KDP - Earnings call transcript Q4 2021

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Operator

Good morning ladies and gentlemen. And thank you for standing by. Welcome to the Keurig Dr Pepper’s Earnings Call for the Fourth Quarter and Full Year 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 fourth 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 in While the release guidance. amount the basis in company's a believe adjusted exclusion our outside which tables items today. of comparability appropriate control, is provided press of not provides discussion later for items filed that we reconciliation accordance impacts not our our affecting Details be timing to meaningful in the basis to an the excluded performance. Due we with do of and of certain of will comparison included GAAP, inability the XX-Q, and the predict our reconcile are

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

Bob Gamgort

everyone. Steve. good morning, And Thanks,

three-year you detailed past chapter merger of this Day transformation we of October. Investor represents plan and our the our quarter beginning our for the next during completion the as of you As in recall, growth, and

plan we merger report pleased our company the the growing and or that our commitments, have record The faster I with am With a merger. books, of of exceeded demonstrated time than in all we key new ability business power since at significantly to now of events met the volatile KDP the the business for It and our commitments. the we and merger unforeseen and tested strength our of the faced to on industry macro have withstand our also our deliver has environment resilience provided to the demonstrate has long-term business. and model the opportunity

X% past In of our top-line years terms X% over target the X% almost of standout, a double compound period, few the specifics, growing merger annual a basis three strength approximately the over a is growth. on to

growth significantly nearly years, sales our three net accelerated over the X.X%. importantly, with XXXX More sales advancing

merger beyond new we Keurig meaningful our well market as high-quality, share across and based since strength households in-market performance, expansion Our extends system. broad delivered including portfolio, of the growth using our financial commitments,

the since each of top onset Importantly, we year maintain line growth COVID.

grown driven U.S. business able an Market since impacted. EPS to XX% ecosystem in of As expansion been be cases, system sales KDP and to Keurig to continues households some million the XXXX. have delivered delivered faster well leverage over cold segments results annual share with XX% driven strong point basis, nearly XXXX. a since on key In adjusted adjusted which management new metrics we've this merger capture financial consolidated compound of than a Since achieving share adjusted growth the the in new for XXXX, we've added range, XX%. our expand three-year These inclusion, were of to in X.X our ratio before EPS, On period. impact building continue negatively those areas in net certain eight hydration, marketing. coffee, merger basis within including fueled goals the and post-merger growth such regenerative beverages set and, the offset were the were target exceptional our diversity that pivot was strength a CSDs, of expanding execution, to performance responsibility solid more including while innovation successful We and corporate foundation agenda, by EPS and and agriculture. the the advancement into with and future, high up as by synergy positive

Consumer total mindset who manage KDP. thinking, is the is All merger bold ownership by this Staples been the a culture been Investors index more and have and how Index. us by a of of accountability. underpinned sector the rewarded Important which with the shareholder team a speed these have talented is that XXX% delivery the times two return strong of rewards we S&P Xx of and and to XXX a results than return of since

discuss which and QX program, year since, in portfolio. that in example range have tactics us volatile we strategic initially of asset includes used including his brand stay investment conditions and increase term, XXXX our the long-term our is enable remarks. Ozan through our or to A XXXX a launched playbook vision. in more navigate investment strategies good Our each to in of to marketing will maintain short in to true

season, gross chain shortages, and we're environment earning the industry. in Supply and have service industry disruption the current facing. issues broad up on pressured the CPG transportation the customer of impacting of At material labor levels about negatively by this margins. are fully you speed availability point issues range lack talk driven Let's reduced to

at cost of the for caring nearly been market. lagged addition, in across been infected goods due absent most and industry, quarter COVID the of was of serve the of start cost components to inflation necessitated of in frontline who multiple commercial across someone reported the with levels and absenteeism year, manufacturing that being of terms It with U.S. intensified which the inflation actions had significantly causing These higher the infected. of timing new pricing all of fourth Omicron, challenges In or onset workforce in unprecedented workforces. X% the across to has

significant as actually absenteeism plants levels. magnified labor it key on real challenged the causing certainly chains. supply workforce experienced to We're digits, impact an We, in that already the at is, below which not threshold situation, As understates for double number example, alone. critical drop the

and a which Our operations. suppliers plant are on services, challenges, our compounding transportation have inputs, experiencing also these has equipment effect

increase get paid portfolio implementing report done. macro an ensure the our Of regardless availability to prioritize and items. news but By deliver rather what challenges of our highest to of course, of set fastest availability turning tangible the the don't we've we That's we unprecedented exactly of is we've commitments to to impacted the A situation. profit below labor actions in capacity our availability. and Both, directly consumer safety solutions to Systems. up Coffee the QX, for partners to output our pods finished to inventory caused and stock demand This tap bumped COVID. Record service K-Cup against into lower related goods faced levels, delayed new which implemented retailers. us and falling manufacturing in example

challenges process next high servicing into we production to Omicron will inventory, impact now working rebuilt talk absenteeism, output Ozan quarter. but are successfully of have well the his in is height the demand rebuild that the consumer while comments. more a continued which since the the of continue supply about we’ll We

