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Keurig Dr Pepper's (KDP) Q3 Earnings Meet, Sales Beat Estimate

·5 min read

Keurig Dr Pepper Inc. KDP has reported third-quarter 2021 results, wherein the bottom line came in line with the Zacks Consensus Estimate, while sales surpassed the same. Both metrics improved year over year. Results gained from a solid top-line momentum. The company witnessed strong market share gains and in-market performances across categories and brands in the quarter. Encouragingly, management raised the top-line view.

Shares of the company have gained 9% year to date compared with the industry’s growth of 7.5%.

Q3 in Detail

Adjusted earnings of 44 cents per share increased 12.8% year over year and met the Zacks Consensus Estimate.

Net sales of $3,250 million surpassed the Zacks Consensus Estimate of $3,149 million and increased 7.6% from the year-ago quarter. The upside was driven by growth across all business segments, with the Beverage Concentrates and Latin America Beverages segments posting strong double-digit growth. On a constant-currency (cc) basis, net sales increased 6.8%, driven by an increased volume/mix of 3.2% and favorable net price realization of 3.6%.

In the third quarter, the company benefited from a robust in-market performance, with dollar consumption increasing 6.8% across the cold beverage retail base, including growth in categories such as CSDs, premium unflavored water, enhanced flavored water, apple juice, apple sauce, and coconut water. Dr Pepper, Sunkist, Canada Dry, A&W and Squirt CSDs, Evian, Bai, Vita Coco, Polar, and Mott's apple juice and apple sauce were the key brands aiding growth.

In coffee, the retail consumption for single-serve pods manufactured by KDP rose 4.3% in channels tracked by IRi. The dollar market share for pods manufactured by KDP advanced 83% in the third quarter. The company witnessed improvement in the away-from-home channel’s performance in the quarter. However, this Zacks Rank #4 (Sell) company notes that the increased consumer mobility is yet to translate into the return-to-office trend.

Adjusted operating income advanced 6.5% year over year to $931 million, driven by strong net sales growth, and adjusted gross margin expansion of 50 bps. On a cc basis, adjusted operating income increased 5.7%. Meanwhile, adjusted operating margin contracted 30 basis points to 28.6%, owing to significantly higher marketing investments.

Zacks Investment Research
Zacks Investment Research

Image Source: Zacks Investment Research

Segmental Details

Sales in the Coffee Systems segment advanced 5.3% year over year to $1,155 million. At cc, net sales rose 4.6%, owing to a higher volume/mix of 5.7% and favorable net price realization of 1.1%. Volumes/mix gained from pod volume, stemming from strength in the at-home business and the recovery in the away-from-home business, along with brewer volume growth.

Sales in the Packaged Beverages segment totaled $1,547 million, up 6.9% year over year. Segment sales rose 6.8% at cc, gaining from a favorable volume/mix of 1.5% and a higher net price realization of 5.3%. The segment benefitted from growth in CSDs, particularly Dr Pepper, Canada Dry, Sunkist, A&W, 7UP, and Squirt as well as growth in Polar and Mott's, somewhat offset by a decline in Snapple due to supply-chain issues and weakness in Hawaiian Punch.

Sales in the Beverage Concentrates segment rose 11.4% year over year to $392 million. At cc, the segment’s net sales increased 10.8%, gaining from favorable net price realization of 11.4% and volume/mix growth of 0.6%. Reduced concentrate shipments hurt volume/mix to some extent, while a recovery in the fountain foodservice business remained an upside.

The Latin America Beverages segment’s sales advanced 25.8% to $156 million. At cc, net sales increased 14.5%, owing to volume/mix growth of 10.5% and improved net price realization of 4%. Volume/mix was aided by the effects of the significantly higher marketing investments.

Financials

Keurig Dr Pepper ended the third quarter with cash and cash equivalents of $200 million. As of Sep 30, 2021, it had long-term obligations of $11,727 million and total stockholders’ equity of $24,405 million (excluding non-controlling interest). Net cash provided by operating activities totaled $1,933 million at the end of the third quarter.

The company generated a free cash flow of $676 million in the third quarter. The solid free cash flow enabled it to reduce total financial obligations by $327 million in the third quarter. For the nine months ended Sep 30, 2020, free cash flow totaled $1,626 million.

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

Outlook

Keurig Dr Pepper raised its cc sales view for 2021 and reiterated its adjusted earnings guidance. The company now expects cc net sales growth of 7-8% compared with 6-7% growth mentioned earlier. Management continues to expect adjusted earnings growth of 13-15%, backed by improved sales and any increase in profits anticipated to be reinvested in its business. The company expects management leverage ratio at or below 3.0X at the end of 2021.

Stocks to Consider

Albertsons Companies ACI, currently a Zacks Rank #1 (Strong Buy) stock, has an expected long-term earnings growth rate of 12%. You can see the complete list of today’s Zacks #1 Rank stocks here.

Helen of Troy HELE currently has an expected long-term earnings growth rate of 8% and a Zacks Rank #2 (Buy).

General Mills GIS currently has an expected long-term earnings growth rate of 7.5% and a Zacks Rank #2.


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Keurig Dr Pepper, Inc (KDP) : Free Stock Analysis Report

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