With a combined revenue of $21 trillion and $2.1 trillion in profits, the 2026 Fortune 500 is the definitive list of America's largest companies.

Fortune 500

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F500-2021-267-Keurig Dr Pepper

The beverage conglomerate acquired Dr Pepper Snapple in 2018, and now sells coffee, soda, and juices in addition to Keurig brewers. The company saw a strong 2020 as consumers stocked up to shelter in place during the pandemic, but first quarter 2021 data show an even bigger year-over-year sales jump at more than 10%.

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F500-2020-288-Keurig-Dr.-pepper

Keurig Dr Pepper was 2019's fastest-growing F500 beverage company, rocketing 121 positions up the list after forming in a 2018 merger of Keurig Green Mountain and Dr Pepper Snapple Group.

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This year's Fortune 500 marks the 65th running of the list.

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This year's Fortune 500 marks the 64th running of the list.

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This year's Fortune 500 marks the 63rd running of the list.

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Wal-Mart stayed on top as its sales crept closer to half-a-trillion dollars. Apple moved into the top five. And UnitedHealth Group continued its steady climb. 

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Get insights into Keurig Dr Pepper including business profile, stock information, news, and rankings from Fortune.

Keurig Dr Pepper (KDP): Company Profile, Stock Price, News, Rankings

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Keurig Dr Pepper

keurig dr pepper

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to Keurig Dr Pepper's earnings call for the third quarter of 2026. This conference call is being recorded, and there will be a question-and-answer session at the end of the call. I would now like to introduce Chethan Mallela, Vice President of Investor Relations at Keurig Dr Pepper. Please go ahead.

Thank you, and hello, everyone. Earlier this morning, we issued a press release detailing our third quarter 2026 results, which we will discuss on today's call. An accompanying slide presentation is available and can be viewed in real time on the webcast. Before we get started, I'd like to remind you that our remarks will include forward-looking statements which reflect KDP's judgment, assumptions, and analysis only as of today. Our actual results may differ materially from current expectations based on a number of factors affecting KDP's business. Except as required by law, we do not undertake any obligation to update any forward-looking statements discussed today. For more information, please refer to our earnings release and the risk factors discussed in our most recent Form 10-K and our latest 10-Q, which will be filed with the SEC in the coming days.

Consistent with previous quarters, we will be discussing our Q3 performance on a non-GAAP adjusted basis, which reflects constant currency growth rates and excludes items affecting comparability. Definitions and reconciliations to the most directly comparable GAAP metrics are included in our earnings materials. Here with us today to discuss our results are Keurig Dr Pepper's Chief Executive Officer, Tim Cofer, and Chief Financial Officer, Anthony DiSilvestro. Russ Torres, the head of KDP's coffee operating unit and the future CEO of Global Coffee Co., will also provide brief prepared remarks. Given this is his first day at KDP, Russ will not participate in Q&A. I'll now turn the call over to Tim.

Thanks, Chethan, and good morning, everyone. We're pleased with our third quarter results, which featured meaningful top and bottom line growth and healthy cash generation. We maintained our strong momentum in Refreshment Beverages, drove another quarter of solid performance in JDE Peet's, and grew both top and bottom line in our U.S. coffee business. Entering the home stretch of 2026, we remain on track to deliver our three key goals for the year: achieving our low double-digit EPS growth guidance, integrating JDE Peet's and capturing initial combination benefits, and advancing key separation milestones. As we close out the year, our teams are focused on meeting our commitments while also reinvesting behind our brands and strategic priorities to set up our future companies for long-term success. Before turning to the quarter, I'd like to discuss an important announcement that we made last month.

Following a rigorous global search, our board of directors named Russ Torres as the future CEO of Global Coffee Co. He joined KDP today and will lead our coffee operating unit through separation. Russ is a proven leader with a decades-long track record of cultivating consumer brands, executing large-scale transformations, driving growth across global portfolios, and building high-performing teams. He brings the ideal combination of experiences and skills to drive value creation at Global Coffee Co., and we are excited to have him on board. His appointment also marks one of the most critical steps in the separation process, and I look forward to partnering with Russ as we prepare to launch two standalone companies. Now, onto our third quarter results. Total net sales grew 70%, which included the benefit of the JDE Peet's acquisition.

Legacy KDP net sales increased at a high single-digit rate, led by U.S. Refreshment Beverages, with KDP International and U.S. Coffee also contributing. This increase was primarily driven by volume mix, along with positive net price realization. Operating income grew over 50%, driven by the acquisition contribution, disciplined pricing to offset continued inflation, meaningful cost savings, and a one-time tailwind from tariff refunds. We delivered these results while also significantly increasing legacy KDP marketing and reinvesting behind JDE Peet's. All in, including the below-the-line impact from financing costs, EPS increased over 20% in the quarter. With that, let me walk through the segments. In U.S. Refreshment Beverages, net sales grew at a double-digit rate, and operating income increased at a high single-digit rate. Similar to recent quarters, momentum was broad-based and anchored by continued growth in our largest category, carbonated soft drinks.

