Sales surge at newly merged Keurig Dr Pepper
- Keurig Green Mountain and Dr Pepper Snapple each posted sales increases during the second quarter, the company said in a statement. The two businesses, which merged last month to create Keurig Dr Pepper, will announce combined earnings as a single company in the third quarter.
- During the second period, Dr Pepper Snapple had a 5% increase in sales to $1.886 billion from a year earlier due to a favorable product mix and higher volumes as well as better net pricing. Income dropped 3.5% to $362 million. Sales at Keurig Green Mountain rose $1 million to $949 million, reflecting high single-digit pod volume growth, while adjusted operating income surged 10.8% to $288 million.
- "With the merger of these two great companies now behind us, our focus is on integration, optimization and ensuring delivery of the financial expectations we established. We are very pleased with the progress to date," Bob Gamgort, CEO of Keurig Dr Pepper, said in a statement. "On financials, the second quarter results reported today are fully consistent with our full year outlook for 2018."
With a month gone by since the merger, it's hard to see synergies from the deal, but it appears Keurig Dr Pepper is starting its new chapter on solid footing with sales growth in both of key divisions.
In Dr Pepper Snapple, the company said it had strong net sales driven by innovation in Canada Dry, continued growth of Bai and gains in Mott's juices and several of its allied brands — beverages it works with but doesn't control that give Dr Pepper Snapple access to faster-growing beverage categories coveted by health-conscious shoppers.
During the quarter, the company showed it was not immune to challenges facing other CPG companies. Its 3.5% slide in income reflected rising prices for plastics, aluminum and apples, higher logistics costs and a boost in planned marketing investments. This was offset by strong growth in net sales.
Meanwhile, Keurig underscored the growing popularity of coffee for both the on-the-go consumer and the home brewer. It noted strong household penetration in the U.S. of the Keurig single-serve system that was offset by lower net price realization (the actual price the company received compared to what they expected) due to strategic pricing actions and lower brewer sales. The income jump was largely the result of productivity savings and lower overhead costs.
The combined company gives Keurig Dr Pepper a hand in a diverse range of beverages found at nearly every place frequented during the day by the consumer. Keurig Dr Pepper now has a more dominant position at homes, convenience stores and supermarket shelves with sodas like 7UP and Dr Pepper, ready-to-drink coffee from K-cups and fruit-flavored antioxidant drinks such as Bai.
But while these synergies appear to make sense, it's uncertain how well they will translate into the combined company and if it will be enough to justify the $19 billion Keurig Green Mountain paid to buy Dr Pepper Snapple. Keurig Dr Pepper also cited during the quarter strong growth in its allied brands, but it may not be able to depend on that contribution for much longer.
Fiji Water, for example, is phasing out its distribution arrangement with Keurig Dr Pepper by October and will be handling more direct distribution of its bottled water products. There is speculation among analysts that Fiji's departure could be followed by other Dr Pepper-distributed brands, and that leaders of the newly merged Keurig Dr Pepper may not be interested in maintaining minority stakes in products such as BodyArmor sports drink, potentially putting it on the market.
While it might lose the revenue, selling its approximately 15% stake in a popular brand such as BodyArmor would likely result in a meaningful financial gain for Keurig Dr Pepper could invest in other parts of the business.
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