VALUATION HIGHLIGHTS
- Beverage Concentrates (U.S. Beverages, U.S. Coffee) constitute 82% of the Trefis price estimate for Keurig Dr Pepper's stock.
- International constitutes 18% of the Trefis price estimate for Keurig Dr Pepper's stock.
WHAT HAS CHANGED?
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KDP Stock Performance
KDP stock has seen a little change from levels of $30 in early January 2021 to around $32 in mid-November 2024, vs. an increase of about 50% for the S&P 500 over this roughly four-year period.
However, the increase in KDP stock has been far from consistent. Returns for the stock were 17% in 2021, -1% in 2022, and -4% 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.
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Q3'24 Earnings
Net sales for Q3 2024 increased 2.3% to $3.9 billion. This was driven by a 5.3% growth in the U.S. Refreshment Beverages, while the International segment sales remained flat y-o-y, partly offset by a 3.6% decline for the U.S. Coffee segment. The overall sales growth was led by a 3.5% rise in volume, partially offset by a 0.4% unfavorable price realization. The company reported earnings of $0.45 on a per-share and adjusted basis, compared to $0.42 in the prior-year quarter.
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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.
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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 of 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. Keurig 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 of 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 and K-Cup pods.
