VALUATION HIGHLIGHTS

1. Beverage Concentrates (U.S. Beverages, U.S. Coffee) constitute 83% of the Trefis price estimate for Keurig Dr Pepper's stock.
2. International constitutes 17% of the Trefis price estimate for Keurig Dr Pepper's stock.

WHAT HAS CHANGED?

1. KDP Stock Performance

   KDP stock has seen little change, moving slightly from levels of $30 in early January 2021 to around $30 now (late February 2024), vs. an increase of about 35% for the S&P 500 over this roughly 3-year period.
   
   Overall, the performance of KDP stock with respect to the index has been lackluster. Returns for the stock were 15% in 2021, -3% in 2022, and -7% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 - indicating that KDP underperformed the S&P in 2021 and 2023.



2. Q4'23 Earnings

   Net sales for Q4 2023 increased 2% to $3.9 billion. This was driven by a 7% growth in the U.S. Refreshment Beverages and an 11% rise in the International segment, partly offset by a 10% decline for the U.S. Coffee segment. The sales growth was led by 5% pricing gains, partially offset by a 4% fall in volume. The company reported earnings of $0.55 on a per-share and adjusted basis, compared to $0.50 in the prior-year quarter.



3. 2021 Debt Refinancing

   On March 15, 2021, Keurig Dr Pepper issued a $2.2 billion aggregate principal amount of senior unsecured notes, consisting of $1.2 billion 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.



4. 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, and 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 has helped. DPS has benefited from Keurig's e-commerce capabilities.



5. 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 – around 6% annually. This should benefit KDP, as Keurig Green Mountain has a strong coffee portfolio. The company has been able to drive its household penetration through its K-Cup pods.

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

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 in the U.S., U.K., Spain, and Mexico. This segment is expected to continue its strong growth in the coming years.

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. The company has been able to drive its household penetration through the launch of its coffeehouse brewers – K-Cup pods.

Deal With Evian

In 2018, KDP signed an agreement with Danone Waters of America (DWA) to sell, distribute, and merchandise Evian water. DWA is benefiting from KDP's massive distribution network in the U.S., covering roughly thousands of large and small format stores across the country. Evian is the leading premium water in a category that is growing in high-single-digits annually, which should benefit KDP.