Keurig Dr Pepper reported solid financial results for the first quarter ended March 31, 2020, although its coffee systems division was impacted in the away-from-home coffee business by the slowdown caused by COVID-19.
Overall net sales in the first quarter of 2020 increased 4.4% to $2.61 billion, compared to $2.50 billion in the year-ago period, reflecting growth in all four reporting segments. Net income decreased to $156 million, or $0.11 per diluted share, in the first quarter of 2020, compared to $230 million, or $0.16 per diluted share, in the year-ago period, meaningfully impacted by items affecting comparability.
In the coffee systems division, net sales for the first quarter of 2020 increased 0.5% to $973 million, compared to $968 million in the year-ago period, reflecting higher volume/mix of 3.7% and favorable foreign currency translation of 0.1%, partially offset by lower net price realization of 3.3% resulting from strategic price investments. The volume/mix increase of 3.7% reflected strong pod volume growth of 5.6%, despite a significant decline late in the quarter in the away-from-home coffee business due to both office closures and hospitality slowdown caused by COVID-19. Brewer volume declined 2.4% in the quarter, reflecting comparison to the double-digit growth recorded in the year-ago period, as well as the expected shift of brewer shipments from the first quarter to later in the year as a result of the timing impact of COVID-19 on brewer supply from certain regions in Asia.
Operating income in the coffee systems division declined 7.2% to $272 million in the first quarter of 2020, compared to $293 million in the year-ago period, reflecting the unfavorable year-over-year impact of items affecting comparability, strategic pricing, tariffs, and an increase in other operating costs. Partially offsetting these drivers were the benefits of continued productivity and merger synergies, a network optimization program gain of $16 million on the asset sale-leaseback of a manufacturing facility and the strong pod volume growth. Excluding items affecting comparability, adjusted operating income in the quarter increased 3.6% to $347 million, compared to $335 million in the year-ago period, and adjusted operating margin advanced 110 basis points to 35.7%.
Bob Gamgort, Keurig chairman and CEO, stated, “We delivered first quarter performance in line with our long-term targets, building on the business strength demonstrated since our merger in mid-2018 and setting us up for a strong 2020. However, we are now operating in a distinctly different environment that has required us to pivot significantly. The extraordinary steps we’ve taken to keep our teams safe and working, coupled with our broad portfolio and seven distinct routes to market, position us to continue to successfully navigate this unprecedented time. I recognize the significant role KDP employees are playing in our future success, and I can’t thank them enough for their tireless efforts to ensure we continue to meet the needs of our customers and consumers. Finally, while the timing of the macroeconomic recovery remains uncertain, we remain confident in our ability to deliver the guidance we reaffirmed today, particularly our adjusted EPS and deleveraging commitments.”