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Here's Why Keurig Dr Pepper (KDP) is Marching Ahead of the Industry

Keurig Dr Pepper Inc. KDP has been gaining from solid portfolio demand and strong market share gains. A recovery in the supply chain of coffee and non-carbonated beverages, as well as robust pricing actions, also bodes well.

This led to the solid second-quarter 2022 results, wherein the bottom line was in line with the Zacks Consensus Estimate, whereas sales surpassed the same. Adjusted earnings of 39 cents per share grew 2.6% year over year.

Net sales of $3,554 million jumped 13.2% from the year-ago quarter’s level and 13.5% on a constant-currency basis (cc). The upside was driven by growth in the Packaged Beverages, Beverage Concentrates and Latin America Beverages segments, as well as higher volumes and better pricing.

Consequently, shares of this Zacks Rank #3 (Hold) company have gained 3.9% in the past three months against the industry’s decline of 1.7%.

 

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Speaking of the Packaged Beverages segment, it reported sales growth of 12.8% in the second quarter, gaining from a favorable volume/mix of 1.9% and a higher net price realization of 11%. The segment benefited from growth in CSDs, CORE Hydration, Snapple, Polar seltzers, Vita Coco, Mott's and Hawaiian Punch.

Also, the company witnessed a strong in-market performance in the second quarter. As a result, retail dollar consumption increased 9.9% and a market share expansion rose above 92% of KDP's cold beverage portfolio. This mainly reflected strength in CSDs3, premium unflavored water, coconut water, seltzers, teas, apple juice, vegetable juice and fruit drinks. Also, strength in Dr Pepper, Sunkist, Canada Dry, A&W and Squirt CSDs, CORE Hydration, Vita Coco, Polar seltzers, Snapple, Hawaiian Punch, and Mott's aided the results.

In coffee, retail dollar consumption of single-serve pods manufactured by Keurig Dr Pepper rose 3.8% in channels tracked by Iri, driven by improved pricing in partner and KDP-owned and licensed brands. KDP’s coffee systems’ sales increased 9%, owing to the company’s completion of the coffee recovery program.

Driven by these factors, management raised its sales view for 2022. It expects net sales (cc) to grow in the low-double-digit range compared with the earlier stated increase in the high-single digits. Adjusted earnings per share are envisioned to grow in the mid-single digits for 2022. Adjusted earnings per share growth are expected to be in the high-single digits for the second half of 2022.

Despite the upsides, all is not rosy for Keurig Dr Pepper, as it continues to reel under significant input cost inflation, rising transportation costs and supply-chain disruptions, which are likely to persist in the near term. These, along with the adverse impacts of higher marketing investment, acted as deterrents.

Also, higher transportation, warehousing and retail labor costs dented margins in the second quarter. The adjusted gross margin contracted 180 basis points (bps) to 54.7%, whereas the adjusted operating margin contracted 330 bps to 23.4% in the said quarter. Going ahead, management expects inflation to remain the greatest challenge.

Stocks to Consider

Some better-ranked stocks to consider are The Chef's Warehouse CHEF, MGP Ingredients MGPI, and General Mills GIS.

Chef’s Warehouse, a distributor of specialty food products in the United States, currently flaunts a Zacks Rank #1 (Strong Buy). CHEF has a trailing four-quarter earnings surprise of 355.9%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Chef Warehouse’s current financial year’s sales suggests growth of 40.7% from the year-ago reported number.

MGP Ingredients, which produces and markets ingredients and distillery products, currently sports a Zacks Rank of 1. MGPI has a trailing four-quarter earnings surprise of 76.8%, on average.

The Zacks Consensus Estimate for MGP Ingredients’ current financial-year sales and earnings per share suggests growth of 22.4% and 10.4%, respectively, from the year-ago reported figures.

General Mills, which manufactures and markets branded consumer foods worldwide, currently carries a Zacks Rank of 2 (Buy). GIS has a trailing four-quarter earnings surprise of 6.5%, on average.

The Zacks Consensus Estimate for General Mills’ current financial year’s sales and earnings per share suggests growth of 2% and 1.5%, respectively, from the year-ago reported figures.


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