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Keurig (KDP) Authorizes Share Buy Backs, Reiterates 2021 View

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Keurig Dr Pepper Inc. (KDP - Free Report) keeps its commitment to reward shareholders, with its latest share repurchase authorization of up to $4 billion. The company’s new share buy-back authorization will extend for four years, starting from Jan 1, 2022, and expiring on Dec 31, 2025. On the basis of the closing price on Sep 29, 2021, the authorization represents about 8% of the company’s shares outstanding.

Early last month, the company declared a quarterly dividend of 18.75 cents per share, which is to be paid on Oct 15, 2021, to shareholders with record as of Oct 1.

Concurrent to the announcement of the share repurchase authorization and ahead of its virtual Investor Day event on Oct 1, 2021, the company reiterated its outlook for 2021. It continues to expect net sales growth of 6-7% and adjusted EPS growth of 13-15% for 2021.

On the virtual Investor Day, the company highlighted that the integration of the Keurig and Dr Pepper is now complete, and it is set for the next leg of transformation and growth, going forward. Despite the pandemic-led disruptions, the company has delivered earnings per share within the three-year merger target rate, while revenue growth has outpaced expectations. Earnings per share (CAGR) growth for the past three years was 15.4% compared with the target of 15-17% growth. It achieved revenue CARG of 4.2%, ahead of the target of 2-3%.

The company’s long-term organic growth outlook suggests continued attractive returns for shareholders. It expects long-term revenue growth of mid-single digits, with adjusted earnings per share increasing in high-single digits. Total shareholder return is expected to be in the high-single to low-double-digit range. Keurig expects to generate $4 billion of discretionary cash flow in the next three years (2022-2024).

The company expects to use the cash flow for further business growth and shareholder value through significant opportunities for mergers and acquisitions (M&A) and further sales growth. It noted that robust cash flows provide nearly $20 billion M&A capacity, which is about five times the generated cash flow. It also looks to enhance the shareholder value through dividend payout and share repurchases.

Background

Keurig is displaying strength, with robust cash flow generation, which enables it to significantly pay down debt and offer shareholder value. In second-quarter 2021, the company generated a free cash flow of $492 million, which enabled it to reduce the total financial obligations by $431 million in the second quarter. It ended the quarter with $167 million of cash and cash equivalents at the end of second-quarter 2021. Lowered debt and adjusted EBITDA growth resulted in a debt-to-adjusted EBITDA ratio (management leverage ratio) of 3.4X as compared with 4.0X in the year-ago quarter.

Keurig is well-placed for growth, owing to improvements in the away-from-home channel due to increased consumer mobility. It is also likely to benefit from strong market share gains, and in-market performances across categories and brands. Sales gains in the second quarter of 2021 were driven by growth across all business segments, with the Beverage Concentrates and Latin America Beverages segments posting strong double-digit growth.

The company is on track with prudent cost-management actions. Moreover, investments in marketing, product innovation and technology upgrades are likely to yield results.

Driven by the above-mentioned factors, shares of Keurig have gained 3.8% in the year-to-date period compared with the industry’s growth of 2.7%. The Zacks Rank #3 (Hold) stock has also comfortably outperformed the Consumer Staples sector, which declined 0.4% in the same period.

 

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