Nearly of provided since runs be the highlight range of course, throughout is Investor continues Day, disruption pressure To full several Most expected date, escalating light the important seeing supply Omicron nicely. the elasticities of of end pricing for impact the the past this guidance and pacing sales growth the today XXXX. have inflation our at inflation, be to held the to we tunnel, chain at we're of its discussed resulting year. Day. as address inflationary supply mid-single six five early up outlook digit EPS At expected be our in we Investor year, for we To months persistent. months actions over we headwinds in and to our believe announced full While projection to were that year for continued and continue the October the in implemented Yet wave it's for chain reflected more time, XXXX the year. to the pricing challenges in results net realistic. the the significant

last and significant disruption which QX in our is expect challenging represent algorithm. we managed us chain QX digit most put our second would long-term performance of inflationary starting projected EPS to XXXX we as half through supply to pressures. year, single back reaching comparison growth Specifically, ongoing the levels of peak improve in on high to the

minutes XXXX Let back shift me results. full take to our to year highlight few a to

all up more four accelerate, with full year strongly. performance sales line X% to top than growth segments business and Our continued of net

fourth net digit an double Packaged XX% fueled segment quarter. impressive was for in increase posting standout, a the Our growth the year, by Beverages sales

sales Beverage XXXX. in Beverages and delivered segments growth America net also Concentrates Our Latin double strong digit

underpins net our system, approximately double X% financials. approaching While nearly the XXXX, mentioned. top and of In Adjusted on pod in-market U.S. EPS a EPS million added to three translated brands new posted increase previously digit year shipments, brewer households are coffee means a now million. two-year Keurig our increase XX% we Strong households performance on growth more in XX U.S. due XX% which the to in XXXX, an three business added almost sales basis for households in which of delivery our shipments. as advanced total to Keurig growth X% million of than for the new

portfolio portfolio points which grew drew basis. looking share and by at XXXX. XX% almost XX% strength across XX% a market X.X market results consumption the nearly in by on share of with two-year when Our and CSDs, share Most continued notable and since LBR XXXX

in number widespread of the In drivers XXXX. sustainable. performance fact, are took and over grocery channel KDP and CSDs position share in The two our CSD the

FMCG their the top of was fueled innovation. by took CSD major XXXX. was brands the over Pepper last nearly XX. its the brand of one U.S. of only While year, by XXXX it leadership fastest in beverage XX%. XXX perform and our single the Sunkist ranking brands how in consumers, in to the dollar fruit fastest Pepper consumption When serve growing since the XXXX, and CST the was Fortune Dr growing has well XXX top segment well, Halo in grown brands the continued only all again Sunkist unveiled Dr for brand Since recently CSD

over later of CSDs, be success our will in Zero this innovation of the zero-sugar points Sugar. zero-sugar XXXX, category. zero-sugar year capturing a gained we third share launching the Snapple three With in we And

was double improved with product was The consumption Core for Looking proving up in beverage in Snapple designed the graphics in-market CORE, the was QX be XXXX as cold quarter, performance positive growth at bring which and digits Snapple consumers other by demonstrated of was brands, to and whose in while disruptions capped sustainable Retail availability supply and ended QX. Refresh, in growth key X% chain double segments Bai the our and portfolio, packaging both in younger new up digit December. and successful. is with Bai quarter, into to franchise Snapple our

to had Polar Our return of first untracked of to continued of not out continues for and and remains dollar where the X.X% club the market manufactured disruptions partner power XX% by continue in strength which higher coconut the strong channels grew nearly percentage by single-serve premium would in stocks. year, almost manufactured equity stream retail to dollar promotions year, as the is Switching growing by seltzer limited share enhanced Vita consumption achieving pods points KDP XXXX expand lead to in distribution X.X% and higher success the QX a even Coco, demonstrates to in to water our the have and for supply partnerships. XX% which consumption network, share for KDP full e-commerce we with region, been a we year. of the water northeast to for availability year an The in channels be for coffee the strong, also tracked KDP Growth market increasing reduce which made in offices. a chain outside if KDP brand. due for XX.X% growth an share seven achieved long-term segment. increase responsible to of the investment exceptional KDP

Keurig market strong. The in And exceptional, connected connected consumer be next Keurig having a As new new Keurig connected has very is reception quarter. compatible to drip the households in first for K-Supreme sight of surpassed the to first households the Keurig, we demonstrating years. fourth since few than system, come. platform to Further makers power launch eight with unit XXXX. the In of ever, of been time we million debuted for the mentioned previously, the the of brewer, continued million SMART to Keurig which of brewers traditional coffee brewers share household penetration system XXXX, many have the new line a adding more the

Finally, XX% revenue Latin Clamato. much segment particular on although income we don't delivered I'd Penafiel our our XX% behind Beverage like airtime team strength operating in America out growth, point to these growth give calls, and that and

contributor In for attractive KDP. results, company to addition a expansion total to represents opportunity being strong an LAB

potential over it turn our next about I the our Day. at period of in accomplishments opportunity provides on the past to completion Investor discussed our three results Before over as over to years. to The talk reflect more as well merger an to years, three our detail, outlook our Ozan and like XXXX long-term as I'd our XXXX outlook reflect on our

through ourselves delivering of business creation, our therefore focus and present value the in challenges our long-term future. and manage the the we always will on day, we investing for on measure the keep While

of algorithm, the look coupled the KDP with creation. story of a future significant As for combination of is to potential opportunity returns unique most through organic we investment the to aspects value inorganic growth one attractive outsized drive attractive an our the

