Energy drinks give Keurig Dr Pepper a boost

FRISCO, TEXAS — Keurig Dr Pepper saw mixed results in its caffeine categories for the second quarter ended June 30. Energy drinks gained market share, but US Coffee volume declined to drag down earnings.

Net income of $142 million, or 4¢ per share on the common stock, was down 74% from $547 million, or 40¢ per share, in the previous year’s second quarter. Net sales increased 76% to $7.31 billion from $4.16 billion. Excluding the contribution from the JDE Peet’s acquisition, which closed in April, net sales rose 7.3%, driven by favorable net price realization of 4.2% and volume/mix growth of 3.1%.

Keurig Dr Pepper’s energy drink portfolio exceeded 9% market share in the category, the company said.

“Bloom and Ghost were two of the top-performing trademarks in the category, underscoring their meaningful consumer resonance and reflecting each brand’s great tasting products, authentic positioning and social media savvy,” said Timothy Cofer, chief executive officer, in an Aug. 6 earnings call.  “Growth also came from high-quality frontline execution to expand distribution points and cooler penetration as well as compelling innovation, such as Bloom crisp apple and summer splash and the Ghost-7UP limited-time offering.”

Updated packaging for C4 Energy included clearer caffeine and benefit communication, bolder flavor cues, and a simplified visual system, Cofer said.

“This refresh is designed to improve shelf presence and make the portfolio easier to shop, and early results are encouraging, with a double-digit sales lift and significant velocity increases in geographies where it’s present,” he said. “We expect brand momentum to build as the new packaging rolls out more broadly. Overall, we continue to view our energy portfolio as advantaged with a long runway for each of our brands and good visibility to our double-digit market share goal.”

The energy drinks belong to Keurig Dr Pepper’s US Refreshment Beverages business, where second-quarter net sales increased 10% to $2.93 billion from $2.66 billion, driven by volume/mix growth of 6.5% and favorable net price realization of 3.5%. Dr Pepper gained market share in the quarter, Cofer said.

“The brand’s zero-sugar platform sustained its momentum, growing retail sales nearly 30% and gaining more share than any other trademark in the zero-sugar space, driven by increasing household penetration,” he said. “This reflected the benefits of marketing support, increased distribution and greater display activity, and we will continue to deploy these levers to drive further expansion.”

Coffee volume declines

In US Coffee, net sales slipped 3.2% to $918 million from $948 million. Volume/mix declined 8%, which more than offset favorable net price realization of 5%. The volume/mix decline included an unfavorable impact from a reporting shift of Peet’s K-Cup pods into the JDE Peet’s segment because of the acquisition.

“While we always anticipated subdued segment performance in the quarter, the magnitude was larger than we initially estimated,” Cofer said of US Coffee results. “Top- and bottom-line results were impacted by single-serve category volume declines and unfavorable portfolio mix, which reflected increased consumer caution and value-seeking behavior. Despite these dynamics, we made progress across the business. Notably, brewer shipments returned to growth, supported by our great coffee without the grind curing marketing campaign, and we expect further improvements over the balance of the year.”

Retail sales of Dr Pepper Zero Sugar increased by nearly 30%.

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He said that the brewer business should benefit from commercial activity and that Keurig Dr Pepper plans to strengthen trends in pods and other coffee products.

“Ultimately, we believe our US coffee segment is beginning to turn a corner as we enter the back half, and we remain confident in its long-term growth potential,” Cofer said.

Segment operating profit in US Coffee declined 25% to $149 million from $233 million due to continued cost pressure from green coffee inflation and tariff impacts, said Anthony DiSilvestro, chief financial officer for Keurig Dr Pepper.

For a bright spot, retail sales for the La Colombe ready-to-drink platform increased by over 50% in the quarter, Cofer said. JDE Peet’s had sales of $2.80 billion in the quarter.

“We’ve now consolidated our US customers to an integrated sales force and single invoice for the joint Keurig and Peet’s portfolio with the transition completed on schedule and without disruption,” Cofer said.

An unfavorable year-over-year impact of items affecting comparability, which included acquisition and integration-related costs, negatively impacted net income attributable to common shareholders, which declined 89% to $60 million, or 4¢ per diluted share, in the second quarter. Adjusted net income attributable to common shareholders increased 15% to $783 million, or 57¢per diluted share.