% to 6%, and reaffirmed its guidance for Adjusted diluted EPS growth in the range of 13% to 15%.



Reported GAAP Basis

Adjusted Basis1







Q2

YTD 2021

Q2

YTD 2021

Net Sales

   % vs Prior Year

  % vs Prior Year – Constant Currency

  % vs YTD 2019 – Constant Currency

$3.14 bn

9.6%

$6.04 bn

10.3%

$3.14 bn

9.6%

8.1%

$6.04 bn

10.3%

9.4%

13.4%

Diluted EPS

   % vs Prior Year

  % vs YTD 2019

$0.31

47.6%

$0.54

68.8%

42.1%

$0.38

15.2% 

$0.71

14.5%

29.1%

Commenting on the announcement, Chairman and CEO Bob Gamgort stated, "KDP delivered another strong quarter, as we successfully navigated a challenging macro environment marked by inflation, supply chain disruptions and a tight labor market. For the first six months of 2021, we delivered 9% revenue growth and nearly 15% Adjusted diluted EPS growth. Notwithstanding the expectation for ongoing challenges to persist for some time, we are confident in our strengthened top-line outlook and plan to reinvest any profit upside back into the business. In addition, our commitment to achieve our three-year merger targets ending this year remains unchanged."

Second Quarter Consolidated Results

Net sales for the second quarter of 2021 increased 9.6% to $3.14 billion, compared to $2.86 billion in the year-ago period, driven by growth in each business segment, with Beverage Concentrates and Latin America Beverages posting strong double-digit growth. On a constant currency basis, net sales advanced 8.1% in the quarter, reflecting higher volume/mix of 6.1% and favorable net price realization of 2.0%. For the first six months of 2021, constant currency net sales advanced 13.4% versus the first six months of 2019.

In LRB, KDP in-market performance in the quarter remained strong, with retail dollar consumption2 advancing 5.2% across the Company's cold beverage retail base, reflecting strength in CSDs3, premium unflavored water, enhanced flavored water, apple juice, apple sauce, and coconut water. This performance was driven by Dr Pepper, Sunkist, A&W, 7UP and Squirt CSDs, CORE Hydration, Evian, Bai, Motts apple juice and apple sauce, Polar, and Vita Coco. On a two-year stacked basis, KDP gained market share in nearly 80% of its cold beverage retail base and grew consumption of its cold beverage portfolio by 20%.

In coffee, retail consumption of single-serve pods manufactured by KDP in IRi tracked channels decreased 1.2% compared to the year-ago period that was significantly impacted by consumer stock-up purchasing related to the pandemic. Dollar market share remained strong, advancing to 83% in the quarter. Performance in the away-from-home business improved versus the year-ago shelter-in-place environment, although the increase in consumer mobility has not yet translated into a broad return to offices. On a two-year stacked basis, retail consumption of single-serve pods manufactured by KDP increased 13% in IRi tracked channels.  

GAAP operating income increased 31% to $734 million in the second quarter of 2021, compared to $561 million in the year-ago period, reflecting the growth in net sales, productivity and merger synergies, as well as the favorable year-over-year impact of items affecting comparability. These drivers were partially offset by significantly higher marketing investments in the quarter, inflation in input costs, logistics and manufacturing and higher operating expenses associated with increased consumer demand. 

Adjusted operating income grew 8.3% to $839 million in the second quarter of 2021, compared to $775 million in the year-ago period. On a percent of net sales basis, Adjusted operating income in the second quarter of 2021 was 26.7%, compared to 27.1% in the year-ago period, reflecting the significant increase in marketing investment and the impact of inflation. On a constant currency basis, Adjusted operating income increased 6.8% in the quarter. For the first six months of 2021, Adjusted operating income advanced 19.4% versus the first six months of 2019.

GAAP net income grew 50% to $448 million in the second quarter of 2021, or $0.31 per diluted share, compared to $298 million, or $0.21 per diluted share, in the year-ago period. This performance was driven by the growth in operating income and lower interest expense.

