Keurig Dr Pepper Inc. (NASDAQ:KDP) shares rose Monday following the announcement of its financial results for the third quarter of fiscal 2025. The company exceeded consensus expectations on net sales and subsequently revised its full-year sales guidance upward.
Financial Highlights
The company reported adjusted earnings per share (EPS) of 54 cents, consistent with the analyst consensus estimate. Quarterly sales reached $4.31 billion, marking a 10.7% year-over-year (Y/Y) increase and surpassing the Street view of $4.15 billion.
Net sales grew 10.6% on a constant currency basis. This growth was driven by a 6.4% increase in volume/mix and 4.2% favorable net pricing. The acquisition of GHOST accounted for 4.4 percentage points of the volume/mix growth..
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Segment performance showed variation: U.S. Refreshment Beverages net sales increased 14.4% Y/Y to $2.7 billion; U.S. Coffee grew 1.5% Y/Y to $991 million; and International net sales rose 10.5% Y/Y to $580 million.
Profitability and Cash Flow
While sales were strong, margins contracted. Adjusted operating income increased 3.8% Y/Y to $1.09 billion, and adjusted net income rose 6.5% Y/Y to $738 million.
However, the adjusted operating margin contracted to 25.3% from 27.0% in the year-ago quarter, and the adjusted gross margin narrowed to 54.6% from 56.0%. Gross profit, nonetheless, increased to $2.35 billion from $2.18 billion in the year-ago period.
The company generated operating cash flow of $639 million and free cash flow totaling $528 million for the third quarter. Keurig exited the quarter with cash and equivalents worth $516 million.
Management Perspective
CEO Tim Cofer commented on the performance, “Strong innovation and in-market execution drove market share gains across key categories, with sales momentum, along with disciplined actions to offset inflationary pressures, contributing to solid earnings and free cash flow growth.”
Addressing future strategy, Cofer added, “We are focused on sustaining our base business strength while also thoughtfully preparing for the transformation ahead as we first acquire and integrate JDE Peet’s and subsequently separate into two, advantaged pure-play companies.”
Outlook
The company raised its fiscal 2025 guidance for constant currency net sales growth to the high-single-digit range from the prior mid-single-digit range.
It reiterated its outlook for adjusted diluted EPS growth to remain in a high-single-digit range.
The company projects foreign currency translation to approximate a one-half of one percentage point headwind to full-year top and bottom-line growth at current rates.
Investors seeking exposure to the stock may consider the First Trust Nasdaq Food & Beverage ETF (NASDAQ:FTXG) and the Invesco S&P 500 Equal Weight Consumer Staples ETF (NYSE:RSPS).
Price Action: KDP stock is trading higher by 7.70% to $29.25 premarket at last check Monday.
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