Keurig Dr Pepper Inc.

Good morning and welcome, everyone. We appreciate you taking the time to join us today, both in person in New York City and over the webcast. Before walking through the agenda, let me first draw your attention to the slide in recognition of the forward-looking statements we'll make today. Please also keep in mind that we will be citing non-GAAP financial measures throughout our remarks and in the presentation that is posted on our website. Let's discuss what to expect during our time together. Our chairman, Bob Gimkart, will kick off the formal presentation with welcome remarks, followed by our CEO, Tim Cofer, discussing our value creation framework and the strategic rationale for the J.D.E. Pizza acquisition and our planned separation. Tim and Olivier Lemire, our newly appointed president of U.S. Coffee, will then walk through our future global coffee co-business in more detail. After a short break, Eric Gourley, our President of U.S. Refreshment Beverages, will discuss the future Beverage Co. SVP of Finance, Jane Gelfand, will provide an update on financials and capital structure. And Roger Johnson, our Chief Transformation and Supply Chain Officer, will walk through our integration and separation plans. Finally, Tim will provide an overview of Q3 earnings and share some final thoughts. In total, the prepared remarks portion of the day should take around two and a half hours. We'll then break for 45 minutes to allow the in-person attendees to explore our product showcase, and then we'll return for a Q&A panel. We expect to conclude our event and the webcast at around 1 p.m. Eastern time. We hope it'll be a productive and insightful session for you. Let me kick things off by welcoming our chairman, Bob Gamgart, to the stage, and he will introduce the rest of the board members joining us today. Over to you, Bob.

Good morning. It's great to see everyone. Thanks for joining us here. We've got updates to provide on KDP in general, on the transaction that we announced in August. We also have some great Q3 results to talk about, so we don't want to forget those either. As Chetan mentioned, we've got a number of directors here today, and what I'd like to do is just take a minute to introduce them. They are mostly are all located to our right over here. Pam Patsley is our Lead Independent Director. She chairs our Remuneration Committee. She's our longest standing director, having been at Dr. Pepper Snapple Board prior to joining KDP. Tim Koper, our CEO, you're going to hear a lot from him today. Juliet Hickman is right over there. Juliet serves on our audit committee, and one of our very newest directors, Mike Vandiven, who also serves on our audit committee. And the directors are going to be available to interact with you during breaks and during the product demonstrations, so please engage with them. Pam and I are going to come back on stage with the management team at the end of the day and answer questions as part of the formal Q&A session. So my purpose today is really to represent the perspective of the board. And I want to kick off today by offering five points that I think the board would like to emphasize at the start here. First of all, KDP has a long and consistent track record of delivering strong results. Since formation, 6% revenue CAGR, 11% EPS CAGR, and that places us in the top tier of CPG peers. But from a board perspective, our job is not to look backwards and congratulate ourselves on good results. It's really to position the company for future success. And that's why we have conviction in this acquisition and separation. What's important is for you to have more detailed information, more insight in our thought process. And that's what we want to do today so that you can come along with us on our journey on how we came to that conclusion and why we continue to have great confidence in the value creation potential of the transactions. Having said that, we heard your feedback. We certainly noted the market reaction, and then made it really clear to us that we needed a day like today to better explain the strategy and the thought process behind it, as I said. We also recognized we needed to change some of the executional elements of the transaction. You saw the press release today. Those are good developments, and we'll talk about more optionality going forward. We really think that we're on the right track and are being very responsive to your feedback. So going from today to this future end state requires great execution. So in addition to talking about the end state, we need to give you confidence in execution. And we'll do that today by showing you our integration plans. But I think more importantly, we're going to give you exposure to more people on our management team who are actually responsible for that and for running the company and making sure that we continue to deliver great results like we just did in Q3. So you'll meet them. And then we're going to be flexible. I mean, you've seen that we've been flexible since announcement. We're going to look for other opportunities to maximize value. And we'll talk about some of the areas where we're thinking about flexibility going forward throughout this presentation. So I