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Keurig Dr Pepper Reports Q3 2023 Results and Reaffirms Full Year Guidance

Q3 Performance Led by Continued Net Sales Momentum and Strong Gross Margin Expansion

BURLINGTON, Mass. and FRISCO, Texas, Oct. 26, 2023 /PRNewswire/ -- Keurig Dr Pepper Inc. (NASDAQ: KDP) today reported results for the third quarter ended September 30, 2023 and reaffirmed its guidance for full year constant currency net sales growth of 5% to 6% and Adjusted diluted EPS growth of 6% to 7%.

   

Reported GAAP Basis

 

Adjusted Basis1

   

Q3

 

YTD

 

Q3

 

YTD

Net Sales

 

$3.81 bn

 

$10.95 bn

 

$3.81 bn

 

$10.95 bn

% vs prior year

 

5.1 %

 

6.8 %

 

4.1 %

 

6.2 %

Diluted EPS

 

$0.37

 

$1.05

 

$0.48

 

$1.24

% vs prior year

 

184.6 %

 

52.2 %

 

4.3 %

 

5.1 %

"In the third quarter, we maintained healthy revenue momentum and delivered a significant gross margin inflection, helping to fund reinvestment in our brands and capabilities," said Chairman and CEO Bob Gamgort. "In addition to continued strong results across our U.S. Refreshment Beverages and International segments, we also began to rebuild our margins in U.S. Coffee. We are reaffirming our full year outlook and remain committed to delivering a strong Q4 with an improved composition of earnings."

Gamgort continued, "KDP continues to pair strong execution and financial delivery with building the foundation for the Company's next phase of growth. Today we announced our expansion into sports hydration through a new and exciting partnership with Grupo PiSA for Electrolit. Over the past 12 months, we have established new growth platforms in sports hydration, energy and RTD coffee by partnering with compelling brands and leveraging our unique distribution assets across both cold and hot beverages to attract strong partnerships."

Third Quarter Consolidated Results

Net sales for the third quarter of 2023 increased 5.1% to $3.81 billion, compared to $3.62 billion in the year-ago period. On a constant currency basis, net sales advanced 4.1%, driven by net price realization of 5.5% that was only partially offset by lower volume/mix of 1.4%. Revenue momentum reflected the continued strength of the Company's brand portfolio and in-market execution, as well as manageable elasticity across most categories.

GAAP operating income increased 127.4% to $896 million, compared to $394 million in the year-ago period. The comparison primarily reflected the favorable year-over-year impact of items affecting comparability, including a $311 million impairment in the prior year period, as well as strong gross profit growth.

Adjusted1 operating income increased 3.1% to $984 million and totaled 25.9% as a percent of net sales. Adjusted operating income growth was driven by 6.0% Adjusted gross profit growth, translating to 100 basis points of Adjusted gross margin expansion, with gains from pricing and productivity more than offsetting both the modest volume/mix decline and continued input cost pressure. The growth in Adjusted gross profit funded a double-digit increase in marketing investment and more than offset inflation in transportation, warehousing and other corporate costs.

GAAP net income for the quarter increased 187.8% to $518 million, or $0.37 per diluted share, compared to $180 million, or $0.13 per diluted share, in the year-ago period. This performance primarily reflected a favorable year-over-year impact of items affecting comparability, partially offset by a higher GAAP tax rate.

Adjusted net income for the quarter advanced 1.8% to $673 million, and Adjusted diluted EPS increased 4.3% to $0.48.  The Adjusted net income and EPS growth was driven by the Adjusted operating income growth, partly offset by higher interest expense.

Operating cash flow for the third quarter was $580 million and free cash flow totaled $459 million.  As expected, free cash flow strengthened from the first half of the year, reflecting the combination of profit growth and moderating working capital usage.

Third Quarter Segment Results

U.S. Refreshment Beverages

Net sales for the third quarter increased 5.9% to $2.27 billion, compared to $2.14 billion in the year-ago period, driven by net price realization of 7.1% and a modest decline in volume/mix of 1.2%. This strong performance reflected resilient category trends, continued market share gains and the contribution from KDP's sales and distribution partnership with Nutrabolt for C4 Energy.

