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Keurig Dr Pepper Inc. (KDP)·Q2 2025 Earnings Summary

Executive Summary

  • Q2 net sales rose 6.1% to $4.16B (7.2% constant currency), with strength in U.S. Refreshment Beverages (+10.5%) and improving trends in U.S. Coffee; adjusted EPS grew 11.1% to $0.49 while GAAP EPS was $0.40 .
  • Gross margin contracted 110 bps year over year on inflation despite disciplined SG&A, but adjusted operating margin held flat at 24.7% versus Q2 last year .
  • Management reaffirmed FY 2025 guidance (mid-single-digit net sales; high-single-digit adjusted EPS) and now sees ~0.5 pp FX headwind; below-the-line assumptions updated to ~$700M interest expense, ~23% tax rate, and ~1.36B diluted shares .
  • Execution catalysts: fast-scaling energy portfolio (Ghost, C4, Bloom, Black Rifle >$1B run-rate; ~7% share), DSD expansion (adding Dr Pepper distribution in parts of CA/NV/Midwest), and ongoing coffee pricing/productivity to offset commodity and tariff headwinds .

What Went Well and What Went Wrong

  • What Went Well

    • U.S. Refreshment Beverages delivered 10.5% net sales growth, driven by 9.5% volume/mix (Ghost +6.6 pp) and 1.0% price; adjusted segment OI +8% to $781M, with strong CSD share gains and energy scaling .
    • Energy portfolio momentum: four brands now >$1B run-rate and ~7% category share; management targets double-digit share over time. “Our four complementary brands… now combine to represent over $1 billion in annual run-rate net sales… with 7% market share already” .
    • Innovation and marketing: Dr Pepper Blackberry (#1 new product), 7UP Tropical, Electrolit 30%+ retail sales growth; “Dr Pepper Blackberry ranks as the number one new product in the category this year” .

  • What Went Wrong

    • Gross margin contracted 110 bps YoY from inflation; adjusted gross margin 55.0% vs 56.1% last year; management flagged mounting back-half cost pressure .
    • U.S. Coffee net sales declined 0.2% on −3.8% volume/mix despite +3.6% price; management expects subdued performance in H2 given tariffs and higher-cost hedges .
    • International reported net sales −1.8% (constant currency +5.7%) amid FX and softer Mexico backdrop; adjusted OI +2.6% but FX translation weighed on GAAP OI .

Financial Results

MetricQ4 2024Q1 2025Q2 2025
Net Sales ($USD Billions)$4.07 $3.64 $4.16
GAAP Diluted EPS ($)$(0.11) $0.38 $0.40
Adjusted Diluted EPS ($)$0.58 $0.42 $0.49
Gross Margin % (Reported)55.9% 54.6% 54.2%
Gross Margin % (Adjusted)56.3% 54.7% 55.0%
Operating Margin % (Reported)1.5% 22.0% 21.6%
Operating Margin % (Adjusted)27.7% 23.3% 24.7%

Segment breakdown (Net Sales and Adjusted Operating Margin):

SegmentQ4 2024 Net Sales ($MM)Q4 2024 Adj OPM (%)Q1 2025 Net Sales ($MM)Q1 2025 Adj OPM (%)Q2 2025 Net Sales ($MM)Q2 2025 Adj OPM (%)
U.S. Refreshment Beverages$2,441 31.7% $2,323 29.1% $2,660 29.4%
U.S. Coffee$1,130 35.3% $877 28.8% $948 31.5%
International$499 26.1% $435 21.4% $555 26.1%

KPIs:

KPIQ4 2024Q1 2025Q2 2025
Operating Cash Flow ($MM)$849 $209 $431
Free Cash Flow ($MM)$687 $102 $325
Interest Expense, net ($MM)$247 $148 $180
Effective Tax Rate (%)6.5% 21.7% 23.8%
Weighted Avg Diluted Shares (MM)1,401.3 1,362.2 1,362.8
Management Leverage Ratio (x)3.3 3.3 3.3

Notes:

  • YoY Q2: Net sales +6.1%; adjusted EPS +11.1%; adjusted OI +7.0%; constant currency net sales +7.2% .
  • Mix and price drivers: volume/mix +5.0 pp; price +2.2 pp; Ghost contributed ~4.0 pp to mix .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Constant Currency Net Sales GrowthFY 2025Mid-single-digit (Q4’24) Mid-single-digit (Q2’25 reaffirm) Maintained
Adjusted Diluted EPS GrowthFY 2025High-single-digit (Q4’24) High-single-digit (Q2’25 reaffirm) Maintained
FX Impact (Top & Bottom Line)FY 2025~1–2 pp headwind (Q4’24) ~0.5 pp headwind (Q2’25) Lowered
Interest Expense (approx.)FY 2025$680–$700M (Q1’25) ~$700M (Q2’25) Tilted to high end
Effective Tax RateFY 2025~22–23% (Q1’25) ~23% (Q2’25) Narrowed upward
Diluted Weighted Avg SharesFY 2025~1.37B (Q1’25) ~1.36B (Q2’25) Lowered

