KDP — Keurig Dr Pepper Inc.

Will it survive?

• Can it pay its interest? 7.2×
  Comfortable
  Operating income $3.6B ÷ interest expense $496M

  Operating profit covers interest with the kind of margin Graham wanted for a defensive holding. Necessary, not sufficient — it says solvent, not cheap.

• How heavy is the debt? 3.9×
  Moderate
  Total debt $13.9B ÷ operating income $3.6B

  Years of operating profit it would take to repay all debt. A first read, not a credit rating: it's gross debt (not netted against cash) over EBIT (not EBITDA), and a cyclical year distorts it.

• How long is cash tied up? -24d
  Negative — funded by others
  DSO 37 + DIO 83 − DPO 144 days

  Days cash is tied up between paying suppliers and collecting from customers. A negative cycle is a quiet moat: suppliers and customers fund the operation (Buffett's “float”) — the company grows on other people's money.

Is it a good business?

• Return on invested capital 7%
  Below average
  NOPAT $2.8B ÷ invested capital $38.4B (debt + equity − cash)

  The rate the business earns on the money tied up in it — Buffett's north star, because over time a stock tracks the ROIC beneath it. Above ~15% sustained hints at a moat; below ~8% the company may destroy value as it grows. Asset-light businesses (R&D expensed, little capital) read artificially high — pair this with Owner Earnings.

• Owner Earnings (free cash) margin 9%
  Solid
  Owner Earnings $1.5B = operating cash $2.0B − capex $486M

  What an owner could take out without starving the business. That's 9% of revenue. Treating stock comp as the real expense it is (less $97M of SBC) leaves $1.4B. Honest caveat: capex here blends maintenance and growth, so steady-state Owner Earnings may run higher (see capex vs. depreciation).

• Are earnings backed by cash? 0.96×
  Mostly cash-backed
  Cash from ops $2.0B ÷ net income $2.1B

  How much of reported profit showed up as operating cash. Above 1× is reassuring; well below suggests earnings lean on accruals. One year is noisy — growth and working-capital swings distort it, and this is operating cash, not free cash. Watch the multi-year trend.

How is the cash used?

• Where do the earnings go? 84%
  Returns about half
  Dividends + buybacks $1.3B ÷ Owner Earnings $1.5B

  Of $1.5B Owner Earnings, $1.3B (84%) went back to shareholders — $1.3B dividends, $9M buybacks. But the buybacks barely exceed stock issued to employees ($97M SBC) — net of dilution, little was truly returned. Returning most of it signals a mature cash machine; reinvesting most could mean a long runway — or empire-building. The split doesn't say which; the return earned on it (see ROIC) does.

• Investing or harvesting? 4.76×
  Expanding
  Capex $486M ÷ depreciation $102M

  Descriptive, not a grade. Above ~1× means investing faster than assets wear out (growth — or, sustained for years, today's earnings carrying less depreciation than tomorrow's will). Below means spending less than it's wearing out (efficiency — or a melting asset base). The ratio won't tell you which; the filings will.

Durability & moat — 2017–2025

A moat is a high return that doesn’t fade, reinvested at high returns. Here is what the record says — judgments, not another chart of the numbers.

• Profitable years 9 of 9

  Never lost money over the record — the earnings stability Graham insisted on.

• Return on capital ≥ 15% 0 of 9 yrs

  A moat shows up as a high return on invested capital that holds year after year — not one good vintage.

• Operating margin 19% → 19%

  Margins held steady across the cycle.

• Reinvestment — incremental ROIC 15%

  Reinvested capital earned only a modest return — growth is getting expensive.

• Owner earnings growth +0%/yr

  Free cash to owners grew about 0% a year over the record.

• Worst year 2018 · 16.6% op. margin

  Stayed profitable even in its hardest year — the resilience that survives recessions.

• Share count +7.0%/yr

  The share count is rising — dilution works against you on a per-share basis.

• Dividend record rising

  Paid and raised the dividend across the record — the continuity Graham prized.