KDP in-market performance in the U.S. Liquid Refreshment Beverages (LRB) category remained healthy. Retail dollar consumption2 advanced 7.0% and market share grew in categories representing approximately 82% of the Company's cold beverage retail sales base. The dollar share gains were led by Dr Pepper and Squirt in CSDs3, Polar in unsweetened sparkling water, Vita Coco, C4 Energy and Mott's apple juice.

GAAP operating income increased 109.9% to $676 million, compared to $322 million in the year-ago period. The growth primarily reflected the favorable year-over-year impact of items affecting comparability, including the aforementioned $311 million impairment in the prior year period.

Adjusted operating income increased 6.1% to $695 million and totaled 30.6% as a percent of net sales, driven by net sales gains and productivity, which more than offset continued broad-based input cost inflation and a significant increase in marketing investment.

U.S. Coffee

Net sales for the third quarter decreased 3.2% to $1.01 billion, compared to $1.05 billion in the year-ago period, driven by net price realization of 3.1% and a volume/mix decline of 6.3%.

Pod revenue decreased 4.8%, driven by a shipment decline of 8.1%. As expected, pod volume growth lagged gradually improving single serve category consumption, due to an unfavorable comparison to trade inventory builds in the year-ago period and the continued impact of exiting certain low-margin private label contracts.

Across IRi tracked channels, U.S. retail dollar consumption of KDP-Manufactured K-Cup® Pods decreased 7.0%, with significantly stronger performance registered in untracked channels. KDP Manufactured dollar share in the quarter was approximately 79%.

Brewer shipments totaled 10.2 million for the twelve months ending September 30, 2023, declining 4.5% year-over-year. In the quarter, brewer shipments grew year-over-year as KDP prepared for the upcoming holiday season, which is a key period for brewer demand.

GAAP operating income increased 7.7% to $293 million, compared to $272 million in the year-ago period, including a modest year-over-year benefit of items affecting comparability.

Adjusted operating income increased 5.7% to $333 million and totaled 32.9% as a percent of net sales. Adjusted operating income margin inflected strongly versus prior year, driven by higher net price realization and productivity, which more than offset the impacts of the volume/mix decline and inflation.

International

Net sales for the third quarter increased 20.8% to $523 million, compared to $433 million in the year-ago period. On a constant currency basis, net sales advanced 12.9%, driven by volume/mix growth of 9.0% and net price realization of 3.9%. This very strong performance reflected continued momentum in both Mexico and Canada.

GAAP operating income increased 43.3% to $139 million, compared to $97 million in the year-ago period, including a modest year-over-year benefit of items affecting comparability.

Adjusted operating income increased 31.7% to $145 million and totaled 28.0% as a percent of net sales, driven by the net sales momentum and productivity gains, which more than offset continued inflation.

2023 Guidance

The 2023 guidance provided below is presented on a constant currency, non-GAAP basis.  The Company does not provide reconciliations of such forward-looking non-GAAP measures to GAAP measures, 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, which could be material.

KDP reaffirmed its 2023 guidance for constant currency net sales growth of 5% to 6% and Adjusted diluted EPS growth of 6% to 7%.

_________________________________________

1 Adjusted financial metrics presented in this release are non-GAAP, excluding items affecting comparability 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 10/1/2023.

3 CSDs refer to "Carbonated Soft Drinks".

Investor Contacts:

Jane Gelfand
T: 888-340-5287 / jane.gelfand@kdrp.com

Chethan Mallela
T: 888-340-5287 / 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 of more than $14 billion and approximately 28,000 employees. KDP holds leadership positions in liquid refreshment beverages, including 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®, Canada Dry®, Clamato®, CORE®, Green Mountain Coffee Roasters®, Mott's®, Snapple®, 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's Drink Well. Do Good. corporate responsibility platform is focused on the greatest opportunities for impact in the environment, its supply chain, the health and well-being of consumers and with its people and communities. 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 gross profit, 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, which could be material.

