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Item 2. Management’s Discussion and Analysis

2025-04-24 compared with 2024-10-24 · 88 added, 247 removed, 111 unchanged (75% 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 future events, future financial performance, plans, strategies, business combinations, 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.

We have based these forward-looking statements on our current views with respect to future events and financial performance.

Our actual financial performance could differ materially from those projected in the forward-looking statements due to a variety of factors, including the inherent uncertainty of estimates, forecasts and projections and the possibility that we are unable to successfully complete the GHOST transaction on the anticipated terms and timing or to successfully integrate GHOST into our business, and our financial performance may be better or worse than anticipated.

Our actual financial performance could differ materially from those projected in the forward-looking statements due to a variety of factors, including the inherent uncertainty of estimates, forecasts, and projections, global economic uncertainty or economic downturns, tariffs or the imposition of new tariffs, trade wars, barriers or restrictions, or threats of such actions, as well as the possibility that we are unable to successfully integrate GHOST into our business, and our financial performance may be better or worse than anticipated.

Given these uncertainties, you should not put undue reliance on any forward-looking statements.

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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 Keurig, Dr Pepper, Canada Dry, Mott's, A&W, Snapple, Peñafiel, 7UP, Green Mountain Coffee Roasters, Clamato, Core Hydration, and The Original Donut Shop.

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 system and our WD system.

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 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.

Our operating and reportable segments are as follows:

Refreshment Beverages segment reflects sales in the U.S.

from the manufacture and distribution of branded concentrates, syrup, and finished beverages, including the sales of the Company's own brands and third-party brands, to third-party bottlers, distributors, and retailers.

Coffee segment reflects sales in the U.S.

from the manufacture and distribution of finished goods relating to the Company's K-Cup pods, single-serve brewers, and other coffee products to partners, retailers and directly to consumers through our Keurig.com website.

• The International segment reflects sales in international markets, including the following:

◦ Sales in Canada, Mexico, the Caribbean, and other international markets from the manufacture and distribution of branded concentrates, syrup, and finished beverages, including sales of the Company's own brands and third-party brands, to third-party bottlers, distributors, and retailers.

◦ Sales in Canada from the manufacture and distribution of finished goods relating to the Company’s single-serve brewers, K-Cup pods, and other coffee products.

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

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, as well as powerful distribution capabilities.

Our three operating and reportable segments are U.S.

Refreshment Beverages, U.S.

Coffee, and International.

COMPARABLE RESULTS OF OPERATIONS

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EXECUTIVE SUMMARY

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

As Reported, in millions (except EPS)

Key Events During the Third Quarter of 2024

Acquisition of Strategic Assets from Kalil Bottling Company

In August 2024, we completed the Kalil Acquisition, which was previously announced on May 31, 2024.

As a result, our DSD operations gained new bottling and distribution rights in Arizona to key KDP brands, including Canada Dry, 7UP, A&W, Snapple, and Core Hydration.

Refer to Note 3 of the Notes to our Unaudited Condensed Consolidated Financial Statements for additional information.

Increase in Quarterly Dividend

On September 12, 2024, we announced a 7.0% increase in our annualized dividend rate to $0.92 per share, from the previous annualized rate of $0.86 per share, effective with the regular quarterly cash dividend announced on the same day.

Definitive Agreement to Acquire GHOST

On October 23, 2024, we entered into a definitive agreement with GHOST, and certain other parties named therein, to acquire a controlling interest in GHOST.

Founded in 2016, GHOST is a lifestyle sports nutrition business with a portfolio anchored by GHOST Energy, a leading ready-to-drink energy brand.

Under the terms of the agreement, we will initially purchase a 60% stake in GHOST for aggregate consideration of $990 million and, upon the closing of that transaction, we will enter into a subsequent agreement with GHOST, which will require the remaining equityholders of GHOST to sell their resulting 40% stake in GHOST to us in 2028.

The transaction is subject to customary closing conditions.

RESULTS OF OPERATIONS

Third Quarter of 2024 Compared to Third Quarter of 2023

Financial Overview - First Quarter of 2025 as compared to First Quarter of 2024

As Reported, in millions (except Diluted EPS)

Key Events During the First Quarter of 2025

Related Party Changes

In February 2025, JAB BevCo B.V., a subsidiary of JAB, sold approximately 87 million shares of our common stock through an underwritten secondary offering.

