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Keurig Dr Pepper Reports Strong Q2 2022 Results and Raises Full-Year Net Sales Guidance

Net Sales Growth Accelerates, with all Business Segments posting Strong Results

Company Reaffirms Adjusted EPS Guidance for the Year

BURLINGTON, Mass. and FRISCO, Texas, July 28, 2022 /PRNewswire/ -- Keurig Dr Pepper Inc. (NASDAQ: KDP) today reported strong results for the second quarter ended June 30, 2022 and raised its full-year net sales guidance to low-double-digit growth, from the previous high-single-digit range. The Company also reaffirmed its guidance for full year Adjusted EPS growth in the mid-single-digit range.

 

Reported GAAP Basis

Adjusted Basis1

       
 

Q2

YTD 2022

Q2

YTD 2022

Net Sales

 % vs Prior Year

$3.55 bn

13.2%

$6.63 bn

9.8%

$3.55 bn

13.5%

$6.63 bn

9.9%

Diluted EPS

   % vs Prior Year

$0.15

(51.6)%

$0.56

3.7%

$0.39

2.6%

$0.72

1.4%

             

Commenting on the announcement, Chairman and CEO Bob Gamgort stated, "Our strong results reflect the flexibility and resilience of our business and the capability of our team to execute with excellence.  We successfully recovered from supply chain disruptions in coffee and non-carbonated beverages, implemented additional pricing to offset inflation and continued to accelerate growth across our broad portfolio, leading to another quarter of strong market share performance.  We remain confident that our "all-weather" business model will enable us to deliver in the ongoing volatile macro environment."

Incoming CEO Ozan Dokmecioglu added, "I am pleased with the continued strength of our business and remain confident in our ability to deliver our plans for the second half of this year.  I look forward to assuming the role of CEO and partnering with our talented team to drive value creation through the successful execution of our strategic plan."

Second Quarter Consolidated Results
Net sales for the second quarter of 2022 increased 13.2% to $3.55 billion, compared to $3.14 billion in the year-ago period and, on a constant currency basis, net sales increased 13.5%.  This strong performance reflected balanced growth in all segments, with both pricing and volumes up in the quarter.  Driving the consolidated net sales growth was favorable net price realization of 10.4% and higher volume/mix of 3.1%, reflecting modest volume elasticity impacts in the quarter.  

KDP in-market performance in the Liquid Refreshment Beverages (LRB) category remained exceptionally strong in the quarter, with retail dollar consumption2 advancing 9.9% and market share growing or holding across 92% of the Company's cold beverage portfolio, largely reflecting strength in CSDs3, premium unflavored water, coconut water, seltzers, teas, apple juice, vegetable juice and fruit drinks.  This performance was driven by Dr Pepper, Sunkist, Canada Dry, A&W and Squirt CSDs, CORE Hydration, Vita Coco, Polar seltzers, Snapple, Hawaiian Punch and Mott's.  

In coffee, retail dollar consumption of single-serve pods manufactured by KDP increased 3.8% in IRi tracked channels, led by higher pricing in both partner and KDP owned and licensed brands, with stronger growth registered in untracked channels.  Coffee Systems net sales in the quarter advanced approximately 9%, reflecting the early completion of the Company's coffee recovery program, which enabled KDP to begin to restore inventory levels to partners and customers.  KDP manufactured share in the quarter remained strong at 81.8%.

GAAP operating income in the second quarter of 2022 decreased 22.1% to $572 million, compared to $734 million in the year-ago period, primarily reflecting higher gross profit, driven by the strong and balanced net sales growth and productivity, more than offset by the unfavorable year-over-year impact of items affecting comparability and broad-based inflationary pressures and supply chain disruption.  

Adjusted operating income declined slightly in the quarter to $832 million, or 23.4% as a percent of net sales, reflecting Adjusted gross profit growth of 10%, offset by inflationary pressures in transportation, warehousing and retail labor, each of which increased on a rate basis in the quarter.

GAAP net income in the second quarter of 2022 decreased 51.3% to $218 million, or $0.15 per diluted share, compared to $448 million, or $0.31 per diluted share, in the year-ago period.  This performance reflected the decline in GAAP operating income and the unfavorable year-over-year impact of items affecting comparability, which more than offset the benefits of a lower effective tax rate and reduced interest expense.

Adjusted net income in the quarter advanced 3.3% to $554 million, driven by the benefits of the lower effective tax rate and reduced interest expense, partially offset by the slight decline in Adjusted operating income.  Adjusted diluted EPS in the quarter increased 2.6% to $0.39, compared to $0.38 in the year-ago period.

Operating cash flow in the second quarter of 2022 totaled $676 million and free cash flow totaled $599 million, primarily reflecting the increase in operating cash flow and slightly lower capital expenditures. 

During the quarter, the Company repurchased approximately 2.5 million KDP shares for a total cost of $87.6 million, at an average price per share of $34.51.  The company has $3.9 billion remaining under its share repurchase authorization expiring on December 31, 2025.

       

1 Adjusted financial metrics presented in this release are non-GAAP and on a constant currency basis. See reconciliations of GAAP results to Adjusted results on a constant currency basis in the accompanying tables.

2 Retail consumption data based on Keurig Dr Pepper's custom IRi category definitions for the 13-week period ending 6/26/2022.

3 CSDs refer to "Carbonated Soft Drinks".

Second Quarter Segment Results

Coffee Systems
Net sales for the second quarter of 2022 increased 8.5% to $1.20 billion, compared to $1.10 billion in the year-ago period and, on a constant currency basis, net sales increased 9.1%.  The constant currency net sales growth was driven by a 5.8% increase in net price realization and a 3.3% increase in volume/mix, reflecting the benefits of modest elasticities and the early completion of the Company's coffee recovery program, which enabled KDP to begin to rebuild retailer and partner inventories and restore customer service levels.

The higher net price realization of 5.8% in the quarter was driven by pod and brewer pricing actions taken late in 2021 and during the second quarter of 2022.  The volume/mix increase of 3.3% reflected pod volume growth of 4.7%, partially offset by a brewer volume decline of 4.2%, reflecting comparison to the strong 29% brewer growth in the year-ago period.  

