"In the third quarter, we maintained healthy revenue momentum and delivered a significant gross margin inflection, helping to fund reinvestment in our brands and capabilities," Chairman and CEO Bob Gamgort, said in the announcement. "In addition to continued strong results across our U.S. Refreshment Beverages and International segments, we also began to rebuild our margins in U.S. Coffee. We are reaffirming our full year outlook and remain committed to delivering a strong Q4 with an improved composition of earnings."
Gamgort continued, "KDP continues to pair strong execution and financial delivery with building the foundation for the Company's next phase of growth. Today we announced our expansion into sports hydration through a new and exciting partnership with Grupo PiSA for Electrolit. Over the past 12 months, we have established new growth platforms in sports hydration, energy and RTD coffee by partnering with compelling brands and leveraging our unique distribution assets across both cold and hot beverages to attract strong partnerships."
Third-quarter consolidated results
Net sales for the third quarter of 2023 increased 5.1% to $3.81 billion, compared to $3.62 billion in the year-ago period. On a constant currency basis, net sales advanced 4.1%, driven by net price realization of 5.5% that was only partially offset by lower volume/mix of 1.4%. Revenue momentum reflected the continued strength of the company's brand portfolio and in-market execution, as well as manageable elasticity across most categories.
GAAP operating income increased 127.4% to $896 million, compared to $394 million in the year-ago period. The comparison primarily reflected the favorable year-over-year impact of items affecting comparability, including a $311 million impairment in the prior year period, as well as strong gross profit growth.
Adjusted operating income increased 3.1% to $984 million and totaled 25.9% as a percent of net sales. Adjusted operating income growth was driven by 6.0% adjusted gross profit growth, translating to 100 basis points of adjusted gross margin expansion, with gains from pricing and productivity more than offsetting both the modest volume/mix decline and continued input cost pressure. The growth in Adjusted gross profit funded a double-digit increase in marketing investment and more than offset inflation in transportation, warehousing and other corporate costs.
GAAP net income for the quarter increased 187.8% to $518 million, or $0.37 per diluted share, compared to $180 million, or $0.13 per diluted share, in the year-ago period. This performance primarily reflected a favorable year-over-year impact of items affecting comparability, partially offset by a higher GAAP tax rate.
Adjusted net income for the quarter advanced 1.8% to $673 million, and adjusted diluted EPS increased 4.3% to $0.48. The adjusted net income and EPS growth was driven by the adjusted operating income growth, partly offset by higher interest expense.
Third-quarter segment results
U.S. Refreshment Beverages
Net sales for the third quarter increased 5.9% to $2.27 billion, compared to $2.14 billion in the year-ago period, driven by net price realization of 7.1% and a modest decline in volume/mix of 1.2%. This strong performance reflected resilient category trends, continued market share gains and the contribution from KDP's sales and distribution partnership with Nutrabolt for C4 Energy.
KDP in-market performance in the U.S. Liquid Refreshment Beverages (LRB) category remained healthy. Retail dollar consumption advanced 7.0% and market share grew in categories representing approximately 82% of the company's cold beverage retail sales base. The dollar share gains were led by Dr Pepper and Squirt in CSDs, Polar in unsweetened sparkling water, Vita Coco, C4 Energy and Mott's apple juice.
GAAP operating income increased 109.9% to $676 million, compared to $322 million in the year-ago period. The growth primarily reflected the favorable year-over-year impact of items affecting comparability, including the aforementioned $311 million impairment in the prior year period.
Adjusted operating income increased 6.1% to $695 million and totaled 30.6% as a percent of net sales, driven by net sales gains and productivity, which more than offset continued broad-based input cost inflation and a significant increase in marketing investment.
Net sales for the third quarter decreased 3.2% to $1.01 billion, compared to $1.05 billion in the year-ago period, driven by net price realization of 3.1% and a volume/mix decline of 6.3%.
Pod revenue decreased 4.8%, driven by a shipment decline of 8.1%. As expected, pod volume growth lagged gradually improving single-serve category consumption, due to an unfavorable comparison to trade inventory builds in the year-ago period and the continued impact of exiting certain low-margin private label contracts.
Across IRi tracked channels, U.S. retail dollar consumption of KDP-Manufactured K-Cup Pods decreased 7.0%, with significantly stronger performance registered in untracked channels. KDP Manufactured dollar share in the quarter was approximately 79%.
Brewer shipments totaled 10.2 million for the twelve months ending September 30, 2023, declining 4.5% year-over-year. In the quarter, brewer shipments grew year-over-year as KDP prepared for the upcoming holiday season, which is a key period for brewer demand.
GAAP operating income increased 7.7% to $293 million, compared to $272 million in the year-ago period, including a modest year-over-year benefit of items affecting comparability.
Adjusted operating income increased 5.7% to $333 million and totaled 32.9% as a percent of net sales. Adjusted operating income margin inflected strongly versus prior year, driven by higher net price realization and productivity, which more than offset the impacts of the volume/mix decline and inflation.
Net sales for the third quarter increased 20.8% to $523 million, compared to $433 million in the year-ago period. On a constant currency basis, net sales advanced 12.9%, driven by volume/mix growth of 9.0% and net price realization of 3.9%. This very strong performance reflected continued momentum in both Mexico and Canada.
GAAP operating income increased 43.3% to $139 million, compared to $97 million in the year-ago period, including a modest year-over-year benefit of items affecting comparability.
Adjusted operating income increased 31.7% to $145 million and totaled 28.0% as a percent of net sales, driven by the net sales momentum and productivity gains, which more than offset continued inflation.
KDP reaffirmed its 2023 guidance for constant currency net sales growth of 5% to 6% and adjusted diluted EPS growth of 6% to 7%.