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Keurig Dr Pepper Reports Strong Q3 2022 Results and Reaffirms Guidance for the Year

Company Delivers Strong Net Sales Momentum, with all Business Segments Posting Growth in the Quarter

BURLINGTON, Mass. and FRISCO, Texas, Oct. 27, 2022 /PRNewswire/ -- Keurig Dr Pepper Inc. (NASDAQ: KDP) today reported strong results for the third quarter ended September 30, 2022 and reaffirmed its full-year guidance for constant currency net sales growth in the low-double-digit range and Adjusted EPS growth in the mid-single-digit range.


Reported GAAP Basis

Adjusted Basis1






Q3

YTD 2022

Q3

YTD 2022

Net Sales

 % vs Prior Year

$3.62 bn

11.4%

$10.25 bn

10.4%

$3.62 bn

11.8%

$10.25 bn

10.6%

Diluted EPS

   % vs Prior Year

$0.13

(64.9)%

$0.69

(24.2)%

$0.46

4.5%

$1.18

2.6%








Commenting on the announcement, CEO Ozan Dokmecioglu stated, "The third quarter was another strong one for KDP, as we again demonstrated the advantages of our all-weather business model, which has proven adept at performing well in an evolving macro environment to meet the needs of consumers.  While the macro landscape remains challenging, our cold beverages portfolio continues to perform exceptionally well, with strong in-market execution and increased marketing investment driving consistent growth in LRB market share.  At the same time, our coffee business has steadily recovered from the significant supply chain disruption earlier this year and is poised to deliver strong sales and earnings growth in the fourth quarter." 

Third Quarter Consolidated Results
Net sales for the third quarter of 2022 increased 11.4% to $3.62 billion, compared to $3.25 billion in the year-ago period and, on a constant currency basis, net sales advanced 11.8%.  All four segments grew sales during the quarter.  Driving the consolidated net sales growth was favorable net price realization of 12.1%, only slightly offset by lower volume/mix of 0.3%, reflecting the strength of the portfolio and continued strong in-market execution.  

KDP in-market performance in the Liquid Refreshment Beverages (LRB) category remained strong in the quarter, with retail dollar consumption2 advancing 11.2% and total LRB dollar share posting another quarter of growth, largely reflecting strength in premium unflavored waters, seltzers, teas, apple juice and fruit drinks, combined with continued solid performance in CSDs3.  This performance was driven by CORE Hydration, Polar seltzers, Snapple, Mott's, Hawaiian Punch and Dr Pepper, Crush, Canada Dry, A&W and Squirt CSDs.  

In coffee, retail dollar consumption of single-serve pods manufactured by KDP increased 4.0% in IRi tracked channels, led by higher pricing in both KDP owned and licensed and partner brands, with stronger growth registered in untracked channels.  KDP Manufactured share remained strong at 81.7% in the quarter.

GAAP operating income in the third quarter of 2022 decreased 50.4% to $394 million, compared to $795 million in the year-ago period, primarily reflecting a $311 million non-cash impairment charge in the current quarter on the Bai brand.  Also impacting results in the quarter was higher gross profit, partially offset by continued broad-based inflationary pressures and increased marketing investment.  

Adjusted operating income increased 2.0% in the quarter to $947 million, fueled by 8.6% growth in Adjusted gross profit, partially offset by continued broad-based inflationary pressures in transportation, warehousing and retail labor, as well as increased marketing investment.  On a percent of net sales basis, Adjusted operating income was 26.1%.

GAAP net income in the third quarter of 2022 decreased 66.0% to $180 million, or $0.13 per diluted share, compared to $530 million, or $0.37 per diluted share, in the year-ago period.  This performance primarily reflected the unfavorable year-over-year impact of items affecting comparability.

Adjusted net income in the quarter advanced 4.3% to $656 million, driven by the growth in Adjusted operating income and reduced interest expense.  Adjusted diluted EPS in the quarter increased 4.5% to $0.46, compared to $0.44 in the year-ago period.

