KEURIG DR PEPPER INC. The following discussion should be read in conjunction with our audited consolidated financial statements and notes thereto in our Annual Report.
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act, including, in particular, statements about the impact of the global COVID-19 pandemic, inflation, future events, future financial performance, plans, strategies, expectations, prospects, competitive environment, regulation, labor matters, supply chain issues and availability of raw materials. Forward-looking statements include all statements that are not historical facts and can be identified by the use of forward-looking terminology such as "outlook," "guidance," "anticipate," "expect," "believe," "could," "estimate," "feel," "forecast," "intend," "may," "plan," "potential," "project," "should," "target," "will," "would," and similar words, phrases or expressions and variations or negatives of these words in this Quarterly Report on Form 10-Q. We have based these forward-looking statements on our current views with respect to future events and financial performance. Our actual financial performance could differ materially from those projected in the forward-looking statements due to the inherent uncertainty of estimates, forecasts and projections, and our financial performance may be better or worse than anticipated. Given these uncertainties, you should not put undue reliance on any forward-looking statements. All of the forward-looking statements are qualified in their entirety by reference to the factors discussed under "Risk Factors" in Part I, Item 1A of our Annual Report, as well as our subsequent filings with theSEC . Forward-looking statements represent our estimates and assumptions only as of the date that they were made. We do not undertake any duty to update the forward-looking statements, and the estimates and assumptions associated with them, after the date of this Quarterly Report on Form 10-Q, except to the extent required by applicable securities laws. This Quarterly Report on Form 10-Q contains the names of some of our owned or licensed trademarks, trade names and service marks, which we refer to as our brands. All of the product names included in this Quarterly Report on Form 10-Q are either our registered trademarks or those of our licensors.
OVERVIEW
KDP is a leading beverage company inNorth America , with a diverse portfolio of flavored (non-cola) CSDs, NCBs, including water (enhanced and flavored), ready-to-drink tea and coffee, juice, juice drinks, mixers and specialty coffee, and is a leading producer of innovative single serve brewing systems. With a wide range of hot and cold beverages that meet virtually any consumer need, KDP key brands includeKeurig, Dr Pepper , Canada Dry,Snapple , Bai, Mott's, Core,Green Mountain and The Original Donut Shop. KDP has some of the most recognized beverage brands inNorth America , with significant consumer awareness levels and long histories that evoke strong emotional connections with consumers. KDP offers more than 125 owned, licensed, and partner brands, including the top ten best-selling coffee brands and Dr Pepper as a leading flavored CSD in theU.S. , according to IRi, which are available nearly everywhere people shop and consume beverages. KDP operates as an integrated brand owner, manufacturer and distributor. We believe our integrated business model strengthens our route-to-market and provides opportunities for net sales and profit growth through the alignment of the economic interests of our brand ownership and our manufacturing and distribution businesses through both our DSD and our WD systems. KDP markets and sells its products to retailers, including supermarkets, mass merchandisers, club stores, e-commerce retailers, office superstores, vending machines, grocery and drug stores, and convenience stores; to restaurants, hotel chains, office product and coffee distributors, and partner brand owners; and directly to consumers through its websites. Our integrated business model enables us to be more flexible and responsive to the changing needs of our large retail customers and allows us to more fully leverage our scale and reduce costs by creating greater geographic manufacturing and distribution coverage.
Our reportable segments consist of the following:
•The Coffee Systems segment reflects sales in the
•The Packaged Beverages segment reflects sales in theU.S. andCanada from the manufacture and distribution of finished beverages and other products, including sales of our own brands and third-party brands, through both the DSD and WD systems. •The Beverage Concentrates segment reflects sales of our branded concentrates and syrup to third-party bottlers primarily in theU.S. andCanada . Most of the brands in this segment are carbonated soft drink brands.
•The Latin America Beverages segment reflects sales primarily in
COMPARABLE RESULTS OF OPERATIONS
Management believes that there are certain non-GAAP financial measures that allow management to evaluate our results, trends and ongoing performance on a comparable basis. In order to derive the adjusted financial information, we adjust certain financial statement captions and metrics prepared underU.S. GAAP for certain items affecting comparability and the impact of foreign currency. See Non-GAAP Financial Measures for further information. 26
--------------------------------------------------------------------------------
Table of Contents
EXECUTIVE SUMMARY
Financial Overview - First Quarter of 2022 as compared to First Quarter of 2021
As Reported, in millions (except EPS)
[[Image Removed: kdp-20220331_g2.jpg]][[Image Removed: kdp-20220331_g3.jpg]][[Image Removed: kdp-20220331_g4.jpg]][[Image Removed: kdp-20220331_g5.jpg]]
As Adjusted, in millions (except EPS)[[Image Removed: kdp-20220331_g6.jpg]][[Image Removed: kdp-20220331_g7.jpg]] [[Image Removed: kdp-20220331_g8.jpg]]
Key Events During and Subsequent to the First Quarter of 2022
During the first quarter of 2022, we made net repayments of our Notes, our
commercial paper and our other credit agreements of
In
InFebruary 2022 , we terminated our 2021 364-Day Credit Agreement and our KDP Revolver and entered into the 2022 Revolving Credit Agreement. Refer to Note 2 of the Notes to our Unaudited Condensed Consolidated Financial Statements for further information.
In
27--------------------------------------------------------------------------------
Table of Contents
Uncertainties and Trends Affecting Our Business
We believe the North American beverage market is influenced by certain key trends and uncertainties. Refer to Item 1A, "Risk Factors", of our Annual Report, for more information about risks and uncertainties facing us.
Some of these items, such as the ongoing COVID-19 pandemic and the invasion ofUkraine byRussia , and the resulting impacts on the global economy, including supply chain constraints and labor shortages, have led to inflation in input costs, logistics, manufacturing and labor costs. During the first quarter of 2022, we have experienced supply chain disruptions and a significant inflationary impact compared to the prior year period. These impacts have created headwinds for our products that we expect to continue throughout 2022. As a result of these inflationary pressures, we have increased the pricing on a number of our products. Consequently, we may incur a reduction of volume or net sales, which, combined with the inflationary pressures, could impact our margins and operating results.
Refer to Note 4 of the Notes to our Unaudited Condensed Consolidated Financial Statements for our discussion of how we manage our exposure to commodity risk.
Impact of COVID-19 on our Financial Statements
The following table sets forth our reconciliation of significant COVID-19-related expenses. 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 underU.S. GAAP also include additional costs, not included as the COVID-19 item affecting comparability, as presented in tables below. Items Affecting Comparability(1) Employee Compensation Employee Protection (in millions) Expense(2) 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)Amounts include pay for temporary employees, including the associated taxes, as well as incremental benefits provided to frontline workers such as extended sick leave, in order to maintain essential operations during the COVID-19 pandemic. (3)Includes costs associated with personal protective equipment, temperature scans, cleaning and other sanitization services. Impacts both cost of sales and SG&A expenses. 28
--------------------------------------------------------------------------------
Table of Contents
RESULTS OF OPERATIONS
We eliminate from our financial results all intercompany transactions between entities included in our consolidated financial statements and the intercompany transactions with our equity method investees.
References in the financial tables to percentage changes that are not meaningful are denoted by "NM".
© Edgar Online, source
