Keurig Dr Pepper Inc. — FY 2023 Form 10-K
Reporting period: Year ended December 31, 2023. This is an annual filing, not a standalone fourth-quarter report. Amounts are in U.S. dollars unless noted.
Business context
KDP manufactures, markets and distributes beverages and single-serve brewing systems across North America and other international markets. Its three reportable segments are U.S. Refreshment Beverages, U.S. Coffee and International. Its portfolio includes more than 125 owned, licensed and partner brands. Walmart accounted for approximately 17% of consolidated net sales.
Financial results and material changes
| Metric | 2023 | 2022 | Change |
|---|---|---|---|
| Net sales | $14.814 billion | $14.057 billion | +5.4% |
| Gross profit / margin | $8.080 billion / 54.5% | $7.323 billion / 52.1% | Margin +240 bps |
| Income from operations / margin | $3.192 billion / 21.5% | $2.605 billion / 18.5% | Margin +300 bps |
| Net income attributable to KDP | $2.181 billion | $1.436 billion | +51.9% |
| Diluted EPS | $1.55 | $1.01 | +53.5% |
| Cash from operations | $1.329 billion | $2.837 billion | Down $1.508 billion |
| Capital expenditures paid | $425 million | $353 million | Up $72 million |
Sales growth reflected favorable net price realization of 7.0% and foreign-exchange translation of 0.5%, partly offset by unfavorable volume/mix of 2.1%. Input-cost inflation weighed on gross profit, while a favorable comparison with 2022 intangible-asset impairment charges supported operating income. The 2022 comparison also included a $299 million litigation-settlement gain and a $217 million debt-extinguishment loss. The 2023 effective tax rate was 20.9%, versus 16.5% in 2022.
Operating cash flow fell largely because accounts payable and accrued expenses declined by $1.618 billion, including lower supplier payment obligations; the comparison was also affected by the $349 million BodyArmor-related gain in 2022. Cash from operations less cash purchases of property and equipment was approximately $904 million in 2023.
Segment performance
| Segment | 2023 net sales | 2023 operating income | Year-over-year highlights |
|---|---|---|---|
| U.S. Refreshment Beverages | $8.821 billion | $2.483 billion | Sales +9.1%; operating income +26.6%. Segment volume fell about 1.0%; pricing drove sales growth. |
| U.S. Coffee | $4.071 billion | $1.158 billion | Sales -5.4%; operating income -4.7%. K-Cup pod and appliance volumes declined. |
| International | $1.922 billion | $475 million | Sales +15.0%; operating income +27.3%, aided by pricing, volume/mix and FX. |
Cash, debt and liquidity
Cash and cash equivalents were $267 million at year-end, down from $535 million. Notes had a carrying value of $11.095 billion and commercial paper outstanding was $2.096 billion. The company had $3.246 billion of short-term borrowings and current long-term obligations, including $1.150 billion of notes due March 2024. The $4 billion revolving credit facility was undrawn; the commercial-paper program also had a $4 billion maximum authorization. KDP reported covenant compliance and said operating cash flows should meet anticipated obligations for the next 12 months and foreseeable future.
Accounts payable declined to $3.597 billion from $5.206 billion. The cash conversion cycle moved from negative 60 days to negative 8 days, principally because days payable outstanding fell from 167 to 113. KDP identifies supplier payment-term reductions as a liquidity pressure. Moody’s rated long-term debt Baa1 and S&P rated it BBB, both with stable outlooks.
KDP paid $1.142 billion in cash dividends and repurchased $706 million of shares in 2023. The annual dividend declared was $0.83 per share; $2.915 billion remained under the $4 billion repurchase authorization at year-end.
Outlook, commentary and risks
- Management provided no specific numerical 2024 earnings or sales guidance in the supplied filing text. It cited inflation in inputs, logistics, manufacturing and labor as potential headwinds into 2024; further pricing could weigh on volume, sales, margins and results.
- Management expected the new COO, Tim Cofer, to succeed CEO Robert Gamgort in the second quarter of 2024; Gamgort was expected to become Executive Chairman. The company estimated about $52 million in charges for the succession and related realignment, with costs expected through 2024.
- KDP invested $300 million in La Colombe in 2023; following its merger with Chobani, KDP held a 4.6% interest in Chobani. It also agreed to distribute Electrolit in the U.S. beginning in early 2024.
- The Spartanburg, South Carolina next-generation coffee facility was significantly underutilized because of manufacturing-line equipment delays. Delays and additional costs at major facilities remain execution risks.
- The SEC is investigating certain company statements about K-Cup pod recyclability. KDP said it believes its prior statements were appropriate and does not expect a material impact, but cannot predict the outcome.
- In the Keurig antitrust litigation, plaintiffs collectively claim more than $5 billion in damages. KDP disputes the claims; it has not accrued a loss and says it cannot estimate the outcome or potential loss. Litigation reserves for other matters were $12 million.
- Other material risks include commodity and packaging cost volatility, supply interruptions, competition and shifting consumer preferences, retailer concentration, water scarcity and climate effects, packaging regulation, cybersecurity, and impairment sensitivity. Goodwill and other intangible assets totaled $43.489 billion at year-end.
Most important facts for investors to verify
- Whether U.S. Coffee volumes stabilize after 2023 declines, and whether pricing-led growth in refreshment beverages can persist without further volume erosion.
- How operating cash flow and supplier payment terms develop, including the effect of lower days payable outstanding on liquidity.
- Repayment or refinancing of the $1.150 billion notes due March 2024 and the company’s leverage and interest-cost trajectory.
- Progress, utilization and costs at the Spartanburg and Allentown facilities, alongside the expected benefits of capital investment.
- Developments in the SEC recyclability investigation and Keurig antitrust litigation, including any change in exposure or disclosure.
- Impairment assumptions and headroom for the substantial goodwill and intangible-asset balances.
The financial statements received an unqualified audit opinion, and the auditor reported effective internal control over financial reporting as of December 31, 2023.