Operating cash flow in the third quarter of 2022 declined slightly to $759 million, while free cash flow increased slightly to $686 million

On September 14, 2022, the Company announced a 6.7% increase in its annualized dividend rate to $0.80 per share, from $0.75 per share, effective with the Company's regular dividend that was payable on its common stock on October 14, 2022.

Third Quarter Segment Results

Coffee Systems
Net sales for the third quarter of 2022 increased 4.7% to $1.21 billion, compared to $1.16 billion in the year-ago period and, on a constant currency basis, net sales advanced 5.2%.  The constant currency net sales growth was driven by a 7.8% increase in net price realization, partially offset by a 2.6% decrease in volume/mix.

The higher net price realization of 7.8% in the quarter was primarily driven by pricing actions taken in late 2021 and the second quarter of 2022, while the volume/mix decrease of 2.6% was due to pod shipment growth of 3.5%, more than offset by a brewer shipment decline of 15%.  The brewer performance is consistent with the Company's expectation of returning to its long-term target of adding two million new households into the Keurig system in 2022, which now requires selling fewer brewers than the COVID-driven, elevated level of three million new households having been added in each of the prior two years.

GAAP operating income in the third quarter of 2022 decreased 19.2% to $295 million, compared to $365 million in the year-ago period.  This performance largely reflected broad-based inflationary pressure, primarily in green coffee costs, which reached the highest level of the year for KDP due to timing of the Company's hedges.  Also impacting the results was the unfavorable year-over-year impact of items affecting comparability.  Partially offsetting these factors were the benefits of the net sales growth and productivity.  Adjusted operating income decreased 15.7% to $343 million and, on a percent of net sales basis, totaled 28.4%.

Packaged Beverages
Net sales for the third quarter of 2022 increased 13.5% to $1.76 billion, compared to $1.55 billion in the year-ago period and, on a constant currency basis, net sales advanced 13.6%.  This strong and balanced performance was driven by higher net price realization of 13.6%, with volume/mix even with year-ago, reflecting the strength of the portfolio and continued strong in-market execution.  Broad-based strength across the portfolio was led by CSDs, Snapple, Mott's, CORE Hydration, Hawaiian Punch, Evian and Polar seltzers.

GAAP operating income in the third quarter of 2022 decreased 96.6% to $10 million, compared to $291 million in the year-ago period, primarily reflecting the unfavorable year-over-year impact of items affecting comparability, including the aforementioned $311 million non-cash impairment charge on the Bai brand.  Also impacting the performance was the strong net sales growth and productivity that more than offset broad-based inflation and significantly higher marketing investment in the period.  Adjusted operating income increased 7.9% to $340 million and, on a percent of net sales basis, totaled 19.4%.

Beverage Concentrates
Net sales for the third quarter of 2022 increased 17.1% to $459 million, compared to $392 million in the year-ago period and, on a constant currency basis, advanced 17.3%.  This strong and balanced net sales performance was driven by higher net price realization of 16.6% and favorable volume/mix of 0.7%, reflecting the ongoing strength of the portfolio.  

Total shipment volume was essentially even with the year-ago period, reflecting increases in Dr Pepper and Crush, largely offset by declines in Schweppes and A&W.  Bottler case sales volume in the quarter declined 1.0% versus the year-ago period.

GAAP operating income in the third quarter of 2022 increased 20.9% to $347 million, compared to $287 million in the year-ago period, primarily reflecting the strong net sales performance and lower marketing, partially offset by broad-based inflation.  Adjusted operating income increased 21.0% to $350 million and, on a percent of net sales basis, totaled 76.3%.

Latin America Beverages
Net sales for the third quarter of 2022 increased 26.9% to $198 million, compared to net sales of $156 million in the year-ago period and, on a constant currency basis, advanced 28.8%.  This strong and balanced performance was driven by higher net price realization of 17.3% and increased volume/mix of 11.5%, reflecting the strength of the portfolio and continued strong in-market execution.  Leading the net sales growth were Peñafiel, Clamato, Mott's and Squirt.  