GAAP operating income in the second quarter of 2022 decreased 11.3% to $315 million, compared to $355 million in the year-ago period, largely reflecting the lag in timing between higher net price realization and broad-based inflation, continued elevated costs associated with the coffee recovery program, a slight increase in marketing investment and the unfavorable year-over-year impact of items affecting comparability.  Partially offsetting these factors was the benefit of productivity.  Adjusted operating income decreased 8.4% to $369 million and, on a percent of net sales basis, totaled 30.9%.

Packaged Beverages
Net sales for the second quarter of 2022 increased 12.8% to $1.69 billion, compared to $1.50 billion in the year-ago period and, on a constant currency basis, net sales increased 12.9%.  This strong and balanced net sales performance was driven by higher net price realization of 11.0% and increased volume/mix of 1.9%, reflecting modest volume elasticities and continued strong in-market execution.  

The strong net sales performance reflected broad-based strength across the portfolio, led by CSDs, CORE Hydration, Snapple, Polar seltzers, Vita Coco, Mott's and Hawaiian Punch.

GAAP operating income in the second quarter of 2022 decreased 11.1% to $232 million, compared to $261 million in the year-ago period, primarily reflecting the lag in timing between higher net price realization and broad-based inflation and higher marketing investment, partially offset by productivity and the favorable year-over-year impact of items affecting comparability.  Adjusted operating income decreased 14.5% to $247 million and, on a percent of net sales basis, totaled 14.6%.          

Beverage Concentrates
Net sales for the second quarter of 2022 increased 22.7% to $460 million, compared to $375 million in the year-ago period and, on a constant currency basis, increased 22.9%.  This strong and balanced performance was driven by higher net price realization of 19.2%, including favorable timing related to trade accruals versus year-ago, and favorable volume/mix of 3.7%, reflecting modest volume elasticities.  

Total shipment volume versus year-ago increased 3.5% in the quarter, led by increases in Canada Dry and Dr Pepper.  Bottler case sales volume in the quarter were essentially even with the year-ago period.

GAAP operating income in the second quarter of 2022 increased 27.1% to $324 million, compared to $255 million in the year-ago period, primarily reflecting the strong net sales performance and lower marketing, partially offset by broad-based inflation and the slightly unfavorable year-over-year impact of items affecting comparability.  Adjusted operating income increased 27.6% to $327 million and, on a percent of net sales basis, totaled 71.1%.

Latin America Beverages
Net sales for the second quarter of 2022 increased 26.5% to $210 million, on both a reported and constant currency basis, compared to net sales of $166 million in the year-ago period.  This strong and balanced performance was driven by higher net price realization of 14.5% and increased volume/mix of 12.0%, reflecting modest volume elasticities and strong in-market execution.  Leading the net sales growth were Peñafiel, Clamato, Squirt and Mott's.  

GAAP operating income in the second quarter of 2022 increased 38.9% to $50 million, compared to $36 million in the year-ago period, reflecting the strong growth in net sales, productivity and a slightly favorable year-over-year impact of items affecting comparability which, taken together, more than offset broad-based inflationary pressures, particularly elevated logistics costs, and increased marketing investment.  Adjusted operating income increased 35.1% to $50 million and, on a percent of net sales basis, totaled 23.8%.

KDP Acquisition
During the quarter, KDP announced an agreement to acquire the global rights to Atypique, a highly unique non-alcohol, ready-to-drink cocktail brand in the emerging and fast-growing non-alcohol cocktail segment in Canada.  This new platform complements KDP's strong and successful ready-to-drink alcohol portfolio in Canada and provides the Company with new growth opportunities in an exciting, new category. 

KDP 2022 Guidance
KDP raised its guidance for 2022 constant currency net sales growth to the low-double-digit range and reaffirmed its guidance for Adjusted EPS growth in the mid-single-digit range.  The Company continues to expect Adjusted EPS growth in the second half of the year to reach the high-single-digit range, driven largely by the fourth quarter.   

Investor Contacts:
Steve Alexander
T: 972-673-6769 / steve.alexander@kdrp.com

Chethan Mallela
chethan.mallela@kdrp.com

Media Contact:
Katie Gilroy
T: 781-418-3345 / katie.gilroy@kdrp.com

About Keurig Dr Pepper
Keurig Dr Pepper (KDP) is a leading beverage company in North America, with annual revenue approaching $13 billion and approximately 27,000 employees. KDP holds leadership positions in soft drinks, specialty coffee and tea, water, juice and juice drinks and mixers, and markets the #1 single serve coffee brewing system in the U.S. and Canada. The Company's portfolio of more than 125 owned, licensed and partner brands is designed to satisfy virtually any consumer need, any time, and includes Keurig®, Dr Pepper®, Green Mountain Coffee Roasters®, Canada Dry®, Snapple®, Bai®, Mott's®, CORE® and The Original Donut Shop®. Through its powerful sales and distribution network, KDP can deliver its portfolio of hot and cold beverages to nearly every point of purchase for consumers. The Company is committed to sourcing, producing and distributing its beverages responsibly through its Drink Well. Do Good. corporate responsibility platform, including efforts around circular packaging, efficient natural resource use and supply chain sustainability. For more information, visit www.keurigdrpepper.com.

FORWARD LOOKING STATEMENTS
Certain statements contained herein are "forward-looking statements" within the meaning of applicable securities laws and regulations. These forward-looking statements can generally be identified by the use of words such as "outlook," "guidance," "anticipate," "expect," "believe," "could," "estimate," "feel," "forecast," "intend," "may," "plan," "potential," "project," "should," "target," "will," "would," and similar words. Forward-looking statements by their nature address matters that are, to different degrees, uncertain. These statements are based on the current expectations of our management, are not predictions of actual performance, and actual results may differ materially.

Forward-looking statements are subject to a number of risks and uncertainties, including the factors disclosed in our Annual Report on Form 10-K and subsequent filings with the SEC. We are under no obligation to update, modify or withdraw any forward-looking statements, except as required by applicable law.