think there are three points that I would like to comment on before I turn it over to Tim, because I'm in a unique position to do this. So first of all is the global coffee category. So you'll find it interesting, but the left-hand side there is my trophy from 1985. This was an on-campus competition sponsored by General Foods. And it was called the Maxwell House Brand Management Challenge. And it was about the coffee category. And my team won it, which is why we have the trophy. It sparked my career in CPG. It also was how I entered General Foods. And it also started a 40-year relationship with the coffee category. So I've seen it over an extended period of time. So there's no question in the post-COVID period, we saw a slowdown in the global coffee category. We also are beginning to see signs of recovery. And what typically happens is a three-year window starts to become reality. We never thought that this was anything more than temporary or cyclical. It's not structural. And if you look at the category over 40 years, you will see periods of time where the category slowed down, only to accelerate rapidly afterwards. And that's exactly where we think we are right now. We're in the beginning of a recovery period. Over that 40-year period, The volume growth of coffee is a 2% CAGR. And we know that in CPG, volume growth, real growth, is scarce and important. But it's undeniable when you look at a 40-year trend on coffee, the trajectory continues to be going in the right direction. Actually, Tim has a chart that will show you that very, very clearly. So let's think about this. If you believe it's cyclical and we're in the beginning of a recovery, we have a strong business in KDP Coffee, anchored by Keurig. We really believe that to succeed going forward in coffee, you've got to be global. We'll talk a bit about that. So if you want to form a global coffee powerhouse, the best partner is J.D. Peet's. This is a scarce and valuable asset. It's of high quality quality. And honestly, there is no alternative other than matching these two businesses together. And when you see the fit, it is striking how much each business complements each other. And we're confident that together we will form a formidable global coffee competitor. So that gets to another question that came up from time to time in the past couple of weeks, which is, What happened to the investment thesis? How has it changed? So I'll start with a real obvious comment, which is since we put the companies together seven years ago, a lot has changed in the world. Competitors, consumers, our customers and the way they think about it, certainly the macro environment is different. So I think it's natural and necessary to evolve our strategy as well. In 2018, the play was a really good insight at that point in time. We took two subscale beverage companies who were solely focused on North America. We brought them together to create a beverage challenger of scale. And it was wildly successful. If you take a look at what's happened over the past seven years, I gave you the aggregate financial performance. But beyond that, the strength of each individual company enhanced significantly over that time. So if we're going to put together these two companies to form a global coffee competitor, and we'll talk about why global is important later, we could run them together. It is an option to run them as one company, but we think it is optimal to separate them. One company focused on a global opportunity, which is a very different management mindset. obviously on one category, coffee, across the entire world of all forms, and the other to continue to run this very valuable North American refreshment beverage growth machine that has significant runway still in front of it. It also gives investors a choice in two different styles of running these companies. More to come on that, but it really shows that there was this natural evolution that started in 2018 and is our choice to run them separately. You're going to hear from a number of speakers. And I think the third area where I can offer unique perspective is my confidence in the management team. Tim, who you're going to hear from right after me, will run the combined businesses. And then upon separation, he will be the CEO of our standalone beverage company. Olivier, Eric, and Roger, I have worked with since the take private of Keurig in 2016. My experience with Jane goes back further than that. Jane was at Barclays in 2012, and she was part of the team that supported the IPO of Pinnacle Foods where I was CEO. And the reason I give you that time period of my experience is I have seen this team deliver across a wide variety of challenging situations time and time again. I have the highest level of confidence in their ability to execute. And that gives me confidence that we can get from where we are today to an outstanding end game when we separate these companies. So with that, let me turn it over to Tim Cofer, our CEO. He'll take you through a significant amount of content along with all of these other presenters. And as I said up front, I look forward to being back up here at the end with Pam. We'll be happy to answer your questions at that time. So Tim, over to you. Thank you.

