What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-10-26 compared with 2023-07-27 · 188 added, 164 removed, 563 unchanged (38% of the section changed)

35 unchanged sentences

See Non-GAAP Financial Measures for further information.

We eliminate from our financial results all applicable intercompany transactions between entities included in our consolidated financial statements and the intercompany transactions with our equity method investees.

References in tables below to percentage changes that are not meaningful are denoted by "NM".

EXECUTIVE SUMMARY

Financial Overview - Second Quarter of 2023 as compared to Second Quarter of 2022

Financial Overview - Third Quarter of 2023 as compared to Third Quarter of 2022

As Reported, in millions (except EPS)

As Adjusted, in millions (except EPS)

Key Events Subsequent to the Second Quarter of 2023

Key Events During and Subsequent to the Third Quarter of 2023

Investment in La Colombe

In July 2023, we executed definitive agreements with La Colombe to invest $300 million in exchange for 33.3% ownership in La Colombe.

The equity investment, which is subject to regulatory approval, is expected to close in the third quarter of 2023.

Simultaneously, we entered into a sales and distribution agreement for La Colombe RTD coffee and a licensing, manufacturing and distribution agreement for La Colombe branded K-Cup pods.

The transition of La Colombe RTD coffee distribution to KDP will begin in late 2023, while the launch of La Colombe branded K-Cup pods will occur during 2024.

RESULTS OF OPERATIONS

References in the tables below to percentage changes that are not meaningful are denoted by "NM".

Second Quarter of 2023 Compared to Second Quarter of 2022

The transaction closed on August 31, 2023.

The transition of La Colombe RTD coffee distribution to KDP and the launch of La Colombe branded K-Cup pods is expected to begin in late 2023.

Increase in Quarterly Dividend

On September 19, 2023, we announced that our Board approved a 7.5% increase in our annualized dividend rate to $0.86 per share, from the current annualized rate of $0.80 per share, effective with the regularly quarterly cash dividend announced on the same day.

Chief Executive Officer Succession Plan Announced

On September 20, 2023, we announced the appointment of Tim Cofer as Chief Operating Officer, reporting to Chairman and Chief Executive Officer, Bob Gamgort.

Cofer, who will join KDP on November 6, 2023, will work side by side with Mr.

Gamgort in the Chief Operating Officer capacity, with an expected transition to Chief Executive Officer in the second quarter of 2024.

Gamgort will continue to serve as our Executive Chairman after the transition occurs.

Strategic Partnership with Grupo PiSA

Effective October 23, 2023, we executed an agreement for a strategic partnership with Grupo PiSA to sell and distribute Electrolit instant hydration beverages within the U.S., which is expected to begin in early 2024.

Third Quarter of 2023 Compared to Third Quarter of 2022

Consolidated Operations

The following table sets forth our unaudited condensed consolidated results of operations for the second quarter of 2023 and 2022:

Second Quarter Dollar Percentage

The following table sets forth our unaudited condensed consolidated results of operations for the third quarter of 2023 and 2022:

Third Quarter Dollar Percentage

($ in millions, except per share amounts) 2023 2022 Change Change

3 unchanged sentences

Selling, general and administrative expenses 1,217 1,196 21 1.8

Impairment of intangible assets 2 311 (309) NM

Other operating income, net (4) — (4) NM

1 unchanged sentence

Interest expense 237 207 30 14.5

Loss on early extinguishment of debt — 169 (169) NM

Impairment of investments and note receivable — 6 (6) NM

Other (income) expense, net (5) 4 (9) NM

Income before provision for income taxes 664 183 481 262.8

Provision (benefit) for income taxes 110 (5) 115 NM

Provision for income taxes 146 4 142 NM

Net income including non-controlling interest 518 179 339 189.4

5 unchanged sentences

Gross margin 55.5 % 52.5 % 300 bps

Operating margin 20.3 % 16.1 % 420 bps

Operating margin 23.5 % 10.9 % NM

Effective tax rate 22.0 % 2.2 % NM

Sales Volume.

The following table provides the percentage change in sales volumes for the second quarter of 2023 compared to the prior year period:

The following table provides the percentage change in sales volumes for the third quarter of 2023 compared to the prior year period:

Percentage Change

K-Cup pods (6.3)

Net sales increased $235 million, or 6.6%, to $3,789 million for the second quarter of 2023 compared to $3,554 million in the prior year period.

Net sales increased $183 million, or 5.1%, to $3,805 million for the third quarter of 2023 compared to $3,622 million in the prior year period.

This performance reflected favorable net price realization across all segments totaling 5.5% and favorable FX translation of 1.0%, partially offset by unfavorable volume/mix of 1.4%.

Gross Profit.

Gross profit increased $265 million, or 14.9%, to $2,041 million for the second quarter of 2023 compared to $1,776 million in the prior year period.

This performance primarily reflected the benefits of net sales growth, a favorable change in unrealized commodity mark-to-market activity of $129 million, and productivity, partially offset by broad-based inflation.

Gross margin increased 390 bps versus the year ago period to 53.9%.

Gross profit increased $210 million, or 11.0%, to $2,111 million for the third quarter of 2023 compared to $1,901 million in the prior year period.

This performance primarily reflected the benefits of net sales growth, a favorable change in unrealized commodity mark-to-market activity, and the benefit of productivity, partially offset by broad-based inflation.

Gross margin increased 300 bps versus the prior year period to 55.5%.

Selling, General and Administrative Expenses.

SG&A expenses increased $68 million, or 5.6%, to $1,272 million for the second quarter of 2023 compared to $1,204 million in the prior year period.

The increase was driven by higher marketing expense, broad-based inflation, and increases in other operating costs, partially offset by the favorable comparison to costs associated with restructuring and integration projects in the prior year period, as well as productivity savings.

SG&A expenses increased $21 million, or 1.8%, to $1,217 million for the third quarter of 2023 compared to $1,196 million in the prior year period.

The increase was driven by higher marketing expense, broad-based inflation, and increases in other operating costs, partially offset by a favorable change in unrealized commodity mark-to-market impacts, the benefit of productivity savings, and the favorable comparison to restructuring and integration expenses incurred in the prior year period.

Impairment of Intangible Assets.

Impairment of intangible assets primarily reflected the favorable comparison to the non-cash impairment charge of $311 million in the prior year period for Bai, an indefinite lived brand asset.

Income from Operations.

Income from operations increased $197 million, or 34.4%, to $769 million for the second quarter of 2023 compared to $572 million in the prior year period, primarily driven by the increase in gross profit.

Income from operations increased $502 million, or 127.4%, to $896 million for the third quarter of 2023 compared to $394 million in the prior year period, primarily driven by the favorable comparison to the impairment of intangible assets in the prior year period and the increase in gross profit.

Interest Expense.

Interest expense decreased $3 million, or 1.7%, to $172 million for the second quarter of 2023 compared with $175 million in the prior year period.

This change was primarily driven by net realized gains on certain interest rate contracts and the favorable comparison of unrealized mark-to-market activity on interest rate contracts, partially offset by increased use of our commercial paper facility in the current year period.

Loss on Early Extinguishment of Debt.

Loss on early extinguishment of debt reflected a loss of $169 million in the prior year period associated with our 2022 Strategic Refinancing.

