Keurig Dr. Pepper Financial Analysis

By: Alex Levkulich

BUSN 101-12H

20 November 2022

Keurig Dr.Pepper Profile

• Dr.Pepper was founded on May 7th, 2008 and was acquired by Keurig Green Mountain on July 9th, 2018 in a deal worth $18.7 billion.
• Keurig was founded in 1992 in Massachusetts.
• Currently, Keurig Dr.Pepper has their headquarters in Plano, Texas which is about 27 miles North of Dallas, Texas.
• In 2021, Keurig Dr.Pepper made $12.7 billion in net sales
• About 27,000 employees
• 8th largest food and beverage company in the US
• Over 150 warehouses and distribution centers
• KDP is committed to sourcing, producing, and distributing beverages responsibly through their Drink Well, Do Good program. This initiative is prevalent to supply chain sustainability and efficient use of natural resources (“Keurig Dr.Pepper Inc”).
• Parent company of Motts, Cinnabon, Krispy Kreme, Swiss Miss, YooHoo, Snapple, Sunkist, Canada Dry, 7-Up, A&W Root Beer, and Crush.
• Ozan Dokmecioglu is the active 47 year old CEO of Keurig Dr.Pepper. He holds a BS in Business Administration from the Middle East Technical University as well as a certificate in Project Investment and Appraisal Management from Harvard University.
• Robert Gamgort is 57 years old and serves as the Executive Chairman of the Board. He holds a Masters in Business Administration in Finance and Marketing from Northwestern University as well as a BA in Economics from Bucknell University (“A Modern Beverage Company”).

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Industry Profile

• Keurig Dr.Pepper belongs to the Coffee and Beverage industry
• They sell products such as coffees, carbonated soft drinks, ready-to-drink tea, water, juices, and mixers.
• PepsiCo- Worth about $246 billion. The second largest beverage company in the world produces products such as Pepsi, Gatorade, Frito-Lay, Quaker Oats, and Rockstar Energy. In 1965, Frito-Lay Inc merged with Pepsi-Cola to form PepsiCo. They have 291,000 employees globally and have invested $570 million into racial equality (“About Pepsico”).
• The Coca-Cola Company- Worth about $255 billion. Produces products such as Coca-Cola, Sprite, Fanta, Dasani, Minute Maid, Powerade, VitaminWater, and Fairlife. Founded in 1886, Coca-Cola now has 700,000 associates worldwide, 900 bottling plants, and 225 bottling partners (“About”).
• Red Bull- Worth about $15.7 billion. Produces products such as Red Bull Energy Drink, Red Bull Sugar Free, Red Bull Zero, Red Bull (Red, Yellow, Blue, Green, Peach, Amber and Winter) editions. Founded in 1987, Red Bull now has 13,600 employees and sells about 9.8 billion cans a year (“Red Bull Energy Drink”)!

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Stock Data

• Keurig Dr.Pepper’s Ticker Symbol is KDP
• KDP can be traded on the NASDAQ (National Association of Securities Dealers Automated Quotations)
• In March of 2020, the price per share significantly decreased as a result of the COVID-19 pandemic
• Since March 2020, the price per share has been on a steady incline although it has been up and down depending on the beverage market (ie season, holidays, or rollout of new beverages/flavors)
• Keurig Dr.Pepper is the 276th most valuable company in the world
• In 2021, Keuirg Dr.Pepper had a market capitalization of $52.26 billion (Riddler)
• PepsiCo had a $240.18 billion market capitalization
• The Coca-Cola Company had a $255.75 billion market capitalization
• In 2021, Keurig Dr.Pepper’s US market share was 21.7% (“Market Capitalization”)
• It is evident that PespsiCo and The Coca-Cola Company have a firm hold on a majority of the market, but that does not mean Keurig Dr.Pepper doesn’t account for a good chunk of it

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(“Keurig Dr.Pepper Inc (KDP)”)

Financial Statement Research

(Dokmecioglu)

