Keurig Dr Pepper Inc.

The stable rating outlook on KDP reflects our expectations that it will grow earnings and cash flow and continue to reduce leverage. We believe KDP will generate 3%-4% top-line growth, maintain the EBITDA margin of over 32% over the next two years, and continue to generate strong cash flow. This should enable the company to reduce leverage to the low-3x area by year-end 2021. We could lower our rating on KDP if: Management's financial policies become more aggressive, resulting in an inability to reduce debt in line with our base-case forecast such that leverage remains above 4x; Leverage remains above 4x because it does not achieve anticipated cost-cutting goals; or Operating performance deteriorates (possibly because of competitive incursions). We could

...Keurig Dr Pepper Inc. (KDP) is executing well in this unpredictable and difficult environment. The company was more consumer-centric and channel-agnostic coming into the COVID-19 pandemic because it has increased operating efficiency, improved the quality of its brewers, and brought down the prices of its coffee pod to broaden its customer base, all since the 2018 merger. The operational changes enabled KDP to meet the spike in demand and adapt to the shifting channel mix. KDP's volume grew 5.8% for K-Cup pods in the first nine months of 2020, despite a significant decrease in away-from-home business. The company's brewer volume jumped 17.7% in the same period. Moreover, its package segment increased 8.6%, with volume mix up 9% in the first nine months of 2020. Consolidated sales, excluding foreign exchange, rose 4.4%, and the EBITDA margin expanded to 31.5% from 30.9% in the same year-ago period because of productivity programs and merger synergies. KDP expanded margins, despite the negative...

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