Impairment of Investments and Note Receivable.

Impairment of investments and note receivable reflected an impairment charge of $6 million in the prior year period associated with the wind-down of Bedford.

Interest expense increased $30 million, or 14.5%, to $237 million for the third quarter of 2023 compared with $207 million in the prior year period.

This change was primarily driven by increased use of our commercial paper facility in the current year period.

Effective Tax Rate.

The effective tax rate was 17.9% for the second quarter of 2023, compared to (2.3)% in the prior year period, primarily driven by the revaluation of state deferred tax liabilities due to state legislative changes in the prior year period, slightly offset by the benefit from an immaterial non-cash true-up during the second quarter of 2023 related to the valuation of foreign tax liabilities.

The effective tax rate was 22.0% for the third quarter of 2023, compared to 2.2% in the prior year period, primarily driven by the revaluation of state deferred tax liabilities due to state legislative changes in the prior year period.

Refer to Note 11 of the Notes to our Unaudited Condensed Consolidated Financial Statements for further information.

Net Income Attributable to KDP.

Net income increased $285 million, or 130.7%, to $503 million for the second quarter of 2023 as compared to $218 million in the prior year period, driven primarily by increased income from operations and the favorable comparison to loss on early extinguishment of debt in the prior year period, partially offset by the increase in our effective tax rate.

Diluted EPS increased 140.0% to $0.36 per diluted share for the second quarter of 2023 as compared to $0.15 in the prior year period.

Net income increased $338 million, or 187.8%, to $518 million for the third quarter of 2023 as compared to $180 million in the prior year period, driven primarily by increased income from operations.

Diluted EPS increased 184.6% to $0.37 per diluted share for the third quarter of 2023 as compared to $0.13 in the prior year period.

Results of Operations by Segment

The following tables set forth net sales and income from operations for our segments for the second quarter of 2023 and 2022, as well as other amounts necessary to reconcile our segment results to our consolidated results presented in accordance with U.S.

Second Quarter

The following tables set forth net sales and income from operations for our segments for the third quarter of 2023 and 2022, as well as other amounts necessary to reconcile our segment results to our consolidated results presented in accordance with U.S.

Third Quarter

(in millions) 2023 2022

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Net sales $ 3,805 $ 3,622

Second Quarter

Third Quarter

(in millions) 2023 2022

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Refreshment Beverages segment's results:

Second Quarter Dollar Change Percentage Change

Third Quarter Dollar Change Percentage Change

(in millions) 2023 2022

1 unchanged sentence

Income from operations 676 322 354 109.9

Operating margin 27.0 % 25.3 % 170 bps

Operating margin 29.8 % 15.0 % NM

Sales Volume.

Sales volume for the second quarter of 2023 decreased 0.4% compared to the prior year period.

Growth in Dr Pepper, driven by our Strawberries & Cream innovation, and C4 Energy as a result of our sales and distribution partnership, was more than offset by softness in our still portfolio.

Net sales increased 11.8% to $2,330 million for the second quarter of 2023, compared to $2,084 million in the prior year period, driven by favorable net price realization of 12.0%, partially offset by unfavorable volume/mix of 0.2%.

Sales volume for the third quarter of 2023 decreased 2.0% compared to the prior year period.

Growth in Dr Pepper, as well as C4 Energy as a result of our sales and distribution partnership, was more than offset by softness in our still portfolio.

Net sales increased 5.9% to $2,270 million for the third quarter of 2023, compared to $2,144 million in the prior year period, driven by favorable net price realization of 7.1%, partially offset by unfavorable volume/mix of 1.2%.

Income from Operations.

Income from operations increased $101 million, or 19.1%, to $629 million for the second quarter of 2023, compared to $528 million for the prior year period, primarily driven by the benefits of strong net sales growth and productivity, partially offset by broad-based inflation and increased marketing expenses.

Operating margin increased 170 bps versus the year ago period to 27.0%.

Income from operations increased $354 million, or 109.9%, to $676 million for the third quarter of 2023, compared to $322 million for the prior year period, primarily driven by the favorable comparison to the $311 million non-cash impairment charge for Bai in the prior year period and the benefits of strong net sales growth and productivity, partially offset by broad-based inflation and increased marketing expense.

The following table provides selected information about our U.S.

Coffee segment's results:

Second Quarter Dollar Change Percentage Change

Third Quarter Dollar Change Percentage Change

(in millions) 2023 2022

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Sales Volume.

K-Cup pod volume declined 7.7% in the second quarter of 2023 compared to the prior year period, primarily reflecting at-home coffee category trends, which continued to be impacted by greater consumer mobility versus the prior year, as well as the exit of certain private-label contracts and an unfavorable comparison to the prior year when we rebuilt partner and retailer inventories following supply chain constraints.

Brewer volume decreased 10.9% compared to the prior year period, driven by category softness in small appliances and retailer inventory shifts.

Net sales decreased 5.7% to $970 million for the second quarter of 2023 compared to net sales of $1,029 million in the prior year period, reflecting volume/mix declines of 7.3%, partially offset by favorable net price realization of 1.6%.

K-Cup pod volume decreased 8.1% in the third quarter of 2023 compared to the prior year period, primarily reflecting at-home coffee category trends as well as the exit of certain private-label contracts and an unfavorable comparison to trade inventory builds in the year-ago period.

Brewer volume increased 8.1% compared to the prior year period, driven by the resumption of seasonal shipping patterns and increased brewer shipments ahead of the holiday season.

Net sales decreased 3.2% to $1,012 million for the third quarter of 2023 compared to net sales of $1,045 million in the prior year period, reflecting volume/mix declines of 6.3%, partially offset by favorable net price realization of 3.1%.

Income from Operations.

Income from operations decreased $45 million, or 15.3%, to $250 million for the second quarter of 2023, compared to $295 million for the prior year period, reflecting broad-based inflation, unfavorable volume/mix, increased marketing expenses and costs associated with productivity projects, partially offset by the benefits of productivity and pricing actions.

Operating margin declined 290 bps versus the year ago period to 25.8%.

Income from operations increased $21 million, or 7.7%, to $293 million for the third quarter of 2023, compared to $272 million for the prior year period, reflecting the benefits of pricing actions, productivity, and reductions in other operating costs, partially offset by unfavorable volume/mix.

Operating margin improved 300 bps versus the year ago period to 29.0%.

INTERNATIONAL

The following table provides selected information about our International segment's results:

Second Quarter Dollar Change Percentage Change

Third Quarter Dollar Change Percentage Change

(in millions) 2023 2022

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K-Cup pods 8.2

Net sales increased 10.9% to $489 million in the second quarter of 2023, compared to $441 million for the prior year period, reflecting higher net price realization of 6.1%, favorable FX translation impacts of 3.9% and volume/mix growth of 0.9%.

Net sales increased 20.8% to $523 million in the third quarter of 2023, compared to $433 million for the prior year period, reflecting volume/mix growth of 9.0%, favorable FX translation impacts of 7.9% and higher net price realization of 3.9%.

Income from Operations.

Income from operations increased $14 million, or 14.3%, to $112 million for the second quarter of 2023 compared to $98 million in the prior year period.

