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Keurig Dr Pepper (KDP) Tops on Q2 Earnings & Sales, Hikes View
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Keurig Dr Pepper Inc. (KDP - Free Report) reported better-than-expected top and bottom lines in second-quarter 2021, driven by robust growth across all segments and improvements in the away-from-home channel due to increased consumer mobility. Results also improved on a year-over-year basis. The company witnessed strong market share gains and in-market performances across categories and brands in the quarter. Robust volume/mix and pricing aided revenues across segments.
Backed by the strong business momentum, the company raised its sales view for 2021. However, it reiterated the earnings guidance for the year on its intention to reinvest any increased profits back into its business.
Shares of the company declined 1.1% on Jul 29, following the quarterly release. However, shares of the Zacks Rank #2 (Buy) company have gained 9.2% year to date compared with the industry’s growth of 7.3%.
Image Source: Zacks Investment Research
Q2 in Detail
Adjusted earnings of 38 cents per share increased 15.2% year over year and beat the Zacks Consensus Estimate of 37 cents. On a currency-neutral basis, adjusted earnings were 37 cents per share.
Net sales of $3,140 million surpassed the Zacks Consensus Estimate of $3,066 million and increased 9.6% from the year-ago quarter. The upside was driven by growth across all business segments, with the Beverage Concentrates and Latin America Beverages segments posting strong double-digit growth. On a constant-currency (cc) basis, net sales increased 8.1%, driven by an increased volume/mix of 6.1% and favorable net price realization of 2%.
In the second quarter, the company benefited from strong in-market performance, with dollar consumption increasing 5.2% across the cold beverage retail base, including growth in categories such as CSDs, premium unflavored water, enhanced flavored water, apple juice, apple sauce, and coconut water. Dr Pepper, Sunkist, A&W, 7UP and Squirt CSDs, CORE Hydration, Evian, Bai, Motts apple juice and apple sauce, Polar, and Vita Coco were the key brands aiding growth.
Keurig Dr Pepper, Inc Price, Consensus and EPS Surprise
In coffee, the retail consumption for single-serve pods manufactured by KDP declined 1.2% in channels tracked by IRi. The decline was mainly attributed to advance stock-up related to the pandemic. The dollar market share for pods manufactured by KDP advanced 83% in the second quarter. The company witnessed improvement in the away-from-home channel’s performance in the quarter. However, it notes that the increased consumer mobility is yet to translate into the return to offices trend.
Adjusted operating income advanced 8.3% year over year to $839 million, driven by strong net sales growth, productivity and merger synergies as well as favorable year-over-year comparisons. On a cc basis, adjusted operating income increased 6.8%. Meanwhile, adjusted operating margin contracted 40 basis points to 26.7%, owing to significantly higher marketing investments and the impacts of inflation.
Segmental Details
Sales in the Coffee Systems segment advanced 5.6% year over year to $1,101 million. At cc, net sales advanced 3.9%, owing to a higher volume/mix of 3.5% and favorable net price realization of 0.4%. Volumes/mix gained from pod volume and brewer volume growth.
Sales in the Packaged Beverages segment totaled $1,498 million, up 7.6% year over year. Segment sales rose 7.3% at cc, gaining from a favorable volume/mix of 6.2% and a higher net price realization of 1.1%. The segment benefitted from growth in CSDs, particularly Canada Dry, Sunkist, Dr Pepper, 7UP, A&W and Squirt. Growth in Core Hydration, Evian, Snapple, Polar, Bai, and Motts also aided the performance, while a decline in Hawaiian Punch was an offsetting factor.
Sales in the Beverage Concentrates segment rose 21.4% year over year to $375 million. At cc, the segment’s net sales increased 20.7%, gaining from volume/mix growth of 10.3% and favorable net price realization of 10.4%. Gains in volume/mix can be attributed to improvements in the fountain foodservice business, owing to the increased consumer mobility in the restaurant and hospitality channels as well as effects of the significantly higher marketing investment.
The Latin America Beverages segment’s sales advanced 38.3% to $166 million. At cc, net sales increased 20.8%, owing to volume/mix growth of 16.6% and improved net price realization of 4.2%. Volume/mix was aided by the effects of the significantly higher marketing investments.
Financials
Keurig Dr Pepper ended the second quarter with cash and cash equivalents of $167 million. As of Jun 30, 2021, it had long-term obligations of $11,721 million and total stockholders’ equity of $24,242 million (excluding non-controlling interest). Net cash provided by operating activities totaled $1,139 million at the end of the second quarter.
The company generated a free cash flow of $492 million in the second quarter. The strong free cash flow enabled it to reduce total financial obligations by $431 million in the second quarter. For the six months ended Jun 30, 2020, free cash flow totaled $950 million.
Outlook
Keurig Dr Pepper raised its cc sales view for 2021 and reiterated its adjusted earnings guidance. The company now expects cc net sales growth of 6-7% compared with 4-6% growth mentioned earlier. The top-line view is based on the assumption that Keurig Dr Pepper will be able to offset growing inflationary pressures. Management continues to expect adjusted earnings growth of 13-15%, backed by improved sales and any increase in profits anticipated to be reinvested in its business.
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 an adjusted effective tax rate of 23.5-24%. The company expects management leverage ratio at or below 3.0X at the end of 2021.
Image: Bigstock
Keurig Dr Pepper (KDP) Tops on Q2 Earnings & Sales, Hikes View
Keurig Dr Pepper Inc. (KDP - Free Report) reported better-than-expected top and bottom lines in second-quarter 2021, driven by robust growth across all segments and improvements in the away-from-home channel due to increased consumer mobility. Results also improved on a year-over-year basis. The company witnessed strong market share gains and in-market performances across categories and brands in the quarter. Robust volume/mix and pricing aided revenues across segments.