GAAP operating income in the third quarter of 2022 increased 5.4% to $39 million, compared to $37 million in the year-ago period, reflecting the strong net sales growth and productivity, partially offset by broad-based inflationary pressures, significantly higher marketing investment and the unfavorable year-over-year impact of items affecting comparability.  Adjusted operating income increased 13.5% to $41 million and, on a percent of net sales basis, totaled 20.7%.

During the quarter, KDP announced a strategic partnership with Red Bull, the iconic global energy brand, to sell and distribute Red Bull in Mexico.  The partnership leverages KDP's powerful distribution network in Mexico to expand availability of Red Bull in the country.  This agreement furthers KDP's commitment to win-win partnerships and is expected to strengthen the company's energy category position, improve its go-to-market scale and drive efficiencies over time.    

KDP 2022 Guidance
KDP reaffirmed its 2022 guidance for constant currency net sales growth in the low-double-digit range and Adjusted EPS growth in the mid-single-digit range.

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

Chethan Mallela
T: 646-620-8761 / 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.

1 Adjusted financial metrics presented in this release are non-GAAP and with growth rates presented 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 9/25/2022.
3 CSDs refer to "Carbonated Soft Drinks".

 

 

KEURIG DR PEPPER INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME                            

(UNAUDITED)



Third Quarter


First Nine Months

(in millions, except per share data)

2022


2021


2022


2021

Net sales

$          3,622


$          3,250


$        10,254


$          9,292

Cost of sales

1,721


1,415


4,927


4,087

Gross profit

1,901


1,835


5,327


5,205

Selling, general and administrative expenses

1,196


1,040


3,418


3,040

Impairment of intangible assets

311



311


Gain on litigation settlement



(299)


Other operating income, net



(35)


(4)

Income from operations

394


795


1,932


2,169

Interest expense

207


116


570


381

Loss on early extinguishment of debt



217


105

Gain on sale of equity method investment



(50)


Impairment of investments and note receivable



12


Other expense (income), net

4


1


22


(6)

Income before provision for income taxes

183


678


1,161


1,689

Provision for income taxes

4


149


179


387

Net income including non-controlling interest

179


529


982


1,302

Less: Net loss attributable to non-controlling interest

(1)


(1)


(1)


(1)

Net income attributable to KDP

$            180


$            530


$            983


$          1,303









Earnings per common share:








Basic

$           0.13


$           0.37


$           0.69


$           0.92

Diluted

0.13


0.37


0.69


0.91

Weighted average common shares outstanding:








Basic

1,416.1


1,417.6


1,417.3


1,414.9

Diluted

1,427.2


1,428.5


1,428.8


1,427.5

 

KEURIG DR PEPPER INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)



September 30,


December 31,

(in millions, except share and per share data)

2022


2021

Assets

Current assets:




Cash and cash equivalents

$                925


$                567

Restricted cash and cash equivalents

3


1

Trade accounts receivable, net

1,472


1,148

Inventories

1,438


894

Prepaid expenses and other current assets

487


447

Total current assets

4,325


3,057

Property, plant and equipment, net

2,483


2,494

Investments in unconsolidated affiliates

76


30

Goodwill

20,024


20,182

Other intangible assets, net

23,299


23,856

Other non-current assets

1,196


937

Deferred tax assets

37


42

Total assets

$           51,440


$           50,598

Liabilities and Stockholders' Equity

Current liabilities:




Accounts payable

$             5,284


$             4,316

Accrued expenses

1,129


1,110

Structured payables

145


142

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


304

Other current liabilities

675


613

Total current liabilities

7,233


6,485

Long-term obligations

11,561


11,578

Deferred tax liabilities

5,745


5,986

Other non-current liabilities

1,800


1,577

Total liabilities

26,339


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,
1,416,251,307 and 1,418,119,197 shares issued and outstanding as of
September 30, 2022 and December 31, 2021, respectively