All right, good morning, everyone. Great to see all of you again. I hope you've had a chance already to enjoy some of the amazing beverages that we have across these stations. For those of you that are here live with us at NASDAQ, I can imagine the coffee stations were hit pretty hard, it being a Monday morning and all. So building on Bob's comments, we have strong conviction in the strategic and financial merits of this acquisition of J.D.E. Pete's and the subsequent separation into these two pure play companies. We are creating North America's most agile beverage challenger and a true global coffee powerhouse. At the same time, as Bob said, I have spent the last two months absorbing shareholder feedback and of course the initial market reaction post the announcement. And I recognize that there are a few areas of concern as well as some open questions that would benefit from more explanation. That is why we're here today. So in my discussions with each of you, I think the questions have largely spanned these four areas. Why is J.D.E. Peetz the right acquisition? What does the separation into beverage co and global coffee co uniquely enable? How will we optimize KDP's capital structure post the acquisition and establish appropriate balance sheets for each of these separate entities? And how will we ensure that KDP delivers with success throughout this process? Over the next couple of hours, we will answer these questions and more. Now, before diving into these topics, let's reground you in our business and our strategy. We operate with a sole focus on beverages. I truly believe this is the best sector in CPG. It's large. It generates $1 trillion at a global level. It's growing. We expect a mid single digit CAGR in the coming years supported by structural tailwinds to sustain that momentum. It's dynamic with ever evolving consumer preferences that create endless opportunities to drive consistent growth through innovation, through mix management, through premiumization. It's financially attractive, strong profitability, compelling industry return profiles. So we understand this beverage industry very well, and we have a proven and successful value creation strategy. At the core of this, as you see on this slide, are five pillars. They serve as our blueprint for how we drive sustainable, consistent, compelling performance over time. The first three of those are commercial priorities, broadly geared around the top line. The two enterprise enablers support that growth in a profitable, efficient, and high return way. Let me touch very briefly on each one. Championing consumer obsessed brand building. This means being consumer led, consumer centric, as we nurture and expand our iconic brands. Shaping our now and next beverage portfolio to access growth accretive white spaces. via our flexible build, buy, or partner model, amplifying our route to market advantage, strengthening our multi-channel leadership with differentiated distribution capabilities, generating fuel for growth by reinforcing a continuous productivity mindset and a lean overhead operating model, and of course, dynamically allocating capital to support that long-term value creation. How have we applied that to our businesses? Let's start with refreshment beverage. Our results speak for themselves. Our flagship Dr. Pepper. We've turned this into the CSD category's innovation and marketing leader. We've driven nearly a decade of consistent market share gains and we've established ourselves as the number two market share position in the category. We've thoughtfully built out meaningful incremental growth platforms in white spaces that we previously didn't compete in, like energy and sports hydration. And we've strengthened our competitively advantaged route to market DSD network through capital efficient territory expansions, through brand partnerships and capability investments. The result of the efforts you see at the bottom of the page, a high single digit net sales CAGR since 2018. And we're just getting started with business momentum that should support continue sustained growth into the future. What about in coffee? Look, we know the operating backdrop in US coffee has been more dynamic over the last few years, particularly in that post COVID world and the multiple commodity cycles like the one we're in now. And yet we've made important strides We've reinforced Keurig's position as the number one North American single serve system across both brewers and pods. We've extended our portfolio into exciting growth areas like cold and super premium. We've continued to expand the number of households that brew Keurig every morning, now at 47 million strong and growing. And we are preparing to catalyze the next chapter of our growth agenda with disruptive innovation. We've invested in unique assets that drive competitive advantage, including our differentiated and highly profitable direct-to-consumer e-commerce capabilities. All of these initiatives have supported a steady low single-digit sales CAGR in recent years, consistent with our go-forward expectations. So through these commercial achievements, as well as robust productivity and thoughtful