Keurig Dr Pepper Reports 2022 Results and Provides Outlook for 2023, Higher Pricing Boosts Coffee Pod Revenues

By: Alexis Rubinstein, Managing Editor - Coffee Network

Thu, 23 Feb 2023, 14:32

Alexis Rubinstein

Managing Editor

CoffeeNetwork (New York) - Keurig Dr Pepper Inc. (NASDAQ: KDP) today reported results for the fourth quarter and full year ended December 31, 2022. The Company also provided guidance for constant currency net sales growth of 5% and Adjusted diluted EPS growth of 6% to 7% in 2023.

Full-year 2022 highlights:

Drove double-digit net sales growth of 11%, significantly ahead of the Company's initial guidance of mid-single-digit growth and in line with its guidance update in the second quarter.
Delivered Adjusted diluted EPS growth of 5%, in line with the Company's mid-single-digit guidance.
Grew market share in Cold Beverages in categories representing 92% of the Company's U.S. retail sales base.
Expanded the Keurig brewing system to 38 million U.S. households, a 10 million household increase since 2018.
Returned $1.5 billion to shareholders through dividends, including a 6.7% increase in KDP's quarterly dividend, and the opportunistic repurchase of 10.6 million shares.
Ended the year with a strong balance sheet and reduced management leverage ratio of 2.8x.

2022 Full Year Consolidated Results

Net sales for the full year of 2022 increased 10.8% to $14.06 billion, compared to $12.68 billion in the year-ago period and, on a constant currency basis, net sales advanced 11.1%. Driving the constant currency net sales growth was favorable net price realization of 10.6% and higher volume/mix of 0.5%, which reflected the strength of the Company's brand portfolio, continued strong in-market execution and modest elasticities.

KDP in-market performance in the Liquid Refreshment Beverages (LRB) category remained strong for the year, with retail dollar consumption advancing 11.0% and KDP growing market share of the category, largely reflecting strength in premium unflavored waters, seltzers, coconut waters, apple juice, tea and fruit drinks, and solid performance in CSDs.

In coffee, retail dollar consumption of single-serve pods manufactured by KDP increased 4.9% in IRi tracked channels, led by higher pricing. KDP Manufactured share remained strong at 82.4% for the year.

GAAP operating income for the year decreased 10.0% to $2.61 billion, compared to $2.89 billion in the year-ago period, primarily reflecting an unfavorable year-over-year impact of items affecting comparability totaling $406 million. Also impacting the performance were the benefits of higher gross profit, a change in accounting for non-cash stock compensation expense, recovery of litigation expenses associated with our successful Body Armor settlement, a business interruption insurance recovery and a modest year-over-year gain from the Company's strategic asset investment program. These benefits were partially offset by significantly higher inflationary pressures in transportation, warehousing and labor. Excluding items affecting comparability, Adjusted operating income increased 3.7% to $3.54 billion and, on a percent of net sales basis, Adjusted operating income was 25.2%.

GAAP net income for the year decreased 33.1% to $1.44 billion, or $1.01 per diluted share, compared to $2.15 billion, or $1.50 per diluted share, in the year-ago period. This performance primarily reflected the decrease in GAAP operating income and an unfavorable year-over-year impact of non-operating items affecting comparability. This performance was partially offset by the growth in Adjusted operating income and lower Adjusted interest expense. Excluding items affecting comparability, Adjusted net income for the year advanced 5.4% to $2.40 billion, and Adjusted diluted EPS increased 5.0% to $1.68, compared to $1.60 in the year-ago period.

Free cash flow for the year was strong at $2.65 billion, reflecting a slight decrease in operating cash flow more than offset by lower capital spending.

During the year, the Company repurchased approximately 10.6 million KDP shares at an average price per share of $35.88, totaling approximately $379 million. The Company has approximately $3.6 billion remaining under its share repurchase authorization expiring on December 31, 2025.

Coffee Systems

Net sales for the year increased 5.6% to $4.98 billion, compared to $4.72 billion in the year-ago period and, on a constant currency basis, net sales advanced 6.2%. The constant currency net sales growth was driven by a 7.0% increase in net price realization, partially offset by a 0.8% decrease in volume/mix driven by brewers.

The higher net price realization of 7.0% for the year primarily reflected pricing actions taken in late 2021 and the second quarter of 2022, while the volume/mix decrease of 0.8% was due to pod shipment growth of 1.4%, more than offset by an expected brewer shipment decline of 5.2%, due to lapping a COVID-related brewer sales acceleration in the prior year. The Company added approximately two million net new U.S. households to the Keurig system in 2022, in line with its long-term annual target, reflecting successful innovation including new connected brewer models.

GAAP operating income for the year decreased 9.0% to $1.32 billion, compared to $1.45 billion in the year-ago period. The performance largely reflected broad-based inflationary pressure that was only partially offset by the growth in net sales, productivity, a $44 million benefit from the Company's strategic asset investment program and a $23 million benefit related to the aforementioned insurance recovery. Adjusted operating income decreased 7.5% to $1.51 billion and, on a percent of net sales basis, totaled 30.4%.

In coffee, retail dollar consumption of single-serve pods manufactured by KDP increased 7.1% in IRi tracked channels, led by higher pricing. KDP Manufactured share remained strong at approximately 83% in the quarter, driven by strength of owned and licensed pods.

Fourth Quarter Segment Results- Coffee Systems

Net sales for the fourth quarter increased 12.7% to $1.49 billion, compared to $1.32 billion in the year-ago period and, on a constant currency basis, net sales advanced 13.8%. The constant currency net sales growth was driven by a 10.6% increase in net price realization and a 3.2% increase in volume/mix, including a modest benefit of the 53rd week in 2022.

The higher net price realization of 10.6% in the quarter was primarily driven by pricing actions taken in late 2021 and the second quarter of 2022, while the volume/mix increase of 3.2% was due to pod shipment growth of 2.9% and brewer shipment growth of 3.3%.

GAAP operating income increased 22.3% to $438 million, compared to $358 million in the year-ago period, largely reflecting the strong net sales growth and productivity, as well as the $44 million benefit from the Company's strategic asset investment program and the $23 million benefit related to the aforementioned insurance recovery. Also modestly benefiting the performance was the impact of the 53rd week. These benefits more than offset broad-based inflationary pressure in the quarter. Excluding items affecting comparability, Adjusted operating income increased 18.8% to $483 million and, on a percent of net sales basis, totaled 32.5%.

Coffee

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