Primo Brands Corporation Class A

Good morning. My name is Marissa and I will be your conference operator for today. At this time, I would like to welcome everyone to the Primo Brands Corporation second quarter 2025 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star then the number one on your telephone keypad. If you would like to withdraw your question, press star followed by two. Thank you. I'll now turn the call over to John Cottle, Vice President, Investor Relations.

Welcome to Primo Brands Corporation's second quarter 2025 earnings conference call. The call is being webcast live on Primo Brands' website at irprimobrands.com and will be available there for playback. This conference call contains forward-looking statements regarding the company's future financial results and operational trends, estimated synergies, impacts from economic factors, and other matters. These statements should be considered in connection with cautionary statements and disclaimers contained in the safe harbor statements in this morning's earnings press release and the company's quarterly report on Form 10-Q and other filings with the SEC. The company's actual performance could differ materially from these statements, and the company undertakes no duty to update these forward-looking statements except as expressly required by applicable law. A reconciliation of any non-GAAP financial measures discussed during the call with the most comparable measures in accordance with GAAP when the data is capable of being estimated is included in the company's second quarter earnings announcement released earlier this morning or in the investor relations section of the company's website at ir.primobrands.com. In addition to slides accompanying today's webcast to assist you throughout our discussion, we have included a copy of the presentation in a supplemental earnings deck on our website. I am accompanied by Robert Reitbroek, Primo Brands Chief Executive Officer, and David Haas, Chief Financial Officer. To start their prepared remarks, Robert and David will discuss the second quarter performance of Primo Brands, as well as the outlook for the full year 2025. With that, I will now turn the call over to Robert.

Thank you, John, and good morning, everyone. Before I turn to the quarter, I want to share that our hearts go out to everyone impacted by the devastating floods in Texas and New Mexico. We recognize the deep and ongoing toll of a disaster like this and are committed to supporting local communities. Aligned with our company's values, especially in times of critical need, Primo Brands has recently made a donation to the Community Foundation of Texas Hill Country, And during the quarter, we provided more than 150,000 cases of water products to emergency response organizations, including Convoy of Hope, an organization well known for being among the first responders to provide vital relief supplies. Turning to second quarter performance, since closing the merger last November, we've been working quickly to integrate our operations with the goal of improving efficiency and productivity. The speed by which we closed facilities and reduced headcount led to disruptions in product supply, delivery, and service. I'll discuss this in greater detail shortly. That said, we are confident that we are now on the right trajectory as we enter the second half of the year. Importantly, we never compromise worker safety and product quality and remain on track to deliver on our 2025 and 2026 synergy targets. We believe that Primo Brands is well positioned as a leading branded beverage growth company in the CPG and beverage industry. We will continue to execute against our strategy and must-win priorities while resolving our service issues. During Q2, we expanded our total points of distribution across key market and channels, ramped up our cross-selling efforts in our home and office direct delivery business, and drove continued double-digit, year-over-year net sales increases for our premium water brands, Saratoga and Mountain Valley, as well as our exchange business. Our refill and filtration businesses also grew net sales during the quarter. Our business continues to benefit from consistent demand for our products and services across Primo Brand's water channels. We have an incredible portfolio of all American brands and continue to extend our leadership in U.S. bottled water. Our extensive distribution network of over 200,000 retail outlets and multiple consumption solutions, including direct delivery to more than 3 million customers and exchange and refill services remains a significant competitive advantage. Notably, we grew dollar share in retail bottled water in the first half of the year by 11 basis points, demonstrating the overall strength of the business and differentiation of our products. I would now like to spend a little more time on the two key disruptions that impacted our top line in the second quarter, one out of our control and one that we own responsibility for, both of which are largely resolved. First, as we reported on our first quarter call, The Hawkins, Texas tornado in early April struck one of our facilities, resulting in significant damage that disrupted production and operations for seven weeks, including a temporary shutdown. The facility