cash deployment, we've delivered strong results at an enterprise level. Since KDP's formation in 2018, as you see on this slide, we've grown net sales at a 6% CAGR. We've grown adjusted EPS at an 11% CAGR, while also returning meaningful cash to our shareholders. Now, at the same time, Both our businesses and the external environment have changed in significant ways since 2018. Just as Bob discussed earlier, the original merger thesis was really predicated on combining what at the time was two subscale businesses. We did that to create a North American beverage challenger. What's happened in the last seven years? Our refreshment beverage business is no longer subscale. In fact, it is the same size today as total KDP at merger. Our actions to evolve our RefBev portfolio, to strengthen our route to market, have also structurally raised the organic profile of this business relative to 2018. And in coffee, while we've made progress, we acknowledge that the category growth trend has fallen short of our expectations in recent years. And while we're the clear leader in North American single serve, that business is arguably subscale in particular relative to our global competitors that can leverage broader advantages in technology, in sourcing, and who can participate across the entire global coffee category. So as a board and a management team, We observed these changes since 2018. We discussed these and we reached a couple of conclusions. First, our refreshment beverage business has both the scale and the advantage positioning to succeed, as Bob said, either as a combined company or a standalone. And second, while our coffee business has clear strengths, it is not yet optimized to reach its full potential in current form. And we decided as a board that it needed further assessment and it could benefit from potential enhancement. So the first step in that assessment was to step back and take a fresh look at the coffee category. You've heard Bob's story 40 years ago, the Maxwell House Award. I've also spent a lot of my career in coffee, in a past life, different employer. We're long-term believers in the attractiveness of the global coffee category. We believe in the structural tailwinds supporting future growth. But we did the analysis once again to underwrite our confidence. Let's start with the consumer lens. Coffee remains a preferred way to address the universal human need for energy. And it's ever more important these days. Coffee is a highly emotional category. It evokes passion. It's artisanal. Craft specialization plays a key role in premiumizing the category, which is a clear growth tailwind. Coffee is habitual. Coffee has unmatched global frequency of consumption. And coffee is healthy, even as defined by regulators, both in this country and globally. Simply put, coffee is the number one beverage American consumers cannot live without, and I am certainly one of them. And it enjoys that similar status in so many markets around the world. Now, to see the evidence of this category's essential nature, look at the long-term trend on the chart. Bob mentioned this in his opening remarks. What you'll see over 40 years is a low single-digit global volume growth. And in dollar terms, recent growth trends are even faster, thanks to premiumization and innovation. Importantly, the structural factors supporting consumption growth remain as powerful as ever. And I would highlight that increased adoption, especially in emerging markets, as younger generations embrace coffee culture and begin to shift versus historic tea culture, is yet another growth tailwind long term. Now, as with many categories, coffee goes through cycles, including Most recently, this post-COVID lull that we've experienced. But as Bob said, and as this chart I think pays off nicely, the historic pattern is that these lulls are temporary and the category recovers to its long-term growth trajectory. We're seeing signs of this right now in the United States. This post-COVID recovery is underway. Category volume trends bottomed out in 2022. They've been stabilizing ever since. And encouragingly, this dynamic also holds true this year, year to date 2025. Even as this high inflation has fueled significant price increases. You see here that the elasticities on an absolute basis compare favorably to the historic trend. So that was our assessment, our step-back assessment on the coffee category. With renewed... confidence in the attractiveness of that global coffee category, our challenge was then to determine how do we optimize our coffee business? Our goal here was to create an even stronger business with higher growth prospects, greater resilience, and improved operational efficiencies. And look, we considered all options. All options were on the table. sell the business, spin it off as a standalone, continue to operate it as part of KDP. But ultimately, after thorough diligence, our management team and our board of directors determined that the acquisition of J.D.E. Peet's represented the most attractive and actionable path for maximizing the value of our coffee business. Here's the reality. Scale matters in coffee. The category addresses