Upon completion of the offering on February 28, 2025, JAB beneficially owned less than 10% of our outstanding common stock, and the three members of our Board affiliated with JAB resigned.

2025 Revolving Credit Agreement

On March 31, 2025, we entered into the 2025 Revolving Credit Agreement, which replaced our previous revolving credit agreement.

The 2025 Revolving Credit Agreement provides for a $4 billion revolving credit facility, which matures on March 31, 2030.

Refer to Note 2 of the Notes to our Unaudited Consolidated Financial Statements for further information.

First Quarter of 2025 Compared to First Quarter of 2024

Consolidated Operations

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

Third Quarter Dollar Percentage

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

First Quarter Percentage Change

($ in millions, except per share amounts) 2025 2024

Net sales $ 3,635 $ 3,468 4.8 %

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Selling, general, and administrative expenses 1,192 1,176 1.4

Impairment of intangible assets — 2 (2) NM

Other operating expense, net (7) (4) (3) NM

Other operating income, net (8) (1) NM

Income from operations 801 765 4.7

Interest expense, net 148 178 (16.9)

Other income, net (6) (5) (1) 20.0

Other income, net (7) (7) NM

Income before provision for income taxes 660 594 11.1

Provision for income taxes 186 146 40 NM

Provision for income taxes 143 140 2.1

Net income $ 517 $ 454 13.9

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Effective tax rate 21.7 % 23.6 % (190) bps

Sales Volume.

The following table provides the percentage change in sales volume for the third quarter of 2024 compared to the prior year period:

Percentage Change

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Appliances (8.1)

Net sales increased $86 million, or 2.3%, to $3,891 million for the third quarter of 2024 compared to $3,805 million in the prior year period.

This performance reflected volume/mix growth of 3.5%, partially offset by unfavorable impacts from FX translation (0.8%) and net price realization (0.4%).

Gross Profit.

Gross profit increased $29 million, or 1.4%, to $2,140 million for the third quarter of 2024 compared to $2,111 million in the prior year period.

This performance primarily reflected a net benefit from changes in ingredients, materials, and productivity (3 percentage points), partially offset by increases in other manufacturing costs (1 percentage point).

Selling, General and Administrative Expenses.

SG&A expenses increased $28 million, or 2.3%, to $1,245 million for the third quarter of 2024 compared to $1,217 million in the prior year period, primarily driven by unfavorable changes in unrealized commodity mark-to-market activity (4 percentage points), partially offset by reduced costs associated with restructuring and productivity projects (2 percentage points).

Income from Operations.

Income from operations increased $6 million, or 0.7%, to $902 million for the third quarter of 2024, compared to $896 million in the prior year period, as our increase in gross profit was almost fully offset by increased SG&A expenses.

Interest Expense.

Interest expense decreased $131 million, or 55.3%, to $106 million for the third quarter of 2024 compared with $237 million in the prior year period.

This change reflected favorable year-over-year changes in unrealized mark-to-market activity (71 percentage points), partially offset by increased weighted average borrowings (17 percentage points).

Net income increased $98 million, or 18.9%, to $616 million for the third quarter of 2024 as compared to $518 million in the prior year period, primarily driven by reduced interest expense.

Diluted EPS increased 21.6% to $0.45 per diluted share for the third quarter of 2024 as compared to $0.37 in the prior year period.

Net Sales Drivers

Percentage Change

Volume / mix (1)

Net price realization 2.8

(1) The acquisition of GHOST contributed 2.9 percentage points to our consolidated volume / mix growth in the quarter.

Gross profit increased 2.3% to $1,985 million for the first quarter of 2025.

This performance primarily reflected the gross profit impact of net sales growth (3 percentage points) and favorable changes in unrealized commodity mark-to-market activity (2 percentage points), partially offset by the impact of a smaller earned equity achievement compared to the prior year quarter (2 percentage points).

SG&A expenses increased 1.4% to $1,192 million for the first quarter of 2025, primarily driven by increased transportation and warehousing expenses (4 percentage points) and an unfavorable change in unrealized commodity mark-to-market activity (1 percentage point), partially offset by favorable FX impacts (2 percentage points) and reduced costs associated with productivity projects (1 percentage point).

