Keurig Dr Pepper Inc.

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 FCC later today. Consistent with previous quarters, we will be discussing our Q4 and full-year performance on a non-gap 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 materials. Here with us today to discuss the results are Keurig Dr. Pepper's Chief Executive Officer, Tim Cofer, Chief Financial Officer, Anthony DiSilvestro, and SVP of Strategic Finance and Capital Markets, Jane Gelfand. I'll now turn it over to Tim.

Thanks, Chafin, and good morning, everyone. 2025 was a strong year for KDP. We delivered healthy results that achieved our annual guidance. We drove winning innovation and commercial performance, generating the fastest U.S. retail sales growth among top food and beverage manufacturers, with market share gains across our portfolio. And we laid the groundwork for KDP's transformational next chapter through the announced acquisition of J.D.E. Peets and planned separation into two leading pure play companies, Beverage Co. and Global Coffee Co. Said differently, we navigated a dynamic operating environment with agility while strengthening our foundation for the long term. And the same can be said for J.D.E. Peets, which earlier this morning issued 2025 results that demonstrated solid financial performance and strong progress advancing its refreshed strategy. In 2026, we will build upon our momentum with a focus on three objectives that should translate to shareholder value creation. First, delivering our low double digit full-year EPS growth guidance in a high-quality way. Second, closing and seamlessly integrating JDEPs. And ultimately, third, establishing two advantaged standalone businesses positioned for success. At our recent Investor Day, we outlined our milestone-based approach to executing our transformation work streams. Let me share updates on a few of these milestones. Starting with the JD EPEATS acquisition, we have secured key regulatory approvals and launched the tender offer, positioning us to close the acquisition in early April. We've already made significant progress on integration planning. including multiple active work streams spearheaded by leaders from both companies and capable advisors with deep and relevant experience. Our teams are collaborating well to establish joint ways of working and a unified operating philosophy, all while exhibiting strategic alignment, shared purpose, and a palpable excitement to build a global coffee leader. At the same time, we're taking steps to ensure operational readiness to separate by the end of 2026. We're ready to implement a combined KDP operating structure for the interim period between deal close and separation, which will facilitate near-term performance while supporting a steady transition towards our future state as standalones. We're also advancing work streams to deliver against key separation milestones, including capturing initial deal-related synergies, appointing independent leadership teams and boards, and establishing appropriate capital structures for the two pure play companies. Our precise separation timing will depend on a number of considerations including market conditions, but we are progressing well against all elements within our control. Turning to our results. We are pleased with our 2025 enterprise performance. Net sales increased almost 9%, driven by approximately five points of growth from our base business and a nearly four point ghost contribution. And EPS grew 7%. On a segment basis, U.S. Refreshment Beverages was the standout performer, delivering double-digit net sales growth and high single-digit operating income growth. International was resilient in the face of dynamic macro trends growing on both a top and bottom line basis. And, as expected, U.S. coffee trends were softer in aggregate but demonstrated underlying progress. KDP's 2025 included multiple noteworthy commercial achievements, to name just a few. We gained market share in Dr. Pepper for the ninth consecutive year, driven by the category-leading Dr. Pepper Blackberry innovation our college football Fansville activation, as well as the brand's continued broad consumer resonance, which was most recently demonstrated by the viral jingle, Dr. Pepper, baby, it's good and nice, that lit up social media and became a cultural moment. Our agile marketing team quickly incorporated this user-generated creativity into into a college football national championship ad spot, and Dr. Pepper strengthened its position as the most engaged CSD brand on TikTok. We seamlessly integrated Ghost and successfully transitioned it to our DSD network, accelerating the brand's market share as we expanded distribution and display while maintaining high on-shelf productivity. We elevated our agile, digitally-led approach to marketing, leveraging data and technology to enable more powerful real-time insights, more precise segmentation, and more effective marketing content across consumer and shopper media, as evident in emerging proof points that I will discuss shortly. And we significantly progressed the development of our disruptive Keurig Alta next generation coffee platform, completing a series of successful beta tests and building critical capabilities to support a targeted late 2026 launch. Collectively, these highlights not only mark substantial achievements for 2025, but also provide benefits that will carry forward into future years. Moving now to our Q4 results, net sales grew 10%, led by mid-single-digit net price realization, including positive contributions from each segment. Volume mix grew against a difficult comparison, driven by an incremental contribution from ghost and modest base business growth. As we anticipated, profit flow through in the