Why Did Keurig Dr Pepper’s Profits Double In A Year?

by Trefis Team
Keurig Dr Pepper
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Keurig Dr Pepper (NYSE: KDP) saw its net income increase by over 100% from $149 million in Q3 2018 to $304 million in Q3 2019. Such a sharp rise in profits was driven by the impact of the merger with Dr Pepper Snapple (DPS) in the form of y-o-y revenue growth of 5% coupled with a marginal decline in total expenses in Q3 2019 in comparison to the previous-year period. The market gave a thumbs-up with the stock responding with a 6% rise on the earnings announcement.

For a detailed break-up and analysis of factors that led to the doubling of profits, view the Trefis dashboard – Why Did Keurig Dr Pepper’s Net Income Increase 100% In Q3 2019?

Rise in Net Income

The $155 million increase in net income, from $149 million in Q3 2018 to $304 million in Q3 2019, was led by:

  • $138 million increase in total revenues
  • $17 million decrease in total expenses

A) Revenue Change Drivers

  • Change in Packaged Beverages and Beverage Concentrates’ revenues together contributed about 81% of the total increase in KDP’s revenues in Q3 2019.
  • Beverage Concentrates’ revenues increased by 13.6%, primarily due to a 7.5% rise in volume sales and 6.1% improvement in price realization.
  • Volume growth was a reflection of 8 additional days of the effect of the DPS merger in Q3 2019 compared to the prior year quarter.

To understand what led to growth in Packaged Beverages’ revenues, view our dashboard analysis.

B) Total Expenses

  • Total expenses remained largely stable at $2.6 billion in the third quarter of 2019 and 2018, with it reflecting a marginal decline of $17 million in the last one year.
  • The primary factor driving lower expenses was $122 million decrease in cost of sales, mainly due to inventory step-up (increasing value of COGS to its fair value) in the prior year period due to the DPS merger, which led to higher cost in Q3’18.
  • Additionally, strong productivity and synergies and the impact of an additional 8 days of DPS operations in Q3’19, led to a lower cost of sales.
  • A complete elimination of loss on debt extinguishment also contributed to a $11 million decrease in total expenses.

To understand how other major expenses moved over the last one year, refer to dashboard analysis.

Thus, the merger with DPS is proving to be beneficial for Keurig Dr Pepper in the form of higher revenues as well as synergies driving improvement in profitability.


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