BURLINGTON, Mass. and PLANO, Texas, U.S. — Keurig Dr Pepper Inc. yesterday reported strong financial results for the second quarter ended June 30, 2020 and reaffirmed guidance for the year.
On a GAAP basis, net sales in the second quarter of 2020 increased 1.8% and diluted earnings per share totaled $0.21, compared to $0.22 in the year-ago period. Constant currency net sales in the second quarter advanced 2.9% versus year ago and Adjusted1 diluted EPS grew 10% to $0.33.
Second Quarter Consolidated Results
Net sales for the second quarter of 2020 increased 1.8% to $2.86 billion, compared to $2.81 billion in the year-ago period. On a constant currency basis, net sales advanced 2.9%, reflecting strong volume/mix growth of 4.3%, partially offset by lower net price realization of 1.4%. COVID-19 had a significant impact on the beverage industry during the quarter, requiring Keurig Dr Pepper to navigate the challenging environment to deliver balanced growth in the quarter. Highlights of net sales performance by segment include:
- Coffee Systems: Significant growth in brewers and K-Cup coffee pods for at-home consumption more than offset a significant drop-off in the office coffee and hospitality businesses. E-commerce demonstrated particular strength during the quarter, reflecting an acceleration of consumers shifting some of their purchases to the on-line channel, including at the Keurig.com retail site.
- Packaged Beverages: Strong in-market execution, leading to share growth in the majority of KDP’s cold beverage segments, more than offset the decline in convenience and gas channels due to reduced consumer mobility. Recent successful innovation also contributed to the strong performance in the quarter.
- Beverage Concentrates: Declined due to the fountain foodservice component of the business, which services restaurants and hospitality, reflecting changes in consumer behavior.
- Latin America Beverages experienced a modest negative impact due to limited consumer mobility in Mexico.
Keurig Dr Pepper – Coffee Systems
Net sales of Keurig Dr Pepper for the second quarter of 2020 increased 5.4% to $1.04 billion, compared to $0.99 billion in the year-ago period, reflecting higher volume/mix of 8.3%, partially offset by lower net price realization of 2.5% and unfavorable foreign currency translation of 0.4%. On a constant currency basis, net sales increased 5.8% in the quarter.
The volume/mix increase of 8.3% versus year-ago was driven by strong pod volume growth of 9.5%, with a large increase in the at-home business, partially offset by a significant decline in the away-from-home office and hospitality businesses. Brewer volume increased 11.6%, on 19% growth in the year-ago period, reflecting successful innovation introduced over the past 12 months and investments to drive household penetration.
Operating income increased 1.0% to $290 million in the second quarter of 2020, compared to $287 million in the year-ago period, reflecting the benefits of the strong net sales growth and continued productivity and merger synergies, partially offset by the unfavorable year-over-year impact of items affecting comparability, including costs related to COVID-19 and an increase in a litigation reserve. In the second quarter of 2020, the segment incurred $17 million of costs related to COVID-19, of which $9 million were treated as items affecting comparability. Excluding these and other items affecting comparability, Adjusted operating income in the quarter increased 9.7% to $363 million, compared to $331 million in the year-ago period, and Adjusted operating margin advanced 140 basis points to 34.8%. On a constant currency basis, Adjusted operating income increased 10.0%.