This performance reflected the benefits of strong net sales growth and productivity, partially offset by broad-based inflation, unfavorable translation impacts in cost of sales and SG&A and increased marketing expense.

Income from operations increased $42 million, or 43.3%, to $139 million for the third quarter of 2023 compared to $97 million in the prior year period.

This performance reflected the benefits of higher net pricing realization, volume/mix growth, and productivity, partially offset by broad-based inflation.

Operating margin increased 420 bps versus the year ago period to 26.6%.

First Six Months of 2023 Compared to First Six Months of 2022

First Nine Months of 2023 Compared to First Nine Months of 2022

Consolidated Operations

The following table sets forth our unaudited condensed consolidated results of operations for the first six months of 2023 and 2022:

First Six Months Dollar Change Percentage Change

The following table sets forth our unaudited condensed consolidated results of operations for the first nine months of 2023 and 2022:

First Nine Months Dollar Change Percentage Change

($ in millions, except per share amounts) 2023 2022

3 unchanged sentences

Selling, general and administrative expenses 3,654 3,418 236 6.9

Impairment of intangible assets 2 311 (309) NM

Gain on litigation settlement — (299) 299 NM

21 unchanged sentences

K-Cup pods (4.7)

Net sales increased $510 million, or 7.7%, to $7,142 million for the first six months of 2023 compared to $6,632 million in the prior year period.

Net sales increased $693 million, or 6.8%, to $10,947 million for the first nine months of 2023 compared to $10,254 million in the prior year period.

This performance reflected favorable net price realization across all segments totaling 7.8% and favorable FX translation impacts of 0.6%, slightly offset by unfavorable volume/mix of 1.6%.

Gross Profit.

Gross profit increased $359 million, or 10.5%, to $3,785 million for the first six months of 2023 compared to $3,426 million in the prior year period.

Gross profit increased $569 million, or 10.7%, to $5,896 million for the first nine months of 2023 compared to $5,327 million in the prior year period.

This performance primarily reflected the benefits of net sales growth, productivity and a favorable change in unrealized commodity mark-to-market activity, partially offset by broad-based inflation.

1 unchanged sentence

Selling, General and Administrative Expenses.

SG&A expenses increased $215 million, or 9.7%, to $2,437 million for the first six months of 2023 compared to $2,222 million in the prior year period.

SG&A expenses increased $236 million, or 6.9%, to $3,654 million for the first nine months of 2023 compared to $3,418 million in the prior year period.

The increase was driven by broad-based inflation, higher marketing expense, an unfavorable comparison to the stock award forfeiture accounting policy change in the prior year period of $40 million, and increases in other operating costs, partially offset by the favorable comparison to restructuring and integration expenses in the prior year period.

Impairment of Intangible Assets.

Impairment of intangible assets primarily reflected the favorable comparison to the non-cash impairment charge of $311 million in the prior year period for Bai, an indefinite lived brand asset.

Gain on Litigation Settlement .

1 unchanged sentence

Other Operating Income, net.

Other operating income, net decreased $30 million for the first six months of 2023 compared to the prior year period, primarily driven by a $32 million reduction in year-over-year asset sale-leaseback activity relating to our strategic asset investment program.

Other operating income, net decreased $26 million for the first nine months of 2023 compared to the prior year period, primarily driven by a $32 million reduction in year-over-year asset sale-leaseback activity relating to our strategic asset investment program.

Income from Operations.

Income from operations decreased $185 million, or 12.0%, to $1,353 million for the first six months of 2023 compared to $1,538 million in the prior year period, primarily driven by unfavorable comparison to the gain on the litigation settlement and on the reduction in asset sale-leaseback activity.

Other factors include higher SG&A expenses, partially offset by increased gross profit.

Income from operations increased $317 million, or 16.4%, to $2,249 million for the first nine months of 2023 compared to $1,932 million in the prior year period, primarily driven by increased gross profit, partially offset by increased SG&A expenses.

Other factors included the favorable comparison to the non-cash impairment charge in the prior year period, which was mostly offset by the unfavorable comparison to the gain on the litigation settlement in the prior year period.

Interest Expense.

Interest expense decreased $168 million, or 46.3%, to $195 million for the first six months of 2023 compared to $363 million for the prior year period, primarily driven by the favorable change in unrealized mark-to-market activity of $174 million on interest rate contracts and realized gains on certain interest rate contracts, partially offset by increased use of our commercial paper facility during the current period.

Interest expense decreased $138 million, or 24.2%, to $432 million for the first nine months of 2023 compared to $570 million for the prior year period, primarily driven by the favorable change in unrealized mark-to-market activity on interest rate contracts of $173 million, partially offset by increased use of our commercial paper facility during the current year period.

Loss on Early Extinguishment of Debt.

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Gain on sale of equity method investment reflected the portion of the settlement payment from BodyArmor in the first quarter of 2022 which was allocated to the satisfaction of the holdback amount owed to us in association with the sale of our equity interest in BodyArmor in 2021.

Impairment of Investments and Note Receivable.

Impairment on investments and note receivable reflected a non-cash impairment charge of $12 million in the first six months of 2022 associated with the wind-down of Bedford.

Other Non-operating (Income) Expense, net.

1 unchanged sentence

Effective Tax Rate.

The effective tax rate increased 90 bps to 18.8% for the first six months of 2023, compared to 17.9% in the prior year period, as the benefit from our incremental income in low tax jurisdictions and the immaterial non-cash true-up during the second quarter of 2023 was more than offset by the unfavorable comparison to the benefit from the revaluation of state deferred tax liabilities due to state legislative changes in the prior year period.

The effective tax rate increased 450 bps to 19.9% for the first nine months of 2023, compared to 15.4% in the prior year period, primarily driven by the unfavorable comparison to the benefit from the revaluation of state deferred tax liabilities due to state legislative changes in the prior year period.

Refer to Note 11 of the Notes to our Unaudited Condensed Consolidated Financial Statements for further information.

Net Income Attributable to KDP.

Net income attributable to KDP increased $167 million, or 20.8%, to $970 million for the first six months of 2023 as compared to $803 million in the prior year period, primarily driven by the favorable comparison to the loss on extinguishment of debt in the prior year, reduced interest expense, and gains on our investments in equity securities, partially offset by lower income from operations, the unfavorable comparison to the gain in the prior year period for the sale of our equity method investment in BodyArmor, and the increase in our effective tax rate.

Net income attributable to KDP increased $505 million, or 51.4%, to $1,488 million for the first nine months of 2023 as compared to $983 million in the prior year period, primarily driven by increased income from operations, the favorable comparison to the loss on extinguishment of debt in the prior year, reduced interest expense, and gains on our investments in equity securities, partially offset by the unfavorable comparison to the gain in the prior year period for the sale of our equity method investment in BodyArmor and the increase in our effective tax rate.

Diluted EPS increased 52.2% to $1.05 per diluted share as compared to $0.69 in the prior year period.

Results of Operations by Segment

The following tables provide net sales and income from operations for our reportable segments for the first six months of 2023 and 2022, as well as the other amounts necessary to reconcile our total segment results to our consolidated results presented in accordance with U.S.