 

KEURIG DR PEPPER INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)

 

 

Third Quarter

 

First Nine Months

(in millions, except per share data)

2023

 

2022

 

2023

 

2022

Net sales

$        3,805

 

$        3,622

 

$      10,947

 

$      10,254

Cost of sales

1,694

 

1,721

 

5,051

 

4,927

Gross profit

2,111

 

1,901

 

5,896

 

5,327

Selling, general and administrative expenses

1,217

 

1,196

 

3,654

 

3,418

Impairment of intangible assets

2

 

311

 

2

 

311

Gain on litigation settlement

 

 

 

(299)

Other operating income, net

(4)

 

 

(9)

 

(35)

Income from operations

896

 

394

 

2,249

 

1,932

Interest expense

237

 

207

 

432

 

570

Loss on early extinguishment of debt

 

 

 

217

Gain on sale of equity method investment

 

 

 

(50)

Impairment of investments and note receivable

 

 

 

12

Other (income) expense, net

(5)

 

4

 

(41)

 

22

Income before provision for income taxes

664

 

183

 

1,858

 

1,161

Provision for income taxes

146

 

4

 

370

 

179

Net income including non-controlling interest

518

 

179

 

1,488

 

982

Less: Net loss attributable to non-controlling interest

 

(1)

 

 

(1)

Net income attributable to KDP

$           518

 

$           180

 

$        1,488

 

$           983

               

Earnings per common share:

             

Basic

$          0.37

 

$          0.13

 

$          1.06

 

$          0.69

Diluted

0.37

 

0.13

 

1.05

 

0.69

Weighted average common shares outstanding:

             

Basic

1,397.4

 

1,416.1

 

1,401.3

 

1,417.3

Diluted

1,406.2

 

1,427.2

 

1,410.8

 

1,428.8

 

KEURIG DR PEPPER INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

 

 

September 30,

 

December 31,

(in millions, except share and per share data)

2023

 

2022

Assets

Current assets:

     

Cash and cash equivalents

$                260

 

$                535

Trade accounts receivable, net

1,279

 

1,484

Inventories

1,348

 

1,314

Prepaid expenses and other current assets

519

 

471

Total current assets

3,406

 

3,804

Property, plant and equipment, net

2,527

 

2,491

Investments in unconsolidated affiliates

1,336

 

1,000

Goodwill

20,122

 

20,072

Other intangible assets, net

23,223

 

23,183

Other non-current assets

1,117

 

1,252

Deferred tax assets

32

 

35

Total assets

$           51,763

 

$           51,837

Liabilities and Stockholders' Equity

Current liabilities:

     

Accounts payable

4,090

 

5,206

Accrued expenses

1,123

 

1,153

Structured payables

122

 

137

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

2,798

 

895

Other current liabilities

681

 

685

Total current liabilities

8,814

 

8,076

Long-term obligations

9,940

 

11,072

Deferred tax liabilities

5,714

 

5,739

Other non-current liabilities

1,931

 

1,825

Total liabilities

26,399

 

26,712

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,

1,398,322,033 and 1,408,394,293 shares issued and outstanding as of

 September 30, 2023 and December 31, 2022, respectively

14

 

14

Additional paid-in capital

21,014

 

21,444

Retained earnings

4,165

 

3,539

Accumulated other comprehensive income

171

 

129

Total stockholders' equity

25,364

 

25,126

Non-controlling interest

 

(1)

Total equity

25,364

 

25,125

Total liabilities and stockholders' equity

$           51,763

 

$           51,837

 

KEURIG DR PEPPER INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

 

First Nine Months

(in millions)

2023

 

2022

Operating activities:

     

Net income attributable to KDP

$               1,488

 

$                  983

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

     

Depreciation expense

299

 

301

Amortization of intangibles

103

 

100

Other amortization expense

136

 

129

Provision for sales returns

42

 

38

Deferred income taxes

(22)

 

(281)

Employee stock-based compensation expense

86

 

43

Loss on early extinguishment of debt

 

217

Gain on sale of equity method investment

 

(50)

Gain on disposal of property, plant and equipment

(3)

 

(38)

Unrealized (gain) loss on foreign currency

(4)

 

22

Unrealized loss on derivatives

44

 

387

Settlements of interest rate contracts

54

 

125

Equity in (earnings) loss of unconsolidated affiliates

(24)

 

6

Impairment of intangible assets

2

 

311

Impairment on investments and note receivable of unconsolidated affiliates

 

12

Other, net

(5)

 

22

Changes in assets and liabilities:

     