quarter was limited by cost pressures and higher reinvestment spending. These factors, along with modest below-the-line headwinds, more than offset strong productivity savings and continued overhead discipline. As a result, Q4 EPS grew 2%. Diving into the segments, U.S. refreshment beverages demonstrated continued top and bottom line momentum in the quarter. Net sales grew at a low double-digit rate through both volume mix and net price realization, and operating income increased at a high single-digit rate. We drove these results with a combination of healthy core portfolio trends and contributions from emerging growth areas. Starting with our core, the carbonated soft drink category remains strong, despite the uneven consumer environment, as innovation, brand activity, and an attractive value proposition resonated. Our portfolio performed well within the category, driven by several factors. We had winning innovations, not just for brand Dr. Pepper, but also through offerings. like 7-Up's seasonal Shirley Temple LTO and Bloom Pop in the prebiotic CSD space. We leveraged our newly enhanced precision marketing capabilities to apply personalization at scale for our largest campaign, Fansville, generating more than 3,000 unique creative units driving optimized consumer conversion paths and attracting new brand buyers for the Dr. Pepper franchise at a high ROI. And we managed a well-executed transition of Dr. Pepper to our DSD network in parts of California, Nevada, and the Midwest, quickly and effectively putting resources in place to ensure high quality service and continuity. Customer feedback and support has been positive. The near-term financial performance is tracking to our plans, and we will continue to unlock additional benefits from our enhanced scale in the future. Beyond the core in Q4, we saw strong performances in some of our emerging growth areas. Our multi-branded energy platform of C4, Ghost, Bloom, and Black Rifle once again outperformed the category with market share increasing nearly 1.5 points. We are seeing momentum across brands, supported by distribution gains, increased cold vault penetration, and healthy velocities, and we remain on track to achieve our double-digit market share goal in the coming years. Outside of energy, we drove continued robust growth for electrolyte, which was the sports hydration category's largest share gainer in Q4, and Vitacoco, the established leader in coconut water that nonetheless grew retail sales in excess of 20%. Emerging categories and brands already contribute meaningfully to our U.S. refreshment beverages growth, and we expect them to play an even larger role as they scale. We also intend to deploy our flexible build by partner model to expand into additional white space areas over time, including through capital light structures. And this should further enhance our portfolio's growth potential. Moving now to U.S. coffee. While Q4 was a softer quarter, let me contextualize our performance with three observations. First, segment revenue increased 4%, reflecting solid category and market share trends. Second, we are managing through cyclical cost pressures, which is having a temporary but meaningful impact on profitability. And third, despite the cost backdrop, we are investing to position our business for long-term success. I'll unpack each of these in turn. First, Coffee category trends remain resilient despite some challenges, with the Keurig-compatible pod category growing retail dollars at a mid-single-digit rate in Q4. While category growth admittedly remains pricing-led, elasticities have been manageable and consumers remain engaged, both of which bode well for volumes once cost pressures normalize. Within the category, both owned and licensed brands and Keurig manufactured pods gained share in Q4, contributing to U.S. coffee's solid top-line results. However, our top-line growth did not translate to Q4 operating income, which declined at a high single-digit rate. This brings me to the second point, cost pressure. Our intention to offset inflation over the commodity cycle is unchanged, but there are always periods when the timing of costs and implemented mitigations do not align. As expected, we saw this play out in Q4 when significant cost pressure flowed through our P&L without a proportionate offset weighing on profitability. As Anthony will discuss, We anticipate this temporary imbalance to persist in the first half of 2026 before easing over the course of the year. Moving to my third point, we recognize our current pricing-driven growth in coffee is more cyclical in nature, and we are actively investing to position our business for sustainable long-term volume and mix growth. Importantly, we have chosen to protect these investments even as we navigate an inflationary period, which is creating some additional near-term profit pressure but should pay future dividends. Let me discuss a couple of our Q4 investment areas in more detail. During the quarter, we applied our enhanced marketing capabilities to launch a new Keurig brand equity campaign. the first such activation in multiple years. This data-driven Anthem campaign showcases the benefits of brewing coffee with the Keurig system and was delivered to consumers through targeted storytelling across thousands of ad permutations, informed by their coffee purchase history and our rich insight into demand spaces. The campaign exceeded our targets on key KPIs like brand attention and return on ad spend and produced halo benefits that we are beginning to see across our entire coffee business. We intend to extend this marketing approach as we step up our brand building investment in 2026. We also advanced preparations for the upcoming launch of our next generation