01—Abstract
Summary
Summary of the 10-K filed February 23, 2023. Cited figures are marked; the original filing is the authoritative source.
Keurig Dr Pepper Inc. (KDP) reported net sales of $14.06 billiona for the year ended December 31, 2022, up 10.8% from $12.68 billion in 2021, driven mainly by favorable net price realization of 10.6%.
Net income attributable to KDP fell 33.1% to $1.44 billionb, or $1.01 per diluted share, from $2.15 billion ($1.50 per diluted share), primarily due to the absence of the prior-year $524 million gain on the sale of its BodyArmor investment, higher interest expense, and a $477 million non-cash impairment of intangible assets led by Bai and Schweppes. Income from operations declined 10.0% to $2.61 billion, with operating margin falling to 18.5% from 22.8%, while gross margin decreased to 52.1% from 55.0% amid broad-based inflation in input, logistics and labor costs. On an adjusted basis, the company reported adjusted diluted EPS of $1.68 versus $1.60 in 2021, and constant currency adjusted diluted EPS increased approximately 5.0%.
Management cited a $350 millionc BodyArmor litigation settlement in January 2022 as a significant one-time item, and a 2022 Strategic Refinancing of about $3 billion of senior unsecured notes. The company also made strategic investments in Nutrabolt ($871 million for an approximately 30% ownership interest), Tractor, and Athletic Brewing, and returned capital through $1.08 billion of cash dividends paid and $379 million of share repurchases. KDP's balance sheet at year-end showed total assets of $51.84 billion, including $20.07 billion of goodwill and $23.18 billion of other intangible assets, against total debt-related obligations of roughly $11.57 billion in Notes.
Management stated it believes its operating cash flows will be sufficient to meet obligations for the next twelve months. Net cash provided by operating activities was $2.84 billiond in 2022. Credit ratings were Baa2 (Moody's) and BBB (S&P), both stable, and the company had a $4 billion revolving credit agreement with no amounts drawn at year-end.
02—Key points
Key Highlights
- Net sales rose 10.8% to $14.06 billion, with net price realization of 10.6% across all segments.
- Net income attributable to KDP decreased 33.1% to $1.44 billion; diluted EPS was $1.01 versus $1.50 a year earlier.
- Income from operations fell 10.0% to $2.61 billion after a $477 million impairment of intangible assets, led by Bai and Schweppes.
- Gross margin declined 290 bps to 52.1% and operating margin declined 430 bps to 18.5%, citing broad-based inflation.
- Adjusted diluted EPS was $1.68 versus $1.60 in 2021, per the company's non-GAAP reconciliation.
- Coffee Systems net sales rose 5.6% to $4.98 billion, while Packaged Beverages grew 12.3% to $6.61 billion and Beverage Concentrates grew 16.1% to $1.73 billion.
- Cash returned to shareholders included $1.08 billion of dividends paid and $379 million of share repurchases; a $4 billion buyback authorization runs through December 31, 2025.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2022, Keurig Dr Pepper kept $0.10.
- Revenue$14.06B100.0%
- Cost of revenue−$6.73B47.9%
- Gross profit$7.32B52.1%
- Operating costs−$4.72B33.6%
- Operating income$2.60B18.5%
- Interest, other & tax−$1.17B8.3%
- Net income$1.44B10.2%
Where FY2022 revenue went
$14.06B- Cost of revenue: $6.73B, 48% of revenue
- SG&A: $4.64B, 33% of revenue
- Net income: $1.44B, 10% of revenue
- R&D: $65.0M, 0.5% of revenue
- Interest, other & tax: $1.17B, 8.3% of revenue
Kept 10% as net incomeR&D $65.0M · 0.5%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2022filed February 23, 2023Financial Statements
FY2022 against FY2021
| Line item | FY2022FY2021 | Change |
|---|---|---|
| Revenue | $14.06B$12.68B | +10.8% |
| Cost of Revenue | $6.73B$5.71B | +18.0% |
| Gross Profit | $7.32B$6.98B | +5.0% |
| R&D Expenses | $65.00M$66.00M | −1.5% |
| SG&A Expenses | $4.64B$4.15B | +11.8% |
| Operating Income | $2.60B$2.89B | −10.0% |
| Interest Expense | $693.00M$500.00M | +38.6% |
| Net Income | $1.44B$2.15B | −33.1% |
| EPS (Basic) | $1.01$1.52 | −33.6% |
| EPS (Diluted) | $1.01$1.50 | −32.7% |
| Shares Outstanding (Basic) | 1.42B1.42B | +0.1% |
| Shares Outstanding (Diluted) | 1.43B1.43B | 0.0% |
05—Questions
Frequently Asked Questions
Why did KDP's net income decline so sharply in 2022?
Net income attributable to KDP fell $710 million, or 33.1%, mainly because 2021 included a $524 million gain on the sale of the BodyArmor equity method investment that did not recur. Higher interest expense of $193 million, a $477 million impairment of intangible assets, and a higher effective tax rate on the prior year also contributed, partly offset by a $299 million gain on the BodyArmor litigation settlement.
What drove the growth in net sales?
Net sales increased $1.37 billion, or 10.8%, to $14.06 billion, reflecting favorable net price realization of 10.6% and volume/mix growth of 0.5%, slightly offset by unfavorable FX translation of 0.3%. Latin America Beverages grew 24.0% and Beverage Concentrates grew 16.1%, while Coffee Systems brewer volume decreased 5.2%.
What were the main impairment charges and why were they recorded?
KDP recorded non-cash impairment charges of $472 million on indefinite-lived brands, led by Bai and Schweppes, and a $311 million interim charge tied to Bai's performance and margin challenges identified in the third quarter. The Schweppes impairment was attributed mainly to higher discount rates from the macroeconomic environment and supply chain disruptions in third-party distribution networks.
How is KDP positioned financially and how is it managing its debt?
At December 31, 2022, the company had $11.57 billion of carrying value of senior unsecured notes, $399 million of commercial paper outstanding, and a $4 billion 2022 Revolving Credit Agreement with nothing drawn. Ratings were Baa2 from Moody's and BBB from S&P, both stable. The company refinanced about $3 billion of notes in April 2022 and reported it was in compliance with all debt covenants.
What did KDP do with its investments and capital allocation in 2022?
KDP invested $972 million in equity interests in Nutrabolt, Tractor and Athletic Brewing, including $871 million for an approximately 30% interest in Nutrabolt, and expects to begin distributing C4 Energy RTD beverages in early 2023. It paid $1.08 billion in cash dividends, declared $0.775 per share for the year, and repurchased $379 million of stock under a $4 billion program authorized in October 2021.
06—Continue