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One of the largest beverage companies amongst the likes of Coca-Cola (KO), Keurig Dr Pepper (KDP) is a drink focused conglomerate which owns recognizable brands such as Snapple, 7UP, Dr. Pepper and Keurig. The company was formed through the merger/acquisition of the publicly traded Dr Pepper Snapple Group by the privately held Keurig Green Mountain for $18.7 billion. At the time, Keurig Green Mountain was owned by the investment firm JAB, which had taken Keurig private in March 2016 for $92 per share, or a total of $13.9 billion.
Investors who have been actively investing during the last decade might recollect how Keurig Green Mountain used to trade at a significant premium and was a favorite of short sellers. Unfortunately JAB’s acquisition was a blow to short sellers and remains one of the key risks they must contend with. Keurig Green Mountain remained private for only two years before going public again through the Dr Pepper Snapple Group and JAB remains the majority shareholder in the combined company. JAB Holding has built an impressive portfolio over the years, as it either owns or has a majority stake in companies such as Panera Bread, Krispy Kreme, and Peet’s Coffee. As is common with private equity related companies, Keurig Dr Pepper has a leveraged balance sheet with nearly $12.5 billion in net debt.
Keurig Dr Pepper derives their revenue from four different operating segments: Coffee Systems, Packaged Beverages, Beverage Concentrates, and Latin America Beverages. The Coffee Systems segment is primarily responsible for the manufacturing and sale of “K-Cup Pods” (single serve coffee or other beverage pods used in the Keurig brewing machines) as well as the actual Keurig Coffee Makers. Keurig Dr Pepper is partnered with a range of brands outside of their own, such as Starbucks (SBUX) or the hot cocoa mix Swiss Miss from Conagara Brands (CAG), to incorporate drinks from those businesses into the K-Cup Pods for consumer use. The pods are then sold to retailers all over North America, and as of 2021, Costco (COST) and Walmart (WMT) were two of the Coffee Segment’s largest customers.
The Beverage Concentrates and Packaged Beverages segments are rather similar, with the Beverage Concentrates segment covering the manufacturing and sale of beverage concentrates used to make Keurig Dr Pepper’s various drinks, and these concentrates are then either sent to third party bottlers or manufacturing facilities or sold to third party retailers for use in fountain drinks. The Packaged Beverage segment is where all operations relating to the actual manufacturing, bottling, and sale of the drinks themselves, with Walmart (WMT) being this segment’s largest customer as well. The Latin America Beverages segment covers all operations that occur in Latin America, with business operations in Mexico specifically representing 90% of the segment’s net sales. Once again, Walmart (WMT) is this segment’s largest customer.
2021 marked not only the end of the three year merger integration period, but was also a great year financially for Keurig Dr Pepper. Net sales, gross profit, operating income, and net income all increased YoY, with net income specifically growing by 62%. On November 15, 2021, Coca-Cola acquired the drink company BodyArmor, and from this acquisition, Keurig Dr Pepper received $576 million in cash proceeds from selling their equity interests in Body Armor to Coca-Cola. In the fourth quarter of 2021, Keurig Dr Pepper also authorized a share repurchase program of around 8% of their market cap, which would go into effect from January 1, 2022 onwards.