(in millions) First Six Months

The following tables provide net sales and income from operations for our reportable segments for the first nine months of 2023 and 2022, as well as the other amounts necessary to reconcile our total segment results to our consolidated results presented in accordance with U.S.

(in millions) First Nine Months

Net sales 2023 2022

12 unchanged sentences

Refreshment Beverages segment's results:

First Six Months Dollar Change Percentage Change

First Nine Months Dollar Change Percentage Change

(in millions) 2023 2022

1 unchanged sentence

Income from operations 1,795 1,554 241 15.5

Operating margin 25.8 % 31.9 % NM

Operating margin 27.2 % 25.9 % 130 bps

Sales Volume.

Sales volumes for the first six months of 2023 were relatively flat compared to the prior year period.

Growth in Dr Pepper, driven by our Strawberries & Cream innovation, and C4 Energy as a result of our sales and distribution partnership, was fully offset by softness in our still portfolio.

Net sales increased 12.2% to $4,337 million in the first six months of 2023, compared to $3,865 million in the prior year period, driven by favorable net price realization of 12.2%.

Sales volumes for the first nine months of 2023 decreased approximately 0.9% compared to the prior year period, as growth in Dr Pepper, as well as C4 Energy as a result of our sales and distribution partnership, was more than offset by softness in our still portfolio.

Net sales increased 10.0% to $6,607 million in the first nine months of 2023, compared to $6,009 million in the prior year period, driven by favorable net price realization of 10.4%, which was partially offset by unfavorable volume/mix impacts of 0.4%.

Income from Operations.

Income from operations decreased $113 million, or 9.2%, to $1,119 million for the first six months of 2023 compared to $1,232 million for the prior year period, primarily driven by the unfavorable comparison to the gains on the settlement of litigation with BodyArmor of $271 million and a reduction in year-over-year asset sale-leaseback activity of $32 million for our strategic asset investment program.

Other drivers included the benefits of net sales growth and productivity, partially offset by broad-based inflation, higher marketing expense, and increases in other operating costs.

Income from operations increased $241 million, or 15.5%, to $1,795 million for the first nine months of 2023 compared to $1,554 million for the prior year period, primarily driven by the benefits of net sales growth and productivity, partially offset by broad-based inflation, higher marketing expense, increases in other operating costs, and a reduction in year-over-year asset sale-leaseback activity of $32 million.

Other one-time drivers included the favorable comparison to the $311 million non-cash impairment charge for Bai in the prior year period, which was almost fully offset by the unfavorable comparison to the gains on the settlement of litigation with BodyArmor of $271 million.

The following table provides selected information about our U.S.

Coffee segment's results:

First Six Months Dollar Change Percentage Change

First Nine Months Dollar Change Percentage Change

(in millions) 2023 2022

3 unchanged sentences

Sales Volume.

K-Cup pod volume decreased 4.8% for the first six months of 2023 compared to the prior year period, reflecting at-home coffee category trends, which continued to be impacted by greater consumer mobility versus the prior year period.

Brewer volume decreased 18.6% in the first six months of 2023, driven by category softness in small appliances and retailer inventory shifts.

Net sales decreased 3.6% to $1,901 million for the first six months of 2023 compared to $1,972 million in the prior year period, driven by volume/mix declines of 6.9% partially offset by favorable net price realization of 3.3%.

K-Cup pod volume decreased 5.9% for the first nine months of 2023 compared to the prior year period, reflecting at-home coffee category trends, which was impacted by greater consumer mobility versus the prior year period.

Brewer volume decreased 8.5% in the first nine months of 2023, driven by category softness in small appliances and retailer inventory shifts.

Net sales decreased 3.4% to $2,913 million for the first nine months of 2023 compared to $3,017 million in the prior year period, driven by volume/mix declines of 6.6% which were partially offset by favorable net price realization of 3.2%.

Income from Operations.

Income from operations decreased $68 million, or 12.4%, to $482 million for the first six months of 2023, compared to $550 million in the prior year period, as a result of broad-based inflation, declines in volume/mix, higher marketing expense and increases in other operating costs.

Income from operations decreased $47 million, or 5.7%, to $775 million for the first nine months of 2023, compared to $822 million in the prior year period, as a result of broad-based inflation, declines in volume/mix, and higher marketing expense.

These decreases were partially offset by the benefits of pricing actions and productivity.

2 unchanged sentences

The following table provides selected information about our International segment's results:

First Six Months Dollar Change Percentage Change

First Nine Months Dollar Change Percentage Change

(in millions) 2023 2022

6 unchanged sentences

K-Cup pods 5.2

Net sales increased 13.7% to $904 million in the first six months of 2023, compared to $795 million in the prior year period, reflecting higher net price realization of 7.4%, volume/mix growth of 3.9%, and favorable FX translation effects of 2.4%.

Net sales increased 16.2% to $1,427 million in the first nine months of 2023, compared to $1,228 million in the prior year period, reflecting higher net price realization of 6.2%, volume/mix growth of 5.7%, and favorable FX translation effects of 4.3%.

Income from Operations.

Income from operations increased $30 million, or 18.5%, to $192 million for the first six months of 2023 compared to $162 million in the prior year period.

This performance reflected the benefits of net sales growth, productivity, and favorable unrealized mark-to-market activity compared to the prior year period, partially offset by broad-based inflation, FX translation impacts in cost of sales and SG&A, higher logistics costs associated with higher volumes and increased marketing expense.

Income from operations increased $72 million, or 27.8%, to $331 million for the first nine months of 2023 compared to $259 million in the prior year period.

This performance reflected the benefits of higher net pricing realization, volume/mix growth, and productivity, partially offset by broad-based inflation.

Operating margin increased 210 bps versus the year ago period to 23.2%.

1 unchanged sentence

To supplement the consolidated financial statements presented in accordance with U.S.

GAAP, we have presented for certain constant currency adjusted or adjusted financial measures for the second quarter and first six months of 2023 and 2022, which are considered non-GAAP financial measures.

GAAP, we have presented for certain constant currency adjusted or adjusted financial measures for the third quarter and first nine months of 2023 and 2022, which are considered non-GAAP financial measures.

The non-GAAP financial measures provided should be viewed in addition to, and not as an alternative for, results prepared in accordance with U.S.

18 unchanged sentences

(v) stock compensation expense and the associated windfall tax benefit attributable to the matching awards made to employees who made an initial investment in KDP;

(vi) non-cash changes in deferred tax liabilities related to goodwill and other intangible assets as a result of tax rate or apportionment changes;

and (vii) other certain items that are excluded for comparison purposes to prior year periods.

For the second quarter and first six months of 2023, the other certain items excluded for comparison purposes include (i) productivity expenses and (ii) costs related to significant non-routine legal matters, specifically the antitrust litigation.

Additionally, the non-cash changes in deferred tax liabilities related to goodwill and other intangible assets during the second quarter of 2023 included an immaterial non-cash true-up of the valuation of foreign deferred tax liabilities related to a prior period.

For the second quarter and first six months of 2022, the other certain items excluded for comparison purposes include (i) restructuring and integration expenses related to significant business combinations;

(vi) transaction costs for significant business combinations (completed or abandoned);

(vii) non-cash changes in deferred tax liabilities related to goodwill and other intangible assets as a result of tax rate or apportionment changes;

(viii) impairments recognized on certain intangible assets;

and (ix) other certain items that are excluded for comparison purposes to prior year periods.

