Keurig Dr Pepper reported single-digit net sales growth and margin expansion in its Q2 2024 earnings call amid a “muted” contribution from the company’s at-home coffee segment.
Company leadership expressed confidence that its focus on leveraging its DSD network with brands like C4 Energy, Electrolit, Black Rifle Coffee and La Colombe remains “the single greatest driver of top line acceleration,” said KDP CEO Tim Cofer (who officially took company leadership at the start of the quarter).
KDP expects to further ramp up its distribution of Electrolit in the back half of the year. Despite a recent “moderation” in the energy category, Cofer said that volume growth still outpaces all major beverage categories and there is still “meaningful runway” for C4.
The planned acquisition of Kalil Bottling, expected to close in Q3, will buoy the company’s capabilities in the Southwest and will bring “full control of our brand’s distribution in Arizona” while increasing KDP’s “competitive advantage of controlling last mile distribution,” Cofer said.
Net sales increased 3.5% to $3.9 billion in Q2 compared to the prior year. Its adjusted operating income was $723 million, up 11.9% from Q2 2023. The company reported an adjusted operating margin of 30% for the quarter.
U.S. Refreshments segment sales were up to $2.4 billion, a 3.3% increase from the same period last year. However, U.S. Coffee slipped to $950 million, a $20 million year-over-year decline.
Green coffee prices continue to drag on profits in the category but KDP reported volume/mix growth of 0.8% as K-Cup Pod shipments were also up 0.2% and brewer shipments increased 1.4% year-over-year.
Cofer assured investors that the company is “hedging” its position to protect itself from the impact of higher green coffee prices over the course of the second half of the year.
The company has already reduced its pack sizes to meet more price conscious consumers, downsizing from 12-count to 10-count for some retail partners and from 100-count to 80-count in the club channel.
“That allows us to hit an everyday price point and a promoted price point that is more in line with what consumers are looking for,” Cofer said during the question and answer part of the call.
On a brighter note, KDP’s International segment posted a net sales gain of 15.5% year-over-year hitting $565 million and 14.7% in constant currency segment. International volume was up 10.4%. The company emphasized that its Canada and Mexico businesses are growth drivers for KDP’s overall strategy with a CAGR up close to double-digits over the course of the last 5 years, CFO and International president Sudhanshu Priyadarshi said.
The company reiterated its 2024 guidance with net sales growth in a mid- to single-digit range and adjusted diluted EPS growth in a high- to single-digit range.