Keurig Dr Pepper Inc. (KDP) Earnings

Management highlights

- JDE Peet's Acquisition and Integration/separation Progress * Successfully closed the acquisition in early April 2026, stood up a purpose-built interim operating model with clear accountability across leadership teams, completed transition of U.S. customers to an integrated sales force and single invoice on schedule without disruption. * Has largely finalized post-separation organizational structures, made significant progress on IT and financial reporting readiness for the two future standalone companies (BeverageCo and Global Coffee Co), and reduced pro forma leverage to 4.4x at quarter end, slightly ahead of plan. * Initial cost synergies from the combination already began flowing to the bottom line in Q2 2026, with full synergy benefits expected to build through the second half of the year. * The search for Global Coffee Co's future CEO is well underway, led by the board's Nominating and Governance Committee with a top-tier search firm, and has already attracted strong candidate interest. - Brand and Commercial Performance Highlights * U.S. Refreshment Beverages: Dr Pepper Zero Sugar grew retail sales nearly 30% and gained more share than any other zero sugar CSD brand; the limited-time Creamy Coconut Dr Pepper performed well above expectations; the new Bloom Pop prebiotic CSD was the leading market share gainer in its category; the energy drink portfolio crossed the 9% U.S. market share threshold, with Bloom and Ghost as top-performing brands, and the newly refreshed C4 packaging delivered early double-digit sales lifts. * U.S. Coffee: Brewer shipments returned to year-over-year growth after lapping prior year retailer destocking; licensed McCafe K-Cups grew retail sales mid-single-digit and gained market share; La Colombe ready-to-drink cold coffee grew retail sales over 50% and gained more than 1pp of market share. * JDE Peet's: The Peet's brand delivered healthy retail sales growth via pricing and distribution expansion, and its new half-caffeinated Middle Ground roast achieved strong on-shelf velocities. * International: Mexico returned to volume growth as beverage tax impacts eased; Canada saw broad-based growth across CSDs, alcohol alternatives, energy and ready-to-drink tea.

Guidance

- Full year 2026 guidance is reaffirmed, with total company net sales expected in the range of $25.9 to $26.4 billion, including an $8.5 to $8.7 billion contribution from JDE Peet's. Legacy KDP constant currency net sales growth is expected to land at the high end of the prior 4% to 6% range. - Full year low double-digit constant currency EPS growth guidance is maintained. Legacy KDP is expected to deliver 4% to 6% constant currency EPS growth, with 6-7pp of incremental contribution from the JDE Peet's acquisition. A ~1pp FX tailwind to full year net sales and EPS is also expected. - The guidance incorporates an incremental 2% non-cash EPS headwind from higher-than-expected depreciation from JDE Peet's fixed assets, which is offset by an expected one-time cash benefit from tariff refunds, resulting in a neutral net impact to full year EPS. - Management reaffirms the target of ending 2026 with pro forma leverage of ~4.1x, and maintains the full year free cash flow target of approximately $2.5 billion. - JDE Peet's Q2 2026 operating profit is expected to be the high watermark for its 2026 quarterly contributions due to one-off timing benefits and the upcoming Peet's K-Cup reporting shift to U.S. Coffee in the back half.

Segment performance

1. U.S. Refreshment Beverages: Net sales grew 10% year-over-year, with 6.5pp from volume mix and 3.5pp from net price realization. Segment operating income grew 11.9% year-over-year, and contributed 41% of total consolidated net sales (including the JDE Peet's acquisition). 2. U.S. Coffee: Net sales declined 3.2% year-over-year, with an 8.2pp drag from volume mix partially offset by 5pp of net price realization. Operating income declined 24.7% year-over-year, and contributed 10% of total consolidated net sales. 3. JDE Peet's (JDP): Net sales were $2.8 billion, operating income was $414 million. This segment contributed 27% of total consolidated net sales, and profitability exceeded management expectations due to favorable timing of derivative gains and disciplined pricing. 4. KDP International: Net sales grew 12.4% year-over-year, with 6.5pp from volume mix gains and 5.9pp from net price realization. Segment operating income was flat year-over-year, and contributed 11% of total consolidated net sales.

Risks & headwinds

- Green coffee prices have been highly volatile in recent years, with recent upward moves driven by supply uncertainty related to El Nino, and volatility is expected to persist until this situation resolves. U.S. coffee segment profitability saw larger-than-expected pressure in Q2 2026 from elevated green coffee costs and tariff impacts flowing through the P&L due to the company's hedging and inventory positioning. - The external operating environment remains dynamic, and U.S. coffee is facing continued consumer caution and value-seeking behavior, with ongoing category volume declines and private label share shifts pressuring near-term performance. - Separation of the business into two standalone companies requires significant additional work and execution risk to hit all key milestones ahead of the planned early 2027 separation.

Analyst Q&A

• Q: What drove the strong Q2 performance of U.S. Refreshment Beverages, and how will the segment perform in the back half, given expected full year growth deceleration? /

  A: Q2 strength was driven by broad-based volume growth across carbonated soft drinks (with strong gains from Dr Pepper Zero Sugar, the new limited-time Creamy Coconut, Canada Dry, and Bloom Pop prebiotic CSDs), outsized growth in energy drinks from Bloom and Ghost, and strong trends in sports hydration and water. Both owned and partner brands contributed equally to results under KDP's flexible partner model. Management expects these same drivers to support continued momentum in the back half, but growth will moderate slightly due to tougher year-over-year comparisons.

• Q: What is the timeline and criteria for the Global Coffee Co CEO search, and will you compromise on quality for speed? /

  A: The search is well underway and progressing nicely. Management is seeking a world-class executive with proven experience leading large global consumer businesses, strong consumer orientation, a track record of navigating change, and the ability to build a winning culture. The role has attracted significant interest from highly qualified candidates, and the interview process is well advanced. Management will not compromise on candidate quality to hit the separation timeline, but is confident a CEO will be in place in time to shape strategy ahead of the early 2027 separation.

• Q: U.S. coffee performance came in below expectations this quarter. What drove the weakness, and how will trends improve in the back half? /

  A: Q2 weakness stemmed from an overall coffee category slowdown, a shift in mix toward private label, continued trade inventory headwinds for pods, and larger-than-expected green coffee cost and tariff pressure from existing hedging and inventory positions. Management expects clear improvement in the back half: input costs will become more favorable as lower-cost inventory and easing tariff impacts flow through the P&L, pod volume dynamics will normalize as trade inventory adjusts, and new innovations and targeted marketing will drive brewer penetration and pod demand. Full year 2026 U.S. coffee results will still be subdued, but performance will be significantly stronger in the second half.

• Q: What is your ownership and long-term plan for the high-growth Bloom energy brand, and is an acquisition possible? /

  A: KDP owns a 36% stake in parent company Nutribold, holds multiple board seats, and has a long-term distribution partnership covering both Bloom and C4. Bloom is a high-potential female-forward brand with strong consumer resonance and social media capabilities, and the partnership is driving strong mutual value creation. Management is excited to continue growing the brand under the existing partnership structure for the foreseeable future.

• Q: Where does KDP stand on its energy drink market share target, and is growth in energy cannibalizing coffee demand? /

  A: KDP crossed the 9% U.S. energy market share threshold in Q2 2026, up from less than 1% 4 years prior, and is already at double-digit share in 15 major U.S. customers, putting it well on track to hit its long-term double-digit national share target. Management monitors category interaction closely and has not seen any sustained, material shift in share from coffee to energy over the last 3-4 years, with any short-term shifts netting out to roughly neutral over time. KDP holds leading positions in both categories to meet all consumer caffeine and alertness needs.