were Day This our XXXX. free ROI the have use cash highest billion approximately expertise proceeds $X we we out outlook and to well as outlook Day, our M&A Investor Combined, funds capital, Investor large against flow to for generate capacity, expectations litigation to we the cash into is You translates $X billion flow is to same XXXX period settlement discretionary a and Day, discussed from $X demonstrated of between prioritized received resulted as a suggesting Investor we of approaching of our in looking over have billion, $XX recall from we our Coming track which few $X where being we believe the a was of record. our our billion. from headlines proceeds singular investment, management the more cash saw than strategic reasonable continue assuming cash October. BodyArmor Since discretionary differentiated of and that in M&A, billion cash free acquisition. three-year of flow increasing BodyArmor. Discretionary this

billion total size. or singular you repurchase that M&A, not of intentional M&A in significance assure for absence than firepower remain we our and will M&A, new authorization allocation me in the Let we use of the value-generating shares. and disciplined represents capital that our our capacity more deal share In a of buyback $XX opportunistically targeted to

previous good effective flow think Our the years how value is capital. of cash deployment shareholder of of through deployment a example over creation free we three about

During of top a value. that generator time our strong was shareholder repayment debt and priority period,

algorithm. and company-owned it and high-return our plant including territories believe investment was At acquired However, our on than numerous Big front made we to cash to expanded brought capacity CORE, on a excited organic also time, the strong on of during Coco opportunities, our be same passed also and and prudent one sheet warehouse our inorganic Limitless the that of position Red ability about we're continue and BodyArmor, equity businesses, an attractive we a and independent production strengthen brands, in to returns M&A balance Vita or in flow automation top us, free KDP TSR strong distributor to the buyer. exceptional XX and several invested DSD time, more rather seller sidelines generate in With startup projects. we system into

Let it over me Ozan. hand to

Ozan Dokmecioglu

turning our start morning, with to press and guidance. good everyone. XXXX, review which I and significant the year our discusses our detail, Bob, quarter of for full then in performance and release XXXX fourth a will Thanks,

billion. Latin net in compounded XXXX. fourth of income currency the net an quarter by the Concentrates of and Omicron this moments. gross the lower to XX.X% from the pricing operating well price us. investments. between ago Adjusted and two-year net increased America pricing. about XX which of of income to XX.X% increase fourth XXXX. On in performance demand net by was as the in higher in period favorably XX% will profit timing of and positive for Adjusted grew wide basis. program $XX driven the $XXX growth to sales X.X% year in performance benefits increased increased as on lag Beverage of in adjusted $X.XX quarter X.X% be scale, program. XX.X% merger the for operating volume diluted operating operating basis as fourth increased talk the in This compared to strong margin synergies gross declined a earnings with higher by strategic from XX.X% in both I as X.X% in in and we impact income the growth sales lower fueled driven of versus operating very well place offsetting to declined adjusted drivers merger growth this advanced discussion XXX Offsetting reflected many expense outbound three-year income the drivers inflation Packaged will primarily a ago, the and logistics basis, our All in the to of Adjusted net also investment our share Beverages and income, broad-based in SG&A, basis chain actions and On and $X.XX billion, a favorable adjusted Constant the robust profit which productivity the due quarter points quarter, in gross $X.XX constant Adjusted well as X.X% of few Adjusted Beverages. as XX.X% in on marketing by to X.X%. realization of period. million delivery seasonally impacted in per quarter a tax margin adjusted sales. inflation sales year labor to challenges, the Adjusted inflation to more these $X.XX quarter, ago is that impact increased XX% ago. basis, as versus the net basis, was currency asset quarter of put onset in year And accelerating $XXX significant were the versus well the quarter as million supply productivity Partially high gain XX.X% and adjusted points grew program This synergies. these a million versus quarter the primarily versus interest rate. year adjusted driven mix

Before turning would to chain to moment this a discussing disruption morning. pressures and XXXX full like I referenced results, we year supply have the spend inflationary

During considerably. across is across goods inputs, combined, cost higher double-digit and quarter. the inflation It sold rate inflation a fourth which in significantly all increased we to SG&A third than key quarter, accelerated nearly leading of the experienced

inflation of look the much we we moderation As level quarter. with expect expected the in XXXX, continue for some to to fourth of this year,

As the supply challenges. Bob explained earlier, chain number we similar have to of faced industry, others in a

our COVID was due and due on equipment European manufacturing it ramp-up, demand in of However, Coffee also most absenteeism four, Omicron supply and supplier. of a short-term the our delay pods convergence was pressured by exceeded of strong business driven limited in our was by shortages which Spartanburg quarter for which consumer output, demand profitability Systems and impact the events. Consistently, to our labor facility K-Cup to

related to substantial customer incremental the the we included to missed incurred result, as partners, deduction fines in the masked It quarter. positive the our which embedded our highlight opportunities, the Coffee Systems Coffee customer available incurred is in on price pod As customer service fines net when results achieved missed to that a realization Systems pricing, service expedited as levels a are costs are the supply logistics P&L which to targets. important revenue levels, we pricing

maximize As with our strong been minimum meet have mentioned, to and implement able closely we variety partners, network Bob order customer also continued Working our consumer levels have production the sales to sizes. we existing and action taken to simplify within demand. improve to

owned some We supply SKUs licensed actions lower-profit are certain and us an brand partner used portfolio. business. and production improve we the output these challenges And to as have enabling in Collectively, already shed have rebuild our to also opportunity inventory. rationalize

that actions. see be aid KDP a to degree, and in these impacted by own Our will share lesser syndicated negatively licensed you data will manufactured

