Keurig Dr Pepper Earnings: Ready-to-Drink Beverages Solid on Innovation, but Coffee Still Weak

Resilient demand for sparkling beverages supported narrow-moat Keurig Dr Pepper’s ready-to-drink beverage performance in the third quarter, but coffee results remained pressured by soft at-home coffee trends, elevated promotions, and high coffee bean costs. Sales and adjusted EPS rose 2% and 6%, respectively. Shares fell 5% on coffee weakness but remain overvalued relative to our $32 fair value estimate. We continue to expect sales and adjusted EPS to rise 4% and 7%, respectively, in 2024 and forecast the firm to post 4% average annual sales growth and 22% average operating margins over the next decade.