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Keurig Dr Pepper (KDP) Q1 Earnings & Sales Beat Estimates

Zacks Equity Research
·6 mins read

Keurig Dr Pepper Inc. KDP reported better-than-expected first-quarter 2020 results, wherein both top and bottom lines improved year over year. Results reflected strong underlying sales growth across all segments, margin expansion and reduced costs.

Given the uncertainty concerning the ongoing COVID-19 situation, the company anticipates significant impacts on its 2020 results. Despite this, management reiterated its guidance for 2020, driven by a solid product portfolio and a robust distribution network.

Q1 in Detail

Adjusted earnings of 29 cents per share improved 16% year over year, surpassing the Zacks Consensus Estimate of 27 cents. This improvement was driven by adjusted operating income growth, a reduced effective tax rate and a decline in interest expenses.

Net sales of $2,613 million exceeded the Zacks Consensus Estimate of $2,569 million and grew 4.4% from net sales of $2,504 million in the year-ago quarter. The increase was driven by a higher volume/mix of 5%, partially offset by an unfavorable net price realization of 0.5%. On a constant-currency basis, net sales increased 4.5% year over year. Robust performance in all segments along with strength in packaged beverages contributed to top-line growth.

In the first quarter, the company benefited from a strong in-market performance. Keurig Dr Pepper witnessed dollar consumption growth, with market share gains across several major categories — CSD's3, shelf stable fruit drinks and shelf stable apple juice. The uptick was backed by strength in Dr Pepper and Canada Dry CSDs, CORE hydration and evian premium water, and Snapple juice drinks and Motts apple juice.

Further, in coffee, retail consumption for single-serve pods manufactured by KDP rose nearly 6% in channels tracked by IRI. The coffee business also witnessed robust growth in untracked channels. Further, the dollar market share in tracked channels in the United States was 81% in the first quarter.

Adjusted operating income grew 10.1% year over year to $684 million, driven by strong net sales growth as well as solid productivity and merger synergies. Meanwhile, adjusted operating margin expanded 140 basis points (bps) to 26.2%.

Keurig Dr Pepper, Inc Price, Consensus and EPS Surprise

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

Keurig Dr Pepper, Inc price-consensus-eps-surprise-chart | Keurig Dr Pepper, Inc Quote

Segmental Details

Sales at the Beverage Concentrates segment rose 0.7% year over year to $306 million compared with $304 million in the year-ago period. Net revenues primarily benefited from 2.4% higher net price realizations, somewhat offset by 1.7% unfavorable volume/mix.

Sales at the Packaged Beverages segment totaled $1.22 billion, up 9.1% from net sales of $1.12 billion in the year-ago quarter. This can be primarily attributed to an 8.7% increase in volume/mix and 0.4% higher net price realizations.

Sales from the Latin America Beverages segment improved 0.9% to $117 million compared with $116 million in the prior-year quarter. This was on account of a 5.9% rise in price realization, partly offset by unfavorable volume/mix of 0.7% and foreign currency translation of 4.3%.

The Coffee Systems segment’s sales increased 0.5% to $973 million from $968 million in the year-ago quarter. The increase was backed by improved volume/mix of 3.7% and favorable foreign currency translation of 0.1%, somewhat offset by net price realization of 3.3%. Volume/mix grew 3.7%, benefiting from a 5.6% increase in pod volumes, while brewer volumes declined 2.4%.

Financials

Keurig Dr Pepper ended first-quarter 2020 with cash and cash equivalents of $197 million as of Mar 31, 2020. Long-term obligations totaled $12,431 million and total stockholders’ equity was $22,640 million. Net cash provided by operating activities totaled $414 million as of Mar 31.

Outlook

Keurig Dr Pepper retained guidance for 2020. The company 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.

The company expects net sales growth to be at the lower end of 3-4% for 2020. Additionally, the company still expects a leverage ratio of 3.5 to 3.8 at the end of 2020. Further, it reiterated its leverage ratio target of less than 3.0 in two to three years, since the closing of the merger in July 2018.

Further, management issued a soft second-quarter 2020 view as it envisions the quarter to be badly hit by the unprecedented COVID-19 impacts. Segment-wise, the company expects sales for the Beverage Concentrates unit to be hurt by a drab fountain foodservice business due to sluggishness in the restaurant and hospitality space. Net sales for this segment are likely to decline mid-teens in the second quarter. Also, the Latin America Beverages unit is anticipated to remain flat, on a constant-currency basis, owing to uncertain COVID-19 impacts and currency headwinds.

Meanwhile, sales for the coffee unit are anticipated to be up mid-single digit on the back of increased consumption, as more and more people are now working from home. Moreover, sales in the Packaged Beverages segment is projected to remain flat with sturdy performance in CSDs and juices, partly offset by weakness in premium water as well as the convenience and gas channel.

Consequently, the company expects total net sales to remain flat in the second quarter.

Price Performance

We note that shares of this Zacks Rank #3 (Hold) company have lost 9.4% in the past three months compared with the industry’s decline of 16.6%.



Stocks to Consider

Kraft Heinz Company KHC has a long-term earnings growth rate of 6% and a Zacks Rank #2, at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Monster Beverage Corporation MNST has a long-term earnings growth rate of 7.9% and a Zacks Rank #2.

Campbell Soup Company CPB has a long-term earnings growth rate of 7.2% and a Zacks Rank #2.

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