Investing.com -- Citi analysts weighed the risks facing Keurig Dr Pepper Inc (NASDAQ:KDP) as surging green coffee prices put pressure on the company's 2025 outlook.
Arabica coffee prices have climbed about 80% in the last six months, driven by weather-related supply disruptions in Brazil and tariff concerns. Despite these challenges, Citi remains Buy-rated on Keurig Dr Pepper on strength in its beverage businesses, which account majority of sales and profits.
Citi for its base case expects KDP to achieve mid-single-digit earnings per share growth in 2025, with U.S. coffee profits declining 8.5% year-over-year. The firm assumes green coffee costs make up 18% of KDP’s U.S. coffee cost of goods sold, rising about 70% from a year earlier, and that the company takes a weighted average 5% price increase.
Under a bear case scenario, where coffee costs represent 27% of U.S. coffee COGS and inflation reaches 90%, Citi sees coffee profits dropping 19% and flat EPS growth. A more optimistic outlook assumes lower cost exposure and stronger price increases, keeping EPS growth in the high single digits.
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