KDP - Earnings call transcript Q3 2021

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Operator

Good morning, ladies and gentlemen. And thank you for standing by. Welcome to Keurig Dr Pepper's Earnings Call for Third Quarter of 2021. 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 Director of Investor Relations, Mr. Alexander. Steve Mr. ahead. go please Alexander,

Steve Alexander

you. And this the joining Earlier Thanks quarter hello, we issued everyone. morning, for XXXX. for our of us. Thank press third release

our our you If company a today, believes and comparability. basis adjusted we business our adjusted Consistent can basis website discussing quarters, in provides be that additional on get with you the trends. previous the copy, insight performance investors The one performance need will excluding section. Investors affecting into on operating with an items

in press While the basis in a believe adjusted exclusion our items of comparability the appropriate is provided of provides discussion for items of that our be accordance and not we affecting Details included meaningful basis an company's reconciliation excluded performance. the we XX-Q, with and to of inability our comparison outside tables GAAP, later the do filed the reconcile and guidance. are to in impacts the will amount certain the predict Due today. our control, not of which timing release

discussion with uncertainties With actual these events. is to hand that over subsequent SEC. Maria include are safe And these statements today Act subject harbor our to Here and cause results Private quarter discussion based update Litigation Chief of XXXX. no XXXX materially, and the Dokmecioglu; company's in Bob Securities detailed Chairman to the Affairs of the could CFO, and company I'll our Reform forward-looking statements of CEO, are subject Corporate statements Officer, third which me to A Gamgort; our undertakes and and may to discuss filings contained finally, our uncertainties obligation with the this a to risks KDP's number morning that, it differ Ozan Bob. results Sceppaguercio. risks are provisions of These the on

Robert Gamgort

Thanks, everyone. Steve. morning, And good

transformation chapter to innovation, and that phase looking success. fueled new of strength, capabilities, we from to three-year As by growth. we're of enable next momentum a and team approach post-merger entering our our and line and period, position of tools forward the completion right culture top continued We're the with robust

to Importantly, leverage of creation. from we're of a value leading new use enables industry our debt us also our options generation the for cash reduction ratio, shift which targeted to nearing set increased

We have across impacted are face supply coupled disruption and constraints input the the past dislocation time. expect over do chain the for has and be on to navigated some successfully escalation challenges new will able the macro causing XX quarter likely including the the with inflation, economy. The occurred persist months labor to the cost that same incremental that disruptions, in shortages transportation, in us in and of

RGM wide of As other initiatives mitigation the utilized increased our have stepped offset, along and part activities. of productivity, a up price range with and strategies, alternate cost and sourcing across portfolio, we supplier

by to Given of investment been limiting date. the have brands, we impact innovation marketing, and of elasticity the our strength in the in driven successful pricing increased

and challenges good strong reporting third business KDP's high-single We another of ability four balanced posted Our with increases. net example growth, currency quarter provide segments through constant manage strong deliver results of a sales quarter and all to results. digit

investment delivered growth, in diluted also increasing EPS while We adjusted marketing quarter. double-digit the

performance to were our strong third KDP's performance. as similarly XX% strong XXXX. versus quarter constant currency are as As strong top of two basis, in-market sales for layering a helpful from KDP performance, discussed on which companies. most basis basis, believe sets of current results EPS it's diluted adjusted year last this XXXX advanced On the quarter, a year-to-date third and was quarter XX%. financial on performance we apart our On highlight year-ago year compared to believe the net we up was strong we results because

key of trend nearly be our Pepper. in with impacted Core We strong, continue is capped growing successful the now continued post our new drinks, non-carb success one share passion and sugar Dr fruit with in flavored chain renovation. the In the the and cold notably, number in strong CSDs consumption Other by Pepper on latest the new strength portfolio's our beverage market and this signs very showing market of improvement, quarter to for flavor Bai brand Fansville in the CSD varieties. behind most were XX-week was its and retail to and has also expanding four-week zero soft reflecting campaign, core as recent launch with gaining above by consumers brand performance Dr posting category. growth of behind innovation of market well performance nearly which grow chain beverages celebrates Most to and Sunkist Bai situation double-digit market growth carbonated Canada lineup of XX% growth. Bai such challenges growth its in sales On consumption This supply XX% is strong supply The exceptionally brand college brands growth well, periods consumption of consistently The Squirt. recent consumption A&W Snapple, and already Dry, continued a the two-year perform basis, accelerated have football the to Snapple's the base of continued double-digit that stack year's share share. growth. Boost.

brand. We X.X% for Polar, Northeast continue and our outside distribution to deepen the is in availability In partnerships markets of drive and we XX% a which the of achieving expanded existing ACV newest for region, share responsible case ones. the brand KDP

recent coffee, was year be Market channels strong advanced XX%, are reflects the track a In and although pre also significantly to manufactured home the continues in almost in KDP X% transaction, point with pods in ago ago. agreement up from our K-Cup share year away our part distribution versus that up improvement quarter COVID We as a Coco's them. Vita versus and year-to-date. X% and full modest extended latter IPO. down coffee, at-home levels. of This pod performance of shipments almost invested versus And continued

least add our and in million our long following added pullback at showing discussed we we level households Keurig recent As clearly no trajectory continuing Keurig to X of our during growth term accelerated XXXX. XXXX, new X households expect new Day, in million Investor

We a will richer, to that penetration sales ago. and up XXXX household balanced the versus quarter On final XX%. And provide in a Brewer basis, example year. report our XX% year-to-date number growth increase price cup impressive last we which up quarter, widening this new are earnings. effective brewer our innovation X.X% are marketing comping year functionality and more of the is portfolio. of quarter choice, a The our when coffee. is third sales in of strategy brewer flavorful most grew shipments third delivers QX is successfully compared our the and brewer points Driving Technology, and comprehensive XXXX, quality MultiStream a XX% recent

