Shares of Keurig Dr Pepper (KDP +7.62%) started Monday morning's trading session 10.5% higher, backing down to a 6.9% gain by noon ET. The maker and distributor of more than 125 beverage brands had a busy morning, reporting solid third-quarter results in the early hours of its annual investor day.
NASDAQ: KDP
Key Data Points
Strong earnings brew up a bullish morning
Let's start with the basic earnings report. Net sales rose 10.7% year over year to $4.31 billion, while adjusted earnings increased 5.9% to $0.54 per diluted share. The bottom-line figure was in line with the analyst consensus estimate, but revenues outperformed the Street target by 3.9%.
Based on these results and ongoing business trends, Keurig Dr Pepper raised its full-year revenue growth target from "mid-single-digit" to "high-single-digit" percentages.
Under the investor day umbrella, management also offered an update on the pending acquisition of Dutch coffee giant JDE Peet's (OTC: JDEP.Y). The $18 billion buyout, announced in late August, is now supported by $7 billion of funding from KKR and Apollo subsidiaries.
On closing, the deal will create two new companies: one focused on coffee, and the other on everything else in the Peet's-plus-Keurig portfolio. The investment firms will hold about 10% of the new stock when all is said and done.
Investors seem lukewarm on this coffee mega-merger
It should be said that Keurig Dr Pepper investors don't seem too thrilled about the Peet's buyout. The combined market value of Peet's and Keurig Dr Pepper fell by $5.6 billion after the buyout announcement, including the $3 billion increase Keurig Dr Pepper recorded today.
Meanwhile, the coffee industry is under economic pressure from the ongoing tariff feuds. Keurig Dr Pepper raised its prices in response to rising coffee bean expenses, and consumers responded by buying less coffee. The price increase and lower shipping volumes added up to an anemic 1.5% revenue gain in third-quarter coffee sales.
The earnings were solid, but until the coffee business perks up and the Peet's deal proves its worth, investors should expect more volatility ahead.