Income from operations increased 4.7% to $801 million for the first quarter of 2025, primarily driven by increased gross profit.

Interest expense, net decreased 16.9% to $148 million for the first quarter of 2025, primarily driven by a favorable change in unrealized mark-to-market activity (32 percentage points), which was partially offset by increased debt and higher financing costs (13 percentage points).

The effective tax rate decreased 190 bps to 21.7% for the first quarter of 2025, compared to 23.6% in the first quarter of 2024, primarily driven by a non-cash revaluation of state deferred tax liabilities (110 bps) and a shift in the mix of income from higher tax jurisdictions to lower tax jurisdictions (60 bps).

Net income increased 13.9% to $517 million for the first quarter of 2025, driven primarily by increased income from operations and lower interest expense.

Diluted EPS increased 15.2% to $0.38 per diluted share for the first quarter of 2025 as compared to $0.33 in the first quarter of 2024.

Results of Operations by Segment

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

Third Quarter

The following tables provide certain results of operations for our reportable segments for the first quarter of 2025 and 2024.

First Quarter Percentage Change

(in millions) 2025 2024

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Unallocated corporate costs (145) (210) (31.0)

Income from operations $ 902 $ 896

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) 2024 2023

Net sales $ 2,390 $ 2,270 $ 120 5.3 %

Income from operations 722 676 46 6.8

Operating margin 30.2 % 29.8 % 40 bps

Sales Volume.

Sales volume for the third quarter of 2024 increased 3.7% compared to the prior year period, driven by growth in carbonated soft drinks, as well as contributions from partnerships such as Electrolit and C4.

Net sales increased 5.3% to $2,390 million for the third quarter of 2024, compared to $2,270 million in the prior year period, driven by volume/mix growth of 4.0% and favorable net price realization of 1.3%.

Income from Operations.

Income from operations increased $46 million, or 6.8%, to $722 million for the third quarter of 2024, compared to $676 million for the prior year period.

This performance primarily reflects the gross profit impact of net sales growth (8 percentage points), 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), partially offset by increases in transportation and warehousing expenses (4 percentage points) and other manufacturing costs (3 percentage points).

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

Coffee segment's results:

Third Quarter Dollar Change Percentage Change

(in millions) 2024 2023

Net sales $ 976 $ 1,012 $ (36) (3.6) %

Income from operations 254 293 (39) (13.3)

Operating margin 26.0 % 29.0 % (300) bps

Sales Volume.

K-Cup pod volume decreased 0.4% in the third quarter of 2024 compared to the prior year period.

Appliance volume increased 14.2% compared to the prior year period, driven by Keurig market share momentum and improving coffeemaker category trends.

Net sales decreased 3.6% to $976 million for the third quarter of 2024 compared to net sales of $1,012 million in the prior year period, reflecting unfavorable net price realization of 6.3%, partially offset by volume/mix growth of 2.7%.

Income from Operations.

Income from operations decreased $39 million, or 13.3%, to $254 million for the third quarter of 2024, compared to $293 million for the prior year period, primarily reflecting the gross profit impact of the decrease in net sales (21 percentage points) and losses on the disposal of assets related to our 2024 Network Optimization program (4 percentage points), partially offset by the net benefit from changes in ingredients, materials, and productivity (11 percentage points).

INTERNATIONAL

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

Third Quarter Dollar Change Percentage Change

(in millions) 2024 2023

Net sales $ 525 $ 523 $ 2 0.4 %

Income from operations 157 139 18 12.9

Operating margin 29.9 % 26.6 % 330 bps

Sales volume.

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 10.7

Appliances 10.1

Net sales increased 0.4% to $525 million in the third quarter of 2024, compared to $523 million for the prior year period, reflecting higher net price realization of 3.4% and volume/mix growth of 3.1%, which was largely offset by unfavorable FX translation impacts of 6.1%.

Income from Operations.

Income from operations increased $18 million, or 12.9%, to $157 million for the third quarter of 2024 compared to $139 million in the prior year period.

This performance primarily reflected the favorable net price realization (13 percentage points) and the net benefit from changes in ingredients, materials, and productivity (6 percentage points), partially offset by increased transportation and warehousing expenses (7 percentage points).