CSDs benefited from a resilient category and good execution across our portfolio. Dr Pepper led the way, with net sales up double digits as the brand continued to gain market share. Our Dr Pepper Zero franchise remained a standout, with retail sales growing 25% in the quarter and now exceeding $1 billion on an annualized basis. Importantly, we still have plenty of runway in this key platform. We also made progress in away-from-home, with volume-led net sales growth during Q3. While Dr Pepper is the most widely available fountain beverage across major food service chains in the U.S., the brand still has attractive white space for our teams to pursue. For example, this quarter, we secured new fountain distribution at Jersey Mike's, and we see a path to expand our presence in additional chains as well. This incremental distribution opportunity should serve as another ongoing tailwind for the brand.

At its core, the success of Dr Pepper is rooted in its distinctive brand positioning, which we continually reinforce with compelling marketing. During Q3, we launched the latest installment of our Fansville college football campaign, which once again featured countless insights that resonate in the world of passionate college football fandom. But this year, we raised the game with more sophisticated capabilities, including precision targeting, more personalized content, and a greater presence on social platforms. Early results are encouraging, with the campaign delivering a double-digit improvement in return on ad spend versus the prior year, reflecting our ability to reach both existing and high-value prospective consumers with relevant and authentic messaging. Among our other CSD brands, Canada Dry had a good quarter, with net sales also up double digits.

Like Dr Pepper, Canada Dry continues to benefit from purposeful brand marketing and impactful innovation, including this year's Strawberry Fruit Splash line extension, which performed well in the quarter. We also recently applied Dr Pepper and Canada Dry's proven growth playbook to 7UP, with a brand refresh that includes new graphics, a product reformulation, and a clever marketing campaign repositioning the brand as a lime-forward alternative to other citrus sodas. While it's still early days, we've been pleased with the initial retailer and consumer response to 7UP activity. In energy drinks, we achieved two notable milestones in the quarter. First, our portfolio surpassed a 10% market share position in the category, up from approximately 6% when we acquired GHOST just a couple of years ago.

This progress has been driven by gains across the three major brands in our portfolio, GHOST, Bloom, and C4, each of which maintains considerable untapped potential. Second, GHOST became our fourth retail sales billion-dollar Refreshment Beverages brand, joining Dr Pepper, Canada Dry, and Mott's, which underscores the brand's consumer appeal. GHOST performance in the quarter was driven by continued distribution gains and accelerating velocities, including benefits from innovation. For example, the brand's A&W Root Beer limited-time offering has resonated with consumers and proven incremental to the franchise, and we look forward to adding both this flavor and GHOST 7UP to our permanent lineup starting in 2027. Finally, in hydration, our major brands performed well, reflecting our complementary portfolio's ability to address a range of consumer needs and occasions.

Electrolit led the way in Q3 with over 40% retail sales growth, driven by healthy velocities, continued distribution gains, and effective display execution. The brand holds a 9% market share of sports drinks, which has more than doubled since the KDP distribution partnership began three years ago, and has now established itself as the clear leader in the attractive rapid hydration subcategory, with further expansion opportunities still ahead. We also continued to grow our water brands, led by Vita Coco, Evian, and Polar. Overall, Q3 marked our eighth consecutive quarter of double-digit net sales growth in U.S. Refreshment Beverages, underscoring the portfolio's strengths across key categories, including powerful brand equities, differentiated distribution infrastructure, and sharp in-market execution. Now to coffee. We feel good about our business in aggregate, with JDE Peet's delivering results ahead of our expectations while U.S. Coffee navigated a challenging category environment.

Starting with U.S. Coffee, although segment performance improved sequentially from the first half, the U.S. single-serve subcategory has been softer than we anticipated, with value-oriented coffee formats continuing to outperform. We view this dynamic as largely a reflection of the current macro backdrop, but it impacted our quarterly results. Within this context, net sales grew at a low single-digit rate in the quarter, led by volume mix, which included a benefit from Peet's K-Cup pods. This volume mix growth more than offset lower net price in the period, which was driven by reinvestment of moderating commodity costs to support affordability. By product line, brewer shipments accelerated sequentially in Q3 and grew at a double-digit rate. Our precision marketing is delivering attractive returns, and consumers are responding well to our new brewer visual identity, particularly for our refreshed K-Mini Mate family.

This progress is important because brewers are foundational to the Keurig ecosystem and serve as one of the leading indicators for future pod demand. Pod shipments also returned to slight growth in the quarter. This was primarily driven by company-specific factors, including the benefit of Peet's K-Cup pods, which were beginning to activate through expanded price pack architecture and enhanced commercial programming, as well as new distribution wins. We also recently reached a key milestone for Keurig with the launch of our new Keurig Alta system. Alta is a premium brewer that uses a plastic-free and aluminum-free consumable to allow consumers to conveniently brew barista-quality beverages at home. This modern brewer can produce the full array of coffee house beverages, spanning from high-pressure espressos to low-pressure drip coffee, and with the integrated frother, supports delicious cappuccinos, macchiatos, and lattes.