Supreme rolling Our launched out holidays. retailers is the on to initially brewer for newest Plus in July the and Keurig SMART, now time keurig.com in

settings. addition SMART experienced on pot our incorporating and home. strong ecommerce our shipments technology, which consumption to level last of this brew brewer direct to and growth also our successful use year. brewer broader delivery also Technology, Both consumers cup In customizes automatically specific business auto top the auto data MultiStream Internet-connected to enhances continued recognizes the by K features to expand utilizing in the delivery The automatically exceptionally pod business quarter technology SKU new replenish via BrewID in

make order pod We recyclable to continue sustainability the K-cup also begun innovate in our in lids to of pods simpler have consumers. process introduction the to and for Easy Peel recycling

of for farmers lives for recognizing pod the in to You by among of made America addition and the of retailers and performance to In Sow Development companies two Award first accomplishments progress. Recently, by capital XX-year World coffee our be sustainability, the the focuses food that efforts human and Nations and assessment A UN our XX in the certification a As against usage new out headquarters. packaging A nonprofit organization Goals. Alliance, Responsible of million improving their coffee improving top Sustainable companywide Reuters the Gold putting progress good ESG the agriculture Benchmarking XXX our in we sustainability by largest Business sector ranking our in United XX% in And we've journey number received recognized. CPGs social category, the LEED North supply. ranking private on affiliated X plastic Frisco continue

press Before release X% turning this outlook growth Ozan, our over our increase as I to it want highlight in to morning. sales for net in communicated X% to the XXXX to

significant discuss as comments. expect adjusted diluted revenue to XX% to in continue growth his leveraged being inflation, XX% as pricing, and productivity to Ozan EPS of accelerating industry in the now range are We and offset will growth

Ozan Dokmecioglu

one was outlook the I volume basis, adjusted third Thanks, good our for favorable Bob. of will by on for which turn review net of fueled net price an X.X%, for X.X%. then of morning, strong realization mix performance currency us. quarter, our to X.X% the higher Continuing everyone. sales Constant I increased XXXX. briefly And and will balance another

growth, along with in-market four innovation marketing, all execution. posted continued business segments strong Importantly, successful by driven solid and

basis, And merger nine the offset sales net sales two-year inflation XX.X% points, first advanced logistics net margin marketing expansion increased reinvest as year the by Adjusted and investment. a XXXX. our basis on decision the operating versus productivity the same million, quarter These drive For advanced XX were of months and grew On the gross income declined synergies year in gross basis and well a income and drivers in currency transportation X.X% in partially in brand period versus year to partially offset to and cost goods driven XXXX, by and ago. XX.X% versus inflation ago positive strength. to Adjusted significantly margin as in constant productivity, of grew XX operating net SG&A. $XXX margin Adjusted ago. of in reflecting year currency versus the balanced in marketing in to quarter X.X% ago basis strong growth significant points operating a versus X.X% sales, higher reflecting sold. a adjusted higher significant pricing by accelerating constant

ago. up increase adjusted Excluding the marketing, in margin versus operating was year

of compared in of to And lower adjusted the advanced growth the to largely reflecting operating ago primarily XXXX. income a on quarter on the interest the lower year XX.X% $X.XX in the ago growth outstanding XX% in rate. net versus adjusted two-year year income realized income income tax up Adjusted $XXX Adjusted net For lower year first first lower first months financing contracts. benefiting Also period. and the quarter swap completed gains grew XX.X% from rate the income indebtedness, $X.XX stemming the adjusted EPS rates a strategic of diluted by interest was nine ago. in adjusted was and driven quarter XXXX, expense., in interest operating million, XXXX, to increased versus versus basis, X.X% in operating months adjusted nine the

first the first of advanced adjusted on XXXX. of EPS For versus months versus adjusted two-year nine year EPS was XX.X% And up diluted ago. a diluted the months XXXX, basis, XX% nine

me inflationary take economy challenges referenced that a discuss this and the and pressures our supply moment we are industry. Let have to impacting broader the morning chain

this we are the which than inflation expected we managing the We with year of pricing, growth. year, and significantly at were experiencing accelerated higher start productivity

expect half year, For perspective, transportation, logistics, of sold, goods This inflation this versus year to inflation SG&A, all-in of warehousing includes which up in accelerated and second cost has we the approximately and X% be XXXX. inflation ago. in

guidance of for our the for and tools earnings confident we growth. incorporates management revenue all these disciplines and updated have we guidance that XXXX considerations, both in to place and are deliver Our

performance brewer Let and was reflected net in of year, growth on offset levels. me slow to sales reflected XX% and from price mix continued pod to in constant performance increase top realization mix Coffee away of increased improved although volume last shipment a brewer below is brewer continues The continued which pandemic higher pods to consumer The of home our the returning in which shipments, and innovation Systems now expected. third strong well performance shipments in increase in growth X.X% be volume the our moderate volume strong volume in lower growth brewer driven digit by X.X%. successful the X.X% quarter. pre our this offices business, momentum currency of purchases X.X% The partially remains as continued marketing. by fueled from pod stemming X.X%, in of and by increase at-home net quarter value turn double third business to X.X%, segment

and commodity the more pricing During on we took portfolio, brands, quarter, licensed our and brewer pricing coffee our in given pricing. escalation the took in recently, owned coffee

