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%.
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Reported GAAP Basis |
Adjusted Basis1 |
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Q2 |
YTD 2021 |
Q2 |
YTD 2021 |
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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% |
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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.
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1 |
Adjusted financial metrics used in this release are non-GAAP. See reconciliations of GAAP results to Adjusted results in the accompanying tables. |
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2 |
Retail consumption data based on Keurig Dr Pepper’s custom IRi category definitions for the 13-week period ending 6/27/2021. |
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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.
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.
