Keurig Dr Pepper Inc.

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the Keurig Dr. Pepper's earnings conference call for the second quarter of 2021. 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 Silley. Mr. Silley, please go ahead.

Thank you, and hello, everyone. Thanks for joining us. Earlier this morning, we issued our press release for the second quarter of 2021. If you need a copy, you can get one on our website at KeurigDrPepper.com in the Investors 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. With 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 the reconciliation tables included in our press release and our 10-Q, 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 to discuss our second quarter 2020 results are KDP Chairman and CEO, Bob Gamgort, our CFO, Ozan Dovmesioglu, and our Chief Corporate Affairs Officer, Maria Scapper-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 filing with the SEC. With that, I'll hand it over to Bob.

Thanks, Tyson, and good morning, everyone. Since we spoke last quarter, consumer mobility across North America has continued to increase, with improving trends in travel, grocery and retail, and recreation translating into changes in growth trends in beverage category segments and retail channels. Just as we experienced in 2020, the COVID recovery period in 2021 is creating significant volatility in demand. which has required us to remain nimble and flexible in managing our business. One area in which mobility remains challenged is offices, which continues to be a headwind for us in coffee. While we've experienced some improvement year to date and expect more over the balance of the year, we project the recovery of office mobility to lag other areas of the economy. Mixed management was key to our success in 2020. as we were able to drive growth in on-trend segments and channels to offset those that were structurally challenged by COVID. While managing demand mix continues to be critical this year, we also face the added challenges of input cost and labor inflation, transportation constraints, labor shortages, and supply chain disruptions, making 2021 arguably more difficult in many respects than 2020. We expect another 6 to 12 months of macro volatility before a more predictable operating environment emerges. Key to stabilization will be a return to both school and the office environment, the course of the COVID virus and its variants, the impact of reduced or eliminated government subsidies, the catch-up of global supply chains to meet unprecedented demand, and an improvement in the labor market. Despite all the challenges, we remain confident in our ability to deliver our EPS guidance for 2021 while increasing our revenue growth target to 6% to 7% for the full year. Our updated financial outlook offsets the challenges I mentioned a moment ago with new pricing actions announced across most of our categories, along with continued productivity and efficiency efforts and the improving performance in our higher margin beverage concentrates and fountain food services businesses that both benefit from increased mobility. It's important to note that we still intend to reinvest any earnings upside into growth investments. At the midpoint of our 2021 guidance range, we will have achieved the three-year financial algorithm that we communicated at the time of our merger. delivering annual adjusted diluted EPS within our target range of 15% to 17%, revenue growth well above our target range of 2% to 3%, and our leverage ratio at or below three times by the end of this year. We will share our outlook for the business and update our long-term algorithm for total shareholder return at our upcoming investor event in September. Details regarding the virtual event will be shared next week. Turning the second quarter results we announced this morning, we posted another strong quarter, highlighted by double-digit growth in adjusted diluted EPS and high single-digit growth in constant currency net sales. These results were broad-based and balanced across the company, with growth driven by both core business and innovation. Because we're one of the few companies layering strong current-year performance on top of strong year-ago performance, It's also helpful to highlight our results on a two-year basis. Comparing the first half of 2021 with the same time period in 2019 shows constant currency net sales growth of 13.5%, adjusted operating income growth of 19.5%, and adjusted diluted EPS growth of just under 30%. We expanded our market share of total liquid refreshment beverages over the previous two years, driven in part by our 1.4 SharePoint increase in carbonated soft drinks. Total K-Cup pod shipments increased nearly 15% over the same time and brewer sales are up nearly 50%. Looking specifically at the second quarter, more than 70% of our cold beverage retail sales base expanded market share. reflecting continued growth of CSDs driven by core brand strength and innovation, the most recent being our new Zero Sugar lineup, which is performing exceptionally well. Growth in key non-car beverage brands such as Snapple, Core, By, and Evian was good for the quarter, but could have been even stronger had it not been for supply disruptions, which I will discuss in a few moments. In coffee, our K-cup pod shipments were essentially flat in the quarter, successfully lapping the very strong year-ago period that was driven by peak at-home consumption. Comparing K-cup pod shipment volume to 2019 removed some of the significant noise and timing for that business. For the quarter, K-cup pods grew nearly 10% on a two-year basis, demonstrating the underlying long-term growth trends in our coffee business. Keurig brewer sales in the quarter increased by nearly 30% compared to a year ago, some of which was influenced by government stimulus and the timing of Amazon Prime Day. Finally, with regard to coffee systems innovation, we were excited to announce earlier this week the launch of the K-Supreme Plus Smart Brewer, marking our first launch of a connected brewer for the broader consumer market. We look forward to talking more about the new BrewID technology and and the growth platforms it creates for us at our upcoming Investor Day event. Shifting from demand to supply, nearly all CBG companies have discussed supply disruptions in 2021, and we're certainly not immune to these challenges. We continue to be effective in supplying K-cup pods and CSDs, and we've been able to overcome chip shortages and ocean transportation limitations to supply the high levels of demand for our Keurig brewers. However, our non-carb beverage portfolio has been negatively impacted by supply disruptions, especially Snapple and Core, which is evident in the latest scanner numbers. I'll use Snapple as one example of the type of challenges that we and most other CPG companies are facing in the current environment. As we discussed on previous earnings calls, we started rolling out our refreshed Snapple bottle on the West Coast in November of 2020. That new package substitutes post-consumer recycled plastic, or RPET, for glass and non-recycled plastic, and it also contemporizes the Snapple brand look and feel. The consumer reception has been very strong, with Snapple growing share for the first six months of the year as we increased recruitment of younger consumers, exactly what we intended to do with the refresh. However, an unexpected shortfall in committed glass bottles from our supplier required us to transition our new RPET packaging faster, which pressured material availability from our supplier of RPET and stretched the startup curve of our new production lines. We're navigating through this challenge and other disruptions that have become the new normal in 2021 to maintain our guidance. However, we do expect some sales and share pressure on key non-car beverage brands throughout the third quarter. Our learnings on how to successfully manage our business through the volatility of COVID continue to serve us well as we build an increasingly resilient organization. Before I turn it over to Ozan to discuss our segment performance in detail, I'd like to mention the great progress we continue to make in the area of ESG, which we know is important to an increasing number of investors. We recently issued our annual corporate guidance, our annual corporate responsibility report that highlights our performance against our previous ESG goals increases our ambition through new ESG goals, and expands our impact in new areas such as diversity and inclusion in health and wellness. If you haven't done so already, I encourage you to read the CR report, which is available on the KDP corporate website. Ozan, over to you.