For the third quarter and first nine months of 2023, the other certain items excluded for comparison purposes include (i) productivity expenses, (ii) restructuring expenses associated with the 2023 CEO Succession and Associated Realignment, and (iii) costs related to significant non-routine legal matters, specifically the antitrust litigation.

Additionally, during the first nine months of 2023, the non-cash changes in deferred tax liabilities related to goodwill and other intangible assets included an immaterial non-cash true-up of the valuation of foreign deferred tax liabilities related to a prior period.

For the third quarter and first nine months of 2022, the other certain items excluded for comparison purposes include (i) restructuring and integration expenses related to significant business combinations;

(ii) productivity expenses;

5 unchanged sentences

(viii) losses recognized with respect to our equity method investment in Bedford as a result of funding our share of their wind-down costs;

(ix) transaction costs for significant business combinations (completed or abandoned);

and (x) foundational projects, which are transformative and non-recurring in nature.

and (ix) foundational projects, which are transformative and non-recurring in nature.

Constant currency adjusted :

Defined as certain financial statement captions and metrics adjusted for certain items affecting comparability, calculated on a constant currency basis by converting our current period local currency financial results using the prior period foreign currency exchange rates.

For the second quarter and first six months of 2023 and 2022, the supplemental financial data set forth below includes reconciliations of adjusted and constant currency adjusted financial measures to the applicable financial measure presented in the unaudited condensed consolidated financial statements for the same period.

For the third quarter and first nine months of 2023 and 2022, the supplemental financial data set forth below includes reconciliations of adjusted and constant currency adjusted financial measures to the applicable financial measure presented in the unaudited condensed consolidated financial statements for the same period.

KEURIG DR PEPPER INC.

1 unchanged sentence

(Unaudited, in millions, except per share and percentages)

Cost of sales Gross profit Gross margin Selling, general and administrative expenses Other operating income, net Income from operations Operating margin

For the Second Quarter of 2023

Cost of sales Gross profit Gross margin Selling, general and administrative expenses Impairment of intangible assets Income from operations Operating margin

For the Third Quarter of 2023

Reported $ 1,694 $ 2,111 55.5 % $ 1,217 $ 2 $ 896 23.5 %

3 unchanged sentences

Stock compensation — — (4) — 4

Restructuring - 2023 CEO Succession and Associated Realignment — — (27) — 27

Productivity (25) 25 (27) — 52

Impairment of intangible assets — — — (2) 2

Non-routine legal matters — — (2) — 2

Transaction costs — — (1) — 1

Adjusted $ 1,682 $ 2,123 55.8 % $ 1,143 $ — $ 984 25.9 %

1 unchanged sentence

Constant currency adjusted 55.8 % 25.9 %

For the Second Quarter of 2022

For the Third Quarter of 2022

Reported $ 1,721 $ 1,901 52.5 % $ 1,196 $ 311 $ 394 10.9 %

3 unchanged sentences

Stock compensation — — (5) — 5

Restructuring and integration costs — — (23) 1 22

Restructuring and integration costs - DPS Merger — — (33) — 33

Productivity (30) 30 (27) — 57

Impairment of intangible assets — — — (311) 311

Non-routine legal matters — — (2) — 2

COVID-19 (3) 3 (2) — 5

Transaction costs — — (1) — 1

Foundational projects — — (1) — 1

4 unchanged sentences

(Unaudited, in millions, except per share and percentages)

Interest expense Loss on early extinguishment of debt Impairment of investments and note receivable Other (income) expense, net Income before provision for income taxes Provision (benefit) for income taxes Effective tax rate Net income attributable to KDP Diluted earnings per share

For the Second Quarter of 2023

Interest expense Other (income) expense, net Income before provision for income taxes Provision for income taxes Effective tax rate Net income attributable to KDP Diluted earnings per share

For the Third Quarter of 2023

Reported $ 237 $ (5) $ 664 $ 146 22.0 % $ 518 $ 0.37

2 unchanged sentences

Amortization of intangibles — — 34 9 25 0.02

Amortization of deferred financing costs (1) — — — 1 — 1 —

Amortization of fair value debt adjustment (5) — 5 1 4 —

Stock compensation — — 4 3 1 —

Restructuring - 2023 CEO Succession and Associated Realignment — — 27 6 21 0.01

Productivity — — 52 12 40 0.03

Impairment of intangible assets — — 2 — 2 —

Non-routine legal matters — — 2 — 2 —

Transaction costs — — 1 — 1 —

Change in deferred tax liabilities related to goodwill and other intangible assets — — — 3 (3) —

2 unchanged sentences

Constant currency adjusted 22.7 %

For the Second Quarter of 2022

For the Third Quarter of 2022

Reported $ 207 $ 4 $ 183 $ 4 2.2 % $ 180 $ 0.13

2 unchanged sentences

Amortization of intangibles — — 33 8 25 0.02

Amortization of deferred financing costs (1) — — — 1 — 1 —

Amortization of fair value of debt adjustment (5) — 5 1 4 —

Stock compensation — — 5 2 3 —

Restructuring and integration costs — — — — 22 5 17 0.01

Restructuring and integration costs - DPS Merger — — 33 8 25 0.02

Productivity — — 57 10 47 0.03

Impairment of investment — — (6) — 6 — 6 —

Loss on early extinguishment of debt — (169) — — 169 43 126 0.09

Impairment of intangible assets — — 311 77 234 0.16

Non-routine legal matters — — 2 — 2 —

COVID-19 — — 5 1 4 —

Transaction costs — — — — 1 — 1 —

Foundational projects — — 1 1 — —

9 unchanged sentences

(in millions) Reported Items Affecting Comparability Adjusted

For the second quarter of 2023:

For the third quarter of 2023:

Income from operations

4 unchanged sentences

Total income from operations $ 896 $ 88 $ 984

For the second quarter of 2022:

For the third quarter of 2022:

Income from operations

5 unchanged sentences

Reported Impact of Foreign Currency Constant Currency

For the second quarter of 2023:

For the third quarter of 2023:

Refreshment Beverages 5.9 % — % 5.9 %

3 unchanged sentences

Adjusted Impact of Foreign Currency Constant Currency Adjusted

For the second quarter of 2023:

For the third quarter of 2023:

Income from operations

4 unchanged sentences

Reported Items Affecting Comparability Adjusted Impact of Foreign Currency Constant Currency Adjusted

For the second quarter of 2023:

For the third quarter of 2023:

Operating margin

4 unchanged sentences

CONSTANT CURRENCY ADJUSTED RESULTS OF OPERATIONS

Second Quarter of 2023 Compared to Second Quarter of 2022

The following discussion of our results for the second quarter of 2023 is presented on a constant currency adjusted basis.

Third Quarter of 2023 Compared to Third Quarter of 2022

The following discussion of our results for the third quarter of 2023 is presented on a constant currency adjusted basis.

These adjusted financial results are calculated on a constant currency basis by converting our current-period local currency financial results using the prior-period foreign currency exchange rates.

1 unchanged sentence

Constant Currency Net Sales.

