CoffeeNetwork (New York) - Keurig Dr Pepper Inc. (NASDAQ: KDP) today reported strong results for the third quarter ended September 30, 2022 and reaffirmed its full-year guidance for constant currency net sales growth in the low-double-digit range and Adjusted EPS growth in the mid-single-digit range.
Third Quarter Consolidated Results
Net sales for the third quarter of 2022 increased 11.4% to $3.62 billion, compared to $3.25 billion in the year-ago period and, on a constant currency basis, net sales advanced 11.8%. All four segments grew sales during the quarter. Driving the consolidated net sales growth was favorable net price realization of 12.1%, only slightly offset by lower volume/mix of 0.3%, reflecting the strength of the portfolio and continued strong in-market execution.
In coffee, retail dollar consumption of single-serve pods manufactured by KDP increased 4.0% in IRi tracked channels, led by higher pricing in both KDP owned and licensed and partner brands, with stronger growth registered in untracked channels. KDP Manufactured share remained strong at 81.7% in the quarter.
GAAP operating income in the third quarter of 2022 decreased 50.4% to $394 million, compared to $795 million in the year-ago period, primarily reflecting a $311 million non-cash impairment charge in the current quarter on the Bai brand. Also impacting results in the quarter was higher gross profit, partially offset by continued broad-based inflationary pressures and increased marketing investment.
Adjusted operating income increased 2.0% in the quarter to $947 million, fueled by 8.6% growth in Adjusted gross profit, partially offset by continued broad-based inflationary pressures in transportation, warehousing and retail labor, as well as increased marketing investment. On a percent of net sales basis, Adjusted operating income was 26.1%.
GAAP net income in the third quarter of 2022 decreased 66.0% to $180 million, or $0.13 per diluted share, compared to $530 million, or $0.37 per diluted share, in the year-ago period. This performance primarily reflected the unfavorable year-over-year impact of items affecting comparability.
Adjusted net income in the quarter advanced 4.3% to $656 million, driven by the growth in Adjusted operating income and reduced interest expense. Adjusted diluted EPS in the quarter increased 4.5% to $0.46, compared to $0.44 in the year-ago period.
Operating cash flow in the third quarter of 2022 declined slightly to $759 million, while free cash flow increased slightly to $686 million.
On September 14, 2022, the Company announced a 6.7% increase in its annualized dividend rate to $0.80 per share, from $0.75 per share, effective with the Company's regular dividend that was payable on its common stock on October 14, 2022.
Third Quarter Segment Results
Coffee Systems
Net sales for the third quarter of 2022 increased 4.7% to $1.21 billion, compared to $1.16 billion in the year-ago period and, on a constant currency basis, net sales advanced 5.2%. The constant currency net sales growth was driven by a 7.8% increase in net price realization, partially offset by a 2.6% decrease in volume/mix.
The higher net price realization of 7.8% in the quarter was primarily driven by pricing actions taken in late 2021 and the second quarter of 2022, while the volume/mix decrease of 2.6% was due to pod shipment growth of 3.5%, more than offset by a brewer shipment decline of 15%. The brewer performance is consistent with the Company's expectation of returning to its long-term target of adding two million new households into the Keurig system in 2022, which now requires selling fewer brewers than the COVID-driven, elevated level of three million new households having been added in each of the prior two years.
GAAP operating income in the third quarter of 2022 decreased 19.2% to $295 million, compared to $365 million in the year-ago period. This performance largely reflected broad-based inflationary pressure, primarily in green coffee costs, which reached the highest level of the year for KDP due to timing of the Company's hedges. Also impacting the results was the unfavorable year-over-year impact of items affecting comparability. Partially offsetting these factors were the benefits of the net sales growth and productivity. Adjusted operating income decreased 15.7% to $343 million and, on a percent of net sales basis, totaled 28.4%.
Latin America Beverages
Net sales for the third quarter of 2022 increased 26.9% to $198 million, compared to net sales of $156 million in the year-ago period and, on a constant currency basis, advanced 28.8%. This strong and balanced performance was driven by higher net price realization of 17.3% and increased volume/mix of 11.5%, reflecting the strength of the portfolio and continued strong in-market execution.
GAAP operating income in the third quarter of 2022 increased 5.4% to $39 million, compared to $37 million in the year-ago period, reflecting the strong net sales growth and productivity, partially offset by broad-based inflationary pressures, significantly higher marketing investment and the unfavorable year-over-year impact of items affecting comparability. Adjusted operating income increased 13.5% to $41 million and, on a percent of net sales basis, totaled 20.7%.
During the quarter, KDP announced a strategic partnership with Red Bull, the iconic global energy brand, to sell and distribute Red Bull in Mexico. The partnership leverages KDP's powerful distribution network in Mexico to expand availability of Red Bull in the country. This agreement furthers KDP's commitment to win-win partnerships and is expected to strengthen the company's energy category position, improve its go-to-market scale and drive efficiencies over time.
KDP 2022 Guidance
KDP reaffirmed its 2022 guidance for constant currency net sales growth in the low-double-digit range and Adjusted EPS growth in the mid-single-digit range.
Alexis Rubinstein
Keurig Dr Pepper Reports Strong Q3 2022 Results and Reaffirms Guidance for the Year
