BURLINGTON, Mass. and PLANO, Texas, U.S. – Keurig Dr Pepper on Thursday reported solid sales and profit results for fiscal 2019 while predicting faster gains to come thanks to robust demand for many of its key franchises. The consumer beverage giant reported financial results for the fourth quarter and full year ended December 31, 2019 and provided guidance for 2020, the Company’s second full fiscal year since the merger between Keurig Green Mountain and Dr Pepper Snapple Group, Inc. created KDP.
The Company’s reported results were significantly impacted by the July 9, 2018 merger.
Commenting on the announcement, Keurig Dr Pepper Chairman and CEO Bob Gamgort stated, “We delivered strong performance for 2019, with underlying net sales growth in all four segments and EPS growth above our merger target range.
In-market performance was healthy across our portfolio, as innovation, marketing and in-store execution drove share growth in key segments.
Free cash flow continued to be robust, enabling us to rapidly delever. As we look toward 2020, we are increasing our investment behind growth drivers, leading to our expectation that revenue will accelerate above our merger targets, while still delivering double-digit EPS growth. We continue to expect that we will generate our merger target synergies of $600 million and three-year EPS growth within our target range of 15% to 17%.”
Full-year 2019 highlights include:
- Delivered underlying net sales growth of 3.2% and Adjusted diluted EPS growth above the merger target range of 15% – 17%.
- Achieved merger synergies in excess of the Company’s $200 million target and strong productivity, contributing to a 220 basis point increase in Adjusted operating income margin.
- Drove strong in-market2 performance, with market share growth in the majority of the Company’s key categories, including CSDs3, premium unflavored still water, shelf stable fruit drinks and shelf stable apple juice and apple sauce. In coffee, KDP manufactured pod growth was strong, with continued accelerated growth in untracked channels.
- Added approximately two million new U.S. households to the Keurig single-serve coffee brewing system and launched the highly successful and differentiated K-Duo brewer platform.
- Entered into a long-term partnership with Nestle USA in late 2019 to manufacture Starbucks branded packaged coffee in K-Cup pods in the U.S. and Canada as well as a long-term master licensing and distribution agreement for McCafé packaged coffee in the U.S., in addition to KDP’s existing agreement with McCafé in Canada.
- Expanded the Company’s presence in the energy drink category with the initial launch of A-Shoc energy drinks, in partnership with beverage entrepreneur Lance Collins, with national rollout in 2020.
- Launched the Company’s Drink Well. Do Good. corporate responsibility platform, including ambitious goals in the areas of supply chain, the environment, health & wellbeing and communities.
- Reduced bank debt by $1.3 billion and structured payables by $531 million, resulting in $1.8 billion of payments, due to strong profitability and ongoing effective working capital management.
- Improved the Company’s management leverage ratio by 0.9x to 4.5x at year-end 2019, versus 5.4x at year-end 2018; since the merger close, KDP’s management leverage ratio has improved 1.5x.
- Adjusted financial metrics used in this release are non-GAAP measures and refer to results in 2019. Adjusted pro forma financial metrics also used in this release for results in 2018 are also non-GAAP measures and assume the merger occurred on December 31, 2016 and adjust for other items affecting comparability. See reconciliations of GAAP results to Adjusted results, in the case of 2019 metrics, and to Adjusted pro forma results, in the case of 2018 metrics, in the accompanying tables.
- In-market performance (retail consumption; market share) based on Keurig Dr Pepper’s custom IRi category definitions.
- CSD refers to “Carbonated Soft Drink”.
Keurig Dr Pepper: Coffee Systems reach net sales of $4.23 billion
Net sales in 2019 totaled $4.23 billion, compared to $4.11 billion in the prior year. Compared to Adjusted pro forma net sales of $4.12 billion in 2018, net sales for 2019 increased 2.8%, reflecting strong volume/mix growth of 6.1%, partially offset by lower net price realization of 2.9% and unfavorable foreign currency translation of 0.4%.
The volume/mix growth of 6.1% reflected strong pod volume growth of 9.0% and brewer volume growth of 8.2%. The pod volume growth was driven by continued expansion of U.S. households regularly using a Keurig brewer which, in 2019, grew approximately 7% to 30 million households. Partially offsetting the strong volume growth of both pods and brewers was unfavorable pod sales mix.
Operating income increased 4.8% to $1.22 billion in 2019, compared to $1.16 billion in 2018. Adjusted operating income advanced 5.7% to $1.40 billion, compared to Adjusted pro forma operating income of $1.33 billion in the prior year, primarily reflecting continued productivity and merger synergies and the benefit of the net sales growth, partially offset by inflation in input costs and logistics, higher marketing investment and increased general and administrative expenses. Adjusted operating margin advanced 90 basis points versus year-ago to 33.1%.