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 first quarter of 2025. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. This conference call is being recorded, and there will be a question and answer session at the end of the call. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. I would now like to introduce current Dr. Pepper's Senior Vice President of Finance, Jane Gelfand. Ms. Gelfand, please go ahead.

Thank you and hello everyone. Earlier this morning, we issued two separate press releases detailing first quarter results and announcing the appointment of new independent directors to our board of directors. We will discuss these topics 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 forms 10-K and 10-Q, which will be filed with the SEC later today. Consistent with previous quarters, we will be discussing our Q1 performance on a non-GAAP adjusted basis. which reflects constant currency growth rates and excludes items affecting comparability. Definitions and reconciliations to 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. Our first quarter results were strong. Net sales advanced more than 6% and EPS increased more than 10%. We believe KDP is well positioned in today's fluid macro environment. The operating and regulatory backdrop demands a combination of organizational ballast and agility. As a scaled beverage player that is also the industry challenger, KDP is fortunate to have both. Q1 served as a good demonstration. Our resilience was evident in the strong top and bottom line results. While each of our segments faced different conditions in Q1, we executed well to deliver strong and steady enterprise level performance. During the quarter, we also moved quickly to assess and react to trade policy changes. Looking out to the balance of the year, our outlook now incorporates our best estimate of tariff related pressures and mitigations based on the policies in place today. As a result, we continue to expect that 2025 will be another solid year of growth and we are reaffirming our full year guidance. Let's now unpack the quarter's highlights and segment performance. Beyond the strong financial outcomes in Q1, there were several noteworthy achievements in the quarter also worth highlighting. These include market share gains across iconic liquid refreshment beverage brands like Dr. Pepper and Canada Dry, as well as newer brands like Electrolyte and C4. Accelerating price realization across each of our segments, reflecting actions to effectively manage inflation in 2025. A smooth start to the integration of ghost energy We are hitting the ground running in establishing a true energy platform with a 6.5% market share position already and momentum building, strong operating discipline, particularly in overhead cost management, and smart capital allocation, including the monetization of our very successful multi-year Vitacoco investment. Vitacoco has been a valued partner for the past 15 years, and we recently extended our distribution partnership to capture the significant growth opportunity ahead. At the segment level, U.S. refreshment beverages continued to outperform on the back of very strong CSD trends. U.S. coffee experienced a softer start, as the category began to work through commodity-driven inflationary challenges. And international proved resilient against a dynamic macro backdrop. I'll now dive deeper into each of our segments. Let's start with U.S. refreshment beverages, which was the clear standout in the first quarter. Net sales grew 11%. driven by strength in our core CSD portfolio, as well as the initial contribution of our ghost acquisition. Our CSDs outperformed in a healthy category. As consumer-obsessed brand builders, we delivered this result through a combination of impactful innovation, strong commercial execution, and full funnel marketing. Dr. Pepper had another great quarter with sizable market share gains, including a meaningful contribution from our highly incremental Dr. Pepper Blackberry launch in February. The new product, which pairs the iconic Dr. Pepper flavor with the rich sweetness of Blackberry, has captured nearly a point of CSD share and is performing on par with with our most successful innovations from recent years. The Dr. Pepper franchise continues to gain distribution breadth and depth thanks to innovation and zero format expansion, which remains a multi-year growth opportunity for this powerhouse brand. We also delivered healthy net sales growth in Canada Dry and 7Up, due to attractive returns on recently stepped-up innovation, marketing support, and product refreshment, including our early 2025 launch of 7UP Tropical. More exciting activity for these and other CSD brands like A&W is forthcoming. Our energy portfolio was another area of strength in the quarter. Entering year three of our partnership, C4 maintained its momentum, driven by DSD execution to expand the brand's distribution points and grow display penetration. Our integration of Ghost kicked off well, as did the distribution transition in late Q1. As we assume full influence over the brand, all the way to the shelf, we are beginning to execute against Ghost's significant growth opportunities. We are doing the same with emerging brands like female forward Bloom Sparkling Energy, which quickly scaled to a half a share point in the