Keurig Dr Pepper Reports Q1 2022 Results and Raises Full-Year Net Sales Guidance

Published: Apr. 28, 2022 at 6:00 AM CDT

Top-line Results Remain Strong, with Double-Digit Growth Reported in three Business Segments in Q1

Company also Reaffirms EPS Guidance for 2022

BURLINGTON, Mass. and FRISCO, Texas,  April 28, 2022 /PRNewswire/ -- Keurig Dr Pepper Inc. (NASDAQ: KDP) today reported financial results for the first quarter ended March 31, 2022 and raised its guidance for net sales growth in 2022 to the high-single-digit range, from the previous mid-single-digit range. The Company also reaffirmed its guidance for Adjusted EPS for the year.


Reported GAAP

Basis

Adjusted

Basis1




Q1

Q1

Net Sales

   % vs Prior Year

   % vs 2020

$3.08 bn

6.1%

17.8%

$3.08 bn

6.1%

17.5%

Diluted EPS

   % vs Prior Year

   % vs 2020

$0.41

78.3%

272.7%

$0.33

0.0%

13.8%

Commenting on the announcement, Chairman and CEO Bob Gamgort stated, "We delivered another quarter of strong revenue growth, reflecting the power of our brand portfolio and the quality of our execution at retail. Margins were impacted by accelerating inflation, which outpaced the timing of pricing actions, and the previously discussed coffee supply chain disruption. We made significant progress during the quarter on increasing coffee production and rebuilding inventories, and we implemented additional pricing actions across most categories. Consequently, we now expect to deliver net sales growth in the high-single-digit range and continue to expect to deliver Adjusted EPS growth in the mid-single-digit range for the year."

First Quarter Consolidated Results
Net sales for the first quarter of 2022 increased 6.1% to $3.08 billion, compared to $2.90 billion in the year- ago period, reflecting exceptionally strong growth in Packaged Beverages, Beverage Concentrates and Latin America Beverages, partially offset by an expected decline in Coffee Systems. Driving the consolidated net sales growth was favorable net price realization of 6.3%, slightly offset by lower volume/mix of 0.2%. On a two-year basis, constant currency net sales advanced 17.5% versus 2020.

KDP in-market performance in the Liquid Refreshment Beverages (LRB) category remained strong in the quarter, with retail dollar consumption2 advancing 9.9% and market share growth registered in over 87% of the Company's cold beverage portfolio, largely reflecting strength in CSDs3, coconut water and seltzers, teas, apple juice and fruit drinks. This performance was driven by Dr Pepper, Sunkist, Canada Dry, A&W and Squirt CSDs, Vita Coco, Polar seltzers, Snapple, and Mott's. On a two-year basis, KDP grew retail dollar consumption by 21% and gained market share in 78% of its cold beverage portfolio.

In coffee, retail dollar consumption of single-serve pods manufactured by KDP in IRi tracked channels increased 3.6%, while Coffee Systems net sales declined 4.3%, as production was prioritized to rebuilding inventory following supply chain disruption in late Q4 and early Q1. During the quarter, the Company sequentially improved manufacturing output through a focused supply chain recovery program. KDP manufactured share remained strong at 82.5%. Performance in away-from-home pods continued to improve versus year-ago, but remained below pre-COVID levels, as return to offices has lagged recovery in other sectors. On a two-year basis, retail consumption of single-serve pods manufactured by KDP increased 8.2% in IRi tracked channels.

GAAP operating income increased 51% to $966 million in the first quarter of 2022, compared to $640 million in the year-ago period. This performance reflected the strong net sales growth and continued productivity, as well as a $38 million benefit from the Company's strategic asset investment program, lower non-cash stock compensation expense and legal fees. Partially offsetting these positive drivers were the impacts of accelerating, broad-based inflation and significant supply chain disruption across manufacturing, logistics, material inputs and labor availability, leading to higher than anticipated costs to meet continued strong consumer demand. Also impacting the comparison was the favorable year-over-year impact of items affecting comparability, including a $299 million gain on the Company's successful resolution of the litigation with BodyArmor in the quarter.

Adjusted operating income in the quarter declined 1.2% to $732 million. On a percent of net sales basis, Adjusted operating income was 23.8% in the quarter, compared to 25.5% in the year-ago period. On a two-year basis, first quarter Adjusted operating income advanced 6.7% versus 2020.

GAAP net income in the first quarter of 2022 increased 80% to $585 million, or $0.41 per diluted share, compared to GAAP net income of $325 million, or $0.23 per diluted share, in the year-ago period. This performance was driven by the growth in operating income, partially offset by a higher effective tax rate. Also benefitting the performance was the favorable year-over-year impact of items affecting comparability, including the after-tax gain on the Company's successful resolution of litigation with BodyArmor and costs associated with the early extinguishment of debt.

Adjusted net income advanced 0.8% to $474 million in the first quarter of 2022. Adjusted diluted EPS was $0.33, essentially in line with the year-ago period and, on a two-year basis, Adjusted diluted EPS in the quarter grew 13.8% versus 2020.