Constant currency net sales increased 6.1% in the second quarter of 2023 compared to the prior year period, driven by favorable net price realization of 8.2%, partially offset by decreased volume/mix of 2.1%.

Constant currency net sales increased 4.1% in the third quarter of 2023 compared to the prior year period, driven by favorable net price realization of 5.5%, partially offset by decreased volume/mix of 1.4%.

Constant Currency Adjusted Income from Operations.

2 unchanged sentences

Constant Currency Adjusted Interest Expense.

Constant currency adjusted interest expense increased 5.6% compared to the prior year period, primarily driven by increased use of our commercial paper facility in the current period, partially offset by realized gains on certain interest rate contracts during the current period.

Constant currency adjusted interest expense increased 32.6% compared to the prior year period, primarily driven by increased use of our commercial paper facility in the current year period.

Constant Currency Adjusted Effective Tax Rate.

The c onstant currency adjusted effective tax rate was relatively flat, with a rate of 22.1% for the second quarter of 2023 compared to 22.5% for the prior year period.

The c onstant currency adjusted effective tax rate was relatively flat, with a rate of 22.7% for the third quarter of 2023 compared to 23.1% for the prior year period.

Constant Currency Adjusted Net Income Attributable to KDP.

Constant currency adjusted net income attributable to KDP increased 7.0% compared to the prior year period, driven primarily by the increase in constant currency adjusted income from operations, the decrease in our effective tax rate and gains from our investments in equity securities, partially offset by increased constant currency adjusted interest expense.

Constant currency adjusted net income attributable to KDP increased 1.8% compared to the prior year period, driven primarily by the increase in constant currency adjusted income from operations and gains from our investments in equity securities, partially offset by increased constant currency adjusted interest expense.

Constant Currency Adjusted Diluted EPS .

Constant currency adjusted diluted EPS increased 7.7% in the current period.

Constant currency adjusted diluted EPS increased 4.3% in the current year period.

Results of Operations by Segment

3 unchanged sentences

Constant Currency Adjusted Income from Operations.

Constant currency adjusted income from operations for the second quarter of 2023 increased 18.1% compared to the prior year period, primarily driven by the benefits of strong net sales growth and productivity, partially offset by broad-based inflation and increased marketing expenses.

Constant currency adjusted income from operations for the third quarter of 2023 increased 6.1% compared to the prior year period, primarily driven by the benefits of strong net sales growth and productivity, partially offset by broad-based inflation and increased marketing expenses.

Constant Currency Net Sales.

1 unchanged sentence

Constant Currency Adjusted Income from Operations.

Constant currency adjusted income from operations for the second quarter of 2023 decreased 14.6% compared to the prior year period, reflecting broad-based inflation, unfavorable volume/mix, and increased marketing expenses, partially offset by the benefits of productivity and pricing actions.

Constant currency adjusted income from operations for the third quarter of 2023 increased 5.7% compared to the prior year period, reflecting the benefits of productivity, pricing actions, and reductions in other operating costs, partially offset by unfavorable volume/mix.

INTERNATIONAL

2 unchanged sentences

Constant Currency Adjusted Income from Operations.

Constant currency adjusted income from operations for the second quarter of 2023 increased 7.7% compared to the prior year period.

This performance reflected the benefits of strong net sales growth and productivity, partially offset by broad-based inflation and increased marketing expense.

Constant currency adjusted income from operations for the third quarter of 2023 increased 31.7% compared to the prior year period.

This performance reflected the benefits of higher net pricing realization, volume/mix growth, and productivity, partially offset by broad-based inflation.

KEURIG DR PEPPER INC.

1 unchanged sentence

(Unaudited, in millions, except per share and percentages)

Cost of sales Gross profit Gross margin Selling, general and administrative expenses Gain on litigation settlement Other operating income, net Income from operations Operating margin

For the First Six Months of 2023

Cost of sales Gross profit Gross margin Selling, general and administrative expenses Impairment of intangible assets Gain on litigation settlement Other operating income, net Income from operations Operating margin

For the First Nine Months of 2023

Reported $ 5,051 $ 5,896 53.9 % $ 3,654 $ 2 $ — $ (9) $ 2,249 20.5 %

3 unchanged sentences

Stock compensation — — (13) — — — 13

Restructuring - 2023 CEO Succession and Associated Realignment — — (27) — — — 27

Productivity (89) 89 (99) — — — 188

Impairment of intangible assets — — — (2) — — 2

Non-routine legal matters — — (5) — — — 5

Transaction costs — — (1) — — — 1

Adjusted $ 4,980 $ 5,967 54.5 % $ 3,420 $ — $ — $ (9) $ 2,556 23.3 %

1 unchanged sentence

Constant currency adjusted 54.5 % 23.4 %

For the First Six Months of 2022

For the First Nine Months of 2022

Reported $ 4,927 $ 5,327 52.0 % $ 3,418 $ 311 $ (299) $ (35) $ 1,932 18.8 %

3 unchanged sentences

Stock compensation — — (3) — — — 3

Restructuring and integration costs — — (56) — (2) 58

Restructuring and integration costs - DPS Merger — — (89) — — (2) 91

Productivity (86) 86 (73) — — — 159

Impairment of intangible assets — — — (311) — — 311

Non-routine legal matters — — (9) — — — 9

8 unchanged sentences

(Unaudited, in millions, except per share and percentages)

Interest expense Loss on early extinguishment of debt Gain on sale of equity method investment Impairment of investments and note receivable Other (income) expense, net Income before provision for income taxes Provision (benefit) for income taxes Effective tax rate Net income attributable to KDP Diluted earnings per share

For the First Six Months of 2023

Interest expense Loss on early extinguishment of debt Gain on sale of equity method investment Impairment of investments and note receivable Other (income) expense, net Income before provision for income taxes Provision for income taxes Effective tax rate Net income attributable to KDP Diluted earnings per share

For the First Nine Months of 2023

Reported $ 432 $ — $ — $ — $ (41) $ 1,858 $ 370 19.9 % $ 1,488 $ 1.05

5 unchanged sentences

Stock compensation — — — — — 13 6 7 —

Restructuring - 2023 CEO Succession and Associated Realignment — — — — — 27 6 21 0.01

Productivity — — — — — 188 45 143 0.10

Impairment of intangible assets — — — — — 2 — 2 —

Non-routine legal matters — — — — — 5 1 4 —

Transaction costs — — — — — 1 — 1 —

Change in deferred tax liabilities related to goodwill and other intangible assets — — — — — — 28 (28) (0.02)

2 unchanged sentences

Constant currency adjusted 21.8 %

For the First Six Months of 2022

Diluted earnings per common share may not foot due to rounding.

KEURIG DR PEPPER INC.