Through Alta, we expect to deepen engagement with existing households, broaden our appeal to additional coffee drinkers, and ultimately reinforce our single-serve leadership in North America. Our initial launch plan is purposefully measured and focused exclusively on direct-to-consumer channels, but we see significant long-term potential for this disruptive platform. Turning to profit, segment operating income grew at a double-digit rate, aided by one-time tariff refunds. Underlying profit trends also improved from the first half, but at a more modest pace than we had expected, given the category dynamics I described. Shifting to our other coffee segment, JDE Peet's delivered net sales of approximately $2.6 billion and operating income of $480 million. Two factors shaped segment top-line performance in the quarter. First, on pricing, we have now fully lapped prior year increases.

In addition, consistent with the pass-through nature of some of our coffee formats, we reduced prices in certain regions and products to reflect lower coffee costs. While these reductions weighed on net sales, they had a limited impact on profit, given our disciplined implementation. Second, marketplace performance strengthened, driven by the successful resolution of retailer negotiations and solid execution. We are encouraged by the improving market share trends we have seen recently for key brands, including Jacobs, L'OR, and some of our local icons. Innovation was a positive contributor to this performance, helped by our platforming strategy to quickly scale promising products across multiple brands and geographies. For example, our well-received liquid espresso concentrate platform continued to expand in the quarter and is now available in 20 countries across a number of leading brands.

We are applying the same approach to our more recent matcha latte innovation, which launched in late Q2 and rolled out further in Q3. Platforms like these extend our portfolio into incremental occasions, many of which skew toward younger consumers and should support growth over time. Moving to operating income, segment profitability was strong, primarily reflecting disciplined pricing and our team's agile execution in a dynamic environment. Finally, KDP International delivered solid results, with net sales growing at a high single-digit rate, led by good momentum in Refreshment Beverages across our markets. In Mexico, net sales increased at a double-digit rate, primarily driven by pricing related to the recent beverage tax, as well as modest volume growth from healthy underlying demand and share trends. Peñafiel was a standout performer in the region, with strength across both the core mineral water and the Adas and Twist line extensions.

We also grew nicely in Canada, led by energy drinks and ready-to-drink teas. Segment operating income declined very modestly, as the net sales increase was offset by inflationary pressures and investment phasing. Overall, our third quarter results demonstrated good progress. We delivered on our plans, invested to strengthen each of our future businesses, and advanced critical separation milestones. I will now turn the call briefly over to Russ, after which Anthony will walk through our financial results and outlook in more detail.

Thank you, Tim. I am honored by the opportunity to serve as the future CEO of Global Coffee Co. and to help the company shape the future of the coffee category. Over the past couple of months, I have done a lot of homework and built conviction in the value creation opportunity, and that is the key reason I am here. I believe coffee is an attractive category with significant untapped potential. It is large, resilient, and part of the daily routines and rituals of over 1 billion consumers around the world. The category has grown volume consistently and benefits from structural consumer trend tailwinds that will support its long-term prospects. But most of all, experiences with coffee can create an emotional connection with people, and as a result, the coffee category is responsive to brand building and innovation in ways that can foster the creation of powerful brand franchises with compelling economics.

Global Coffee Co. is well-positioned in this attractive category. We will launch with many compelling assets and strengths, including powerful leading brands and scale positions across formats, geographies, and channels. Global Coffee Co. possesses deep capabilities in critical areas like sourcing, blending, marketing, and innovation. Perhaps the biggest difference maker will be unleashing the power of our people as a focused standalone coffee company. I have already met with a number of coffee operating unit leaders and have been very impressed with the talent and the capabilities across the organization. The energy they are showing for the future and the passion for the new mission is infectious.

Over the coming months, I will be immersing myself in the business and spending time with our employees, customers, and partners, and working with the team to further develop and refine the strategy and operating plans for what will be the world's leading pure-play coffee company. I am eager to get started, and I look forward to sharing our plans with you in more detail as we move into 2027. With that, I will turn it over to Anthony.

Thanks, Russ, and good morning, everyone. Let me start by discussing our consolidated third quarter results. Total company net sales grew 70.1% in the quarter, including the benefit of the JDE Peet's acquisition, which closed in April. Excluding the JDE Peet's contribution, legacy KDP net sales grew 8.6%, with volume mix contributing 6.5 percentage points and net price realization adding 2.1 points. Consolidated gross margin was 48.7%, 590 basis points below the prior year, primarily due to the mix impact of adding JDE Peet's to the portfolio. Excluding the acquisition impact, legacy KDP gross margin expanded 20 basis points, including the benefit from tariff refunds. In the absence of tariff refunds, gross margin would have contracted as continued inflationary pressures more than offset the margin benefits of pricing and cost savings. SG&A as a percent of sales improved 320 basis points.

