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Fundamental View
AS OF 28 May 2025Relative to food-oriented peers, KDP benefits from exposure to faster growing, higher margin beverage & coffee categories. However, coffee categories are exposed to underlying commodity swings.
Management has adopted a more conservative posture on leverage and reduced its target by half a turn to 2-2.5x for the near-term. The reduced leverage target implies roughly a full turn of improvement from current levels in the mid-3x area.
Despite the current emphasis on leverage reduction, management has maintained that M&A remains a longer-term priority. Still, we are comfortable with KDP credit and favor taking on any spread pickup opportunities over F&B peers.
Business Description
AS OF 28 May 2025- KDP is the result of a July 2018 merger between Dr Pepper Snapple and Keurig Green Mountain. The merger combined a traditional soft drinks company (DPS) with a faster growing coffee platform that includes the market's leading single serve brewing system.
- The merger was backed by JAB Holdings via its affiliate, Maple Holdings BV. While JAB has trimmed its stake in recent periods, it still controls ~16% of the shares.
- KDP recorded $15.4 bn in 2024 net sales with adjusted EBITDA of $4.5 bn. The business is heavily concentrated in North America, and results are reported across three operating segments: U.S. Refreshment Beverages (61% of 2024 sales), U.S. Coffee (26% of sales), and International (13.0% of sales).
- Examples of KDP's key brands include Dr Pepper, Keurig, Snapple, Canada Dry, 7Up, Mott's, and A&W. The company also partners with other leading coffee brands from various producers via licensing and manufacturing agreements for K-cups.
Risk & Catalysts
AS OF 28 May 2025Management has historically guided to M&A as a key capital allocation priority, but recent deal activity has been biased toward bolt-on opportunities and management emphasized integrating recently purchased assets while bringing leverage down to the 2.5x area.
KDP has exposure to elevated input costs, particularly for green coffee beans. KDP took pricing in coffee, and is expecting some elasticity, but they plan to management to stable profit dollars, and could seek to raise prices further in 2025.
Given the increased value-seeking mindset of consumers, KDP could see a tradedown benefit if coffee prices rise across the board.
Key Metric
AS OF 28 May 2025| $ mn | Y21 | Y22 | Y23 | Y24 | LTM 1Q25 |
|---|---|---|---|---|---|
| Revenue | 12,683 | 14,057 | 14,814 | 15,351 | 15,518 |
| EBITDA | 3,908 | 3,932 | 4,189 | 4,537 | 4,565 |
| EBITDA Margin | 30.8% | 28.0% | 28.3% | 29.6% | 29.4% |
| EBITDA-CAPEX-INT % of Revenues | 23.5% | 20.5% | 21.7% | 21.7% | 22.1% |
| Total Debt | 12,024 | 12,104 | 13,308 | 15,595 | 15,957 |
| Net Debt | 11,457 | 11,569 | 13,041 | 15,085 | 15,304 |
| Net Leverage | 2.9x | 2.9x | 3.1x | 3.3x | 3.4x |
| EV / EBITDA | 16.3x | 15.8x | 14.2x | 12.9x | 13.5x |
CreditSight View Comment
AS OF 28 Apr 2025As a beverage company KDP’s portfolio has resistant characteristics if we see greater economic weakness, but its Coffee Systems business does have exposure to discretionary spending and has seen some impacts from retailer inventory management actions and private label pressure. Also, the company is experiencing increased price elasticity in its coffee as is raises prices to offset underlying commodity inflation. On the plus side, KDP recently adopted a more conservative leverage target of 2-2.5x vs current levels in the mid-3x area. Management’s medium-to long-term capital allocation plan does consider strategic M&A, but we like that management has been less vocal about large M&A of late, and has also discussed asset disposals.
Recommendation Reviewed: April 28, 2025
Recommendation Changed: October 27, 2023
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