Solid growth across multiple categories helped Keurig Dr Pepper grow net sales 4.3% during Q4 2019, as CEO Bob Gamgort noted during an earnings call yesterday that the company has “exceeded” its three-year post-merger financial targets.
“Two years ago, we laid out a bold vision and ambitious financial targets for our new company,” Gamgort said, according to a transcript of the call. “We saw significant opportunity to create an organization focused exclusively on beverages of all formats by being the first to combine hot and cold beverages at scale and by harnessing an unrivaled distribution system that can reach nearly all selling outlets using seven different routes to market ranging from direct store delivery to e-commerce.”
During the fourth quarter, volume increased 5.3%, while dollar consumption and market share increasing in CSDs, shelf-stable fruit drinks and shelf-stable apple sauce. Strong 4% net sales growth from KDP’s single-serve coffee pods (along with a 10% increase in shipment volume) helped drive strong top-line performance during Q4. Operating income increased 30% to $713 million.
Net sales rose 0.9% for the full fiscal year, while volume mix was favorable at 2.6% and adjusted operating income rose 10.3% to $289 million. The company also reduced its outstanding bank debt by approximately $1.3 billion in 2019.
In the packaged beverages segment, KDP reported net sales that were up 2.9% during Q4 2019, with a favorable 3.8% volume mix, driven by strong performances from evian, Bai, Core, Sunkist, Canada Dry and Dr Pepper. Net sales were down 2.4% for the full year, however, falling from $5.07 billion in 2018 to $4.95 billion last year. The segment’s overall performance was hit by a drop of 4.6% due to BodyArmor’s exit from the company’s Allied Brands portfolio. Operating income rose 13% to $783 million during the year.
In the fourth quarter, net sales for beverage concentrates increased 8% to $380 million, with a favorable volume mix of 4.2% and net price realization of 3.8%. Net sales were up 6.2% for the full year, with a favorable volume mix of 1.1. According to KDP, growth was driven by Dr Pepper, Canada Dry and A&W, partially offset by the performance of 7UP and Sunkist. Adjusted operating income rose 9.9% in the fourth quarter to $266 million.
The company is projecting net sales in 2020 to accelerate 3%-4% over its merger target of 2%-3%. Growth is expected to come from investments across the business, including the areas of “innovation, new partnerships, in-store execution, marketing and research and development.”
On the call, Gamgort revealed a few details about forthcoming KDP innovations across various categories and brands. During this quarter, Dr Pepper will launch a cream soda SKU in both regular and diet varieties. Meanwhile, Canada Dry will introduce Bold, which “dials up the flavor impact” of the brand’s original ginger ale. Bai is also set to release its first new flavor since being acquired by KDP in 2016: Bing Cherry, currently rolling out nationwide. For CSDs specifically, the company will debut 10-pack mini cans as well.
“We create value in cold beverages by renovating and innovating our brand portfolio to leverage our selling and distribution powerhouse and by partnering with emerging growth brands that offer us access to new segments and clear paths to ownership,” Gamgort said. “Productivity provides funding for the continued brand marketing and innovation.”
KDP’s CEO also highlighted brand partnerships as an important element of KDP’s growth strategy. Over the two years, the company has secured pacts with A-Shoc, the Lance Collins-helmed energy drink beginning its national rollout, and evian, which it distributes for Danone alongside its own CORE and Bai water brands. More recently, it acquired Chicago-based caffeinated sparkling water brand Limitless, which Gamgort said was being developed starting from a “small scale.”
“Not only do we plant to build out the distribution of Limitless as the year progresses, but we also have developed flavor innovations that we plan to introduce as well,” he said.
Gamgort also offered broad strokes on KDP’s manufacturing and distribution strategies. This year, the company will bring online two new production facilities. including a plant in Allentown, Pennsylvania, which will primarily produce non-carbonated drinks and which will “support the future growth of our brands,” he said. He added that further investments in DSD — including sales technology upgrades, training for field teams and the acquisition of “select independent distribution territories” — will be revealed in the coming weeks.
“All of this is to ensure our retail coverage is efficient and effective as possible, allowing us to drive maximum value from this important asset,” he said.