Keurig Dr Pepper Inc.

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to Keurig Dr. Pepper's earnings call for the fourth quarter and full year of 2024. 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 Vice President, Finance, Jane Gelfand. Ms. Gelfand, please go ahead.

Thank you, and hello, everyone. Earlier this morning, we issued a press release detailing our fourth quarter and full year results, which we will discuss during this conference call and in the accompanying slide presentation that can be tracked in real time on the live webcast. Before we get started, I'd like to remind you that our remarks will include forward-looking statements which reflect KDP's judgment, assumptions, and analysis only as of today. Our actual results may differ materially from current expectations based on a number of factors affecting KDP's business. Except as required by law, we do not undertake any obligation to update any forward-looking statements discussed today. For more information, please refer to our earnings release and the risk factors discussed in our most recent form 10-K, which will be filed with the SEC later today. Consistent with previous quarters, we will be discussing our Q4 and full-year performance on a non-GAAP adjusted basis, which reflects constant currency growth rates and excludes items affecting comparability. Definitions and reconciliations toward the most directly comparable GAAP metrics are included in our earnings material. Here with us today to discuss our results are Keurig Dr. Pepper's Chief Executive Officer, Tim Cofer, and Chief Financial Officer and President International, Sudhanshu Priyadarshi. I'll now turn it over to Tim.

Thanks, Jane, and good morning, everyone. 2024 was a pivotal year for KDP. In a demanding operating environment, we delivered attractive performance consistent with our long-term algorithm and full-year guidance. We unveiled our refreshed strategy which we activated as the year progressed to set the stage for KDP's next phase of growth. And we took bold action to extend our portfolio into attractive white spaces and strengthen our commercial capabilities. In short, we struck a thoughtful balance between achieving our annual commitments and setting up KDP for consistent, sustainable success. 2025 is shaping up as another dynamic year for the CPG industry, and we will remain agile in our execution while targeting a similarly balanced set of outcomes, delivering on-algorithm financial results and simultaneously advancing strategic priorities to fortify our long-term growth model. Let me start with a quick review of our key 2024 accomplishments, which spanned each of our five strategic pillars. Beginning with consumer-obsessed brand building, a successful innovation slate and engaging marketing campaigns drove attractive growth across many of our iconic brands. To provide just a few examples, Dr. Pepper Creamy Coconut was our largest limited-time offering ever and generated significant buzz. We capitalized on the dirty soda cultural phenomenon powered by social media, which helped drive our eighth consecutive year of market share growth for Dr. Pepper. Canada Dry's first brand extension in years, Fruit Splash Cherry, was the number one innovation in the CSD category. The Mott's fall marketing campaign, highlighting its fresh, minimally processed apples, fueled full-year share gains in juice and strong back-half momentum in sauces. And in coffee, our owned and licensed brands accounted for over 50% of the pod category innovation, spearheaded by our distinctive, the original Donut Shop Refreshers line, which was the number one new product in the category and doubled our initial plan. We shaped our now and next portfolio, seamlessly transitioning Electrolyte and La Cologne to our DSD network and onboarding several new coffee partners, including leading brands such as Black Rifle in the U.S. and Canadian icon Kicking Horse. Ghost is yet another example of our portfolio strategy in action. Through this acquisition, which closed at year end, we added a successful emerging brand in the high-growth energy category that will benefit from inclusion in our advantaged distribution system. In total, our actions accelerated KDP's portfolio evolution to structurally faster growing segments within the beverage industry. We amplified our route to market advantage and further extended the reach and power of the KDP DSD system across multiple geographies and sites. Most notable in 2024, was the territory acquisition to extend our manufacturing and distribution presence into Arizona. The transaction provided direct exposure to a growing market and added high-quality scale to our supply chain and logistics networks. We also executed well across our existing footprint, translating to healthy marketplace trends for our base business and strong performance for our partner brands. Our fuel for growth focus permeated the organization, driving productivity savings at the high end of our target and generating SG&A overhead leverage, particularly in the second half of the year. And finally, we strengthened our free cash flow generation, which funded dynamic capital allocation activities. These included $1.1 billion of share buybacks, our fourth