In the United States, the beverage segment posted robust growth of 14.2%, reaching $2.7bn in sales. However, this is largely due to the acquisition of the GHOST energy drink brand and significant price increases. As for operating profit, inflation has caused it to grow at a slower pace than sales.
Also in the US, the coffee segment posted very weak growth of 1.5%, reaching $991 million in sales, entirely due to price increases, as it was necessary to offset a worrying 4% decline in volumes. However, this was not enough to stem the decline in profitability.
Finally, in the international segment, sales increased by 10.5% to $580m, with a favorable effect on both volumes and prices; however, operating profit declined, hit hard by inflation, in addition to the sharp depreciation of the dollar over the past several weeks.
These developments resulted in consolidated operating profit that increased only slightly compared to the same period last year, and cash profit—or free cash flow—that remained unchanged.
The big news of the moment is, of course, the acquisition of the world's leading coffee company, JDE Peet's, currently controlled by the Reimann family. See Keurig Dr Pepper announces acquisition of JDE Peet's for €15.7bn and Keurig Dr Pepper: A caffeinated gamble that has Wall Street on edge.
This is a marriage of two giants which themselves are the result of ambitious combinations: KDP is the result of the 2018 mega-merger between coffee specialist Keurig Green Mountain and the famous cherry cola brand Dr Pepper, while JDE is the result of the 2015 merger between D.E Master Blenders 1753 and the coffee division of Mondelēz International.
Yesterday, we wrote in these same columns—see Keurig Dr Pepper: Continues to expand— that the American group would undoubtedly remain aggressively focused on a strategy of external growth. This time, the merger with JDE, which will create the world's second-largest coffee company behind Nestlé, is being financed with the participation of Apollo and KKR, but at the cost of splitting KDP into two entities—one for soft drinks and the other for coffee.
Clearly, the setbacks experienced by Mondelez and, after it, Kraft Heinz, have served as a precedent here. See Kraft Heinz throws in the towel, which, ten years after the bold merger of the two agri-food heavyweights financed by 3G and Berkshire Hathaway, definitively sealed its failure.
History shows that mega-mergers in the food industry are rarely successful. The Reimann family, which controls its fortune through JAB Holdings, owner of the Prêt A Manger franchise among others, is tough in business and undoubtedly has good reasons for divesting one of its main assets, especially since it is doing so at a generous valuation against a backdrop of stagnating coffee volumes in North America.
The mistrust is all the greater given that, at Keurig Dr Pepper, the historical value creation of acquisitions remains questionable. The market has not been mistaken, as the group has suffered a series of poor stock market performances over the past five years. That said, while shareholders are struggling, the bankers advising the group on its multiple changes in scope since 2018 have been much more fortunate.
Despite the activist fund Starboard's opposition to the merger, the market consensus has always been that the KDP-JDE transaction would go ahead, as evidenced by the negligible spread between the price of JDE shares listed in Amsterdam and KDP's offer. The financing provided by two of Wall Street's most prestigious names—Apollo and KKR—has undoubtedly dashed the activists' chances.
