What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2024-04-25 compared with 2023-10-26 · 83 added, 585 removed, 166 unchanged (80% of the section changed)

1 unchanged sentence

The following discussion should be read in conjunction with our audited consolidated financial statements and notes thereto in our Annual Report.

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act, including, in particular, statements about the impact of the global COVID-19 pandemic, inflation, future events, future financial performance, plans, strategies, expectations, prospects, competitive environment, regulation, labor matters, supply chain issues and availability of raw materials.

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act, including, in particular, statements about the impact of future events, future financial performance, plans (including our executive succession plan), strategies, expectations, prospects, competitive environment, regulation, labor matters, supply chain issues, inflation, and availability of raw materials.

Forward-looking statements include all statements that are not historical facts and can be identified by the use of forward-looking terminology such as “outlook,” “guidance,” “anticipate,” “expect,” “believe,” “could,” “estimate,” “feel,” “forecast,” “intend,” “may,” “plan,” “potential,” “project,” “should,” “target,” “will,” “would,” and similar words, phrases or expressions and variations or negatives of these words in this Quarterly Report on Form 10-Q.

7 unchanged sentences

All of the product names included in this Quarterly Report on Form 10-Q are either our registered trademarks or those of our licensors.

KDP is a leading beverage company in North America, with a diverse portfolio of beverages, including flavored (non-cola) CSDs, water (enhanced and flavored), ready-to-drink tea and coffee, juice, juice drinks, mixers and specialty coffee, and is a leading producer of innovative single serve brewing systems.

With a wide range of hot and cold beverages that meet virtually any consumer need, our key brands include Keurig, Dr Pepper, Canada Dry, Snapple, Mott's, Clamato, Core, Green Mountain Coffee Roasters and The Original Donut Shop.

We have some of the most recognized beverage brands in North America, with significant consumer awareness levels and long histories that evoke strong emotional connections with consumers.

We offer more than 125 owned, licensed, and partner brands, including the top ten best-selling coffee brands and Dr Pepper as a leading flavored CSD in the U.S., according to IRi, which are available nearly everywhere people shop and consume beverages.

KDP is a leading beverage company in North America that manufactures, markets, distributes, and sells hot and cold beverages and single serve brewing systems.

We have a broad portfolio of iconic beverage brands, including Dr Pepper, Canada Dry, Mott's, A&W, Snapple, Peñafiel, 7UP, Green Mountain Coffee Roasters, Core Hydration, and The Original Donut Shop, as well as the Keurig brewing system.

KDP has some of the most recognized beverage brands in North America, with significant consumer awareness levels and long histories that evoke strong emotional connections with consumers.

We offer more than 125 owned, licensed, and partner brands, available nearly everywhere people shop and consume beverages through our sales and distribution network.

KDP operates as an integrated brand owner, manufacturer, and distributor.

We believe our integrated business model strengthens our route-to-market and provides opportunities for net sales and profit growth through the alignment of the economic interests of our brand ownership and our manufacturing and distribution businesses through both our DSD and our WD systems.

KDP markets and sells its products to retailers, including supermarkets, mass merchandisers, club stores, e-commerce retailers, office superstores, vending machines, grocery and drug stores, and convenience stores;

We market and sell our products to retailers, including supermarkets, mass merchandisers, club stores, pure-play e-commerce retailers, and office superstores;

to restaurants, hotel chains, office product and coffee distributors, and partner brand owners;

and directly to consumers through its websites.

and directly to consumers through our website.

Our integrated business model enables us to be more flexible and responsive to the changing needs of our large retail customers and allows us to more fully leverage our scale and reduce costs by creating greater geographic manufacturing and distribution coverage.

Effective January 1, 2023, the Company revised its segment structure to align with how the Company’s Chief Operating Decision Maker manages the business, assesses performance and allocates resources.

The Company's reportable segments consist of the following:

Our operating and reportable segments are as follows:

Refreshment Beverages segment reflects sales in the U.S.

6 unchanged sentences

COMPARABLE RESULTS OF OPERATIONS

Management believes that there are certain non-GAAP financial measures that allow management to evaluate our results, trends and ongoing performance on a comparable basis.

In order to derive the adjusted financial information, we adjust certain financial statement captions and metrics prepared under U.S.