NON-GAAP FINANCIAL MEASURES
This release includes certain non-GAAP financial measures including Adjusted operating income, Adjusted net income, Adjusted diluted EPS, free cash flow and financial measures presented on a constant currency basis, which differ from results using U.S. Generally Accepted Accounting Principles (GAAP). These non-GAAP financial measures should be considered as supplements to the GAAP reported measures, should not be considered replacements for, or superior to, the GAAP measures and may not be comparable to similarly named measures used by other companies. Non-GAAP financial measures typically exclude certain charges, including one-time costs that are not expected to occur routinely in future periods. The Company uses non-GAAP financial measures internally to focus management on performance excluding these special charges to gauge our business operating performance. Management believes this information is helpful to investors because it increases transparency and assists investors in understanding the underlying performance of the Company and in the analysis of ongoing operating trends. Additionally, management believes that non-GAAP financial measures are frequently used by analysts and investors in their evaluation of companies, and their continued inclusion provides consistency in financial reporting and enables analysts and investors to perform meaningful comparisons of past, present and future operating results. The most directly comparable GAAP financial measures and reconciliations to non-GAAP financial measures are set forth in the appendix to this release and included in the Company's filings with the SEC.

To the extent that the Company provides guidance, it does so only on a non-GAAP basis and does not provide reconciliations of such forward-looking non-GAAP measures to GAAP due to the inability to predict the amount and timing of impacts outside of the Company's control on certain items, such as non-cash gains or losses resulting from mark-to-market adjustments of derivative instruments, among others.

 

KEURIG DR PEPPER INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)

 
 

Second Quarter

 

First Six Months

(in millions, except per share data)

2022

 

2021

 

2022

 

2021

Net sales

$          3,554

 

$          3,140

 

$          6,632

 

$          6,042

Cost of sales

1,778

 

1,370

 

3,206

 

2,672

Gross profit

1,776

 

1,770

 

3,426

 

3,370

Selling, general and administrative expenses

1,204

 

1,039

 

2,222

 

2,000

Gain on litigation settlement

 

 

(299)

 

Other operating income, net

 

(3)

 

(35)

 

(4)

Income from operations

572

 

734

 

1,538

 

1,374

Interest expense

175

 

125

 

363

 

265

Loss on early extinguishment of debt

169

 

 

217

 

105

Gain on sale of equity method investment

 

 

(50)

 

Impairment of investments and note receivable

6

 

 

12

 

Other expense (income), net

9

 

(4)

 

18

 

(7)

Income before provision for income taxes

213

 

613

 

978

 

1,011

(Benefit) provision for income taxes

(5)

 

165

 

175

 

238

Net income including non-controlling interest

218

 

448

 

803

 

773

Less: Net loss attributable to non-controlling interest

 

 

 

Net income attributable to KDP

$            218

 

$            448

 

$            803

 

$            773

               

Earnings per common share:

             

Basic

$           0.15

 

$           0.32

 

$           0.57

 

$           0.55

Diluted

0.15

 

0.31

 

0.56

 

0.54

Weighted average common shares outstanding:

             

Basic

1,417.5

 

1,417.4

 

1,417.8

 

1,413.4

Diluted

1,428.6

 

1,428.1

 

1,429.2

 

1,426.9

 

KEURIG DR PEPPER INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

 
 

June 30,

 

December 31,

(in millions, except share and per share data)

2022

 

2021

Assets

Current assets:

     

Cash and cash equivalents

$                552

 

$                567

Restricted cash and cash equivalents

2

 

1

Trade accounts receivable, net

1,326

 

1,148

Inventories

1,239

 

894

Prepaid expenses and other current assets

652

 

447

Total current assets

3,771

 

3,057

Property, plant and equipment, net

2,446

 

2,494

Investments in unconsolidated affiliates

78

 

30

Goodwill

20,163

 

20,182

Other intangible assets, net

23,774

 

23,856

Other non-current assets

1,159

 

937

Deferred tax assets

37

 

42

Total assets

$           51,428

 

$           50,598

Liabilities and Stockholders' Equity

Current liabilities:

     

Accounts payable

$             4,950

 

$             4,316

Accrued expenses

1,106

 

1,110

Structured payables

145

 

142

Short-term borrowings and current portion of long-term obligations

 

304

Other current liabilities

560

 

613

Total current liabilities

6,761

 

6,485

Long-term obligations

11,555

 

11,578

Deferred tax liabilities

6,007

 

5,986

Other non-current liabilities

1,714

 

1,577

Total liabilities

26,037

 

25,626

Commitments and contingencies

     

Stockholders' equity:

     

Preferred stock, $0.01 par value, 15,000,000 shares authorized, no shares
issued

 

Common stock, $0.01 par value, 2,000,000,000 shares authorized,
1,416,072,925 and 1,418,119,197 shares issued and outstanding as of June
30, 2022 and December 31, 2021, respectively

14

 

14

Additional paid-in capital

21,701

 

21,785

Retained earnings

3,471

 

3,199

Accumulated other comprehensive income (loss)

205

 

(26)

Total stockholders' equity

25,391

 

24,972

Non-controlling interest

 

Total equity

25,391

 

24,972

Total liabilities and stockholders' equity

$           51,428

 

$           50,598

 

KEURIG DR PEPPER INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 
 

First Six Months

(in millions)

2022

 

2021

Operating activities:

     

Net income attributable to KDP

$                  803

 

$                  773

Adjustments to reconcile net income to net cash provided by operating activities:

     

Depreciation expense

205

 

206

Amortization of intangibles

67

 

67

Other amortization expense

86

 

80

Provision for sales returns

25

 

32

Deferred income taxes

(52)

 

(12)

Employee stock-based compensation expense

12

 

48

Loss on early extinguishment of debt

217

 

105

Gain on sale of equity method investment

(50)

 

Gain on disposal of property, plant and equipment

(33)

 

(4)

Unrealized loss (gain) on foreign currency

2

 

(15)

Unrealized loss (gain) on derivatives

187

 

(72)

Settlements of interest rate contracts

125

 

Equity in losses of unconsolidated affiliates

5

 

1

Impairment on investments and note receivable of unconsolidated affiliates

12

 

Other, net

22

 

3

Changes in assets and liabilities:

     

Trade accounts receivable

(206)

 

(41)

Inventories

(346)

 

(131)

Income taxes receivable and payables, net

(245)

 

(65)

Other current and non-current assets

(340)

 

(131)

Accounts payable and accrued expenses

680

 

293

Other current and non-current liabilities

163

 

2

Net change in operating assets and liabilities

(294)

 

(73)

Net cash provided by operating activities

1,339

 

1,139

Investing activities:

     

Proceeds from sale of investment in unconsolidated affiliates

50

 

Purchases of property, plant and equipment

(186)

 