Financial Statement Research Continued

• Their net sales significantly increased from 2020-2021 by about $1,065 million
• Their net income also increased greatly by about $821 million
• Total current liabilities decreased by $1,209 million
• Total equity increased by $1,142 million
• It appears that Keurig Dr.Pepper is better off financially in 2021 than they were in 2020.
• Even though the cost of sales increased, their net sales increased by a greater amount.
• Additionally, they have fewer current liabilities that they owe in the future with greater equity.
• How did cash on hand more than double within a year? Especially considering that the value of inventories also increased!
• Net sales increased which I assume is because of a growing customer base and more integrated products within the market
• Retained earnings significantly increased from 2020 to 2021 likely because net sales increased and so did gross profit which left the business with more money to work with after paying its shareholders and dividends (Dokmecioglu).
• How exactly do accountants keep track of hundreds of billions of dollars? It seems as if it would be an easy task to make an error and lose a couple thousand somewhere in the process.
• How do company acquisitions impact the balance sheet and income statements in the long run?

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Financial Statement Analysis

Current Ratio: Current Assets/Current Liabilities

• 2020- 2,388/7,694 = 0.31
• 2021- 3,057/6,485 = 0.47

Return on Equity: Annual Net Income/Shareholders Equity

• 2020- (1,325/23,830) x 100 = 5.56%
• 2021- (2,146/24,972) x 100 = 8.59%

Profit Margin: (Net Income/Net Sales Revenue) x 100

• 2020- (1,325/11,618) x 100 = 11.40%
• 2021- (2,146/12,683) x 100 = 16.92%

Debt to Equity Ratio: Total Liabilities/Total Shareholders Equity

• 2020- 25,949/23,829 = 1.09
• 2021- 25,626/24,972 = 1.03

(“National Beverage Financial Ratios”)

Financial Statement Analysis Continued

Current Ratio- The ratio of a firm’s current assets to its current liabilities. This information appears on the firm’s balance sheet. Usually a company with a current ratio of 2.0 or better is considered a safe risk for lenders granting short-term credit. But, it depends. Keurig Dr.Pepper had a current ratio of 0.31 in 2020 and 0.47 in 2021 which is substantially low for a business of their caliber and frankly surprising! Notably, the beverage industry average was 3.25 and 2.48 respectively.

Return on Equity- Indirectly measures risk by telling us how much a firm earned for each dollar invested by its owners. This is essentially a measure of a firm’s profitability and how efficiently it is generating profits. The higher the percentage the better! The return on equity for Keurig Dr.Pepper was 5.56% in 2020 and 8.59% in 2021, which again, was significantly lower than the industry average. I think Keurig Dr.Pepper may be struggling because of the effects of the pandemic in that they do not have as many resources available or cash like PepsiCo or The Coca-Cola Company does.

Profit Margin- This tells us whether a firm is doing as well as its competitors in generating income from sales. The higher the risk of failure or loss, the higher the return investors expect on their investment. Generally speaking, the higher, the better! Keurig Dr.Pepper did great in this field in comparison to the rest of the industry as they had a margin of 11.40% in 2020 and 16.92% in 2021.

Debt to Equity Ratio- Measures the degree to which a firm is financed by borrowed funds that it must repay. A firm that takes on too much debt could have issues repaying lenders in the future. Anything above 1 shows a firm has more debt than equity. Generally, the smaller, the better and less risk for investors! However, it depends. In 2020 Keurig Dr.Pepper had a debt to equity ratio of 1.09 and 1.03 in 2021 which is very close to the debt to equity ratios of the beverage industry (0.75 in 2020 and 1.02 in 2021).

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“It Depends!”