Backed by the strong business momentum, the company raised its sales view for 2021. However, it reiterated the earnings guidance for the year on its intention to reinvest any increased profits back into its business.
Shares of the company declined 1.1% on Jul 29, following the quarterly release. However, shares of the Zacks Rank #2 (Buy) company have gained 9.2% year to date compared with the industry’s growth of 7.3%.
Image Source: Zacks Investment Research
Q2 in Detail
Adjusted earnings of 38 cents per share increased 15.2% year over year and beat the Zacks Consensus Estimate of 37 cents. On a currency-neutral basis, adjusted earnings were 37 cents per share.
Net sales of $3,140 million surpassed the Zacks Consensus Estimate of $3,066 million and increased 9.6% from the year-ago quarter. The upside was driven by growth across all business segments, with the Beverage Concentrates and Latin America Beverages segments posting strong double-digit growth. On a constant-currency (cc) basis, net sales increased 8.1%, driven by an increased volume/mix of 6.1% and favorable net price realization of 2%.
In the second quarter, the company benefited from strong in-market performance, with dollar consumption increasing 5.2% across the cold beverage retail base, including growth in categories such as CSDs, premium unflavored water, enhanced flavored water, apple juice, apple sauce, and coconut water. Dr Pepper, Sunkist, A&W, 7UP and Squirt CSDs, CORE Hydration, Evian, Bai, Motts apple juice and apple sauce, Polar, and Vita Coco were the key brands aiding growth.
Keurig Dr Pepper, Inc Price, Consensus and EPS Surprise
Keurig Dr Pepper, Inc price-consensus-eps-surprise-chart | Keurig Dr Pepper, Inc Quote
In coffee, the retail consumption for single-serve pods manufactured by KDP declined 1.2% in channels tracked by IRi. The decline was mainly attributed to advance stock-up related to the pandemic. The dollar market share for pods manufactured by KDP advanced 83% in the second quarter. The company witnessed improvement in the away-from-home channel’s performance in the quarter. However, it notes that the increased consumer mobility is yet to translate into the return to offices trend.
Adjusted operating income advanced 8.3% year over year to $839 million, driven by strong net sales growth, productivity and merger synergies as well as favorable year-over-year comparisons. On a cc basis, adjusted operating income increased 6.8%. Meanwhile, adjusted operating margin contracted 40 basis points to 26.7%, owing to significantly higher marketing investments and the impacts of inflation.
Segmental Details
Sales in the Coffee Systems segment advanced 5.6% year over year to $1,101 million. At cc, net sales advanced 3.9%, owing to a higher volume/mix of 3.5% and favorable net price realization of 0.4%. Volumes/mix gained from pod volume and brewer volume growth.
Sales in the Packaged Beverages segment totaled $1,498 million, up 7.6% year over year. Segment sales rose 7.3% at cc, gaining from a favorable volume/mix of 6.2% and a higher net price realization of 1.1%. The segment benefitted from growth in CSDs, particularly Canada Dry, Sunkist, Dr Pepper, 7UP, A&W and Squirt. Growth in Core Hydration, Evian, Snapple, Polar, Bai, and Motts also aided the performance, while a decline in Hawaiian Punch was an offsetting factor.
Sales in the Beverage Concentrates segment rose 21.4% year over year to $375 million. At cc, the segment’s net sales increased 20.7%, gaining from volume/mix growth of 10.3% and favorable net price realization of 10.4%. Gains in volume/mix can be attributed to improvements in the fountain foodservice business, owing to the increased consumer mobility in the restaurant and hospitality channels as well as effects of the significantly higher marketing investment.
The Latin America Beverages segment’s sales advanced 38.3% to $166 million. At cc, net sales increased 20.8%, owing to volume/mix growth of 16.6% and improved net price realization of 4.2%. Volume/mix was aided by the effects of the significantly higher marketing investments.
Financials
Keurig Dr Pepper ended the second quarter with cash and cash equivalents of $167 million. As of Jun 30, 2021, it had long-term obligations of $11,721 million and total stockholders’ equity of $24,242 million (excluding non-controlling interest). Net cash provided by operating activities totaled $1,139 million at the end of the second quarter.
The company generated a free cash flow of $492 million in the second quarter. The strong free cash flow enabled it to reduce total financial obligations by $431 million in the second quarter. For the six months ended Jun 30, 2020, free cash flow totaled $950 million.
Outlook
Keurig Dr Pepper raised its cc sales view for 2021 and reiterated its adjusted earnings guidance. The company now expects cc net sales growth of 6-7% compared with 4-6% growth mentioned earlier. The top-line view is based on the assumption that Keurig Dr Pepper will be able to offset growing inflationary pressures. Management continues to expect adjusted earnings growth of 13-15%, backed by improved sales and any increase in profits anticipated to be reinvested in its business.
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 an adjusted effective tax rate of 23.5-24%. The company expects management leverage ratio at or below 3.0X at the end of 2021.
Other Consumer Staple Stocks to Bet On
The Coca-Cola Company (KO - Free Report) , with a Zacks Rank #2, has a long-term earnings growth rate of 8.7%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Duckhorn Portfolio, Inc. (NAPA - Free Report) , also a Zacks Rank #2 stock, has a long-term earnings growth rate of 10.5%.
Heineken NV (HEINY - Free Report) has a long-term earnings growth rate of 5.2%. It currently has a Zacks Rank #2.