Keurig Dr Pepper Inc. KDP posted third-quarter 2024 results, wherein earnings per share were in line with the Zacks Consensus Estimate and sales missed the same. Both top and bottom lines improved year over year.

Adjusted earnings of 51 cents per share grew 6.3% year over year and came in line with the Zacks Consensus Estimate. The bottom-line growth was driven by strong growth in adjusted operating income and a reduced share count, partly negated by elevated interest expenses.

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Keurig Dr Pepper, Inc Price, Consensus and EPS Surprise

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The third-quarter results reflected accelerated net sales trends, considerable margin growth and expressed optimism about improvements in volume/mix performance. The company is on track to meet its full-year outlook while making significant progress on its multi-year strategic agenda. The results were also fueled by strength in the International and U.S. Refreshment Beverages segments.

Keurig announced plans to acquire a 60% stake in GHOST Lifestyle LLC, known for its rapidly growing GHOST Energy drinks, with an option to purchase the remaining 40% by 2028. This strategic move strengthens KDP’s position in the fast-growing energy drink market and accelerates its growth in consumer-preferred categories.

Shares of this Zacks Rank #4 (Sell) company declined 3.8% in the pre-market trading session. The decline in share price can be attributed to the lower-than-expected sales. The company’s shares have gained 5.8% in the past three months compared with the industry’s 2.8% rise.

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KDP’s Quarterly Performance

Net sales of $3.89 billion increased 2.3% year over year but missed the Zacks Consensus Estimate of $3.92 billion. On a constant-currency basis, net sales improved 3.1%, backed by a 3.5% increase in volume/mix partly negated by an unfavorable net price realization of 0.4%.

The adjusted gross profit rose 2.5% year over year to $2.18 billion, with the adjusted gross margin expanding 20 basis points (bps) to 56%.

The adjusted operating income rose 7.5% year over year to $1.05 billion in the quarter due to savings from net productivity and disciplined overhead expenses partly negated by the impact of inflation. Meanwhile, the adjusted operating margin expanded 110 bps year over year to 27%.

A Look at KDP’s Segmental Details

Sales in the U.S. Refreshment Beverages segment totaled $2.39 billion, up 5.3% year over year, reflecting 1.3% higher net price realization, and 4% growth in volume/mix. The volume/mix improvement can be attributed to contributions from recent partnerships and strong underlying business trends. The Zacks Consensus Estimate for the U.S. Refreshment Beverages segment is pegged at $2.38 billion, reflecting a 5% year-over-year increase.

Sales in the U.S. Coffee segment declined 3.6% year over year to $976 million, reflecting volume/mix improvement of 2.7%, somewhat offset by unfavorable net price realization of 6.3%. The company witnessed a marginal 0.4% year-over-year decline in K-pod shipments, reflecting owned & licensed market share gains in a subdued at-home coffee category. Brewer shipments totaled 10.5 million in the 12 months ending Sept. 30, 2024, up 3.3% year over year, driven by continued strength in Keurig's market share and stabilizing trends in the coffeemaker category.

Sales in the International segment gained 0.4% year over year to $525 million. On a constant-currency basis, the segment’s net sales increased 6.5%, gaining from a favorable net price realization of 3.4% and a volume/mix rise of 3.1%. The segment witnessed broad-based portfolio market share strength.

KPD’s Financial Health

As of Sept. 30, 2024, Keurig’s cash and cash equivalents were $552 million. KDP had long-term obligations of $12.4 billion and total stockholders’ equity of $25 billion.

Net cash provided by operating activities totaled $1.4 billion for the nine months of 2024, with the free cash flow amounting to $973 million.

KDP’s Forward Outlook

Keurig reaffirmed its fiscal 2024 guidance. The company expects 2024 constant-currency net sales growth in the mid-single digits. It continues to envision adjusted earnings per share growth in the high single digits.

Three Stocks Looking Good

We have highlighted three better-ranked stocks in the broader sector, namely Freshpet FRPT, Vital Farms VITL and Diageo DEO.

Freshpet, Inc., a pet food company, has a trailing four-quarter earnings surprise of 132.9%, on average. FRPT currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Freshpet’s current financial year sales and earnings indicates growth of 26.2% and 202.9%, respectively, from the prior-year reported level.

Vital Farms , which provides pasture-raised products, currently sports a Zacks Rank #2 (Buy). The Zacks Consensus Estimate for Vital Farms’ current financial year sales and earnings indicates growth of 26.3% and 88.2%, respectively, from the prior-year reported level.

VITL has a trailing four-quarter average earnings surprise of 82.5%.

Diageo is involved in producing, distilling, brewing, bottling, packaging and distributing spirits, wine and beer. DEO carries a Zacks Rank #2. 

The consensus estimate for Diageo’s current financial year’s earnings per share indicates growth of 1.2% from the year-ago reported figures. The consensus sales estimate suggests a year-over-year decline of 5.2%.

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