Keurig Dr Pepper Inc. (KDP)·Q4 2024 Earnings Summary

Executive Summary

• Q4 2024 delivered solid constant-currency growth: net sales rose 6.2% with volume/mix +5.3% and adjusted diluted EPS up 5.5% to $0.58; GAAP EPS was $(0.11) due to $718M non‑cash brand/goodwill impairments and a $225M accrual tied to GHOST distribution termination payments .
• U.S. Refreshment Beverages led with net sales +10.3% and adjusted operating margin 31.7%; U.S. Coffee declined 2.4% on net price, while International grew 8.5% constant currency amid FX headwinds and reinvestment .
• 2025 guidance: mid‑single‑digit net sales growth and high‑single‑digit adjusted EPS growth (constant currency), with a 1–2pt FX headwind; below‑the‑line outlook includes interest expense $680–$700M, ETR ~22–23%, and ~1.37B diluted shares .
• Catalysts: energy portfolio ramp (GHOST distribution transition starting March, C4, Black Rifle, Bloom) toward double‑digit category share; deleveraging focus from 3.3x leverage supported by $1.7B FY free cash flow .

What Went Well and What Went Wrong

What Went Well

• U.S. Refreshment Beverages momentum: Q4 net sales +10.3% on 7.5% volume/mix; Dr Pepper became #2 CSD with largest share gains in Q4, supported by strong innovation and marketing (Fansville, Zero Sugar) .
• Energy strategy advancing: portfolio share now >6% with expectation of >$1B retail sales in 2025; GHOST acquisition closing year‑end and distribution transition in early March build runway for double‑digit share goal .
• Cash generation strengthened: Q4 operating cash flow $849M and free cash flow $687M; FY 2024 free cash flow $1.66B with management leverage ratio at 3.3x despite GHOST financing .

What Went Wrong

• GAAP results impacted by non‑cash items: Q4 income from operations fell to $63M and GAAP EPS to $(0.11) due to $718M impairments (primarily Snapple) and $225M GHOST termination accrual; adjusted margins held up but contracted YoY .
• U.S. Coffee pricing pressure: Q4 segment net sales −2.4% with net price −3.1% (pod shipments +1.1%); green coffee inflation expected to necessitate further pricing and productivity actions in 2025 .
• International operating income −8.6% adjusted in Q4; reinvestment and escalating green coffee costs plus FX dampened reported results despite strong constant‑currency top‑line growth .

Financial Results

Notes: Adjusted results exclude “items affecting comparability” including impairments and GHOST‑related termination accruals; see company reconciliation tables .

Guidance Changes

Earnings Call Themes & Trends

Management Commentary

• “Just three years ago, our share in energy would have been close to zero. Today, it is over 6%. In 2025, we expect well over $1 billion in retail sales from our energy brands, and have set our sights on achieving a double-digit share position in the coming years.” — CEO Tim Cofer .
• “Net sales grew 6.2% in constant currency… Enterprise volume/mix grew 5.3%… All in, operating income grew 3.4%, and… EPS advanced 5.5%.” — CFO Sudhanshu Priyadarshi .
• “We implemented a pod price increase in January… we’re evaluating all available options to offset incremental [green coffee] pressure… may also require further pricing actions.” — CEO Tim Cofer .
• “We amplified our route-to-market advantage… acquisition to extend our manufacturing and distribution presence into Arizona… and closed on the GHOST acquisition.” — CEO Tim Cofer .

Q&A Highlights

• 2025 phasing: Q1 affected by later Easter and one fewer shipping day; EPS growth expected to accelerate in Q2–Q4 as pricing builds and GHOST distribution contribution ramps .
• Coffee elasticity/pricing: January pod price increase in place; elasticity broadly in line with expectations; further pricing possible alongside productivity and mix optimization to preserve profit dollars .
• Energy competitive landscape: multi‑brand portfolio (C4, Black Rifle, Bloom, GHOST) targets distinct cohorts; category sophistication and consolidation seen as expanding overall pie .
• Gross margin puts/takes: modest operating margin expansion planned; productivity at 3–4%; aluminum exposure largely via contracted finished cans; hedging delays but doesn’t permanently offset inflation .

Estimates Context

• S&P Global consensus EPS and revenue estimates for Q4 2024 and forward periods were unavailable due to temporary data access limits. As a result, explicit beats/misses versus Wall Street consensus cannot be assessed here. If needed, we can refresh and incorporate SPGI consensus in a follow‑up as access permits.

Key Takeaways for Investors

• Mix‑led acceleration: Q4 constant‑currency net sales +6.2% with broad‑based volume/mix strength; U.S. RB remains the growth engine with strong CSD share gains .
• Non‑GAAP optics matter: GAAP loss reflects impairments and GHOST accruals; adjusted EPS/margins indicate underlying resilience and productivity‑driven leverage .
• Energy is a structural growth pillar: GHOST integration and DSD muscle should lift energy toward double‑digit share over time; near‑term ramp post‑distribution transition is a watch point .
• Coffee risk management: green coffee inflation elevates 2025 risk; KDP’s pricing, productivity, and mix agenda aims to preserve profit while stewarding category health .
• Cash flow supports deleveraging and returns: FY FCF $1.66B and leverage 3.3x underpin a focus on deleveraging while maintaining a $0.23 quarterly dividend .
• FX headwind and phasing: plan for 1–2pt FX drag; expect stronger momentum from Q2 onward as pricing catches up and GHOST contribution builds .
• Technical setup: near‑term narrative hinges on energy distribution execution, coffee pricing elasticity, and delivery against modest margin expansion targets (3–4% productivity) .

Additional context: a 73M‑share secondary offering by a JAB subsidiary priced at $32.80 on Feb 27, potentially increasing float/near‑term supply; JAB remains ~10.7% holder post‑deal .