01—Abstract
Summary
Summary of the 10-K filed February 22, 2024. Cited figures are marked; the original filing is the authoritative source.
Keurig Dr Pepper Inc. (KDP) reported net sales of $14.81 billiona for the year ended December 31, 2023, up $757 million, or 5.4%, from $14.06 billion in 2022.
Net price realization of 7.0% drove growth, partially offset by unfavorable volume/mix of 2.1%. Gross margin rose 240 bps to 54.5%, and operating margin rose 300 bps to 21.5%. Net income attributable to KDP was $2.18 billionb, or $1.55 per diluted share, compared with $1.01 per diluted share in 2022, which was affected by $477 million of intangible asset impairment charges.
Cash provided by operating activities fell to $1.33 billionc from $2.84 billion, primarily due to reduced accounts payable. The cash conversion cycle moved to approximately (8) days from (60) days, largely because supplier payment terms were reduced. Segment performance was mixed.
U.S. Refreshment Beverages net sales grew 9.1% to $8.82 billiond, with operating margin rising to 28.1%. U.S. Coffee net sales declined 5.4% to $4.07 billion as K-Cup pod volume fell 5.1% and appliance volume fell 10.3%. International net sales rose 15.0% to $1.92 billion.
Walmart represented approximately 17% of consolidated net sales. The company ended the year with $52.13 billion in total assets, including $20.20 billion of goodwill and $23.29 billion of other intangible assets, and $11.10 billion in senior notes. Cash returned to shareholders included $1.14 billion in dividends paid and $706 million of share repurchases, with $2.92 billion remaining under the $4 billion program.
Management highlighted headwinds from inflation in input, logistics, manufacturing and labor costs that may persist into 2024, and noted the company has increased pricing across much of its portfolio. The filing also disclosed an SEC Staff investigation into statements about the recyclability of K-Cup pods, which management does not expect to have a material impact, and a multidistrict antitrust litigation in which plaintiffs claim more than $5 billion in damages, with no loss accrued.
02—Key points
Key Highlights
- Net sales rose 5.4% to $14.81 billion, driven by favorable net price realization of 7.0%, partially offset by volume/mix of -2.1%.
- Income from operations increased 22.5% to $3.19 billion, and operating margin expanded 300 bps to 21.5%.
- Diluted EPS was $1.55, up from $1.01, primarily reflecting higher net income and the absence of the prior-year $477 million impairment of intangible assets.
- U.S. Refreshment Beverages grew net sales 9.1% to $8.82 billion, while U.S. Coffee declined 5.4% to $4.07 billion on lower K-Cup pod and appliance volumes.
- Operating cash flow fell to $1.33 billion from $2.84 billion, mainly due to a $1.62 billion reduction in accounts payable and accrued expenses, and the cash conversion cycle moved to (8) days from (60) days as supplier payment terms were reduced.
- Returned capital through $1.14 billion in dividends and $706 million in share repurchases, with $2.92 billion remaining under the $4 billion repurchase authorization.
- Walmart accounted for approximately 17% of consolidated net sales, and the company disclosed an SEC Staff investigation into statements about K-Cup pod recyclability and multidistrict antitrust litigation with more than $5 billion in claimed damages.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2023, Keurig Dr Pepper kept $0.15.
- Revenue$14.81B100.0%
- Cost of revenue−$6.73B45.5%
- Gross profit$8.08B54.5%
- Operating costs−$4.89B33.0%
- Operating income$3.19B21.5%
- Interest, other & tax−$1.01B6.8%
- Net income$2.18B14.7%
Where FY2023 revenue went
$14.81B- Cost of revenue: $6.73B, 45% of revenue
- SG&A: $4.91B, 33% of revenue
- Net income: $2.18B, 15% of revenue
- R&D: $66.0M, 0.4% of revenue
- Interest, other & tax: $1.01B, 6.8% of revenue
Kept 15% as net incomeR&D $66.0M · 0.4%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2023filed February 22, 2024Financial Statements
FY2023 against FY2022
| Line item | FY2023FY2022 | Change |
|---|---|---|
| Revenue | $14.81B$14.06B | +5.4% |
| Cost of Revenue | $6.73B$6.73B | 0.0% |
| Gross Profit | $8.08B$7.32B | +10.3% |
| R&D Expenses | $66.00M$65.00M | +1.5% |
| SG&A Expenses | $4.91B$4.64B | +5.7% |
| Operating Income | $3.19B$2.60B | +22.5% |
| Interest Expense | $496.00M$693.00M | −28.4% |
| Net Income | $2.18B$1.44B | +51.9% |
| EPS (Basic) | $1.56$1.01 | +54.5% |
| EPS (Diluted) | $1.55$1.01 | +53.5% |
| Shares Outstanding (Basic) | 1.40B1.42B | −1.2% |
| Shares Outstanding (Diluted) | 1.41B1.43B | −1.4% |
05—Questions
Frequently Asked Questions
How did Keurig Dr Pepper's profitability change in 2023?
Income from operations rose 22.5% to $3.19 billion, and operating margin increased 300 bps to 21.5%. Net income attributable to KDP increased 51.9% to $2.18 billion. The improvement was driven by higher gross profit and by the favorable comparison to 2022's $477 million in intangible asset impairments, partly offset by higher SG&A expenses of $4.91 billion.
Why did operating cash flow decline despite higher net income?
Net cash provided by operating activities decreased $1.51 billion to $1.33 billion. The filing attributes this primarily to a reduction in accounts payable and the unfavorable comparison to a $349 million BodyArmor gain in 2022, partially offset by the $745 million increase in net income. The cash conversion cycle improved to (8) days from (60) days because of reduced supplier payment terms.
Which business segments drove results, and which declined?
U.S. Refreshment Beverages was the largest contributor, with net sales up 9.1% to $8.82 billion and operating margin of 28.1%. International grew net sales 15.0% to $1.92 billion. U.S. Coffee net sales fell 5.4% to $4.07 billion, with K-Cup pod volume down 5.1% and appliance volume down 10.3%.
What are the main legal and regulatory matters disclosed?
The SEC Staff is investigating the company's statements about the recyclability of K-Cup pods, and management does not expect a material impact. Keurig is defending multidistrict antitrust litigation in which plaintiffs claim more than $5 billion in damages. The company has not accrued a loss contingency for these lawsuits, stating it cannot predict their outcome.
What leadership change was announced, and what does it mean for investors?
On November 6, 2023, the company appointed Tim Cofer as Chief Operating Officer, with an expected transition to CEO in the second quarter of 2024. Bob Gamgort will continue as Executive Chairman. The company estimates related restructuring charges of approximately $52 million, mostly severance and a sign-on bonus, expected to be incurred through 2024.
06—Continue