Trade accounts receivable

170

 

(372)

Inventories

(31)

 

(552)

Income taxes receivable and payables, net

(39)

 

(106)

Other current and non-current assets

(159)

 

(380)

Accounts payable and accrued expenses

(1,155)

 

1,014

Other current and non-current liabilities

50

 

167

Net change in operating assets and liabilities

(1,164)

 

(229)

Net cash provided by operating activities

1,032

 

2,098

Investing activities:

     

Proceeds from sale of investment in unconsolidated affiliates

 

50

Purchases of property, plant and equipment

(271)

 

(260)

Proceeds from sales of property, plant and equipment

9

 

79

Purchases of intangibles

(55)

 

(19)

Issuance of related party note receivable

 

(18)

Investments in unconsolidated affiliates

(308)

 

(48)

Other, net

2

 

3

Net cash (used in) provided by investing activities

(623)

 

(213)

Financing activities:

     

Proceeds from issuance of Notes

 

3,000

Repayments of Notes

 

(3,365)

Net issuance (repayment) of commercial paper

750

 

(149)

Proceeds from structured payables

91

 

114

Repayments of structured payables

(105)

 

(111)

Cash dividends paid

(842)

 

(796)

Repurchases of common stock

(457)

 

(88)

Tax withholdings related to net share settlements

(57)

 

(10)

Payments on finance leases

(74)

 

(65)

Other, net

(3)

 

(45)

Net cash used in financing activities

(697)

 

(1,515)

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

     

Net change from operating, investing and financing activities

(288)

 

370

Effect of exchange rate changes

13

 

(10)

Beginning balance

535

 

568

Ending balance

$                  260

 

$                  928

 

KEURIG DR PEPPER INC.

RECONCILIATION OF SEGMENT INFORMATION

(UNAUDITED)

 

 

Third Quarter

 

First Nine Months

(in millions)

2023

 

2022

 

2023

 

2022

Net Sales

             

U.S. Refreshment Beverages

$            2,270

 

$            2,144

 

$            6,607

 

$            6,009

U.S. Coffee

1,012

 

1,045

 

2,913

 

3,017

International

523

 

433

 

1,427

 

1,228

Total net sales

$            3,805

 

$            3,622

 

$          10,947

 

$          10,254

               

Income from Operations

             

U.S. Refreshment Beverages

$              676

 

$              322

 

$            1,795

 

$            1,554

U.S. Coffee

293

 

272

 

775

 

822

International

139

 

97

 

331

 

259

Unallocated corporate costs

(212)

 

(297)

 

(652)

 

(703)

Total income from operations

$              896

 

$              394

 

$            2,249

 

$            1,932

 

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) transaction costs for significant business combinations (completed or abandoned); (vii) non-cash changes in deferred tax liabilities related to goodwill and other intangible assets as a result of tax rate or apportionment changes; (viii) impairments recognized on certain intangible assets; and (ix) other certain items that are excluded for comparison purposes to prior year periods.

For the third quarter and first nine months of 2023, the other certain items excluded for comparison purposes include (i) productivity expenses, (ii) restructuring expenses associated with the 2023 CEO Succession and Associated Realignment, and (iii) costs related to significant non-routine legal matters, specifically the antitrust litigation. Additionally, during the first nine months of 2023, the non-cash changes in deferred tax liabilities related to goodwill and other intangible assets included an immaterial non-cash true-up of the valuation of foreign deferred tax liabilities related to a prior period.

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, specifically the antitrust litigation; (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, which were 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; (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; and (ix) foundational projects, which are transformative and non-recurring in nature.

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 2023 and 2022, 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 2023

                         

Reported

$         1,694

 

$         2,111

 

55.5 %

 

$                      1,217

 

$                2

 

$            896

 

23.5 %

Items Affecting Comparability:

                         

Mark to market

13

 

(13)

     

21

 

 

(34)

   

Amortization of intangibles

 

     

(34)

 

 

34

   

Stock compensation

 

     

(4)

 

 

4

   

Restructuring - 2023 CEO Succession and Associated Realignment

 

     

(27)

 

 

27

   

Productivity

(25)

 

25

     

(27)

 

 

52

   

Impairment of intangible assets

 

     

 

(2)

 

2

   