(204)

Proceeds from sales of property, plant and equipment

78

 

15

Purchases of intangibles

(10)

 

(12)

Issuance of related party note receivable

(18)

 

(2)

Investments in unconsolidated affiliates

(48)

 

Other, net

3

 

3

Net cash used in investing activities

(131)

 

(200)

Financing activities:

     

Proceeds from issuance of Notes

3,000

 

2,150

Repayments of Notes

(3,365)

 

(3,595)

Proceeds from issuance of commercial paper

500

 

2,776

Repayments of commercial paper

(649)

 

(1,453)

Repayments of 2019 KDP Term Loan

 

(425)

Proceeds from structured payables

79

 

73

Repayments of structured payables

(75)

 

(81)

Cash dividends paid

(531)

 

(424)

Repurchases of common stock

(88)

 

Proceeds from issuance of common stock

 

140

Tax withholdings related to net share settlements

(8)

 

(125)

Payments on finance leases

(41)

 

(27)

Other, net

(43)

 

(37)

Net cash used in financing activities

(1,221)

 

(1,028)

Cash, cash equivalents, and restricted cash and cash equivalents:

     

Net change from operating, investing and financing activities

(13)

 

(89)

Effect of exchange rate changes

(1)

 

4

Beginning balance

568

 

255

Ending balance

$                  554

 

$                  170

 

KEURIG DR PEPPER INC.

RECONCILIATION OF SEGMENT INFORMATION

(UNAUDITED)

 
 

Second Quarter

 

First Six Months

(in millions)

2022

 

2021

 

2022

 

2021

Net Sales

             

Coffee Systems

$            1,195

 

$            1,101

 

$            2,288

 

$            2,243

Packaged Beverages

1,689

 

1,498

 

3,169

 

2,805

Beverage Concentrates

460

 

375

 

819

 

703

Latin America Beverages

210

 

166

 

356

 

291

Total net sales

$            3,554

 

$            3,140

 

$            6,632

 

$            6,042

               

Income from Operations

             

Coffee Systems

$              315

 

$              355

 

$              583

 

$              723

Packaged Beverages

232

 

261

 

718

 

440

Beverage Concentrates

324

 

255

 

568

 

493

Latin America Beverages

50

 

36

 

75

 

58

Unallocated corporate costs

(349)

 

(173)

 

(406)

 

(340)

Total income from operations

$              572

 

$              734

 

$            1,538

 

$            1,374

 

KEURIG DR PEPPER INC.
RECONCILIATION OF CERTAIN NON-GAAP INFORMATION
(UNAUDITED)

The company reports its financial results in accordance with U.S. GAAP. However, management believes that certain non-GAAP financial measures that reflect the way management evaluates the business may provide investors with additional information regarding the company's results, trends and ongoing performance on a comparable basis.

Specifically, investors should consider the following with respect to our financial results:

Adjusted: Defined as certain financial statement captions and metrics adjusted for certain items affecting comparability.

Items affecting comparability: Defined as certain items that are excluded for comparison to prior year periods, adjusted for the tax impact as applicable. Tax impact is determined based upon an approximate rate for each item. For each period, management adjusts for (i) the unrealized mark-to-market impact of derivative instruments not designated as hedges in accordance with U.S. GAAP that do not have an offsetting risk reflected within the financial results, as well as the unrealized mark-to-market impact of our Vita Coco investment; (ii) the amortization associated with definite-lived intangible assets; (iii) the amortization of the deferred financing costs associated with the DPS Merger; (iv) the amortization of the fair value adjustment of the senior unsecured notes obtained as a result of the DPS Merger; (v) stock compensation expense and the associated windfall tax benefit attributable to the matching awards made to employees who made an initial investment in KDP; (vi) non-cash changes in deferred tax liabilities related to goodwill and other intangible assets as a result of tax rate or apportionment changes; and (vii) other certain items that are excluded for comparison purposes to prior year periods.

For the second quarter of 2022, the other certain items excluded for comparison purposes include (i) restructuring and integration expenses related to significant business combinations; (ii) productivity expenses; (iii) costs related to significant non-routine legal matters; (iv) the loss on early extinguishment of debt related to the redemption of debt; (v) incremental costs to our operations related to risks associated with the COVID-19 pandemic; (vi) the gain on the sale of our investment in BodyArmor; (vii) the gain on the settlement of our prior litigation with BodyArmor, excluding recoveries of previously incurred litigation expenses which were included in our adjusted results; (viii) losses recognized with respect to our equity method investment in Bedford as a result of funding our share of their wind-down costs and (ix) foundational projects, which are transformative and non-recurring in nature.

For the second quarter of 2021, the other certain items excluded for comparison purposes include (i) restructuring and integration expenses related to significant business combinations; (ii) productivity expenses; (iii) costs related to significant non-routine legal matters; (iv) the loss on early extinguishment of debt related to the redemption of debt; (v) incremental costs to our operations related to risks associated with the COVID-19 pandemic; and (vi) gains from insurance recoveries related to the February 2019 organized malware attack on our business operation networks in the Coffee Systems segment.

Costs related to significant non-routine legal matters relate to the antitrust litigation. Incremental costs to our operations related to risks associated with the COVID-19 pandemic include incremental expenses incurred to either maintain the health and safety of our front-line employees or temporarily increase compensation to such employees to ensure essential operations continue during the pandemic.

We believe removing these costs reflects how management views our business results on a consistent basis.

Constant currency adjusted: Defined as certain financial statement captions and metrics adjusted for certain items affecting comparability, calculated on a constant currency basis by converting our current period local currency financial results using the prior period foreign currency exchange rates.

For the second quarter and first six months of 2022 and 2021, the supplemental financial data set forth below includes reconciliations of adjusted and constant currency adjusted financial measures to the applicable financial measure presented in the unaudited condensed consolidated financial statements for the same period.

 

KEURIG DR PEPPER INC.