Operating cash flow increased to $663 million in the quarter, and free cash flow totaled $632 million, primarily reflecting the growth in earnings and ongoing effective working capital management. This continued strong free cash flow performance enabled KDP to reduce financial obligations by $350 million in the first quarter of 2022 and end the period with $592 million of unrestricted cash on hand. As a result, the Company's management leverage ratio declined 0.1x, ending the first quarter at 2.8x.

1 Adjusted financial metrics presented in this release are non-GAAP and on a constant currency basis. See reconciliations of GAAP results to Adjusted results on a constant currency basis in the accompanying tables.

2 Retail consumption data based on Keurig Dr Pepper's custom IRi category definitions for the 13-week period ending 3/27/2022.

3 CSDs refer to "Carbonated Soft Drinks".

First Quarter Segment Results

Coffee Systems
Net sales for the first quarter of 2022 totaled $1.09 billion, compared to $1.14 billion in the year-ago period, a decline of 4.3%, primarily reflecting the impact of supply chain challenges. Net price realization increased by 3.2%, which was offset by lower volume/mix of 7.5%. On a two-year basis, constant currency net sales advanced 11.8% versus 2020.

The higher net price realization in the quarter was driven by pricing actions taken late 2021 and in the first quarter of 2022, combined with sequentially lower customer fines incurred due to improving, but still somewhat challenged service levels.

The volume/mix decrease of 7.5% in the quarter reflected lower pod and brewer shipment volume, both of which declined 5.2% versus the year-ago period. The pod performance reflected the prioritization of production to rebuild inventory and resulted in first quarter shipments that trailed consumption. Also impacting the pod performance was comparison to the very strong pod shipment volume growth of 13.7% in the year-ago period. The brewer performance largely reflected comparison to the exceptionally strong brewer shipment growth of 61% in the year-ago period.

GAAP operating income declined 27% to $268 million in the first quarter of 2022, compared to $368 million in the year-ago period, largely reflecting the net sales decline and the impacts of the accelerating, broad-based inflationary pressures and supply chain challenges, including incremental costs associated with rebuilding inventory. Partially offsetting these drivers were continued productivity and lower marketing expense, as the Company reduced demand generating marketing investment due to its focus on increasing manufacturing output and rebuilding inventory levels. Also impacting the comparison was the slightly favorable year-over-year impact of items affecting comparability.

Adjusted operating income declined 24% to $319 million in the quarter and, on a percent of net sales basis, was 29.2%, compared to 36.9% in the year-ago period. This performance largely reflected the broad-based inflationary environment and increased costs to rebuild inventory.

Packaged Beverages
Net sales for the first quarter of 2022 increased an exceptionally strong 13.2% to $1.48 billion, compared to $1.31 billion in the year-ago period, reflecting higher net price realization of 8.3% and higher volume/mix of 4.9%, due to continued strong in-market execution and market share expansion across the portfolio. On a two-year basis, constant currency net sales increased 21.4% versus 2020.

Leading the net sales performance were Canada Dry, Dr Pepper, 7UP, A&W, Sunkist and Squirt CSDs, Mott's, and Snapple, as well as growth in CORE Hydration, Polar seltzers, Hawaiian Punch and Vita Coco.

GAAP operating income increased 172% in the first quarter of 2022 to $486 million, compared to $179 million in the year-ago period, reflecting the strong net sales growth, the aforementioned $38 million benefit from the Company's strategic asset investment program, continued productivity and the favorable year-over-year impact of items affecting comparability, including the gain that benefitted the segment on the successful resolution of litigation with BodyArmor. Partially offsetting these favorable drivers were the unfavorable impacts of broad-based inflation across the business and supply chain challenges that drove higher than anticipated costs to meet continued strong consumer demand.

Adjusted operating income increased 16.9% to $235 million and, on a percent of net sales basis, Adjusted operating income in the first quarter of 2022 was 15.9% in the quarter, compared to 15.4% in the year-ago period.

Beverage Concentrates
Net sales for the first quarter of 2022 increased 9.5% to $359 million, compared to $328 million in the year-ago period reflecting higher net price realization of 7.6% and favorable volume/mix of 1.9%. The volume/mix performance primarily reflected higher fountain foodservice shipments, driven by increased consumer mobility in the restaurant and hospitality channels. On a two-year basis, constant currency net sales advanced 16.7% versus 2020.

Total shipment volume versus year-ago increased 1.9% in the quarter, as increases in Dr Pepper and Sunkist were partially offset by declines in Crush. Bottler case sales volume increased 2.2% in the quarter compared to the year-ago period.

GAAP operating income in the first quarter of 2022 increased 2.5% to $244 million, compared to $238 million in the year-ago period, reflecting the benefit of the higher net sales, partially offset by the impacts of the broad-based inflationary environment, a significant increase in marketing investment and the unfavorable year-over-year impact of items affecting comparability.

Adjusted operating income increased 3.3% to $247 million in the quarter and, on a percent of net sales basis, adjusted operating income was 68.8%, compared to 72.9%, reflecting the significant increase in marketing investment and the broad-based inflationary environment.