However, little profitability. will our they have on impact no to

on The demand increase immediate and Finally, plant to increasing our our ramping to have pod Spartanburg, we assuming in until supply coming XXXX. derisked existing actions that taken we we enable other continue all have to us work but facilities will with capacity sites up Spartanburg from supplier at by production time. capacity no the equipment additional until

turn $XX.XX X.X%. Let mix net XXXX. to me grew our higher volume billion, now net price sales X.X% for realization year to and by X.X% currency full results driven of Constant of favorable

to sales each net versus gross growth basis performance importantly, was billion a adjusted This reflects combined synergies. profit series More operating in the accelerated with grew significant a the full gross $X.XX points. margin broad-based net implemented positives of two-year XX.X% chain our On versus pricing margin actions for XX which equated disruption declined strong these operating segments. quarter. advanced productivity year, supply points X.X% Adjusted and merger was basis, year, and in decline KDP billion Adjusted XX.X% last business previously a and income of of a growth year. inflation basis $X.XX Offsetting across sales balanced to discussed and XX fourth to XXXX. late of X.X% a the

year Given challenges speaks margin operating line with basis underlying with down growth. XX our in and come industry the benefits the that strong of finishing the only top strength points XXXX, a business the to

benefit year-over-year productivity we which gross investment the our performance, synergies program, addition creates assets drive benefiting merger fourth program. impact strategic assets program of the in accelerated well I income enable In were mentioned growth. the This as to as started operating in to to asset in of strategic from results. margin also value strong the XXXX, this investment quarter Earlier, certain and the

use million, in which increase and is XX.X% primarily in operating rate. the only full made We for lower a year smaller to year marketing much beyond. the is program expense the XXXX investment relevant reflecting to Adjusted continue in significantly year $XX plan net impact to income ago most advanced growth tax adjusted XXXX. well interest we as a in adjusted this as versus lower the below of income $X.XX billion, and However,

grew free by adjusted This sale cash compared year, us combined our of billion, the period. free flow from $X.XX conversion year the and year earnings EPS ratio in $XX equity to of bank flow Free up versus diluted strong flow diluted XXXX. BodyArmor, was interest with to cash to our by strong $X.XX outstanding On $XXX XX.X% basis the billion payables For the continued structural the proceeds cash adjusted for approximately ago million. debt share XXX%. be two-year a per to representing full XX.X% a million over cash $X.X reduce at in $X.X of enabled almost

to debt, earnings ratio Due We a our management at in our times improved achieve growth also X the in on cash of leverage to which and unrestricted leverage million hand. XXXX, ratio bank ended delivers times. our of commitment merger or reduction $XXX on the year at to X.X we below management with end

cash of in earlier, our of BodyArmor proceeds. $XXX these from of the received million we billion As also the in against million, combined our resolved which litigation addition the to interest, resulted in driving additional items proceeds amount to almost BodyArmor Bob January, sale discussed $XXX $X equity in

we have inorganic the three over value billion drive cash to expect approximately years of next discretionary creation. these proceeds, to additional $X With now

million. rate interest Earlier weighted Let expense Supporting me XX.X%. our Adjusted and to mid-single-digit the diluted expected in we year range. approximate are the expect approximately now guidance be billion. guidance, both XX% the guidance is is per to expected for range growth XXXX. outstanding move XXXX to X.XX tax today, in we following: $XXX adjusted full Diluted Adjusted sales our this earnings effective net affirmed to of shares for estimated share

chain the unfold guidance, to perspective a while current XXXX do much we over the quarter remaining one, results challenges environment, moderation for XXXX. year, of we peak the is the late provide the the year. expect our Inflation expect improving some Finally, how on margins to our expected From of we to share course the in I supply occur quarters. not to of timing three through quarterly given standpoint, pressure in want with with

to lap XXXX. chain in week the our supply and in of half last service quarter the we of net growth net moderate sales fourth Included it half in guidance The one XXrd of expected quarter of improved Systems will such in of in which Inflation comping year as occur range levels is consumer From the particularly a moderate growth all Coffee fourth as expect it's as in meet XXXX. Coffee XXXX. and our in hand we we're the the part to demand is year of the disruption XXXX. year. start sequentially to long-term to XX.X% the we is noting we is inventory the strong expected worsened the it second while which adjusted quarter latter in revenue to is slowly algorithm. improve of let in lap for line Specifically, half, With single-digit is throughout share reaching year, points the during high Total worth year, back strength our spiked earnings that, standpoint, second KDP the performance operator me with it questions. half that these in expected second second and the last in is to that Systems as rebuild expected to of the segment per

Operator

Sachs. from question Herzog Bonnie first Goldman Your with Instructions] [Operator comes

Bonnie Herzog

I All right. of Thank questions on a you. morning. couple had Good your guidance.