Keurig Alta platform, including the development of our final brewer model and building out multi-year commercialization and go-to-market plans. Consumer testing has validated that this system delivers a great tasting, superior experience across an unmatched variety of coffee and espresso-based beverages. We see significant long-term potential for this platform and have and will continue to invest ahead of scale to capture this opportunity. So to summarize the key themes we saw for U.S. coffee in Q4, resilient pod category and KDP top-line trends, elevated cost inflation, and continued investment to support long-term initiatives. While the same factors are also likely to translate into subdued financial results in 2026, particularly early in the year when cost headwinds peak and we manage through some retailer inventory adjustments, we have built our plans accordingly while pursuing the right actions to secure healthy, longer-term performance. Turning now to international, we delivered a very strong quarter with mid-teens constant currency net sales growth and 20% operating income growth, which was partly aided by timing. Momentum was led by our business in Mexico, where our cold drinks continued to outperform as the economy began to find its footing after a challenging 2025. Strong brands and effective commercial execution, including ongoing DSD expansion, translated to share gains across the portfolio. Peña Fial aids and twist extensions and Dr. Pepper all grew nicely. In Canada, performance was led by healthy coffee trends as our significant pricing actions in pods and traditional coffee have so far translated into only minimal volume elasticity. In 2026, we will continue to invest in this growth segment, including building capabilities that will help the business scale well beyond the current year. Though we'll need to navigate continued input cost inflation and new developments, like an increased Mexico beverage tax early in the year, we remain focused on sustaining our relative strength in both Canada and Mexico. At the enterprise level, we have bold innovation plans for 2026 to power our continued portfolio momentum. In refreshment beverages, our slate is anchored by meaningful activity in CSDs. We will welcome back our record setting Dr. Pepper Creamy Coconut LTO Extend our successful Canada Dry Fruit Splash line into a second flavor, Strawberry. Expand our presence in prebiotics with new Bloom Pop flavors. And activate other key brands with seasonal LTOs. In energy drinks, we are building off a very successful 2025 with exciting flavor innovation for C4, Ghost. Bloom, and Black Rifle, while also extending Ghost's portfolio into 8.4-ounce small cans, opening up new channels and new occasions for the brand. In still beverages, we have big plans for some of our icons, including a Snapple brand refresh and a first-ever zero-sugar beverage offering from Mott's. And In our fast-growing sports hydration segment, we have new flavors for our electrolyte partner brand. Moving to coffee, our innovation suite spans our full portfolio. In brewers, along with the disruptive Keurig Alta system I mentioned earlier, we are launching a new version of our K-Supreme, which will have additional features and a refreshed design. And introducing K-Mini Mate Plus, a new model in our mini line. In pods, our big bet for 2026 is the Keurig Coffee Collective, which marks the Keurig brand's first entry into coffee. This expertly crafted premium offering has been enthusiastically embraced by retailers, and early consumer sell-through is encouraging. We also have significant product activity for the original donut shop, including a watermelon breeze variety of our popular refreshers line and new innovation that extends the brand into matcha, a consumer preferred high growth white space. Finally, in ready to drink, we will build on our partnership momentum with La Cologne through the introduction of great tasting seasonal draft latte flavors. We are partnering closely with retailers to help consumers find, engage with, and experience this great set of new products, including through incremental shelf space and compelling programming. In total, our innovation, in-store activations, and marketing investments are not only important to supporting our 2026 results, but also ensuring our refreshment beverage and coffee portfolios are healthy and well-positioned heading into separation. In closing, our 2025 performance was strong as we delivered on our commitments while laying the foundation for our exciting next chapter as two pure play companies. We intend to continue executing on this vision in 2026 while reinforcing our base business momentum with three key objectives for the year. Delivering on our low double-digit EPS growth plans, unlocking initial combination benefits as we integrate JDE Peets, and executing critical milestones as we drive towards a successful separation into BeverageCo and Global CoffeeCo. Now, before turning the call, To our new CFO, Anthony DiSilvestro, let me first formally introduce him. Anthony is a seasoned consumer sector executive with over 40 years of industry experience, including in areas relevant to KDP's current priorities, such as M&A integrations, cost-saving programs, and balance sheet recapitalizations. He has hit the ground running in his first few months. quickly coming up to speed on our business and transformation work streams. And we are already benefiting from his financial leadership and acumen. I'm looking forward to continuing to partner closely with him as we guide KDP through an exciting and pivotal time for our company. With that, I'll pass it on to Anthony to walk through our financial performance and 2026 outlook before I return with closing thoughts.