consecutive annual dividend increase, and over $1 billion of strategic investments that will enhance our ability to deliver consistent, profitable growth in the future. Our strategy and the five pillars underpinning it represent our North Star. In 2025, we will set a high bar for operational excellence while further advancing each of these pillars as we become an ever-stronger and more advantaged beverage company. To summarize our full-year 2024 financial performance, we delivered results consistent with our long-term algorithms, with constant currency net sales growing approximately 4% and EPS growing 8%. Strong productivity and overhead savings drove P&L leverage and funded higher marketing investment. Free cash flow generation and conversion also improved considerably relative to prior year, in keeping with our expectations. The strong performance during the year was led by our U.S. refreshment beverages and international segments, which each demonstrated standout momentum and together represent over 70% of revenue. In U.S. coffee, we made progress and strengthened our business resiliency as the industry heads into an inflation-driven pricing cycle. Moving to Q4, at the enterprise level, we finished the year with momentum. During the quarter, KDP delivered a meaningful top-line acceleration and solid bottom-line growth. Constant currency net sales increased more than 6%, led by U.S. refreshment beverages, which delivered an impressive double-digit sales gain. Notably, the net revenue trend across each of our three segments accelerated relative to the third quarter. Volume mix was the primary top-line driver, with year-over-year growth in each business. Price was also a positive contributor, with gains in U.S. refreshment beverages and international more-than-offsetting temporary price pressure in U.S. coffee. Our top-line growth, productivity savings, and overhead discipline mitigated escalating inflation, enabling increased investment behind our brands and solid EPS growth. Focusing on Q4 segment results, U.S. refreshment beverages net sales grew a very strong 10%, led by a volume mix increase in the high single digits. Our teams executed exceptionally well to deliver this growth, which reflected base business momentum, traction from new partnerships, and route to market additions. Carbonated soft drink momentum was particularly strong in Q4. The category remains healthy, and we benefited from compelling innovation and brand activity, as well as offerings that appealed to value-conscious consumers. Our CSD brands continued to win in the marketplace with market share gains in the quarter. Full flavor Dr. Pepper is now the number two CSD in the category. And the Dr. Pepper brand is the undisputed leader in the vibrant CSD flavor segment. Dr. Pepper was also the CSD category's largest share gainer during Q4. reflecting its consumer appeal, unique positioning, and the benefits of our commercial activities. For example, the seventh season of our Fansville college football marketing campaign was our most successful yet. We also saw continued traction from Dr. Pepper's Zero Sugar portfolio, which will remain a strong growth vector going forward. Canada Dry was another top CSD performer, supported by our fruit splash cherry innovation. And 7Up grew market share as consumers responded to our Shirley Temple holiday LTO and refreshed brand design. In 2025, we expect robust CSD growth to continue, supported by engaging full funnel marketing activations and a promising CSD innovation lineup designed to extend our flavor leadership. This includes Dr. Pepper Blackberry, which combines Dr. Pepper's original 23 flavors with the rich sweetness of blackberry. 7-Up Tropical, which blends the crisp taste of 7-Up with mango and peach flavors. and exciting seasonal activations across other iconic brands, including an indulgent and nostalgic A&W Ice Cream Sundae beverage and new flavors from our Crush and Sunkissed brands. Notably, Dr. Pepper Blackberry marks the first time we are simultaneously introducing an innovation across bottles and cans, fountain and frozen, to maximize availability across various formats that our consumers enjoy. Beyond CSDs, the next largest driver of our Q4 growth was Electrolyte, which is enjoying accelerating trends after converting to the KDP DSD system. Electrolyte is one of the fastest growing brands in the sports hydration category. and we see significant runway for future expansion. In 2025, we will focus on strengthening electrolytes distribution, including further transitioning the brand from Hispanic specialty to the mainstream sports hydration aisle. We will also leverage our DSD muscle to build electrolytes presence in multi-pack and zero-sugar offerings, where the brand meaningfully under-indexes versus the category leaders. Also during Q4, we made significant progress advancing our energy strategy. We drove strong growth for C4, gaining share within the attractive performance energy space and achieving an additional equity milestone in the process. We also began to transition Black Rifle Energy and Bloom to our DSD distribution network and closed on the Ghost acquisition. With a formidable, distinctive, and complementary energy portfolio now in