Keurig Dr Pepper (KDP) raised its net sales growth guidance for the year to the high-single digit range following a 6.1% sales increase to $3.08 billion in its Q1 2022 earnings report this week, bolstered by an “exceptionally strong” beverage performance.
“We delivered another quarter of strong revenue growth, reflecting the power of our brand portfolio and the quality of our execution at retail,” KDP chairman and CEO Bob Gamgort noted in a statement. “Margins were impacted by accelerating inflation, which outpaced the timing of pricing actions, and the previously discussed coffee supply chain disruption. We made significant progress during the quarter on increasing coffee production and rebuilding inventories, and we implemented additional pricing actions across most categories. Consequently, we now expect to deliver net sales growth in the high-single-digit range and continue to expect to deliver Adjusted EPS growth in the mid-single-digit range for the year.”
According to the report, packaged beverages, beverage concentrates and Latin America beverages were among the strongest business segments for the quarter, and net sales were favored by net price realization of 6.3%, which was offset by a lower volume/mix of 0.2%. Growth was partially offset by declines in the Keurig coffee systems business, which fell 4.3% to $1.09 billion (versus $1.14 billion in 2021) as production was prioritized over sales in order to rebuild inventory following supply disruptions in late Q4 and early Q1. Meanwhile, single-serve coffee pods for Keurig machines rose 3.6% in the quarter.
Packaged beverage sales rose 13.2% to $1.48 billion, reflecting higher net price realization of 8.3%, the report stated, and a higher volume/mix of 4.9%. The growth was led by brands such as Canada Dry, Dr Pepper, 7UP, A&W, Sunkist and Squirt, as well as Mott’s, Snapple, CORE Hydration, Polar, Hawaiian Punch and Vita Coco.
Beverage concentrate net sales rose 9.5% to $359 million, up from $328 million in 2021, supported by a higher net price realization of 7.6% and volume/mix of 1.9%. According to the report, the volume/mix reflected higher fountain food service shipments due to increased consumer mobility in the restaurant and hospitality channels.
Latin America Beverages was up 16.8% to $146 million, with net sales increasing 17.6%, higher net price realization of 9.6% and volume/mix of 8%.
GAAP operating income rose 51% to $966 million, compared to $640 million last year. Adjusted operating income fell 1.2% to $732 million. On a percent of net sales basis, adjusted operating income was 23.8%, compared to 25.5% the prior year.
GAAP net income was up 80% to $585 million, compared to $325 million last year. Adjusted net income rose 0.8% to $474 million. Operating cash flow rose to $663 million and free cash flow totaled $632 million, reflecting rising earnings and “ongoing effective working capital management.”
Speaking during a call yesterday Gamgort said that the company is facing strong margin pressure as price increases are currently lagging behind inflation, but looking ahead KDP anticipates an “inflection point” when the high costs will lap elevated prior year costs, leading to “lower year-over-year inflation comparison.”
“At the same time pricing actions will have caught up which we expect will lead to margin recovery,” Gamgort said. “As we look forward, we believe our cold beverage portfolio will continue to perform well throughout the balance of the year and we are confident that our coffee production output and inventory levels will have fully recovered by the end of Q2. Therefore, we have increased our 2022 full year guidance for net sales from mid-single digits to high single digits, while maintaining our EPS guidance at mid-single-digit growth.”