Thanks, Tim, and good morning, everyone. It's a pleasure to be here with you today. I was drawn to KDP by its iconic brand portfolio, a leadership team and strategy I believe in, and what I see as a unique value creation opportunity. Over the past three months since I joined, my conviction in the company's direction, people, and potential has only grown. I'm energized to partner with Tim and the entire executive team to position both KDP and the forthcoming separate companies for future success. I'll now review our financial performance in more detail, beginning with the full year. We delivered healthy results consistent with our 2025 guidance. On a constant currency basis, we grew net sales 8.6% operating income 4.9%, and EPS 7.3%, all while navigating a challenging industry backdrop and beginning to execute our transformation agenda to shape KDP's next chapter. Moving to the quarter, we finished the year with a solid Q4. Net sales increased 9.9% with growth in all three segments, led by strong performances in U.S. refreshment beverages and international. Net price realization was a significant growth driver, contributing six percentage points to the top line. Volume mix added 3.9 points, reflecting 3.6 points from the addition of Ghost, as well as a modest increase on the base business. Rose margin contracted to 150 basis points as elevated inflationary pressures were partly offset by net price realization and productivity savings. On the other hand, SG&A improved 80 basis points as a percent of sales, primarily due to overhead efficiencies. All in, Q4 operating income grew 4.8%, and incorporating headwinds from interest expense and a slightly higher tax rate, EPS increased 1.7 percent to 60 cents. Moving on to our segments, U.S. refreshment beverages delivered a strong performance, growing net sales 11.5 percent. Volume mix contributed seven points, primarily driven by the addition of Ghost coupled with modest gains on the base business. Net pricing added 4.5 points, led by CSD increases taken earlier in the year. Segment operating income increased 8.7%, driven by double-digit net sales growth and productivity savings, poorly offset by cost inflation, higher SG&A costs, and the impact of lapping a C4 performance incentive in the prior year. Looking ahead with continued momentum in both our core and quickly scaling growth platforms, we expect U.S. refreshment beverages to deliver another year of strong top and bottom line growth in 2026. However, it is worth noting that our innovation cadence differs slightly from last year. Most notably, our Dr. Pepper Creamy Coconut LTO will launch in Q2, which compares to the Dr. Pepper Blackberry line extension that launched in Q1 2025. This timing difference could impact Dr. Pepper's market share comparisons early in the year, but we expect good full-year performance. In U.S. coffee, net sales grew 3.9%. Net price realization added 8 percentage points, with inflation-driven increases across both pods and brewers. Biomix was a partial offset, declining 4.1 percentage points. Pod shipments were down a modest 2.8 percent, demonstrating resiliency as pricing increased. Brewer shipments declined 16.8 percent, reflecting higher price elasticity and reductions in retail inventory levels similar to the last few quarters. Segment operating income declined 8.8 percent as the impacts of cost inflation and the volume mix decline were only partly offset by net price realization and productivity savings. The elevated inflation in the quarter reflects the meaningful lag before coffee market price changes and tariffs affect our cost of goods sold, given our hedging activity and the timeframe that inputs are held in inventory. Looking ahead, we expect profit to remain under some pressure for U.S. coffee in 2026, largely reflecting two factors. First, year over year cost headwinds, primarily due to increased coffee price and tariff impacts, which should be most pronounced in Q1, before easing over the course of the year, particularly in the back half. Second, we are also planning significant marketing and other investment spending in 2026 to support the growth initiatives Tim discussed earlier, such as the Keurig Coffee Collective rollout and the launch of Keurig Alta. These planned investments, which are captured in our outlook, will help us to create a sustainable platform for stronger future segment performance. In the international segment, healthy trends across regions and categories drove a 16% constant currency net sales increase. Growth was balanced, with net price realization contributing 9.2 points and volume mix adding 6.8 points. Factoring in a favorable FX translation benefit, reported net sales increased 21 percent. Q4 segment operating income increased 20 percent, driven by sales growth and productivity savings, which more than offset continued inflationary pressures. These exceptional Q4 results reflected the combination of base business momentum as well as some timing benefits. For example, in Mexico, we saw some buying ahead of a significant beverage tax increase that took effect at the beginning of 2026. Though the reversal of these benefits will result in a softer start to the segment in Q1, our full year plan for international