Keurig Dr. Pepper’s Rising Restructuring Costs

Keurig Dr. Pepper ($KDP) filed its first-quarter earnings statement on Thursday morning, and to our delight, the filing gives us another chance to talk about one of our favorite financial reporting issues here at Calcbench.

Restructuring charges!

Let’s whip through the headline numbers first. Revenue was up 9.4 percent from the year-earlier period, which is good. Net income was down 47.8 percent, which is not good; but that decline was largely due to one-time costs related to the company’s recent acquisition of JDE Peet’s and to higher interest expenses. 

Then we started digging into the footnote disclosures, which one can easily do on Calcbench by using our Disclosures & Footnotes Query page. We came to the restructuring footnote, and noticed that Keurig Dr. Pepper had reported $23 million in restructuring costs this quarter for something called the Networking Optimization program, first announced in March 2024. 

That program is supposed to improve Keurig’s efficiency by closing certain factories and other operations, “intended to optimize our manufacturing and distribution footprint throughout our operations.” In the 10-Q filed today, Keurig said that it expects to incur a total of $175 million in restructuring charges by the time the Networking Optimization program concludes at the end of 2026. 

You can guess what we did next. With just a few keystrokes — one, actually — we pulled up Keurig’s prior restructuring footnotes to see what the company originally expected this program to cost when management first announced it two years ago. We simply looked at that disclosure from today, clicked the “All History” tab above it, and all the prior restructuring footnotes appeared in sequence. See Figure 1, below.

Here’s what Keurig had to say when the program was first announced two years ago:

In March 2024, we announced the closure of our manufacturing facility in Williston, Vermont, with operations and employees to be relocated to other existing manufacturing locations, in order to more effectively and efficiently meet the needs of consumers and customers. The relocation is expected to take place during the second and third quarters of 2024, and the restructuring program is expected to incur pre-tax restructuring charges in an estimated range of $30 million to $40 million, primarily comprised of asset related costs.

Well that’s not the $175 million in total charges that Keurig discussed today! When and how did the Networking Optimization program quadruple in size? 

We started moving forward in time, to identify when management started expanding the restructuring program costs. In third-quarter 2024, six months after the program was first announced, Keurig Dr. Pepper disclosed this restructuring footnote:

The program initially included the closure of our manufacturing facility in Williston, Vermont, with operations and employees relocating to other existing manufacturing locations. The relocation began during the second quarter of 2024 and was completed in the third quarter of 2024. In July 2024, we also announced the closure of our Windsor, Virginia manufacturing facility, which is expected to begin in the first quarter of 2025. Our restructuring program also encompasses other costs intended to optimize our manufacturing and distribution footprint throughout our operations.

The restructuring program is expected to incur pre-tax restructuring charges in an estimated range of $125 million to $145 million, primarily comprised of asset related costs, through the second quarter of 2025.

So the restructuring program had expanded substantially by late 2024, but was still a bit smaller than today’s disclosures and was expected to end by mid-2025 rather than the end of 2026. 

We kept moving forward. By second-quarter 2025 the restructuring footnote had evolved to this:

In March 2024, we announced a restructuring program designed to more effectively and efficiently meet the needs of consumers and customers. Our restructuring program includes the closure of certain facilities and other costs intended to optimize our manufacturing and distribution footprint throughout our operations. The restructuring program is expected to incur pre-tax restructuring charges in an estimated range of $150 million to $170 million through 2026, primarily comprised of asset related costs.

Those numbers are close enough to today’s footnote disclosure that we’ll stop there. But you see the overall point: that restructuring projects often end up larger than originally expected, and that can raise questions about corporate execution and strategy that financial analysts might want to ask on the next earnings call.