14


14

Additional paid-in capital

21,730


21,785

Retained earnings

3,367


3,199

Accumulated other comprehensive loss

(9)


(26)

Total stockholders' equity

25,102


24,972

Non-controlling interest

(1)


Total equity

25,101


24,972

Total liabilities and stockholders' equity

$           51,440


$           50,598

 

KEURIG DR PEPPER INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)



First Nine Months

(in millions)

2022


2021

Operating activities:




Net income attributable to KDP

$                  983


$               1,303

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




Depreciation expense

301


304

Amortization of intangibles

100


101

Other amortization expense

129


118

Provision for sales returns

38


48

Deferred income taxes

(281)


(21)

Employee stock-based compensation expense

43


68

Loss on early extinguishment of debt

217


105

Gain on sale of equity method investment

(50)


Gain on disposal of property, plant and equipment

(38)


(5)

Unrealized loss on foreign currency

22


1

Unrealized loss (gain) on derivatives

387


(94)

Settlements of interest rate contracts

125


Equity in losses of unconsolidated affiliates

6


2

Impairment of intangible assets

311


Impairment on investments and note receivable of unconsolidated affiliates

12


Other, net

22


10

Changes in assets and liabilities:




Trade accounts receivable

(372)


(126)

Inventories

(552)


(210)

Income taxes receivable and payables, net

(106)


(11)

Other current and non-current assets

(380)


(181)

Accounts payable and accrued expenses

1,014


536

Other current and non-current liabilities

167


(15)

Net change in operating assets and liabilities

(229)


(7)

Net cash provided by operating activities

2,098


1,933

Investing activities:




Proceeds from sale of investment in unconsolidated affiliates

50


Purchases of property, plant and equipment

(260)


(325)

Proceeds from sales of property, plant and equipment

79


18

Purchases of intangibles

(19)


(31)

Issuance of related party note receivable

(18)


(17)

Investments in unconsolidated affiliates

(48)


Other, net

3


5

Net cash used in investing activities

(213)


(350)

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


4,756

Repayments of commercial paper

(649)


(3,758)

Repayments of 2019 KDP Term Loan


(425)

Proceeds from structured payables

114


112

Repayments of structured payables

(111)


(123)

Cash dividends paid

(796)


(687)

Repurchases of common stock

(88)


Proceeds from issuance of common stock


140

Tax withholdings related to net share settlements

(10)


(125)

Payments on finance leases

(65)


(40)

Other, net

(45)


(35)

Net cash used in financing activities

(1,515)


(1,630)

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




Net change from operating, investing and financing activities

370


(47)

Effect of exchange rate changes

(10)


(5)

Beginning balance

568


255

Ending balance

$                  928


$                  203

 

KEURIG DR PEPPER INC.

RECONCILIATION OF SEGMENT INFORMATION

(UNAUDITED)



Third Quarter


First Nine Months

(in millions)

2022


2021


2022


2021

Net Sales








Coffee Systems

$            1,209


$            1,155


$            3,497


$            3,398

Packaged Beverages

1,756


1,547


4,925


4,352

Beverage Concentrates

459


392


1,278


1,095

Latin America Beverages

198


156


554


447

Total net sales

$            3,622


$            3,250


$          10,254


$            9,292









Income from Operations








Coffee Systems

$              295


$              365


$              878


$            1,088

Packaged Beverages

10


291


728


731

Beverage Concentrates

347


287


915


780

Latin America Beverages

39


37


114


95

Unallocated corporate costs

(297)


(185)


(703)


(525)

Total income from operations

$              394


$              795


$            1,932


$            2,169

 

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 third quarter and first nine months 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 as a result of the settlement of the associated holdback liability; (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; (ix) transaction costs for significant business combinations (completed or abandoned) excluding the DPS Merger; (x) foundational projects, which are transformative and non-recurring in nature; and (xi) impairment recognized on the Bai brand.

