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Keurig Dr Pepper (KDP) Beats on Q3 Earnings, Retains View

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Keurig Dr Pepper (KDP - Free Report) , the newly formed company after the merger of Dr Pepper Snapple Group (“DPS”) and Keurig Green Mountain (“KGM”), reported strong numbers for third-quarter 2018. The company’s earnings topped the Zacks Consensus Estimate while sales missed.

Shares of this Zacks Rank #5 (Strong Sell) company have improved 15.8% in the past three months against the industry’s decline of 5.4%.


Quarterly Highlights

In the third quarter, adjusted earnings per share of 30 cents improved 43% year over year and beat the Zacks Consensus Estimate of 27 cents. The improvement was aided by an increase in adjusted operating income and a lower tax rate due to the Tax Cuts and Jobs Act. Additionally, cash distribution from BODYARMOR, related with Keurig Dr Pepper’s interest in it as a stakeholder, boosted results.

Keurig Dr Pepper, Inc Price, Consensus and EPS Surprise


Keurig Dr Pepper, Inc Price, Consensus and EPS Surprise | Keurig Dr Pepper, Inc Quote

Net sales of $2,732 million missed the consensus estimate of $2,827 million but more than doubled (up 139.6%) from the year-ago quarter figure of $1,140 million. The solid year-over-year improvement is attributed to benefits of the merger. Adjusted pro forma net sales of $2.86 billion were up 2.9% on the back of robust volume/mix growth, offset by currency headwinds and lower realized price.

Notably, volume/mix improved 3.6% while prices dipped 0.2%. Moreover, unfavorable currency rates impacted revenues by 0.5%.

During the third quarter, the company also benefited from strong retail market performance as measured by IRI. It reported market share gains in both units and dollars for its CSD portfolio as both Dr Pepper and Canada Dry continued to gain traction. Further, its coffee portfolio delivered solid results on the back of unit growth for single-serve pod category as well as improved market share for pods produced by Keurig Dr Pepper.

Adjusted operating income grew 14.3% year over year to $697 million, driven by solid sales growth, strong productivity and lower marketing costs due to timing, offset by higher input costs and logistics. Moreover, adjusted operating margin expanded 240 basis points (bps) to 24.4%.

Segmental Details

Revenues from the Beverage Concentrates segment were $317 million. Adjusted pro forma revenues improved 3.1% to $331 million due to higher pricing and favorable volume/mix, offset by unfavorable currency rates.

Packaged Beverage segment’s sales totaled $1,238 million. Adjusted pro forma sales rose 4.9% to $1,336 million, backed by higher volume/mix, partly negated by lower pricing and currency headwinds.

Revenues from the Latin America Beverage segment were $124 million. Adjusted pro forma revenues advanced 2.3% to $136 million, driven by improved price realization, offset by reduced volume/mix and unfavorable currency.

Coffee Systems segment’s sales were $1,053 million compared with $1,140 million for the year-ago quarter. Adjusted pro forma sales grew 0.4% to $1,053 million, aided by volume/mix growth, almost fully offset by lower pricing and currency headwinds.


The company’s cash and cash equivalents were $94 million as of Sep 30, 2018, compared with $90 million as of Dec 31, 2017. Long-term obligations totaled $14,275 million while stockholders equity was $22,293 million. Net cash provided by operating activities totaled nearly $1,063 million as of Sep 30, 2018.


Keurig Dr Pepper continues to anticipate adjusted pro forma earnings per share of $1.02-$1.07 for 2018, including the impact of current preliminary Purchase Price Accounting adjustments of 4 cents per share.

For the long term, the company expects to generate deal synergies of nearly $600 million between 2019 and 2021, with about $200 million savings anticipated every year.  Additionally, the company expects significant cash flow generation and rapid deleveraging, targeting a leverage ratio of less than 3.0 in two to three years.

Furthermore, Keurig Dr Pepper expects to deliver average annualized adjusted pro forma EPS growth rate of 15-17% between 2018 and 2021.

Don’t Miss These Consumer Staples Stocks

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Chefs' Warehouse delivered positive earnings surprise of 54.7% in the last four quarters. Moreover, the stock has surged 78.7% year to date.

e.l.f. Beauty delivered positive earnings surprise of 76.08% in the last four quarters. Furthermore, the company has long-term earnings growth rate of 6.8%.

Archer Daniels has rallied 22% in the past year. The company delivered an average positive earnings surprise of 26.9% in the last four quarters.

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