Excluding the mix impact from JDE Peet's, legacy KDP SG&A deleveraged 10 basis points as a double-digit increase in marketing more than offset productivity savings and disciplined cost management. In total, Q3 operating income increased 52.5%. This included a $99 million one-time benefit from tariff refunds, or $0.05 per share, which was disproportionately weighted to our U.S. Coffee segment. Including the below-the-line impact from acquisition financing, EPS grew 22.2% to $0.66. Turning now to our segment results. U.S. Refreshment Beverages net sales increased 10.9%, driven by 7.2 percentage points of volume mix growth and 3.7 points of net price realization. Gains were broad-based, led by energy, CSDs, sports hydration, and waters. Segment operating income grew 8.3% as higher net sales and productivity savings more than offset cost inflation and higher SG&A, including increased marketing. Moving to U.S. Coffee, where net sales increased 2.7%.

Volume mix contributed 6.9 percentage points, including a benefit from our recent reporting shift to recognize the full Peet's K-Cup pod economics in the segment. Within volume mix, brewer shipments accelerated sequentially and increased 16.7% versus the prior year. This was driven by the combination of a strengthening coffee maker category backdrop and improving Keurig volume share trends as the quarter progressed, as well as lapping prior year retailer destocking activities. Pod shipments increased 0.3%, driven by the contribution from Peet's K-Cup pods, as well as some new private label distribution wins. Net price realization reduced net sales by 4.2 percentage points, partially offsetting volume mix growth. This reflected reinvestment of moderating green coffee costs through trade spending and promotions to optimize near-term price points and price gaps. Turning to profit, segment operating income increased 11.4%, which included the benefit of one-time tariff refunds.

Excluding the refunds, underlying profit trends also improved from the first half as favorable volume mix, productivity savings, and cost synergies more than offset lower net price realization, inflationary pressures, and increased marketing. Looking to Q4, we anticipate a further improvement in the underlying profit trend. However, given the category challenges that Tim described earlier, we are now expecting a more gradual recovery than we had initially planned, which is reflected in our full-year guidance. Our JDEP segment generated $2.6 billion in net sales and $480 million in operating income in the third quarter. Segment profitability was primarily driven by favorable pricing, net of cost inflation, robust productivity savings, and cost synergies. Looking to Q4, we expect these drivers to persist, though the price-cost benefit should moderate from Q3 levels. Overall, we expect to have flexibility to reinvest in the business while continuing to deliver healthy profitability.

In our KDP International segment, net sales grew 7.6%, driven by 5.7 percentage points from net price realization and a 1.9 point contribution from volume mix. Segment operating income decreased 0.6%. Benefits from higher net sales and productivity savings were offset by elevated costs, including green coffee inflation and the Mexico beverage tax, as well as increased marketing investments. Looking ahead, we expect a consistent profit growth contribution from the KDP International segment over time, including an improved trend in Q4. Turning to the balance sheet and cash flow, we generated healthy free cash flow of $1 billion in the third quarter, driven by higher EBITDA and good cash conversion, including continued tight working capital management, particularly in inventory. We continue to target approximately $2.5 billion in free cash flow for the full year.

During the quarter, we also announced an agreement to monetize our minority equity stake in Chobani and sell a non-core manufacturing facility, which will generate approximately $925 million in pre-tax proceeds, or approximately $780 million after tax. We received a portion of the proceeds in Q3, expect the balance by year-end, and plan to use the full amount for debt paydown. As a result of our quarterly performance and this agreement, we ended the quarter with pro forma management leverage of 4.1x, improving from our mid-year level. We expect to further reduce leverage by year-end, driven by cash generation, EBITDA growth, and a contribution from our Chobani deal. Strengthening our balance sheet remains a key focus, and we will continue to evaluate opportunities to accelerate deleveraging. Our capital allocation priorities remain unchanged.

In the near term, we are focused on investing in our business, maintaining our current dividend, and paying down debt, consistent with our commitment to investment-grade credit ratings for KDP and our two future companies. Over time, we expect each business to deleverage quickly, which will provide greater capital deployment flexibility over the medium to long term. With that, let me close with our full-year guidance. For the total company, we continue to expect net sales in the $25.9 billion-$26.4 billion range, which now includes an approximately $8.3 billion-$8.4 billion contribution from JDE Peet's. On the bottom line, we are reaffirming our outlook for low double-digit constant currency EPS growth, which now includes an anticipated 7-8 percentage points contribution from the JDE Peet's acquisition. We also now expect legacy KDP EPS to grow 3%-5%, reflecting our revised expectations for U.S. Coffee.