First Nine Months of 2024 Compared to First Nine Months of 2023

Consolidated Operations

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

First Nine Months Dollar Change Percentage Change

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

Net sales $ 11,281 $ 10,947 $ 334 3.1 %

Cost of sales 5,029 5,051 (22) (0.4)

Gross profit 6,252 5,896 356 6.0

Selling, general and administrative expenses 3,716 3,654 62 1.7

Impairment of intangible assets — 2 (2) NM

Other operating (income) expense, net 8 (9) 17 NM

Income from operations 2,528 2,249 279 12.4

Interest expense 488 432 56 13.0

Other income, net (28) (41) 13 NM

Income before provision for income taxes 2,068 1,858 210 11.3

Provision for income taxes 483 370 113 30.5

Net income $ 1,585 $ 1,488 97 6.5

Earnings per common share:

Basic $ 1.16 $ 1.06 $ 0.10 9.4 %

Diluted 1.16 1.05 0.11 10.5

Gross margin 55.4 % 53.9 % 150 bps

Operating margin 22.4 % 20.5 % 190 bps

Effective tax rate 23.4 % 19.9 % 350 bps

Sales Volume.

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

Percentage Change

K-Cup pods 0.5

Appliances 12.0

Net sales increased $334 million, or 3.1%, to $11,281 million for the first nine months of 2024 compared to $10,947 million in the prior year period.

This performance reflected volume/mix growth of 1.7% and favorable net price realization of 1.4%.

Gross Profit.

Gross profit increased $356 million, or 6.0%, to $6,252 million for the first nine months of 2024 compared to $5,896 million in the prior year period.

This performance primarily reflected a net benefit from changes in ingredients, materials, and productivity (3 percentage points), the gross profit impact of net sales growth (3 percentage points), and earned equity from the achievement of milestones associated with certain distribution agreements (1 percentage point), partially offset by increases in other manufacturing costs (1 percentage point).

Selling, general and administrative expenses .

SG&A expenses increased $62 million, or 1.7%, to $3,716 million for the first nine months of 2024 compared to $3,654 million in the prior year period, led by higher people costs.

Other operating (income) expense, net .

Other operating (income) expense, net reflected an unfavorable change of $17 million from the prior year period, primarily driven by losses on the disposal of assets related to our 2024 Network Optimization program.

Income from Operations.

Income from operations increased $279 million, or 12.4%, to $2,528 million for the first nine months of 2024 compared to $2,249 million in the prior year period, primarily driven by increased gross profit, partially offset by increased SG&A expenses.

Interest Expense.

Interest expense increased $56 million to $488 million for the first nine months of 2024 compared to $432 million for the prior year period, primarily driven by increased weighted average borrowings (29 percentage points), which was partially offset by a favorable year-over-year change in unrealized mark-to-market activity (14 percentage points).

Effective Tax Rate.

The effective tax rate increased 350 bps to 23.4% for the first nine months of 2024, compared to 19.9% in the prior year period, primarily driven by the unfavorable comparison to the prior year tax benefit received from a non-cash adjustment (150 bps) and a shift in the mix of income from lower tax jurisdictions to higher tax jurisdictions (100 bps).

Net income increased $97 million, or 6.5%, to $1,585 million for the first nine months of 2024 as compared to $1,488 million in the prior year period, driven by increased income from operations, partially offset by increases in our effective tax rate and interest expense.

Diluted EPS increased 10.5% to $1.16 per diluted share for the first nine months of 2024 as compared to $1.05 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 nine months 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 Nine Months

(in millions) 2024 2023

Total income from operations $ 801 $ 765 4.7

Operating margin

Refreshment Beverages 28.2 % 29.4 % (120) bps

Coffee 23.0 % 27.2 % (420) bps

International 20.7 % 24.1 % (340) bps

Sales Volumes

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

LRB K-Cup Pods Appliances

Refreshment Beverages 1.9 % — % — %

Coffee 2,837 2,913

Coffee NM (6.5) (8.4)

International 3.9 (1.5) (6.1)

Total net sales $ 11,281 $ 10,947

Income from operations

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

Volume / Mix (1)

Net Price Realization FX Total

Refreshment Beverages 8.0 % 3.0 % — % 11.0 %

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International 1.3 4.1 (11.7) (6.3)

Unallocated corporate costs (675) (652)

Total income from operations $ 2,528 $ 2,249

(1) The acquisition of GHOST contributed 4.8 percentage points to our volume / mix growth in U.S.