RECONCILIATION OF CERTAIN NON-GAAP INFORMATION

(UNAUDITED)

 
 

Cost of sales

 

Gross profit

 

Gross margin

 

Selling, general and administrative expenses

 

Gain on litigation settlement

 

Other operating income, net

 

Income from operations

 

Operating margin

For the Second Quarter of 2022

                             

Reported

$         1,778

 

$         1,776

 

50.0 %

 

$                      1,204

 

$              —

 

$                  —

 

$            572

 

16.1 %

Items Affecting Comparability:

                             

Mark to market

(138)

 

138

     

 

 

 

138

   

Amortization of intangibles

 

     

(33)

 

 

 

33

   

Stock compensation

 

     

(5)

 

 

 

5

   

Restructuring and integration costs

 

     

(23)

 

 

1

 

22

   

Productivity

(28)

 

28

     

(24)

 

 

 

52

   

Non-routine legal matters

 

     

(3)

 

 

 

3

   

COVID-19

(3)

 

3

     

(1)

 

 

 

4

   

Transaction costs

 

     

(1)

 

 

 

1

   

Foundational projects

 

     

(2)

 

 

 

2

   

Adjusted

$         1,609

 

$         1,945

 

54.7 %

 

$                      1,112

 

$              —

 

$                    1

 

$            832

 

23.4 %

Impact of foreign currency

       

— %

                 

— %

Constant currency adjusted

       

54.7 %

                 

23.4 %

                               

For the Second Quarter of 2021

                             

Reported

$         1,370

 

$         1,770

 

56.4 %

 

$                      1,039

 

$              —

 

$                   (3)

 

$            734

 

23.4 %

Items Affecting Comparability:

                             

Mark to market

17

 

(17)

     

21

 

 

 

(38)

   

Amortization of intangibles

 

     

(34)

 

 

 

34

   

Stock compensation

 

     

(5)

 

 

 

5

   

Restructuring and integration costs

 

     

(49)

 

 

 

49

   

Productivity

(14)

 

14

     

(24)

 

 

 

38

   

Non-routine legal matters

 

     

(6)

 

 

 

6

   

COVID-19

(7)

 

7

     

(4)

 

 

 

11

   

Adjusted

$         1,366

 

$         1,774

 

56.5 %

 

$                         938

 

$              —

 

$                   (3)

 

$            839

 

26.7 %

 

KEURIG DR PEPPER INC.

RECONCILIATION OF CERTAIN NON-GAAP INFORMATION

(UNAUDITED)

 
 

Interest expense

 

Loss on early extinguishment of debt

 

Impairment of investments and note receivable

 

Other expense (income), net

 

Income before provision for income taxes

 

(Benefit) provision for income taxes

 

Effective tax rate

 

Net income attributable to KDP

 

Diluted earnings per share

For the Second Quarter of 2022

                                 

Reported

$   175

 

$                 169

 

$                       6

 

$                       9

 

$               213

 

$                    (5)

 

(2.3) %

 

$        218

 

$    0.15

Items Affecting Comparability:

                                 

Mark to market

(63)

 

 

 

1

 

200

 

49

     

151

 

0.11

Amortization of intangibles

 

 

 

 

33

 

8

     

25

 

0.02

Amortization of deferred financing costs

(1)

 

 

 

 

1

 

     

1

 

Amortization of fair value debt adjustment

(4)

 

 

 

 

4

 

1

     

3

 

Stock compensation

 

 

 

 

5

 

(2)

     

7

 

Restructuring and integration costs

 

 

 

 

22

 

5

     

17

 

0.01

Productivity

 

 

 

 

52

 

10

     

42

 

0.03

Impairment of investment

 

 

(6)

 

 

6

 

     

6

 

Loss on early extinguishment of debt

 

(169)

 

 

 

169

 

43

     

126

 

0.09

Non-routine legal matters

 

 

 

 

3

 

1

     

2

 

COVID-19

 

 

 

 

4

 

1

     

3

 

Transaction costs

 

 

 

 

1

 

     

1

 

Foundational projects

 

 

 

 

2

 

     

2

 

Change in deferred tax liabilities related to goodwill
and other intangible assets

 

 

 

 

 

50

     

(50)

 

(0.03)

Adjusted

$   107

 

$                   —

 

$                     —

 

$                     10

 

$               715

 

$                  161

 

22.5 %

 

$        554

 

$    0.39

                         

0.1 %

       
                         

22.6 %

       
                                   

For the Second Quarter of 2021

                                 

Reported

$   125

 

$                   —

 

$                     —

 

$                     (4)

 

$               613

 

$                  165

 

26.9 %

 

$        448

 

$    0.31

Items Affecting Comparability:

                                 

Mark to market

(1)

 

 

 

 

(37)

 

(9)

     

(28)

 

(0.02)

Amortization of intangibles

 

 

 

 

34

 

9

     

25

 

0.02

Amortization of deferred financing costs

(1)

 

 

 

 

1

 

     

1

 

Amortization of fair value of debt adjustment

(4)

 

 

 

 

4

 

     

4

 

Stock compensation

 

 

 

 

5

 

2

     

3

 

Restructuring and integration costs

 

 

 

 

49

 

11

     

38

 

0.03

Productivity

 

 

 

 

38

 

10

     

28

 

0.02

Non-routine legal matters

 

 

 

 

6

 

1

     

5

 

COVID-19

 

 

 

 

11

 

3

     

8

 

0.01

Change in deferred tax liabilities related to goodwill and other intangible assets

 

 

 

 

 

(6)

     

6

 

Adjusted

$   119

 

$                   —

 

$                     —

 

$                     (4)

 

$               724

 

$                  186

 

25.7 %

 

$        538

 

$    0.38

                                   

Change - adjusted

(10.1) %

                         

3.0 %

 

2.6 %

Impact of foreign currency

— %

                         

0.3 %

 

— %

Change - constant currency adjusted

(10.1) %

                         

3.3 %

 

2.6 %

 

KEURIG DR PEPPER INC.

