In the face of the global pandemic, Keurig Dr Pepper (KDP) reported strong results in its Q4 and full year earnings report today, driven by increases in at-home consumption and ecommerce sales.
Net sales increased 6.4% to $3.12 billion in the fourth quarter and 4.5% to $11.62 billion for the full year. Net sales on a constant currency basis grew 5%, driven by a 5.6% increase in volume/mix and partially offset by 0.6% net price realization. Operating income rose 4.3% for the year to $2.48 billion, driven by the strong net sales growth.
Offsetting the growth were $128 million in COVID-19 related costs and a $67 million non-cash impairment charge on Bai. The company estimated that total operating costs stemming from the pandemic were $150 million, including temporary pay increases and incentives for front-line employees, new health and safety measures and higher sanitation expenses.
KDP also reported free cash flow of $2.2 billion, “reflecting growth in operating income and ongoing effective working capital management,” according to the company. The “exceptionally strong” cash flow allowed KDP to end the year with $240 million in unrestricted cash on hand,
Speaking with investors today, KDP CEO Bob Gamgort said the company increased its cold beverages market share in “more than 90% of our retail base,” including one point increase in CSDs. Growth was led by double-digit increases for Dr Pepper and Canada Dry, as well as strong performances by A&W Root Beer, 7UP, Sunkist and Squirt. As well, Gamgort said the company saw solid growth from its premium water (including CORE and evian), tea and fruit drink brands.
Net sales for packaged beverages grew 8.5% to $5.36 billion for the year, with a volume/mix of 8.2% and a net price realization of 0.3%. Beverage concentrates, however, fell 6.3% to $1.33 billion, compared to $1.41 billion in 2019. Total volume for concentrates dropped 5.1% year-over-year.
As a result of the pandemic and the shift towards at-home consumption, Gamgort noted that multipacks and cans saw large increases, as well as ecommerce sales, which helped offset the dive in on-premise fountain drinks and the convenience and gas channels.
“Our speed in pivoting to these changes was enabled by new uses of data and technology, consistently strong in-market execution, leveraging our highly developed e-commerce capability and a flexible and resilient supply chain team,” Gamgort said.
Gamgort also highlighted KDP’s work to expand its beverage portfolio and DSD network throughout the year, including a long-term partnership with Honickman Companies to service the company’s brands in the New York metro area, and a national distribution agreement with Polar Beverages, giving the company a sizable stake in the growing sparkling water category. Gamgort noted that Polar Seltzer’s ACV has increased more than 20 points since the partnership began.
In coffee, Keurig branded K-Cups grew 10% and appliance sales grew 21%, due to a mix of new consumers and existing households upgrading to new models. The rise in consumers working from home helped drive K-Cup sales, Gamgort said.
Looking ahead, Gamgort said KDP will introduce new zero sugar varieties of its CSD portfolio brands this year, including Dr Pepper; similar to Coke Zero Sugar, this new SKU will be a differentiated product from Diet Dr Pepper. The company will also tap into the functional beverage space through enhanced water brand Bai with Bai Boost, a new caffeinated product. On fruit juice brand Mott’s, the company will add Mott’s Mighty, a line of juices and apple sauces containing added vitamins and fiber. KDP has also launched new Snapple bottles made with 100% recycled PET. As well, all CORE Hydration bottles are now made entirely of rPET.
Speaking during the call’s Q&A portion, Gamgort said he anticipates 2021 will be “a more normal year” for innovation than 2020, noting that “access to the shelf” has begun returning to pre-pandemic standards.
“We’ve got a really strong lineup of innovation across the board,” he said. “We talked about some of it in the prepared remarks, but we — again, we have much more than that. And so we stand in a really good position to get that strong innovation and renovation on the shelf quickly.”
However, Gamgort did not comment on KDP’s investments in early stage brands such as Don’t Quit and Adrenaline Shoc (A Shoc), only stating that the brands were “all very promising [but] too small at this stage for us to report.” Gamgort said that the company was satisfied with its strategy to strike joint distribution partnerships with promising startups in addition to in-house product innovation and considers it “just one of many tools” the company is using to drive innovation.
KDP may also benefit this year from the potential sale of sports drink brand BODYARMOR to The Coca-Cola Company. The company has a 12.5% ownership stake in the brand, however has not managed the product since 2018 when Coke purchased a minority stake and distribution rights.
“If and when that business is sold, then we would receive payment just like any other investor would receive payment at that time,” Gamgort said. “And we don’t know anything more than what’s been publicly reported to date.”