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Keurig (KDP) Beats Q2 Earnings & Sales Estimates, Stock Up

Zacks Equity Research
·6 mins read

Keurig Dr Pepper Inc. KDP reported better-than-expected results for second-quarter 2020, wherein both the top and the bottom line improved year over year. Results reflected strong sales growth across packaged beverages and coffee businesses, margin expansion and reduced costs.

Adjusted earnings of 33 cents per share improved 10% year over year, surpassing the Zacks Consensus Estimate of 32 cents. This improvement was driven by strong top-line growth along with increase in adjusted operating income.

Net sales of $2,864 million exceeded the Zacks Consensus Estimate of $2,847 million and grew 18% from net sales of $2,812 million in the year-ago quarter. The increase was driven by a higher volume/mix of 4.3%, partially negated by an unfavorable net price realization of 1.4%. On a constant-currency basis, net sales increased 2.9% year over year. Robust performance across the packaged beverages and coffee businesses contributed to top-line growth.

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

In the second quarter, the company benefited from strong in-market performance in tracked channels. Keurig Dr Pepper witnessed market share gains across several major categories — CSD's3, premium unflavored water, shelf stable fruit drinks, shelf stable vegetable juice and shelf stable apple juice and apple sauce. The upside was driven by 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.

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.

Adjusted operating income grew 10.4% year over year to $775 million, driven by strong net sales growth, solid productivity and merger synergies as well as reduced marketing and other discretionary expenses. This was partly compensated by lower pricing, input costs and logistics inflation, and higher operating costs related to perked up consumer demand. Adjusted operating margin expanded 210 basis points (bps) to 27.1%. On a constant-currency basis, adjusted operating income increased 11.1%.

Shares of the company rose 2.3% in after-hour trading session on Jul 30 on solid results. We note that shares of this Zacks Rank #3 (Hold) company have gained 18.8% in the past three months compared with the industry’s growth of 7.8%.

 

 

Segmental Details

Sales at the Beverage Concentrates segment declined 16.5% year over year to $309 million compared with $370 million in the year-ago period. Net revenues were primarily impacted by an 11.4% decline in volume/mix, 4.8% fall in price realizations and 0.3% negative currency translations. Volume/mix was mainly affected by a steep decline in the fountain foodservice business, which includes the restaurant and hospitality sectors, due to coronavirus-related shelter-in-place orders and change in consumer behavior.

Sales at the Packaged Beverages segment totaled $1.39 billion, up 6.2% from net sales of $1.31 billion in the year-ago quarter. This can be primarily attributed to a 6.6% increase in volume/mix, partly negated by a 0.3% fall in price realizations and 0.1% negative currency translations.

Sales from the Latin America Beverages segment fell 14.9% to $120 million from $141 million in the prior-year quarter. This decline was the result of unfavorable currency translations. On a constant-currency basis, sales rose 1.4% driven by 6.1% growth in price realization, partly offset by unfavorable volume/mix of 4.7%.

The Coffee Systems segment’s sales increased 5.4% to $1.04 billion. Net sales, on a constant-currency basis, were up 5.8%. The increase was backed by improved volume/mix of 8.3%, somewhat offset by lower net price realization of 2.5% and unfavorable foreign currency translation of 0.4%. Growth in volume/mix stemmed from a 9.5% increase in pod volumes on rise in at-home business, offset by decline in away-from-home office and hospitality channels. Meanwhile, brewer volume advanced 11.6% driven by robust innovation in the past 12 months and investments to boost household penetration.

Financials

Keurig Dr Pepper ended second-quarter 2020 with cash and cash equivalents of $149 million as of Jun 30, 2020. Long-term obligations totaled $11,849 million and total stockholders’ equity was $22,923 million. Net cash provided by operating activities totaled $1,062 million as of Jun 30.

Outlook

The company is encouraged by its diverse brand portfolio and extensive distribution system, which has helped it steer through the coronavirus crisis. Thus, it is optimistic about its performance in the second half of 2020.

Keurig Dr Pepper retained guidance for 2020. The company anticipates adjusted earnings per share of $1.38-$1.40, which suggests 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 at the low 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.

3 Better-Ranked Beverage Stocks

The Boston Beer Company, Inc. SAM delivered an earnings surprise of 113.2%, on an average, in the trailing four quarters. It sports a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Coca-Cola European Partners PLC CCEP currently has a long-term earnings growth rate of 4.1% and flaunts a Zacks Rank #2 (Buy).

Monster Beverage Corporation MNST currently has a Zacks Rank #2 and a long-term earnings growth rate of 8.6%.

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