Keurig Dr Pepper couldn't deliver strong enough results in its coffee business to satisfy investors, mainly as a slug of the unit's adjusted operating income growth came from tariff refunds.
Even though its coffee sales rose 2.7% in the quarter to $1 billion, and adjusted operating income rose 11.4% to $353 million, investors were likely looking for more. The company said coffee volume/mix added 6.9% to net sales, partially offset by a net price decline of 4.2%.
Shares closed down 5.7% at $34.74 on Tuesday, snapping a four-day winning streak and marking its largest percentage decline since Oct. 29, when it fell 5.9%, according to Dow Jones Market Data.
Keurig stock is nevertheless up 24% this year, on pace for its best year since 2018, and up 31.3% over the past 12 months.
Net sales in the U.S. refreshment beverages business, led by soft drink brands Dr Pepper and Canada Dry, rose 10.9% to $3.03 billion in the quarter, up from $2.74 billion in the year-ago third quarter.
That's significant because Keurig Dr Pepper plans to split its coffee and beverage businesses in early 2027.
Michael Lavery, senior research analyst for Piper Sandler, raised his price target to $41 from $38 on Tuesday.
He said Keurig Dr Pepper "remains a favorite name in our coverage, with strong organic sales growth momentum," led by U.S. refreshment beverages, which he expects to continue. Dr. Pepper drove about 11% of the company's third-quarter U.S. Refreshment Beverages top-line growth and "remains the favorite soda brand among teens, while its energy drink portfolio over-indexes among teens, both positive leading share indicators," he wrote.
Energy drinks are teens' second-favorite drink, up from third in its fall 2025 survey, with 19% of mentions, Lavery said. "Energy drinks were teens' preferred source of energy for 50% of teens," whereas coffee only got 25% of mentions. KDP is gaining market share of total caffeine consumption, "as more new, young customers enter the category, while aging consumers remain."
"New innovation should also help it sustain strong top-line momentum," including Dr Pepper ice cream float, a blueberry cream-flavored Ghost LTD, C4 8-oz mini cans, and cotton candy and lemon freeze flavors of Bloom Nutrition.
Overall, KDP's third-quarter revenue of $7.34 billion jumped 70.1% from a year ago, beating the $7.33 billion Wall Street was looking for, according to FactSet.
Adjusted earnings of 66 cents a share, up 22.2%, beat the 62 cents a share analysts expected.
Adjusted operating income grew 52.5% to $1.7 billion, driven by net sales growth and productivity savings, partially offset by the impact of inflationary pressures and higher expenses, including increased marketing. But it also included a $99 million benefit from tariff refunds in the quarter.
International net sales rose 11% to $644 million, compared with $580 million in the previous third quarter.
For full-year 2026, Keurig maintained its guidance for net sales of $25.9 billion to $26.4 billion, and adjusted earnings per share growth in the low double-digit range. That includes about $8.3 billion to $8.4 billion in net sales and a 7 to 8 percentage-point EPS growth contribution from the JDE Peet's acquisition, as well as a 3% to 5% EPS growth for KDP's legacy business. That last range is down from 4% to 6% in the the second quarter, because of revised expectations for U.S. coffee.
The company on Oct. 1 named Russ Torres as CEO of its Coffee Operating Unit, overseeing the integration of KDP and JDE Peet's coffee operations, and its future Global Coffee Co. CEO. Torres was previously chief operating officer for Kimberly-Clark Co.
After the separation, KDP CEO Tim Cofer will become CEO of Beverage Co.
After the split, the company said Global Coffee Co. will generate about $16 billion in annual revenue, employ more than 25,000 people, and serve consumers in more than 100 markets. Its brands will include Keurig, Jacobs, Peet's, L'OR, Green Mountain Coffee Roasters, and other regional brands.
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