Keurig Dr Pepper (KDP)

Beverage company Keurig Dr Pepper (NASDAQ:KDP) reported revenue ahead of Wall Street’s expectations in Q3 CY2025, with sales up 10.7% year on year to $4.31 billion. Its non-GAAP profit of $0.54 per share was in line with analysts’ consensus estimates.

Company Overview

Born out of a 2018 merger between Keurig Green Mountain and Dr Pepper Snapple, Keurig Dr Pepper (NASDAQ:KDP) is a consumer staples powerhouse boasting a portfolio of beverages including sodas, coffees, and juices.

These companies' performance is influenced by brand strength, marketing strategies, and shifts in consumer preferences. Changing consumption patterns are particularly relevant and can be seen in the rise of cannabis, craft beer, and vaping or the steady decline of soda and cigarettes. Companies that spend on innovation to meet consumers where they are with regards to trends can reap huge demand benefits while those who ignore trends can see stagnant volumes. Finally, with the advent of the social media, the cost of starting a brand from scratch is much lower, meaning that new entrants can chip away at the market shares of established players.

Competitors that offer beverages and snacks include Coca-Cola (NYSE:KO), PepsiCo (NASDAQ:PEP), and Monster Beverage (NASDAQ:MNST).

Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can put up a good quarter or two, but many enduring ones grow for years.

With $16.17 billion in revenue over the past 12 months, Keurig Dr Pepper is one of the larger consumer staples companies and benefits from a well-known brand that influences purchasing decisions. However, its scale is a double-edged sword because there are only a finite number of major retail partners, placing a ceiling on its growth. To expand meaningfully, Keurig Dr Pepper likely needs to tweak its prices, innovate with new products, or enter new markets.

As you can see below, Keurig Dr Pepper’s 5.8% annualized revenue growth over the last three years was mediocre, but to its credit, consumers bought more of its products.

This quarter, Keurig Dr Pepper reported year-on-year revenue growth of 10.7%, and its $4.31 billion of revenue exceeded Wall Street’s estimates by 3.8%.

Looking ahead, sell-side analysts expect revenue to grow 3.8% over the next 12 months, a slight deceleration versus the last three years. This projection doesn't excite us and implies its products will face some demand challenges.

Revenue growth can be broken down into changes in price and volume (the number of units sold). While both are important, volume is the lifeblood of a successful staples business as there’s a ceiling to what consumers will pay for everyday goods; they can always trade down to non-branded products if the branded versions are too expensive.

Keurig Dr Pepper’s average quarterly volume growth was a healthy 3.4% over the last two years. This is pleasing because it shows consumers are purchasing more of its products.

In Keurig Dr Pepper’s Q3 2025, sales volumes jumped 6.4% year on year. This result was an acceleration from its historical levels, certainly a positive signal.

All else equal, we prefer higher gross margins because they usually indicate that a company sells more differentiated products, has a stronger brand, and commands pricing power.

Keurig Dr Pepper has best-in-class unit economics for a consumer staples company, enabling it to invest in areas such as marketing and talent to grow its brand. As you can see below, it averaged an elite 55.2% gross margin over the last two years. That means Keurig Dr Pepper only paid its suppliers $44.79 for every $100 in revenue.

Keurig Dr Pepper’s gross profit margin came in at 54.3% this quarter, in line with the same quarter last year. Zooming out, the company’s full-year margin has remained steady over the past 12 months, suggesting its input costs (such as raw materials and manufacturing expenses) have been stable and it isn’t under pressure to lower prices.

Keurig Dr Pepper has been an efficient company over the last two years. It was one of the more profitable businesses in the consumer staples sector, boasting an average operating margin of 19.9%. This result isn’t surprising as its high gross margin gives it a favorable starting point.

Analyzing the trend in its profitability, Keurig Dr Pepper’s operating margin decreased by 5.9 percentage points over the last year. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability.

In Q3, Keurig Dr Pepper generated an operating margin profit margin of 23.1%, in line with the same quarter last year. This indicates the company’s cost structure has recently been stable.

We track the change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

In Q3, Keurig Dr Pepper reported adjusted EPS of $0.54, up from $0.51 in the same quarter last year. This print was close to analysts’ estimates. Over the next 12 months, Wall Street expects Keurig Dr Pepper’s full-year EPS of $2.03 to grow 5%.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Keurig Dr Pepper has shown impressive cash profitability, driven by its attractive business model that gives it the option to reinvest or return capital to investors. The company’s free cash flow margin averaged 8.8% over the last two years, better than the broader consumer staples sector.

Taking a step back, we can see that Keurig Dr Pepper’s margin expanded by 2.8 percentage points over the last year. This shows the company is heading in the right direction, and we can see it became a less capital-intensive business because its free cash flow profitability rose while its operating profitability fell.

Keurig Dr Pepper’s free cash flow clocked in at $541 million in Q3, equivalent to a 12.6% margin. This cash profitability was in line with the comparable period last year and above its two-year average.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Keurig Dr Pepper historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 5.9%, somewhat low compared to the best consumer staples companies that consistently pump out 20%+.

Keurig Dr Pepper reported $569 million of cash and $15.82 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $4.64 billion of EBITDA over the last 12 months, we view Keurig Dr Pepper’s 3.3× net-debt-to-EBITDA ratio as safe. We also see its $758 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We enjoyed seeing Keurig Dr Pepper beat analysts’ revenue expectations this quarter. On the other hand, its gross margin slightly missed. Overall, this print had some key positives. The stock traded up 3.6% to $28.15 immediately after reporting.

Updated: December 4, 2025 at 9:52 PM EST

We think that the latest earnings result is only one piece of the bigger puzzle. If you’re deciding whether to own Keurig Dr Pepper, you should also grasp the company’s longer-term business quality and valuation.

Keurig Dr Pepper isn’t a terrible business, but it doesn’t pass our quality test. For starters, its revenue growth was a little slower over the last three years, and analysts don’t see anything changing over the next 12 months. And while its admirable gross margins are a wonderful starting point for the overall profitability of the business, the downside is its declining operating margin shows the business has become less efficient. On top of that, its relatively low ROIC suggests management has struggled to find compelling investment opportunities.

Keurig Dr Pepper’s P/E ratio based on the next 12 months is 13.3x. This valuation is reasonable, but the company’s shakier fundamentals present too much downside risk. We're pretty confident there are superior stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $34.73 on the company (compared to the current share price of $28.49).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.