Keurig Dr Pepper Inc.

and gentlemen, and thank you for standing by. Welcome to the Keurig Dr. Pepper's earnings call for the fourth quarter and full year of 2020. This conference call is being recorded, and there will be a question and answer session at the end of the call. I would now like to introduce Keurig Dr. Pepper's Vice President of Investor Relations, Mr. Tyson Seeley. Mr. Seeley, please go ahead.

Thank you, and hello, everyone. Thanks for joining us. Earlier this morning, we issued two press releases, the first announcing that our Board has approved a 25% increase in our quarterly dividend from 60 cents to 75 cents per share on an annualized basis, beginning with the second quarter dividend announcement subject to official declaration by our Board of Directors. As part of that announcement, we also indicated that the Board has declared a regular quarterly dividend of 15 cents for the first quarter of 2021. The second press release covers our fourth quarter and full year 2020 results. Both releases are available on our website at KeurigDrPepper.com in the investor section. Consistent with previous quarters, today we will be discussing our performance on an adjusted basis, excluding items affecting comparability. The company believes that the adjusted basis provides investors with additional insight into our business and operating performance trends. While the exclusion of items affecting comparability is not in accordance with GAAP, we believe that the adjusted basis provides meaningful comparisons and an appropriate basis for discussion of our performance. Details of the excluded items are included in our reconciliation tables, included in our press release and our 10-K, which will be filed later today. Due to the inability to predict the amount and timing of certain impacts, outside of the company's control, we do not reconcile our guidance. Here with me virtually today to discuss our fourth quarter and full year 2020 results are KDP Chairman and CEO, Bob Gambwerk, our CFO, Ozan Dokmesioglu, and our Chief Corporate Affairs Officer, Maria Scheper-Gurcio. And finally, Our discussion this morning may include forward-looking statements, which are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are subject to a number of risks and uncertainties that could cause actual results to differ materially, and the company undertakes no obligation to update these statements based upon subsequent events. A detailed discussion of these risks and uncertainties is contained in the company's filings with the SEC. With that, I'll hand it over to Bob.