Refreshment Beverages in the quarter.

Refreshment Beverages

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

Refreshment Beverages segment's results:

First Nine Months Dollar Change Percentage Change

(in millions) 2024 2023

Net sales $ 6,890 $ 6,607 $ 283 4.3 %

Income from operations 2,054 1,795 259 14.4

Operating margin 29.8 % 27.2 % 260 bps

Sales Volume.

Sales volume for the first nine months of 2024 decreased approximately 0.3% compared to the prior year period, as growth in carbonated soft drinks, as well as the contributions from partnerships such as Electrolit and C4, were offset by softness in our still portfolio.

Net sales increased 4.3% to $6,890 million in the first nine months of 2024, compared to $6,607 million in the prior year period, driven by favorable net price realization of 3.2% and volume/mix growth of 1.1%.

Income from Operations.

Income from operations increased $259 million, or 14.4%, to $2,054 million for the first nine months of 2024 compared to $1,795 million for the prior year period.

This performance was led by the gross profit impact of net sales growth (10 percentage points), a net benefit from changes in ingredients, materials, and productivity (4 percentage points), and earned equity from the achievement of milestones associated with certain distribution agreements (4 percentage points).

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

Coffee segment's results:

First Nine Months Dollar Change Percentage Change

(in millions) 2024 2023

Net sales $ 2,837 $ 2,913 $ (76) (2.6) %

Income from operations 730 775 (45) (5.8)

Operating margin 25.7 % 26.6 % (90) bps

Sales Volume.

K-Cup pod volume decreased 0.4% for the first nine months of 2024 compared to the prior year period.

Appliance volume increased 12.4% in the first nine months of 2024, driven by Keurig market share momentum and improving coffeemaker category trends.

Net sales decreased 2.6% to $2,837 million for the first nine months of 2024 compared to $2,913 million in the prior year period, driven by unfavorable net price realization of 3.7%, partially offset by volume/mix growth of 1.1%.

Income from Operations.

Income from operations decreased $45 million, or 5.8%, to $730 million for the first nine months of 2024, compared to $775 million in the prior year period, driven by the gross profit impact of the net sales decrease (13 percentage points) and costs associated with our 2024 Network Optimization program (4 percentage points), partially offset by a net benefit from changes in ingredients, materials, and productivity (8 percentage points) and lower people costs (1 percentage points).

Sales volume increased 1.9% for the first quarter of 2025, driven by growth in carbonated soft drinks and in our energy portfolio, including the acquisition of GHOST.

These benefits were partially offset by softness in our still beverages portfolio.

Net sales increased 11.0% to $2,323 million for the first quarter of 2025, led by higher net price realization and volume / mix growth, including a benefit from the acquisition of GHOST.

Income from operations increased 6.3% to $654 million for the first quarter of 2025.

This performance was led by the gross profit impact of net sales growth (18 percentage points), partially offset by the impact of a smaller earned equity achievement compared to the prior year quarter (6 percentage points), increased transportation and warehousing expenses (5 percentage points), and higher people costs (3 percentage points).

Appliance volume decreased 8.4% and K-Cup pod volume decreased 6.5%.

These decreases primarily reflected impacts related to retailer inventory management and the timing of price increases.

Net sales decreased 3.7% to $877 million for the first quarter of 2025, driven by unfavorable volume / mix, partially offset by higher net price realization.

Income from operations decreased 18.5% to $202 million for the first quarter of 2025, driven by a net unfavorable impact from changes in ingredients, materials, and productivity (10 percentage points) and the gross profit impact of the net sales decline (12 percentage points).

International

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

First Nine Months Dollar Change Percentage Change

(in millions) 2024 2023

Net sales $ 1,554 $ 1,427 $ 127 8.9 %

Income from operations 419 331 88 26.6

Operating margin 27.0 % 23.2 % 380 bps

Sales Volume.

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 6.9

Appliances 8.3

Net sales increased 8.9% to $1,554 million in the first nine months of 2024, compared to $1,427 million in the prior year period, reflecting volume/mix growth of 6.1% and higher net price realization of 3.4%, partially offset by unfavorable FX translation of 0.6%.

Income from Operations.