Latin America Beverages
Net sales for the first quarter of 2022 increased 16.8% to $146 million, compared to net sales of $125 million in the year-ago period and, on a constant currency basis, net sales increased 17.6%. This performance was driven by higher net price realization of 9.6% and increased volume/mix of 8.0%. Leading the strong net sales growth in the quarter were Peñafiel, Clamato, Mott's and Squirt. On a two-year basis, constant currency net sales increased 26.5% versus 2020.

GAAP operating income in the first quarter of 2022 increased 13.6% to $25 million, compared to $22 million in the year-ago period, reflecting the strong growth in net sales, continued productivity and the slightly favorable year-over-year impact of items affecting comparability. These drivers were partially offset by the broad-based inflationary environment and higher marketing investment.

Adjusted operating income increased 13.0% to $26 million in the quarter. On a percent of net sales basis, Adjusted operating income was 17.7%, compared to 18.4% in the year-ago period, reflecting broad-based inflation and higher marketing investment.

KDP 2022 Guidance
KDP raised its guidance for constant currency net sales growth in 2022 to the high-single-digit range and reaffirmed its guidance for Adjusted diluted EPS growth in 2022 in the mid-single-digit range. The Company continues to expect EPS performance versus 2021 to strengthen throughout the year, with Adjusted diluted EPS growth reaching the high-single-digit range in the second half of 2022, in line with the Company's long-term algorithm.

Investor Contacts:
Steve Alexander
T: 972-673-6769 / steve.alexander@kdrp.com

Media Contact:
Katie Gilroy
T: 781-418-3345 / katie.gilroy@kdrp.com

About Keurig Dr Pepper

Keurig Dr Pepper (KDP) is a leading beverage company in North America, with annual revenue approaching $13 billion and approximately 27,000 employees. KDP holds leadership positions in soft drinks, specialty coffee and tea, water, juice and juice drinks and mixers, and markets the #1 single serve coffee brewing system in the U.S. and Canada. The Company's portfolio of more than 125 owned, licensed and partner brands is designed to satisfy virtually any consumer need, any time, and includes Keurig®, Dr Pepper®, Green Mountain Coffee Roasters®, Canada Dry®, Snapple®, Bai®, Mott's®, CORE® and The Original Donut Shop®. Through its powerful sales and distribution network, KDP can deliver its portfolio of hot and cold beverages to nearly every point of purchase for consumers. The Company is committed to sourcing, producing and distributing its beverages responsibly through its Drink Well. Do Good. corporate responsibility platform, including efforts around circular packaging, efficient natural resource use and supply chain sustainability. For more information, visit www.keurigdrpepper.com.

FORWARD LOOKING STATEMENTS

Certain statements contained herein are "forward-looking statements" within the meaning of applicable securities laws and regulations. These forward-looking statements can generally be identified by the use of words such as "outlook," "guidance," "anticipate," "expect," "believe," "could," "estimate," "feel," "forecast," "intend," "may," "plan," "potential," "project," "should," "target," "will," "would," and similar words. Forward-looking statements by their nature address matters that are, to different degrees, uncertain. These statements are based on the current expectations of our management, are not predictions of actual performance, and actual results may differ materially.

Forward-looking statements are subject to a number of risks and uncertainties, including the factors disclosed in our Annual Report on Form 10-K and subsequent filings with the SEC. We are under no obligation to update, modify or withdraw any forward-looking statements, except as required by applicable law.

NON-GAAP FINANCIAL MEASURES

This release includes certain non-GAAP financial measures including Adjusted operating income, Adjusted net income, Adjusted diluted EPS, free cash flow and financial measures presented on a constant currency basis, which differ from results using U.S. Generally Accepted Accounting Principles (GAAP). These non-GAAP financial measures should be considered as supplements to the GAAP reported measures, should not be considered replacements for, or superior to, the GAAP measures and may not be comparable to similarly named measures used by other companies. Non-GAAP financial measures typically exclude certain charges, including one-time costs that are not expected to occur routinely in future periods. The Company uses non-GAAP financial measures internally to focus management on performance excluding these special charges to gauge our business operating performance. Management believes this information is helpful to investors because it increases transparency and assists investors in understanding the underlying performance of the Company and in the analysis of ongoing operating trends. Additionally, management believes that non-GAAP financial measures are frequently used by analysts and investors in their evaluation of companies, and their continued inclusion provides consistency in financial reporting and enables analysts and investors to perform meaningful comparisons of past, present and future operating results. The most directly comparable GAAP financial measures and reconciliations to non-GAAP financial measures are set forth in the appendix to this release and included in the Company's filings with the SEC.

To the extent that the Company provides guidance, it does so only on a non-GAAP basis and does not provide reconciliations of such forward-looking non-GAAP measures to GAAP due to the inability to predict the amount and timing of impacts outside of the Company's control on certain items, such as non-cash gains or losses resulting from mark-to-market adjustments of derivative instruments, among others.

