KDP: Q3 Sales Rise, While Honickman Deal Reshapes NY/NJ Distro

Q3 Earnings: Year-End Guidance Warms To Sales Rise

Keurig Dr Pepper (KDP) reported a 5.8% increase in net sales in the third quarter, an encouraging performance that saw the company strengthen its full year guidance.

Volume increased 6.6% during the quarter, while net price realization was down just under 1%. Adjusted operating income rose 15.9% to $874 million.

“Since the beginning of the pandemic, our broad beverage portfolio, unique route to market capabilities and resilient and dedicated team members have enabled KDP to successfully navigate through the challenging and volatile operating environment,” said Bob Gamgort, Chairman and CEO of KDP, in a statement. “In Q3, we delivered another strong quarter, marked by accelerated growth in net sales, adjusted operating income and EPS, while continuing to post strong market share growth across our portfolio and reducing our management leverage ratio. As a result, we’re confident in our ability to deliver 2020 at the high-end of our guidance, while reinvesting any upside performance in brand marketing and innovation.”

KDP is now projecting full year net sales growth to fall at the high end of its 3-4% guidance range. Adjusted diluted EPS growth for the full year is also at the high end of the 13-15% guidance range.

Net sales for Packaged Beverages grew 10.7% during the quarter, with volume/mix up 11.4%. The segment was largely shaped by broader shifts in consumer behavior sparked by the COVID-19 pandemic, with demand continuing to come from large-format retailers while convenience and gas channels slowly recovered from a drop in foot traffic. The company’s legacy CSDs — Dr Pepper and Canada Dry, each buoyed by their recent Cream Soda and Bold innovations, respectively — were among the highlights of balanced growth across the portfolio, alongside premium unflavored water, juice and juice drinks, and mixers.

Operating income in Packaged Beverages increased 32.7% to $260 million in Q3, offset by a spike in costs related to increased consumer demand and inflation in logistics. The company tagged COVID-19 related costs at $36 million for the quarter.

The company’s Coffee Systems division also contributed to top line growth: net sales in the quarter increased 3% to $1.1 billion, with volume rising 6% and net price realization down 2.8%. Pod volume was up 2.4% as consumers increased at-home coffee occasions, while brewer volume increased 34% in the quarter alone. On the earnings call, Gamgort credited the strong reception for Keurig’s featured 2020 holiday items, the K Supreme and K Supreme Plus, as helping instill confidence in retailers to get out ahead of the winter gifting season.

In Beverage Concentrates, net sales fell 2.2%, with net price realization up 2.6%. Volume remained down 4.8%, though the company noted it had “improved significantly on a sequential basis in the quarter” as some restaurants reopened. Total shipment volume was down 3.9% in the quarter.

KDP confirmed it is on track to meet its target of $600 million in merger synergies by the end of 2021

Honickman Deal Reshapes NY/NJ Distribution

Earlier this week, KDP also announced an agreement with New Jersey-based bottler and distributor The Honickman Companies that will see the beverage company assume sales and distribution of several of its core CSD brands in the New York and New Jersey markets, a move expected to double its DSD volume in the region.

Prior to the agreement, The Honickman Companies distributed several KDP-owned CSD brands including Canada Dry, Sunkist, 7UP and A&W Root Beer in the New York metro area. The brands will now be sold and distributed by KDP subsidiary The American Bottling Company, giving the conglomerate complete control over its CPG beverage portfolio.

“We are thrilled to add these KDP powerhouse brands — led by Canada Dry — to our sales and distribution footprint in the Northeast, increasing our scale and strengthening our partnership with our retail customers,” said KDP president of cold beverages Derek Hopkins in a press release. “Our DSD teams and independent operators have a proven track record of delivering results and we’re bullish about the future opportunities this transaction provides.”

Terms of the agreement were not disclosed. The deal is expected to transition over 14 million cases from Honickman to KDP and will impact 18 counties. While Honickman will continue to distribute KDP products in other regions, including the Mid-Atlantic, the agreement will convert Honickman to a full-time Pepsi operation within New York and New Jersey.

Speaking with BevNET, Honickman Companies CEO Jeffrey Honickman said the company is committed long term to the beverage business, noting that the initial announcement created confusion about his company’s plans. He said after the deal, Honickman Companies will remain the largest KDP bottler in the country.

“We’re also one of Pepsi’s largest bottlers in the U.S.,” Honickman said. “We are strategically aligned with Pepsi and we’re excited to be focusing on several growth opportunities within the Pepsi-Cola business in New York.”

Commenting on the shift during KDP’s earnings call, Gamgort called the move “by far the biggest” thus far in the company’s long-term optimization plan. Noting that KDP’s other partnership with Massachusetts-based Polar Beverages is set to truly kick off next year, he hinted that the company may not be done dealmaking yet.

“Investments in distribution infrastructure is part of the conversation about what KDP will look like beyond 2021,” he said.