CoffeeNetwork (New York) - Keurig Dr Pepper Inc. (NASDAQ: KDP) today reported results for the second quarter ended June 30, 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%.
Second Quarter Consolidated Results
Net sales for the second quarter of 2023 increased 6.6% to $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 realization of 8.2%, only slightly offset by lower volume/mix of 2.1%. The resilient volume/mix performance reflected the continued strength of the Company's brand portfolio and in-market execution, as well as continued modest elasticities across most categories.
KDP in-market performance in the U.S. Liquid Refreshment Beverages (LRB) category remained strong, with retail dollar consumption advancing 10.7% and market share gains in categories representing approximately 85% of the Company's cold beverage retail sales base. The performance was led by CSDs3, seltzers, coconut waters, energy, apple juice and fruit drinks and was driven by Dr Pepper and Squirt in CSDs, as well as Polar seltzers, Evian, Vita Coco, C4 Energy, Mott's and Hawaiian Punch.
U.S. retail dollar consumption 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 $769 million, compared to $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 favorable 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 labor 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, compared to $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.
Free cash flow for the second quarter was $295 million, reflecting lower operating cash flow and higher capital expenditures versus prior year.
During the quarter, the Company repurchased approximately 7 million KDP shares at a weighted average price per share of $32.34, totaling approximately $226 million. The Company has approximately $3.2 billion remaining under its share repurchase authorization expiring on December 31, 2025.
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 realization 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 unfavorable 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 totaled 9.9 million for the twelve months ending June 30, 2023, representing an 11.0% decline year-over-year. Compared against pre-pandemic levels represented by the twelve months ending June 30, 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 realization and a modest year-over-year benefit of items affecting comparability. Excluding these items, Adjusted operating income decreased 14.6% to $292 million and, on a percent of net sales basis, totaled 30.1%.
International
Net sales for the second quarter increased 10.9% to $489 million, compared to $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%.
2023 Guidance
The 2023 guidance provided below is presented on a constant currency, non-GAAP basis. The Company does not provide reconciliations of such forward-looking non-GAAP measures to GAAP measures, 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, which could be material.
On a constant currency basis, KDP now expects net sales growth of 5% to 6% for 2023. The company's outlook for Adjusted diluted EPS growth of 6% to 7% in 2023 remains unchanged.
Alexis Rubinstein
Keurig Dr Pepper Sees Strong Q2 Net Sales Growth Led by U.S. Refreshment Beverages and International, Coffee Sales Fall 