price from and of adjusted continued net The income foodservice sales favorable recovery versus partially compared [ph] operating company-owned Beverages X.X% reflecting direct pricing driven merger income Adjusted restaurant As Coffee in volume. Keurig in in increase refreshment marketing to X.X% inflation Sunkist inflation, the of the growth, via a our to Polar, notably Supreme operating and of does growth operating Concentrates activations. Packaged Pepper, for in was growth chose lower to featuring compared mix investment. concentrate currency higher increased largely decline portfolio higher increased sugar constant and strong, responsible through Adjusted in million, driving million, reflected pricing they to and expense, grew operating both particularly in warehouse growth. adjusted Adjusted XX% to growth of the amplified and X.X% business in net Beverage X.X%. with reflecting marketing growth, in the period, operating in offset realization growth the operating the advanced strong the of investment. Systems to as slightly due our and contributed impact investment can the volume for increased currency a loss. partially and beans. by and the brand year-ago margin growth, net of these quarter. particularly operating X.X% investment partially synergies, a quarter with fountain constant consumer impact Beverage quarter productivity digital, continued contracts Dr increase margin Beverages well Packaged the On by consumer realization operating constant was largely mobility Dr to higher and reflecting brands operating income The in marketing marketing XX.X%, of not the channels, by was Adjusted sales reflecting margin in trade constant and the in million, in year-ago Adjusted currency net Therefore, XX.X% operations quarter investment. totaled operating net growth a also income was significantly increased KDP period, basis, with strong the significant The income X.X%. Pepper This the of zero continued technology the meet increased the of ago. X.X% coffee launch campaign. XX.X% in profit our resulting Dry Pepper XX% packaged a beverage quarter, $XXX college synergies, marketing increased increased period, this Motts X.X% football demand. with sales offset price reminder, supported costs and productivity income net and our $XXX CSDs, new the in increased social costs transportation, X.X% year-ago bottle sales investment hospitality by offset higher media most marketing the sales along in a marketing increase currency for XX.X% quarter. Coco Vita inflation adjusted On partner $XXX strong by follow any as double-digit and for and nationally commodity driven lower Plus driving third BrewID this in This sales double-digit increase inflation quarter adjusted operating basis, Lynette and mix offset and investment. for by business. shipment majority X.X%, was and investment Pepper Offsetting the to merger be Dr driven beverages our to require margin net the the reflecting partner to compared in for basis, CSD the the Canada constant new by to liquid earned year XX.X% XX.X%, by volume currency SMART executed experiential brewer, platform. and continued a behind of in On increased Concentrates reflected Dr take Adjusted campaign growth.

in quarter growth currency Clamato. margin Excluding key strong execution which operating of all This Beverages margin productivity, to income inflation. increased higher advanced despite drove quarter realization points ratios net Peñafiel $X.X free brands, the sales continued Mexico be flow to cash refreshment net Adjusted XXX million. be and performance in-market net constant price XX.X% reflecting strong income a significant represented the continued channels, sales income marketing was ago. investment cash to driving mix favorable adjusted XXX% and increase strong across sales adjusted in volume XXX% finally, Liquid Adjusted $XXX respectively. namely grew the approximately to conversion beverage the million, by XX.X% America free to increase in significantly constant $XX offset free the periods marketing, of partially operating in cash And a billion. year-to-date of meaningful and reflected for in on XX% XX%. This operating Free at flow and flow year currency strong net Latin flow growth versus growth X%. cash up and quarter basis basis, and marketing XX.X%, And strong increased operating operating performance the for investment. year-to-date

by outstanding million the $XXX and payables bank debt quarter, reduced we structured $X During by our million.

unrestricted at times and in times management XXXX. to ratio below by reduction our management at quarter we and expect a the cash leverage our times ended X.X in July or end. ratio of reduced the third in on leverage X.X also close quarter at year continue management X end to achieve Since the of merger growth have third XXXX, We we the $XXX to ratio improved debt, with bank our hand. leverage of million Due to earnings

full-year move Let our to me outlook now XXXX. for

currency to momentum range to XXXX most original with growth our we sales recent expect guidance compares guidance currency for year, of X% in guidance the this to X% constant the X%. X%. our time business. And our net reflect sales third and increase we to constant of of now net in X% the the growth For growth significant This X% for

marketing third continue on guidance, to of to expected the significantly realized range the the benefited to XX% to to Diluted to range Adjusted closing is our following. We that to earnings is tax top below XX%. Supporting of X for the expect me Bob to Adjusted expect end. reflecting of the the back quarter. X.XX it share million contracts rate rate that, swap momentum. some continue maintain are in diluted we this per in expect $XXX XX%. shares management gains let expected approximately invest interest With be And adjusted at or range at we now effective growth line leverage in estimated is ratio expense be $XXX times expected XX.X% finally, million, to interest in outstanding our remarks. hand And to billion. weighted year

Robert Gamgort

turn one XX% XX% to deliver operator Closing three-year January out significantly the your remained net focused, completes our quarter achieve XXXX With lot I KDP Clearly, flexible a time, merger. confident of XXXX go, back has has in now to then, our the at for transpired commitment. team the the are adjusted EPS this throughout we and commitment that and over of we commitment will to since announcement questions. the established and will left sales resilient.

Operator

Instructions]. [Operator

Goldman from comes Your Bonnie Sachs. first with question Herzog

Bonnie Herzog

and stronger wanted guidance ask expected which than impressive you growth guys continues again. your your be it's sales that up top yet much I about to have taken to line

outlook for mid-single a given confidence on wanted XXXX? any year change you does your growth? digit ability preliminary above your more given deliver this? possibly line outlook for get And if growth conservative, your Does top how mid-single regarding to do this that. prove this, on you initial so, digit in So, give could Just that it thinking potentially lever? thoughts think EPS ultimately your next Or your to

Robert Gamgort

that revenue with seen. happy very We're growth we've

a And business, innovation. well put company about by we revenue across core together, the healthy It's at of – three-year through when growth exceeded retail. really we've as talked our marketing driven and recall, in we way of X%. business that. X% combination And to you revenue If execution growth, fueled entire a the it's great far guidance and

and it brands the sit contributions right innovation the the are is think day investor The So, over now. growth very and future, digits target. the the is drivers is our here that Again, that pipeline we're from some out sustainable. Remember we during we getting revenue in in off strong. behind as – pricing the putting we're mid-single that everybody looking place of right October in

will to over five look years. it's the next forecast down road So, what and the be three pricing to hard

the a we is to right and Obviously, in that it term. So, environment, underlying seeing stronger are digit volume are pricing for is what base that mid-single more long than normalized right now the we're us on commitment comfortable the make trends growth that. the over

