Despite mixed results due to price realization, inflationary headwinds and volume/mix volatility, Keurig Dr Pepper (KDP) reaffirmed its current full-year guidance during its Q1 2023 earnings call today.
Net sales increased 8.9% to $3.3 billion during Q1 2023, primarily driven by favorable net price realization of 9.9% and only partially offset by a 1% drop in volume. Despite forecasting more mid-single digit inflation, KDP expects net sales to increase 5% this year.
In terms of category performance, KDP’s U.S. liquid refreshment beverages (LRB) saw strong net sales momentum, increasing 12.7% to $2 billion compared to the same period last year. The performance was supported by strong initial traction for its latest innovation, Dr Pepper Strawberries & Cream, as well as contributions from the company’s new sales and distribution contract with Nutrabolt’s C4 energy.
“Our overall performance in the quarter demonstrated the resilience of KDP as we delivered on our commitments in a dynamic macro environment,” Bob Gamgort, KDP chairman and CEO said in a press release. “Our results were led by strong revenue growth, supported by successful innovation, increased marketing and modest brand elasticities.”
The company’s international business also saw strong sales growth, increasing 17.2% to $415 million. However, KDP’s U.S. coffee set did not fare as well. The segment’s net sales decreased 1.3% to $931 million during Q1 as net prices increased (5.3%) and volume fell 6.6%.
Within its coffee pod category, Gamgort said the company is working to build a “super premium” portfolio with the recent addition of San Francisco-based Philz Coffee, in addition to Intelligentsia and BLK & Bold last year.
According to Gamgort, the segment’s performance decline was largely impacted by a decrease in brewer sales during the quarter, but stated that he does not believe those results have impacted overall household penetration. He also recognized that the recent bankruptcy announcement from Bed Bath and Beyond, a key retailer that sold the brewing system, has led to some inventory disruption and movement in retail channels for the product.
“There is an inherent volatility in selling small appliances that is fundamentally different from selling consumables,” said Gamgort during a call with investors. “That’s why looking at it on a quarter by quarter basis makes that metric even less helpful.”
The company’s operating income also took a hit, decreasing 39.5% to $584 million, a number that includes gains from KDP’s breach of contract settlement with BodyArmor last year. As it looks to the rest of the year, KDP expects to begin seeing additional positive impacts from its new agreement with Nutrabolt’s C4. Gamgort said the company is also continuing to optimize the cost efficiency and environmental impact by consolidating its distribution network where it sees overlap with the route of independent contractors.
During Q1, KDP repurchased about 6.6 million shares of the company for a total of $231 million ($34.96 weighted average price per share) with an additional $3.4 billion remaining under its share repurchase authorization. KDP stock has decreased approximately 0.5% during the beginning of the year compared to mid-single digit gains of the S&P 500.