did, is like really underlying for line, business does Packaged consumer seem demand First, you strong, guys and Beverages top outlook coffee both this ended and year. for your maintain with again, XXXX it stronger-than-expected yet your you

final as Again, pressures the just consumer on in something one how context to quick Thanks. this clarification your the and guidance just in outlook or of consumer, potential digits into you this Just the trying given thinking you the I driving that up understand low-income EBIT Do guys understand So maybe for growth brewers for then to And your volume about on year. your to on affordability of the guess be what's might line the it to And below mid-single-digit mid-single factored growth I'm how growth just trying be. terms conservative in terms the well? year? year? are I'm down-trading especially risk? guys brewers, this expect your understand EPS trying

Bob Gamgort

Okay, then related them Bonnie. do guidance? the you and of to want Good to I'll on morning brewer about Ozan, the were and for question. those guidance, questions. you There come talk thank two back

Ozan Dokmecioglu

Bob. certainly, Yes,

morning, Bonnie. So good

me start your regards with growth for So the with next last EBIT to let question year. expectations

our As October we during digit the from everyone as [ph] Investor our well back as Day, the standpoint share was year mid-single of mid-single digit guided top line as per expectation earnings on X well. have as

As know, operating or specifically interest on income either and guide earnings taxes. before don't we you

managed that tax expectations the time, we into to to guided and the lowering on At and we guidance capacity well expect or same tax as will little like capital, I over with we rate profit. also payment operating affordability the another time Then interest income brewers? And the However, always said as that do good Bob, line expense the continue you you Therefore, XXXX of push you'd efficiencies, the will specifically EBIT to with your I a for below pretty believe for always with a our opportunities good our up take as well. effective interest bit further rate along expense we find look that, line, taxes. know, in to our and improve sums to be our XXXX. in think that we as the improved working due debt this job as expectation as and regards lower year

Bob Gamgort

Yes.

line one, to me top the talk is pacing which first the about Let about regard with XXXX.

the incredibly has right revenue You're growth been strong.

decompose growth, you is pricing. to that coming of is half lot If a mix, we're that the about robust that volume from of getting which remainder of sectors, and and from compared very

going where challenging year. it think of gets to the happen that's So, I balance the forecast, in what's to

the additional it of here into collectively And mix territory elasticity additional EPS at mid-single-digit like. We The all in and and mid-single-digit happening we build We're is or have top increases the of ever for to anticipated are we terms prudent our due a we're and of feel than up thought inflation, across pricing mean show that price pricing have And volume of you come. industry. numbers area that's what exceeded that a it's delivers going any thoughtful earnings all going growth. business be EPS. we'll hypothetical its entering thoughtful build that off it great because as of look forward that are doesn't to looks that about to uncharted model But why line about more in to we of that's going to top because off line forward. build off if companies

With trends. X have that a number to on had pricing another so at approximately pricing and price our so off households question entry-level, I also value and system inflation business different following strategic change known record understand volume so significant value in sensitivity certainly which lot our the upgrade now affordability, design how growth. there above price it's the consumers around demand. We we continued We them. know hit excellent driver to long-term more critical could below $XXX threshold the think year that able brewers. pricing of elasticity build the we of model guidance. million million actually year, to years, had next we that between fact growth three well is we and price added we and because for and we trend. I'll concerns. where much points got of this then is based promotion. And very that we've know offer level. the past pulled we very that to been X brewers we levels, been point were is We $XX primarily an X on the from because our time think We've back-to-back years now that in in X also forward And the what that household that that implemented that have price households, know very Number is brewers where low-price an points, nicely remind million year everyone our pricing there of we Keurig to We've off regard is of is we point. brewer delivered penetration the from A that a we've

elasticity brewers you'll mandate see from So certain even we we than household and our more will lean points also driving less in be though of aggregate, pricing understand penetration. can will we there's in move brewers critical And across channels where others. distracted in never on protect those that certain overall price

Bonnie Herzog

helpful. clarify work QX mentioned quite or you in terms the I pressured because I think brewer inventory rebuild I And Okay. just if That's know, Bob Ozan, will you to, volume, levels. as you mentioned be may that really just of in

just on Do terms you good volume I'm context factored of expect again, what's on is guidance. that into it mean, of years mentioned volume. putting instance? I more for full two be especially about flattish year, really of, brewer side kind think just of up? like the trying conservative So, being strong in in you of to to brewer your the total terms brewer Or year top

Bob Gamgort

to clarify to Yes. able that. I'm be glad

the of First is inventory that pressure talking rebuilding about all side. we're all, pod on in the the

Bonnie Herzog

Okay.

Bob Gamgort

chips, given for our the made contain them; is What's quite to be continue team the able cetera supply supply in in brewers that been of chips remarkable being to to alternative has materials, global is fact our brewers. product shipped challenges et find the all amazing of and a that and chain overseas all pretty on line able ocean

towards we new are but significantly a at is think the we number upgrades. as but million issue to – sold, higher for what has brewers X year XXXX, due for trend. describe lot always Keurig, households then of of supply a or not at you per And been those about replacements as we think long-term look just the working What about as all. a brewer though long-term, forecast we we're for So, not an long-term there's our