Operator

with Securities. comes question Fargo next of Wells line from Your Carey the Chris

Chris Carey

you in driven year concept just evolves When price here? how of some over quarters? price over just on so. domestic potentially pricing as aggressive could management list not over dynamic high, comes makes of to of you Packaged to how When you're mistaken. relative do or evolves the this are was how But the more how maybe six just think our be some course, They're like thinking the in the makes talk year, unless pricing time revenue little bit will been. Can become I'm KDP The category wanted it GMPs over any it's volumes whether decade Beverage this does the next higher about and this historically impacted I ahead. think, pricing? what Clearly the imagine and other a as pricing and of evolves by more business, perspective next growth Again, bigger they peers. model ramp your I pricing sense. pricing a think be now. a have highest the slower historically was right not about in sense. I in Elasticities

Robert Gamgort

of we everybody that in is on The in a I'm the beverages, industry, including the thing coffee minds in is fortunate wonderful The as questions operate that asking rational. that and incredibly well, that you're are industry.

protection. offset So, that. all certainly level And we've talk I more of the our would inflation. the for three objective – And of inflation, then an productivity. what is There are in is market about unprecedented North business. another in level unprecedented working all ways careers in margin that American faced of Pricing, to there's lever, include I'll our And pricing. and RGM reinvestment back the pricing, which is

based we levers have And so, pull seeing significant can that right there's suggest we I in be of pricing than anyone on the The else. that that now will level the impact and amount been inflation different we're those on magnitudes industry. business. what we What data the believe doesn't overall were a is slower the across of

I the our of others. pricing think right realized line. business than parts were in Different faster we

the has you has So, to you pricing, retail. as There's it of other reach some place. it to an impact. in our for businesses, response And a immediate BC example, some in hits business our of have take When promotions P&L. delayed the protect

that strength. our have elasticities your So to the taken may strength business, which better to been and positive industry historical, part because be gives in more find which opportunity of to pricing about been think margin pricing. of because of a pricing impact there. you're the continue we've thinking there's the you brand than way example, invest brands. the the quarter, But it's has even certainly been back And way to and we've The makes I for to within also in in extensive continue able us positive reinvest in gross uniquely what the

that's would put inflation protect think this. say an for And be, that future put that pricing the how I elasticities, impossible pull about a October have of in So, We would Fed, that. to And our I there productive XXXX. that as more we that's what's manage forward. any the talked way do the And still has to margin. on this we in I the the we're because When What I the to going reinvestment pricing. it's what the think guidance happening manner. X I do industry levers more productivity in inflation, we in manage other we is that, and suggest about in is prediction going dynamic have as will framework make is confident to very that respond I not in to out would through predict ability volatile to anybody, including why environment terms approach

Operator

And question comes Spillane your next Bryan America. of from Bank with

Peter Galbo

It's Pete shipment case guess there release. think obviously, I little Bryan. on than gap ton natural in there Galbo bottler for maybe volumes bit were – case had of and a just I volume, press bottler a the detail and what on there's but volumes wasn't between a lighter we around expected happened

just how your inflation? bottler So, of part the there rising business, anything to I for are accommodate them their be anything would just and there franchisees managing it to serve – kind their And having helpful. think, particularly on the bevcon of impacting How do Ozan, ability just were is some can to comments, costs?

Robert Gamgort

it the – underlying through kick look our numbers, is it through, the whether another system They indicator equalize And There's consumption pull of nothing our look there. best consumer at and timing quarter indicator, turn through entity's it's will from volumes the that's system, brand that me it's shipments way health and comes leading because of case time. Nielsen off, some our always bottler or demand offtake disconnect. shipments numbers the is leading over me systems. Dr strong, to which then that's The still and at brand you. in a Let to multiple particularly they're our notable on more can of brand flows that business, over that the our through to between Pepper, it to Ozan, and reflected I'll is IRI quarter those see the you let numbers. exceptionally and And largest

there. talk they very bit is and our So, offset note. want on a that. about how to to There's impact positive partners you inflationary Ozan, nothing everything little the

Ozan Dokmecioglu

growth gap basis. into consistent whole net couple either that takes ship product, a using a the of pricing and the our bottlers between question, comes mechanism of earlier Bob and saying, in as the Right bevcon distributors numbers across starts a growth the on place revenue of to example, deploy quite and the specific algorithm nature of the work shelf board. our given flow prices, management on pricing, you as then Particularly price our ago, reflects the transfer shelf in of that in the from the result packaged Therefore, shapes which, bottlers as a right as that as of the a sell is also some a management little actions, And our pieces. little or alluded the distributors strategies. and sell forms well course. is revenue incident bevcon, bit and sophisticated ship this the as bit away two Therefore, distributors concentrate, to meaning on us. includes sophisticated than the And distributors segment minutes that and marketplace. bottlers the that, through a take pricing business. it you bottlers bevcon And Bob, And know, increase were a took foodservice business. improvements, bevcon to we are the the and for Pete, adjustments finished we our the is most and turn also a best-in-class reflects sophisticated in improvements it we goes answer away. that the and in pricing in price strategies the to a pricing, fountain we Of that terms that One beverages, sector of there's on that

make realize very that So, from in algorithm good be margin the to pricing bevcon. will our us improvement that

Operator

question Morgan. of J.P. the line And Teixeira your with comes Andrea next from

Andrea Teixeira

kind able back line to say, want Bob, back when into are at Just on the go the gross basis. that protecting you to the be know, about early going chain similar well. And, of just may think of I going of I I you're to be it probably will be I side more wanted – a supply able deleverage a obviously, managed points of it to and packaging have to your give kind profitability. but don't positions point margin? still algorithm manage the or the this like protect us gross going it's preliminary implies to your that margins kind profitability. go clarify also to below XXXX and XXXX? you to be margin that how of to or you point, Is and protect kind to to really idea of Can gave know an how, to you outlook, you financial

