As the company celebrates the completion of its three-year merger period, Keurig Dr Pepper (KDP) reported high single-digit growth for Q4 and the full year 2021 in an earnings report today, posting an 8.7% net sales increase for the quarter and 9.2% growth to $12.6 billion for the year.
On a constant currency basis, net sales were up 8.4% in 2021, fueled by a higher volume/mix of 5.7% and a net price realization of 2.7%, the company said. On a two-year basis, constant currency net sales are up 13.9% from 2019. Alongside strong sales performance, the company gained market share in nearly 75% of its cold beverage retail accounts, with a CSD category share of about 25%. Sales were bolstered by its core CSD portfolio, water brands CORE Hydration and evian, Vita Coco, Mott’s apple juice and Polar seltzers.
Meanwhile, dollar sales for its Keurig single-serve coffee pods rose 2.7% with the company’s share of the category rising to 83.2%. Away-from-home sales also improved but have not yet regained pre-pandemic heights as consumers have not yet fully returned to the office.
“We finished 2021 with exceptional top-line momentum, driven by robust consumer demand across our portfolio, and our third consecutive year of double-digit Adjusted EPS growth,” said KDP chairman and CEO Bob Gamgort in a statement. “Despite ongoing macro and COVID-related challenges, we successfully delivered our merger commitments on or ahead of the targets we set four years ago. We head into 2022 with confidence in the stronger, faster-growing business we have built, poised to continue to drive outsized long-term value creation in an environment that we expect to remain challenging for some time.”
Operating income for the full year grew 16.7% to $2.89 billion. The company cited its strategic asset investment program as helping drive income growth, as well as lower COVID-related costs and the strong net sales growth. However, the performance was offset by rising inflation and supply chain disruptions across manufacturing, logistics and labor. In particular, KDP noted the omicron variant of COVID-19 exacerbated issues. An increase in marketing investment also impacted operating income.
During an earnings call, Gamgort noted that the company has experienced double-digit absenteeism at its plants in recent months due to the rise in COVID cases.
“We’re certainly not alone. Our suppliers have inputs, transportation services, and plant equipment are also experiencing these challenges, which has a compounding effect on our operations,” Gamgort said on the call. “Of course, we don’t get paid to report the news but rather to deliver our commitments regardless of the macro situation. That’s exactly what we’ve done. By implementing an unprecedented set of actions to increase labor availability and prioritize our portfolio to ensure availability of the fastest turning highest profit items.”
He noted that record demand for K-cup pods “bumped up against lower manufacturing output” and delayed capacity expansion, causing the company to fall below safety stock levels. However, the company has since replenished its stock and Gamgort said KDP is “seeing light at the end of the supply chain tunnel as the wave of Omicron runs its course,” but noted inflationary pressures remain.
The company said it generated “exceptionally strong” free cash flow of $2.57 billion in the year, reflecting growth in earnings and “ongoing effective working capital management.” That, along with $576 million of pre-tax cash proceeds from the sale of its equity stake in BodyArmor, helped KDP to reduce its total financial obligations by $1.73 billion and end the year with $567 million in unrestricted cash on hand.
Net sales of packaged beverages grew 9.7% in 2021 to $5.88 billion, up from $5.36 billion in 2020. On a constant currency basis, net sales were up 9.5% with volume/mix of 6% and net price realization of 3.5%. In Q4, net sales were up 17.1% to $1.53 billion.
According to Gamgort, CSD consumption grew 26% for the year and KDP has increased its market share in the category by 1.5 share points since 2019. In particular, Sunkist saw strong double-digit dollar growth, up 35% on a two-year basis, with zero sugar innovations helping drive growth across brands.
Elsewhere in its beverage portfolio, CORE, Snapple and Bai had growth “capped” by supply chain issues but saw stronger performances in Q4, Gamgort added. Snapple grew 5% in the quarter and CORE and Bai were up double-digits. Vita Coco, in which KDP made an equity investment last year as the company went public, grew dollar sales by 33% for the year and market share was up by almost seven points.
Keurig coffee systems sales were up 6.4% to $4.72 billion, up from $4.43 billion in 2020. On a constant currency basis, net sales were up 5.6% with a volume/mix of 6.5% and a lower net price realization of 0.9%. Volume sales of coffee pods were up 5.6% in the period and brewer volume increased 10%, lapping 2020’s elevated 21% growth in brewer sales. For Q4, net sales totalled $1.32 billion, “essentially even” with the year before.
Beverage concentrate net sales were up 12.2% to $1.49 billion, up from $1.33 billion the year before. In Q4, sales rose 9.2% to $391 million.
“Our strength since the merger extends well beyond our financial commitments, as we delivered high-quality, in-market performance, including broad based market share growth across our portfolio, and meaningful expansion of new households using the Keurig system,” Gamgort said in an earnings call today. “Importantly, we maintained top line growth each year since the onset of COVID as we’ve been able to pivot the growth to certain segments of our business faster to offset those that were – and in some cases continue to be – negatively impacted.”
Gamgort also reiterated KDP’s plans to explore more M&A opportunities this year. He noted that the company has an M&A capacity of more than $20 billion and may seek to acquire a number of companies for various valuations.
“What we’re saying is that we’ve got significant capacity to continue to do acquisitions of a variety of sizes and our four areas are filling in the white space as we just talked about, continuing to build our distribution capabilities, which we also talked about; adding new capabilities which as we get further along we could explain some of that; and then obviously, we always have the opportunity for some geographic expansion,” Gamgort said during the call’s Q&A session.