GAAP for certain items affecting comparability and the impact of foreign currency.

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.

1 unchanged sentence

EXECUTIVE SUMMARY

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

Financial Overview - First Quarter of 2024 as compared to First Quarter of 2023

As Reported, in millions (except EPS)

As Adjusted, in millions (except EPS)

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.

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 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 third quarter of 2023 and 2022:

Third Quarter Dollar Percentage

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

Net sales $ 3,805 $ 3,622 $ 183 5.1 %

Cost of sales 1,694 1,721 (27) (1.6)

Gross profit 2,111 1,901 210 11.0

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

Income from operations 896 394 502 127.4

Interest expense 237 207 30 14.5

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

Income before provision for income taxes 664 183 481 262.8

Provision for income taxes 146 4 142 NM

Net income including non-controlling interest 518 179 339 189.4

Net loss attributable to non-controlling interest — (1) 1 NM

Net income attributable to KDP $ 518 $ 180 338 187.8

Earnings per common share:

Basic $ 0.37 $ 0.13 $ 0.24 184.6 %

Diluted 0.37 0.13 0.24 184.6

Gross margin 55.5 % 52.5 % 300 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 third quarter of 2023 compared to the prior year period:

Percentage Change

K-Cup pods (6.3)

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 $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 $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 $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 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 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 $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 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

Segment Results — Net sales

Refreshment Beverages $ 2,270 $ 2,144

Coffee 1,012 1,045

International 523 433

Net sales $ 3,805 $ 3,622

Third Quarter

(in millions) 2023 2022

Segment Results — Income from operations

Refreshment Beverages $ 676 $ 322

Coffee 293 272

International 139 97

Unallocated corporate costs (212) (297)

Income from operations $ 896 $ 394

REFRESHMENT BEVERAGES

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

Refreshment Beverages segment's results:

Third Quarter Dollar Change Percentage Change

(in millions) 2023 2022

Net sales $ 2,270 $ 2,144 $ 126 5.9 %

Income from operations 676 322 354 109.9

Operating margin 29.8 % 15.0 % NM

Sales Volume.

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 $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:

Third Quarter Dollar Change Percentage Change

(in millions) 2023 2022

Net sales $ 1,012 $ 1,045 $ (33) (3.2) %

Income from operations 293 272 21 7.7

Operating margin 29.0 % 26.0 % 300 bps

Sales Volume.

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 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:

Third Quarter Dollar Change Percentage Change

(in millions) 2023 2022

Net sales $ 523 $ 433 $ 90 20.8 %

Income from operations 139 97 42 43.3

Operating margin 26.6 % 22.4 % 420 bps

Sales volume.

The following table provides the percentage change in sales volumes for the International segment compared to the prior year period:

Percentage Change

K-Cup pods 8.2

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

Key Events During the First Quarter of 2024

March 2024 Debt Issuance

In March 2024, we completed the issuance of an aggregate principal amount of $3 billion of senior unsecured notes.

The proceeds were used to repay the 2024 Notes at maturity, to repurchase KDP shares as described below, to repay outstanding commercial paper, and for general corporate purposes.

Repurchase of KDP Shares

In March 2024, JAB BevCo B.V., a subsidiary of JAB, sold 100 million shares of KDP’s common stock through an underwritten secondary offering.

In connection with this offering, we repurchased 35 million shares at the per-share price paid by the underwriter, for a total of $1,012 million, which was effected under our existing share repurchase program.

RESULTS OF OPERATIONS

First Quarter of 2024 Compared to First Quarter of 2023

Consolidated Operations

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

The following table sets forth our unaudited condensed consolidated results of operations for the first quarter of 2024 and 2023:

First Quarter Dollar Change Percentage Change

($ in millions, except per share amounts) 2024 2023

3 unchanged sentences

Selling, general and administrative expenses 1,176 1,165 11 0.9

Impairment of intangible assets 2 311 (309) NM

Gain on litigation settlement — (299) 299 NM

Other operating income, net (1) (5) 4 NM

Income from operations 765 584 181 31.0

Interest expense 432 570 (138) (24.2)