RECONCILIATION OF CERTAIN REPORTED ITEMS TO CERTAIN NON-GAAP ADJUSTED ITEMS

(Unaudited, in millions, except per share and percentages)

Interest expense Loss on early extinguishment of debt Gain on sale of equity method investment Impairment of investments and note receivable Other (income) expense, net Income before provision for income taxes Provision for income taxes Effective tax rate Net income attributable to KDP Diluted earnings per share

For the First Nine Months of 2022

Reported $ 570 $ 217 $ (50) $ 12 $ 22 $ 1,161 $ 179 15.4 % $ 983 $ 0.69

5 unchanged sentences

Stock compensation — — — — — 3 (1) 4 —

Restructuring and integration costs — — — — — 58 14 44 0.03

Restructuring and integration costs - DPS Merger — — — — — 91 22 69 0.05

Productivity — — — — — 159 32 127 0.09

Impairment of intangible assets — — — — — 311 77 234 0.16

Impairment of investment — — — (12) — 12 — 12 0.01

16 unchanged sentences

(in millions) Reported Items Affecting Comparability Adjusted

For the first six months of 2023:

For the first nine months of 2023:

Income from operations

4 unchanged sentences

Total income from operations $ 2,249 $ 307 $ 2,556

For the first six months of 2022:

For the first nine months of 2022:

Income from operations

5 unchanged sentences

Reported Impact of Foreign Currency Constant Currency

For the first six months of 2023:

For the first nine months of 2023:

Refreshment Beverages 10.0 % — % 10.0 %

3 unchanged sentences

Adjusted Impact of Foreign Currency Constant Currency Adjusted

For the first six months of 2023:

For the first nine months of 2023:

Income from operations

4 unchanged sentences

Reported Items Affecting Comparability Adjusted Impact of Foreign Currency Constant Currency Adjusted

For the first six months of 2023:

For the first nine months of 2023:

Operating margin

4 unchanged sentences

CONSTANT CURRENCY ADJUSTED RESULTS OF OPERATIONS

First Six Months of 2023 Compared to First Six Months of 2022

The following discussion of our results for the first six months of 2023 is presented on a constant currency adjusted basis.

First Nine Months of 2023 Compared to First Nine Months of 2022

The following discussion of our results for the first nine months of 2023 is presented on a constant currency adjusted basis.

These adjusted financial results are calculated on a constant currency basis by converting our current-period local currency financial results using the prior-period foreign currency exchange rates.

1 unchanged sentence

Constant Currency Net Sales.

Constant currency net sales increased 7.4% in the first six months of 2023 compared to the prior year period, driven by favorable net price realization of 9.0%, partially offset by lower volume/mix of 1.6%.

Constant currency net sales increased 6.2% in the first nine months of 2023 compared to the prior year period, driven by favorable net price realization of 7.8%, partially offset by lower volume/mix of 1.6%.

Constant Currency Adjusted Income from Operations.

3 unchanged sentences

Constant Currency Adjusted Interest Expense.

Constant currency adjusted interest expense increased 3.2% compared to the prior year period, primarily driven by increased use of our commercial paper facility in the current year period, partially offset by net realized gains on certain interest rate contracts and reduced interest on senior unsecured notes as a result of our 2022 Strategic Refinancing.

Constant currency adjusted interest expense increased 11.7% compared to the prior year period, primarily driven by increased use of our commercial paper facility in the current year period.

Constant Currency Adjusted Effective Tax Rate.

The c onstant currency adjusted effective tax rate was 21.3% for the first six months of 2023 compared to 22.7% for the prior year period, primarily driven by the tax benefit received from favorable adjustments upon foreign tax return filing and excess tax deductions that were generated from the vesting of RSUs during the first quarter of 2023.

The c onstant currency adjusted effective tax rate was 21.8% for the first nine months of 2023 compared to 22.9% for the prior year period, primarily driven by the tax benefit received from favorable adjustments upon foreign tax return filing and excess tax deductions that were generated from the vesting of RSUs during the first quarter of 2023.

Constant Currency Adjusted Net Income Attributable to KDP.

Constant currency adjusted net income attributable to KDP increased 4.1% compared to the prior year period, as the decrease in our effective tax rate and increased constant currency adjusted income from operations were partially offset by increased constant currency adjusted interest expense.

Constant currency adjusted net income attributable to KDP increased 3.2% compared to the prior year period, as increased constant currency adjusted income from operations and the decrease in our effective tax rate were partially offset by increased constant currency adjusted interest expense.

Constant Currency Adjusted Diluted EPS.

3 unchanged sentences

Constant Currency Net Sales.

Constant currency net sales increased 12.2%, reflecting favorable net price realization of 12.2% and flat volume/mix.

Constant currency net sales increased 10.0%, reflecting favorable net price realization of 10.4%, partially offset by unfavorable volume/mix of 0.4%.

Constant Currency Adjusted Income from Operations.

Constant currency adjusted income from operations for the first six months of 2023 increased 15.2% compared to the prior year period, driven by the benefits of net sales growth and productivity, partially offset by broad-based inflation, higher marketing expense, the unfavorable comparison to asset sale-leaseback activity relating to our strategic asset initiative in the prior year period, and increases in other operating costs.

Constant currency adjusted income from operations for the first nine months of 2023 increased 11.6% compared to the prior year period, driven by the benefits of net sales growth and productivity, partially offset by broad-based inflation, higher marketing expense, the unfavorable comparison to asset sale-leaseback activity in the prior year period, and increases in other operating costs.

Constant Currency Net Sales.

1 unchanged sentence

Constant Currency Adjusted Income from Operations.

Constant currency adjusted income from operations decreased 10.3% compared to the prior year period, as a result of inflation in input costs, declines in volume/mix and increases in other operating costs.

Constant currency adjusted income from operations decreased 5.0% compared to the prior year period, as a result of inflation in input costs, declines in volume/mix and increased marketing expense.

These decreases were partially offset by the benefits of pricing actions and productivity.

3 unchanged sentences

Constant Currency Adjusted Income from Operations.

Constant currency adjusted income from operations increased 12.0% compared to the prior year period, driven by the benefits of net sales growth and productivity, partially offset by broad-based inflation, higher costs associated with higher volumes and increased marketing expense.

Constant currency adjusted income from operations increased 19.4% compared to the prior year period, driven by the benefits of higher net pricing realization, volume/mix growth, and productivity, partially offset by broad-based inflation.

CRITICAL ACCOUNTING ESTIMATES

8 unchanged sentences

We continue to manage all aspects of our business, including, but not limited to, monitoring the financial health of our customers, suppliers and other third-party relationships, implementing gross margin enhancement strategies through our productivity initiatives, and developing new opportunities for growth such as innovation and agreements with partners to distribute brands that are accretive to our portfolio.

The following summarizes our cash activity for the first six months of 2023 and 2022:

Cash, cash equivalents, restricted cash and restricted cash equivalents decreased $257 million from December 31, 2022 to June 30, 2023, primarily driven by the reduction in cash provided by operating activities, which was largely impacted by the reduction in accounts payable during the six months ended June 30, 2023, as well as dividend payments and share repurchases, partially offset by net issuances of commercial paper.

The following summarizes our cash activity for the first nine months of 2023 and 2022:

Cash, cash equivalents, restricted cash and restricted cash equivalents decreased $275 million from December 31, 2022 to September 30, 2023, primarily driven by the reduction in cash provided by operating activities, which was largely impacted by the reduction in accounts payable, as well as share repurchases and our investment in La Colombe, partially offset by net issuances of commercial paper.

Cash generated by our foreign operations is generally repatriated to the U.S.