Robert Gamgort

I rolling chain and to a to to tackle a has I'm first margins going that. you of pattern just Ozan, challenges. supply then, about XXXX talk on supply like been finish one this want and bit piece, after everyone, the With chain regard

is That regard So, we than we faster in packaging seeing to said, businesses. to you're plant And we of as glass, move were up expected. last having with those I required some to you, availability, improvements time PET particularly and Snapple in much conversion, behind issues talked faster our and to largely the area us. the us which starting

less the at issue. that And the so, moment, of is

fleet well some that to transportation costly. adequate the and we're think happen as is is rolling and scheduled again, to incredibly able with time not to own make industry, are labor our as well issues as through challenges, right everybody, then facing as transportation I actually are the now. we pickups, where pickups challenged service bigger don't that that be unreliable, Our demand. as time And from Customer are well not as increasingly consistent shipments like

all So, our team has these. done of in chain through well navigating supply incredibly

As has supply joined impact we us, And Tony, leadership. new made who that. on chain immediate an you have know,

side? be want lot to the talk about But volatile. Ozan, to continues seeing of a we're incredibly you it improvements. margin so, And

Ozan Dokmecioglu

Actually, I to each like expand to the and because, a other. the little inflation obviously, pricing interrelated so algorithm is bit whole

beans, day, Corning significant seeing are materials, which As you, combined in shortage as are shared packaging a seeing broad the like And this labor so coffee we we particularly pressure a and our well the on with in as base labor, I'm everyone and availability. the forth, is you latest sure of else, transportation. input we lately increase one, with costs, are every experiencing inflation, glass,

also, first than half a And we rate the ago, higher the shared with you overall inflation negatively for being inflation expect As we around accelerated little impact half. while through second X%. to us XXXX also has XXXX, with

a that this So, what run XXXX we rate. means are at into half does mean? This second entering higher

update is that inflation, quarter that three will growth. been on outlook we October this in enterprise in our important expect in that four between XXXX our and the which fueled the managing time. pricing, balance to So, at that we we least and how which growth we outlook we to strong our February face strength things very primarily have assumptions, our algorithm continue half that, results. believe leverage over business while, the you we and second more to point of X, a you investments. quarters estimate XXXX at we of of be articulate in timing know, deliver would the that of update drive plan mix is Having is the the to for said productivity, – is call our best with Obviously, of during XXXX invest first the our range than term couple is But that to by put overhead we also and and long a our the shared full-year a you announce of continued will in front adjusted for summary, will of Investor and during productivity margin continue tougher comps brands XXXX. Day, – our based our this time, while operating Therefore, the

Andrea Teixeira

comes with from question Grundy Jefferies. next Kevin your And

Kevin Grundy

to potential question Hard I I kind as the on to with to strategic your Mtn more little and another zoom assets a this bit. for wanted PepsiCo's Dew. result. of you into out it distribution strong have following morning just Congratulations pertains alcohol a move announcement

strategic. the company has its As assets Dr bottling viewed legacy you long Pepper as know,

questions etc. of them refranchising, lot spinning think a something off, doing some more the strategic, never a sense. board over something about the taking there's at years look potentially I thought been But it made collectively was

that there. made well. That's of into Vita mentioned It's Coco you as term You guys Polar the allied sense a deal entered been relationships. a long The strategy. of lot part the investment

the is on you on into the lost that move take lot no to something sure assets. question comment the you're of Pepper that space, Is you PepsiCo makes Is way sense? that own I'm something alcohol to wanted my to announcement that a look potential in this your this. at a think entertaining? distribution just Dr morning So Keurig for you. is I

Robert Gamgort

of think particular, it's on it. you similar view a very I end give the at look let lost On the here. area But me we point to total. look we beverages in this way is in an space of alcohol, that at, we

as It's beverages, alcohol. other opportunity said, with thought an with put there the we the So to when we was beverages look cold coffee same we that at holistically.

efficient. that Now, as the more that are expansion distribution distribution is two us. has pointed been therefore opportunities. regard What at with territories, assets what to they're is complexity that. of you're seeing of and And that is intersection One by well consolidation I scale make think around out being how many portfolio in Pepsi sure they in interesting one new creative the referenced is you including really to very the to as

both point at is out there of look some And overlap. is we opportunities. one you those so, And that the

that area to we study. an it's continue So,

much I alcohol of different. the people. As in business knowledge fact the about we we was We ways had out think that fact the alcohol objective space, very environment that think higher that. The pointed together of we in about in we're alcohol that And the occasions number Day, mixer we a have that has alcohol variety in consumption rate. we is put all distribution and Canada, participating on we to do in where participate that think licensing one brands company and the surprising can in talked nicely, that our play the which Investor us at a

in So talking our the are in do we'll think, screen. holistically, of it's something I be to there's beverages looking broadest see the We It's to look about others complexity It'll radar certainly future. in at and in this so short, that a the interesting at US. sense on it. how lot be

Operator

Edge your next And Research. line of comes from Cooper with question the Brett Consumer

Brett Cooper

the leadership what you team the from that space. typically in of comes non-alcoholic in Bob, more see we beverages versus brought outside

was you business, three about So you see was state I hoping where observations and/or of convenience on the at in the view into are non-ready-to-drink to in beverages? can as electric evolutions purchases seeing you managing years of what the how you your altering look ecommerce, talk then a accepted versus the those operations market the route deal, the penetration industry, and of just rising the whether vehicles are rise team it, store your how

Robert Gamgort

team. all, we really First now. place with We're right in pleased team of that I'll proud the start the and have with

We continue to build capabilities.