incorporate healthy top and bottom line delivery. Moving to the balance sheet and cash flow. We remain committed to a strong balance sheet with investment grade ratings for total KDP and for the future beverage company and global coffee company upon separation. These objectives will first and foremost be underpinned by our ability to generate significant cash flow. In 2025, our free cash flow was $1,519,000,000 Notably, this included the unfavorable impact of one-time $225 million ghost distribution termination payments early in the year. We feel good about our underlying performance and expect standalone KDP free cash flow to increase in 2026 to approximately $2 billion. We will update this target to include expected J.D.E. Pete's free cash flow when we report next in April. The free cash flow of the combined businesses should enable swift deleveraging post-deal close. As you saw in our announcement yesterday, we have also further refined the financing structure for the J.D.E. Pete's acquisition to deliver and facilitate a timely separation. First, Based on strong demand, we have chosen to increase the size of our beverage company convertible preferred equity raise to $4.5 billion versus the previously announced $3 billion. Second, we have finalized and are preparing to close our $4 billion global coffee company pod manufacturing, JV. Third, we plan to fund the balance of the acquisition through debt. And fourth, we will continue to assess non-core asset divestitures to accelerate deleveraging. With the refined financing plans in place, we will no longer consider a partial IPO a beverage company in the future. Turning now to our 2026 P&L guidance, which we are providing inclusive of the JDE PEATS acquisition, based on the expectation of an early April close, and using current FX rates. We expect net sales in a range of $25.9 to $26.4 billion. This outlook assumes continued momentum in U.S. refreshment beverages and healthy trends in international, as well as growth in U.S. coffee. It also embeds an incremental contribution from J.D.E. Peet's beginning in Q2 which we expect to add approximately $8.5 to $8.7 billion to net sales. On the bottom line, we expect low double-digit EPS growth in constant currency. This includes an anticipated 6 to 7 percentage points contribution from J.D.E. Peets on a three-quarter basis, consistent with our unchanged outlook for approximately 10% accretion in the first year after acquisition closed. For standalone KDP, our outlook embeds 4% to 6% net sales growth and 4% to 6% EPS growth, both in constant currency. Based on current rates, we anticipate that FX will represent an approximately one percentage point tailwind to standalone KDP net sales and EPS growth for the full year. To help with your below the line modeling, we expect the following for 2026. Interest expense of approximately 1.07 to 1.12 billion dollars, an effective tax rate of approximately 22 to 23 percent, and approximately 1.37 billion diluted weighted average shares outstanding. Once the J.D.P.' 's acquisition closes, we will also have two new impacts on the P&L to reflect the pod manufacturing JV and the convertible preferred security. Assuming an early April deal close, we expect the following impacts over the last three quarters of 2026. Approximately $190 million in pre-tax coffee JV costs which will flow through the non-controlling interest line, and convertible preferred costs that will flow through below net income and will be calculated each quarter as the greater of the roughly $53 million quarterly preferred dividend or the securities approximately 8% proportionate share of earnings. Pre-separation, we expect the calculation to default to the proportionate share of earnings. Now, let's discuss quarterly basis. While we are planning for healthy EPS growth on a full year basis, we expect Q1 EPS to be in the range of 36 to 37 cents compared to 42 cents in the year-ago quarter. This is due to three primary drivers. First, the unfavorable comparison of lapping a two-cent-per-share Rida Cocoa gain in Q1 2025. Second, a peak year-over-year cost headwind in Q1 driven by the impact of green coffee inflation and tariffs on costs of goods sold. And third, anticipated retailer inventory adjustments that will negatively impact top and bottom line performance in U.S. coffees. We expect these transitory EPS pressures to begin to ease after Q1, and in the case of coffee costs, more meaningfully improve in the back half. As a result, we have good visibility that stand-alone KDP EPS growth will be positive in Q2 and accelerate further in the second half. In addition, we will start to benefit from accretion once the JDP to deal closes in early Q2, further enhancing EPS growth for our combined company. In closing, 2025 was an important year for KDP. We extended market share gains in key areas, made strides on multiple strategic initiatives, and set the stage for a transformative next chapter, all while delivering on our financial commitment. We will look to build on this performance in 2026 and are fully focused on executing with excellence to achieve our base business, integration, and separation objectives. With that, I will turn the call back to Tim for closing remarks.