Keurig Dr Pepper Inc.

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to Keurig Dr. Pepper's earnings call for third 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 Senior Director of Investor Relations, Mr. Steve Alexander. Mr. Alexander, please go ahead.

Thank you, and hello, everyone. Thanks for joining us. Earlier this morning, we issued our press release for the third quarter of 2021. If you need a copy, you can get one on our website 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. While the exclusion of items affecting comparability is not in accordance with GAAP, We believe that the adjusted basis provides a meaningful comparison and appropriate basis for discussion of our performance. Details of the excluded items are provided 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 today to discuss our third quarter 2021 results are KDP Chairman and CEO, Bob Gambler, our CFO, Ozan Dantmesioglou, and our Chief Corporate Affairs Officer, Maria Scappagurcio. And finally, our discussion this morning may include forward-looking statements, which are subject to the safe harbor provisions of the Private Security 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 on subsequent events. A detailed discussion of these risks and uncertainties is contained in the company's filings with the SEC. And with that, I'll hand it over to Bob.

Thanks, Steve, and good morning, everyone. As we approach the completion of our three-year post-merger period, we're looking forward to our next chapter of transformation and growth. We're entering that phase from a position of strength, with top-line momentum fueled by new tools and capabilities, robust innovations, and the right team and culture to enable continued success. Importantly, we're also nearing our targeted leverage ratio, which enables us to shift the use of our industry-leading cash generation from debt reduction to a new set of options for increased value creation. We have successfully navigated the macro dislocation that has occurred over the past 20 months and expect to be able to do the same in the face of the new challenges that are causing incremental disruption across the economy. The escalation in input cost inflation, coupled with labor shortages and supply chain disruptions, including constraints in transportation, impacted us in the quarter and will likely persist for some time. As part of the offset, we have increased price and utilized a wide range of RGM initiatives across our portfolio along with stepped-up productivity, alternate sourcing and supplier strategies, and other cost mitigation activities. Given the strength of our brands, driven by increased investment in innovation and marketing, we have been successful in limiting the elasticity impact of the pricing to date. Our third quarter results provide a good example of KDP's ability to manage through challenges and deliver strong and balanced results. We posted another quarter of high single-digit constant currency net sales growth with all four business segments reporting strong increases. We also delivered double-digit adjusted diluted EPS growth while increasing marketing investment in the quarter. As discussed last quarter, we believe it's helpful to highlight our results on a two-year basis because we are layering strong current year performance on top of strong year-ago performance. which we believe sets KDP apart from most companies. On this basis, constant currency net sales advanced 13% versus the third quarter of 2019, and adjusted diluted EPS was up 38%. On a year-to-date basis, results were similarly strong compared to 2019. KDP's in-market performance for the third quarter was as strong as our financial performance. We continued to grow share in carbonated soft drinks, reflecting core brand growth and successful innovation and renovation, most notably our new zero sugar varieties. Sunkist continued to post strong double-digit consumption growth behind its new flavor lineup and is now the number one fruit-flavored CSD brand in the category. Other CSDs posting strong growth in the quarter were Canada Dry, A&W, and Squirt. The Dr. Pepper brand also continued to perform exceptionally well, consistently gaining market share on the strength of double-digit consumption growth. This growth has accelerated with the recent launch of this year's Fansville campaign, which celebrates the passion consumers have for college football and Dr. Pepper. In-market performance of our key non-carb beverage brands, such as Snapple, Buy, and Core, continue to be impacted by supply chain challenges that cap growth. The supply chain situation is already showing signs of improvement, with Snapple's latest four-week consumption well above its 13-week trend, and Buy growing consumption by nearly 15% in the most recent periods, behind the success of Buy Boost. On a two-year stack basis, in-market performance of our cold beverages was very strong, with nearly 75% of the portfolio's retail sales base expanding market share. We continue to drive our newest brand partnerships and deepen existing ones. In the case of Polar, we expanded availability outside of the Northeast region, achieving a 3.7% share, and 60% ACB distribution in markets for which KDP is responsible for the brand. We also invested in Vitacoco's recent IPO, and as part of that transaction, extended our distribution agreement with them. In coffee, our K-Cup pod shipments advanced 6% in the quarter and are up almost 7% year to date. This reflects continued strong at-home performance and a modest improvement versus a year ago in away-from-home coffee, although the latter continues to be down significantly versus pre-COVID levels. Market share of KDP manufactured pods and tract channels was 83%, up almost a full point versus a year ago. As we discussed during our recent Investor Day, we expect to add at least 2 million new Keurig households in 2021, continuing our long-term growth trajectory and clearly showing no pullback following our accelerated level of 3 million new Keurig households added in 2020. We will provide a final 2021 household penetration number when we report our Q4 earnings. Brewer shipments grew 2.2% in the quarter, successfully comping a 34% increase in the third quarter last year. On a year-to-date basis, brewer sales were up 22% versus a year ago, And compared to the third quarter of 2019, brewer sales are up 44%. Driving this impressive growth is effective marketing and our comprehensive quality and innovation strategy that is widening choice, functionality, and price points of our brewer portfolio. The most recent example is our new multi-stream technology, which delivers a richer, more balanced, and flavorful cup of coffee. Our newest brewer is the Keurig Supreme Plus Smart. initially launched on Keurig.com in July, and now rolling out to retailers in time for the holidays. In addition to incorporating multi-stream technology, this internet-connected brewer also features our new Brew ID technology, which recognizes the specific K-cup pod in use and automatically customizes brew settings. The brewer's smart technology also enhances our successful auto delivery business by utilizing SKU-level pod consumption data to automatically replenish consumers via shipments direct to home. Both our auto delivery and broader e-commerce business continued to expand in the quarter on top of the exceptionally strong growth experience last year. We also continue to innovate in pod sustainability and have begun the introduction of easy peel lids to our recyclable K-cup pods in order to make the recycling process simpler for consumers. In addition to the good progress we've made in coffee pod sustainability, the accomplishments in our company-wide ESG efforts continue to be recognized. Recently, we received the Reuters Responsible Business Award for the Social and Human Capital category, recognizing our 20-year journey of putting farmers first by improving one million lives in our coffee supply chain. A top 10% ranking among 350 food and agriculture companies by the World Benchmarking Alliance, a United Nations affiliated organization that focuses on improving private sector performance against the UN Sustainable Development Goals. A number two ranking out of 50 of the largest CPGs and retailers in North America by the nonprofit As You Sew in their assessment of plastic usage and packaging sustainability progress. and LEED Gold certification for our new Frisco headquarters. Before turning it over to Ozan, I want to highlight the increase in our outlook for 2021 net sales growth to 7% to 8% as communicated in our press release this morning. We continue to expect adjusted diluted EPS growth at the range of 13% to 15% as pricing, productivity, and revenue growth are being leveraged to offset significant and accelerating industry inflation as Ozan will now discuss in his comments.