Keurig Dr Pepper (KDP) Last Update 9/7/21
Related: CMG KO MCD PEP
% of Stock Price
Revenue
Gross Profits
Free Cash Flow
Keurig Dr Pepper
STOCK PRICE
DIVISION
% of STOCK PRICE
Coffee Systems
41.4%
$20.16
Net Debt
19.6% $9.55
TOTAL
100%
$48.66
$39.12
Yours
Trefis Price
N/A
$34.90
Market
 
Top Drivers for Period
Key Drivers
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RECENT NEWS AND ANALYSIS

Potential upside & downside to trefis price

Keurig Dr Pepper Company

VALUATION HIGHLIGHTS

  1. Coffee Systems constitute 41% of the Trefis price estimate for Keurig Dr Pepper's stock.
  2. Packaged Beverages constitute 28% of the Trefis price estimate for Keurig Dr Pepper's stock.
  3. Beverage Concentrates constitute 28% of the Trefis price estimate for Keurig Dr Pepper's stock.

WHAT HAS CHANGED?


  1. Annual Results - 2020

    Net sales for FY2020 increased 4.5% to $11.6 billion, compared to $11.1 billion in the year-ago period. On a constant currency basis, net sales increased 5%, reflecting strong volume/mix growth of 5.6%, partially offset by lower net price realization of 0.6%. The volume/mix growth reflected particular strength in the Packaged Beverages segment, partially offset by slowdowns in the fountain foodservice business in the Beverage Concentrates segment. The company reported net income of $1,325 million, or $0.94 a share, compared with $1,254 million, or $0.89 a share, in the year-ago period.

  2. Latest Earnings (Q2 2021)

    Net sales for Q2 2021 increased 9.6% to $3.14 billion, compared to $2.86 billion in the year-ago period. This was driven by growth in each business segment, with Beverage Concentrates and Latin America Beverages posting strong double-digit growth. On a constant currency basis, net sales advanced 8.1% in the second quarter, reflecting higher volume/mix of 6.1% and favorable net price realization of 2.0%. The company reported net income of $448 million, or $0.31 a share in Q2 2021, compared with $298 million, or $0.21 a share, in the year-ago period.

  3. Increase in Dividend

    KDP's Board of Directors has approved a 25% increase in its annualized dividend rate to $0.75 per share, from the current annualized rate of $0.60 per share, effective with the Company’s regular quarterly dividend to be announced in the second quarter of 2021. This 25% increase will result in growth of 12.5% in dividends paid in 2021 and another 11.1% increase in dividends paid in 2022, given the calendar timing of both the increase and dividend payments. Due to KDP’s strong free cash flow generation and despite the 25% annualized dividend increase, the Company’s dividend payout ratio is expected to remain less than 50% of free cash flow. KDP has declared a regular quarterly cash dividend of $0.15 per share.

  4. 2021 Debt Refinancing

    On March 15, 2021, Keurig Dr Pepper issued $2,150 million aggregate principal amount of senior unsecured notes, consisting of $1,150 million aggregate principal amount of 0.750% Senior Notes due 2024, $500 million aggregate principal amount of 2.250% Senior Notes due 2031 and $500 million aggregate principal amount of 3.350% Senior Notes due 2051.

  5. 2020 Debt Refinancing

    KDP issued $1.5 billion aggregate principal amount of Notes consisting of $750 million principal amount of 3.200% Senior Notes due 2030 and $750 million principal amount of 3.800% Senior Notes due 2050. It will help KDP repay approximately $1 billion of its outstanding borrowings under its 2018 credit agreement and the remainder to repay its outstanding commercial paper notes. This will help it reduce its interest expense (due to lower interest rate for new debt) and improve its debt maturity schedule. Additionally, KDP entered into a new 364-day credit facility of $1.5 billion which replaces the Company’s former $750 million 364-day credit agreement, which has been terminated.

  6. Dr Pepper Snapple's merger with Keurig

    JAB Holdings, Keurig's owner, has acquired a number of coffee brands, such as Jacobs, Peets, Caribou, and, Keurig. It has also scooped up Krispy Kreme Doughnuts, Panera Bread, Au Bon Pain, among other food and beverage companies. However, being able to deliver these products to places where the consumers shop requires a massive distribution network, and this is where Dr Pepper Snapple will come in. Furthermore, this deal, the biggest in the soft drinks space according to Dealogic, would also result in a hot and cold drinks combination, with immense scale for both. DPS, meanwhile, will benefit from Keurig's e-commerce capabilities. JAB also has experience in the past of acquiring small brands, and ensuring their fast growth rates continue, an aspect DPS has clearly been struggling with for Bai.

