BURLINGTON, Mass. and PLANO, Texas, May 9, 2019 /PRNewswire/ -- Keurig Dr Pepper Inc. (NYSE: KDP) today reported financial results for the first quarter ended March 31, 2019 and affirmed guidance for Adjusted diluted EPS1 growth of 15% to 17% for the full year.
GAAP performance in the first quarter of 2019 was significantly impacted by the merger between Keurig Green Mountain and Dr Pepper Snapple Group, Inc., which was completed in July 2018. As a result, compared to the prior year period, net sales advanced 164% to $2.5 billion, operating income increased 180% to $498 million and earnings per diluted share ("diluted EPS") grew 45% to $0.16.
The net sales of $2.50 billion in the first quarter of 2019 declined 1.1%, compared to Adjusted pro forma net sales of $2.53 billion in the prior year period, reflecting strong underlying net sales growth of 2.5% that was more than offset by the expected unfavorable impacts of changes in the Company's Allied Brands portfolio, as well as calendar timing that affected year-over-year comparisons—namely, the shift of Easter into the second quarter of 2019 and one less shipping day this year in the first quarter. Adjusted diluted EPS increased 32% to $0.25 in the first quarter, compared to Adjusted pro forma diluted EPS of $0.19 in the year-ago period.
Commenting on the quarter, Keurig Dr Pepper Chairman and CEO Bob Gamgort stated, "Our first quarter results represent a good start to the year, with strong EPS delivery and all four segments registering underlying net sales growth. In addition, our in-market performance was also solid, as we grew retail dollar consumption across the majority of our portfolio and held or grew market share in nearly all categories. Our cash flow generation remains strong and we continue to reduce debt in line with our deleveraging targets. We remain confident in our targets for 2019 and our long-term value creation framework."
First Quarter Consolidated Results
Net sales more than doubled to $2.50 billion in the first quarter of 2019, compared to $0.95 billion in the year-ago quarter, primarily reflecting the impact of the merger. Compared to Adjusted pro forma net sales of $2.53 billion in the first quarter of 2018, net sales decreased 1.1%. This performance reflected strong underlying net sales growth of 2.5%, driven by higher volume/mix of 1.4% and net price realization of 1.1%, more than offset by the expected unfavorable impacts related to changes in the Company's Allied Brands portfolio of 2.5% and calendar timing of 0.6%. Also impacting the comparison was unfavorable foreign currency translation of 0.5%.
Retail market performance2 remained strong in the first quarter, with dollar consumption growth registered across the majority of the Company's portfolio and KDP holding or growing market share in the vast majority of its categories. The Company's CSD3, premium unflavored still water, RTD3 coffee and shelf stable apple juice portfolios registered market share growth in the quarter, driven by strong performances of Dr Pepper and Canada Dry CSD's, CORE waters, Peet's and Forto RTD coffees and Mott's apple juice. In coffee, retail consumption of single-serve pods manufactured by KDP increased essentially in line with category unit growth of 5%.
Operating income of $498 million also more than doubled in the first quarter of 2019, compared to $178 million in the year-ago quarter, primarily reflecting the impact of the merger, partially offset by the unfavorable year-over-year impact of items affecting comparability.
Adjusted operating income advanced 10.5% to $621 million in the first quarter of 2019, compared to Adjusted pro forma operating income of $562 million in the year-ago period. This performance primarily reflected strong productivity and merger synergies, both of which benefitted cost of goods sold and SG&A. Partially offsetting these growth drivers was inflation, particularly in packaging and logistics. On a percentage of net sales basis, Adjusted operating income grew 260 basis points to 24.8% in the first quarter.
Net income increased to $230 million in the first quarter of 2019, compared to $88 million in the year-ago quarter, primarily reflecting the impact of the merger, partially offset by the unfavorable year-over-year impact of items affecting comparability. Diluted EPS grew 45% to $0.16 in the first quarter of 2019, compared to diluted EPS of $0.11 in the year-ago period.
Adjusted net income advanced 35% to $356 million in the first quarter of 2019, compared to Adjusted pro forma net income of $263 million in the year-ago period, primarily reflecting the growth in Adjusted operating income and significantly lower interest expense, due to the benefits of unwinding several interest rate swap contracts and reduced outstanding indebtedness. Also benefitting the comparison was a lower effective tax rate, due to U.S. tax reform enacted in December 2017. Adjusted diluted EPS increased 32% to $0.25, compared to Adjusted pro forma diluted EPS of $0.19 in the year-ago period.