Loss on early extinguishment of debt — 217 (217) NM

Gain on sale of equity method investment — (50) 50 NM

Impairment of investments and note receivable — 12 (12) NM

Other (income) expense, net (41) 22 (63) NM

Interest expense 178 23 155 NM

Other income, net (7) (20) 13 NM

Income before provision for income taxes 594 581 13 2.2

Provision for income taxes 140 114 26 22.8

Net income including non-controlling interest 1,488 982 506 51.5

Net loss attributable to non-controlling interest — (1) 1 NM

Net income attributable to KDP $ 1,488 $ 983 505 51.4

Net income $ 454 $ 467 (13) (2.8)

Earnings per common share:

2 unchanged sentences

Gross margin 55.9 % 52.0 % 390 bps

Operating margin 20.5 % 18.8 % NM

Operating margin 22.1 % 17.4 % 470 bps

Effective tax rate 23.6 % 19.6 % 400 bps

Sales Volume.

The following table provides the percentage change in sales volumes compared to the prior year period:

The following table provides the percentage change in sales volume compared to the prior year period:

Percentage Change

K-Cup pods (0.6)

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%.

Net sales increased $115 million, or 3.4%, to $3,468 million for the first quarter of 2024 compared to $3,353 million in the prior year period.

This performance reflected favorable net price realization (3.1%) and favorable FX translation (0.6%), slightly offset by unfavorable volume/mix (0.3%).

Gross Profit.

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.

Gross margin increased 190 bps versus the year ago period to 53.9%.

Selling, General and Administrative Expenses.

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 .

Gain on litigation settlement reflected the portion of the settlement payment from BodyArmor which was allocated to the gain on the full settlement of the existing claims against BodyArmor in the first quarter of 2022.

Other Operating Income, net.

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.

Gross profit increased $196 million, or 11.2%, to $1,940 million for the first quarter of 2024 compared to $1,744 million in the prior year period.

This performance primarily reflected the impact to gross profit of the strong growth in net sales (6 percentage points), the benefit from the earned equity from the achievement of milestones associated with certain distribution agreements (3 percentage points), and a net benefit from changes in ingredients, materials, and productivity (2 percentage points).

Gross margin increased 390 bps versus the prior year period to 55.9%.

Income from Operations.

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.

Income from operations increased $181 million, or 31.0%, to $765 million for the first quarter of 2024 compared to $584 million in the prior year period, primarily driven by increased gross profit.

Operating margin increased 470 bps from the prior year period to 22.1%.

Interest Expense.

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.

Loss on early extinguishment of debt reflected a loss of $217 million in the prior year period associated with our 2022 Strategic Refinancing and our early retirement of our 2038 Notes, the 2021 364-Day Credit Agreement and the KDP Revolver.

Gain on Sale of Equity Method Investment.

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.

Other Non-operating (Income) Expense, net.

Other (income) expense, net reflected a favorable change of $63 million from the prior year period, driven by gains on the Company’s investments in equity securities, primarily led by Nutrabolt’s preferred dividend and mark-to-market on our Vita Coco investment.

Interest expense increased $155 million to $178 million for the first quarter of 2024 compared to $23 million for the prior year period, primarily driven by the unfavorable change in unrealized mark-to-market activity on interest rate contracts, resulting from increasing interest rates.

Effective Tax Rate.

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 $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.

The effective tax rate increased 400 bps to 23.6% for the first quarter of 2024, compared to 19.6% in the prior year period, driven by a shift in the mix of income from lower tax jurisdictions to higher tax jurisdictions (210 bps) and the unfavorable comparison to the prior year tax benefit received from favorable adjustments upon foreign tax return filing (150 bps).

Net income decreased $13 million, or 2.8%, to $454 million for the first quarter of 2024 as compared to $467 million in the prior year period, as increased interest expense and unfavorable changes in our effective tax rate offset our increased income from operations.

Diluted EPS was flat relative to the prior year period at $0.33 per diluted share.

Results of Operations by Segment

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

The following tables provide net sales and income from operations for our reportable segments for the first quarter of 2024 and 2023, as well as the other amounts necessary to reconcile our total segment results to our consolidated results presented in accordance with U.S.

First Quarter

(in millions) 2024 2023

Refreshment Beverages $ 2,093 $ 2,007

11 unchanged sentences

Refreshment Beverages segment's results:

First Nine Months Dollar Change Percentage Change

First Quarter Dollar Change Percentage Change

(in millions) 2024 2023

3 unchanged sentences

Sales Volume.

