Keurig Dr Pepper Earnings: Solid Beverage Performance but Weak Coffee Brewer and Pod Demand Persist

Narrow-moat Keurig Dr Pepper held refreshment beverage volume steady following price hikes, but its coffee business disappointed, posting a third consecutive quarterly sales decline this year and reinforcing our concern about the segment’s long-term prospects. Total sales grew 5% (up 6% in beverage but down 3% in coffee) while adjusted EPS rose 4%, both in line with our estimates. As we taper our expectations for coffee sales growth (5% currently) over the 10-year horizon, we plan to trim our $35 fair value estimate by a low-single-digit percentage and view shares as fairly valued.