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Keurig Dr Pepper (KDP) Q1 Earnings Beat Estimates, Sales Up

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Keurig Dr Pepper Inc. (KDP - Free Report) reported first-quarter 2021 results, with the top and the bottom line increasing year on year as well as surpassing the Zacks Consensus Estimate. Results gained from solid in-market execution. The company witnessed growth across all segments. Moreover, management raised its sales view backed by strong demand for brands across categories.

Shares of the company gained 2% on Apr 28, following the quarterly release. Moreover, shares of the Zacks Rank #3 (Hold) company have gained 12.6% in the past three months compared with the industry’s rise of 4.9%.

Q1 in Detail

Adjusted earnings of 33 cents per share increased nearly 14% year over year from 29 cents reported in the year-ago quarter. Also, the bottom line surpassed the Zacks Consensus Estimate of 31 cents.

Net sales of $2,902 million surpassed the Zacks Consensus Estimate of $2,706 million and increased 11.1% from $2,613 million reported in the year-ago quarter. The upside was driven by growth across business segments, particularly in Coffee Systems. On a constant-currency (cc) basis, net sales increased 10.8% driven by higher volume/mix of 10.3% and favorable net price realization of 0.5%.

In the first quarter, the company benefited from strong in-market performance, with dollar consumption increasing 9.4% across the cold beverage retail base, including growth in categories such as CSDs, teas, juice drinks, apple juice, vegetable juice, coconut water, mixers, and premium unflavored water.

In coffee, retail consumption for single-serve pods manufactured by KDP advanced more than 3.9% in channels tracked by IRi. The market share for pods manufactured by KDP was a robust 83% in the first quarter. Within the untracked channels, e-commerce growth for K-Cup pods continued during the quarter, which more than offset declines in the away-from-home office and hospitality businesses.

Adjusted operating income advanced 8.3% year over year to $741 million, driven by strong net sales growth, productivity and merger synergies, as well as lower marketing spending. On a constant-currency basis, adjusted operating income increased 5.7%. Meanwhile, adjusted operating margin contracted 70 basis points (bps) to 25.5%.

Keurig Dr Pepper, Inc Price, Consensus and EPS Surprise

 

Keurig Dr Pepper, Inc Price, Consensus and EPS Surprise

Keurig Dr Pepper, Inc price-consensus-eps-surprise-chart | Keurig Dr Pepper, Inc Quote

 

Segmental Details

Sales in the Coffee Systems segment advanced 17.4% year over year to $1,142 million. At cc, net sales advanced 16.9%, owing to higher volume/mix of 19.5% and partially offset by lower net price realization of 2.6%. Volumes/mix gained from pod volume and brewer volume growth.

Sales in the Packaged Beverages segment totaled $1,307 million, up 7.4% year on year. Segment sales rose 7.2% at cc, gaining from favorable volume/mix of 6.8% and higher net price realization of 0.4%. The category benefitted from growth in Dr Pepper, A&W, 7UP, Sunkist, Snapple and Clamato among others.

Sales in the Beverage Concentrates segment rose 7.2% year over year to $328 million. At cc, the segment’s net sales increased 6.5%, gaining from favorable net price realization of 7.2%, partially offset by lower volume/mix of 0.7%.

The Latin America Beverages segment’s sales advanced 6.8% to $125 million. At cc, net sales increased 7.7%, owing to strong net price realization of 10.3% and partially offset by unfavorable volume/mix of 2.6%.

Financials

Keurig Dr Pepper ended the first quarter with cash and cash equivalents of $335 million. As of Mar 31, 2021, it had long-term obligations of $11,715 million and total stockholders’ equity of $24,070 million (excluding non-controlling interest). Net cash provided by operating activities totaled $546 million at the end of the first quarter.

The company generated a free cash flow of $458 million in the first quarter. The strong cash flow enabled the company to reduce total financial obligations by $125 million.

Outlook

Keurig Dr Pepper raised its sales view for 2021. The company now expects net sales growth in the range of 4-6% compared with the prior guidance of growth of 3-4%. The top line view is based on the assumption that the company will be able to offset growing inflationary pressures. Additionally, the company reaffirmed the bottom line view. Management continues to expect adjusted earnings growth of 13-15%, backed by improved sales.
 
Other assumptions related to the guidance include delivering merger synergies of $200 million in 2021, bringing the three-year total to $600 million, which is in line with the company’s merger target. Adjusted interest expenses are estimated to be $505-$515 million, with adjusted effective tax rate of 23.5-24%. Moreover, the company expects management leverage ratio at or below 3.0X at the end of 2021.

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