(Nickels)

Liquidity

Liquidity is the ease to which an asset can be converted to cash. In 2021, Keurig Dr.Pepper had a $327 million increase in on-hand cash compared to the year prior. In addition, they acquired $132 million more in assets which could be converted to cash over time. All in all, Keurig Dr.Pepper has accumulated a total of $669 million more assets from 2020 to 2021. Typically, the most liquid assets are cash followed by marketable securities, accounts receivable, inventory, prepaid expenses, fixed assets, and intangible assets. If Keurig Dr.Pepper can hold onto most of its assets in terms of cash or tangible technology it can effectively grow and keep its business afloat by appearing credible to lenders. Suppose an emergency arises such as a lawsuit, a recession breaks out, or a fire destroys a warehouse, Keurig Dr.Pepper will have cash and liquid assets on hand to take care of those sudden expenses. In the long term, having liquid assets helps promote business growth as they have the resources for innovation and further expansion to better adhere to consumers. It is key to avoid cash that is idle and not being used for growth (Zen Business).

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Profitability

Profitability is the ability of a company to use its resources to generate revenues in excess of its expenses. Keurig Dr.Pepper made $491 million more in gross profit in 2021 than they did in 2020. This means they operated more profitably in 2021. When businesses are profitable, they are able to retain their earnings and therefore increase equity. Additionally, operating on a profit allows businesses to expand their operations such as opening new locations, acquiring other businesses, targeting other markets, and expanding into a foreign country. Similarly, Keurig Dr.Pepper will be able to easily borrow money since banks will likely not hesitate to issue a loan. Outside investors would be more intrigued to finance Keurig Dr.Pepper because they would believe there is a good chance they could make a sufficient return on investment. Lastly, they can hire additional employees who can handle the growing responsibilities within the company. Keurig Dr.Pepper is able to afford to pay their employees a higher salary as well as develop a quality training program (Johnson).

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Leverage

Leverage is raising the needed funds through borrowing to increase a firm’s rate of return. The balance sheet shows that short-term borrowings and the current portion of long-term obligations have greatly decreased by $2.4 billion over the two-year period. Keurig Dr.Pepper borrowed just $304 million in the short-term in 2021 while they took on $11.5 billion in long-term obligations which is $435 million more than the prior year. It’s also important to note that they had $24.9 billion in equity in 2021 which was $1.1 billion more than in 2020. It seems logical to me that they increased their leverage because they have more cash flow, and the demand seems to be steadily increasing for their large assortment of products as they seemingly grow their broad customer base. With leverage, Keurig Dr.Pepper can sustainably build their wealth as returns on financial investments are boosted. Additionally, productivity increases as connections are more prevalent, and doing more with less is achievable. Lastly, business growth becomes more attainable as leverage allows businesses to save time and money as well as gather new information that can better operations. It is vital that human capital is leveraged wisely as these are the relationships that will translate into greater profits in the long term. Most importantly, it is significant to leverage a world-class marketing strategy so that you can optimize your approach by utilizing the same amount of marketing time and dollars to make a larger impact (“The Power of Leverage”).

More advantages of leverage are that owners are allowed to retain full ownership of the company. Instead of financing business operations through equity and selling a portion of the company, leverage help retain full control! Leverage may also provide businesses with tax breaks. When interest must be paid for business purposes, the IRS allows a deduction through the tax return. The amount of interest on the loan reduces the total amount of taxable income. When using equity to finance business operations, you must issue shares of stock, hold shareholder meetings, and stay in touch with all investors. As a result, taking out a loan is much easier to handle which allows owners to focus more on the business rather than financing operations (Arthur).

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Is Keurig Dr.Pepper a Good Investment?