For the third quarter and first nine months 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 third quarter and first nine 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


Impairment
of intangible
assets


Income
from
operations


Operating
margin

For the Third Quarter of 2022














Reported

$         1,721


$         1,901


52.5 %


$                      1,196


$            311


$            394


10.9 %

Items Affecting Comparability:














Mark to market

(51)


51




(55)



106



Amortization of intangibles





(33)



33



Stock compensation





(5)



5



Restructuring and integration costs





(33)



33



Productivity

(30)


30




(27)



57



Impairment of intangible assets






(311)


311



Non-routine legal matters





(2)



2



COVID-19

(3)


3




(2)



5



Foundational projects





(1)



1



Adjusted

$         1,637


$         1,985


54.8 %


$                      1,038


$              —


$            947


26.1 %

Impact of foreign currency





(0.1) %








— %

Constant currency adjusted





54.7 %








26.1 %















For the Third Quarter of 2021














Reported

$         1,415


$         1,835


56.5 %


$                      1,040


$              —


$            795


24.5 %

Items Affecting Comparability:














Mark to market

27


(27)




(18)



(9)



Amortization of intangibles





(34)



34



Stock compensation





(3)



3



Restructuring and integration costs





(53)



53



Productivity

(21)


21




(23)



44



Non-routine legal matters





(7)



7



COVID-19

(3)


3




(1)



4



Transaction costs





(1)



1



Malware incident





1



(1)



Adjusted

$         1,418


$         1,832


56.4 %


$                         901


$              —


$            931


28.6 %

 

KEURIG DR PEPPER INC.

RECONCILIATION OF CERTAIN NON-GAAP INFORMATION

(UNAUDITED)



Interest
expense


Other expense
(income), net


Income before
provision for
income taxes


Provision for
income taxes


Effective
tax rate


Net income
attributable to
KDP


Diluted
earnings per
share

For the Third Quarter of 2022














Reported

$       207


$                      4


$                    183


$                    4


2.2 %


$             180


$           0.13

Items Affecting Comparability:














Mark to market

(113)


2


217


54




163


0.11

Amortization of intangibles



33


8




25


0.02

Amortization of fair value debt adjustment

(5)



5


1




4


Stock compensation



5


2




3


Restructuring and integration costs



33


8




25


0.02

Productivity



57


10




47


0.03

Impairment of intangible assets



311


77




234


0.16

Non-routine legal matters



2





2


COVID-19



5


1




4


Foundational projects



1


1





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




31




(31)


(0.02)

Adjusted

$         89


$                      6


$                    852


$                 197


23.1 %


$             656


$           0.46

Impact of foreign currency









— %





Constant currency adjusted









23.1 %



















For the Third Quarter of 2021














Reported

$       116


$                      1


$                    678


$                 149


22.0 %


$             530


$           0.37

Items Affecting Comparability:














Mark to market



(9)


(3)




(6)


Amortization of intangibles



34


9




25


0.02

Amortization of deferred financing costs

(2)



2


2





Amortization of fair value of debt adjustment

(4)



4


1




3


Stock compensation



3





3


Restructuring and integration costs



53


13




40


0.03

Productivity



44


11




33


0.02

Loss on early extinguishment of debt




(1)




1


Non-routine legal matters



7


2




5


COVID-19



4


1




3


Transaction costs



1





1


Malware incident



(1)


(1)





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




7




(7)


Adjusted

$       110


$                      1


$                    820


$                 190


23.2 %


$             631


$           0.44















Change - adjusted

(19.1) %










4.0 %


4.5 %

Impact of foreign currency

— %










0.3 %


— %

Change - constant currency adjusted

(19.1) %










4.3 %


4.5 %



Diluted earnings per common share may not foot due to rounding.

 

KEURIG DR PEPPER INC.