Non-routine legal matters

 

     

(2)

 

 

2

   

Transaction costs

 

     

(1)

 

 

1

   

Adjusted

$         1,682

 

$         2,123

 

55.8 %

 

$                      1,143

 

$              —

 

$            984

 

25.9 %

Impact of foreign currency

       

— %

             

— %

Constant currency adjusted

       

55.8 %

             

25.9 %

                           

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 - DPS Merger

 

     

(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 %

 

Refer to page A-8 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

 

Other

(income)

 expense, 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 2023

                         

Reported

$       237

 

$                (5)

 

$                    664

 

$               146

 

22.0 %

 

$             518

 

$           0.37

Items Affecting Comparability:

                         

Mark to market

(114)

 

(2)

 

82

 

20

     

62

 

0.04

Amortization of intangibles

 

 

34

 

9

     

25

 

0.02

Amortization of fair value debt adjustment

(5)

 

 

5

 

1

     

4

 

Stock compensation

 

 

4

 

3

     

1

 

Restructuring - 2023 CEO Succession and Associated Realignment

 

 

27

 

6

     

21

 

0.01

Productivity

 

 

52

 

12

     

40

 

0.03

Impairment of intangible assets

 

 

2

 

     

2

 

Non-routine legal matters

 

 

2

 

     

2

 

Transaction costs

 

 

1

 

     

1

 

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

 

 

 

3

     

(3)

 

Adjusted

$       118

 

$                (7)

 

$                    873

 

$               200

 

22.9 %

 

$             673

 

$           0.48

Impact of foreign currency

               

(0.2) %

       

Constant currency adjusted

               

22.7 %

       
                           

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 of debt adjustment

(5)

 

 

5

 

1

     

4

 

Stock compensation

 

 

5

 

2

     

3

 

Restructuring and integration costs - DPS Merger

 

 

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

                           

Change - adjusted

32.6 %

                 

2.6 %

 

4.3 %

Impact of foreign currency

— %

                 

(0.8) %

 

— %

Change - constant currency adjusted

32.6 %

                 

1.8 %

 

4.3 %

 

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 2023

         

Income from operations

         

U.S. Refreshment Beverages

$                            676

 

$                              19

 

$                            695

U.S. Coffee

293

 

40

 

333

International

139

 

6

 

145

Unallocated corporate costs

(212)

 

23

 

(189)

Total income from operations

$                            896

 

$                              88

 

$                            984

           

For the third quarter of 2022

         

Income from operations

         

U.S. Refreshment Beverages

$                            322

 

$                            333

 

$                            655

U.S. Coffee

272

 

43

 

315

International

97

 

7

 

104

Unallocated corporate costs

(297)

 

170

 

(127)

Total income from operations

$                            394

 

$                            553

 

$                            947

 
   

Reported

 

Impact of Foreign

 Currency

 

Constant Currency

For the third quarter of 2023

           

Net sales

           

U.S. Refreshment Beverages

 

5.9 %

 

— %

 

5.9 %

U.S. Coffee

 

(3.2)

 

 

(3.2)

International

 

20.8

 

(7.9)

 

12.9

Total net sales

 

5.1

 

(1.0)

 

4.1

 
   

Adjusted

 

Impact of Foreign

Currency

 

Constant Currency

 Adjusted

For the third quarter of 2023

           

Income from operations

           

U.S. Refreshment Beverages

 

6.1 %

 

— %

 

6.1 %

U.S. Coffee

 

5.7

 

 

5.7

International

 

39.4

 

(7.7)

 

31.7

Total income from operations

 

3.9

 

(0.8)

 

3.1

 
   

Reported

 

Items Affecting

 Comparability

 

Adjusted

 

Impact of

Foreign

Currency

 

Constant

 Currency

Adjusted

For the third quarter of 2023

                   

Operating margin

                   

U.S. Refreshment Beverages

 

29.8 %

 

0.8 %

 

30.6 %

 

— %

 

30.6 %

U.S. Coffee

 

29.0

 

3.9

 

32.9

 

 

32.9

International

 

26.6

 

1.1

 

27.7

 

0.3

 

28.0

Total operating margin

 

23.5

 

2.4

 

25.9

 

 

25.9

 

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 2023

                                 