Yes, I believe Keurig Dr.Pepper would be a good investment. Right now, I definitely would not sell Keurig Dr.Pepper stock but rather hold it or buy it instead. They seem to be on an upward trend as they continue to grow and acquire new businesses as they chase their superior competition of PepsiCo and The Coca-Cola Company. Keurig Dr.Pepper is an already well-established brand so stockholders don’t necessarily have to worry about their investments tanking overnight. Within the past three years, Keurig Dr.Pepper’s net sales have increased an average of $781.5 million each year! Similarly, their gross profit has increased by an average of $317.5 million a year for the last three years. Additionally, they continue to add more capital stock and inventories that will help them expand and reach more customers around the globe while also possessing valuable liquid assets. If their profit margin and return on equity continue to expand, investors will be more compelled to put their money into the business and thus leading to better business opportunities/partnerships and potential for profit in the future! Keurig Dr.Pepper has recently acquired Core Hydration and Atypique (a non-alcoholic cocktail). In doing so, temporarily decreases KDP’s stock value as they take on more debt, but in the future, it will greatly benefit the company and its shareholders (Gelski). I see Keurig Dr.Pepper as a low-risk, high-reward investment because they are in a very demanding industry with lots of potential to catch up to those who are ahead of them. Of course, Pepsi and Coke tend to be more recognizable among consumers but Keurig Dr.Pepper has a lot of firepower under their belts as they continue to boost their leverage and establish an army of delicious beverages.

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Works Cited

“About Pepsico.” PepsicoUpgrade, https://www.pepsico.com/who-we-are/about-pepsico.

“About.” The Coca-Cola Company, https://investors.coca-colacompany.com/about#:~:text=The%20Coca%2DCola%20Company%20.

Arthur, Luke. “The Advantages of Business Leverage.” Small Business - Chron.com, Chron.com, 26 Oct. 2016, https://smallbusiness.chron.com/advantages-business-leverage-22266.html.

Dokmecioglu, Ozan. “Keurig Dr.Pepper 2021 Annual Report.” Keurig Dr.Pepper, 24 Feb. 2022.

Gelski, Jeff. “Keurig Dr Pepper to Acquire Non-Alcoholic Cocktail Brand.” Food Business News RSS, Food Business News, 24 June 2022, https://www.foodbusinessnews.net/articles/21635-keurig-dr-pepper-to-acquire-non-alcoholic-cocktail-brand.

Johnson, Rose. “What Are the Benefits of Making a Profit?” Small Business - Chron.com, Chron.com, 6 Mar. 2019, https://smallbusiness.chron.com/benefits-making-profit-38877.html.

“Keurig Dr Pepper (KDP) - Market Capitalization.” CompaniesMarketCap.com - Companies Ranked by Market Capitalization, https://companiesmarketcap.com/keurig-dr-pepper/marketcap/.

“Keurig Dr Pepper Inc (KDP).” KDP Stock Price & Charts | Keurig Dr Pepper, https://ycharts.com/companies/KDP.

“Keurig Dr Pepper Inc. (KDP) Company Profile & Facts.” Yahoo! Finance, Yahoo!, 6 Nov. 2022, https://finance.yahoo.com/quote/KDP/profile/.

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Works Cited Cont.

“A Modern Beverage Company.” Keurig Dr.Pepper, https://www.keurigdrpepper.com/en/our-company/overview.

“National Beverage Financial Ratios for Analysis 2009-2022: Fizz.” Macrotrends, https://www.macrotrends.net/stocks/charts/FIZZ/national-beverage/financial-ratios.

Nickels, William G., et al. Understanding Business. McGraw-Hill Education, 2022.

Posted by: Team Tony. “The Power of Leverage in Business and Personal Life.” Tonyrobbins.com, 14 June 2021, https://www.tonyrobbins.com/career-business/the-power-of-leverage/.

Published by M. Ridder, and Oct 25. “Keurig Dr Pepper Company's U.S. Market Share 2021.” Statista, 25 Oct. 2022, https://www.statista.com/statistics/225426/us-market-share-of-the-dr-pepper-snapple-company-since-2004/.

“Red Bull Energy Drink - Official Website.” Red Bull Energy Drink - Official Website, https://www.redbull.com/us-en/energydrink/company-profile.

ZenBusiness, Team. “3 Reasons Why It's Important for a Business to Have Liquidity.” ZenBusiness Inc., 20 July 2022, https://www.zenbusiness.com/blog/3-reasons-important-business-liquidity/.