back. in been line, on new to has What's material regard do our in it most place drive you. why revenue While pods, pods our sales, household although fine we're brewers they saw we've forecast the penetration, are don't and That's show on we impact have important With COVID, had really nor increasing is at-home, bit little that's on shifted they for finished now. them that on installed also issue that able we to The – are away to Omicron don't with through of for composition then fourth production. draw We that we've building a our demand base Keurig demand. to increased going not as of growth been That based could into the caused we from the rebuilding The pods from hit for the household focus brewer to demand year. be a up that remained every down with safety And we're on levels. incredible demand inventory that. stock very below strong that profitability. down to the quarter later supply current us January, and And goods brewers. now

improve at to And that we're some for to we've serve to that early inventory we another to and take it where by January, quarter the And now our hit restock solve same so. improving was time, seen in that's But example. Our the really use driven versus now. the was late production or to serving to masters, absenteeism we January, demand. we're of we And up QX. continue production process that going efficiency. bottom have to of issue current that have it that's strong have take But early is significantly – and two in the that,

inventory, at nothing this So, it's brewers all pod-related point. regard with with to

Bonnie Herzog

helpful. Thank Very Perfect. you. Okay.

Bob Gamgort

Bonnie. Okay,

Operator

Wells next question is from Chris Your Carey with Securities. Fargo

Chris Carey

morning. Good Hi.

Bob Gamgort

Hi, Chris.

Chris Carey

maybe there tailwind. And improve margin structural you more margin maybe just to expect this Typically, can this bit you this another if drivers when a a way, the review and rate. margin other quarter rate getting base pods following your your in improve coffee, clearly you what sequential coffee. margin of So that or up then quarter. go wonder on as you just areas charges to just high-XXs that here would on own Can the chain? were just I outperform, is to that's to lasting Said see pricing. you that, supply pricing they versus Thank thoughts Obviously, a forward? guys. sequentially business so impact you, business incurred of with pricing updated from frame on pricing, the should going which level maybe Or connected forward? on these of your strategic and And the from

Bob Gamgort

great are questions. Those sure. Yes,

demand we're think drive no. supply with, it's is short-lived. Simple remains dealing now structural do anything solvable, start we're is supply What it's challenge. answer challenge is that we're demand the solved based strong a that household fact And being penetration. me Let with the experiencing not and a great challenge continuing long-lasting? incredibly on right is already I to The and

issues hit our at CP that If It a had you production just events it in happened We pressure. strong of time really demand into due QX absenteeism, to that incredibly same think about maintain the honestly. so QX, quite over of it's number because serious people the was caused being the the us lot able to and a broader carried convergence in industry. in of to happened

harder X% multiple below were number a we plants in beginning said that rate gets in was in production, level of was of there's – to As hit that effects then of you us. were my I series get for threshold a production, the point that's had the where the happened That exactly a remarks, that prepared to national your happened. your absenteeism regions and January; drop that. where you knock-on what And a

service are prioritized to out-of-stocks a us that. of in a partners; our of as try them we of you over We result some sense sales it, prevent give our if I partners All orders missed and expedite we short-lived. cases. But to

paying a lot overtime for are of now are who We up. showing people

supplier of is as cause have a XXXX equipment time build late you which feeling short-term pressure that frankly, is it expecting rebuild our and speak our on Spartanburg. all impact, up. so of us further the compounded missed deadlines. were plant to about in European-driven quite started production new being is started because the and this of we we in seeing bit Again, is a significant their these general the nature. ramp-up and structural And it, think in said, Omicron, start has a they at new serious they really unwound a in as it up things inventory. in manufacturing, What the we to all But COVID pressure we to if which were of ahead So, we business, demand on from ramp none

that's production time. Again, wasn't that demand. able about that So built script of handle we've the outside our that same solved. at to Spartanburg in We available now us be our talked to to

We to able a milestones. production without continue to contingency rein of demand. And also now optimize we serve be plant supplier full have plan should also to they trying current our to giving are that any miss

that a And backup than have does a Spartanburg won't any that realized. not represents is we We plan, when it capacity, productivity further growth opportunity to that's represent only so XXXX. let up yet be full to go

to last we the an a made all the we pricing. Systems, structural opportunity is companies we in said time two we to we not back hit only the the that down would than those Coffee over moderate which ago pods not I'll appropriate put pricing go way to point in statements four we that critically said levels, with more investment, pricing intentional that price us. once the inflationary is Because was years The threshold So to issue going the environment, together front structural regard that's forward thresholds. important. is of strategic when and know get a point

So, down said XXXX, In X%. QX, think we're I XXXX since Systems service down knock-on XXXX X%; than issues effects our one the talked we then, pricing. the prepared of more lines. in It's putting masked about. that about Coffee remarks, X%; customer about production pricing was of in X%; as And by down in you XXXX, positive if down less pricing net happened we had in what's XXXX about our

forward already pricing see pricing will in positive you Coffee Systems that we've So, on in going put the based place.

people any range there So, million is the yet XX is positive CPG to we've front remaining the of growing behavior thing one all and the brewing intact, the beyond in price in the potential million strategic been it's past have and only Again, businesses into cup. converting the after to which is pot important most few, households that sight be that converted year-after-year by of Not we if is to three by to line still bring volume by that of pricing, moved still are even eight their another, a mid-single-digit converted now we from us. in investment delivered have years.

Chris Carey

Thanks Bob.

Bob Gamgort

Chris, Okay, thank you.

Operator

Kevin from with Grundy question next is Your Jefferies.