Reported

$            5,051

 

$            5,896

 

53.9 %

 

$                    3,654

 

$                  2

 

$                —

 

$                     (9)

 

$         2,249

 

20.5 %

Items Affecting Comparability:

                                 

Mark to market

18

 

(18)

     

14

 

 

 

 

(32)

   

Amortization of intangibles

 

     

(103)

 

 

 

 

103

   

Stock compensation

 

     

(13)

 

 

 

 

13

   

Restructuring - 2023 CEO Succession and Associated Realignment

 

     

(27)

 

 

 

 

27

   

Productivity

(89)

 

89

     

(99)

 

 

 

 

188

   

Impairment of intangible assets

 

     

 

(2)

 

 

 

2

   

Non-routine legal matters

 

     

(5)

 

 

 

 

5

   

Transaction costs

 

     

(1)

 

 

 

 

1

   

Adjusted

$            4,980

 

$            5,967

 

54.5 %

 

$                    3,420

 

$                —

 

$                —

 

$                     (9)

 

$         2,556

 

23.3 %

Impact of foreign currency

       

— %

                     

0.1 %

Constant currency adjusted

       

54.5 %

                     

23.4 %

                                   

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 - DPS Merger

 

     

(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 %

 

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

 (income)

 expense, 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 2023

                                     

Reported

$     432

 

$                   —

 

$                   —

 

$                     —

 

$             (41)

 

$            1,858

 

$              370

 

19.9 %

 

$     1,488

 

$    1.05

Items Affecting Comparability:

                                     

Mark to market

(74)

 

 

 

 

16

 

26

 

6

     

20

 

0.01

Amortization of intangibles

 

 

 

 

 

103

 

25

     

78

 

0.06

Amortization of deferred financing costs

(1)

 

 

 

 

 

1

 

     

1

 

Amortization of fair value debt adjustment

(14)

 

 

 

 

 

14

 

3

     

11

 

0.01

Stock compensation

 

 

 

 

 

13

 

6

     

7

 

Restructuring - 2023 CEO Succession and Associated Realignment

 

 

 

 

 

27

 

6

     

21

 

0.01

Productivity

 

 

 

 

 

188

 

45

     

143

 

0.10

Impairment of intangible assets

 

 

 

 

 

2

 

     

2

 

Non-routine legal matters

 

 

 

 

 

5

 

1

     

4

 

Transaction costs

 

 

 

 

 

1

 

     

1

 

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

 

 

 

 

 

 

28

     

(28)

 

(0.02)

Adjusted

$     343

 

$                   —

 

$                   —

 

$                     —

 

$             (25)

 

$            2,238

 

$              490

 

21.9 %

 

$     1,748

 

$    1.24

Impact of foreign currency

                           

(0.1) %

       

Constant currency adjusted

                           

21.8 %

       
 

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

(income)

expense, 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 of debt adjustment

(14)

 

 

 

 

 

14

 

3

     

11

 

0.01

Stock compensation

 

 

 

 

 

3

 

(1)

     

4

 

Restructuring and integration costs - DPS Merger

 

 

 

 

 

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

                                       

Change - adjusted

11.7 %

                             

3.8 %

 

5.1 %

Impact of foreign currency

— %

                             

(0.6) %

 

(0.9) %

Change - Constant currency adjusted

11.7 %

                             

3.2 %

 

4.2 %

                           

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

 

                         

 

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 2023:

         

Income from operations

         

U.S. Refreshment Beverages

$                         1,795

 

$                              54

 

$                         1,849

U.S. Coffee

775

 

135

 

910

International

331

 

14

 

345

Unallocated corporate costs

(652)

 

104

 

(548)

Total income from operations

$                         2,249

 

$                            307

 

$                         2,556

           

For the first nine months of 2022:

         

Income from operations

         

U.S. Refreshment Beverages

$                         1,554

 

$                            103

 

$                         1,657

U.S. Coffee

822

 

136

 

958

International

259

 

20

 

279

Unallocated corporate costs

(703)

 

320

 

(383)

Total income from operations

$                         1,932

 

$                            579

 

$                         2,511

 
   

Reported

 

Impact of Foreign

Currency

 

Constant Currency

For the first nine months of 2023:

           

