KDP

KDP is a high-quality North American beverage platform (Dr Pepper, Snapple, 7UP, Keurig, GHOST, Core Hydration) putting up enviable FY2025 numbers: revenue grew 8.2% to $16.6B, operating income jumped 38% to $3.58B, and diluted EPS rose 45.7% to $1.53. The headline EPS gain is partly optical — FY2024 absorbed $306M of goodwill impairment and $412M of intangible impairment, versus only $78M in FY2025 — but underlying operating performance is genuinely strong, with operating margin expanding 460 bps to 21.5% even as gross margin compressed 140 bps to 54.2% on cost-of-sales inflation (+11.5%). MD&A pricing/mix shows volume/mix +4.8% on the LRB side, confirming the Dr Pepper/GHOST/Core franchises are taking share.

The balance sheet is the catch. Long-term debt of $13.0B plus $895M current portion against just $1.03B of cash and $25.5B of equity gives a liabilities/equity of 1.17x — manageable but not pristine, with $754M of interest expense already consuming meaningful cash. ROE of 8.1% is mediocre for a staples name and reflects the goodwill-heavy asset base ($55.5B total assets). Cash flow tells a more cautious story than the income statement: operating cash flow actually fell 10.3% to $1.99B and barely covers the $1.25B dividend plus $486M of capex, leaving thin room for the $9M of buybacks (down 99% YoY — they essentially paused repurchases, suggesting capital is being conserved for something).