RECONCILIATION OF CERTAIN NON-GAAP INFORMATION

(UNAUDITED)



Cost of sales


Gross profit


Gross
margin


Selling, general
and administrative
expenses


Impairment
of intangible
assets


Gain on
litigation
settlement


Other operating
income, net


Income from
operations


Operating
margin

For the First Nine Months of 2022


















Reported

$            4,927


$            5,327


52.0 %


$                    3,418


$              311


$             (299)


$                   (35)


$        1,932


18.8 %

Items Affecting Comparability:


















Mark to market

(130)


130




(29)





159



Amortization of intangibles





(100)





100



Stock compensation





(3)





3



Restructuring and integration costs





(89)




(2)


91



Productivity

(86)


86




(73)





159



Impairment of intangible assets






(311)




311



Non-routine legal matters





(9)





9



COVID-19

(10)


10




(4)





14



Gain on litigation







271



(271)



Transaction costs





(1)





1



Foundational projects





(3)





3



Adjusted

$            4,701


$           5,553


54.2 %


$                    3,107


$                —


$               (28)


$                    (37)


$         2,511


24.5 %

Impact of foreign currency





(0.1) %












— %

Constant currency adjusted





54.1 %












24.5 %



















For the First Nine Months of 2021


















Reported

$            4,087


$            5,205


56.0 %


$                    3,040


$                —


$                —


$                     (4)


$         2,169


23.3 %

Items Affecting Comparability:


















Mark to market

53


(53)




32





(85)



Amortization of intangibles





(101)





101



Stock compensation





(14)





14



Restructuring and integration costs





(145)





145



Productivity

(43)


43




(72)





115



Non-routine legal matters





(23)





23



COVID-19

(22)


22




(9)





31



Transaction costs





(1)





1



Malware incident





3





(3)



Adjusted

$            4,075


$            5,217


56.1 %


$                    2,710


$                —


$                —


$                     (4)


$         2,511


27.0 %


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


Provision for
income taxes


Effective
tax rate


Net income
attributable
to KDP


Diluted
earnings
per share

For the First Nine Months of 2022




















Reported

$     570


$                 217


$                 (50)


$                     12


$              22


$            1,161


$              179


15.4 %


$        983


$    0.69

Items Affecting Comparability:




















Mark to market

(247)






406


101




305


0.21

Amortization of intangibles






100


25




75


0.05

Amortization of deferred financing costs

(2)






2





2


Amortization of fair value debt adjustment

(14)






14


3




11


0.01

Stock compensation






3


(1)




4


Restructuring and integration costs






91


22




69


0.05

Productivity






159


32




127


0.09

Impairment of intangible assets






311


77




234


0.16

Impairment of investment




(12)




12





12


0.01

Loss on early extinguishment of debt


(217)





217


54




163


0.11

Non-routine legal matters






9


2




7


COVID-19






14


3




11


0.01

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






3


1




2


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







81




(81)


(0.06)

Adjusted

$     307


$                   —


$                   —


$                     —


$              22


$            2,182


$              499


22.9 %


$     1,684


$   1.18

Impact of foreign currency















— %





Constant currency adjusted















22.9 %














































Diluted earnings per common share may not foot due to rounding.

 

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


Provision for
income taxes


Effective
tax rate


Net income
attributable
to KDP


Diluted
earnings
per share

For the First Nine Months of 2021




















Reported

$     381


$                 105


$                   —


$                     —


$               (6)


$            1,689


$              387


22.9 %


$     1,303


$    0.91

Items Affecting Comparability:




















Mark to market

7






(92)


(23)




(69)


(0.05)

Amortization of intangibles






101


26




75


0.05

Amortization of deferred financing costs

(6)






6


2




4


Amortization of fair value of debt adjustment

(14)






14


3




11


0.01

Stock compensation






14


14





Restructuring and integration costs






145


35




110


0.08

Productivity






115


29




86


0.06

Loss on early extinguishment of debt


(105)





105


24




81


0.06

Non-routine legal matters






23


5




18


0.01

COVID-19






31


8




23


0.02

Transaction costs






1





1


Malware incident






(3)


(1)




(2)


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







1




(1)


Adjusted

$     368


$                   —


$                   —


$                     —


$               (6)


$            2,149


$              510


23.7 %


$     1,640


$    1.15





















Change - adjusted

(16.6) %
















2.7 %


2.6 %

Impact of foreign currency

— %
















0.3 %


— %

Change - Constant currency adjusted

(16.6) %
















3.0 %


2.6 %


Diluted earnings per common share may not foot due to rounding.