primarily supports Ozarka retail products, and to mitigate the impact on our customers, while we rebuilt, we leveraged our other Texas and Southeast region facilities to deliver Ozarka and pure life bottled water to impacted areas, which introduced additional operational complexities. Altogether, we estimate the impact related to the Hawkins Tornado reduced our second quarter net sales by approximately $26 million, or 1.5%. While some repair work remains in progress, the facility is now back online, and we've made significant strides to rebuild our inventory levels of product supply to better serve our customers. As David will discuss later, capital expenditures associated with building repairs are expected to be largely covered by insurance. We will also be submitting the business interruption impact to our insurance provider. In the second quarter, we had significant disruptions in our direct delivery business, resulting from the combining, upgrading, and rationalizing of our operations. During the quarter, we closed 40 facilities, bringing the total number of facilities closed since the merger to 48 facilities, or 15% of our total network. And we reduced headcount by 1,100 full-time equivalent roles in the quarter. In total, since the merger, we have reduced headcount by more than 1,600 roles representing an 11% reduction across our organization. Additionally, in the past few months, we have been integrating facilities, merging routes, and rationalizing technology, which included transitioning our legacy Primo branches to SAP and introducing new handheld devices to a large portion of our workforce. While the vast majority of our customers continued to receive the great service they expect from us, in some markets, the high-demand standardization initiatives and challenges from an accelerated integration collectively affected our inventory levels and fill rates. We prioritized speed and cost reductions, resulting in some customers experiencing rescheduled or canceled deliveries on a recurring basis. product substitutions, and extended customer service wait times. These disruptions began in late May, and we have been working tirelessly to address the underlying operational issues, stabilizing service levels, and optimizing our factory to branch transport and delivery routes. Our manufacturing, supply chain, last mile delivery, call center, and IT teams are working together to restore the service levels our customers expect. We are grateful for the hard work of our frontline associates as they continue to manage through this transformational period and lead with agility and resilience. And we are equally thankful for our loyal customers who have been patient and understanding through these service disruptions. Each quarter, I spend time visiting our manufacturing facilities across different states and markets. And this quarter, I visited the Hawkins facility to see the restoration and recovery efforts firsthand and thank our associates on the ground. I also went on additional route rides in recent weeks and months to directly interact with customers and solicit feedback from frontline associates to ensure progress against critical service measures is being made. We expect to be past the majority of the challenges come the end of September, though there will be some lingering supply-side constraints that we expect to normalize in approximately 8 to 10 weeks. Importantly, our underlying business continues to show resilience, and water remains an attractive category with structural tailwinds supporting its growth. As a backdrop, we continue to see significant consumer interest in water quality. driven by ongoing environmental concerns and infrastructure challenges across the United States. Our diverse portfolio, spanning multiple price points and channels, enables us to adapt to shifting consumer dynamics, particularly given our product's value proposition relative to municipal water options. While the macro consumer environment remains somewhat soft for many CPG companies, we continue to see robust demand for our products and services. Demand remains strong in our retail business, where several weeks of colder and wetter than usual weather from mid-May to mid-June led to multiple weeks of category softness, especially impacting the Northeast, our Poland Springs market. However, retail scans rebounded as temperatures rose in late June and July with our share outperforming category scans by approximately 170 basis points in the last week of June, with the momentum accelerating in July. CERCANA shows we expanded retail dollar share by 48 basis points in July, driving five weeks of consecutive share growth. Combining this with our first half retail dollar share growth of 11 basis points, Our year-to-date dollar share has expanded by 17 basis points. We achieved strong distribution gains during the second quarter. With total retail points of distribution growing over 10%, we continue to work closely with retail partners to bring our improved scale and wider product portfolio to them and their shoppers. Week-to-week velocities can vary in the initial post-launch stage as consumers familiarize themselves with new items, but the incremental placement in retail stores positions us to drive overall growth, as demonstrated in July, where we