Adjusted net income advanced 14.7% to $538 million in the second quarter of 2021, compared to $469 million in the year-ago period, largely reflecting the Adjusted operating income growth and lower interest expense stemming from the first quarter 2021 strategic refinancing that resulted in favorable interest rates. Adjusted diluted EPS advanced 15.2% to $0.38 in the second quarter of 2021, compared to $0.33 in the year-ago period. For the first six months of 2021, Adjusted diluted EPS grew 29.1% versus the first six months of 2019.

Free cash flow totaled $492 million in the second quarter of 2021, reflecting the growth in earnings and ongoing effective working capital management. This continued strong free cash flow performance enabled KDP to reduce total financial obligations by $431 million in the second quarter of 2021 and end the period with $167 million of unrestricted cash on hand. In addition, the Company's management leverage ratio continued to decline, ending the second quarter of 2021 at 3.4x, compared to 4.0x in the year-ago period. Since the close of the merger in July 2018, the Company's management leverage ratio has declined by 2.6x.

____________________

1

Adjusted financial metrics used in this release are non-GAAP. See reconciliations of GAAP results to Adjusted results in the accompanying tables.   

2

Retail consumption data based on Keurig Dr Pepper's custom IRi category definitions for the 13-week period ending 6/27/2021.

3

CSDs refer to "Carbonated Soft Drinks".

Second Quarter Segment Results

Coffee Systems

Net sales for the second quarter of 2021 advanced 5.6% to $1.10 billion, compared to $1.04 billion in the year-ago period. On a constant currency basis, net sales advanced 3.9%, reflecting higher volume/mix of 3.5% and favorable net price realization of 0.4%.

The volume/mix increase of 3.5% in the quarter reflected pod volume growth of 0.2% and brewer volume growth of 29%. The pod volume performance reflected unfavorable shipment timing impacted by at-home consumer stock-up behavior in the year-ago period, largely offset by an improved performance in the away-from-home business, although the return to offices continues to be slow. The brewer volume growth largely reflected continued strong retail consumption, primarily driven by the Company's successful brewer innovation program and, to a lesser extent, favorable timing of Prime Day during the second quarter of 2021 versus the third quarter of 2020.

GAAP operating income increased 11.0% to $322 million in the second quarter of 2021, compared to $290 million in the year-ago period, reflecting continued productivity and merger synergies and the favorable year-over-year impact of items affecting comparability. Partially offsetting these positive drivers was inflation in input costs, logistics and manufacturing.

Adjusted operating income increased 2.2% to $371 million in the second quarter of 2021, compared to $363 million in the year-ago period and, on a constant currency basis, Adjusted operating income advanced 1.1%. On a percent of net sales basis, Adjusted operating income in the second quarter of 2021 was 33.7%, compared to 34.8% in the year-ago period, largely reflecting negative margin mix due to the exceptionally strong brewer sales.

Packaged Beverages

Net sales for the second quarter of 2021 increased 7.6% to $1.50 billion, compared to $1.39 billion in the year-ago period. On a constant currency basis, net sales increased 7.3%, reflecting favorable volume/mix of 6.2% and higher net price realization of 1.1%. Leading the strong net sales performance were CSDs, particularly Canada Dry, Sunkist, Dr Pepper, 7UP, A&W and Squirt, as well as growth in Core Hydration, Evian, Snapple, Polar, Bai, and Motts, partially offset by a decline in Hawaiian Punch.

GAAP operating income increased 24.0% to $258 million in the second quarter of 2021, compared to $208 million in the year-ago period, largely reflecting the benefits of the strong net sales growth, continued productivity and merger synergies and the favorable year-over-year impact of items affecting comparability. Partially offsetting these growth drivers were inflation in input costs, logistics, and manufacturing, a significant increase in marketing investment and higher operating costs to meet continued strong consumer demand.

Adjusted operating income advanced 6.3% to $286 million in the second quarter of 2021, compared to $269 million in the year-ago period and, on a constant currency basis, Adjusted operating income increased 5.9%. On a percent of net sales basis, Adjusted operating income in the second quarter of 2021 was 19.1%, compared to 19.3% in the year-ago period.

