Consumer & Retail: Stars, stripes & spreads

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Consumer & Retail: Stars, stripes & spreads

Maple Parent (KDP)

Keurig Dr. Pepper, a leader in U.S. at-home coffee and flavored beverages, benefits from

a diverse and on-trend portfolio, top-tier distribution system, efficient cost and cash

flow optimization, and financial policy that has remained committed to an IG rating

despite periods of M&A or shareholder-friendly policies. Our Marketweight rating is

based on KDP's est. elevated leverage vs peers following the acquisition of JDE Peet's

and post separation complexity with regard to timeline & structure, and near-term

challenges with coffee inflation & volatility. Debt issuance to fund acquisition will be

under Maple Parent Holdings corp subsidiary which will be spun off as the Coffeeco

entity post separation. Risk is offset by our view of LT attractive growth in both

categories, high beverage margins vs BBB peers, and opportunity for FCF and asset

proceeds to reduce debt. Relative value is fair at +5-10bps, but still moderately

attractive wide to other BBB Food.

Risks are structural contraction in some of KDP's important soft drink & juice segments,

coffee bean volatility, unproven global execution, aggressiveness of key stakeholders, or

inability to address leverage levels consistent with BBB ratings. Upside includes

declining coffee prices, synergy capture, asset sales aiding deleveraging, or more rapid

FCF conversion to historical levels.

Kroger Co. (KR)

Kroger (KR) is a best-in-class food retailer that maintains a competitive advantage vs.

national and regional peers due to management's long-term investment in service,

product quality, productivity, and technology. KR demonstrates conservative financial

policies and balance sheet management, which has historically allowed valuation to trade