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%.

Sales volume for the first quarter of 2024 decreased approximately 1.7% compared to the prior year period, as growth in Canada Dry and C4 Energy, combined with the launch of Electrolit within our distribution network, was more than offset by softness in the remainder of our portfolio.

Net sales increased 4.3% to $2,093 million in the first quarter of 2024, compared to $2,007 million in the prior year period, driven by favorable net price realization (5.6%), which was partially offset by unfavorable volume/mix (1.3%).

Income from Operations.

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.

Income from operations increased $125 million, or 25.5%, to $615 million for the first quarter of 2024 compared to $490 million for the prior year period.

This performance was led by the benefits to gross profit from net sales growth (17 percentage points) and earned equity from the achievement of milestones associated with certain distribution agreements (9 percentage points), as well as a net benefit from changes in ingredients, materials, and productivity (2 percentage points).

Operating margin improved 500 bps versus the year ago period to 29.4%.

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

Coffee segment's results:

First Nine Months Dollar Change Percentage Change

First Quarter Dollar Change Percentage Change

(in millions) 2024 2023

3 unchanged sentences

Sales Volume.

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%.

K-Cup pod volume decreased 1.1% for the first quarter of 2024 compared to the prior year period, reflecting softer at-home coffee category trends.

Appliance volume increased 26.1% in the first quarter of 2024, driven by Keurig market share momentum.

Net sales decreased 2.1% to $911 million for the first quarter of 2024 compared to $931 million in the prior year period, driven by unfavorable volume/mix (1.8%) and net price realization (0.3%).

Income from Operations.

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.

Operating margin declined 60 bps versus the year ago period to 26.6%.

Income from operations increased $16 million, or 6.9%, to $248 million for the first quarter of 2024, compared to $232 million in the prior year period, driven by a net benefit from changes in ingredients, materials, and productivity (10 percentage points) and reduced costs associated with productivity projects (6 percentage points), partially offset by the impact to gross profit of the decrease in net sales (8 percentage points).

Operating margin improved 230 bps versus the year ago period to 27.2%.

INTERNATIONAL

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

First Nine Months Dollar Change Percentage Change

First Quarter Dollar Change Percentage Change

(in millions) 2024 2023

3 unchanged sentences

Sales Volume.

The following table provides the percentage change in sales volumes for the International segment compared to the prior year period:

The following table provides the percentage change in sales volume for the International segment compared to the prior year period:

Percentage Change

K-Cup pods 2.8

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 $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%.

NON-GAAP FINANCIAL MEASURES

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 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.

The non-GAAP financial measures presented may differ from similarly titled non-GAAP financial measures presented by other companies, and other companies may not define these non-GAAP financial measures in the same way.

The non-GAAP financial measures are not substitutes for their comparable U.S.

GAAP financial measures, such as income from operations, net income, diluted EPS or other measures prescribed by U.S.

GAAP, and there are limitations to using non-GAAP financial measures.

We use these non-GAAP financial measures, in addition to U.S.

GAAP financial measures, to evaluate our operating and financial performance and to compare such performance to that of prior periods and to the performance of our competitors.

Additionally, we use these non-GAAP financial measures in making operational and financial decisions and in our budgeting and planning process.

We believe that providing these non-GAAP financial measures to investors helps investors evaluate our operating performance, profitability and business trends in a way that is consistent with how management evaluates such performance and consistent with guidance previously provided by us.

The non-GAAP measures are defined as follows:

Defined as certain financial statement captions and metrics adjusted for certain items affecting comparability.

Items affecting comparability :

Defined as certain items that are excluded for comparison to prior year periods, adjusted for the tax impact as applicable.

Tax impact is determined based upon an approximate rate for each item.

For each period, management adjusts for (i) the unrealized mark-to-market impact of derivative instruments not designated as hedges in accordance with U.S.