Net sales

           

U.S. Refreshment Beverages

 

10.0 %

 

— %

 

10.0 %

U.S. Coffee

 

(3.4)

 

 

(3.4)

International

 

16.2

 

(4.3)

 

11.9

Total net sales

 

6.8

 

(0.6)

 

6.2

             
   

Adjusted

 

Impact of Foreign

 Currency

 

Constant Currency

Adjusted

For the first nine months of 2023:

           

Income from operations

           

U.S. Refreshment Beverages

 

11.6 %

 

— %

 

11.6 %

U.S. Coffee

 

(5.0)

 

 

(5.0)

International

 

23.7

 

(4.3)

 

19.4

Total income from operations

 

1.8

 

(0.5)

 

1.3

             
   

Reported

 

Items

 Affecting

Comparability

 

Adjusted

 

Impact of

Foreign

Currency

 

Constant

 Currency

 Adjusted

For the first nine months of 2023:

                   

Operating margin

                   

U.S. Refreshment Beverages

 

27.2 %

 

0.8 %

 

28.0 %

 

— %

 

28.0 %

U.S. Coffee

 

26.6

 

4.6

 

31.2

 

 

31.2

International

 

23.2

 

1.0

 

24.2

 

 

24.2

Total operating margin

 

20.5

 

2.8

 

23.3

 

0.1

 

23.4

 

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

 

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

$                  1,941

Interest expense

555

Provision for income taxes

475

Other (income) expense, net

(49)

Depreciation expense

397

Other amortization

179

Amortization of intangibles

141

EBITDA

$                  3,639

Items affecting comparability:

 

Impairment of intangible assets

$                     168

Restructuring and integration expenses - DPS Merger

81

Restructuring - 2023 CEO Succession and Associated Realignment

27

Productivity

216

Non-routine legal matters

9

Stock compensation

15

Transaction costs

1

Foundational projects

1

Mark to market

(41)

Adjusted EBITDA

$                  4,116

   
 

September 30,

 

2023

Principal amounts of:

 

Commercial paper notes

$                  1,149

Senior unsecured notes

11,743

Total principal amounts

12,892

Less: Cash and cash equivalents

260

Total principal amounts less cash and cash equivalents

$                12,632

   

September 30, 2023 Management Leverage Ratio

3.1

   

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

 

 

KEURIG DR PEPPER INC.

RECONCILIATION OF ADJUSTED EBITDA - LAST TWELVE MONTHS

(UNAUDITED)

 

(in millions)

FOURTH

QUARTER OF

 2022

 

FIRST NINE

 MONTHS OF

 2023

 

LAST TWELVE

 MONTHS

Net income attributable to KDP

$                 453

 

$             1,488

 

$             1,941

Interest expense

123

 

432

 

555

Provision for income taxes

105

 

370

 

475

Other (income) expense, net

(8)

 

(41)

 

(49)

Depreciation expense

98

 

299

 

397

Other amortization

43

 

136

 

179

Amortization of intangibles

38

 

103

 

141

EBITDA

$                 852

 

$             2,787

 

$             3,639

Items affecting comparability:

         

Impairment of intangible assets

$                 166

 

$                     2

 

$                 168

Restructuring and integration expenses - DPS Merger

81

 

 

81

Restructuring - 2023 CEO Succession and Associated Realignment

 

27

 

27

Productivity

64

 

152

 

216

Nonroutine legal matters

4

 

5

 

9

Stock compensation

2

 

13

 

15

Transaction costs

 

1

 

1

Foundational projects

1

 

 

1

Mark to market

(9)

 

(32)

 

(41)

Adjusted EBITDA

$             1,161

 

$             2,955

 

$             4,116

 

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

 

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 2023 and 2022, there were no certain items excluded for comparison to prior year periods.

   

First Nine Months

(in millions)

 

2023

 

2022

Net cash provided by operating activities

 

$                 1,032

 

$                 2,098

Purchases of property, plant and equipment

 

(271)

 

(260)

Proceeds from sales of property, plant and equipment

 

9

 

79

Free Cash Flow

 

$                     770

 

$                 1,917

(PRNewsfoto/Keurig Dr Pepper)

    

 

SOURCE Keurig Dr Pepper Inc.

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