BURLINGTON, Mass. and PLANO, Texas , U.S. — Keurig Dr Pepper Inc. today reported strong financial results for the third quarter ended September 30, 2020 and strengthened guidance for the full year. On a GAAP basis, net sales in the third quarter of 2020 increased 5.2% and diluted earnings per share totaled $0.31 , compared to $0.21 in the year-ago period. Constant currency net sales in the third quarter advanced 5.8% versus year ago and Adjusted 1 diluted EPS grew 22% to $0.39 .
Commenting on the announcement, Chairman and CEO Bob Gamgort stated, “Since the beginning of the pandemic, our broad beverage portfolio, unique route to market capabilities and resilient and dedicated team members have enabled KDP to successfully navigate through the challenging and volatile operating environment.
In Q3, we delivered another strong quarter, marked by accelerated growth in net sales, adjusted operating income and EPS, while continuing to post strong market share growth across our portfolio and reducing our management leverage ratio. As a result, we’re confident in our ability to deliver 2020 at the high-end of our guidance, while reinvesting any upside performance in brand marketing and innovation.”
Third Quarter Consolidated Results
Net sales for the third quarter of 2020 increased 5.2% to $3.02 billion , compared to $2.87 billion in the year-ago period. On a constant currency basis, net sales advanced 5.8%, reflecting strong volume/mix growth of 6.6%, partially offset by lower net price realization of 0.8%. COVID-19 continued to have a significant impact on the beverage industry, requiring Keurig Dr Pepper to navigate the challenging environment to deliver growth in the quarter. Highlights of net sales performance by segment include:
- Coffee Systems: Double-digit dollar growth in K-Cup coffee pods for at-home consumption was partially offset by weakness in the office coffee channel, as elevated work-from-home trends persisted throughout the quarter. Keurig brewers posted exceptional growth, driven by successful innovation and retailer inventory stocking ahead of the holiday season.
- Packaged Beverages: Broad-based market share expansion drove net sales in the majority of the segment’s portfolio. Growth in large-format channels continued to be strong, and performance in the convenience and gas channels improved sequentially during the quarter, as consumer mobility increased.
- Beverage Concentrates: Performance improved significantly from the previous quarter, declining slightly versus the prior year, reflecting a sequential reopening of quick-serve and other fast-casual restaurants, which are serviced by the fountain foodservice component of the business.
- Latin America Beverages: Modest constant currency growth reflected sequential improvements in consumer mobility in Mexico .
Keurig Dr Pepper: Coffee Systems
Net sales for the third quarter of 2020 increased 3.0% to $1.10 billion , compared to $1.07 billion in the year-ago period, primarily reflecting higher volume/mix of 6.0%, partially offset by lower net price realization of 2.8%, primarily due to strategic pricing for pods. Also impacting the net sales performance was unfavorable foreign currency translation of 0.2%. On a constant currency basis, net sales increased 3.2% in the quarter.
The volume/mix increase of 6.0% in the quarter reflected pod volume growth of 2.4%, driven by double-digit at-home consumption, significantly offset by continued softness in the away-from-home business, as return to offices and hospitality remained depressed. Brewer volume was exceptionally strong, increasing 34% in the quarter. Driving this performance were successful innovation introduced over the past two years and continued marketing focused on growing household penetration, as well as increased brewer shipments to retailers for the upcoming holiday season.
Operating income increased 3.2% to $320 million in the third quarter of 2020, compared to $310 million in the year-ago period, reflecting the benefits of the net sales growth and continued productivity and merger synergies, partially offset by unfavorable margin mix related to the exceptionally strong brewer growth and the unfavorable year-over-year impact of items affecting comparability, including costs totaling $12 million related to COVID-19. Excluding these and other items affecting comparability, Adjusted operating income in the quarter increased 1.6% to $373 million , compared to $367 million in the year-ago period, and Adjusted operating margin declined 50 basis points to 34.0%.
