Here's Why Keurig Dr Pepper (KDP) Has Outpaced the Industry
Keurig Dr Pepper Inc. KDP has been benefiting from strength across the Packaged Beverages and Coffee Systems businesses amid the coronavirus pandemic. This led to robust top-line growth, which along with solid margins and reduced costs aided the bottom line during second-quarter 2020. Also, the second quarter marked the second straight quarter of earnings and sales beat.
Notably, shares of this Zacks Rank #3 (Hold) company have gained 14.3% in the past three months, outperforming the industry and the Consumer Staples sector’s growth of 8.9% and 14.1%, respectively.
That said, let’s delve deeper.
Factors Narrating Keurig’s Growth Story
Keurig has been witnessing a sturdy performance in the Packaged Beverages segment as a result of the work-from-home trend stemming from the ongoing coronavirus situation. The segment’s volume/mix growth is mainly attributed to strength in Dr Pepper and Canada Dry CSDs, CORE hydration and evian premium water, Snapple juice drinks, Clamato vegetable juice, and Motts apple juice and apple sauce.
Similarly, a sudden spike in at-home consumption also aided the coffee business. According to the company, consumers’ shift to in-home coffee consumption is likely to continue even after the crisis. Strong growth in in-home coffee consumption can be attributable to the work-from-home trend and the inability to visit coffee shops. Further, in coffee, retail consumption for single-serve pods manufactured by KDP advanced nearly 15% in channels tracked by IRI. The dollar market share for KDP-manufactured pods was a robust 82% in the second quarter, with improved share trends in its owned and licensed brand portfolio.
Encouragingly, management retained its 2020 outlook despite the uncertainty concerning the ongoing COVID-19 situation. Although net sales growth is expected to be at the lower end of the 3-4% range for 2020, it anticipates adjusted earnings per share of $1.38-$1.40, which suggest growth of 13-15%. Aggressive cost-containment actions, productivity improvement plans and gains from partnerships are expected to aid 2020 results.
Headwinds Persist
Adverse impacts of coronavirus weighed on Keurig’s other segments, namely the fountain and foodservice business as well as the office coffee business. In the second quarter, the away-from-home coffee channel was significantly affected due to office closures and hospitality shutdowns caused by the pandemic. Further, volume/mix was mainly affected by a steep decline in the fountain and foodservice business, which includes the restaurant and hospitality sectors, due to coronavirus-related shelter-in-place orders and change in consumer behavior. Apart from these, it is reeling under unfavorable currency movements that have weighed on sales for Latin America Beverages in second-quarter 2020.
3 Beverage Stocks You May Count on
The Boston Beer Company, Inc. SAM delivered a positive earnings surprise of 26.1%, on average, in the trailing four quarters. It currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
National Beverage Corp. FIZZ, with a Zacks Rank #1 at present, delivered an earnings surprise of 22.9% in the last reported quarter.
Monster Beverage Company MNST has an expected long-term earnings growth rate of 12% and currently carries a Zacks Rank #2 (Buy).
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