GAAP that do not have an offsetting risk reflected within the financial results, as well as the unrealized mark-to-market impact of our Vita Coco investment;

(ii) the amortization associated with definite-lived intangible assets;

(iii) the amortization of the deferred financing costs associated with the DPS Merger;

(iv) the amortization of the fair value adjustment of the senior unsecured notes obtained as a result of the DPS Merger;

(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) 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;

(iii) costs related to significant non-routine legal matters, specifically the antitrust litigation;

(iv) the loss on early extinguishment of debt related to the redemption of debt;

(v) incremental costs to our operations related to risks associated with the COVID-19 pandemic, which were incurred to either maintain the health and safety of our front-line employees or temporarily increase compensation to such employees to ensure essential operations continue during the pandemic;

(vi) the gain on the sale of our investment in BodyArmor as a result of the settlement of the associated holdback liability;

(vii) the gain on the settlement of our prior litigation with BodyArmor, excluding recoveries of previously incurred litigation expenses which were included in our adjusted results;

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

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 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.

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

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

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 %

Items Affecting Comparability:

Mark to market 13 (13) 21 — (34)

Amortization of intangibles — — (34) — 34

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 %

Impact of foreign currency — % — %

Constant currency adjusted 55.8 % 25.9 %

For the Third Quarter of 2022

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

Items Affecting Comparability:

Mark to market (51) 51 (55) — 106

Amortization of intangibles — — (33) — 33

Stock compensation — — (5) — 5

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

Foundational projects — — (1) — 1

Adjusted $ 1,637 $ 1,985 54.8 % $ 1,038 $ — $ 947 26.1 %

Refer to page 43 for reconciliations of reported net sales to constant currency net sales and adjusted income from operations to constant currency adjusted income from operations.

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 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

Items Affecting Comparability:

Mark to market (114) (2) 82 20 62 0.04

Amortization of intangibles — — 34 9 25 0.02

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) —

Adjusted $ 118 $ (7) $ 873 $ 200 22.9 % $ 673 $ 0.48

Impact of foreign currency (0.2) %

Constant currency adjusted 22.7 %

For the Third Quarter of 2022

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

Items Affecting Comparability:

Mark to market (113) 2 217 54 163 0.11

Amortization of intangibles — — 33 8 25 0.02

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

Stock compensation — — 5 2 3 —

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

Productivity — — 57 10 47 0.03

Impairment of intangible assets — — 311 77 234 0.16

Non-routine legal matters — — 2 — 2 —

COVID-19 — — 5 1 4 —

Foundational projects — — 1 1 — —

Change in deferred tax liabilities related to goodwill and other intangible assets — — — 31 (31) (0.02)

Adjusted $ 89 $ 6 $ 852 $ 197 23.1 % $ 656 $ 0.46

Change - adjusted 32.6 % 2.6 % 4.3 %

Impact of foreign currency — % (0.8) % — %

Change - constant currency adjusted 32.6 % 1.8 % 4.3 %

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

KEURIG DR PEPPER INC.

RECONCILIATION OF CERTAIN REPORTED SEGMENT MEASURES

TO CERTAIN NON-GAAP ADJUSTED AND CURRENCY NEUTRAL ADJUSTED SEGMENT MEASURES

(in millions) Reported Items Affecting Comparability Adjusted

For the third quarter of 2023:

Income from operations

Refreshment Beverages $ 676 $ 19 $ 695

Coffee 293 40 333

International 139 6 145

Unallocated corporate costs (212) 23 (189)

Total income from operations $ 896 $ 88 $ 984

For the third quarter of 2022:

Income from operations

Refreshment Beverages $ 322 $ 333 $ 655

Coffee 272 43 315

International 97 7 104

Unallocated corporate costs (297) 170 (127)

Total income from operations $ 394 $ 553 $ 947

Reported Impact of Foreign Currency Constant Currency

For the third quarter of 2023:

Refreshment Beverages 5.9 % — % 5.9 %

Coffee (3.2) — (3.2)

International 20.8 (7.9) 12.9

Total net sales 5.1 (1.0) 4.1

Adjusted Impact of Foreign Currency Constant Currency Adjusted

For the third quarter of 2023:

Income from operations

Refreshment Beverages 6.1 % — % 6.1 %

Coffee 5.7 — 5.7

International 39.4 (7.7) 31.7

Total income from operations 3.9 (0.8) 3.1

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

For the third quarter of 2023:

Operating margin

Refreshment Beverages 29.8 % 0.8 % 30.6 % — % 30.6 %

Coffee 29.0 3.9 32.9 — 32.9

International 26.6 1.1 27.7 0.3 28.0

Total operating margin 23.5 2.4 25.9 — 25.9

CONSTANT CURRENCY ADJUSTED RESULTS OF OPERATIONS

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.