Income from operations increased $88 million, or 26.6%, to $419 million for the first nine months of 2024 compared to $331 million in the prior year period.

This performance reflected the gross profit impact of net sales growth (26 percentage points) and a net benefit from changes in ingredients, materials, and productivity (6 percentage points), partially offset by higher marketing investment (6 percentage points) and increased transportation and warehousing expenses (5 percentage points).

LRB sales volume increased 3.9%, driven by growth in carbonated soft drinks and mineral water.

Appliance volumes decreased 6.1% and K-Cup pod volumes decreased 1.5%, primarily reflecting retailer inventory management.

Net sales decreased 6.3% to $435 million in the first quarter of 2025, reflecting unfavorable FX translation, partially offset by higher net price realization and volume / mix growth.

Income from operations decreased 19.6% to $90 million for the first quarter of 2025, as the benefit from the gross profit impact of the higher net price realization and volume/mix growth (23 percentage points) was more than offset by increased transportation and warehousing expenses (13 percentage points), unfavorable FX impacts (10 percentage points), a net unfavorable impact from changes in ingredients, materials, and productivity (6 percentage points), and increases in other manufacturing costs.

CRITICAL ACCOUNTING ESTIMATES

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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 nine months of 2024 and 2023:

Principal Sources of Capital Resources

Our principal sources of liquidity are our existing cash and cash equivalents, cash generated from our operations, and borrowing capacity currently available under our Revolving Credit Agreement.

Our principal sources of liquidity are our existing cash and cash equivalents, cash generated from our operations, and borrowing capacity currently available under our 2025 Revolving Credit Agreement and Term Loan Agreement.

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 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 outstanding indebtedness or otherwise seek transactions to reduce interest expense, extend debt maturities and improve our capital and liquidity structure.

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.

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 increased $338 million for the first nine months of 2024, as compared to the first nine months of 2023, driven by the favorable comparison in working capital versus the prior year period.

Cash Conversion Cycle

Our cash conversion cycle is defined as DIO and DSO less DPO.

The calculation of each component of the cash conversion cycle is provided below:

Component Calculation (on a trailing twelve month basis)

DIO (Average inventory divided by cost of sales) * Number of days in the period

DSO (Accounts receivable divided by net sales) * Number of days in the period

DPO (Accounts payable * Number of days in the period) divided by cost of sales and SG&A expenses

The following table summarizes our cash conversion cycle:

September 30,

Cash conversion cycle 4 (23)

Our cash conversion cycle increased 27 days to approximately 4 days as of September 30, 2024 as compared to (23) days as of September 30, 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 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.

We also enter into agreements with third party administrators to allow participating suppliers to track payment obligations from us, and, if voluntarily elected by the supplier, sell payment obligations from us to financial institutions.

Suppliers can sell one or more of our payment obligations at their sole discretion and our rights and obligations to our suppliers are not impacted.

We have no economic interest in a supplier’s decision to enter into these agreements and no direct financial relationship with the financial institutions.

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

Net cash provided by operating activities increased $124 million for the first quarter of 2025, as compared to the first quarter of 2024, driven by the favorable comparison in working capital versus the prior year period, partially offset by lower net income adjusted for non-cash items.

Sources of Liquidity - Financing

Refer to Note 2 of the Notes to our Unaudited Condensed Consolidated Financial Statements for management's discussion of our financing arrangements.

Refer to Note 2 of the Notes to our Unaudited Consolidated Financial Statements for management's discussion of our financing arrangements.

As of March 31, 2025, we were in compliance with all debt covenants and we have no reason to believe that we will be unable to satisfy these covenants.

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.

Our credit ratings are as follows:

Rating Agency Long-Term Debt Rating Commercial Paper Rating Outlook

Moody's Baa1 P-2 Stable

S&P BBB A-2 Stable

These debt and commercial paper ratings impact the interest we pay on our financing arrangements.

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, 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

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Regular Quarterly Dividends

We have declared total dividends of $0.66 per share and $0.615 per share for the first nine months of 2024 and 2023, respectively.

We have declared total dividends of $0.23 per share and $0.215 per share for the first quarter of 2025 and 2024, 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.

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

As of September 30, 2024, $1,810 million remained available for repurchase under the authorized share repurchase program.

We did not repurchase any common stock during the first quarter of 2025.

