BURLINGTON, MASS. — A recovery in coffee supply and a new coffee brewer for premium pods have Keurig Dr Pepper’s new chief executive officer confident about the second half of the fiscal year.
Net sales in Coffee Systems in the second quarter ended June 30 increased about 9% to $1.20 billion from $1.10 billion. Retail dollar consumption of single-serve pods manufactured by Keurig Dr Pepper increased 3.8% in channels tracked by IRI, a Chicago-based market research firm.
“I’m happy to report that our coffee supply recovery plan has been completed ahead of schedule with part manufacturing output restored to levels that will provide full service to our partners and retailers,” said Ozan Dokmecioglu, then chief financial officer, in a July 28 earnings call.
The next day Mr. Dokmecioglu took over for Bob Gamgort as CEO in a previously announced move.
In the third quarter Keurig Dr Pepper will launch a K-Cafe Smart brewer featuring global ID technology that recognizes the coffee pod and adjusts the brew, Mr. Dokmecioglu said. It also has multi-stream technology to enable a wide range of temperatures.
“This new brewer also incorporates a new multi-speed product to enable consumers to create cappuccinos, lattes and other specialty coffees, guided by an interactive recipe experience located in the Keurig app,” Mr. Dokmecioglu said. “Taken together, the K-Cafe Smart enables consumers to create a coffee shop experience in home at a fraction of the cost and with greater appeal to younger households.”
Net income for Keurig Dr Pepper in the second quarter fell 51% to $218 million, or 15¢ per share on the common stock, from $448 million, or 32¢ per share, in the previous year’s second quarter. The decrease reflected a decline in operating income and an unfavorable year-over-year impact of items affecting comparability.
Net sales in the quarter increased 13% to $3.55 billion from $3.14 billion. Keurig Dr Pepper raised its full-year net sales guidance to growth in the low-double-digit percentages from the previous guidance of high-single-digit percentages.
“During the quarter, we experienced cost of goods sold inflation across all inputs, including ingredients, packaging and manufacturing labor,” Mr. Dokmecioglu said. “In addition, we also experienced a much higher rate of inflation in transportation and warehousing at the time of robust consumer demand.”
Inflation in the quarter exceeded 17%, which was higher than 15% inflation in the first quarter.
“We expect inflation to be even higher in quarter three, largely driven by our green coffee positions,” Mr. Dokmecioglu said. “Because we are getting the benefit of more pricing in our quarter three P and L (profit and loss), we expect to offset this incremental inflation to deliver EPS growth for the quarter.
“In quarter four, we expect the rate of inflation versus the prior year to be roughly half the rate of quarter three. As a reminder, we will be lapping the significant spike in inflation we experienced in quarter four last year, and we will realize the full benefits of pricing already taken, which will enable us to offset inflation and deliver margin improvement in the fourth quarter.”
Over the first six months of the fiscal year, Keurig Dr Pepper had net income of $803 million, or 57¢ per share on the common stock, which was up 3.9% from $773 million, or 55¢ per share. Six-month net sales of $6.63 billion were up 10% from $6.04 billion.