Keurig Dr Pepper reported it outperformed third-quarter expectations and shared details about forthcoming leadership changes and it prepares to split its business into two companies following its JDE Peet acquisition.
The new companies to emerge post acquisition have been designated Global Coffee Co. and Beverage Co.
Keurig Dr Pepper net income was $662 million, or 49 cents per diluted share, versus $616 million, or 45 cents per diluted share, in the year-earlier quarter. Adjusted for one-time events, net income was $738 million, or 54 cents per diluted share, versus $694 million, or 51 cents per diluted share, in the year-prior period, the company reported.
An analyst consensus estimate published by Zacks Investment Research pegged earnings per adjusted diluted share at 54 cents and sales at $4.14 billion.
Net sales were $4.31 billion versus $3.89 billion in the year-previous quarter, KDP noted. GAAP operating income increased 10.3% to $995 million in the period year over year, while adjusted operating income increased 3.8% to $1.09 billion.
In segment results, net sales a U.S. Refreshment Beverages advanced 14.4% to $2.7 billion in the quarter year over year driven by volume/mix growth of 11.2% and favorable net price realization of 3.2%. The segment growth reflected market share gains in carbonated soft drinks, energy and sports hydration, according to KDP. The acquisition of the Ghost energy drink operation contributed 7.2 percentage points to volume/mix growth. GAAP operating income increased 11.1% to $802 million, while adjusted operating income increased 10% to $816 million.
U.S. Coffee net sales gained 1.5% to $991 million year over year. A volume/mix decline of 4% partially offset a favorable net price realization of 5.5%. Net sales growth reflected K-Cup pricing actions to combat inflation partially offset by pod and brewer shipment declines. GAAP operating income decreased 6.7% to $237 million, while adjusted operating income increased 2.6% to $317 million.
In announcing the financial results, CEO Tim Cofer stated, “We are pleased with our third-quarter results, which demonstrated robust growth in U.S. Refreshment Beverages and encouraging sequential progress in U.S. Coffee. Strong innovation and in-market execution drove market share gains across key categories, with sales momentum, along with disciplined actions to offset inflationary pressures, contributing to solid earnings and free cash flow growth. We are focused on sustaining our base business strength while also thoughtfully preparing for the transformation ahead as we first acquire and integrate JDE Peet’s and subsequently separate into two, advantaged pure-play companies.”
KDP plans call for separating the business into the two independent entities by the end of 2026 based on the achievement of milestones, including the naming of leadership teams and independent boards for Global Coffee Co. and Beverage Co.
The KDP board has initiated an internal and external search for a Global Coffee Co. CEO. Sudhanshu Priyadarshi will no longer assume this future role, as had been previously announced. Priyadarshi continues to serve as KDP’s CFO and president, International. Cofer will continue to serve as KDP’s CEO until the intended separation is completed, and he then will become CEO of Beverage Co.
KDP updated its financing package related to the JDE Peet acquisition, now including two new strategic investment agreements totaling $7 billion, co-led by funds managed by Apollo affiliates and funds and accounts managed by KKR. KDP projects net leverage will be about one time lower at the 4.6 times upon acquisition close, which is expected in the first half of 2026, with estimated adjusted earnings per share accretion of about 10% in the first full year.
KPD stated it has a binding commitment letter and term sheet for a $4 billion investment in a newly formed K-Cup pod and other single-serve manufacturing joint ventures co-led by Apollo and KKR, with participation from Goldman Sachs Alternatives. KDP retains a controlling interest and operational control of the related assets. Over the next 10 years, the company expects the all-in cost of this capital to be 7.3% to 7.4%.
KPD also announced a definitive agreement for a $3 billion convertible preferred stock investment in the company and the Beverage Co. business that will emerge from the split, co-led by KKR and Apollo. The key terms of this preferred stock include an initial conversion price of $37.25 per share representing a 41% premium to the company’s 20-day volume-weighted average price ending on October 24, and a 6% premium to the company’s last closing share price immediately prior to the announcement of the JDE Peet’s acquisition. The instrument features an initial preferred dividend rate of 4.75% per year along with a participation right in common dividends paid on an as-converted basis, subject to netting mechanics such that common dividends reduce the preferred dividend obligation on a dollar-for-dollar basis.
The new instruments reinforce the KDP investment grade profile as a combined company, while creating long-term partnerships with leading investors that have significant transactional experience across industries and the globe, the company reported.
KDP also announced the intended capital structures set for Beverage Co. and Global Coffee Co. upon separation. KDP asserted that it remains committed to an investment-grade profile for each independent business with targeted net leverage ratios at separation set at 3.5-4.0 times and 3.75-4.25 times, respectively. The company is evaluating further options to accelerate deleveraging and achieve the stated targets, including potential non-core asset sales and other cost-efficient strategic capital investments.
In connection with the financing transactions, KPD indicated it intends to nominate Brian Driscoll, currently chairman of Acosta Group, chairman of The Arnott’s Group and a board member of Gibson, for election to its board at the company’s next annual meeting.
In commenting on Keurig Dr Pepper ‘s future, Coffer said, “We have a proven track record of value creation in beverages, and our board and management team have conviction in the merits of the planned transaction and subsequent creation of two winning companies: a global coffee powerhouse and the most agile North American beverage leader. We are confident this transaction positions KDP to generate significant shareholder value, and we have robust plans to deliver with success. Since the announcement, we have also carefully considered shareholder feedback and are responding with decisive actions, including new strategic investments to strengthen our balance sheet and a refreshed approach to leadership structure, while kicking off rigorous transformation planning. We will stay flexible and responsive as we work towards the north star of establishing two strong, successful companies.”
