Keurig Dr Pepper Inc (NYSE:KDP) Q2 2019 Earnings Conference Call - Final Transcript

Aug 08, 2019 • 09:00 am ET


Keurig Dr Pepper Inc (NYSE:KDP) Q2 2019 Earnings Conference Call - Final Transcript


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Robert Gamgort

coffee, premium unflavored still water, shelf-stable fruit drinks and ready-to-drink coffee among others. This performance reflected the growth of key brands such as Dr Pepper and Canada Dry CSDs, CORE Hydration, Peet's and Forto ready-to-drink coffees and Snapple juice drinks. In our US coffee business, retail consumption of single-serve pods manufactured by KDP, grew approximately 5% and our KDP manufactured dollar market share was essentially even with the year ago at 81.6%.

Turning now to the financials on an adjusted basis. Our underlying net sales, which excludes the movement in and out of Allied Brands grew 2.6% due to volume and mix growth and higher net price realization. In addition, we also had a modest benefit from the shift of Easter into the second quarter of this year. Offsetting this growth was the expected unfavorable impact in our packaged beverages segment from the changes in our Allied Brands portfolio. Specifically on a year-over-year basis, the net change in our Allied Brands portfolio reflects Evian, Peet's and Forto continuing to ramp up as compared to the established Fiji and BODYARMOR businesses last year that have since exited.

And speaking about the balance of the year, you should expect this headwind to abate in the last quarter of 2019. Adjusted operating income grew nearly 10% or 230 basis points to 25% of net sales, primarily reflecting strong productivity and merger synergies, both of which benefited our cost of goods sold and SG&A. These positive drivers more than offset inflation, particularly in packaging and logistics as well as the unfavorable comparison versus the year ago period, which included the previously mentioned one time benefits totaling $21 million in connection with the Big Red acquisition and reimbursement from a resin supplier in the second quarter of 2018. Adjusted diluted EPS increased 15% to $0.30 in the quarter compared to $0.26 in the prior year period driven by the growth of operating income and lower interest expense.

Turning now to our segments. Starting with Coffee Systems, which had a very strong quarter in part due to timing. Net sales increased 4.3%, fueled by higher volume/mix of 8.3%, partially offset by lower net price realization of 3.5% and unfavorable foreign currency translation of 0.5%. The volume mix growth for the segment was driven by shipment volume increases of nearly 13% for K-Cup pods and 19% for brewers. This growth was due to the underlying strength of the business and timing related to some earlier shipments as requested by our branded partners. Partially offsetting this growth was lower pod shipment mix due to higher timing-related sales increase to branded partners for whom we only record a tolling fee. You will note that the timing impact of partner shipments drove our total pod shipment volume in the quarter to be above our consumption rate.

On a longer-term basis, you should expect our pod shipment volume growth to be in line with category growth, which has been approximating 6%. The strong brewer volume growth also reflected some benefit of