Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

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, tariffs or trade wars, 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, 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. All of the forward-looking statements are qualified in their entirety by reference to the factors discussed under "Risk Factors" in Part I, Item 1A of our Annual Report, as well as our subsequent filings with the SEC. Forward-looking statements represent our estimates and assumptions only as of the date that they were made. We do not undertake any duty to update the forward-looking statements, and the estimates and assumptions associated with them, after the date of this Quarterly Report on Form 10-Q, except to the extent required by applicable securities laws.

This Quarterly Report on Form 10-Q contains the names of some of our owned or licensed trademarks, trade names, and service marks, which we refer to as our brands. All of the product names included in this Quarterly Report on Form 10-Q are either our registered trademarks or those of our licensors.

OVERVIEW

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, 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

We eliminate from our financial results all applicable intercompany transactions between entities included in our consolidated financial statements and the intercompany transactions with our equity method investees. References in tables below to percentage changes that are not meaningful are denoted by "NM".

EXECUTIVE SUMMARY

RESULTS OF OPERATIONS

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

			First Quarter																		Percentage Change
($ in millions, except per share amounts)			2025						2024
Net sales			$	3,635					$	3,468											4.8		%
Cost of sales			1,650						1,528												8.0
Gross profit			1,985						1,940												2.3
Selling, general, and administrative expenses			1,192						1,176												1.4
Other operating income, net			(8)						(1)												NM
Income from operations			801						765												4.7
Interest expense, net			148						178												(16.9)
Other income, net			(7)						(7)												NM
Income before provision for income taxes			660						594												11.1
Provision for income taxes			143						140												2.1
Net income			$	517					$	454											13.9
Earnings per common share:
Basic			$	0.38					$	0.33											15.2		%
Diluted			0.38						0.33												15.2
Gross margin			54.6		%				55.9		%										(130) bps
Operating margin			22.0		%				22.1		%										(10) bps
Effective tax rate			21.7		%				23.6		%										(190) bps

Sales Volume

						Percentage Change
LRB						2.3		%
K-Cup pods						(5.9)
Appliances						(8.1)

Net Sales Drivers

						Percentage Change
Volume / mix(1)						3.6		%
Net price realization						2.8
FX						(1.6)
Total						4.8		%

(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 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
Net sales
U.S. Refreshment Beverages			$	2,323					$	2,093					11.0		%
U.S. Coffee			877						911						(3.7)
International			435						464						(6.3)
Total net sales			$	3,635					$	3,468					4.8
Income from operations
U.S. Refreshment Beverages			$	654					$	615					6.3		%
U.S. Coffee			202						248						(18.5)
International			90						112						(19.6)
Unallocated corporate costs			(145)						(210)						(31.0)
Total income from operations			$	801					$	765					4.7
Operating margin
U.S. Refreshment Beverages			28.2		%				29.4		%				(120) bps
U.S. 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
U.S. Refreshment Beverages						1.9		%				—		%				—		%
U.S. Coffee						NM						(6.5)						(8.4)
International						3.9						(1.5)						(6.1)

Net Sales

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

						Volume / Mix**(1)**						Net Price Realization						FX						Total
U.S. Refreshment Beverages						8.0		%				3.0		%				—		%				11.0		%
U.S. Coffee						(5.2)						1.5						—						(3.7)
International						1.3						4.1						(11.7)						(6.3)

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

U.S. Refreshment Beverages

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).

U.S. Coffee

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

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

The process of preparing our consolidated financial statements in conformity with U.S. GAAP requires the use of estimates and judgments that affect the reported amounts of assets, liabilities, revenue, and expenses. Critical accounting estimates are both fundamental to the portrayal of a company’s financial condition and results and require difficult, subjective, or complex estimates and assessments. These estimates and judgments are based on historical experience, future expectations, and other factors and assumptions we believe to be reasonable under the circumstances. The most significant estimates and judgments are reviewed on an ongoing basis and revised when necessary. These critical accounting estimates are discussed in greater detail in Part II, Item 7 of our Annual Report.

LIQUIDITY AND CAPITAL RESOURCES

Overview

We believe our financial condition and liquidity remain strong. 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.

Cash generated by our foreign operations is generally repatriated to the U.S. periodically as working capital funding requirements, where allowed. We do not expect restrictions or taxes on repatriation of cash held outside the U.S. to have a material effect on our overall business, liquidity, financial condition, or results of operations for the foreseeable future.

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 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. 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 $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 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.

Principal Uses of Capital Resources

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

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 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 $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

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 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.

Acquisitions of Businesses and Purchases of Intangible Assets

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, 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 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.

Customer and consumer demand for our products may also be impacted by the risk factors discussed under "Risk Factors" in Part 1, Item 1A of our Annual Report, as well as subsequent filings with the SEC, that could have a material effect on production, delivery, and consumption of our products, which could result in a reduction in our sales volume.

SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION

The Notes are fully and unconditionally guaranteed by certain of our direct and indirect subsidiaries (the "Guarantors"), as defined in the indentures governing the Notes. The Guarantors are 100% owned either directly or indirectly by us and jointly and severally guarantee, subject to the release provisions described below, our obligations under the Notes. None of our subsidiaries organized outside of the U.S., any of the subsidiaries held by Maple Parent Holdings Corp. prior to the DPS Merger, or any of the subsidiaries acquired after the DPS Merger (collectively, the "Non-Guarantors") guarantee the Notes. The subsidiary guarantees with respect to the Notes are subject to release upon the occurrence of certain events, including the sale of all or substantially all of a subsidiary's assets, the release of the subsidiary's guarantee of our other indebtedness, our exercise of the legal defeasance option with respect to the Notes, and the discharge of our obligations under the applicable indenture.

The following schedules present the summarized financial information for Keurig Dr Pepper Inc. (the “Parent”) and the Guarantors on a combined basis after intercompany eliminations; the Parent and the Guarantors' amounts due from and amounts due to Non-Guarantors are disclosed separately. 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.

Summarized financial information for the Parent and Guarantors follows:

(in millions)			For the First Quarter of 2025
Net sales			$	2,357
Gross profit			1,206
Income from operations			840
Net income			528

(in millions)			March 31, 2025						December 31, 2024
Current assets			$	2,580					$	2,373
Non-current assets			49,992						49,827
Total assets(1)			$	52,572					$	52,200
Current liabilities			$	7,083					$	6,101
Non-current liabilities			20,159						20,984
Total liabilities(2)			$	27,242					$	27,085

(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.