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4’24 and Q1’25)Current Period (Q2’25)Trend
Energy portfolio scalingShare >6%; Ghost closed; goal double-digit share; $1B+ retail sales expected Four brands now >$1B run-rate; ~7% share; strong POS for Ghost, C4; Bloom nearing 1% share Strengthening
U.S. Coffee outlookPrice in Jan; preserve profit dollars; elasticity manageable; subdued 2025 expected Sequential improvement; back-half pressure from tariffs and higher-cost hedges; expect OI pressure Cautious/pressured
DSD network expansionAZ territory added; DSD as core advantage Adding Dr Pepper distribution in parts of CA/NV/Midwest; short-term transition costs; long-term benefits Expanding
Marketing/digital transformationEmphasis on innovation and full-funnel; Fansville strong New CMO-led digital/data approach; more personalized activations (Fansville Q3/Q4) Accelerating
Consumer affordability/valueValue channels resilient; SNAP context; watch Hispanic consumer trends Resilient but selective; softer QSR and convenience early in Q2; value channels strong Value-seeking
Tariffs/macro & FXTariffs incorporated; FX 1 pp headwind (Q1) Tariffs “highly fluid”; FX ~0.5 pp headwind; margin pressure expected in H2 Cost headwinds rising
International executionStrong relative performance; licensing wins (e.g., Nestea CA) CC net sales +5.7%; Mexico softness; share gains in mineral water and single-serve coffee Resilient
Next-gen Keurig/R&DKeurig Alta & K-Rounds development In-home beta validating experience; targeted launch late 2026 Progressing
Product performanceDr Pepper innovations; 7UP Tropical; Electrolit momentum; La Colombe RTD Dr Pepper Blackberry #1; Electrolit +30% retail sales; La Colombe triple-digit RTD growth Strong

Management Commentary

  • CEO: “Our Q2 results cemented a strong first half… robust performance in U.S. Refreshment Beverages, good growth in International, and sequential progress in U.S. Coffee… on track to deliver our 2025 outlook” .
  • CEO: “Balance of 2025 will present challenges in the form of rising cost pressures, including from tariffs… Despite this, we remain on track to achieve our full-year outlook” .
  • CFO: “Second-quarter net sales increased 7.2% in constant currency… Gross margin contracted 110 bps versus prior year due to inflationary pressures… operating income growth 7% with margins steady” .
  • CFO: “FX will represent ~half a percentage point headwind… interest expense ~ $700M, effective tax rate ~23%, diluted shares ~1.36B” .

Q&A Highlights

  • Energy and partner assets: Management sees balanced growth between base CSDs and partner brands (Ghost, Electrolit, Bloom), with energy share moving from <1% pre-2023 to ~7% YTD; runway remains significant .
  • U.S. Coffee elasticity and pricing cadence: Early-year pricing offset green coffee inflation; further actions possible as tariffs/hedges lift costs; elasticity manageable but H2 OI pressure expected .
  • DSD capacity and Dr Pepper distribution: KDP adding Dr Pepper distribution in parts of CA/NV/Midwest; near-term transition investment and disruption expected, but long-term commercial and efficiency benefits envisaged .
  • Consumer affordability and RGM: Lower-income consumers more value-seeking; KDP leveraging price-pack architecture, value channels (club, mass), and targeted promotions to sustain growth .
  • Marketing evolution: New CMO driving data/tech-enabled personalization; Fansville and targeted brewer marketing expected to lift ROI starting Q3/Q4 .

Estimates Context

  • We attempted to retrieve S&P Global consensus for Revenue and Primary EPS for Q4 2024, Q1 2025, and Q2 2025; data was unavailable at time of query. Values retrieved from S&P Global.*
  • As a result, we cannot quantify beats/misses vs consensus for Q2 2025. Based on management’s commentary, adjusted EPS growth was double-digit and net sales growth was high single-digit constant currency; we expect modest estimate revisions focused on H2 margin trajectory given tariff impacts .

Key Takeaways for Investors

  • U.S. Refreshment Beverages is the growth engine; expect continued MSD contribution supported by energy scaling and CSD innovation; energy share ~7% with path to double-digit over time .
  • Coffee remains a watch point: sequential improvement, but H2 OI likely pressured by tariffs and higher-cost hedges; pricing and productivity levers in place to preserve profit dollars .
  • Reaffirmed FY25 guidance with smaller FX drag (~0.5 pp vs prior 1–2 pp) improves visibility on top/bottom line, though margin phasing skews pressure to H2 .
  • DSD expansion including Dr Pepper distribution in key territories should enhance route-to-market control, drive display/cooler execution, and benefit broader portfolio economics over time .
  • Cash generation improving: Q2 FCF $325M and H2 acceleration expected; leverage at ~3.3x offers flexibility while prioritizing deleveraging .
  • Innovation/marketing are tangible catalysts: Dr Pepper Blackberry, 7UP Tropical, Electrolit expansion; digital marketing transformation should support ROI and share gains into Q3/Q4 .
  • Near-term trading: Watch tariff headlines, coffee commodity moves, and execution on Ghost DSD transition; medium-term thesis: diversified beverage platform with advantaged DSD and consistent on-algorithm delivery .

The following additional press releases relevant to Q2 context:

  • Pre-announcement of Q2 results timing (June 26) .
  • Vernors Boston Cooler LTO launch in Michigan (July 8) .