Based on current rates, we now expect an approximately 0.5 percentage point FX tailwind to total company net sales and EPS growth for the full year. Moving to below-the-line metrics, we are now assuming the following: interest expense of approximately $1.09 billion-$1.11 billion, an effective tax rate of approximately 22%-23%, approximately 1.37 billion diluted weighted-average shares outstanding, approximately $190 million in pre-tax coffee JV costs, and convertible preferred P&L costs based on the securities' share of earnings. In summary, our third quarter results were healthy, and we remain on track to deliver our full-year commitments. With that, I will turn the call back to Tim for closing remarks.

Thanks, Anthony. I would like to close with an update on our separation planning, which is an area where we have made significant progress this year. We closed the JDE Peet's acquisition and advanced our integration work. We established the organizational structures and leadership teams for each future company. We are capturing meaningful synergies in our first few quarters as a combined company, and we put in place an operating model that allows our teams to increasingly function on a standalone basis. Looking ahead, we have a clear line of sight to the remaining work. This includes appointing a full board for each company, establishing corporate names and identities, and finalizing strategies and capital structures. Throughout this process, we will stay focused on executing our plans to deliver our financial commitments while also continuing to serve our consumers and customers with excellence.

Overall, we remain on track for our planned separation in early 2027, with exact timing subject to market conditions, among other factors. When complete, our separation will create two independent public companies with advantaged competitive positions, focused strategies, and the flexibility to pursue their own distinct value creation opportunities. We look forward to sharing more details about our vision and plans for Beverage Co. and Global Coffee Co. in the coming months. With that, we are now happy to take your questions.

Thank you. We will now begin the question-and-answer session. To ask a question, you may press star then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. Please limit yourself to one question. At this time, we will pause momentarily to assemble our roster. The first question comes from Dara Mohsenian with Morgan Stanley. Please go ahead.

Hey, good morning. So, another very strong top-line result in U.S. Refreshment Beverages in Q3. Can you just give us a bit more insight under the hood into what is driving that growth, separating out the fully owned business from distributor brands? Just given the momentum, help us understand for 2027 how sustainable some of those drivers are. I would love it if you could touch on GHOST in particular, given the momentum there also. Then if you would be so generous, if I can just slip in one more clarification question. Just the call-down on Heritage Keurig profit within the full-year guidance, that is more related to what you expect in Q4 on the profitability side and the single-serve comments that you made in terms of the consumer shift to value. Is some of that also the first-half performance in Q2, where we saw a bit of weaker performance?

I'm just trying to better understand what's changed on that Heritage KDP coffee profitability side, given so many moving pieces. Thanks.

Thanks, Dara. I will take the first question on U.S. Refreshment Beverages growth, and I'll kick it over to Anthony to handle the U.S. coffee profitability question. Look, as you said, another strong quarter of U.S. Refreshment Beverage. We're pleased, I said in the prepared remarks, our eighth consecutive quarter of double-digit top-line growth in the segment, and that's underpinned by almost 7.5% increase in volume mix. When you look at that volume mix performance, it was broad-based across the portfolio. It starts certainly in CSDs, our largest category, healthy CSD trends supported by what we're seeing as mid-single-digit category growth, and then within that, very solid brand performance. For us, our standouts were once again Dr Pepper, led by Zero Sugar, as I said earlier, Canada Dry, another strong quarter, Bloom Pop, all featured well in CSDs.

Energy, we experienced outsized growth in energy, and it's driven by the momentum we're seeing on Bloom and on GHOST, and good traction from the brand refresh that's flowing through the market on C4. You double-clicked on GHOST. We continue to see significant runway for GHOST, a balanced year and into 2027. Very pleased with that acquisition. Shifting to sports hydration, we had very strong quarter in sports hydration with Electrolit, and improving still beverage performance, led by our waters portfolio. Specifically to your point, Dara, on owned brands and partner brands, I think in aggregate, what I'd tell you is we're pleased that this growth profile features a balanced contribution from both components of the portfolio. As we look to the balance of the year, Q4, we expect these same drivers to support continued momentum in U.S. Refreshment Beverages.

Look, I don't expect to sustain a double-digit growth rate over time, but I do see clear runway for this segment to continue to throw off a meaningful growth contribution going forward. We expect this segment to deliver another strong year performance in 2026 and sustain the healthy momentum through the separation. Anthony?

Sure. Thanks, Tim. As we discussed in our prepared remarks, the single-serve category trends were a bit challenged during the quarter, and we responded by focusing on several factors within our control. This included reinvesting some of the moderating coffee costs into trade spend and promotions. We did that to optimize the pod price points and competitive price gaps. We also executed commercial programs to drive incremental demand at both ends of the value spectrum, including peaks activity as well as new private label distribution wins. We are also stepping up our Keurig brewer precision marketing to support health of the broader ecosystem. We believe these are the right steps to support the business. They also came with a near-term profit trade-off.

