Keurig Dr Pepper (KDP) has upped its projections for full year net sales growth to 4-6% after reporting an 11% increase in net sales during Q1 2021, the company announced this morning.
The Burlington, Massachusetts-based conglomerate saw growth across each of its business segments during the quarter, with net sales reaching $2.9 billion, compared to $2.61 billion the year prior. KDP generated free cash flow of $458 million during Q1, allowing it to reduce debt by $125 million and end the quarter with $335 million of unrestricted cash on hand.
“We delivered an exceptional first quarter, driving double-digit net sales and earnings growth, behind outstanding in-market execution,” said Chairman and CEO Bob Gamgort in a press release. “Looking forward, we see an improving, but volatile, macro environment marked by increasing consumer mobility and rising inflationary headwinds.”
In the packaged beverages segment, net sales grew 7.4% to $1.31 billion, with volume increase of 6.8% and a 0.4% rise in net price realization. However, operating income fell by 7.4%, a reflection of “unfavorable comparison to the sale-leaseback gain” last year that resulted in a $26 million negative impact, along with higher costs related to input, operations and logistics. Adjusted operating income was down 3%. According to a press release, growth in packaged beverages was led by CSDs — Dr Pepper, A&W, Canada Dry, Sunkist, 7UP, and Squirt — and growth from brands Snapple and Clamato, while Bai, which recently introduced the energy-focused Boost line, declined.
Within its cold beverages set, retail dollar consumption rose 9.4%, led by strength in CSDs, premium unflavored water (CORE), teas, juice drinks, apple juice (Motts), vegetable juice, mixers and coconut water (Vita Coco). Gamgort singled out CSDs for praise, noting the launch of zero-sugar innovations across its soda portfolio and Sunkist’s rise to becoming the top fruit flavored CSD brand on the market. Over a two-year stacked basis, KDP’s cold beverages have seen consumption jump 17%.
The company also saw some signs of a rebound in its fountain foodservice business, as net sales for its beverage concentrates rose 7.2% ($328 million) and adjusted operating income increased 21.3% ($239 million). Total shipment volume grew 1% during the quarter, while volume/mix fell 0.7% and bottler case sales volume dropped 3.1%. Rising demand for Dr Pepper and A&W helped to partially offset lower shipment volume for Canada Dry and Sunkist.
However, KDP’s coffee systems drove the majority of the growth during the quarter: net sales increased 17.4% to $1.14 billion; on a consent currency basis, net sales were up 16.9%, with a volume/mix of 19.5%. Pod and brewer volume were each up 13.7% and 61%, respectively, while retail consumption of single-serve pods increased 3.9% during the quarter.
Speaking during a call with investors, Gamgort noted that pods are experiencing high levels of growth in untracked channels, specifically e-commerce, helping at-home purchasing to offset continued weakness in office and away-from-home settings. He noted that KDP expects that sector to improve after Labor Day, in anticipation of an acceleration of offices being reopened.
During the Q&A portion of the call, Gamgort said that while attachment rates for coffee systems had normalized since peaking during the early height of the pandemic in Q2 2020, KDP is comfortably on track to grow household penetration by 2 million this year.
The CEO also gave an update on KDP’s sparkling water strategy, of which its partnership with Massachusetts-based Polar is the centerpiece. Gamgort said he was “happy” with Polar’s current velocity and ACV (55%), calling it “an important brand in a high growth segment.” He added that Chicago-based Limitless, acquired in January 2020, was also still a part of the mix and will expand beyond caffeinated SKUs.
As a result of the Q1 results, KDP has increased guidance for its constant currency net sales growth from 4% to 6%, which “is expected to offset growing inflationary pressures in the balance of the year.” Adjusted diluted EPS growth is projected to be in the range of 13% to 15%.
“We remain focused on delivering our business plan, with increased net sales growth expectations and growing confidence in achieving our Adjusted diluted EPS growth target of 13% to 15% for the year, and we plan to reinvest any earnings upside in the business to drive future growth,” Gamgort said.
In related news, KDP announced yesterday that Lubomira Rochet has been elected as a member of the board of directors, effective April 26. Rochet, a former L’Oreal executive and deputy CEO at Valtech, will join JAB Holding Company, KDP’s largest stakeholder, as a partner on June 1.