with a beverages. the team But where we level If the you focus members, direct the say, especially most to also from all range of similar. EL, elements at it it's senior executive goods drawn would see at I of at team, executive like you look have team at pull level. the very and levels, experience of packaged on people Wide reports beverages. to We

So as alcohol we have well as non-alcohol experience.

both. who We have individual that have in people experience a number of in

as of think as a team. America who experiences, within number We as And as well as as much combination we a and upgrade will that also and us talent add team of people within experiences have we we've well North And to from style this stronger continue experience. skills, backgrounds promote international talented have make done. both

the our we've lead who management team that is to really it can a So, of business the the critical future. part ongoing make success for sure got

ask thought of back questions companies took we Again, thesis is some there. beverages about historically that And for managed and think you about the we consumers exactly look had right those don't brands, talk go needs off original two silos. consumer better seen, that if let's silos. they is and future-looking to be formats, would that They perspective the use and in comments we it's satisfy putting a the beverages think it from occasions products, what about we multiple formats, etc., beverage needs. to together at So in our or that been a we've

was most it's need-based first, going Or it was the us cold where it like our great our that's with in with driven not as another you them, innovation whether acquire together partnerships has helps done which to we that franchise consumer in in ultimately business. both side forward, assets, delivery, and – business success, store informed others. partnerships fountain When approach, area the talked And market. wholesale pipeline, is the one, a our a distribution we direct we from we talked seven partnership which hot little And we franchise in We seen have direct, that taking ecommerce, other ownership. but about dramatically. XXXX. investment that which recent that about about by our a or programs. to ways really long foodservice and to went is XXXX, different But think put ranged our and marketing we've think So, term have see, as to Polar particularly agreement you at for that that's changed to, there in on-premise very our beverage company one appreciation time you the about point ecommerce, was

distribution Keurig. the been selling market That's business talked now the really smart ways our asset pod, we Kevin that ecommerce portfolio are we'll you leader the on higher brewers is the look and faster consumption, addition actual a trigger distribution before. back of of the by we in in industry. advantage. grows terms last are well terms leader, can distribution in next believe our that And steps point that this recognize fact whitespace substantial business. efficiency. that with level My there's of it in to can consolidate to And SKU consumer average position It significantly more always grow. brewers important of coffee our We've the We where in asked, It's business, what efficiency in are XX%. to distribution, to CSD consolidation way continue asset driven are business. of percentage through historical and direct north as of to on the for thinking order we space, ahead finding based to that seen competitive strength as Keurig, a the in an that drive be is than to and and have also routes, the we question effectiveness And that ecommerce points ties think category our to new suggests we But are us.

So, else I your or know. If anything I think on points. missed, I've anything forward-looking there's covered all there of me let

Operator

Your next Lieberman Barclays. with question comes of line from the Lauren

Lauren Lieberman

also you're shelf. off what it and awareness it to put one brand bit little curious wondering of was pick I some And you of I distribution. to expanding the just up doing if just Northeast seeing Polar. the a been it's still about you're because if build was but early, thing uptake know on of shelf, that talk could I relatively you for it's could that had to talk outside about the another people

Robert Gamgort

share we've with in shelf you you of conjunction four I level and that as on. we of It work lot gotten this to we're them. will for for it brand. think team foundation As in achieved to we a base was I which with in pleased distribution amount fully activity the consumer just recently to pleased And to the happy expanded something markets be a We're that. trajectory stores a happy really yet just in brand. continues that's was continue outside getting. XX% we're activity. timing, of really display now, for of and in I category, I have haven't marketing with the out onto which how number business build, on. grow. saw in in the overall, the for continues it, and off-shelf slotted And just grow category. across continue to something at to doing And is with needs it's the them on. we're growing brand Polar Right trending. And them activate that able sizable great behind the poll responsible we're a pressure, that the with push with place which the retail The supported with be now their we of that that that. that because distribution territories work we're responsible. country, Northeast an of know, And that, is be And And increasing of work We've under to is we're display Polar we're territories. to ACV which continues responsible with activity is But distribution with I agree that – the and

Operator

comes with next Sean King Your UBS. from question

Sean King

time, the or you're First the do for side can brand on partner get at then higher higher pricing manufacturing you're But pricing owned starting off, you following brands. seeing over move second, licensed you price to off, the on brands first And given the see you costs I'm glad to the retail? seeing? contracts, pod partner and on are expect

Robert Gamgort

in the and Let me there. talk pricing partner on don't about just pricing potential up a little agreements then, total pods pick bit Ozan, why on and you

conversation has continued K concern. something is were of for point back been with of of came pods intentional. pricing an well under we we intentionally that we're that think proof able investments cup that We I that those to household the to the was down, that know because was penetration. as have And strategy was levels certainly had always we strong That's productivity that price was up because, intentional an knew margin. to although We that out lowering always price, always interesting the And the control. too price able it price expand point drive context I high. investors in and analysts the

in lesser than where pod finished underlying We increase is of a a cup appropriate pricing of coffee, required. of who's and an price roast still that it is that a K somebody and are selling ground while seeing know the we And magnitude is coffee. component

given the So we opportunity a that's to in our And pass form remind we more inflation. the don't see licensed do, do right it contracts to our and owned situation on the think in immediately work you pricing little And the private of brands. they're well and But label. good as a in outside what the thing I how through inside it's complex it's of and think, why likely talk to everyone because that KDP as P&L. Ozan, partner