a universal need state. Common formats, common consumer trends, similar premiumization opportunities across markets. This means that consumer insights, innovation, technologies can be leveraged and reapplied across markets. And of course, in coffee, there are clear economies of scale in operations and costs. Bob said it in his opening remarks, J.D.E. Pete's. is one of the very few assets of global scale in this category. And it will step change Keurig in several ways. You see it on this chart. Our coffee net sales will more than triple to $16 billion, making us the second largest global coffee player and the largest pure plate. We'll gain access to additional geographies, including many high growth markets. will become a significantly larger manufacturer and the number one coffee buyer in the world. These elements are critical to fortifying Keurig as an even stronger coffee player. In J.D.E. Peet's, we also see a unique fit with the Keurig business. Through this combination, we can bring together the best of both companies. Keurig's North American leadership, know-how, innovation prowess, and J.D.E. Peet's global reach, leading brands, and full format expertise. The resulting global coffee call will enjoy an advantaged and complementary portfolio, incremental revenue opportunities, visible, actionable, achievable cost synergies, and greater resilience. Let's unpack each of these four, starting with advantaged and complementary portfolio. The combined company will be able to benefit from global category growth, given its strong brand portfolio, including $4 billion plus trademarks, broad participation across every coffee sub-segment, and geographic diversification. Moving to enhanced revenue potential, we see upside potential from scaling Keurig's system expertise and J.D.E. Peet's format capabilities across more brands and more markets. capitalizing on the growth runway for Peet's here in the United States, and extending Keurig's next generation coffee systems beyond North America. The third is clear and actionable cost synergies. We will discuss this in more detail, but we have identified clear and actionable efficiencies that we know will generate $400 million in savings in the next three years. These synergies can fund reinvestment while also supporting earnings growth. And finally, increased resilience. Obviously, as a larger company with greater supply chain capabilities, we will be much better positioned to navigate external volatility like tariffs and commodity fluctuations. Together, the union of J.D. Peetz and Keurig will create a stronger business that is more efficient and more capable of delivering consistent, profitable growth So upon closure of the J.D. Pete's acquisition, we will for the first time have scaled advantage platforms in both refreshment beverages and coffee. Through the subsequent separation, each of these businesses will become that focused pure play with attractive yet distinct profiles. Beverage Co. a growth-oriented player supported by a leading brand portfolio, a competitively advantaged route to market. The business will be disruptive. The business will be entrepreneurial. And it will deliver an attractive growth profile with potential upside from strategic optionality over time. Global Coffee Co. will be a steady grower with strong and resilient cash flow enhanced by near-term synergy capture opportunities. Performance will be supported by differentiated deep coffee capabilities and expertise. And as we've said earlier, while we could conceivably run these two businesses together, we believe the separation will provide clear benefits to both entity. What are those benefits? First, focus. Each company will tailor its strategy, its operating model, its capital allocation priorities to align with distinct category and geographic exposures. Culture. The respective leadership teams will have strategic clarity and we can structure and incentivize our organizations accordingly. Strategic optionality. Each standalone entity can think creatively and flexibly in pursuing additional value creation opportunities. And finally, shareholder benefits. Investors will be offered the opportunity for two very attractive yet distinct investment opportunities. Now, as I said at the beginning of my remarks, we have conviction in these transactions. And we have a clear view of the compelling destination once this is complete. It's now on us to execute with excellence. And that all begins with a robust plan and the right team. So we've recently established a transformation management office or a TMO. to drive this comprehensive integration program. Bob mentioned it earlier. It will be led by our newly appointed chief transformation and supply chain officer, Roger Johnson. You'll hear more from Roger in a minute. The TMO structure is designed to establish the processes and the workflows to guide our integration teams while also importantly freeing up the rest of the KDP organization to focus on maintaining that great base business momentum that you've seen us deliver again in Q3. The TMO will be comprised of a dedicated internal team in partnership with key advisors that'll be responsible