KEURIG DR PEPPER INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)




First Quarter

(in millions, except per share data)


2022


2021

Net sales


$          3,078


$          2,902

Cost of sales


1,428


1,302

     Gross profit


1,650


1,600

Selling, general and administrative expenses


1,018


961

Gain on litigation settlement


(299)


Other operating income, net


(35)


(1)

     Income from operations


966


640

Interest expense


188


140

Loss on early extinguishment of debt


48


105

Gain on sale of equity method investment


(50)


Impairment of investments and note receivable


6


Other expense (income), net


9


(3)

     Income before provision for income taxes


765


398

Provision for income taxes


180


73

     Net income including non-controlling interest


585


325

     Less: Net loss attributable to non-controlling interest



          Net income attributable to KDP


$            585


$            325






Earnings per common share:





     Basic


$           0.41


$           0.23

     Diluted


0.41


0.23

Weighted average common shares outstanding:





     Basic


1,418.2


1,409.2

     Diluted


1,429.7


1,425.6

KEURIG DR PEPPER INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)



March 31,


December 31,

(in millions, except share and per share data)

2022


2021

Assets

Current assets:




     Cash and cash equivalents

$                592


$                567

     Restricted cash and cash equivalents

2


1

     Trade accounts receivable, net

1,214


1,148

     Inventories

1,045


894

     Prepaid expenses and other current assets

637


447

          Total current assets

3,490


3,057

Property, plant and equipment, net

2,436


2,494

Investments in unconsolidated affiliates

29


30

Goodwill

20,243


20,182

Other intangible assets, net

23,889


23,856

Other non-current assets

1,119


937

Deferred tax assets

38


42

          Total assets

$           51,244


$           50,598

Liabilities and Stockholders' Equity

Current liabilities:




     Accounts payable

$             4,510


$             4,316

     Accrued expenses

1,028


1,110

     Structured payables

143


142

     Short-term borrowings and current portion of long-term obligations


304

     Other current liabilities

767


613

          Total current liabilities

6,448


6,485

Long-term obligations

11,584


11,578

Deferred tax liabilities

6,054


5,986

Other non-current liabilities

1,647


1,577

          Total liabilities

25,733


25,626

Commitments and contingencies




Stockholders' equity:




     Preferred stock, $0.01 par value, 15,000,000 shares authorized, no shares issued


     Common stock, $0.01 par value, 2,000,000,000 shares authorized,
     1,418,462,239 and 1,418,119,197 shares issued and outstanding as of March 31,
     2022 and December 31, 2021, respectively

14


14

     Additional paid-in capital

21,764


21,785

     Retained earnings

3,518


3,199

     Accumulated other comprehensive income (loss)

215


(26)

      Total stockholders' equity

25,511


24,972

      Non-controlling interest


       Total equity

25,511


24,972

          Total liabilities and stockholders' equity

$           51,244


$           50,598

KEURIG DR PEPPER INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)



First Quarter

(in millions)

2022


2021

Operating activities:




Net income attributable to KDP

$                  585


$                  325

Adjustments to reconcile net income to net cash provided by operating activities:




     Depreciation expense

106


102

     Amortization of intangibles

34


33

     Other amortization expense

42


40

     Provision for sales returns

12


19

     Deferred income taxes

8


11

     Employee stock-based compensation (benefit) expense

(15)


25

     Loss on early extinguishment of debt

48


105

     Gain on sale of equity method investment

(50)


     Gain on disposal of property, plant and equipment

(38)


(1)

     Unrealized gain on foreign currency

(11)


(10)

     Unrealized gain on derivatives


(41)

     Equity in losses of unconsolidated affiliates

3


     Impairment on investments and note receivable of unconsolidated affiliates

6


     Other, net

13


15

     Changes in assets and liabilities:




          Trade accounts receivable

(73)


(37)

          Inventories

(147)


(77)

          Income taxes receivable and payables, net

135


25

          Other current and non-current assets

(284)


(295)

          Accounts payable and accrued expenses

151


121

          Other current and non-current liabilities

138


186

          Net change in operating assets and liabilities

(80)


(77)

               Net cash provided by operating activities

663


546

Investing activities:




Proceeds from sale of investment in unconsolidated affiliates

50


Purchases of property, plant and equipment

(109)


(95)

Proceeds from sales of property, plant and equipment

78


7

Purchases of intangibles

(10)


(12)

Issuance of related party note receivable

(6)


Investments in unconsolidated affiliates

(3)


Other, net

3


1

               Net cash provided by (used in) investing activities

3


(99)

Financing activities:




Proceeds from issuance of Notes


2,150

Repayments of Notes

(201)


(1,845)

Proceeds from issuance of commercial paper


120

Repayments of commercial paper

(149)


(120)

Repayments of 2019 KDP Term Loan


(425)

Proceeds from structured payables

38


35

Repayments of structured payables

(37)


(41)

Cash dividends paid

(265)


(192)

Proceeds from issuance of common stock


140

Tax withholdings related to net share settlements

(5)


(125)

Payments on finance leases

(20)


(15)

Other, net

(5)


(37)

               Net cash used in financing activities

(644)


(355)

Cash, cash equivalents, and restricted cash and cash equivalents:




Net change from operating, investing and financing activities

22


92

Effect of exchange rate changes

4


2

Beginning balance

568


255

Ending balance

$                  594


$                  349

KEURIG DR PEPPER INC.