RECONCILIATION OF CERTAIN NON-GAAP INFORMATION

(UNAUDITED)

 
 

Cost of sales

 

Gross profit

 

Gross margin

 

Selling, general and administrative expenses

 

Gain on litigation settlement

 

Other operating income, net

 

Income from operations

 

Operating margin

For the First Six Months of 2022

                             

Reported

$            3,206

 

$            3,426

 

51.7 %

 

$                    2,222

 

$             (299)

 

$                    (35)

 

$         1,538

 

23.2 %

Items Affecting Comparability:

                             

Mark to market

(79)

 

79

     

26

 

 

 

53

   

Amortization of intangibles

 

     

(67)

 

 

 

67

   

Stock compensation

 

     

2

 

 

 

(2)

   

Restructuring and integration costs

 

     

(56)

 

 

(2)

 

58

   

Productivity

(56)

 

56

     

(46)

 

 

 

102

   

Non-routine legal matters

 

     

(7)

 

 

 

7

   

COVID-19

(7)

 

7

     

(2)

 

 

 

9

   

Gain on litigation

 

     

 

271

 

 

(271)

   

Transaction costs

 

     

(1)

 

 

 

1

   

Foundational projects

 

     

(2)

 

 

 

2

   

Adjusted

$            3,064

 

$            3,568

 

53.8 %

 

$                    2,069

 

$               (28)

 

$                    (37)

 

$         1,564

 

23.6 %

Impact of foreign currency

       

(1.1) %

                 

0.2 %

Constant currency adjusted

       

52.7 %

                 

23.8 %

                               

For the First Six Months of 2021

                             

Reported

$            2,672

 

$            3,370

 

55.8 %

 

$                    2,000

 

$                —

 

$                     (4)

 

$         1,374

 

22.7 %

Items Affecting Comparability:

                             

Mark to market

26

 

(26)

     

50

 

 

 

(76)

   

Amortization of intangibles

 

     

(67)

 

 

 

67

   

Stock compensation

 

     

(11)

 

 

 

11

   

Restructuring and integration costs

 

     

(92)

 

 

 

92

   

Productivity

(22)

 

22

     

(49)

 

 

 

71

   

Non-routine legal matters

 

     

(16)

 

 

 

16

   

COVID-19

(19)

 

19

     

(8)

 

 

 

27

   

Malware incident

 

     

2

 

 

 

(2)

   

Adjusted

$            2,657

 

$            3,385

 

56.0 %

 

$                    1,809

 

$                —

 

$                     (4)

 

$         1,580

 

26.2 %

Refer to page A-12 for reconciliations of reported net sales to constant currency net sales and adjusted income from operations to constant currency adjusted income from operations.

 

KEURIG DR PEPPER INC.

RECONCILIATION OF CERTAIN NON-GAAP INFORMATION

(UNAUDITED)

 
 

Interest expense

 

Loss on early extinguishment of debt

 

Gain on sale of equity method investment

 

Impairment of investments and note receivable

 

Other expense (income), net

 

Income before provision for income taxes

 

(Benefit) provision for income taxes

 

Effective tax rate

 

Net income attributable to KDP

 

Diluted earnings per share

For the First Six Months of 2022

                                     

Reported

$     363

 

$                 217

 

$                   (50)

 

$                     12

 

$              18

 

$               978

 

$              175

 

17.9 %

 

$        803

 

$    0.56

Items Affecting Comparability:

                                     

Mark to market

(134)

 

 

 

 

(2)

 

189

 

47

     

142

 

0.10

Amortization of intangibles

 

 

 

 

 

67

 

17

     

50

 

0.04

Amortization of deferred financing costs

(2)

 

 

 

 

 

2

 

     

2

 

Amortization of fair value debt adjustment

(9)

 

 

 

 

 

9

 

2

     

7

 

Stock compensation

 

 

 

 

 

(2)

 

(3)

     

1

 

Restructuring and integration costs

 

 

 

 

 

58

 

14

     

44

 

0.03

Productivity

 

 

 

 

 

102

 

22

     

80

 

0.06

Impairment of investment

 

 

 

(12)

     

12

 

     

12

 

Loss on early extinguishment of debt

 

(217)

 

 

 

 

217

 

54

     

163

 

0.12

Non-routine legal matters

 

 

 

 

 

7

 

2

     

5

 

COVID-19

 

 

 

 

 

9

 

2

     

7

 

Gain on litigation

 

 

 

 

 

(271)

 

(68)

     

(203)

 

(0.14)

Gain on sale of equity-method investment

 

 

50

 

 

 

(50)

 

(12)

     

(38)

 

(0.03)

Transaction costs

 

 

 

 

 

1

 

     

1

 

Foundational projects

 

 

 

 

 

2

 

     

2

 

Change in deferred tax liabilities related
to goodwill and other intangible assets

 

 

 

 

 

 

50

     

(50)

 

(0.03)

Adjusted

$     218

 

$                   —

 

$                   —

 

$                     —

 

$              16

 

$            1,330

 

$              302

 

22.7 %

 

$     1,028

 

$    0.72

Impact of foreign currency

                           

— %

       

Constant currency adjusted

                           

22.7 %

       
                                       

 

KEURIG DR PEPPER INC.

RECONCILIATION OF CERTAIN NON-GAAP INFORMATION

(UNAUDITED)

 
 

Interest expense

 

Loss on early extinguishment of debt

 

Gain on sale of equity method investment

 

Impairment of investments and note receivable

 

Other expense (income), net

 

Income before provision for income taxes

 

(Benefit) provision for income taxes

 

Effective tax rate

 

Net income attributable to KDP

 

Diluted earnings per share

For the First Six Months of 2021

                                     

Reported

$     265

 

$                 105

 

$                   —

 

$                     —

 

$               (7)

 

$            1,011

 

$              238

 

23.5 %

 

$        773

 

$    0.54

Items Affecting Comparability:

                                     

Mark to market

7

 

 

 

 

 

(83)

 

(20)

     

(63)

 

(0.04)

Amortization of intangibles

 

 

 

 

 

67

 

17

     

50

 

0.04

Amortization of deferred financing costs

(4)

 

 

 

 

 

4

 

     

4

 

Amortization of fair value of debt adjustment

(10)

 

 

 

 

 

10

 

2

     

8

 

Stock compensation

 

 

 

 

 

11

 

14

     

(3)

 

Restructuring and integration costs

 

 

 

 

 

92

 

22

     

70

 

0.05

Productivity

 

 

 

 

 

71

 

18

     

53

 

0.04

Loss on early extinguishment of debt

 

(105)

 

 

 

 

105

 

25

     

80

 

0.06

Non-routine legal matters

 

 

 

 

 

16

 

3

     

13

 

0.01

COVID-19

 

 

 

 

 

27

 

7

     

20

 

0.01

Malware incident

 

 

 

 

 

(2)

 

     

(2)

 

Change in deferred tax liabilities related to
goodwill and other intangible assets

 

 

 

 

 

 

(6)

     

6

 

Adjusted

$     258

 

$                   —

 

$                   —

 

$                     —

 

$               (7)

 

$            1,329

 

$              320

 

24.1 %

 

$     1,009

 

$    0.71

                                       

Change - adjusted

(15.5) %

                             

1.9 %

 

1.4 %

Impact of foreign currency

— %

                             

0.3 %

 

— %

Change - Constant currency adjusted

(15.5) %

                             

2.2 %

 

1.4 %

  

KEURIG DR PEPPER INC.