for the integration planning, the future company design, for the value capture. Our board of directors and my executive steering committee will obviously provide support and oversight. Importantly, many of these leaders, team members, advisors, obviously have significant experience in executing complex transactions like this. As just one example, among others, I was fortunate enough to have a central role in the Kraft acquisition of Cadbury and the subsequent separation into Mondelez International Kraft Foods Group. Many of the other leaders, including those you'll hear from today, have had similar experience with complex transactions like this. We will draw upon those collective experiences to further de-risk the next steps. So one important element of executing these transactions is ensuring that we have the appropriate capital structures for KDP at acquisition close and importantly for each independent entity upon separation. We are well aware that some investors were uncomfortable with our initially proposed post-transaction leverage. And as you've seen today in the press release, we've taken meaningful action to address those concerns. So we've announced two cost-efficient transactions, a minority investment into a newly created coffee manufacturing JV and a private convertible investment into our future BeverageCo. These two equity-like instruments will help to shore up our balance sheet. As you see on this slide and in the release, we now expect net leverage to be below five times when the acquisition closes, and we're also targeting initial leverage ranges for BevCo in a range of 3.5 to four times and Global Coffee Co. in a range of 3.75 to 4.25 times. Based on the anticipated cost of this new financing, we continue to expect very attractive returns on our J.D. Peet's acquisition, including year one EPS accretion of approximately 10%. These capital raises also have the benefit of partnering and aligning KDP with sophisticated strategic investors, including Apollo and KKR, who understand and appreciate our vision. Let me walk you through the key acquisition, integration, and separation milestones from here. We said this back when we announced the deal in late August. We continue to expect that the J.D.E. Pete's deal will close in the first half of 2026. Our path to separation will be milestone-based with a plan for us to be operationally ready by the end of 2026. But before separating, we want the following conditions to be in place. First, a quick start to synergy capture. Second, balance sheet readiness for both companies. Third, an independent board of directors and experienced leadership team for each standalone company. And finally, market conditions that are conducive. But as we've said all along, We will be flexible in our approach to secure the best outcome. In that spirit, as we optimize from here, one element where we're taking a refreshed approach is to our leadership. We've made the decision to not name the leader of Global Coffee Co. at this time. And we no longer intend for Sudhanshu Priyadarshi to serve in that future role. We will name full leadership teams of both new companies at a future date closer to separation. So before we unpack both Global Coffee Co. and Beverage Co., let me conclude with three priorities to maximize value creation. First, maintaining base business momentum. As you saw this morning, we reported strong Q3 results. In fact, we raised net sales outlook and we reaffirmed our full-year EPS guidance. You should have also seen that J.D.E. Peetz this morning reaffirmed its full-year guidance. Indeed, we are initiating this transformation from a position of strength. Second priority, integrating with excellence to achieve our key deal objectives. You'll hear more from Roger about the processes and the plans we're putting in place to underwrite successful outcomes. And third, setting up each company for success with focused strategies, tailored operating models, purposeful capital allocation, After the separation, we expect both companies will offer their shareholders quality, consistency, simplicity, and be viewed as world-class leaders in their sectors. Okay, with that, let's move to Global Coffee Co. We're gonna bring this new company to life in a couple of sections. First, I'll invite Olivier Lemire to stage. He's a recently appointed president of U.S. Coffee, and he'll give an overview of the attractive Keurig Coffee business. I'll then return to talk about J.D.E. Peet's specifically, and then the Combined Global Coffee Co. Real quick, additional intro on Olivier. He is a tremendous leader. He's been with KDP for 14 years. The last four, he was president of our KDP Canada business. And I can tell you in that capacity, he led KDP Canada to significant coffee outperformance, consistently growing pod volume, brewer volume, net sales, and operating income. Indeed, Olivier knows the coffee business. He has deep experience with integrations as well, including steering the former Keurig Canada and Canada Dry Mots integration. Overall, he built a very strong Canadian organization, and we're very excited for him to take this U.S. coffee desk. Olivier, over to you.