01—Abstract
Summary
Summary of the 10-K filed February 24, 2022. Cited figures are marked; the original filing is the authoritative source.
Keurig Dr Pepper Inc. (KDP) reported net sales of $12.68 billiona for the year ended December 31, 2021, up 9.2% from $11.62 billion in 2020, with volume/mix contributing 5.7%, net price realization 2.7%, and favorable FX translation 0.8%.
Income from operations rose 16.7% to $2.89 billionb, and net income attributable to KDP increased 62.0% to $2.15 billion, or $1.50 diluted EPS. The filing states adjusted diluted EPS of $1.60, up 14.3% from $1.40, and adjusted operating margin of 27.0%, down 50 bps. Results were helped by a $524 million gain on the sale of the BodyArmor equity interest to Coca-Cola, which contributed materially to the reported net income increase.
Cash flow and balance sheet metrics improved. Net cash provided by operating activities was $2.87 billionc, versus $2.46 billion in 2020. The company made net debt repayments of $1.72 billion in 2021 and reported senior unsecured notes of $11.73 billion at year-end.
Management rated its credit as Baa2 at Moody's and BBB at S&P, both stable. The Board authorized a share repurchase program of up to $4 billiond, effective January 1, 2022 through December 31, 2025, and the company stated it intends to expand its capital allocation strategy to include inorganic options, with acquisitions as the primary option.
Key risks in the filing include ongoing COVID-19 effects, broad-based input cost inflation, dependence on large retailers (Walmart represented approximately 16% of consolidated net sales), reliance on third-party bottlers, and pending antitrust litigation against Keurig in which plaintiffs claim more than $5 billion in damages, which the company strongly disputes and has not accrued for. In January 2022, the company agreed to a $350 million BodyArmor settlement payment.
02—Key points
Key Highlights
- Net sales rose 9.2% to $12.68 billion, driven by volume/mix of 5.7% and net price realization of 2.7%.
- Income from operations increased 16.7% to $2.89 billion; operating margin expanded 150 bps to 22.8%.
- Net income attributable to KDP rose 62.0% to $2.15 billion, aided by a $524 million gain on the BodyArmor sale.
- Adjusted diluted EPS was $1.60, up 14.3% from $1.40; reported diluted EPS was $1.50.
- Net cash from operations was $2.87 billion, up from $2.46 billion; the company made $1.72 billion of net debt repayments in 2021.
- Board authorized a $4 billion share repurchase program effective January 1, 2022 through December 31, 2025.
- Coffee Systems segment net sales were $4.72 billion, and Keurig brewer household adoption rose about 9% to nearly 36 million U.S. households.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2021, Keurig Dr Pepper kept $0.17.
- Revenue$12.68B100.0%
- Cost of revenue−$5.71B45.0%
- Gross profit$6.98B55.0%
- Operating costs−$4.08B32.2%
- Operating income$2.89B22.8%
- Interest, other & tax−$748.0M5.9%
- Net income$2.15B16.9%
Where FY2021 revenue went
$12.68B- Cost of revenue: $5.71B, 45% of revenue
- SG&A: $4.15B, 33% of revenue
- Net income: $2.15B, 17% of revenue
- R&D: $66.0M, 0.5% of revenue
- Interest, other & tax: $748.0M, 5.9% of revenue
Kept 17% as net incomeR&D $66.0M · 0.5%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2021filed February 24, 2022Financial Statements
FY2021 against FY2020
| Line item | FY2021FY2020 | Change |
|---|---|---|
| Revenue | $12.68B$11.62B | +9.2% |
| Cost of Revenue | $5.71B$5.13B | +11.2% |
| Gross Profit | $6.98B$6.49B | +7.6% |
| R&D Expenses | $66.00M$69.00M | −4.3% |
| SG&A Expenses | $4.15B$3.98B | +4.4% |
| Operating Income | $2.89B$2.48B | +16.7% |
| Interest Expense | $500.00M$604.00M | −17.2% |
| Net Income | $2.15B$1.32B | +62.0% |
| EPS (Basic) | $1.52$0.94 | +61.7% |
| EPS (Diluted) | $1.50$0.93 | +61.3% |
| Shares Outstanding (Basic) | 1.42B1.41B | +0.6% |
| Shares Outstanding (Diluted) | 1.43B1.42B | +0.4% |
05—Questions
Frequently Asked Questions
What drove the large increase in reported net income?
Net income attributable to KDP rose $821 million, or 62.0%, to $2.15 billion, driven primarily by the $524 million gain on the sale of the BodyArmor equity interest, along with improved income from operations and lower interest expense, which fell 17.2% to $500 million.
How did the segments perform in 2021?
All four segments grew income from operations. Coffee Systems net sales were $4.72 billion (up 6.4%), Packaged Beverages $5.88 billion (up 9.7%), Beverage Concentrates $1.49 billion (up 12.2%), and Latin America Beverages $599 million (up 20.5%). Walmart was the largest customer for Packaged Beverages and Latin America Beverages.
What are the main cost pressures the company identified?
The filing cites broad-based inflation in input costs, logistics, manufacturing and labor, supply chain disruptions, and labor shortages tied to COVID-19. Gross margin fell 80 bps to 55.0%. Ingredients and materials represent approximately 59% of cost of sales, and management expects these headwinds to continue into 2022.
What is the status of the antitrust litigation against Keurig?
In the Multidistrict Antitrust Litigation over single-serve coffee, plaintiffs collectively claim more than $5 billion in damages. Keurig strongly disputes the merits and damages calculations, has fully briefed a summary judgment motion, and has not accrued a loss contingency. The company says it cannot predict the outcome.
What capital allocation plans did management outline for 2022?
Beginning in 2022, management plans to focus on inorganic value creation through M&A, with acquisitions as the primary option. Share repurchases and special dividends are secondary options. The company also reported quarterly dividends declared at $0.7125 per share for 2021 following a 25% increase in its annualized rate to $0.75.
06—Continue