Keurig Dr Pepper (KDP) today posted a 2.3% year-over-year increase in net sales to $3.89 billion in Q3, fueled by segment growth in U.S. refreshment beverages and international markets that was weighed down by a continued decline in U.S. coffee sales.
Here’s the top-level view:
- On a constant currency basis, Q3 net sales grew 3.1%, driven by volume/mix growth of 3.5%, which was partially offset by a modestly unfavorable net price realization.
- GAAP operating income rose 0.7% to $902 million, despite an unfavorable year-over-year impact of items affecting comparability.
- GAAP net income increased 18.9% to $616 million, or $0.45 per diluted share.
“Three-quarters into the year, we remain on track to achieve our full-year outlook while notching significant progress against our multi-year strategic agenda. This morning’s exciting announcement of our acquisition of GHOST is yet another step, accelerating our portfolio evolution toward growth-accretive and consumer-preferred spaces,” said Tim Cofer, CEO, in a prepared statement.
Quarterly net sales for U.S. refreshment beverages were up 5.3% to $2.4 billion, fueled by volume/mix growth of 4% and higher net price realization of 1.3%. Per the release, the volume/mix performance reflected an incremental contribution from recent partnerships, as well as healthy base business trends.
According to KDP, brands like Canada Dry and Dr Pepper led the pack in terms of dollar sales growth, as did independent brands with which the company is aligned for distribution partnerships, such as Grupo PiSA (Electrolit).
The company’s volume mix momentum built as the company completed the distribution transition and significantly ramped up display activity for Electrolit, said Cofer. The long-term partnership, announced in 2023, fills a major hole in KDP’s portfolio that had been missing since The Coca-Cola Company acquired a controlling stake in BodyArmor in 2019.
Additionally, CSDs are outperforming KDP’s expectations, as the category offers accessible price points and is supported by “sophisticated” revenue growth management capabilities, making them well-positioned to value-seeking consumers.
Meanwhile, KDP’s U.S. dry coffee business depressed overall quarterly growth, with net sales falling 3.6% to $1 billion and K-Cup Pod shipments decreasing 0.4%, reflecting owned and licensed market share gains in a still muted at-home coffee category, per the release. The segment was negatively impacted by the hurricanes at the end of the quarter, which temporarily wiped out one of the company’s facilities.
Cofer told shareholders that KDP is “not happy with the outcome” and is working to rebuild the segment with a three-pronged strategy focused on affordability, premiumization and cold coffee. In Q3, KDP saw strength in its Green Mountain and Donut Shop brands, including particular traction and incrementality from its new line of refreshers. Additionally, the company began scaling its Black Rifle K-Cup Pods.
“We continue to see traction across our coffee segment, and as long as the at-home coffee category remains soft, we will continue to plan with restraint, all while positioning Keurig and our assortment of brands to win longer term,” said Cofer.
Elsewhere, international net sales for KDP grew 0.4% in Q3 to $0.5 billion, led by gains across multiple regions and categories in Mexico and its cold beverages portfolio in Canada, including Canada Dry and Dr Pepper.
Looking ahead, KDP reaffirmed its fiscal 2024 guidance for constant currency net sales growth in a mid-single-digit range and adjusted diluted EPS growth in a high-single-digit range.
In a separate announcement this morning, KDP agreed to acquire energy drink and sports nutrition business GHOST, bringing one of the category’s fastest-growing brands into its expanding energy portfolio. The company is paying $990 million for an initial 60% stake in GHOST, with the remaining 40% to be acquired in 2028.
KDP will continue shifting to high-growth areas, said Cofer, shaping its portfolio through both brand additions and targeted pruning.
“I think part of our approach here is really assessing our existing portfolio holistically, and now deciding which categories and brands we want to emphasize, and within the categories and brands, which SKUs, and when we do that, that does open the door to network optimization and DSD optimization,” he said.