KEURIG DR PEPPER INC. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Form 10-Q)

The following discussion should be read in conjunction with our audited consolidated financial statements and accompanying notes 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. 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 the inherent uncertainty of estimates, forecasts and
projections, 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, with a diverse portfolio of
flavored (non-cola) CSDs, NCBs, including 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, Bai, Mott's, Core,
Green Mountain 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 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; to restaurants, hotel chains, office
product and coffee distributors, and partner brand owners; and directly to
consumers through its websites. 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 reportable segments consist of the following:

• The Coffee Systems segment reflects sales in the WE and Canada manufacturing and distributing finished products related to our single serve coffee makers, K-Cup pods and other coffee products.

•The Packaged Beverages segment reflects sales in the U.S. and Canada from the
manufacture and distribution of finished beverages and other products, including
sales of our own brands and third-party brands, through both the DSD and WD
systems.

• The beverage concentrates segment reflects sales primarily in the WE and
Canada of our branded concentrates to third-party bottlers and of our syrup to fountain foodservice customers. Most of the brands in this segment are soft drink brands.

• The Beverages segment in Latin America reflects sales primarily in Mexico and the
Caribbean manufacturing and distribution of concentrates, syrup and finished beverages.

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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.

ABSTRACT

Financial Overview – Second Quarter 2022 vs. Second Quarter 2021


                     As Reported, in millions (except EPS)

[[Image Removed: kdp-20220630_g2.jpg]][[Image Removed: kdp-20220630_g3.jpg]][[Image Removed: kdp-20220630_g4.jpg]][[Image Removed: kdp-20220630_g5.jpg]]

                     As Adjusted, in millions (except EPS)

[[Image Removed: kdp-20220630_g6.jpg]][[Image Removed: kdp-20220630_g7.jpg]] [[Image Removed: kdp-20220630_g8.jpg]]

Main events of the second quarter of 2022

In April 2022, we announced a succession plan where Robert J. Gamgort will
transition from his position as President and Chief Executive Officer, remaining
as our Executive Chairman of our Board. Our Board appointed Ozan Dokmecioglu,
currently Chief Financial Officer & President of International, as the Company's
next President and Chief Executive Officer, effective July 29, 2022.

In connection with this leadership transition, George Lagoudakis, currently our
Senior Vice President of Finance for Cold Beverages, was appointed to serve as
our interim Chief Financial Officer, effective July 29, 2022, while we continue
our external search for our permanent Chief Financial Officer.

In April 2022we elected to undertake a strategic refinancing initiative, reducing our weighted average coupon rate on our notes from 3.671% to March 31, 2022 at 3.595% after the refinancing. Refer to Note 2 of the Notes to our unaudited condensed consolidated financial statements for further information.

During the second quarter of 2022, we repurchased and retired $88 million of ordinary shares.

We were added to the S&P 500 Index, effective before markets opened on
June 21, 2022.

During the second quarter, we acquired equity interests in Tractor Beverage and
entered into an exclusive sales agreement, which leverages the strength of our
fountain foodservice business and expands our FFS portfolio. We also announced
an agreement to acquire the global rights to the non-alcoholic, ready-to-drink
cocktail brand Atypique, which is expected to close during the second half of
2022.



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Uncertainties and trends affecting our business

We believe that the North American beverage market is influenced by certain key trends and uncertainties. See Section 1A, “Risk Factors,” of our Annual Report for more information about the risks and uncertainties facing us.

Some of these items, such as the ongoing COVID-19 pandemic and the invasion of
Ukraine by Russia, and the resulting impacts on the global economy, including
supply chain constraints and labor shortages, have led to inflation in input
costs, logistics, manufacturing and labor costs. During the first six months of
2022, we have experienced supply chain disruptions and a significant
inflationary impact compared to the prior year period. These impacts have
created headwinds for our products that we expect to continue through the
remainder of 2022.

Due to these inflationary pressures, we have increased the prices of a number of our products across our portfolio. As a result, we may experience reduced volume or net sales which, combined with inflationary pressures, could impact our margins and results of operations.

Refer to Note 4 of the Notes to our unaudited condensed consolidated financial statements for our discussion of how we manage our exposure to commodity risk.

Impact of COVID-19 on our financial statements

The following table sets forth our reconciliation of significant
COVID-19-related expenses. Employee compensation expense and employee protection
costs, which impact our SG&A expenses and cost of sales, are included as the
COVID-19 item affecting comparability and are excluded in our Adjusted financial
measures. In addition, reported amounts under U.S. GAAP also include additional
costs, not included as the COVID-19 item affecting comparability, as presented
in tables below.

                                                Items Affecting Comparability(1)
                                                                                                   Allowances for
                                                                                                      Expected
                                        Employee Compensation           Employee Protection            Credit
(in millions)                                Expense(2)                      Costs(3)                Losses(4)                   Total
For the second quarter of 2022:
Coffee Systems                       $              -                  $                1          $         -                $       1
Packaged Beverages                                  1                                   1                    -                        2
Beverage Concentrates                               -                                   -                    -                        -
Latin America Beverages                             -                                   1                    -                        1
Total                                $              1                  $                3          $         -                $       4

For the second quarter of 2021:
Coffee Systems                       $              1                  $                4          $        (2)               $       3
Packaged Beverages                                  3                                   3                   (8)                      (2)
Beverage Concentrates                               -                                   -                   (3)                      (3)
Latin America Beverages                             -                                   -                    -                        -
Total                                $              4                  $                7          $       (13)               $      (2)

For the first six months of 2022:
Coffee Systems                       $              1                  $                3          $         -                $       4
Packaged Beverages                                  2                                   2                    -                        4
Beverage Concentrates                               -                                   -                    -                        -
Latin America Beverages                             -                                   1                    -                        1
Total                                $              3                  $                6          $         -                $       9

For the first six months of 2021:
Coffee Systems                       $              2                  $               13          $        (2)               $      13
Packaged Beverages                                  6                                   5                   (8)                       3
Beverage Concentrates                               -                                   -                   (3)                      (3)
Latin America Beverages                             -                                   1                    -                        1
Total                                $              8                  $               19          $       (13)               $      14


(1)Employee compensation expense and employee protection costs are both included
as the COVID-19 items affecting comparability in the reconciliation of our
Adjusted Non-GAAP financial measures.
(2)Amounts include pay for temporary employees, including the associated taxes,
as well as incremental benefits provided to frontline workers such as extended
sick leave, in order to maintain essential operations during the COVID-19
pandemic.
(3)Includes costs associated with personal protective equipment, temperature
scans, cleaning and other sanitization services. Impacts both cost of sales and
SG&A expenses.
(4)Reflects reversal of allowances initially recorded in 2020 specifically
related to the COVID-19 pandemic, driven by improving economic conditions during
2021.


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  Table of Contents


RESULTS OF OPERATIONS

We eliminate from our financial results all applicable intercompany transactions between entities included in our consolidated financial statements and intercompany transactions with our equity affiliates.

References in the financial tables to percentage changes that are not significant are denoted by “NM”.

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