place, we are enhancing our operating structure and adding dedicated resources to ensure KDP's success in this important high growth category. Just three years ago, our share in energy would have been close to zero. Today, it is over 6%. In 2025, we expect well over $1 billion in retail sales from our energy brands and have set our sights on achieving a double digit share position in the coming years. Overall, we're pleased with the performance of our U.S. refreshment beverages segment. Our exceptional Q4 results capped a strong 2024, and we have exciting plans in place to support sustained momentum in 2025. In U.S. coffee, Q4 net sales decreased 2% with a modest volume mix gain, including pod volume growth, more than offset by a temporary net price decline. We are encouraged by the improving state of the category and traction from our own portfolio efforts. Let me elaborate. First, year-over-year trends in the at-home coffee category improved on a value basis when compared to Q3, and the exit rate was healthy, with December representing the strongest month of the quarter. Second, in Q4, we continued to emphasize affordability, drive premiumization, and advance at-home cold coffee offerings, all initiatives that we believe will have multi-year relevance in the category. Consumer acceptance of our price pack down counts remained strong. Our premium product tier continued to grow through our expanded commercial relationship with Lavazza. And we captured incremental consumers and occasions through cold offerings like K-Cup Refreshers and our new K-Brew and Chill Brewer. Third, we made progress expanding our participation in coffee formats and channels where we have historically been underrepresented. Our ready-to-drink coffee partnership with La Cologne performed very well, with retail sales growth meaningfully accelerating in Q4. Momentum in away-from-home coffee also improved in the quarter, and we see significant opportunity into 2025 as in-office work ramps and we further push into channels like hospitality and food service. The combination of these factors put U.S. coffee on firmer footing exiting 2024, positioning it to be more resilient in 2025. We expect category conditions to be quite different this year given the inflationary pressure from coffee commodity costs. Accordingly, we are managing the business with two primary objectives. First, to preserve profit dollars and our ability to reinvest despite escalating green coffee costs. In response to this inflation, we announced pricing in Q4 that began to take effect in January and saw many competitors take similar steps. However, the commodity price has continued to move even higher since then, and we are evaluating all available options to offset the incremental pressure. These levers include driving greater productivity, optimizing mix, and may also require further pricing actions with some elasticity offset. Our second objective is to continue to steward the single serve category through marketing, innovation, and activation in brewers and pods while expanding our presence across total coffee occasions and solutions. We are planning to introduce compelling new products in various formats this year, and behind the scenes, we are advancing work on more disruptive launches like Keurig Alta and K-Rounds plastic and aluminum-free pods for the years to come. Turning now to international, we delivered another quarter of healthy top-line growth with constant currency net sales increasing at a high single-digit rate. Momentum was broad-based across the portfolio. In international coffee, our top-line was driven by market share gains for brewers and pods. In cold beverages, our performance was led by Mexico LRBs, which grew nicely. despite some signs of a macroeconomic slowdown. These results were propelled by Peña Fial line extensions, the expansion of power brands like Dr. Pepper within Mexico, and route-to-market investments across traditional and modern trade. During the quarter, we signed a Canadian licensing deal for Nestea, the leading iced tea brand in the country. furthering our international partnership strategy. The partnership will pick up later in 2025, and through this iconic brand addition to the portfolio, we expect to establish a leading position in an important LRB category while benefiting from enhanced scale across our total Canadian operations. All in, our international segment continues to perform well We are prioritizing this business for reinvestment, underpinning our confidence it can remain an outsized growth driver going forward. In closing, I'm pleased with our performance during 2024. We delivered strong results in a challenging environment while simultaneously positioning the business for the long term. This outcome was a direct output of the talent, dedication, and hard work of our 29,000 colleagues across KDP. On behalf of my executive leadership team, I'd like to thank them for their efforts and impact. Our challenger mindset is well suited for the current environment, and we expect to continue to see strong results in 2025 from empowering our teams to play offense and take calculated risks. I'll now turn it over to Sudhanshu, and we'll return with some closing thoughts about the year ahead.