Soft drink strength supports Keurig Dr Pepper

During the first quarter of fiscal 2023, Keurig Dr Pepper (KDP) saw a 12.7% rise in unit sales for its US Refreshment Beverages business unit, amounting to $2.01 billion. This growth was mainly due to KDP’s three-prong strategy, which guides its business unit. Price increases contributed to 12.5% of the sales growth, while volume/mix growth accounted for 0.2%. However, the operating income for US Refreshment Beverages fell by 30% to $490 million from the previous year’s $704 million, owing to several items affecting comparability, including a gain related to litigation in 2022 concerning KDP’s distribution agreement with Body Armor.

During a conference call with securities analysts on April 27, Robert M. Gamgort, the chairman and CEO of Keurig Dr Pepper, explained that the company’s US Refreshment Beverages business unit creates value in three ways: by driving growth in core brands, filling portfolio white spaces through innovation and partnerships, and enhancing omnichannel selling and distribution systems. These elements worked together effectively during Q1, resulting in strong performances from core brands like Dr Pepper, Crush, and Mott’s. Keurig Dr Pepper also integrated Nutrabolt’s C4 Energy beverage into its distribution network, a process that is progressing according to plan.

Although net income for the quarter ended March 31 fell 20% to $467 million, or 33¢ per share on the common stock, from $585 million, or 41¢ per share, quarterly sales increased by 9% to $3.35 billion from $3.07 billion. However, the US Coffee business unit sales fell 1.3% during the quarter, from $943 million to $931 million, due to a 6.6% decline in volume/mix that offset the 5.3% generated from price increases. Mr. Gamgort noted that the at-home coffee category, including the single-serve segment, experienced a slower start to the year due to changes in mobility relative to the previous year. He also stated that the category lapped the surge of the omicron variant in Q1, and pandemic precautions from the previous year are expected to continue to affect comparisons through the first half.

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Despite the challenges faced by the US Coffee business unit, Mr. Gamgort expressed optimism, saying that the company has secured incremental distribution points, display, and upgraded placements as it invests behind the brand. Overall, Keurig Dr Pepper’s three-prong strategy has had a positive effect on its US Refreshment Beverages business unit, which has seen growth in core brands, innovation, and effective omnichannel selling and distribution systems during Q1.

Soft drink strength supports Keurig Dr Pepper

During the first quarter of fiscal 2022, the business unit operating income of Keurig fell 9% to $232 million from $255 million, and Keurig brewer shipments also decreased by 29%. While pod sales in the United States rose 2.9% during the quarter, volumes declined by 2%. Sudhanshu Shekhar Priyadarshi, the chief financial officer, attributed the decline to increased price elasticity, which prompted some consumers to shift from premium pods to private label.

However, Mr. Priyadarshi also noted that the largest driver of the softness in the at-home coffee category over the past few quarters is mobility, and he believes that pod trends will improve in H2 as mobility differences relative to the previous year begin to dissipate.

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