accelerated dollar share growth. On the marketing front, our partnership with Major League Baseball has expanded our branded presence to fans across the nation. You may have noticed that Deer Park, the official water of the MLB, sponsored the red carpet show at the All-Star Game last month in Atlanta. Turning to our direct delivery performance. Despite direct delivery disruptions in the second quarter, our commercial, residential, and exchange customers continue to show strong demand. Early in the quarter, tariff-related announcements drove retailer uncertainty. including sell-in to our dispenser business, which saw a year-over-year net sales decline. Dispensers remain an important point of entry for our large format business. As we have previously noted, our exposure to tariffs is primarily concentrated in our dispenser business, which accounts for approximately 1% of our overall net sales. Historically, because there is no U.S.-based dispenser manufacturer that can meet our volume requirements, We have been able to claim relief for most tariffs and duties related to our dispenser purchases. It remains to be seen whether such relief will be granted going forward. Primo Brands continues to maintain strong competitive positioning versus our peers, many of whom make and sell imported water products subject to tariffs. With the exception of water dispensers, our products are domestically sourced and locally manufactured and more than 98% of our sales are US-based. Our customers continue to recognize our attractive value proposition, as we are seeing continued strong demand from both residential and commercial customers. I am particularly pleased with our progress in cross-selling and up-selling products from both legacy organizations in our home and office direct delivery channel. We are now providing customers the option to choose between their usual purified water brand or a regional spring water brand such as Poland Spring for a premium price. Additionally, we've started offering delivery of branded case packs directly to customers' homes alongside their standard large format orders. We expect continued sales contributions from these efforts as we increase penetration in the second half of the year. Finally, turning to an update on our premium water channel, where our brand performance continues to shine with 44.2% net sales year-over-year growth in the second quarter. Like consumers, key retail customers are excited about these brands, and our total points of distribution growth in the second quarter was fueled by expanded Mountain Valley and Saratoga PET offerings at Walmart. Additionally, this spring and summer, Mountain Valley and Saratoga received prominent placement with social media influencers, athletes, professional sports teams, conferences, and award shows. For example, Mountain Valley was the official water of the Academy of Country Music Awards in May. Looking ahead, we are focused on addressing elevated demand for our premium products and ensuring their availability for all customers and consumers seeking our iconic green and blue bottles on their shelves and in their homes. During the quarter, we broke ground on a new Mountain Valley production facility in Hot Springs, Arkansas, which we expect to be operational by mid-2026. This facility is expected to unlock our current supply constraint so we can better meet demand and continue the brand's growth trajectory. Before I turn the call over to David, I would like to talk more about our integration and synergy capture plans. As I mentioned earlier, our overall synergy capture opportunity remains on track, and we expect to deliver approximately $200 million in synergies in 2025, increasing to $300 million in total synergy capture by year-end 2026. Our integration teams are working to streamline processes, optimize our network and enhance our long-term customer service capabilities. While these activities stress tested our manufacturing, supply chain and go-to-market capabilities during Q2, we've addressed the most constrained areas of our operations and are on the right track to return to strong service levels going forward. Looking ahead, The combined manufacturing, transportation, branch, and IT infrastructure of Primo Brands is expected to deliver substantial long-term benefits once fully optimized. We remain confident in our ability to deliver on our synergy opportunity targets and create sustainable value for our stakeholders. We have a resilient business model that is positioned to deliver our long-term growth algorithm. with an attractive margin and earnings profile over time. Despite the disruptions we faced in the second quarter, our comparable adjusted EBITDA margin increased 80 basis points to 21.2%. As we shore up our service issues, expand our sales network, and restore our top-line growth, we expect strong operating leverage to drive improved earnings performance and cash flow generation. We believe we have learned from Q2, and as we enter the third quarter, we believe Primo Brands is becoming a more cohesive and resilient organization, well-positioned to deliver growth, improve margins, and generate strong free cash flow as we go through the balance of the year. With that, I would like to turn the call over to David to review the financials and guidance.