 

KEURIG DR PEPPER INC.

RECONCILIATION OF CERTAIN NON-GAAP INFORMATION

(UNAUDITED)

 



(in millions)


Reported


Items Affecting
Comparability


Adjusted

For the third quarter of 2022:







Income from operations







Coffee Systems


$                            295


$                              48


$                            343

Packaged Beverages


10


330


340

Beverage Concentrates


347


3


350

Latin America Beverages


39


2


41

Unallocated corporate costs


(297)


170


(127)

Total income from operations


$                            394


$                            553


$                            947








For the third quarter of 2021:







Income from operations







Coffee Systems


$                            365


$                              43


$                            408

Packaged Beverages


291


24


315

Beverage Concentrates


287


3


290

Latin America Beverages


37



37

Unallocated corporate costs


(185)


66


(119)

Total income from operations


$                            795


$                            136


$                            931










Reported


Impact of Foreign
Currency


Constant Currency

For the third quarter of 2022:







Net sales







Coffee Systems


4.7 %


0.5 %


5.2 %

Packaged Beverages


13.5 %


0.1


13.6

Beverage Concentrates


17.1 %


0.2


17.3

Latin America Beverages


26.9 %


1.9


28.8

Total net sales


11.4 %


0.4


11.8




Adjusted


Impact of Foreign
Currency


Constant Currency
Adjusted

For the third quarter of 2022:







Income from operations







Coffee Systems


(15.9) %


0.2 %


(15.7) %

Packaged Beverages


7.9



7.9

Beverage Concentrates


20.7


0.3


21.0

Latin America Beverages


10.8


2.7


13.5

Total income from operations


1.7


0.3


2.0

 



Reported


Items Affecting
Comparability


Adjusted


Impact of
Foreign
Currency


Constant
Currency
Adjusted

For the third quarter of 2022:











Operating margin











Coffee Systems


24.4 %


4.0 %


28.4 %


(0.1) %


28.3 %

Packaged Beverages


0.6


18.8


19.4



19.4

Beverage Concentrates


75.6


0.7


76.3



76.3

Latin America Beverages


19.7


1.0


20.7


0.2


20.9

Total operating margin


10.9


15.2


26.1



26.1

 

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 nine months of 2022:







Income from operations







Coffee Systems


$                            878


$                            153


$                         1,031

Packaged Beverages


728


94


822

Beverage Concentrates


915


9


924

Latin America Beverages


114


3


117

Unallocated corporate costs


(703)


320


(383)

Total income from operations


$                         1,932


$                            579


$                         2,511








For the first nine months of 2021:







Income from operations







Coffee Systems


$                         1,088


$                            145


$                         1,233

Packaged Beverages


731


74


805

Beverage Concentrates


780


6


786

Latin America Beverages


95


2


97

Unallocated corporate costs


(525)


115


(410)

Total income from operations


$                         2,169


$                            342


$                         2,511




Reported


Impact of Foreign
Currency


Constant Currency

For the first nine months of 2022:







Net sales







Coffee Systems


2.9 %


0.4 %


3.3 %

Packaged Beverages


13.2



13.2

Beverage Concentrates


16.7


0.2


16.9

Latin America Beverages


23.9


0.9


24.8

Total net sales


10.4


0.2


10.6




Adjusted


Impact of Foreign
Currency


Constant Currency
Adjusted

For the first nine months of 2022:







Income from operations







Coffee Systems


(16.4) %


0.2 %


(16.2) %

Packaged Beverages


2.1



2.1

Beverage Concentrates


17.6


0.2


17.8

Latin America Beverages


20.6


1.0


21.6

Total income from operations



0.2


0.2

 