All in, Q3 segment operating income grew at a double-digit rate, which included the benefit of one-time tariff refunds, and excluding the benefit of tariffs, improved meaningfully versus the first half. However, given the impact of the category trends and our investments, the pace of the underlying profit improvement was more gradual than our prior expectations. As we look ahead to Q4, we expect continued sequential improvement and year-over-year growth in underlying U.S. Coffee profitability, although also at a more gradual pace than our prior expectations. All in, these factors mean we are now assuming a more modest U.S. Coffee profit improvement in the second half. At the same time, this is being offset by higher expectations for JDE Peet's, where we have benefited from favorable price-cost relationship. We are seeing improved market share trends.

We are achieving cost and synergy savings, so we have increased our expectation for JDE Peet's accretion to 7-8 points versus 6-7 points. Meanwhile, because of the U.S. Coffee performance, we are lowering our legacy KDP EPS guide from 4% to 6% to 3% to 5%.

Thank you. The next question comes from Chris Carey with Wells Fargo Securities. Please go ahead.

Hi, everyone. Hope you are well. Thanks for the question. I wanted to ask a follow-up around U.S. Coffee. Maybe just first, what did change within the quarter itself? The reason I am asking is because there are obviously comments about the category proved softer, and yet volume mix was decidedly better than expectations, albeit with lower pricing, but top line certainly seems better. I think the underlying margin, if you exclude tariff refund, was certainly a bit worse, right? What, I guess, in the past month or two, excuse me, in the past month or two has evolved that has changed the picture here? Is it incremental private label driving lower margins? Is it you felt you needed to invest more in the pricing, which drove lower margins? Maybe just what were the components that shifted specifically between investment volume and mix?

Anthony, just on that Q4 comment, did you say that you expected operating profit to be up in coffee in Q4, which I think would imply pretty substantial sequential margin improvement. Maybe you could just double-click on that. I think the bigger picture piece here, and sorry for the long question, is just the ability to have visibility on the U.S. Coffee model and indeed the broader coffee business as you go into separation and deliver those targets that you laid out at Investor Day, going over the next year and over the medium term. I know that was quite a bit there, but thanks so much for your thoughts.

Yeah, Chris. Look, let me take a shot at your question in terms of what changed. As we headed into the second half, we did expect improving trends for U.S. Coffee relative to the first half, and indeed, that played out in the third quarter. Both net sales and operating income grew year-over-year, including the benefit of the one-time tariff refund in the third quarter that we mentioned. However, relative to our prior expectations, the pace of the underlying profit recovery was more gradual than we had first anticipated. Specifically to your question, what has changed? As the third quarter unfolded, we saw single-serve category trends that were softer than we expected. We think it is primarily related to the macro backdrop.

If you think about it, there have been multiple years of inflation-driven price increases on coffee, and we are seeing heightened value sensitivity in at-home coffee, particularly among the low and middle-income consumers. As a result, what you are seeing is lower-cost formats of at-home coffee. Think roast and ground, whole bean, instant. They are now outperforming single-serve. In addition, we did see private label penetration increasing both at total coffee category level and in the single-serve segment. While we believe these are largely temporary and cyclical dynamics, given the pricing and overall economy, we recognize they could persist for some time, depending on the broader economic backdrop. As a result, you are hearing from us now, we are incorporating a more cautious category assumption into the fourth quarter.

At the same time, as Anthony responded to the prior question, we're definitely focused on executing against the areas in our control, and I think Anthony mentioned those. Reinvesting some of the moderating coffee costs back in trade spend and promotions to optimize our price points, executing our commercial programs to drive incremental demand, stepping up our Keurig brewer precision marketing to drive accelerated brewer gains, which really are the health of the overall ecosystem, as you know. These are the right steps to support the business, but they come with a near-term profit trade-off, and that is now captured in our updated expectations. That double-click question that you had at the end, Chris, directed to Anthony, I'll just hit that right now.

As we look to Q4, we do expect continued sequential improvement off the front half in Q3 and year-over-year growth in underlying U.S. Coffee profitability, although at a more gradual pace than our original expectations. As Anthony said earlier, that is being offset by higher expectations for JDE Peet's. We do expect a similar overall coffee contribution and therefore unchanged full-year EPS outlook.

Thank you. The next question comes from Lauren Lieberman with Barclays. Please go ahead.

Great. Thanks so much. Was just curious if you could talk a little bit about separation timing. I know you mentioned, Tim, early 2027, but just the based on market conditions piece, would love some more color on kind of what that means. I appreciate the plan has been to be milestone-based, but I just was curious about the added wrinkle and commentary on market conditions. Thanks.

Sure. Good morning, Lauren. We are making good progress against our separation milestones. We closed the JDE Peet's acquisition. We are advancing the integration work, capturing meaningful synergies. We have seen that ramp Q2, Q3. It will ramp further in Q4. We have largely finalized and communicated the post-separation org structures. We have begun establishing the IT and financial reporting capabilities required for each of the future companies so they can operate independently. We have expanded our board of directors in preparation for the need to have two independent boards. We have established leadership teams, including, today is his first day, appointing Russ Torres as the future CEO of Global Coffee Co. A lot of great progress that reinforces my comment that we are on track. Over the balance of the year, these are the remaining key separation priorities.