RECONCILIATION OF SEGMENT INFORMATION

(UNAUDITED)




First Quarter

(in millions)


2022


2021

Net Sales





     Coffee Systems


$            1,093


$            1,142

     Packaged Beverages


1,480


1,307

     Beverage Concentrates


359


328

     Latin America Beverages


146


125

Total net sales


$            3,078


$            2,902






Income from Operations





     Coffee Systems


$              268


$              368

     Packaged Beverages


486


179

     Beverage Concentrates


244


238

     Latin America Beverages


25


22

     Unallocated corporate costs


(57)


(167)

Total income from operations


$              966


$              640

KEURIG DR PEPPER INC.
RECONCILIATION OF CERTAIN NON-GAAP INFORMATION
(UNAUDITED)

The company reports its financial results in accordance with U.S. GAAP. However, management believes that certain non-GAAP financial measures that reflect the way management evaluates the business may provide investors with additional information regarding the company's results, trends and ongoing performance on a comparable basis.

Specifically, investors should consider the following with respect to our financial results:

Adjusted: Defined as certain financial statement captions and metrics adjusted for certain items affecting comparability.

Items affecting comparability: Defined as certain items that are excluded for comparison to prior year periods, adjusted for the tax impact as applicable. Tax impact is determined based upon an approximate rate for each item. For each period, management adjusts for (i) the unrealized mark-to-market impact of derivative instruments not designated as hedges in accordance with U.S. GAAP and do not have an offsetting risk reflected within the financial results, as well as the unrealized mark-to-market impact of our Vita Coco investment; (ii) the amortization associated with definite-lived intangible assets; (iii) the amortization of the deferred financing costs associated with the DPS Merger; (iv) the amortization of the fair value adjustment of the senior unsecured notes obtained as a result of the DPS Merger; (v) stock compensation expense and the associated windfall tax benefit attributable to the matching awards made to employees who made an initial investment in KDP; (vi) non-cash changes in deferred tax liabilities related to goodwill and other intangible assets as a result of tax rate or apportionment changes; and (vii) other certain items that are excluded for comparison purposes to prior year periods.

For the first quarter of 2022, the other certain items excluded for comparison purposes include (i) restructuring and integration expenses related to significant business combinations; (ii) productivity expenses; (iii) costs related to significant non-routine legal matters; (iv) the loss on early extinguishment of debt related to the redemption of debt; (v) incremental costs to our operations related to risks associated with the COVID-19 pandemic; (vi) the gain on the sale of our investment in BodyArmor; (vii) the gain on the settlement of our prior litigation with BodyArmor, excluding recoveries of previously incurred litigation expenses which were included in our adjusted results and (viii) losses recognized with respect to our equity method investment in Bedford as a result of funding our share of their wind-down costs.

For the first quarter of 2021, the other certain items excluded for comparison purposes include (i) restructuring and integration expenses related to significant business combinations; (ii) productivity expenses; (iii) costs related to significant non-routine legal matters; (iv) the loss on early extinguishment of debt related to the redemption of debt; (v) incremental costs to our operations related to risks associated with the COVID-19 pandemic; and (vi) gains from insurance recoveries related to the February 2019 organized malware attack on our business operation networks in the Coffee Systems segment.

Costs related to significant non-routine legal matters relate to the antitrust litigation. Incremental costs to our operations related to risks associated with the COVID-19 pandemic include incremental expenses incurred to either maintain the health and safety of our front-line employees or temporarily increase compensation to such employees to ensure essential operations continue during the pandemic.

We believe removing these costs reflects how management views our business results on a consistent basis.

Constant currency adjusted: Defined as certain financial statement captions and metrics adjusted for certain items affecting comparability, calculated on a constant currency basis by converting our current period local currency financial results using the prior period foreign currency exchange rates.

For the first quarter of 2022 and 2021, the supplemental financial data set forth below includes reconciliations of adjusted and constant currency adjusted financial measures to the applicable financial measure presented in the unaudited condensed consolidated financial statements for the same period.

KEURIG DR PEPPER INC.

RECONCILIATION OF CERTAIN NON-GAAP INFORMATION

(UNAUDITED)



Cost of sales


Gross profit


Gross
margin


Selling, general
and administrative
expenses


Gain on
litigation
settlement


Other operating
(expense)
income, net


Income from
operations


Operating
margin

For the First Quarter of 2022
















Reported

$            1,428


$            1,650


53.6 %


$                    1,018


$             (299)


$                    (35)


$            966


31.4 %

Items Affecting Comparability:
















     Mark to market

59


(59)




26




(85)



     Amortization of intangibles





(34)




34



     Stock compensation





7




(7)



     Restructuring and integration costs





(33)



(3)


36



     Productivity

(28)


28




(22)




50



     Non-routine legal matters





(4)




4



     COVID-19

(4)


4




(1)




5



     Gain on litigation






271



(271)



Adjusted

$            1,455


$            1,623


52.7 %


$                       957


$               (28)