Consolidated Operations

Constant Currency Net Sales.

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.

Constant currency adjusted income from operations increased 3.1% compared to the prior year period.

This increase primarily resulted from the benefits of strong net sales growth and productivity, partially offset by the impacts of broad-based inflation, higher marketing expense, and increases in other operating costs.

Constant Currency Adjusted Interest Expense.

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 22.7% 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 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 4.3% in the current year period.

Results of Operations by Segment

REFRESHMENT BEVERAGES

Constant Currency Net Sales.

Constant currency net sales increased 5.9%, reflecting higher net price realization of 7.1%, partially offset by unfavorable volume/mix of 1.2%.

Constant Currency Adjusted Income from Operations.

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.

Constant currency net sales decreased 3.2%, reflecting unfavorable volume/mix of 6.3%, partially offset by favorable net price realization of 3.1%.

Constant Currency Adjusted Income from Operations.

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

Constant Currency Net Sales.

Constant currency net sales increased 12.9%, reflecting higher net price realization of 3.9% and volume/mix growth of 9.0%.

Constant Currency Adjusted Income from Operations.

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.

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

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

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 %

Items Affecting Comparability:

Mark to market 18 (18) 14 — — — (32)

Amortization of intangibles — — (103) — — — 103

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 %

Impact of foreign currency — % 0.1 %

Constant currency adjusted 54.5 % 23.4 %

For the First Nine Months of 2022

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

Items Affecting Comparability:

Mark to market (130) 130 (29) — — — 159

Amortization of intangibles — — (100) — — — 100

Stock compensation — — (3) — — — 3

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

COVID-19 (10) 10 (4) — — — 14

Gain on litigation — — — — 271 — (271)

Transaction costs — — (1) — — — 1

Foundational projects — — (3) — — — 3

Adjusted $ 4,701 $ 5,553 54.2 % $ 3,107 $ — $ (28) $ (37) $ 2,511 24.5 %

Refer to page 48 for reconciliations of reported net sales to constant currency net sales and adjusted income from operations to constant currency adjusted income from operations.

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 2023

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

Items Affecting Comparability:

Mark to market (74) — — — 16 26 6 20 0.01

Amortization of intangibles — — — — — 103 25 78 0.06

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

Amortization of fair value debt adjustment (14) — — — — 14 3 11 0.01

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)

Adjusted $ 343 $ — $ — $ — $ (25) $ 2,238 $ 490 21.9 % $ 1,748 $ 1.24

Impact of foreign currency (0.1) %

Constant currency adjusted 21.8 %

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)

For the First Nine Months of 2022

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

Items Affecting Comparability:

Mark to market (247) — — — — 406 101 305 0.21

Amortization of intangibles — — — — — 100 25 75 0.05

Amortization of deferred financing costs (2) — — — — 2 — 2 —

Amortization of fair value of debt adjustment (14) — — — — 14 3 11 0.01

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

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

Loss on early extinguishment of debt — (217) — — — 217 54 163 0.11

Non-routine legal matters — — — — — 9 2 7 —

COVID-19 — — — — — 14 3 11 0.01

Gain on litigation — — — — — (271) (68) (203) (0.14)

Gain on sale of equity-method investment — — 50 — — (50) (12) (38) (0.03)

Transaction costs — — — — — 1 — 1 —

Foundational projects — — — — — 3 1 2 —

Change in deferred tax liabilities related to goodwill and other intangible assets — — — — — — 81 (81) (0.06)

Adjusted $ 307 $ — $ — $ — $ 22 $ 2,182 $ 499 22.9 % $ 1,684 $ 1.18

Change - adjusted 11.7 % 3.8 % 5.1 %

Impact of foreign currency — % (0.6) % (1) %

Change - constant currency adjusted 11.7 % 3.2 % 4.2 %

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

KEURIG DR PEPPER INC.

