KDP: Guidance Raised After Positive Q2 Report

Keurig Dr Pepper (KDP) is raising its annual guidance from 4% to 6% to 6% to 7% after seeing broadly positive momentum in its Q2 2021 earnings report, the company announced today. Net sales during the quarter rose 9.6% to $3.14 billion and adjusted operating income grew 8.3%.

In a press release, KDP Chairman and CEO Bob Gamgort praised the company’s resilience in navigating a “challenging macro environment marked by inflation, supply chain disruptions and a tight labor market.”

“For the first six months of 2021, we delivered 9% revenue growth and nearly 15% adjusted diluted EPS growth,” he said. “Notwithstanding the expectation for ongoing challenges to persist for some time, we are confident in our strengthened top-line outlook and plan to reinvest any profit upside back into the business. In addition, our commitment to achieve our three-year merger targets ending this year remains unchanged.”

The company’s performance was fueled by growth across its business segments. Net sales for Packaged Beverages were up 7.6% to $1.5 billion, with CSDs, water (CORE Hydration, Evian), seltzers (Polar) and brands like Bai and Motts leading the way. On a constant currency basis, net sales were up 7.3%, along with increases in both volume/mix (6.2%) and net price realization (1.1%). GAAP operating income jumped 24%, partially offset by inflation in input costs, logistics, and manufacturing, increased marketing spend and higher operating costs.

Beverage Concentrates also performed strongly, with sales rising 21.4% (or 20.7% on a constant currency basis) to $375 million. Favorable price realization by 10.4% and volume mix climbed 10.3%, the latter of which reflects improving trends in consumer mobility and out-of-home consumption habits, the company said.

KDP also reported gains in Coffee Systems and Latin American Beverage. The latter segment saw a net sales increase of 38.3% to $166 million, while KDP’s Keurig coffee machines advanced 5.6% to $1.10 billion.

During the Q&A portion of a call with investors, Gamgort noted that household penetration for coffee systems were “very strong” over the past year increasing about 9% with attachment rates remaining steady as well. Gamgort said the company is continuing to be flexible as mobility increases as the country’s pandemic recovery plays out, however, he noted the rebound of office life presents uncertainty on pod volume growth long-term.

Gamgort also gave an update on KDP’s CSD portfolio as the company begins to shift its diet lines towards a better-for-you format as no to low sugar trends continue to rise. KDP will continue to innovate in this space across platforms because “you don’t launch something and assume that that’s the answer forever,” Gamgort stated.

“We refreshed or we converted our diet flavor brands over to zero sugar. If you look at an even comparison of those two… our sales were up 16% as a result of the conversion from diet to zero sugar, and then the Dr. Pepper Zero Sugar variety has been incredibly strong.”

In terms of remaining flexible, Gamgort expressed the continued challenge of labor inflation and shortages as well as transport and supply chain constraints that will likely remain over the next year and doesn’t expect a “predictable operating environment” to emerge for another six to 12 months.