$                    (38)


$            732


23.8 %

Impact of foreign currency





— %










— %

Constant currency adjusted





52.7 %










23.8 %

















For the First Quarter of 2021
















Reported

$            1,302


$            1,600


55.1 %


$                       961


$                —


$                     (1)


$            640


22.1 %

Items Affecting Comparability:
















     Mark to market

9


(9)




29




(38)



     Amortization of intangibles





(33)




33



     Stock compensation





(6)




6



     Restructuring and integration costs





(43)




43



     Productivity

(8)


8




(25)




33



     Non-routine legal matters





(10)




10



     COVID-19

(12)


12




(4)




16



     Malware incident





2




(2)



Adjusted

$            1,291


$            1,611


55.5 %


$                       871


$                —


$                     (1)


$            741


25.5 %


Refer to page A-8 for reconciliations of reported net sales to constant currency net sales and adjusted income from operations to constant currency adjusted income from operations.

KEURIG DR PEPPER INC.

RECONCILIATION OF CERTAIN NON-GAAP INFORMATION

(UNAUDITED)



Interest
expense


Loss on early
extinguishment
of debt


Gain on sale
of equity-
method
investment


Impairment of
investments
and note
receivable


Other
(income)
expense,
net


Income
before
provision for
income taxes


Provision
for
income
taxes


Effective
tax rate


Net
income
attributable
to KDP


Diluted
earnings
per
share

For the First Quarter of 2022




















Reported

$     188


$                   48


$                 (50)


$                       6


$                9


$               765


$          180


23.5        %


$        585


$    0.41

Items Affecting Comparability:




















     Mark to market

(71)





(3)


(11)


(2)




(9)


(0.01)

     Amortization of intangibles






34


9




25


0.02

     Amortization of deferred financing costs

(1)






1





1


     Amortization of fair value debt adjustment

(5)






5


1




4


     Stock compensation






(7)


(1)




(6)


     Restructuring and integration costs






36


9




27


0.02

     Productivity






50


12




38


0.03

     Impairment of investment




(6)




6





6


     Loss on early extinguishment of debt


(48)





48


11




37


0.03

     Non-routine legal matters






4


1




3


     COVID-19






5


1




4


     Gain on litigation






(271)


(68)




(203)


(0.14)

     Gain on sale of equity-method investment



50




(50)


(12)




(38)


(0.03)

Adjusted

$     111


$                   —


$                   —


$                     —


$                6


$               615


$          141


22.9 %


$        474


$    0.33

Impact of foreign currency















— %





Constant currency adjusted















22.9 %

























For the First Quarter of 2021




















Reported

$     140


$                 105


$                   —


$                     —


$               (3)


$               398


$           73


18.3 %


$        325


$    0.23

Items Affecting Comparability:




















     Mark to market

8






(46)


(11)




(35)


(0.02)

     Amortization of intangibles






33


8




25


0.02

     Amortization of deferred financing costs

(3)






3





3


     Amortization of fair value of debt adjustment

(6)






6


2




4


     Stock compensation






6


12




(6)


     Restructuring and integration costs






43


11




32


0.02

     Productivity






33


8




25


0.02

     Loss on early extinguishment of debt


(105)





105


25




80


0.06

     Non-routine legal matters






10


2




8


0.01

     COVID-19






16


4




12


0.01

     Malware incident






(2)





(2)


Adjusted

$     139


$                   —


$                   —


$                     —


$               (3)


$               605


$          134


22.1 %


$        471


$    0.33





















Change - adjusted

(20.1) %
















0.6 %


— %

Impact of foreign currency

— %
















0.2 %


—  %

Change - Constant currency adjusted

(20.1) %
















0.8 %


—  %

KEURIG DR PEPPER INC.

RECONCILIATION OF CERTAIN FINANCIAL MEASURES BY SEGMENT TO CONSTANT CURRENCY
ADJUSTED FINANCIAL MEASURES BY SEGMENT

 

(UNAUDITED)


(in millions)

Reported


Items Affecting
Comparability


Adjusted

For the first quarter of 2022:






Income from operations






     Coffee Systems

$                            268


$                              51


$                            319

     Packaged Beverages

486


(251)


235

     Beverage Concentrates

244


3


247

     Latin America Beverages

25


1


26

     Unallocated corporate costs

(57)


(38)


(95)

Total income from operations

$                            966


$                           (234)


$                            732







For the first quarter of 2021:






Income from operations






     Coffee Systems

$                            368


$                              53


$                            421

     Packaged Beverages

179


22


201

     Beverage Concentrates

238


1


239

     Latin America Beverages

22


1


23

     Unallocated corporate costs

(167)


24


(143)

Total income from operations

$                            640


$                            101


$                            741



Reported


Impact of Foreign
Currency


Constant Currency

For the first quarter of 2022:






Net sales






     Coffee Systems

(4.3) %


— %


(4.3) %

     Packaged Beverages

13.2



13.2

     Beverage Concentrates

9.5



9.5

     Latin America Beverages

16.8


0.8


17.6

Total net sales

6.1



6.1








Adjusted


Impact of Foreign
Currency


Constant Currency
Adjusted

For the first quarter of 2022:






