BURLINGTON, Mass. and PLANO, Texas, Aug. 8, 2019 /PRNewswire/ -- Keurig Dr Pepper Inc. (NYSE: KDP) today reported financial results for the second quarter ended June 30, 2019 and reaffirmed guidance for Adjusted diluted EPS1 growth of 15% to 17% for the full year.
GAAP performance in the second quarter of 2019 was significantly impacted by the merger between Keurig Green Mountain and Dr Pepper Snapple Group, which was completed in July 2018. As a result, compared to the prior year period, net sales advanced 196% to $2.81 billion, operating income increased 251% to $587 million and earnings per diluted share ("diluted EPS") grew 120% to $0.22.
The net sales of $2.81 billion in the second quarter of 2019 declined 0.4%, compared to Adjusted pro forma net sales of $2.82 billion in the prior year period, reflecting strong underlying net sales growth of 2.6% that was more than offset by the expected unfavorable impact of changes in the Company's Allied Brands portfolio. Adjusted diluted EPS increased 15% to $0.30 in the second quarter, compared to Adjusted pro forma diluted EPS of $0.26 in the year-ago period.
Commenting on the announcement, Keurig Dr Pepper Chairman and CEO Bob Gamgort stated, "Our strong quarterly results cap an outstanding first year for Keurig Dr Pepper. Our team has executed well across the board, integrating two companies into one seamless total beverage organization, gaining or maintaining market share across the majority of our portfolio and delivering the bold financial commitments communicated at the time of the merger announcement. Looking ahead, we remain confident in the delivery of our long-term value creation framework."
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1 Adjusted financial metrics used in this release are non-GAAP measures and refer to results in 2019. Adjusted pro forma financial metrics also used in this release for results in 2018 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.
Second Quarter Consolidated ResultsNet sales increased to $2.81 billion in the second 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 $2.82 billion in the second quarter of 2018, net sales declined 0.4%. This performance reflected strong underlying net sales growth of 2.6%, driven by increased volume/mix of 2.1% and higher net price realization of 0.5%, as well as a 0.2% benefit from the shift of Easter into the second quarter of 2019. More than offsetting these positive drivers was the expected unfavorable impact related to changes in the Company's Allied Brands portfolio that totaled 3.0%, as well as unfavorable foreign currency translation of 0.2%.
KDP in-market performance2 was solid in the second quarter of 2019, growing dollar consumption and gaining or maintaining market share in several key categories, including CSD's3, single-serve coffee, premium unflavored still water, shelf stable fruit drinks and RTD3 coffee. This performance reflected the strength of Dr Pepper and Canada Dry CSD's, CORE Hydration, Peet's and Forto RTD coffees and Snapple juice drinks. In coffee, retail consumption of single-serve pods manufactured by KDP grew approximately 5%, and dollar market share was essentially even with year-ago at 81.6%.
Operating income increased to $587 million in the second quarter of 2019, compared to $167 million in the year-ago period, primarily reflecting the impact of the merger, partially offset by the unfavorable year-over-year impact of items affecting comparability.
Adjusted operating income advanced approximately 10% to $702 million in the second quarter of 2019, compared to Adjusted pro forma operating income of $640 million in the year-ago period. This strong growth was achieved despite comparison to the second quarter of 2018 that included a $16 million gain in connection with the acquisition of Big Red and a $5 million one-time reimbursement from a resin supplier which, combined, had the effect of reducing the year-over-year Adjusted operating income growth rate by more than three percentage points. Driving the performance in the second quarter of 2019 were strong productivity and merger synergies, both of which benefitted cost of goods sold and SG&A, and growth in underlying net sales, partially offset by inflation, particularly in packaging and logistics. Adjusted operating margin grew 230 basis points to 25.0% in the second quarter.
Net income increased to $314 million in the second quarter of 2019, compared to $83 million in the year-ago period, primarily reflecting the impact of the merger, partially offset by the unfavorable year-over-year impact of items affecting comparability. Diluted EPS grew 120% to $0.22 in the second quarter of 2019, compared to diluted EPS of $0.10 in the year-ago period.
Adjusted net income advanced approximately 19% to $423 million in the second quarter of 2019, compared to Adjusted pro forma net income of $356 million in the year-ago period. This performance primarily reflected the strong growth in Adjusted operating income and significantly lower interest expense, resulting from the benefits of unwinding several interest rate swap contracts and reduced outstanding indebtedness. Adjusted diluted EPS increased 15% to $0.30, compared to Adjusted pro forma diluted EPS of $0.26 in the year-ago period, reflecting the growth in Adjusted net income, partially offset by an increase in diluted shares outstanding, largely due to the acquisition of Core Nutrition LLC in November 2018.
Strong free cash flow generation resulting from the Company's growth in operating profit and ongoing effective working capital management enabled KDP to reduce its outstanding debt by $303 million in the quarter. For the first six months of 2019, the Company has reduced its outstanding debt by $717 million.
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2 In-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".
The full report is available here.