category during Q1, and the recently launched mainstream-focused Black Rifle Energy line. Now that our thoughtfully constructed energy portfolio is in place, we are confident in our right to win, and our team is eager to seize the opportunity. In sports hydration, another exciting emerging category for KDP, our work with ElectroLeave is entering year two on a strong growth trajectory. In Q1, the brand enjoyed significant growth and accelerating share gains, which should sustain as we pursue distribution white space and new packaging and product forms. Alongside our partner, Grupo PISA, we are committed to building electrolyte into a national and mainstream player, which will be supported by a state-of-the-art manufacturing facility currently under construction in Texas. Overall, we're very pleased with our US refreshment beverages performance. Our portfolio has momentum. We are executing at a high level and we have strong commercial plans for the rest of 2025. In US coffee, Q1 was a challenging quarter with a 3.7% net sales decline and profit pressure. Though the single-serve categories transition in 2025 from volume-led to pricing-led growth requires some patience to navigate, our dual priorities are steadfast. First, mitigating record green coffee inflation. And second, fortifying our long-term growth model by addressing evolving consumer needs. During the first quarter, we took actions in support of both of these priorities. I'll begin with mitigating green coffee inflation. Given the magnitude of the pressure that we and the industry are facing, we implemented a price increase across our owned and licensed brands to start the year. These pricing actions appeared on shelf earlier than many peers. resulting in short-term volume and mix tradeoffs in Q1. As already announced industry pricing layers in over the coming months, we expect to see more typical price gaps among key single-serve brands and for the net impact of our actions to become more favorable looking out into the back half. We will continue to evaluate all available levers to offset inflation over the course of the year. These include potential additional pricing, more productivity savings, and a sharper focus on the highest returning products, channels, and households. This brings me to our second priority, fortifying our long-term growth model. We are going after premium, cold, and next-generation opportunities to drive Keurig's future growth with Q1 progress across each dimension. We've been building a tier of premium and super-premium coffees anchored by brands like Lavazza, La Colombe, Philz, and others. These additions resonate with higher-value consumers and drive positive mix, and we've proven We can strongly accelerate these brands' growth when part of our portfolio. As an example, Lavazza K-Cup pods saw over 30% growth in Q1 retail sales, demonstrating significantly enhanced momentum just a couple of quarters after we assumed the brand license last year. Another major focus area is capturing more cold occasions through a variety of total coffee formats. In Q1, we introduced new flavors to expand on 2024's successful Refreshers platform. These products are proving highly incremental at key retailers. Our La Cologne ready-to-drink coffees also continued to scale nicely in the quarter, supporting the brand's transformation into a formidable challenger in this multi-billion-dollar beverage space. Our future coffee vision is also steadily progressing with behind-the-scenes work on the Keurig Alta system and plastic-free, aluminum-free K-Rounds pods. Over the last few months, we advanced in-home consumer testing of the new system, generating valuable insights that we will apply as we expand the trial to even more households as well as plan for future commercialization. These examples illustrate how we are balancing our U.S. coffee activities this year between inflation mitigation and long-term growth initiatives. Though segment performance is likely to remain subdued in 2025, we are laying the groundwork for stronger and more multifaceted growth in the years ahead. Moving to international, Q1 sales grew in the mid-single digits. We're pleased with KDP's relative trends across our primary countries and will continue to lean in to bolster our momentum as the year progresses. In Q1, we saw strong growth in liquid refreshment beverages driven by Peña Fial and our CSD portfolio, in particular Dr. Pepper and Crush. Inflation-related pricing also started to flow through late in the quarter and supported top-line gains across the international portfolio. We expect segment growth to accelerate over the balance of 2025, reflecting increased price realization and the activation of exciting commercial plans, highlighting our key international brands, many of which enjoy strong local identities. To wrap up, our dawn to dusk beverage portfolio is delivering strong enterprise results. while continuing to evolve towards faster growing spaces. Simultaneously, we are capably managing through changing economic conditions and mitigating associated risks. As we move through the year, we will remain flexible and proactive as we work towards delivering on our 2025 financial commitments and advancing our long-term strategic priorities. I'll now turn the call to Sudhanshu, and we'll return at the end with some closing thoughts.