Keurig Dr Pepper Inc. — FY2021 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2021, compared primarily with FY2020. This is an annual filing; it does not provide a standalone fourth-quarter financial summary. Amounts below are in U.S. dollars.
Business context
KDP is a North American beverage and single-serve coffee company with four reportable segments: Coffee Systems, Packaged Beverages, Beverage Concentrates, and Latin America Beverages. Its portfolio includes Keurig, Dr Pepper, Canada Dry, Snapple, Bai, Mott’s and other owned, licensed and partner brands. Walmart accounted for approximately 16% of consolidated net sales in 2021.
Key financial metrics
| Metric | FY2021 | FY2020 | Change |
|---|---|---|---|
| Net sales | $12.683 billion | $11.618 billion | +9.2% |
| Gross profit / margin | $6.977 billion / 55.0% | $6.486 billion / 55.8% | Profit +7.6%; margin down 80 bps |
| Income from operations / margin | $2.894 billion / 22.8% | $2.480 billion / 21.3% | Income +16.7%; margin up 150 bps |
| Net income attributable to KDP | $2.146 billion | $1.325 billion | +62.0% |
| Diluted EPS | $1.50 | $0.93 | +61.3% |
| Adjusted diluted EPS | $1.60 | $1.40 | +14.3% |
| Operating cash flow | $2.874 billion | $2.456 billion | +$418 million |
| Capital expenditures | $423 million | $461 million | Down $38 million |
Adjusted measures are non-GAAP. Adjusted operating income was $3.421 billion, up 7.2%, while adjusted operating margin declined 50 bps to 27.0%. Operating cash flow less reported purchases of property, plant and equipment was approximately $2.451 billion; this is a simple calculation, not a company-defined free-cash-flow measure.
FY2021 diluted EPS and GAAP net income included a $524 million gain on the BodyArmor investment sale. Interest expense was $500 million, down 17.2%; the company also recorded a $105 million loss on early debt extinguishment. The effective tax rate was 23.3%, versus 24.4% in 2020.
Segments and volume
| Segment | FY2021 net sales | Year-over-year sales change | Key reported trend |
|---|---|---|---|
| Coffee Systems | $4.716 billion | +6.4% | K-Cup pod volume +5.6%; brewer volume +10.0%; adjusted operating margin fell to 32.1% from 34.2% |
| Packaged Beverages | $5.882 billion | +9.7% | Case volume +3.0%; adjusted operating margin was 18.9%, down 10 bps |
| Beverage Concentrates | $1.486 billion | +12.2% | Volume +1.1%; adjusted operating margin rose 20 bps to 71.0% |
| Latin America Beverages | $599 million | +20.5% | Volume +3.0%; adjusted operating margin rose 80 bps to 22.5% |
Across reported beverage volumes, CSD sales volume increased 4.8%, while NCB sales volume declined 5.5%.
Liquidity, debt and capital allocation
- Cash, cash equivalents and restricted cash totaled $568 million at year-end; current assets were $3.057 billion and current liabilities were $6.485 billion.
- Long-term obligations were $11.578 billion, plus $304 million of short-term borrowings and current maturities. These balance-sheet amounts imply approximately $11.882 billion of total obligations before cash; they include $149 million of commercial paper.
- KDP repaid a net $1.721 billion of notes, commercial paper and other credit agreements during 2021. It issued $2.150 billion of notes in a refinancing, including 2024, 2031 and 2051 maturities. The company reported compliance with debt covenants and said operating cash flows should cover anticipated obligations for the next 12 months.
- Cash dividends paid were $955 million. The annualized dividend rate was increased 25% to $0.75 per share effective with the second-quarter 2021 dividend; dividends declared for the year totaled $0.7125 per share.
- The board authorized a share repurchase program of up to $4 billion, effective January 1, 2022 through December 31, 2025; the authorization does not require repurchases.
- After year-end, KDP established a $4 billion revolving credit facility maturing in February 2027, replacing its prior revolving and 364-day facilities.
Changes, outlook, risks and unusual items
- Growth and margin pressure: Sales growth reflected volume/mix, pricing and favorable foreign exchange. Gross margin declined as inflation and higher manufacturing and input costs more than offset productivity and merger synergies. Management reported higher logistics, manufacturing and labor costs and supply constraints, and expected these pressures to continue into 2022. Pricing actions could reduce future volume.
- Management priorities: KDP said it planned to broaden capital allocation toward acquisitions and other inorganic growth beginning in 2022, with share repurchases or special dividends as potential alternatives. It expected annual purchases of property, plant and equipment to be approximately 3% of net sales on an annualized basis. The filing provides no specific 2022 revenue or EPS guidance.
- BodyArmor: KDP received $576 million, net of holdback liabilities, in December 2021 for its equity interests and recorded a $524 million gain. In January 2022, it received a further $350 million settlement from BodyArmor: approximately $300 million related to litigation and $50 million to the sale-related holdback. The settlement and its accounting allocation occurred after year-end.
- Other unusual items: KDP recorded a $17 million impairment related to Bedford in 2021; Bedford was winding down operations. The prior year included a $67 million Bai brand impairment and $102 million of impairment charges on investments and a note receivable. KDP also recorded $202 million of restructuring and integration charges in 2021; certain merger-integration initiatives were expected to continue into 2022.
- Contingencies: Remaining Keurig antitrust cases included plaintiffs’ claims of more than $5 billion in damages. KDP disputed the claims and had not accrued a loss because it could not predict the outcome or estimate a potential loss. The filing also describes an environmental cleanup matter for which costs could not be reasonably estimated. Total litigation reserves were $14 million at year-end.
- Principal risks: COVID-19-related disruption, inflation and supply-chain and labor constraints; commodity, fuel and transportation cost volatility; competitive pressure and changing consumer preferences; reliance on major retailers and third-party bottlers and partners; debt and refinancing exposure; climate and water risks; and cybersecurity and legal contingencies.
Most important facts for investors to verify
- How much of the GAAP earnings and EPS increase was driven by the one-time BodyArmor gain, and how recurring operating performance compares with adjusted results.
- Whether pricing and productivity can offset inflation and service-level costs without materially weakening volumes or margins.
- Debt maturity, refinancing and liquidity developments, including the impact of the new revolving facility and the company’s capital-return and acquisition plans.
- Developments in the Keurig antitrust litigation and other contingencies, including any changes to estimated exposure or reserves.
- Progress against management’s stated 2022 cost, capital-expenditure and growth priorities; the filing does not provide specific 2022 sales or EPS guidance.
The financial statements received an unqualified audit opinion, and the auditor reported effective internal control over financial reporting as of December 31, 2021.