KDP: Net Sales Flat in Q4, Up 2.3 Percent for 2018

Keurig Dr Pepper (KDP) reported a 2.3 percent increase in net sales in 2018, according to a company earnings report released today.

“We finished 2018 on a strong note, successfully managing through the merger integration and achieving full year results in line with our 2018 targets,” said KDP chairman and CEO Bob Gamgort in a press release. “We also delivered strong in-market performance, growing market share in carbonated soft drinks, single-serve coffee and other key categories. Looking ahead, we are confident in our outlook for 2019 Adjusted diluted EPS growth of 15 percent to 17 percent, which is in line with our long-term merger target, despite the operating environment becoming more challenging.”

In an earnings call with media and investors, KDP chief financial officer Ozan Dokmecioglu noted an “acceleration of performance” — highlighted by a 13.5 percent increase in operating income — during the second half of last year, prior to the merger of Keurig Green Mountain and Dr Pepper Snapple Group closing in July.

Net sales in the fourth quarter reached $2.81 billion, up 0.5 percent over the same period last year. Volume and mix increased by 2.7 percent, unfavorably impacted by changes in the allied brands portfolio, including the departures of BodyArmor and Fiji. Operating income increased 12.9 percent during the fourth quarter.

Driven by growth in Dr Pepper, 7UP, Big Red, Schweppes and Sunkist, net sales for KDP’s Beverage Concentrates segment increased 4.8 percent for Q4 and 3.8 for the year, according to the company. Operating income in the segment was up 14.2 percent from last year.

In packaged beverages, net sales were flat for the quarter, offset by a negative impact of 4.2 percent from the aforementioned changes in the allied brands portfolio. Volume and mix grew by 2.7 percent, driven by strong sales performance by Canada Dry, Core, Dr Pepper, Big Red and Mott’s. Operating income increased 8.4 percent in the fourth quarter, but declined 9.8 percent for the year.

For the year, net sales of packaged beverages were up 4.1 percent to just over $5 billion, fueled by growth from Canada Dry, Bai, Core, BodyArmor and contract manufacturing; elsewhere, Fiji, Vita Coco and Hawaiian Punch recorded declines. Volume increased 5.4 percent.

During the question and answer portion of the earnings call, KDP Chairman and CEO Bob Gamgort was asked about the allied brands portfolio and well as performance of Evian.

“The Allied brand portfolio as we sit here today has been transformed versus where we were sitting a year ago,” Gamgort said, stating that these partner brands provide a source of growth, with KDP having a strong opportunity to grow newly acquired brands Evian, Forto and Peet’s. Gamgort noted that although sales for these brands were minimal in Q4 of 2018, they are “just getting started” and will serve as a “tailwind going forward” as they increase distribution.

Gamgort also stated that going forward KDP’s allied brands strategy will target equity-like agreements with a path to ownership, rather than negotiating a brand’s value after establishing a distribution agreement.

Bonnie Herzog, managing director of equity research at Wells Fargo Securities, wrote that she is encouraged that KDP is on track to deliver its synergy target of $660 million. She also noted that the company “is starting to benefit from recent pricing actions and stepped ­up brewer innovation.”