Ozan Dokmecioglu

we say, as And code the duration. general And contracts obviously, for It's partners the partners, our specifics, we private we label. as long-term you, genetic shared us. with in use branded and one are as have terms, we group not the on but partner well for as include

obviously the So, they the term. contracts details in And are not of all the the for relationship. specify short terms working

the So, beans coffee double when of not our are for to we also most that, partner KDP, do we responsible group. the click, we as see the source

this shelves any includes pricing it's that the their group. responsibility or management fluctuation, supply, bean That we broad And bean and have So, plus profit at the This use times. and that manage minus, coffee all also ourselves lie that we strategies loss their means are considering the does with and the of what business in these procurement, mean? and obviously and in the saying instances our their how and job decide coffee some on hedging we zero terms all protect to techniques takes pricing. the they of in responsible by partner puts

our working private of So, well core the as algorithm the this manufacturing as branded side set partner the from and relationship label. is well as overall we ones our the business as groups between the how

Operator

of line Guggenheim. the Laurent with from comes question Grandet next Your

Laurent Grandet

I've Actually, these. like is same re-dig to a got Sean. very the the much I'd bit question as about more

what manufacturing. bean all and the the understand coffee about but I these, So about pod

the the more went of here, of pass either able that I'm cost [indiscernible] to Nestle, some you in the to your for your You that level not pods? but or manufacturing said your itself up prepared manufacturing remarks or product pods? through by about coffee Starbucks? So, pod the talking are increased

Robert Gamgort

pick to Ozan, you want up. that

Ozan Dokmecioglu

kind perspective, partners. the of always on of a between all, position if basket to you overall pieces First to of the statement we cost. want look includes are sure as – and say, the some make, disclose I'm that will us let's several that appreciate. between we But one, I from all a at detailed our input not manufacturing to relationship general

that is said very one beverages our order, efficiencies quarter the partners also we part overall said elements. you manage But business coffee help And always to on are As as as have why we you our Laurent, as well in And on to licensed we need programs. you well the the Therefore, as our sense from pieces environments. inflationary relationship. as as non-persistent both and the inflation pricing, wouldn't onwards. doing margins the that to in these starting as our working are on look also the just piece the of for of basis we of holistically and out our why said beverages are look numbers. and have productivity not well improved data And our right we and element as with and will rational persistent improve as the very pleased, responsible very in all, been owned only some coffee, see to the most pricing spoke, as say, to we well our coffee all to of of be the business weather that first relationship cold to have we we responsible for and our are that's us very in segments make inflation, look and not it we with of pleased type with the That's how be but sector algorithm it, as pricing we but there the productivity all impacting but beans. business that's the elements, that were also we will try further relationship other or four investments. as to our I managing Therefore, rather

Robert Gamgort

that, on said margin as to reemphasize, protection. before, I is think I objective to build just just our

really for lag most of And different be using our productivity show Our a in partners. margin the delivery on case able been coffee, mechanisms And we basket. didn't that on that. of a inflationary that, and we the QX has in different contracts have item pricing, said, can to not manufacturing K way, of we pod case and to levers are to And pricing the and at combination which of protect took the reinvestment. up it timing immediately which the entire as you all most own in – for as in of pricing, we're by of see, brands, our pull cup the against the responsible based the within

and industry actual place, that that's put seen we've to pricing So, the as across in the more we come.

Operator

of from comes Mohsenian question next Your the line with Dara Morgan Stanley.

Dara Mohsenian

XXXX cost a Look, for Just follow on up long-term algorithm obviously, guidance because the pressures. the below is your that. of

those So that. do heritage we've costs. clearly, price there's fully ability to shape with commodity conversations DPS today, been having some good away is not Theoretically, in the to

on about owned some pricing and your talked licensed brands. You

getting is coffee to pricing to that just be the not cost themselves, understanding offset assume pressures partner for I very clear, the gap you're So but grounds fully seeing XXXX side manufacturing that. the responsible on for you're brands, the the your for you're not

responsiveness it? think the clear, explicit B, term way more just of in but just years as are pricing is lack can sort about to opposed the ability are costs. make be of and just you Or a time that explicit. as you and it about of case more the terms to work, Seems more And, short to respond relationships is up over in a that the contracts is of they to for A, it? the standard set way be So, sort that to pricing future it's just commodity of

Just that to clear up?

Robert Gamgort

connecting aren't things you're think that now. I all, of connected First right

to really we five when months our guidance guidance beginning, since provide looking as a to I guidance guidance, very position guidance in company in were obligated – we our initial October, at during of our that XXXX to was to normally we much in shown, felt our we've four seriously. and which held on that some We're you're pick think only advance commitments the would. And really the pretty So COVID.

there, commitment out we put number and it we when an as treat a So obligation. a

sitting an we feel expectations for predict, to they there investors, plan was we're set that to XXXX operating in can when was that important environment could so, nobody so it And volatile incredibly October, that friendly that appropriately.

think great one just think our is we So, to I to explained our and over times contracts questions what which detail not, said or appropriate. I cost. going Having for couple to connecting input two guidance today. I'm that, Inflation not we in ability price coffee the XXXX, all last say said a is

managing inflation. are around a We of range

as One well commodities pieces we think that soon is jump I reports to see not understood talk inflation, about I immediately, of and is hedging. the as

that inflation the clear, seeing beyond industry labor, now commodities. it's transportation. be is packaging, Let's the It's right is way

be cannot impossible and those, of most to hedged not if are Some, forecast.

to increasing is to really exposed previous year, to that's about But of Nobody highest is inflation. of exiting everybody XXXX a to point the of XXXX. would productivity we're can that how think flow would rate of predict the you year. in getting we're through make through So, have the you're Last range entering at level cause you be pricing, reinvestment. going I XXXX as offset there's the going at and if okay, level and a run highest clear. that to pressure going to We're the say, fully year high

up XXXX in industry XXXX whole XXXX our Our We industry to but marketing reluctantly, in The did it. up as be XXXX in well. versus intend for the XXXX. versus marketing marketing took is down

most Our thing, behind we the the our investment top and brands objective fueling it's innovation because think build in important is back line. to is it

can an as in there's estimates So to well. figure going the you assumption XXXX that reinvest. that we're And into

pleased early. So, to with our February. provide in when really so commitment XXXX. we're we're outlook position information that's And a our for We're early take We going normal our doing It's in seriously. and any thing to of business that the lot the invest of over and offset is us able to right our spend growth pressures. continue in long believe not for the term margin to growth to cut marketing be more

