Keurig Dr Pepper Inc. reported financial results for the first quarter ending 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.
Chairman and CEO Bob Gamgort said in the announcement, "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 consumption advancing 9.9% and market share growth registered in over 87% of the company's cold beverage portfolio, largely reflecting strength in CSDs, 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.
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.
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.
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.