First and foremost for me, all year long, number one priority, maintain momentum on the business and deliver on our 2026 plans. Next, we will further advance our integration workstreams. As I mentioned earlier, our synergy capture will accelerate quarter by quarter. We are in the process now of finalizing the strategic frameworks for both companies. Obviously, things like corporate identities we will unveil closer to separation, and importantly, the capital allocation policies for each of the future companies. We are going to further build out the boards for both Beverage Co. And Coffee Co., and you should expect to see further announcements in the months ahead. Of course, strengthening our balance sheet, including, as Anthony said, continuing to evaluate opportunities to accelerate deleveraging. Overall, we remain on track for our targeted early 2027 separation.

We recognize that the external environment is volatile, and as we have always said, it is subject to market conditions and other customary considerations, and that has not changed.

Thank you. The next question comes from Peter Galbo with Bank of America. Please go ahead.

Hey, good morning. Thanks for taking the question. I just wanted to ask a clarification maybe, and then a question. Tim and Anthony, there was no update to the actual organic sales guidance that was included in the press release, despite kind of the movement on JDE, and I think you actually would have taken the organic sales up if that were not the case. Just wanted to clarify that that's actually true and maybe what that number might be. Maybe just on a broader term, Tim, you haven't really spoken much about the Chobani, not only just the equity sale, but obviously the new agreement and kind of what we might expect in 2027 from a potential product standpoint, again, as you try to continue to drive that U.S. RB business.

Would love just the clarification point and then maybe a little bit more on Chobani products. Thanks very much.

All right. I can unpack the sales guidance a little bit. At the aggregate level, it's unchanged, $25.9 billion-$26.4 billion. We did lower a little bit the expectation for JDE. We're now at $8.3 billion-$8.4 billion. That's down a little bit from our prior outlook, and that's because we're seeing some of the pass-through pricing dynamics of that business come through. At the same time, as we said, we're seeing improved profitability from JDE. We also adjusted the tailwind on FX to about a half a point of tailwind. What that does is when you do the math, it implies a legacy KDP sales outlook of about mid to high single digits. In fact, when you look at the year-to-date for KDP legacy, we're up 8% sales. It is an improvement from our prior expectation.

Yeah, and Peter, I'll take the second part of the question on Chobani. Reminder, the deal had three elements. One was the monetization of our minority stake in Chobani. The second was the sale of our Allentown, Pennsylvania facility to Chobani. There was a third element, which I think is really the core of your question, which was an expanded multi-year distribution partnership with Chobani. We have a tremendous relationship and partnership with Hamdi and the Chobani team, and you've seen the way that manifests so far in the strong performance of La Colombe ready-to-drink coffee. As a result of this deal now with Chobani, we have the opportunity to support further growth for both companies. One of those opportunities is to work together on a future ready-to-drink innovation, including high-protein shakes that Chobani has referenced in their recent announcement.

We are excited about bringing that to our portfolio, likely sometime next year.

Thank you. The next question comes from Peter Grom with UBS. Please go ahead.

Great. Thank you. Good morning, everyone. Can I just ask specifically what U.S. Coffee margin would have been without tariffs? I ask this in the context, if you were to back out the majority of that $99 million from the profit number, it would imply some modest improvement in operating margin for the first half. Anthony, you mentioned Dara, that it improved meaningfully. It would be helpful to understand where underlying profit landed, especially as we think about the path forward. Then as it relates to the earnings guidance, I know you are kind of keeping the expectation for low double-digit EPS growth, but the tariff refund is a pretty decent tailwind. You also lowered your interest expense expectation. Is it really just weaker coffee performance that is more than offsetting that, or are there other factors as well?

Let me start with the second part. There are some other factors. We are making decisions to reinvest in marketing and innovation. We have also seen a little bit of pressure on logistics, particularly in U.S. RB around energy costs and some resin costs coming through. We do have a few pluses and minuses inside of the guidance. In terms of U.S. Coffee performance, it would have been slightly down excluding the tariff, but a meaningful improvement from the first half. We did talk about the $99 million in tariffs. The largest piece of that is in U.S. Coffee. There is an additional benefit in U.S. Refreshment Beverages. It is important, as I said, we are reinvesting some of those tariff refunds. Legacy KDP marketing in the quarter is up double digits, and we are also stepping up our innovation spending.

Also, as Tim mentioned, there are some challenges in the coffee category, so it is helping to offset some of that and some of the higher logistic costs that I mentioned. The remainder helped to deliver some of the upside that you see in the quarter.

Thank you. The next question comes from Kaumil Gajrawala with Jefferies. Please go ahead.