RECONCILIATION OF CERTAIN REPORTED SEGMENT MEASURES

TO CERTAIN NON-GAAP ADJUSTED AND CURRENCY NEUTRAL ADJUSTED SEGMENT MEASURES

(in millions) Reported Items Affecting Comparability Adjusted

For the first nine months of 2023:

Income from operations

Refreshment Beverages $ 1,795 $ 54 $ 1,849

Coffee 775 135 910

International 331 14 345

Unallocated corporate costs (652) 104 (548)

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

For the first nine months of 2022:

Income from operations

Refreshment Beverages $ 1,554 $ 103 $ 1,657

Coffee 822 136 958

International 259 20 279

Unallocated corporate costs (703) 320 (383)

Total income from operations $ 1,932 $ 579 $ 2,511

Reported Impact of Foreign Currency Constant Currency

For the first nine months of 2023:

Refreshment Beverages 10.0 % — % 10.0 %

Coffee (3.4) — (3.4)

International 16.2 (4.3) 11.9

Total net sales 6.8 (0.6) 6.2

Adjusted Impact of Foreign Currency Constant Currency Adjusted

For the first nine months of 2023:

Net sales increased 11.8% to $464 million in the first quarter of 2024, compared to $415 million in the prior year period, reflecting volume/mix growth (4.8%), favorable FX translation (4.8%), and higher net price realization (2.2%).

Income from Operations.

Refreshment Beverages 11.6 % — % 11.6 %

Coffee (5.0) — (5.0)

International 23.7 (4.3) 19.4

Total income from operations 1.8 (0.5) 1.3

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

For the first nine months of 2023:

Operating margin

Refreshment Beverages 27.2 % 0.8 % 28.0 % — % 28.0 %

Coffee 26.6 4.6 31.2 — 31.2

International 23.2 1.0 24.2 — 24.2

Total operating margin 20.5 2.8 23.3 0.1 23.4

CONSTANT CURRENCY ADJUSTED RESULTS OF OPERATIONS

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.

Consolidated Operations

Constant Currency Net Sales.

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.

Constant currency adjusted income from operations increased 1.3% compared to the prior year period.

Such prior year benefits included the change in our accounting policy related to the recognition of forfeitures for our stock awards, the asset sale-leaseback activity related to our strategic asset investment program, and the portion of the settlement payment from BodyArmor for the reimbursement of attorney fees.

Constant Currency Adjusted Interest Expense.

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 21.8% 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 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.

Constant currency adjusted diluted EPS increased approximately 4.2% over the prior year period, driven by lower weighted average shares outstanding compared to the prior year period and the increase in constant currency adjusted net income attributable to KDP.

Results of Operations by Segment

REFRESHMENT BEVERAGES

Constant Currency Net Sales.

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 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.

Constant currency net sales decreased 3.4%, driven by unfavorable volume/mix of 6.6%, partially offset by higher net price realization of 3.2%.

Constant Currency Adjusted Income from Operations.

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.

INTERNATIONAL

Constant Currency Net Sales.

Constant currency net sales increased 11.9%, driven by favorable net price realization of 6.2% and volume/mix growth of 5.7%.

Constant Currency Adjusted Income from Operations.

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.

Income from operations increased $32 million, or 40.0%, to $112 million for the first quarter of 2024 compared to $80 million in the prior year period.

This performance reflected the impact to gross profit of higher net price realization and volume/mix growth (30 percentage points) and favorable FX impacts (9 percentage points).

Operating margin improved 480 bps versus the year ago period to 24.1%.

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 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.

2 unchanged sentences

to have a material effect on our overall business, liquidity, financial condition or results of operations for the foreseeable future.

The following summarizes our cash activity for the first quarter of 2024 and 2023:

Principal Sources of Capital Resources

1 unchanged sentence

Additionally, we have an uncommitted commercial paper program where we can issue unsecured commercial paper notes on a private placement basis.

Based on our current and anticipated level of operations, we believe that our operating cash flows will be sufficient to meet our anticipated obligations for the next twelve months.

Based on our current and anticipated level of operations, we believe that our operating cash flows will be sufficient to meet our anticipated obligations for the next twelve months and thereafter for the foreseeable future.

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.

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 outstanding indebtedness 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 $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.

Net cash provided by operating activities increased $14 million for the first quarter of 2024, as compared to the first quarter of 2023, driven by an increase in working capital.