As of March 31, 2025, $1,810 million remained available for repurchase under the authorized share repurchase program.

Capital Expenditures

Purchases of property, plant and equipment were $398 million and $271 million for the first nine months 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 nine months of 2024 and 2023 primarily related to investments in manufacturing capabilities, both in the U.S.

and internationally.

Capital expenditures included in accounts payable and accrued expenses were $164 million and $196 million for the first nine months of 2024 and 2023, respectively, which primarily related to these investments.

Purchases of property, plant, and equipment were $120 million and $158 million for the first quarter of 2025 and 2024, respectively.

Capital expenditures, which includes both purchases of property, plant, and equipment and amounts included in accounts payable and accrued expenses, primarily related to investments in manufacturing capabilities, both in the U.S.

and internationally, for the first quarter of 2025 and 2024.

Capital expenditures included in accounts payable and accrued expenses were $176 million and $189 million for the first quarter of 2025 and 2024, respectively, which primarily related to these investments.

Investments in Unconsolidated Affiliates

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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.

Investments in unconsolidated affiliates were $7 million and $308 million for the first nine months of 2024 and 2023, respectively.

Acquisitions of Businesses and Purchases of Intangible Assets

We have invested in the expansion of our DSD network through transactions with strategic independent bottlers or third-party brand ownership companies to ensure competitive distribution scale.

We have invested in the expansion of our distribution network through transactions with strategic independent bottlers or third-party brand ownership companies to ensure competitive distribution scale.

From time to time, we additionally acquire brand ownership companies to expand our portfolio.

These transactions could be accounted for either as an acquisition of a business or as an asset acquisition, as the majority of the transaction price represents the acquisition of a single intangible asset.

In the third quarter of 2024, we completed the Kalil Acquisition for total consideration of $103 million.

Purchases of intangible assets were $49 million and $55 million for the first nine months of 2024 and 2023, respectively.

These transactions could be accounted for either as an acquisition of a business or as an asset acquisition, if the majority of the transaction price represents the acquisition of a single intangible asset.

Purchases of intangible assets were $14 million and $31 million for the first quarter of 2025 and 2024, respectively.

Uncertainties and Trends Affecting Liquidity

Disruptions in financial and credit markets, including those caused by inflation, global economic uncertainty and fluctuations in interest rates, may impact our ability to manage normal commercial relationships with our customers, suppliers and creditors.

Disruptions in financial and credit markets, including those caused by inflation, global economic uncertainty or economic downturns, the imposition of new tariffs or changes to existing tariffs, trade wars, barriers or restrictions, or threats of such actions, or fluctuations in interest rates, may impact our ability to manage normal commercial relationships with our customers, suppliers, and creditors, and may also impact our ability to access liquidity through financial markets in a timely and cost-effective manner.

These disruptions could have a negative impact on the ability of our customers to timely pay their obligations to us, thus reducing our cash flow, or the ability of our vendors to timely supply materials.

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The consolidating schedules are provided in accordance with the reporting requirements of Rule 13-01 under SEC Regulation S-X for the issuer and guarantor subsidiaries.

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

(in millions) For the First Nine Months of 2024

Summarized financial information for the Parent and Guarantors follows:

(in millions) For the First Quarter of 2025

Net sales $ 2,357

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Net income 528

(in millions) September 30, 2024 December 31, 2023

(in millions) March 31, 2025 December 31, 2024

Current assets $ 2,580 $ 2,373

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$ 27,242 $ 27,085

(1) Includes $157 million and $56 million of intercompany receivables due to the Parent and Guarantors from the Non-Guarantors as of September 30, 2024 and December 31, 2023, respectively.

(2) Includes $1,549 million and $1,399 million of intercompany payables due to the Non-Guarantors from the Parent and Guarantors as of September 30, 2024 and December 31, 2023, respectively.

(1) Includes $134 million and $115 million of intercompany receivables due to the Parent and Guarantors from the Non-Guarantors as of March 31, 2025 and December 31, 2024, respectively.

(2) Includes $2,153 million and $1,997 million of intercompany payables due to the Non-Guarantors from the Parent and Guarantors as of March 31, 2025 and December 31, 2024, respectively.

Quantitative and Qualitative Disclosures About Market Risk

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What changed 10-Q

Item 2. Management’s Discussion and Analysis