Beverage Concentrates

Net sales for the second quarter of 2021 increased 21.4% to $375 million, compared to $309 million in the year-ago period. On a constant currency basis, net sales advanced 20.7%, reflecting higher volume/mix of 10.3% and favorable net price realization of 10.4%. The volume/mix performance largely reflected improving trends versus year-ago in the fountain foodservice business, driven by higher levels of consumer mobility in the restaurant and hospitality channels, and the benefit of significantly higher marketing investment. 

Total shipment volume versus year-ago increased 7.0% in the quarter, as increases in Dr Pepper and Crush were partially offset by lower shipment volume in Canada Dry. Bottler case sales volume increased 8.1% in the quarter compared to the year-ago period.

GAAP operating income increased 15.5% to $254 million in the second quarter of 2021, compared to $220 million in the year-ago period, reflecting the benefit of the higher net sales, partially offset by the higher marketing investment in the quarter. 

Adjusted operating income increased 15.3% to $256 million in the second quarter of 2021, compared to $222 million in the year-ago period and, on a constant currency basis, Adjusted operating income advanced 14.4%. On a percent of net sales basis, Adjusted operating income was 68.3% in the second quarter of 2021, compared to 71.8% in the year-ago period, primarily reflecting the significant investment in marketing. 

Latin America Beverages

Net sales for the second quarter of 2021 increased 38.3% to $166 million, compared to $120 million in the year-ago period and, on a constant currency basis, net sales increased 20.8%. This performance was driven by strong volume/mix growth of 16.6%, reflecting the benefit of significantly higher marketing investment and favorable net price realization of 4.2%. Leading the strong net sales performance in the quarter were Peñafiel and Clamato.

GAAP operating income increased 71% to $36 million in the second quarter of 2021, compared to $21 million in the year-ago period, reflecting the strong growth in constant currency net sales, continued productivity, favorable foreign currency translation and transaction impacts and the favorable year-over-year impact of items affecting comparability. This performance was partially offset by significantly higher marketing investment and inflation in logistics and input costs.   

Adjusted operating income increased 61% to $37 million in the second quarter of 2021, compared to $23 million in the year-ago period and, on a constant currency basis, Adjusted operating income increased 44%. On a percent of net sales basis, Adjusted operating income advanced 310 basis points to 22.3% in the second quarter of 2021, compared to 19.2% in the year-ago period, primarily reflecting the strong growth in net sales and productivity.

Outlook for 2021

The Company raised its guidance for constant currency net sales growth to the range of 6% to 7%, from the previous range of 4% to 6%, and it reaffirmed its outlook for Adjusted diluted EPS growth in the range of 13% to 15%, with any over-delivery reinvested back into the business. KDP continues to expect its management leverage ratio to be at or below 3.0x at year-end.

KDP Investor Contacts:

Tyson Seely

T: 781-418-3352 / tyson.seely@kdrp.com

Steve Alexander

T: 972-673-6769 / steve.alexander@kdrp.com

KDP 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 in excess of $11 billion and nearly 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, phrases or expressions and variations or negatives of these words, although not all forward-looking statements contain these identifying words. Forward-looking statements by their nature address matters that are, to different degrees, uncertain, such as statements regarding the estimated or anticipated future results of the combined company following the combination of Keurig Green Mountain, Inc. ("KGM") and Dr Pepper Snapple Group, Inc. ("DPS" and such combination, the "transaction"), the anticipated benefits of the transaction, including estimated synergies and cost savings, the long-term merger targets, and other statements that are not historical facts. These statements are based on the current expectations of our management and are not predictions of actual performance.