Dara Mohsenian

for do I delivering trying in continue and right, very follow-up to the of are the to understand DPS up lot of piece that over lot you you're just a a just side costs piece to of But on manufacturing we're If there with How it? partner heritage think still on question? solid get Can pricing strong a see you quarter. of next pricing growth I this understand you incremental costs it. that pieces one I'm about the do seeing moving move you one year. think time? side, responsiveness just Obviously, can coffee,

just that trying one of understand it. piece I'm So to

Robert Gamgort

to strategy is this the makes overused thing Keurig. CPG. concept prices very say much it the down productivity is an But true inflation us That's term. available we In traditional And and Keurig protect case our margins of business, ecosystem. a to of makes Pricing system perspective, phrase, productivity the amount the our in the this variety I to are sense three our only a an point than passing this in when environment, than work through We're the excessively is it's of a pod pricing what of thing different Recognize regards the try coffee long overarching CPG do is prices. intentionally because would past prices another. but the we in side the down. the on we sense going take because no the the combination on because pricing for beauty of is it's years choose mechanisms ecosystem Keurig. if Productivity is to an forward. that's that business. in costs from on that also makes to this and because truly of pod remember, recover mechanisms on even pricing. face more keep have inflation I My the is to face rest leaned keep right it's the one said for inflationary it's And them. of in are while – There the have to coffee, business company lower on on focus of high. us we're of business, trying black significant trying to it they traditional pricing the more for to With and a even concept coffee productivity one over

on everything. of anything, damaging focus of which we're you drives really growth system. long risk of one the that, the the And can't the could run growth have You you if accelerating term if the you see system, because do metric you

Operator

And your final question comes Ottenstein Robert of from the line with Evercore.

Robert Ottenstein

lot questions. follow-up couple And just want on covered to ground. of We've a a of

playbook, And areas? the look you aluminum change like So got guys the have hedging there's that's see commodities, unprecedented or as So in a of you've in that but traditional traditionally hedges? I the US, Mexico, then at rank curves have of you the natural, second, these that does at seen. that in M&A, expansion of in as particularly in in as your prices don't something just where of question. can the right, how terms at with your ever in now us not you overseas? brand other the in look you first the you particularly maybe growth used, a opportunities any that terms the levels expertise areas Does steepness priority? international have think use you duration Is but one, that Or strategy maybe

Robert Gamgort

use and and hedging excited on able hit that. our of how look business. that side, Yeah, positions to billion Day, adding Investor we think discretionary our we M&A There duration do talked international. whitespace our then, worth with expansion our we also and international consolidation areas distribution market about cash four of portfolio, to leverage being about we specifically, levels capabilities about to want talked are talked beyond And to talked the to $XX debt reduction regard as our as of me talk we to the or just in then within about long-term and first And about high Let capacity targets. about reach you the free Ozan, we're really one about flow that distribution, M&A. to we're in about

side. of business Mexico capabilities rank it's it be them management, We needs a our are have opportunities, one we've position believe we that that top of We've partners to really really what in don't a upon And not much. very – talked on are share we we because but got it's those have infrastructure is and business there scalable. with got nice going both our Day. Mexico. there Similarly, of about nice the driven in at priorities. I that business And are with we other just to and available kind want So, in Investor dependent the to hadn't you we built proud the nicely. that were Canada, markets what

in in all commodity two we of we so, although that's open you just already not opportunities those objective US. a I before that to them investments markets. lot see then opportunities don't really about because that And and the not the exciting is the make at we see have look of to to talk completely sure America, table, and want that leverage hedging our And we place beyond in Ozan, talk want our across North off territory, the in position. scale

Ozan Dokmecioglu

changing, is we how a and and this Absolutely. little to because topic bit vigilant need be. this on of times COVID a very like proved is ever I expand important to and flexible adaptive especially And

that First you alternative day when That a that are sold basis commodities look base positions strategies of manage very includes successfully inflation, Therefore, looking different as the techniques supplier taking on overall against we hedging active material saying, all amount our that inflation some the assumptions. company. also goods our very that the of obviously in various we is work includes, the across get is not the to which techniques to ourselves it's the the availability us were of scenarios will it situation hedging, of summarizes That this end basis polypropylene business hedging again still we the suppliers, Therefore, we protect includes and of sources to main at diversification and K the have sources this active the said we to That to board. comes that requirements. of the depending That our packaging Bob, are part the find how of you assumptions huge sophisticated as very an we several but are the our the by relationship. of manage all, spending for buy price, segment do like we blends we that, well for And it The basis which financial other driven that's of hedging of sold But as again, being that see that, goods to a and our of on in of includes say trying a very diversifying not also part when on a change right. of is we our what it's to the cost that vigilant suppliers. there. includes the fulfill been increased are commitments. the even that diversification. but able and have which policies time inflation. increased general also very in geographically But to important. that that of we all at Therefore, what business elements use hedge, of the hard important of the beyond not quite complex apply. beyond There our the But transportation, same basket all. business. are And cost continue of That warehousing, example, the and expectations And over several geographical is portfolio is several main because to we matters parts deliver alternative the input manage do as we there the time. of to we that legs bit, as strategies having traditional cups. being and course,

adopted doing little I bit to successful, been that As the a be proven have as than we years, more to three will we think have model has act and we such. continue

Operator

to conference the closing like now hand remarks. would over management to I for

Robert Gamgort

much us very for joining you today. Thank

Our teams day. are out all

So out if you We're have any to questions, us. to feel reach here. free

Operator

today's conclude you does This Thank for participation. conference call. your

lines. your disconnect now may You

Keurig Dr Pepper (KDP) 28 Oct 212021 Q3 Earnings call transcript