Income from operations






     Coffee Systems

(24.2) %


— %


(24.2) %

     Packaged Beverages

16.9



16.9

     Beverage Concentrates

3.3



3.3

     Latin America Beverages

13.0



13.0

Total income from operations

(1.2)



(1.2)









Reported


Items Affecting
Comparability


Adjusted


Impact of Foreign
Currency


Constant Currency
Adjusted

For the first quarter of 2022:











Operating margin











     Coffee Systems


24.5 %


4.7 %


29.2 %


— %


29.2 %

     Packaged Beverages


32.8


(16.9)


15.9



15.9

     Beverage Concentrates


68.0


0.8


68.8



68.8

     Latin America Beverages


17.1


0.7


17.8


(0.1)


17.7

Total operating margin


31.4


(7.6)


23.8



23.8

KEURIG DR PEPPER INC.

RECONCILIATION OF ADJUSTED EBITDA AND MANAGEMENT LEVERAGE RATIO

(UNAUDITED)



(in millions, except for ratio)


ADJUSTED EBITDA RECONCILIATION - LAST TWELVE MONTHS


Net income attributable to KDP

$                  2,406

     Interest expense

548

     Provision for income taxes

760

     Other (income) expense, net

10

     Depreciation expense

414

     Other amortization

166

     Amortization of intangibles

135

EBITDA

$                  4,439

Items affecting comparability:


     Gain on sale of equity-method investment

$                   (574)

     Gain on litigation settlement

(271)

     Loss on early extinguishment of debt

48

     Impairment of investments and note receivable

23

     Restructuring and integration expenses

192

     Productivity

155

     Non-routine legal matters

24

     Stock compensation

5

     COVID-19

26

     Transaction costs

2

     Mark to market

(104)

Adjusted EBITDA

$                  3,965




March 31,


2022

Principal amounts of senior unsecured notes

$                11,750

Less: Cash and cash equivalents

592

Total principal amounts less cash and cash equivalents

$                11,158



March 31, 2022 Management Leverage Ratio

2.8

KEURIG DR PEPPER INC.

RECONCILIATION OF ADJUSTED EBITDA - LAST TWELVE MONTHS 

(UNAUDITED)



(in millions)

SECOND
QUARTER OF
2021


THIRD
QUARTER OF
2021


FOURTH
QUARTER OF
2021


FIRST
QUARTER OF
2022


LAST
TWELVE MONTHS

Net income attributable to KDP

$                 448


$                 530


$                 843


$                 585


$             2,406

     Interest expense

125


116


119


188


548

     Provision for income taxes

165


149


266


180


760

     Other (income) expense, net

(4)


1


4


9


10

     Depreciation expense

104


98


106


106


414

     Other amortization

40


38


46


42


166

     Amortization of intangibles

34


34


33


34


135

EBITDA

$                 912


$                 966


$             1,417


$             1,144


$             4,439

Items affecting comparability:










     Gain on sale of equity-method investment

$                   —


$                   —


$               (524)


$                 (50)


$               (574)

     Gain on litigation settlement




(271)


(271)

     Loss on early extinguishment of debt




48


48

     Impairment on investments and note receivable



17


6


23

     Restructuring and integration expenses

49


53


57


33


192

     Productivity

32


40


40


43


155

     Nonroutine legal matters

6


7


7


4


24

     Stock compensation

5


3


4


(7)


5

     COVID-19

11


4


6


5


26

     Transaction costs


1


1



2

     Malware incident


(1)


1



     Mark to market

(38)


(9)


28


(85)


(104)

Adjusted EBITDA

$                 977


$             1,064


$             1,054


$                 870


$             3,965

KEURIG DR PEPPER INC.
RECONCILIATION OF NET CASH PROVIDED BY OPERATING ACTIVITIES TO FREE CASH FLOW
(UNAUDITED)

Free cash flow is defined as net cash provided by operating activities adjusted for purchases of property, plant and equipment, proceeds from sales of property, plant and equipment, and certain items excluded for comparison to prior year periods. For the first quarter of 2022 and 2021, there were no certain items excluded for comparison to prior year periods.



First Quarter

(in millions)


2022


2021

Net cash provided by operating activities


$                     663


$                     546

     Purchases of property, plant and equipment


(109)


(95)

     Proceeds from sales of property, plant and equipment


78


7

Free Cash Flow


$                     632


$                     458

KEURIG DR PEPPER INC.
RECONCILIATION OF SIGNIFICANT COVID-19 RELATED EXPENSES
(UNAUDITED)

The following table sets forth our reconciliation of significant COVID-19-related expenses. However, employee compensation expense and employee protection costs, which impact our SG&A expenses and cost of sales, are included as the COVID-19 item affecting comparability and are excluded in our Adjusted financial measures. In addition, reported amounts under U.S. GAAP also include additional costs, not included as the COVID-19 item affecting comparability, as presented in tables below.