Hey, guys. Good morning. I want to ask a little bit more on the I know everybody is asking about coffee, but specifically, I think, Tim, you had mentioned that some of the slowdown in Q4 is macro, but also that maybe whole bean and a couple of other things are also involved. This could be something that we are seeing more and more of, which is whole bean, fully automatic machines seem to be growing quite quickly. So if you are thinking maybe more structurally about the future and the big benefit of single serve being the convenience, is something changing competitively where we also need to be aware of how things are going with sort of the whole beans and automatics, which seem to be growing a little bit quicker than they were before? Thanks.

Yeah, thanks. Look, as I said in the prepared remarks, the single-serve segment, which is obviously the vast majority of the business for Legacy Keurig, those trends have been weaker than we expected. We primarily attribute that to the current macro backdrop and the heightened value sensitivity you are seeing from consumers following multiple years of these inflation-driven price increases. I think some consumers have rebalanced their spending as they are navigating these higher costs across their entire budget, and some of that includes shifting some single-serve occasions into lower-cost coffee formats, as the ones I referenced and you referenced in your question, other segments that are arguably more value-based. I think what is important for us, and something I will point out, is the household penetration for Keurig remains healthy. In fact, we expect it to continue to grow this year.

But we are seeing pressure within existing households that use Keurig every week. They continue to consume K-Cups, but at a lower frequency. We believe that behavior is more consistent with a more temporary and cyclical response to the macro environment versus a fundamental change in consumer preferences. I think that view is supported by the longer-term track record you see of single serve gaining share within at-home coffee. At the same time, we have to recognize these dynamics could persist for some time, especially if the overall economy remains pressured. We are taking the actions that we have outlined on this call to strengthen the value proposition and support both the category and our portfolio. That is the activity I have referenced around trade spend and promotion optimization, and pod and brewer innovation, precision marketing, and obviously our commercial and our RGM tools.

Over time, we believe these investments can support healthier and more consistent trends across both single serve and our total U.S. Coffee business.

Thank you. The last question today will come from Michael Lavery with Piper Sandler. Please go ahead.

Thank you. Good morning. Just wanted to see if you could give us a few thoughts on just some key considerations for 2027. Obviously, a lot of your attention and focus is on planning for the split, but anything maybe you could just help us understand in some of how you are planning from a business perspective, and apart from the early bit of the year, it is two business plans. I realize there is a lot there, but just maybe initial kind of look on inflation expectations or thoughts on the consumer, some of the pricing investments and trade investments in coffee. Should we expect some of that to be prolonged, or is that really just to finish up this year? Just how do you keep pushing an energy past the 10% mark now of market share? Anything in terms of how you are looking ahead would be helpful.

Sure, I can start. I would tell you that our 2027 planning process is still ongoing. As you can imagine, there are many moving pieces, even more so than usual this year, as our planning encompasses both KDP as a whole and for each of the two future companies, Beverage Co. and Coffee Co. Therefore, I'd say it's a bit early to provide specific commentary on next year, and our plan is to discuss 2027 in more detail as we move into early next year.

Yeah, and Michael, I'll take the last part of your question where you double-clicked on energy. Look, you've heard me say this in prior earnings calls. We see significant growth potential, continued growth potential for the energy category, starting there, supported by what we think are structural fundamentals like continued expansion in distribution points as the consumer appeal broadens, household penetration upside is still there, further occasion gains, more female consumers entering the category. I think the channel diversity can continue to flesh out. Obviously, convenience is the core of the category and where it started, but there's still upside opportunity across other channels, including large format. So, at a category level, we're bullish. Within the category, we feel very good about our position. Our portfolio's been an outsized market share gainer over the last couple of years, and really now has meaningful scale to build upon.

We're over $1.5 billion in net sales. When you look at what's driving that, it starts with our portfolio. We've got authentic, distinctly positioned brands. You think about GHOST, you think about Bloom, C4. These are differentiated brands that really are complementary. They're great-tasting products, great innovation. I think our focus on Zero Sugar is the right place to play in the category. It's the largest, most attractive part of the category, and really been an outsized contributor to category growth, and I expect that to continue. Then that's all underpinned by the capabilities that we have here at KDP and at Beverage Co. around DSD, the capabilities to support that frontline execution and drive visibility and availability and display. So, we're proud of the progress we've made.

I remind you, just a couple of years ago, we were less than 1% market share, and we've now crossed the 10% mark, and that's more than 2.5 points of share growth year-over-year if you look at the third quarter numbers. But just as importantly, I see continued meaningful runway going forward as we go into 2027 and beyond, and feel good about our ability to sustain healthy momentum in energy and across U.S. Refreshment Beverages.

Thank you. This concludes our question and answer session. I would like to turn the conference back over to Keurig Dr Pepper's Vice President of Investor Relations, Chethan Mallela.

Great. Thank you, everyone, for the time and attention this morning, and the IR team is available if you have any follow-ups. Have a great day.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Keurig Dr Pepper (KDP) Q3 2026 Earnings Call Transcript

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