BURLINGTON, Mass. and FRISCO, Texas, US – Keurig Dr Pepper Inc. reported strong and balanced financial results for the second quarter ended June 30, 2021. The Company also raised its 2021 guidance for constant currency net sales growth to a range of 6% to 7%, from the previous 4% to 6%, and reaffirmed its guidance for Adjusted diluted EPS growth in the range of 13% to 15%.
Commenting on the announcement, Chairman and CEO Bob Gamgort stated, “Keurig Dr Pepper delivered another strong quarter, as we successfully navigated a challenging macro environment marked by inflation, supply chain disruptions and a tight labor market. For the first six months of 2021, we delivered 9% revenue growth and nearly 15% Adjusted diluted EPS growth. Notwithstanding the expectation for ongoing challenges to persist for some time, we are confident in our strengthened top-line outlook and plan to reinvest any profit upside back into the business. In addition, our commitment to achieve our three-year merger targets ending this year remains unchanged.”
Keurig Dr Pepper: Second Quarter Consolidated Results
Net sales for the second quarter of 2021 increased 9.6% to $3.14 billion, compared to $2.86 billion in the year-ago period, driven by growth in each business segment, with Beverage Concentrates and Latin America Beverages posting strong double-digit growth. On a constant currency basis, net sales advanced 8.1% in the quarter, reflecting higher volume/mix of 6.1% and favorable net price realization of 2.0%. For the first six months of 2021, constant currency net sales advanced 13.4% versus the first six months of 2019.
In LRB, Keurig Dr Pepper in-market performance in the quarter remained strong, with retail dollar consumption advancing 5.2% across the Company’s cold beverage retail base, reflecting strength in CSDs, premium unflavored water, enhanced flavored water, apple juice, apple sauce, and coconut water. This performance was driven by Dr Pepper, Sunkist, A&W, 7UP and Squirt CSDs, CORE Hydration, Evian, Bai, Motts apple juice and apple sauce, Polar, and Vita Coco. On a two-year stacked basis, Keurig Dr Pepper gained market share in nearly 80% of its cold beverage retail base and grew consumption of its cold beverage portfolio by 20%.
In coffee, retail consumption of single-serve pods manufactured by KDP in IRi tracked channels decreased 1.2% compared to the year-ago period that was significantly impacted by consumer stock-up purchasing related to the pandemic. Dollar market share remained strong, advancing to 83% in the quarter. Performance in the away-from-home business improved versus the year-ago shelter-in-place environment, although the increase in consumer mobility has not yet translated into a broad return to offices. On a two-year stacked basis, retail consumption of single-serve pods manufactured by KDP increased 13% in IRi tracked channels.
GAAP operating income increased 31% to $734 million in the second quarter of 2021, compared to $561 million in the year-ago period, reflecting the growth in net sales, productivity and merger synergies, as well as the favorable year-over-year impact of items affecting comparability. These drivers were partially offset by significantly higher marketing investments in the quarter, inflation in input costs, logistics and manufacturing and higher operating expenses associated with increased consumer demand.
Adjusted operating income grew 8.3% to $839 million in the second quarter of 2021, compared to $775 million in the year-ago period. On a percent of net sales basis, Adjusted operating income in the second quarter of 2021 was 26.7%, compared to 27.1% in the year-ago period, reflecting the significant increase in marketing investment and the impact of inflation. On a constant currency basis, Adjusted operating income increased 6.8% in the quarter. For the first six months of 2021, Adjusted operating income advanced 19.4% versus the first six months of 2019.
GAAP net income grew 50% to $448 million in the second quarter of 2021, or $0.31 per diluted share, compared to $298 million, or $0.21 per diluted share, in the year-ago period. This performance was driven by the growth in operating income and lower interest expense.
Adjusted net income advanced 14.7% to $538 million in the second quarter of 2021, compared to $469 million in the year-ago period, largely reflecting the Adjusted operating income growth and lower interest expense stemming from the first quarter 2021 strategic refinancing that resulted in favorable interest rates. Adjusted diluted EPS advanced 15.2% to $0.38 in the second quarter of 2021, compared to $0.33 in the year-ago period. For the first six months of 2021, Adjusted diluted EPS grew 29.1% versus the first six months of 2019.
Free cash flow totaled $492 million in the second quarter of 2021, reflecting the growth in earnings and ongoing effective working capital management. This continued strong free cash flow performance enabled KDP to reduce total financial obligations by $431 million in the second quarter of 2021 and end the period with $167 million of unrestricted cash on hand. In addition, the Company’s management leverage ratio continued to decline, ending the second quarter of 2021 at 3.4x, compared to 4.0x in the year-ago period. Since the close of the merger in July 2018, the Company’s management leverage ratio has declined by 2.6x.
Coffee Systems
Net sales for the second quarter of 2021 advanced 5.6% to $1.10 billion, compared to $1.04 billion in the year-ago period. On a constant currency basis, net sales advanced 3.9%, reflecting higher volume/mix of 3.5% and favorable net price realization of 0.4%.
The volume/mix increase of 3.5% in the quarter reflected pod volume growth of 0.2% and brewer volume growth of 29%. The pod volume performance reflected unfavorable shipment timing impacted by at-home consumer stock-up behavior in the year-ago period, largely offset by an improved performance in the away-from-home business, although the return to offices continues to be slow. The brewer volume growth largely reflected continued strong retail consumption, primarily driven by the Company’s successful brewer innovation program and, to a lesser extent, favorable timing of Prime Day during the second quarter of 2021 versus the third quarter of 2020.
GAAP operating income increased 11.0% to $322 million in the second quarter of 2021, compared to $290 million in the year-ago period, reflecting continued productivity and merger synergies and the favorable year-over-year impact of items affecting comparability. Partially offsetting these positive drivers was inflation in input costs, logistics and manufacturing.
Adjusted operating income increased 2.2% to $371 million in the second quarter of 2021, compared to $363 million in the year-ago period and, on a constant currency basis, Adjusted operating income advanced 1.1%. On a percent of net sales basis, Adjusted operating income in the second quarter of 2021 was 33.7%, compared to 34.8% in the year-ago period, largely reflecting negative margin mix due to the exceptionally strong brewer sales.