  7. Potential of Bai Brands

    Bai Brands has tremendous potential to grow and drive KDP's revenues going forward. As millennials move away from carbonated soft drinks, demand for healthier options is increasing, and Bai is likely to be the front-runner for KDP in terms of healthy beverage options. Moreover, from an ACV (all-commodities volume) standpoint, while there are still distribution opportunities for its enhanced water product, greater opportunities lie in other platforms, such as Bubbles, Super Tea, and Black. ACV is considered an insightful measure for soft drink companies, and can be generally thought of as "% of stores selling," but with stores weighted based on their size, and hence, reflects the item's exposure to consumer spending. In the quarter, Bai volumes increased 22% driven by distribution gains, product innovation, and promotional activity, as well as higher sales to third party bottlers in the Latin America Beverages segment.

  8. Strong coffee growth expected

    The addressable market size of the hot beverage market is roughly $0.7 trillion. Moreover, this segment is growing at a fast pace – 6% annually. This should benefit KDP, as Keurig Green Mountain has a strong coffee portfolio. In the quarter, this segment's net sales growth was fueled by volume growth of approximately 3% for pods, and 8% for brewers, although the pricing remained weak. The company is aiming to drive its household penetration through the launch of new coffeehouse brewers – the K-Café and the K-Latte – and updated version of its K-Mini brewer platform.

BUSINESS SUMMARY

Keurig Dr Pepper is a leading coffee and beverage company in North America, with a diverse portfolio of flavored (non-cola) carbonated soft drinks (CSDs), non-carbonated beverages (NCBs), including ready-to-drink teas, juices, juice drinks, water and mixers, and specialty coffee, and is a leading producer of innovative single-serve brewing systems. Some of the company's most valuable brands are Keurig, Dr Pepper, Green Mountain Coffee Roasters, Canada Dry, Snapple, Bai, Mott's, and The Original Donut Shop.

Keurig Dr Pepper was formed as a result of the merger of Keurig Green Mountain and Dr Pepper Snapple, which was completed on July 9, 2018.

KEY TRENDS

Popularity of Ginger Ale

Canada Dry had a double-digit gain in volumes in the third quarter due to steady growth in the ginger ale category and product innovation. The increasing popularity of ginger ale has been driven by millennials, as they look for more authentic, quality beverages having natural flavors. Ginger beverages have been gaining traction in many markets around the world, with demand growing strongly at a 32% year over year growth rate across the U.S., U.K., Spain, and Mexico. Ginger, a sought-after flavor, was also ranked in the top 10 in Google’s 2017 Beverage Report. This segment is expected to continue its strong growth in the remainder of the financial year.

Strong Coffee Growth Expected

The addressable market size of the hot beverage market is roughly $0.7 trillion. Moreover, this segment is growing at a fast pace – 6% annually. This should benefit KDP, as Keurig Green Mountain has a strong coffee portfolio. In the quarter, this segment's net sales growth was fueled by volume growth of approximately 3% for pods, and 8% for brewers, although the pricing remained weak. The company is aiming to drive its household penetration through the launch of new coffeehouse brewers – the K-Café and the K-Latte – and updated version of its K-Mini brewer platform.

Potential of Bai Brands

Bai Brands has tremendous potential to grow and drive KDP's revenues going forward. As millennials move away from carbonated soft drinks, demand for healthier options is increasing, and Bai is likely to be the front-runner for KDP in terms of healthy beverage options. Moreover, from an ACV (all-commodities volume) standpoint, while there are still distribution opportunities for its enhanced water product, greater opportunities lie in other platforms, such as Bubbles, Super Tea, and Black. ACV is considered an insightful measure for soft drink companies, and can be generally thought of as "% of stores selling," but with stores weighted based on their size, and hence, reflects the item's exposure to consumer spending. In the quarter, Bai volumes increased 22% driven by distribution gains, product innovation, and promotional activity, as well as higher sales to third party bottlers in the Latin America Beverages segment.

Deal With Evian

KDP signed an agreement with Danone Waters of America (DWA) to sell, distribute, and merchandise Evian water. DWA will benefit from KDP's massive distribution network in the U.S., covering roughly 150,000 large and small format stores across the country. Evian is a leading premium water, in a category growing 15% annually, which should benefit KDP.