RECONCILIATION OF CERTAIN NON-GAAP INFORMATION

(UNAUDITED)

 

(in millions)

 

Reported

 

Items Affecting
Comparability

 

Adjusted

For the second quarter of 2022:

           

Income from operations

           

Coffee Systems

 

$                            315

 

$                              54

 

$                            369

Packaged Beverages

 

232

 

15

 

247

Beverage Concentrates

 

324

 

3

 

327

Latin America Beverages

 

50

 

 

50

Unallocated corporate costs

 

(349)

 

188

 

(161)

Total income from operations

 

$                            572

 

$                            260

 

$                            832

             

For the second quarter of 2021:

           

Income from operations

           

Coffee Systems

 

$                            355

 

$                              49

 

$                            404

Packaged Beverages

 

261

 

28

 

289

Beverage Concentrates

 

255

 

2

 

257

Latin America Beverages

 

36

 

1

 

37

Unallocated corporate costs

 

(173)

 

25

 

(148)

Total income from operations

 

$                            734

 

$                            105

 

$                            839

   

Reported

 

Impact of Foreign Currency

 

Constant Currency

For the second quarter of 2022:

           

Net sales

           

Coffee Systems

 

8.5 %

 

0.6 %

 

9.1 %

Packaged Beverages

 

12.8 %

 

0.1

 

12.9

Beverage Concentrates

 

22.7 %

 

0.2

 

22.9

Latin America Beverages

 

26.5 %

 

 

26.5

Total net sales

 

13.2 %

 

0.3

 

13.5

   

Adjusted

 

Impact of Foreign Currency

 

Constant Currency Adjusted

For the second quarter of 2022:

           

Income from operations

           

Coffee Systems

 

(8.7) %

 

0.3 %

 

(8.4) %

Packaged Beverages

 

(14.5) %

 

 

(14.5)

Beverage Concentrates

 

27.2 %

 

0.4

 

27.6

Latin America Beverages

 

35.1 %

 

 

35.1

Total income from operations

 

(0.8) %

 

0.2

 

(0.6)

   

Reported

 

Items Affecting Comparability

 

Adjusted

 

Impact of Foreign Currency

 

Constant Currency Adjusted

For the second quarter of 2022:

                   

Operating margin

                   

Coffee Systems

 

26.4 %

 

4.5 %

 

30.9 %

 

(0.1) %

 

30.8 %

Packaged Beverages

 

13.7

 

0.9

 

14.6

 

 

14.6

Beverage Concentrates

 

70.4

 

0.7

 

71.1

 

 

71.1

Latin America Beverages

 

23.8

 

 

23.8

 

 

23.8

Total operating margin

 

16.1

 

7.3

 

23.4

 

 

23.4

 

KEURIG DR PEPPER INC.

RECONCILIATION OF CERTAIN FINANCIAL MEASURES BY SEGMENT TO CONSTANT CURRENCY ADJUSTED FINANCIAL MEASURES BY SEGMENT

(UNAUDITED)

 

 

(in millions)

 

Reported

 

Items Affecting
Comparability

 

Adjusted

For the first six months of 2022:

           

Income from operations

           

Coffee Systems

 

$                            583

 

$                            105

 

$                            688

Packaged Beverages

 

718

 

(236)

 

482

Beverage Concentrates

 

568

 

6

 

574

Latin America Beverages

 

75

 

1

 

76

Unallocated corporate costs

 

(406)

 

150

 

(256)

Total income from operations

 

$                         1,538

 

$                              26

 

$                         1,564

             

For the first six months of 2021:

           

Income from operations

           

Coffee Systems

 

$                            723

 

$                            102

 

$                            825

Packaged Beverages

 

440

 

50

 

490

Beverage Concentrates

 

493

 

3

 

496

Latin America Beverages

 

58

 

2

 

60

Unallocated corporate costs

 

(340)

 

49

 

(291)

Total income from operations

 

$                         1,374

 

$                            206

 

$                         1,580

   

Reported

 

Impact of Foreign
Currency

 

Constant Currency

For the first six months of 2022:

           

Net sales

           

Coffee Systems

 

2.0 %

 

0.3 %

 

2.3 %

Packaged Beverages

 

13.0

 

 

13.0

Beverage Concentrates

 

16.5

 

0.1

 

16.6

Latin America Beverages

 

22.3

 

0.4

 

22.7

Total net sales

 

9.8

 

0.1

 

9.9

   

Adjusted

 

Impact of Foreign
Currency

 

Constant Currency
Adjusted

For the first six months of 2022:

           

Income from operations

           

Coffee Systems

 

(16.6) %

 

0.1 %

 

(16.5) %

Packaged Beverages

 

(1.6)

 

 

(1.6)

Beverage Concentrates

 

15.7

 

0.2

 

15.9

Latin America Beverages

 

26.7

 

 

26.7

Total income from operations

 

(1.0)

 

0.1

 

(0.9)

   

Reported

 

Items Affecting Comparability

 

Adjusted

 

Impact of Foreign Currency

 

Constant Currency Adjusted

For the first six months of 2022:

                   

Operating margin

                   

Coffee Systems

 

25.5 %

 

4.6 %

 

30.1 %

 

(0.1) %

 

30.0 %

Packaged Beverages

 

22.7

 

(7.5)

 

15.2

 

 

15.2

Beverage Concentrates

 

69.4

 

0.7

 

70.1

 

 

70.1

Latin America Beverages

 

21.1

 

0.2

 

21.3

 

 

21.3

Total operating margin

 

23.2

 

0.4

 

23.6

 

 

23.6

 

KEURIG DR PEPPER INC.