Reported


Items Affecting
Comparability


Adjusted


Impact of
Foreign
Currency


Constant
Currency
Adjusted

For the first nine months of 2022:











Operating margin











Coffee Systems


25.1 %


4.4 %


29.5 %


(0.1) %


29.4 %

Packaged Beverages


14.8


1.9


16.7



16.7

Beverage Concentrates


71.6


0.7


72.3



72.3

Latin America Beverages


20.6


0.5


21.1



21.1

Total operating margin


18.8


5.7


24.5



24.5

 

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

$                  1,826

Interest expense

689

Provision for income taxes

445

Other expense (income), net

26

Depreciation expense

407

Other amortization

175

Amortization of intangibles

133

EBITDA

$                  3,701

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 intangible assets

311

Impairment of investments and note receivable

29

Restructuring and integration expenses

145

Productivity

177

Non-routine legal matters

16

Stock compensation

7

COVID-19

20

Transaction costs

2

Malware incident

1

Foundational projects

3

Mark to market

187

Adjusted EBITDA

$                  3,971




September 30,


2022

Principal amounts of senior unsecured notes

$                11,743

Less: Cash and cash equivalents

925

Total principal amounts less cash and cash equivalents

$                10,818



September 30, 2022 Management Leverage Ratio

2.7

 

KEURIG DR PEPPER INC.

RECONCILIATION OF ADJUSTED EBITDA - LAST TWELVE MONTHS

(UNAUDITED)

 


(in millions)

FOURTH
QUARTER OF
2021


FIRST NINE
MONTHS OF
2022


LAST TWELVE
MONTHS

Net income attributable to KDP

$                 843


$                 983


$             1,826

Interest expense

119


570


689

Provision for income taxes

266


179


445

Other expense (income), net

4


22


26

Depreciation expense

106


301


407

Other amortization

46


129


175

Amortization of intangibles

33


100


133

EBITDA

$             1,417


$             2,284


$             3,701

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 of intangible assets


311


311

Impairment on investments and note receivable

17


12


29

Restructuring and integration expenses

57


88


145

Productivity

40


137


177

Nonroutine legal matters

7


9


16

Stock compensation

4


3


7

COVID-19

6


14


20

Transaction costs

1


1


2

Foundational projects


3


3

Malware incident

1



1

Mark to market

28


159


187

Adjusted EBITDA

$             1,054


$             2,917


$             3,971

 

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 nine months of 2022 and 2021, there were no certain items excluded for comparison to prior year periods.



First Nine Months

(in millions)


2022


2021

Net cash provided by operating activities


$                 2,098


$                 1,933

Purchases of property, plant and equipment


(260)


(325)

Proceeds from sales of property, plant and equipment


79


18

Free Cash Flow


$                 1,917


$                 1,626

 

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 third quarter of 2022








Coffee Systems

$                          —


$                            3


$                  —


$                    3

Packaged Beverages

1


1



2

Beverage Concentrates




Latin America Beverages




Total

$                            1


$                            4


$                  —


$                    5









For the third quarter of 2021








Coffee Systems

$                            1


$                            1


$                  —


$                    2

Packaged Beverages

1


1



2

Beverage Concentrates




Latin America Beverages




Total

$                            2


$                            2


$                  —


$                    4









For the first nine months of 2022:








Coffee Systems

$                            1


$                            6


$                  —


$                    7

Packaged Beverages

3


3



6

Beverage Concentrates




Latin America Beverages


1



1

Total

$                            4


$                          10


$                  —


$                 14









For the first nine months of 2021:








Coffee Systems

$                            3


$                          14


$                  (2)


$                 15

Packaged Beverages

7


6


(8)


5

Beverage Concentrates



(3)


(3)

Latin America Beverages


1



1

Total

$                          10


$                          21


$                (13)


$                 18











(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.

 

 

SOURCE Keurig Dr Pepper Inc.

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