These forward-looking statements are subject to a number of risks and uncertainties regarding the company's business and the transaction and actual results may differ materially. These risks and uncertainties include, but are not limited to: (i) the impact the significant additional debt incurred in connection with the transaction may have on our ability to operate our business, (ii) risks relating to the integration of the KGM and DPS operations, products and employees into the combined company and assumption of certain potential liabilities of KGM and the possibility that the anticipated synergies and other benefits of the transaction, including cost savings, will not be realized or will not be realized within the expected timeframe, (iii) the impact of the global COVID-19 pandemic, and (iv) risks relating to the businesses and the industries in which our combined company operates. These risks and uncertainties, as well as other risks and uncertainties, are more fully discussed in the Company's filings with the SEC, including our Annual Report on Form 10-K and subsequent filings. While the lists of risk factors presented here and in our public filings are considered representative, no such list should be considered to be a complete statement of all potential risks and uncertainties. Any forward-looking statement made herein speaks only as of the date of this document. We are under no obligation to, and expressly disclaim any obligation to, update or alter any forward-looking statements, whether as a result of new information, subsequent events or otherwise, except as required by applicable laws or regulations.

NON-GAAP FINANCIAL MEASURES

This release includes certain non-GAAP financial measures including Adjusted operating income, Adjusted net income, Adjusted diluted EPS and Free Cash Flow, 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 related to the transaction and integration activities, which 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 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)





Second Quarter



First Six Months

(in millions, except per share data)

2021



2020



2021



2020

Net sales

$

3,140





$

2,864





$

6,042





$

5,477



Cost of sales

1,370





1,302





2,672





2,463



Gross profit

1,770





1,562





3,370





3,014



Selling, general and administrative expenses

1,039





1,001





2,000





2,029



Other operating income, net

(3)









(4)





(42)



Income from operations

734





561





1,374





1,027



Interest expense

125





157





265





310



Loss on early extinguishment of debt





2





105





4



Impairment of investments and note receivable













86



Other (income) expense, net

(4)





(4)





(7)





16



Income before provision for income taxes

613





406





1,011





611



Provision for income taxes

165





108





238





157



Net income

$

448





$

298





$

773





$

454



Less: Net income attributable to non-controlling interest















Net income attributable to KDP

$

448





$

298





$

773





$

454



















Earnings per common share:















Basic

$

0.32





$

0.21





$

0.55





$

0.32



Diluted

0.31





0.21





0.54





0.32



Weighted average common shares outstanding:















Basic

1,417.4





1,407.2





1,413.4





1,407.1



Diluted

1,428.1





1,421.5





1,426.9





1,420.8



 

KEURIG DR PEPPER INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)





June 30,



December 31,

(in millions, except share and per share data)

2021



2020

Assets

Current assets:







Cash and cash equivalents

$

167





$

240



Restricted cash and restricted cash equivalents

3





15



Trade accounts receivable, net

1,075





1,048



Inventories

897





762



Prepaid expenses and other current assets

474





323



Total current assets

2,616





2,388



Property, plant and equipment, net

2,420





2,212



Investments in unconsolidated affiliates

86





88



Goodwill

20,272





20,184



Other intangible assets, net

23,983





23,968



Other non-current assets

926





894



Deferred tax assets

41





45



Total assets

$

50,344





$

49,779



Liabilities and Stockholders' Equity

Current liabilities:







Accounts payable

$

3,976





$

3,740



Accrued expenses

1,019





1,040



Structured payables

144





153



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

1,323





2,345



Other current liabilities

455





416



Total current liabilities

6,917





7,694



Long-term obligations

11,721





11,143



Deferred tax liabilities

5,972





5,993



Other non-current liabilities

1,491





1,119



Total liabilities

26,101





25,949



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, 1,417,441,055 and 1,407,260,676 shares issued and outstanding as of June 30, 2021 and December 31, 2020, respectively

14





14



Additional paid-in capital

21,743





21,677



Retained earnings

2,357





2,061



Accumulated other comprehensive (income) loss

128





77



Total stockholders' equity

24,242





23,829



Non-controlling interest

1





1



Total equity

24,243





23,830



Total liabilities and stockholders' equity

$

50,344





$

49,779



 

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KEURIG DR PEPPER INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)





First Six Months

(in millions)

2021



2020

Operating activities:







Net income

$

773





$

454



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







Depreciation expense

206





183



Amortization of intangibles

67





66



Other amortization expense

80





76



Provision for sales returns

32