Keurig Dr Pepper Inc. (KDP) reported better-than-expected third-quarter results on Tuesday. The stock fell anyway. That tells you pretty much everything you need to know about how investors feel about the company's coffee business right now.

Adjusted earnings rose 22.2% year over year to 66 cents per share, beating the analyst estimate of 62 cents. Revenue surged 70.6% to $7.34 billion, topping Wall Street's $7.33 billion estimate. Those are good numbers. But inflation and price-sensitive consumers weighed on the U.S. Coffee segment, and the market focused on that instead.

The company also reaffirmed its full-year 2026 sales and adjusted earnings outlook.

Beverage Sales Drive Growth

Excluding the JDE Peet's acquisition, legacy Keurig Dr Pepper sales rose 8.6%, driven by higher volumes and favorable pricing. Adjusted operating income climbed 52.5% on a constant-currency basis to $1.7 billion, helped by sales growth and cost savings. The results also included a $99 million benefit from tariff refunds.

U.S. Refreshment Beverages revenue increased 10.9% to $3 billion, led by Dr Pepper, Canada Dry and energy drink brand Ghost. That side of the business is humming along nicely.

U.S. Coffee revenue rose 2.7% to $1 billion, driven by 6.9% volume/mix growth that offset a 4.2% decline in net price realization. Adjusted operating income increased 11.4%, aided by tariff refunds. International revenue grew 11% to $644 million, while JDE Peet's contributed $2.6 billion following its April acquisition.

CEO Tim Cofer said the U.S. single-serve coffee market remained softer than expected, as value-oriented coffee formats continued to outperform amid challenging economic conditions.

Coffee Consumers Are Cutting Back

Here's the thing about coffee: people will always drink it. The question is what form it takes when money gets tight. And right now, Keurig Dr Pepper is seeing signs of pressure on U.S. coffee consumption as inflation-weary Americans turn to cheaper alternatives.

Cofer said low- and middle-income consumers are becoming increasingly price-sensitive after years of coffee price increases. As a result, lower-cost options, including ground coffee, whole beans and instant coffee, are outperforming single-serve products.

"Households that use Keurig every week continue to consume K-Cups, but at a lower frequency," Cofer said.

The company also reported growing demand for private-label coffee. Management warned that these spending shifts could persist if economic pressures continue, prompting Keurig Dr Pepper to adopt a more cautious fourth-quarter outlook for its U.S. coffee business.

Reaffirms Outlook

Keurig Dr Pepper reaffirmed its 2026 revenue forecast of $25.9 billion to $26.4 billion, compared with Wall Street's estimate of $26.29 billion. The company maintained its forecast for low-double-digit adjusted earnings growth on a constant-currency basis.

However, it lowered its legacy KDP earnings growth forecast to 3%-5% from 4%-6%, citing weaker U.S. Coffee expectations. That's the number that probably got the stock moving south.

The company previously named Russ Torres as the future CEO of Global Coffee Company. Torres joined KDP on Tuesday, while the company also highlighted its recently launched Keurig Alta brewing system.

Keurig Dr Pepper reiterated plans to split into separate beverage and coffee businesses in early 2027, subject to market conditions. Operating cash flow reached $1.04 billion, while free cash flow totaled $1.01 billion.

KDP Price Action: Keurig Dr Pepper shares were down 4.93% at $35.00 at the time of publication on Tuesday.