RECONCILIATION OF ADJUSTED EBITDA AND MANAGEMENT LEVERAGE RATIO

(UNAUDITED)

 

 

(in millions, except for ratio)

 

ADJUSTED EBITDA RECONCILIATION - LAST TWELVE MONTHS

 

Net income attributable to KDP

$                  2,176

Interest expense

598

Provision for income taxes

590

Other expense (income), net

23

Depreciation expense

409

Other amortization

170

Amortization of intangibles

134

EBITDA

$                  4,100

Items affecting comparability:

 

Gain on sale of equity-method investment

$                   (574)

Gain on litigation settlement

(271)

Loss on early extinguishment of debt

217

Impairment of investments and note receivable

29

Restructuring and integration expenses

165

Productivity

167

Non-routine legal matters

21

Stock compensation

5

COVID-19

19

Transaction costs

3

Foundational projects

2

Mark to market

72

Adjusted EBITDA

$                  3,955

   
 

June 30,

 

2022

Principal amounts of senior unsecured notes

$                11,743

Less: Cash and cash equivalents

552

Total principal amounts less cash and cash equivalents

$                11,191

   

June 30, 2022 Management Leverage Ratio

2.8

 

KEURIG DR PEPPER INC.

RECONCILIATION OF ADJUSTED EBITDA - LAST TWELVE MONTHS

(UNAUDITED)

 
 

(in millions)

THIRD QUARTER OF 2021

 

FOURTH QUARTER OF 2021

 

FIRST SIX MONTHS OF 2022

 

LAST TWELVE MONTHS

Net income attributable to KDP

$                 530

 

$                 843

 

$                 803

 

$             2,176

Interest expense

116

 

119

 

363

 

598

Provision for income taxes

149

 

266

 

175

 

590

Other (income) expense, net

1

 

4

 

18

 

23

Depreciation expense

98

 

106

 

205

 

409

Other amortization

38

 

46

 

86

 

170

Amortization of intangibles

34

 

33

 

67

 

134

EBITDA

$                 966

 

$             1,417

 

$             1,717

 

$             4,100

Items affecting comparability:

             

Gain on sale of equity-method investment

$                   —

 

$               (524)

 

$                 (50)

 

$               (574)

Gain on litigation settlement

 

 

(271)

 

(271)

Loss on early extinguishment of debt

 

 

217

 

217

Impairment on investments and note receivable

 

17

 

12

 

29

Restructuring and integration expenses

53

 

57

 

55

 

165

Productivity

40

 

40

 

87

 

167

Nonroutine legal matters

7

 

7

 

7

 

21

Stock compensation

3

 

4

 

(2)

 

5

COVID-19

4

 

6

 

9

 

19

Transaction costs

1

 

1

 

1

 

3

Foundational projects

 

 

2

 

2

Malware incident

(1)

 

1

 

 

Mark to market

(9)

 

28

 

53

 

72

Adjusted EBITDA

$             1,064

 

$             1,054

 

$             1,837

 

$             3,955

 

KEURIG DR PEPPER INC.
RECONCILIATION OF NET CASH PROVIDED BY OPERATING ACTIVITIES TO FREE CASH FLOW
(UNAUDITED)

Free cash flow is defined as net cash provided by operating activities adjusted for purchases of property, plant and equipment, proceeds from sales of property, plant and equipment, and certain items excluded for comparison to prior year periods. For the first six months of 2022 and 2021, there were no certain items excluded for comparison to prior year periods.

   

First Six Months

(in millions)

 

2022

 

2021

Net cash provided by operating activities

 

$                 1,339

 

$                 1,139

Purchases of property, plant and equipment

 

(186)

 

(204)

Proceeds from sales of property, plant and equipment

 

78

 

15

Free Cash Flow

 

$                 1,231

 

$                     950

 

KEURIG DR PEPPER INC.
RECONCILIATION OF SIGNIFICANT COVID-19 RELATED EXPENSES
(UNAUDITED)

The following table sets forth our reconciliation of significant COVID-19-related expenses. However, employee compensation expense and employee protection costs, which impact our SG&A expenses and cost of sales, are included as the COVID-19 item affecting comparability and are excluded in our Adjusted financial measures. In addition, reported amounts under U.S. GAAP also include additional costs, not included as the COVID-19 item affecting comparability, as presented in tables below.

               
 

Items Affecting Comparability(1)

       

(in millions)

Employee Compensation Expense(2)

 

Employee Protection Costs(3)

 

Allowances for Expected Credit Losses(4)

 

Total

For the second quarter of 2022

             

Coffee Systems

$                          —

 

$                            1

 

$                  —

 

$                    1

Packaged Beverages

1

 

1

 

 

2

Beverage Concentrates

 

 

 

Latin America Beverages

 

1

 

 

1

Total

$                            1

 

$                            3

 

$                  —

 

$                    4

               

For the second quarter of 2021

             

Coffee Systems

$                            1

 

$                            4

 

$                  (2)

 

$                    3

Packaged Beverages

3

 

3

 

(8)

 

(2)

Beverage Concentrates

 

 

(3)

 

(3)

Latin America Beverages

 

 

 

Total

$                            4

 

$                            7

 

$                (13)

 

$                  (2)

               

For the first six months of 2022:

             

Coffee Systems

$                            1

 

$                            3

 

$                  —

 

$                    4

Packaged Beverages

2

 

2

 

 

4

Beverage Concentrates

 

 

 

Latin America Beverages

 

1

 

 

1

Total

$                            3

 

$                            6

 

$                  —

 

$                    9

               

For the first six months of 2021:

             

Coffee Systems

$                            2

 

$                          13

 

$                  (2)

 

$                 13

Packaged Beverages

6

 

5

 

(8)

 

3

Beverage Concentrates

 

 

(3)

 

(3)

Latin America Beverages

 

1

 

 

1

Total

$                            8

 

$                          19

 

$                (13)

 

$                 14

               

(1)

Employee compensation expense and employee protection costs are both included as the COVID-19 items affecting comparability in the reconciliation of our Adjusted Non-GAAP financial measures.

(2)

Primarily included incremental benefits provided to frontline workers such as extended sick leave, in order to maintain essential operations during the COVID-19 pandemic.

(3)

Included costs associated with personal protective equipment, temperature scans, cleaning and other sanitization services. Impacts both cost of sales and SG&A expenses.

(4)

Reflects reversal of allowances initially recorded in 2020 specifically related to the COVID-19 pandemic, driven by improving economic conditions during 2021.

 

(PRNewsfoto/Keurig Dr Pepper)

 

 

SOURCE Keurig Dr Pepper Inc.

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