Items Affecting Comparability(1)



(in millions)

Employee
Compensation
Expense(2)


Employee
Protection
Costs(3)


Total

For the first quarter of 2022:






     Coffee Systems

$                            1


$                            2


$                    3

     Packaged Beverages

1


1


2

     Beverage Concentrates



     Latin America Beverages



Total

$                            2


$                            3


$                    5







For the first quarter of 2021:






     Coffee Systems

$                            1


$                            9


$                 10

     Packaged Beverages

3


2


5

     Beverage Concentrates



     Latin America Beverages


1


1

Total

$                            4


$                          12


$                 16









(1)

Employee compensation expense and employee protection costs are both included as the COVID-19 items affecting comparability in the reconciliation of our Adjusted Non-GAAP financial measures.

(2)

Primarily included incremental benefits provided to frontline workers such as extended sick leave, in order to maintain essential operations during the COVID-19 pandemic.

(3)

Included costs associated with personal protective equipment, temperature scans, cleaning and other sanitization services. Impacts both cost of sales and SG&A expenses.

RECONCILIATION OF CERTAIN ADJUSTED AND CONSTANT CURRENCY ADJUSTED FINANCIAL RESULTS
FOR THE FIRST QUARTER OF 2020
(Unaudited, in millions, except per share data)

For the purposes of additional analysis, we have also included certain non-GAAP financial measures for the first quarter of 2020.

For the first quarter of 2020, we define our Adjusted non-GAAP financial measures as certain financial statement captions and metrics adjusted for certain items affecting comparability. The items affecting comparability are defined below.

Adjusted: Defined as certain financial statement captions and metrics adjusted for certain items affecting comparability.

Items affecting comparability: Defined as certain items that are excluded for comparison to prior year periods, adjusted for the tax impact as applicable. Tax impact is determined based upon an approximate rate for each item. For each period, management adjusts for (i) the unrealized mark-to-market impact of derivative instruments not designated as hedges in accordance with U.S. GAAP and do not have an offsetting risk reflected within the financial results; (ii) the amortization associated with definite-lived intangible assets; (iii) the amortization of the deferred financing costs associated with the DPS Merger; (iv) the amortization of the fair value adjustment of the senior unsecured notes obtained as a result of the DPS Merger; (v) stock compensation expense and the associated windfall tax benefit attributable to the matching awards made to employees who made an initial investment in KDP; and (vi) other certain items that are excluded for comparison purposes to prior year periods.

For the first quarter of 2020, the other certain items excluded for comparison purposes include (i) restructuring and integration expenses related to significant business combinations; (ii) productivity expenses; (iii) transaction costs for significant business combinations (completed or abandoned) not associated with the DPS Merger; (iv) costs related to significant non-routine legal matters; (v) the impact of the step-up of acquired inventory not associated with the DPS Merger (vi) incremental costs to our operations related to risks associated with the COVID-19 pandemic and (vii) impairment recognized on equity method investment with Bedford Systems, LLC.



Net Sales


Income from operations


Diluted earnings per share(1)

Reported


$                    2,613


$                                       466


$                                             0.11

Items Affecting Comparability:







     Mark to market



58


0.04

     Amortization of intangibles



33


0.02

     Stock compensation



7


     Restructuring and integration costs



52


0.03

     Productivity



54


0.03

     Impairment on investment




0.05

     Nonroutine legal matters



9


     COVID-19



5


Adjusted


$                    2,613


$                                       684


$                                             0.29



(1)

Diluted earnings per share may not foot due to rounding.

RECONCILIATION OF CERTAIN ADJUSTED AND CONSTANT CURRENCY ADJUSTED FINANCIAL RESULTS
FOR THE FIRST QUARTER OF 2020
(Unaudited, in millions, except per share data)

Constant currency adjusted: Defined as certain financial statement captions and metrics adjusted for certain items affecting comparability, calculated on a Constant currency basis by converting our current period local currency financial results using the prior period foreign currency exchange rates.



Growth (%)

Net sales growth compared to the first quarter of 2020


17.8 %

Impact of foreign currency


(0.3)

Constant currency net sales growth compared to the first quarter of 2020


17.5 %




Adjusted income from operations growth compared to the first quarter of 2020


7.0 %

Impact of foreign currency


(0.3) %

Constant currency adjusted income from operations growth compared to the first quarter of 2020


6.7 %




Adjusted diluted earnings per share growth compared to the first quarter of 2020


13.8 %

Impact of foreign currency


— %

Constant currency adjusted diluted earnings per share growth compared to the first quarter of 2020


13.8 %




Reported


Impact of Foreign
Currency


Constant Currency

For the first quarter of 2022:







Net sales







     Coffee Systems


12.3 %


(0.5) %


11.8 %

     Packaged Beverages


21.6


(0.2)


21.4

     Beverage Concentrates


17.3


(0.6)


16.7

     Latin America Beverages


24.8


1.7


26.5

Total net sales


17.8


(0.3)


17.5

(PRNewsfoto/Keurig Dr Pepper)
(PRNewsfoto/Keurig Dr Pepper)(PRNewswire)

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SOURCE Keurig Dr Pepper Inc.

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