BURLINGTON, MASS. — Keurig Dr Pepper Inc. has taken minority stakes in several beverage companies during the past few years and those investments have begun to deliver returns, according to the company.
In October 2023, the company entered a partnership with Grupo PiSA, the Guadalajara, Mexico-based parent company of Electrolit to sell and distribute the brand. The partnership follows other investments to sell and distribute brands that expanded the company into new spaces. In 2023, for example, Keurig Dr Pepper invested $300 million to acquire a 33% stake in the La Colombe Coffee Roasters and the company paid $863 million in 2022 for an approximately 30% ownership stake in active nutrition company Nutrabolt, owner of C4 Energy.
“The operating environment remains uneven with resilient demand from higher-income consumers and value-seeking behavior among low and middle-income consumers,” said Tim Cofer, chief executive officer, during a July 25 conference call with securities analysts to discuss second-quarter results. “We are highly attuned to these dynamics and despite them, we still expect a top-line acceleration over the balance of the year. Thanks to several elements, largely within our control, including new partnership growth and traction from innovation.”
For the quarter ended June 30, Keurig Dr Pepper earned $515 million, equal to 38¢ on the common stock, and a slight improvement when compared with the same period of the year before when the company earned $503 million, or 36¢.
Quarterly sales rose to $3.92 billion from $3.70 billion the previous year.
In US Refreshment Beverages, the company’s largest business unit, sales rose to $2.41 billion from $2.33 billion during the second quarter of fiscal 2023. Operating income rose to $717 million from $629 million.
“Our performance was led by CSDs (carbonated soft drinks), which remain an outperformer in the liquid refreshment beverage space by offering compelling everyday value and variety,” Cofer said. “Within the CSD category and, as expected, our relative market share trend improved as Q2 progressed and as our 2024 innovation slate and brand activations layered into the market, resonating with consumers.”
He also said the C4 energy beverage brand had a strong quarter despite “moderation” in the energy beverage category.
“I think in the quarter, our C4 business on a retail sales basis grew about 30%,” Cofer said. “And at only 3% market share, we believe we have meaningful runway for growth.”
US Coffee business unit sales fell to $950 million from $970 million, and the unit’s operating income ticked down to $228 million from $250 million the year before.
“In US coffee, net sales declined 2.1% with volume mix growth of 0.8%, offset by 2.9% net pricing decline,” said Sudhanshu Priyadarshi, chief financial officer. “We have made sequential progress in driving improved K-Cup trends over the past few quarters and we were pleased to see pods shipments have stabilized in Q2 with 0.2% growth.”
To reinvigorate the US Coffee unit, the company is focusing on cold opportunities, said Cofer.
“Cold coffee represents less than 20% of at-home occasions while at certain coffee shops, cold beverages account for upwards of 70%,” he said. “One way we are pursuing this whitespace is through K-Cup innovation … including refreshers and cold brew pods. These items performed well in the quarter with wider distribution and support slated for the back half.
“We’re excited to further address the cold opportunity through brewers, including the upcoming launch of our new Keurig brewer, Chilled brewer in Q3 as well as through the continued expansion of La Colombe ready-to-drink coffee.”
Keurig Dr Pepper’s International business unit had sales of $565 million during the quarter, up from $489 million the year before, and the unit’s operating income rose to $150 million from $112 million.
Net income for the first six months of fiscal 2024 was $969 million, or 71¢ per share, and flat when compared with the year before when the company earned $970 million, or 69¢.
Quarterly sales rose to $7.40 billion from $7.14 billion the year before.
Discussing the rest of fiscal 2024, Cofer expressed optimism.
“We have good line of sight to sequentially stronger top-line growth in the back half in Q3 and Q4,” he said. “And the good news for us is it reflects factors largely within our control. I would say it is not predicated on a need for a significant change in terms of consumer health or macro. The single greatest driver of that top-line acceleration does lie with these partnerships that are continuing to scale.”
Specifically, Cofer said Electrolit sales will continue to scale later this year as well as the La Colombe partnership.