Thanks, Tyson, and good morning. Before getting started, I'd like to express my best wishes to everyone that you and your families are well. It's hard to believe that we've all been operating under the pandemic for almost a year. And while vaccines are providing hope for a return to normalcy later this year, The spike in COVID cases in January, followed by extreme weather in February, suggests that 2021 will be another unpredictable year. At the start of the pandemic, we put in place our One KDP plan, which prioritized keeping our employees safe and healthy, delivering for our customers and consumers, and providing for our communities. These priorities have served us well. Additionally, our success in navigating this crisis to date has been aided by using data and technology to leverage the breadth of our portfolio and the unique reach of our distribution network to effectively manage portfolio and channel mix. In 2020, we delivered at or above the high end of the annual guidance we established at the beginning of the year. And the 2021 guidance we are providing today points to our confidence in achieving the three-year merger commitments communicated in 2018, despite the macro environment becoming significantly more challenging since that time. As you saw from our earlier announcement, we're increasing our dividend rate by 25%, starting in the second quarter of this year. This reflects the line of sight we have to continued strong free cash flow, which enables us to simultaneously increase our return of value to shareholders, reach our deleveraging target by year end, and invest in expanded production capacity, innovation, and technology. In fact, our dividend payout ratio, even after the 25% increase announced today, remains below 50%. of free cash flow. Finally, we're fully committed to deliver both TSR and ESG. In 2020, we achieved nearly all of our aggressive sustainability goals. And in 2021, we have signed up for new and expanded ESG goals, including health and well-being and diversity and inclusion. We will publish specifics for each in our corporate responsibility report All of this underpins our journey from two separate companies to a combined new challenger in the beverage industry to a modern beverage company with an exciting future. We look forward to sharing our long-term vision and plans for KDP when we conduct an investor day in the second half of this year. let me take a few minutes to step back and provide key highlights of our 2020 performance. We delivered accelerated constant currency net sales growth of 5% in 2020, with strong momentum exiting the year. Driving that revenue growth were exceptionally strong in-market results across the business. In cold beverages, we gained market share in more than 90% of our retail base. including market share growth in excess of one full point in CSDs. This was driven by double-digit consumption growth of Dr. Pepper and Canada Dry, our largest CSD brands, as well as A&W, 7-Up, Sunkist, and Squirt. Dr. Pepper and Cream Soda became the number one new flavor in the CSD category in 2020 and while Canada Dry Bold also performed exceptionally well. Canada Dry is now the only CSD brand to achieve volume and dollar growth for the past 14 consecutive years. Strength in cold beverages extended well beyond CSDs, with KDP share growth in premium water, ready-to-drink tea, shelf-stable fruit drinks, and Mott's apple juice and sauce. As we discussed on previous earnings calls, the pandemic required us to manage mix across channels, beverage segments, and even pack types to react to dramatic shifts in consumer shopping and consumption patterns. This meant driving growth in multi-packs and cans sold in large outlets and e-commerce to offset slowdowns in fountain food service, convenience and gas channels, and as a result, impulse packs. Our speed in pivoting to these changes was enabled by new uses of data and technology, consistently strong in-market execution, leveraging our highly developed e-commerce capability, and a flexible and resilient supply chain team. Our coffee business also had a strong year. Consumer purchases of Keurig manufactured cake cup pods registered double-digit growth. While brewer shipments grew 21%, which reflects a combination of new households entering the system as well as existing households upgrading their brewers. Household expansion of the Keurig system was very strong this year, with approximately 3 million new households entering the system. That translates to 10% household growth, nicely above our longer-term, pre-pandemic trend of approximately 7% growth per year. Not surprisingly, the consumer shift to work from home meant at-home consumption of K-cup pods was strong throughout the year, while the away-from-home channel, which is focused on offices, remained a significant headwind. And while we expect the away-from-home business to improve slowly over the course of 2021, we will begin to lap the 2020 declines in the second quarter of this year. In addition to our strong top-line results, our bottom line performance was also strong for the year, with adjusted diluted EPS growing 15% to $1.40, which represents the high end of our 2020 guidance. This was achieved by offsetting significant mix headwinds and operating cost pressures with revenue growth that was above our targets, continued strong productivity and merger synergies, and reductions in discretionary spending. We also drove strong free cash flow, which enabled us to reduce our indebtedness and improve our management leverage ratio to 3.6 times, while also making significant capital investments. Specifically, our new Spartanburg, South Carolina coffee pod facility, which will be the largest LEED-certified manufacturing facility in North America, Our Allentown, Pennsylvania cold beverages facility, which was recognized as plant of the year by Food Engineering Magazine. And our Newbridge, Ireland facility, which represents our second manufacturing location for our important beverage concentrates business. In 2020, we also invested in the expansion of our portfolio and DSD network through multiple transactions, including a long-term agreement we announced with the Honickman Companies that provides KDP with sales and distribution for key brands in the Metro New York area. National franchise agreement with Polar Beverages and other numerous transactions with smaller but strategic independent bottlers to ensure competitive distribution scale for our brands. Consistent with our focus on improving the effectiveness of our distribution systems, we exited some non-strategic skews during the year. enabling us to keep our high-volume brands in stock and creating space for new partnerships and 2021 innovation. In 2020, we also made great progress on our sustainability initiatives. We now responsibly source 100% of our coffee and 85% of our brewers and have improved the livelihoods of over 1 million people in our supply chain. We also completed our multi-year conversion to 100% recyclable K-cup pods. And during the year, we co-founded two industry coalitions focused on enhancing U.S. recycling infrastructure. We launched our first post-consumer recycled, or PCR, packaging in cold beverages, putting us on track to deliver our goal of using 30% PCR in our packaging across the business by 2025. This long list of accomplishments would be impressive in any year, but it is even more so against the backdrop of the challenges and uncertainty we faced in 2020. I'm proud of and grateful for the nearly 27,000 team members across KDP who have proven to be our underlying competitive advantage. Turning now to our outlook for 2021. The guidance we're providing today is consistent with the commitments we laid out at the time of the merger announcement and position us to meet our three-year merger targets. Specifically, for 2021, we expect constant currency net sales in the range of 3% to 4% and adjusted diluted EPS in the range of 13% to 15%. On a two-year stack basis, which eliminates any noise from COVID impact, This translates into net sales growth of over 8% and adjusted diluted EPS growth of nearly 29%, both at the midpoint of their ranges. Our confidence in 2021 growth is supported by both innovation and renovation, both of which will be backed by increased marketing investment. Ongoing productivity savings and our final year of merger synergies will help offset increased inflation. We expect our management leverage ratio to improve by three times by year end, driven primarily by our continued strong free cash flow generation. In 2021, we are rolling out zero sugar varieties across our CSD portfolio. For most brands, the new zero offerings represent a rebranding of our existing diet SKUs to more clearly articulate the zero sugar benefit to consumers. For Dr. Pepper, the introduction of a zero sugar variety will be in addition to original Dr. Pepper and diet Dr. Pepper. We are also introducing ByBoost, a new platform with caffeine, and Mots Mighty, a line of juices and sauces fortified with vitamins E. and fiber. In addition, we will be launching new flavor varieties across many of our brands. We've begun the stage rollout of our new Snapple bottles made with 100% recycled PET and featuring new graphics. Also, we are now producing all-core hydration bottles with 100% RPET. In coffee, we have another strong lineup of new brewers planned for this year. including our first connected brewer for the broader consumer market. We'll share additional information on this exciting new brewer and other brewers planned as we get closer to launch. In 2021, we expect continued strength in owned and licensed coffee. Last year, we reversed long-term trends by expanding sales and consumption of our owned and licensed brand portfolio. Within that portfolio, we have been able to improve the sales trajectory for the McCafe brand in partnership with McDonald's, which became a licensed brand for us in the second half of 2020. In 2021, we will launch Green Mountain Coffee Roasters brew over ice pods, which taps into the growth of cold coffee. The majority of our brewers launched since 2018 also have a brew over ice option. We are expanding our highly successful original donut shop one-step lattes introduced in 2020 into one-step cappuccinos. Last year, the original donut shop brand registered double-digit consumption growth and market share expansion on the strength of the new one-step offerings and a new marketing platform. Before turning it over to Ozan, I'd like to recognize the entire KDP organization for their tireless efforts in delivering such strong and well-balanced results. Because of their success, we have confidence in our 2021 goals and look forward to sharing our longer-term outlook at an investor day later this year. I'll now hand it over to Ozan to take you through the specifics of our financial results.