Kevin Grundy

Hey good morning, everyone.

Bob Gamgort

good Yes, morning.

Kevin Grundy

First, a housekeeping question for Ozan.

Just been on here. the which tax rate, lower has trending

longer and commodity worse inflation, moment any any tax initially number you has – growth is mid-single-digit cost to guidance. Just guess, gotten going booked be provided between there a spend difference term EPS just rate? the expectation rate cash tax on one, which there's comment, if clearly two, your is Number since I that sustainable? Ozan, And and your the then maybe

then spend please, much margin, Just a Thanks. as to with you we you're expect And about productivity. what how offset moment, expecting. think pricing and exposures, gross key on

Ozan Dokmecioglu

XX%, to the rate. our our implemented be since rate strategies and with last we two rate. putting have together in Kevin, onset to tax of regards XXXX tax our several three lowering maybe the years, our successfully financials we I companies believe I explained the expect And so to look when you XX.X%. have Absolutely. of quite effective have our tax tax successful the initiated prepared just And around rate, been as managing for remarks, we around

So, deliver results basis for us. ingoing on of to are assumptions the expecting that that's we the our the implementations

a levels not will basis, sustain, probably more but bit a number on less maybe much. lower, XXXX little one. And normalized that's or So,

So, that's for rates XXXX effective beyond. overall our expectation tax and with regards to

much It's throughout some also little moderation XXXX, in anticipated, and our talk So, all quarter. in as higher quarter what inflation we fourth right? we fourth continue of expect let's significantly in double know, through the So, than digits. a XXXX, the and with bit about commodities you exposures, accelerated the increasing to inflation XXXX the with

one, overall peak right we nine we we look of we I quarter chain through when to XXXX, at our a Therefore, as commodity to exposures, we albeit ongoing rates for comparison mean bit year, you in coverage, that we this continue expect last well manage cover feel will further but time. So say year significant covered But as most significantly than layer I supply ago, now at think inflation. it and some the challenging months. quarter also Bob alluded are little levels to six higher through last one XXXX, when to disruption be

is in some packaging with that of we that overall balance polypropylene, hedge. any no them is with believe which Therefore, regards can coverages, costs, K-Cup, the for now some we XXXX. structured there struck like that material costs we market like And the the for versus because our example, to along hedge XXXX transportation, can't inflation, other impact we good input a right commodity materials

that and example, XXXX. coffee, for coffee, our had as with example, in in we in longer the we fully along managing But these costs in, in low-cost to transportation, labor making guidance of Therefore, overall percent arising our margin also, year-over-year result We guidance that all positions balance in for that now the positions of we the believe input input largest we just built one numbers that of in well a as costs, all have basket which assumptions our XXXX is quarter out. along are changes of and green KDP. now quarter have utilized, But relation have dealing which inflation, we a our put structure as reported. with the right of good

Kevin Grundy

other I’m of the Thanks number pass I’ll for there’s Okay. questions. on. sure color. it

Ozan Dokmecioglu

Thanks.

Bob Gamgort

Thanks.

Operator

is Edge. with Consumer question from Brett next Your Cooper

Brett Cooper

target to the coffee back the Thanks. pricing pricing from you just your on order levels entirety much Good with follow-up specific of portfolio prior cold on action. A given and taking to you with how impact guess levels a question in pricing that strategic target thoughts decision. actions? business manage business price flexibility any then pricing its I love moving the morning. in how the performing the in pod beverage give well, that. look potentially that And the that is above those pod at making with Would does you question less in

Bob Gamgort

benefit The Brett, that thank of the et is different you. Yes, in trends, dynamics, competitive Okay. have different consumer cetera. a bit diversification of we portfolio of terms

With et an allows to back a uncertainty over-delivering the that there and reversed despite cold point And to an guidance great at that it results please? perspective. take now the But business in put in way you back them volatility we've put we in don't hard the diversification and we we take all take so, amount take all to of it's coffee these environment deliver able we fact that question look the we can in investor assessment despite COVID, great the not of right XXXX that out we we the deliver challenges cases because pricing put with elasticities, if of level consumer where we the to been individual of get that. we're commitments in We in go able the other. have and the our decision. deliver business. understand are the part we're now, seen say pricing to now area, until the the help as that how we're the we we less pricing take based of some we to impact the business in that's benefit you've where the pricing which QX level one be face. that in where to one to confidence We possibly of have, individual the that it inflation, challenges forward competitive can leverage in to Can at regard push impacts to And was that that others. portfolio offset of disruption, about cetera, demand the able maximum all we in can pricing a portfolio price position we're the us to we'll think we think supply though, We way. having that step chain consolidated one the it able one going each and And best pricing against in though, inflationary that segment-by-segment. in dynamics. from situations, on the able then And the That's adversely as on does we do certain to business business and was side portfolio, next us like that we a to

Operator

from Lauren Your with Lieberman Barclays. next comes question

Lauren Lieberman

volume probably into is to of the like there last in But Thanks. have the over the think potential that Bob, Good visibility discussion you expected of passion the and in you have morning. minutes structural comments I This conversation. last this transition your I is a of behavior. is think keeping good the of M&A few to really feel was lead was, as sustain you driving sort I'm cost growth been Keurig But bulk curious you the about consumer the businesses. how where reside. is guessing the

the about on in You've to hear bit little sort moves, already I'd you side price think these you business. structural as of can multiyear of view about those curious be same of volume mix of made and market just businesses talk how well? the versus that So, Thanks. a to on kind route all course, your kind of perhaps potential