Cash Conversion Cycle

6 unchanged sentences

The following table summarizes our cash conversion cycle:

September 30,

Cash conversion cycle 2 (46)

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.

Our cash conversion cycle increased 48 days to approximately 2 days as of March 31, 2024 as compared to (46) days as of March 31, 2023, which was primarily driven by the decrease in DPO, reflecting the reduction of payment terms for certain suppliers.

Accounts Payable Program

As part of our ongoing efforts to improve our cash flow and related liquidity, we work with our suppliers to optimize our terms and conditions, which include the extension of payment terms.

As part of our ongoing efforts to improve our cash flow and related liquidity, we work with our suppliers to optimize our terms and conditions, which includes payment terms.

Excluding our suppliers who require cash at date of purchase or sale, our current payment terms with our suppliers generally range from 10 to 360 days.

3 unchanged sentences

Our obligations to our suppliers, including amounts due and scheduled payment terms, are not impacted.

Refer to Note 13 of the Notes to our Unaudited Condensed Consolidated Financial Statements for additional information on our obligations to participating suppliers.

Sources of Liquidity - Financing

1 unchanged sentence

We also have an active shelf registration statement, filed with the SEC on August 19, 2022, which allows us to issue an indeterminate number or amount of common stock, preferred stock, debt securities and warrants from time to time in one or more offerings at the direction of our Board.

Sources of Liquidity - Asset Sale-Leaseback Transactions

We have leveraged our strategic asset investment program to create value from certain assets to enable reinvestment in KDP.

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 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 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.

As of March 31, 2024, 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 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.

In addition, we have repurchased shares of our outstanding common stock, as described below.

Our capital allocation priorities are investing to grow our business both organically and inorganically, continuing to strengthen our balance sheet, and returning cash to shareholders through regular quarterly dividends and opportunistic share repurchases.

We dynamically adjust our cash deployment plans based on the specific opportunities available in a given period, but over time we allocate capital to balance each of these priorities.

Regular Quarterly Dividends

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

We have declared total dividends of $0.215 per share and $0.20 per share for the first quarter of 2024 and 2023, respectively.

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 nine months of 2023.

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

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

We repurchased and retired $1,105 million of common stock during the first quarter of 2024.

As of March 31, 2024, $1,810 million remained available for repurchase under the authorized share repurchase program.

Capital Expenditures

We are investing in state-of-the-art manufacturing and warehousing facilities, including expansive investments in facilities in Spartanburg, South Carolina;

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

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.

We continue to invest in state-of-the-art manufacturing and warehousing facilities, including expansive investments in facilities in Spartanburg, South Carolina, in order to optimize our supply chain network.

Purchases of property, plant and equipment were $158 million and $62 million for the first quarter of 2024 and 2023, respectively.

Capital expenditures, which includes both purchases of property, plant and equipment and amounts included in accounts payable and accrued expenses, for the first quarter of 2024 and 2023 primarily related to investments in manufacturing capabilities.

Capital expenditures included in accounts payable and accrued expenses were $189 million and $222 million for the first quarter of 2024 and 2023, respectively, which primarily related to these investments.

Investments in Unconsolidated Affiliates

From time to time, we expect to invest in beverage startup companies or in brand ownership companies to grow our presence in certain product categories, or enter into various licensing and distribution agreements to expand our product portfolio.

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.

Our investments 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.

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 $41 million for the first nine months of 2023 and 2022, respectively.

Purchases of intangible assets were $31 million and $51 million for the first quarter of 2024 and 2023, 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 Nine Months of 2023

(in millions) For the First Quarter of 2024

Net sales $ 2,180

Gross profit 1,227

Income from operations 390

Net income attributable to KDP 1,488

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

Net income 454

(in millions) March 31, 2024 December 31, 2023

Current assets $ 2,227 $ 1,957

6 unchanged sentences

$ 24,893 $ 23,438

(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.

(1) Includes $157 million and $56 million of intercompany receivables due to the Parent and Guarantors from the Non-Guarantors as of March 31, 2024 and December 31, 2023, respectively.

(2) Includes $1,388 million and $1,399 million of intercompany payables due to the Non-Guarantors from the Parent and Guarantors as of March 31, 2024 and December 31, 2023, 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