Running head: KEURIG DR.

PEPPER 1

Keurig Dr. Pepper: An Investing Uncertainty or Opportunity?

Drew Lassiter

OGL 260: Resource Allocation in Organizations

Dr. Caryl Williams

April 8, 2023
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Keurig Dr. Pepper: An Investing Uncertainty or Opportunity?

Keurig Dr. Pepper (KDP), a “modern beverage company,” connects consumers to

satisfying, reputable brands of hot and cold beverages. The company formed recently in 2018.

Keurig Green Mountain (formerly Green Mountain Coffee Roasters) merged with Dr. Pepper

Snapple (Brands of KDP, 2018). The newly combined company boasts an iconic brand portfolio

including Dr. Pepper, Mott’s, Canada Dry, Snapple, and, of course, the revolutionary Keurig

brewing system (A modern beverage company, 2023). Keurig Dr. Pepper utilizes their diverse

and systematic distribution network to deploy their beverage portfolio across a broad spectrum of

consumers. They are committed to widely reaching consumers, even in hard-to-reach places.

Hundreds of restaurants, convenience stores, and other retail chains serve varieties of their

beverage lineup. KDP sources and produces their products in alignment with their responsibility

commitments and strive to be a company empowering their employees for growth and

opportunity.

KDP ended 2022 with total sales exceeding 14 billion dollars (Annual Report, 2022).

Deducting cost of sales, their gross profits finalized at 7.3 billion dollars. Operating income fell

in 2022, from 2.8 billion in 2021 to 2.6 billion in 2022 netting a total income attributable to KDP

to 1.4 billion dollars (a notable decrease from the 2.1 billion in 2021). However, their total assets

increased from 50.5 billion dollars to 51.8 billion over the course of 2022. This jump comes from

a significant increase in their investments in unconsolidated affiliates during 2022. KDP’s net

cash flow decreased from 568 million dollars at the start of 2022 to 536 million dollars. This

decrease is attributable to a loss in operating, investing, and financing activities throughout the

year and a negative effect of exchange rate changes (Annual Report, 2022). 2022 is the first year

KDP reports a decrease in overall cash. 2020 and 2021 brought a 144 million dollar and 313
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million dollar gain, respectively, but 2022 saw an unfavorable drop. KDP shareholders have seen

a steady increase in their stock dividends between 2019 and 2021. Shares currently sell for

$35.67 per share with the yearly price ranging from $33.35 to $41.31 (Stock Information, 2023)

Investors should look closely at KDP’s response to the 2022 fiscal year. After blistering

growth following the Keurig Dr. Pepper merger in 2018, net profits and cash flows have, as we

have seen, either leveled out or decreased during 2022. The company must respond accordingly

and continue to entice investors with increasing profit margins. Although the lack of obvious

growth between 2021 and 2022 may cause newer investors to hesitate to purchase KDP stock for

fear of low profits, the company remains the third largest beverage company in North America.

An investor should not only consider the overall profit of the company and, by extension,

the shareholders, but also look at the overall market risk of investing in the company. Large

companies like KDP with multi-brand portfolios run a lower investing risk (Keown, Martin, &

Petty, 2020, p. 200). Much of the risk is diversifiable. The company’s success does not depend

on one product or one brand and multiple KDP products hold top positions in the beverage

market. If one of these brands fails on the market, a secondary product may find more success as

consumers search for an alternative. Granted, this does run the risk of KDP competitors gaining

these consumers for themselves, yet it is more likely consumers will turn to comparable

products. For example, KDP owns the Canada Dry and Schweppes ginger ale brands. These

products are number one and number two respectively in the North American ginger ale market

(Annual Report, 2022). If one of these products experiences an unexpected crash in the market,

the other could expect to see a partially comparable increase in sales as consumers explore other

products. Thus, investors run a lower risk of investing in KDP stock (compared to a smaller
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company) as the probability of their multiple top products failing in the North American market

is quite low.

Within the overall success of company, there remains elements of risk. Common stock

investors always face considerable risk when investing. The 19.9 percent standard deviation for

large companies has historically resulted in shareholder profit loss. Over the past 91 years,

shareholders in large companies have lost profits nearly 25 percent of the time (Keown, Martin,

& Petty, 2020, p. 199). Fortunately, KDP runs a lower risk than the general market, according to

the CAPM model. With a five-year average monthly beta of .58, KDP investors will be more

confident in their investment and may lower their risk of loss (KDP stock price, news, Quote &

History, 2023).

KDP has a complex historical basis for estimating how the company will respond in

different economic environments. Thus, it may be more difficult for investors to calculate the

historical and expected rate of returns and estimate future cash flows. Investors must look

beyond the past five years of the KDP company and follow the historical rate of return from the

Dr. Pepper Snapple and Keurig Green Mountain companies. The results from this investigation

may better predict the expected rate of return for KDP as a merged company.

Keurig Dr. Pepper presents investors with an interesting investment opportunity. On one

hand, the KDP company is new. This runs the risk of potential collapse from overextension or

improper allocation of company resources, while also offering new opportunities and options for

the former Dr. Pepper Snapple and Keurig Green Mountain companies. The portfolio of

combined companies offers consumers and investors security and familiarity. The brands and

products are dependable in both the retail and stock markets. Keurig Dr. Pepper combines the

best of both worlds in security and potential investing success.

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References

A modern beverage company. (2023). Retrieved April 12, 2023, from

https://www.keurigdrpepper.com/en/our-company/overview

Annual Report (Rep. No. 10-K). (2023). Retrieved April 12, 2023, from

https://app.quotemedia.com/data/downloadFiling?webmasterId=101533&ref=117277431

&type=PDF&symbol=KDP&companyName=Keurig+Dr+Pepper+Inc.&formType=10-

K&dateFiled=2023-02-23&CK=1418135

Brands of KDP. (2018). Retrieved April 12, 2023, from https://news.keurigdrpepper.com/2018-

01-29-Dr-Pepper-Snapple-and-Keurig-Green-Mountain-to-Merge-Creating-a-Challenger-

in-the-Beverage-Industry-with-a-World-Class-Portfolio-of-Iconic-Brands-and-an-

Unrivaled-Nationwide-Distribution-Capability

Keown, A. J., Martin, J. D., & Petty, J. W. (2020). Foundations of Finance: The Logic and

Practice of Financial Management (10th ed.). Pearson.

Keurig Dr Pepper Inc. (KDP) stock price, news, Quote & History. (2023, April 11). Retrieved

April 10, 2023, from https://finance.yahoo.com/quote/KDP/

Stock information. (2023). Retrieved April 12, 2023, from

https://investors.keurigdrpepper.com/stock-information