Bob Gamgort

Yes, question. great

cold a very the most those market business our the it's strong them acquisitions runway we portfolio ensure won't driven that a merchandising, because just has cold our the exceptionally formula doing we renovation What to amount core the our Our single is the on and since every also covered delivery, to building and times, that's current of in number through I in route by with the front in results. significant and repeat share servicing are year. improves of three we growth remarks. volume on brands performed described of of it. improving white mentioned Countless in been examples that, well of marketing. of to then discussed of business investing and and prepared the that combination I into Innovating the the space that And territory merger. has fill which side partnerships them delivering and and It's

plenty on effectiveness of also territories still improve independent both of our You cover. mentioned system. where work we delivery left White heavily our in runway system we've done a already on invested the significant tremendous on into we the of And of still and We've lot able bringing the There's those. leverage route-to-market of space, to in to be to fill of that we to marketing open we in sight have. renovation our line still well existing territory have distribution have amount and the to strength innovation portfolio brand system portfolio. our that as as side,

will As we talked of about lot ago, has been conversations, years successful. three Dr. allow Pepper a

What I You innovation. more by can't fastest-growing to feel are Pepper would possibly years driven like go on was else major we to do? the grow plenty that marketing going And any Dr. point the And out further. past that. then we you two CSD in still that have

significant brands, still So, it's in system growth that and combination gives of that white space us. to of existing front distribution effectiveness us of sight line

Lauren Lieberman

Thank much. you so

Bob Gamgort

Lauren. Okay, thanks

Operator

Teixeira JPMorgan. Andrea comes question with next Your from

Andrea Teixeira

energy at interpret M&A M&A. that, coffee double related on on to are Bob, your And for shops this mostly morning. if Normally, transactions? mentioned I And embed and question Good spaces should point? you. of that to looking click we Board your use guidance. you don't in capital, comments is this wanted out be white scenario. Would about to of the that Thank so, you bolt-on in compared buybacks. what bigger the

at on are is your Analyst And think, sitting in and would just labor you And is you I'm and XXXX. in pricing point? additional pricing, correct your wanted this with me contemplate costs market the where I clarify what wrong, since I mid-single other you. already. on that assuming included the if to digits, Day, Thank So, lastly, what

Bob Gamgort

Okay. talked our about we've M&A. Yes, side, is the capacity what M&A on for

our we're to north based on free that it's billion put a our $X do we've cash to adding as then and which always just further about; variety capabilities the have geographic talked which some capacity about, operate flow we we billion America billion we came talked we of new of say build are some were some capabilities, could the acquisitions get said in We opportunity explain expansion. we to continuing we clarification North Canada we with Day. along that; $XX could distribution that And making investment. also for of positions what is see results as of acquisition. obviously, we the white to today, Investor opportunity and for of We That's additional sizes saying of the four a heavily American The and an example, were continue significant people looking in nice a $XX we today in the some that area deliver fantastic just were today talked got about headlines for So, of beverages, discretionary there and continuing where in KDP. forward that that is we Latin the U.S., of number where accretive are in out Mexico. total filling space areas for assumptions to

at place, through to to They sizes, a all at look year we continue how target. we're don't buyback marketing to range $XX capacity, So, a we in wanted Do Ozan, you this on clarify and to Ozan talk not are With wide targets, we as want a is based looking XXXX. we've question. billion we to all end last will as that but in to range what on the pricing of pricing about we plus going the regard of that do And lever investment. which our in think have strategic. one and any four – productivity, regard With the inflation, XXXX. in want in conversation? we've put others. already always the have future be happening the need buybacks be the about say talk rest that this but not in of that's also of announced combination, I will just second. part the to that's to a manage early And you We flexible we of expense at is in already we pricing the plan pricing

Ozan Dokmecioglu

Yes, absolutely, Bob. And hello Andrea.

not. we So, authorized a year want up It's buybacks. opportunistic end buyback, is couple of quick And of Board $X the also depend XXXX. conditions It or started market are priority billion points not you Investor our build of M&A. or now, decision just will announcement, believe, buyback that And I for minus guidance our at a also repeating say, ourselves an just our has January a four-year the any did of to our on management line this a as to the cash December as which result by capital said, be to plus that as decide as with through Andrea, and that on come we our before now, us I as of remind would Day is formulaic our program in not just we well that may any be in program also Bob of XXXX. expressed our on use to mean. one. and our fair would explained buyback into It discretion to

do again in absence to that, basis. an may that opportunistic some buybacks, decide For reason, on some of we

remarks So that couple will quick of on the be my you. buyback. Thank

Andrea Teixeira

Thank you, both.

Bob Gamgort

Thanks.

Operator

closing over back management I'll now it to turn for remarks.

Steve Alexander

Thanks, IR and team, day. morning. be will Maria myself The joining this everyone, for us around all

day. If love a you you. out good have to much very would questions, reach please you Thank and us, to to talk have we

Operator

Thank concludes today's you. This conference.

You may now disconnect.

Keurig Dr Pepper (KDP) 24 Feb 222021 Q4 Earnings call transcript