During the quarter, due to the Company's strong operating profit results and ongoing effective working capital management, KDP reduced debt by $414 million.
1 Adjusted financial metrics used in this release are non-GAAP measures and refer to results in 2019. In 2018, Adjusted pro forma financial metrics are also non-GAAP measures and assume the merger occurred on December 31, 2016 and adjust for other items affecting comparability. See reconciliations of GAAP results to Adjusted results, in the case of 2019 metrics, and to Adjusted pro forma results, in the case of 2018 metrics, in the accompanying tables.
2 Retail market performance (retail consumption; market share) based on Keurig Dr Pepper's custom IRi category definitions.
3 CSD refers to "Carbonated Soft Drink" and RTD refers to "Ready to Drink".
First Quarter Segment Results
Coffee Systems
Net sales for the first quarter of 2019 increased 2.1% to $968 million, compared to $948 million in the year-ago period. Compared to Adjusted pro forma net sales of $952 million, net sales increased 1.7%, reflecting higher volume/mix of 5.0%, partially offset by lower net price realization of 2.5% and unfavorable foreign currency translation of 0.8%.
The volume/mix growth of 5.0% for Coffee Systems was driven by a 7.0% increase in K-Cup pod volume and a 12.4% increase in brewer volume, partially offset by lower pod sales mix, primarily reflecting the impact of significant volume growth of branded partners in the first quarter of 2019.
Operating income for Coffee Systems advanced 15.4% to $293 million in the first quarter of 2019, compared to $254 million in the year-ago period. Adjusted operating income advanced 7.4% to $335 million, compared to Adjusted pro forma operating income of $312 million in the year-ago period, primarily reflecting the net sales growth and productivity. On a percentage of net sales basis, Adjusted operating income grew 180 basis points versus year-ago to 34.6%.
Packaged Beverages
Net sales for the first quarter of 2019 decreased 5.3% to $1.12 billion, compared to Adjusted pro forma net sales of $1.18 billion in the year-ago period, reflecting underlying net sales growth of 1.4%, driven by higher net price realization of 2.3%, partially offset by lower volume/mix of 0.9%. More than offsetting the underlying net sales growth in the quarter were the expected unfavorable impacts of 5.4% from changes in the Allied Brands portfolio and 1.2% from calendar timing. Unfavorable foreign currency translation also impacted the comparison by 0.1%.
Strong net sales growth in the quarter was registered by CORE, Evian, Dr Pepper, Canada Dry and Xyience, while Motts and 7UP declined. Contract manufacturing also registered growth in the quarter.
Operating income for Packaged Beverages totaled $149 million in the first quarter of 2019. Adjusted operating income of $160 million for the first quarter of 2019 was even with year-ago, largely reflecting strong productivity, including an earlier than expected $10 million net gain in the quarter related to the renegotiation of a manufacturing contract, as well as merger synergies. These positive drivers were offset by inflation, particularly in packaging and logistics. On a percentage of net sales basis, Adjusted operating income grew 70 basis points versus year-ago to 14.3%.
Beverage Concentrates
Net sales for the first quarter of 2019 increased 4.8% to $304 million, compared to Adjusted pro forma net sales of $290 million in the year-ago period, reflecting higher net price realization of 7.1%, partially offset by lower volume/mix of 2.0% and unfavorable foreign currency translation of 0.3%.
Dr Pepper continued to fuel the growth in net sales for the segment, along with increases for Crush and Big Red, partially offset by Canada Dry. Shipment volume was unfavorable 2.5%, largely due to declines in Canada Dry, Dr Pepper and Schweppes, partially offset by higher volume for Big Red and Crush.
Bottler case sales volume decreased 1.9%, including fountain foodservice which was 2.0% lower compared to the year-ago period.
Operating income for Beverage Concentrates totaled $201 million in the first quarter of 2019. Adjusted operating income in the quarter increased 11.7% to $201 million, compared to Adjusted pro forma operating income of $180 million in the year-ago period, primarily reflecting the growth in net sales and timing of marketing investments. On a percentage of net sales basis, Adjusted operating income grew 400 basis points versus year-ago to 66.1%.