7 unchanged sentences

To the extent that our operating cash flows are not sufficient to meet our liquidity needs, we may utilize cash on hand or amounts available under our financing arrangements, if necessary.

At any time, and from time to time, we may seek additional deleveraging, refinancing or liquidity enhancing transactions, including entering into transactions to repurchase or redeem of outstanding indebtedness, increase the size of our commercial paper program, or otherwise seek transactions to reduce interest expense, extend debt maturities and improve our capital and liquidity structure.

Sources of Liquidity - Operations

Net cash provided by operating activities decreased $887 million for the first six months of 2023, as compared to the first six months of 2022, driven by the decrease in net income adjusted for non-cash items, led by the unfavorable year-over-year impact of the $349 million gain from BodyArmor in the first six months of 2022 and a reduction in our cash conversion cycle.

Net cash provided by operating activities decreased $1,066 million for the first nine months of 2023, as compared to the first nine months of 2022, driven by the decrease in net income adjusted for non-cash items, led by the unfavorable year-over-year impact of the $349 million gain from BodyArmor in the first nine months of 2022 and changes in our cash conversion cycle.

Cash Conversion Cycle

6 unchanged sentences

The following table summarizes our cash conversion cycle:

September 30,

Cash conversion cycle (23) (71)

Our cash conversion cycle increased 36 days to approximately (37) days as of June 30, 2023 as compared to (73) days as of June 30, 2022.

The increase in DIO reflects our efforts to restore inventory to meet customer service levels and the build up of our inventory of C4, and the decrease in DPO was driven by the reduction of payment terms for certain suppliers.

Our cash conversion cycle increased 48 days to approximately (23) days as of September 30, 2023 as compared to (71) days as of September 30, 2022.

The increase in DIO reflects the build up of our inventory of C4, and the decrease in DPO was driven by the reduction of payment terms for certain suppliers.

Accounts Payable Program

12 unchanged sentences

These transactions are accounted for as sale-leaseback transactions.

We received $7 million and $77 million of net cash proceeds from our strategic asset investment program during the first six months of 2023 and 2022, respectively, which are included in Proceeds from sales of property, plant and equipment in the unaudited Condensed Consolidated Statements of Cash Flows.

We received $7 million and $77 million of net cash proceeds from our strategic asset investment program during the first nine months of 2023 and 2022, respectively, which are included in Proceeds from sales of property, plant and equipment in the unaudited Condensed Consolidated Statements of Cash Flows.

Our credit ratings are as follows:

4 unchanged sentences

A downgrade of one or both of our debt and commercial paper ratings could increase our interest expense and decrease the cash available to fund anticipated obligations.

As of June 30, 2023, we were in compliance with all debt covenants and we have no reason to believe that we will be unable to satisfy these covenants.

As of September 30, 2023, we were in compliance with all debt covenants and we have no reason to believe that we will be unable to satisfy these covenants.

Principal Uses of Capital Resources

Over the past several years, our principal uses of our capital resources were deleveraging, providing shareholder return to our investors through regular quarterly dividends, and investing in KDP to capture market share and drive growth through innovation and routes to market.

Now that we have met our post-merger goals, we plan to further reduce our leverage ratio.

Now that we have met our post-merger goals, we have established a long-term plan to further reduce our leverage ratio.

We also plan to invest in inorganic value creation through mergers or acquisitions, which may include portfolio expansion, distribution scale, geographic expansion, and new capabilities.

1 unchanged sentence

Regular Quarterly Dividends

For the first six months of 2023, we have declared total dividends of $0.40 per share.

For the first nine months of 2023, we have declared total dividends of $0.615 per share.

Repurchases of Common Stock

Our Board authorized a four-year share repurchase program, ending December 31, 2025, of up to $4 billion of our outstanding common stock, potentially enabling us to return value to shareholders.

We repurchased and retired $ 457 million of common stock during the first six months of 2023.

As of June 30, 2023, $3,164 million remained available for repurchase under the authorized share repurchase program.

We repurchased and retired $ 457 million of common stock during the first nine months of 2023.

As of September 30, 2023, $3,164 million remained available for repurchase under the authorized share repurchase program.

Capital Expenditures

1 unchanged sentence

and Allentown, Pennsylvania, in 2023 and 2022, in order to optimize our supply chain network.

Purchases of property, plant and equipment were $ 149 million and $ 186 million for the first six months of 2023 and 2022, respectively.

Capital expenditures, which includes both purchases of property, plant and equipment and amounts included in accounts payable and accrued expenses, for the first six months of 2023 and 2022 primarily related to the manufacturing and warehousing facilities discussed above.

Capital expenditures included in accounts payable and accrued expenses were $ 214 million and $ 138 million for the first six months of 2023 and 2022, respectively, which primarily related to these investments.

Purchases of property, plant and equipment were $ 271 million and $ 260 million for the first nine months of 2023 and 2022, respectively.

Capital expenditures, which includes both purchases of property, plant and equipment and amounts included in accounts payable and accrued expenses, for the first nine months of 2023 and 2022 primarily related to the manufacturing and warehousing facilities discussed above.

Capital expenditures included in accounts payable and accrued expenses were $ 196 million and $ 179 million for the first nine months of 2023 and 2022, respectively, which primarily related to these investments.

Investments in Unconsolidated Affiliates

1 unchanged sentence

Our investments in beverage startup companies generally involve acquiring a minority interest in equity securities of a company, in certain cases with a protected path to ownership at our future option.

Investments in unconsolidated affiliates were $ 308 million and $ 48 million for the first nine months of 2023 and 2022, respectively.

Purchases of Intangible Assets

2 unchanged sentences

These transactions are generally accounted for as an asset acquisition, as the majority of the transaction price represents the acquisition of an intangible asset.

Purchases of intangible assets were $55 million and $ 10 million for the first six months of 2023 and 2022, respectively.

Purchases of intangible assets were $55 million and $41 million for the first nine months of 2023 and 2022, respectively.

Uncertainties and Trends Affecting Liquidity

13 unchanged sentences

The summarized financial information for the Parent and Guarantors were as follows:

(in millions) For the First Six Months of 2023

(in millions) For the First Nine Months of 2023

Net sales $ 6,849

1 unchanged sentence

Net income attributable to KDP 1,488

(in millions) June 30, 2023 December 31, 2022

(in millions) September 30, 2023 December 31, 2022

Current assets $ 1,707 $ 1,712

6 unchanged sentences

$ 22,786 $ 22,260

(1) Includes $4 million and $3 million of intercompany receivables due to the Parent and Guarantors from the Non-Guarantors as of June 30, 2023 and December 31, 2022, respectively.

(2) Includes $1,374 million and $1,186 million of intercompany payables due to the Non-Guarantors from the Parent and Guarantors as of June 30, 2023 and December 31, 2022, respectively.

(1) Includes $43 million and $3 million of intercompany receivables due to the Parent and Guarantors from the Non-Guarantors as of September 30, 2023 and December 31, 2022, respectively.

(2) Includes $1,270 million and $1,186 million of intercompany payables due to the Non-Guarantors from the Parent and Guarantors as of September 30, 2023 and December 31, 2022, respectively.

Quantitative and Qualitative Disclosures About Market Risk

1 unchanged sentence

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis