Q1 2023 Keurig Dr Pepper Inc Earnings Call
Good morning, ladies and gentlemen, and thank you for standing by.
Welcome to Keurig, Dr. Pepper's earnings call for the first quarter of 2020 three.
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 the company's vice President of Investor Relations and strategic initiatives Jane Gelfand Mcguffin. Please go ahead.
Thank you Hello, everyone earlier. This morning, we issued a press release detailing our first quarter results.
With previous quarters, we will be discussing our performance on an adjusted basis, which reflects constant currency growth rate.
I know.
The company believes that the adjusted basis provides investors with additional insight into our business and operating performance track.
While the exclusion of items affecting comparability and the use of constant currency growth rates are not in accordance with GAAP. We believe that the adjusted basis provides meaningful comparison.
Brokerage fees.
And our performance.
Yeah, We did I just provided the reconciliation table included in our press release, and our 10-Q, which will be filed later today due.
Due to the inability to predict the amount and timing of certain impacts outside.
Outside of the company's control, we do not reconcile our guidance.
Beginning this quarter, we will discuss our performance in accordance with our recently redefined business segment, which were described in 8-K last Thursday April 20th.
The new segment structure more consistent with how we evaluate it internally and provides more visibility to our segment performance in the U S, which is our largest market.
He will also speak about the concept of Andre.
Underlying performance, which removes the impact non operational items in the current and prior years.
These items include gains on asset sale leaseback transactions.
Litigation expenses related to the recognition of our body armor is a business interruption insurance recovery and a change in accounting policy for stock compensation.
And finally, our discussion this morning.
Forward looking statements, which are subject to the eight harbour provisions of the private Securities Litigation Reform Act of 1995.
These statements are subject to a number of risks and uncertainties that could cause actual results to differ materially and the company undertakes no obligation to update these statements based upon subsequent to that.
A detailed discussion of these risks and uncertainties.
The company's filings with the SEC.
Here with us today to discuss our results are TDP, chairman and CEO , Bob <unk>, Our Chief Financial Officer refund Shukria, Darcie, and our Chief Corporate Affairs Officer Maria <unk>.
I'll now turn it over to Bob.
Thanks, Jane and good morning, everyone. We started 2023 with good momentum.
Our overall Q1 performance came in largely as expected and demonstrated the resilience of the modern beverage company we have built.
We continue to manage well against a dynamic macro environment with the diversification benefits of Kt piece model evident in our results.
This morning, we reaffirmed our 2023 outlook and we are confident in our ability to continue to deliver on our commitment as a company.
For the quarter consolidated net sales advanced a strong 9% versus the prior year and adjusted EPS grew 3%.
Consumer demand remains healthy driven by successful renovation and innovation increased investment in marketing and modest elasticities across much of our portfolio.
And narrowing gap between inflation and pricing coupled with increased productivity and favorable mix contributed to good flow through to gross profit, but we continue to work through significant ongoing inflation in transportation warehousing and labor costs.
We expect the balance between these operating income drivers to turn more favorable in the back half of the year.
In U S refreshment beverages, which represents nearly 60% of GDP consolidated revenue our strong performance in Q1 demonstrated the depth of our capabilities across multiple dimensions, including brand renovation marketing distribution and in market.
Execution as well as our partnership philosophy and successful track record.
As discussed previously we create value in U S refreshment beverages in three ways.
By driving growth in core brands marketing and brand renovation.
By filling portfolio white spaces via innovation and external partnerships.
And by enhancing the effectiveness of our omnichannel, selling and distribution system, including our company owned direct store delivery system.
The multiplier effect of all three of these elements working in unison with evidenced in Q1.
We gained share in categories, representing almost 90% of retail sales.
With strong momentum in core brands, particularly Dr Pepper.
And months.
On the back of the very successful launch of Doctor Pepper strawberries and cream.
Dr Pepper recorded the largest market share gain in the CSD category this quarter.
The brand has become the number one flavored CSD in syndicated data over the past 13 weeks.
For perspective, strawberries, and cream reached 70% ACD distribution within five weeks of launch.
We gained a full share point in the CSD category and.
<unk> continues to experience strong momentum.
Driving the early success of strawberries and cream as Tdp's direct store delivery engine and robust consumer insights and marketing support.
In Q1, we also began to activate our strategic partnership with neutral.
Transitioning seaport energy distribution to our network.
Our execution, thus far has been smooth and is progressing in line with our plans.
As we begin to invest behind the brand, we are securing incremental distribution points and display as well as upgrading place.
So it is still very early days, our partnership with neutral bolt is strong and collaborative.
We are excited by its potential and look forward to unlocking more value for both Kt and neutral in the quarters and years ahead.
In market execution underpins the gains we are making across our U S refreshment beverages portfolio.
The results speak for themselves, but there are even more notable given we and the industry at large continue to work through significant inflation.
We have supplemented 2022 carryover pricing with some additional pricing actions to start the year.
As we protect our profitability and our ability to reinvest for the long term.
The limited elasticity is this business has experienced so far are telling a reminder of the resilience of the category in general.
And the Kt portfolio in particular.
Our brands remain important an affordable component of our consumers' everyday lives.
Still as recessionary risks persist, we continue to closely monitor consumer health and sentiment.
Turning now to U S coffee, which represents roughly 30% of our consolidated revenue.
This segment experienced a slower start to the year.
The performance in pods, which as you know is our primary focus and profit driver was as expected with brewers softer than expected.
Because of this segment's performance in the first half of the year will be difficult to analyze for longer term trends let.
Let me take a step back and explain what we're seeing in the category and in our own business.
Growth rates in the at home coffee category, including the single serve segment are being temporarily impacted by changes in mobility relative to the prior year.
The Q1, the category lapped the surge of the Omnicom Beria and lingering pandemic precautions in the year ago period are expected to continue to affect comparisons through the first half.
At the same time the category is digesting significant cumulative pricing to offset inflation.
Importantly single serve continues to gain volume share in the at home coffee category in the U S underpinning.
Underpinning the strength and resilience of the segment and our long term growth strategy.
We also see the environment for small appliances being impacted by the combination of lower consumer discretionary spending and a challenge specialty retailer environment.
So don't you will cover the detailed quarterly performance drivers, but let me say upfront we expect the second half to reveal a more normalized picture of the health of the single serve category and our ongoing momentum.
We're still planning to add approximately 2 million new households to the keurig ecosystem in 2023 and.
And we also continue to expect the back half of the show strong improvement in segment operating margin.
Short term noise aside the category the coffee category is vast and growing in the U S and globally.
Moving out the volatility of the pandemic period, we are projecting double digit volume growth for our at home pods in the U S from 2019 to 2023 with.
Which translates to mid single digit compound annual growth rate.
This is consistent with our previous discussions that eliminating the significant noise over the past three years.
Consistent and healthy long term trends for at home single serve coffee.
As the leader in U S single serve our overarching growth strategy is to continue converting consumers from book growing coffee by the pot to brewing it by the pot.
Which we pursue through two primary means.
First by driving household penetration for the Keurig system.
U S single serve adoption remains significantly below that in more developed single served markets in Western Europe and Eastern Canada.
And we expect household growth to continue for many years to come.
As we target, adding approximately 2 million new households annually.
Second by increasing revenue and profit growth from our existing 38 million U S Keurig households.
Ongoing brewer innovation to address new and changing consumer needs and a focus on expanding brand and variety of offerings within the cure ecosystem underpinned our coffee growth strategy.
We have news on both fronts in 2023.
When it comes to meeting consumer needs. After an initial successful launch with a single customer last year. In 2023, we are expanding our K ice brewer platform as well as dedicated ice pods, specifically designed for cold beverages.
Bold coffee beverages are growing quickly at coffee shops and over indexed to younger consumers.
Given our ability to deliver a high quality cold coffee experience at home, we're a fraction of the price we see ice coffee as a growth opportunity for the curie ecosystem in 2023 and beyond.
We also continue to add new and exciting brands to the keurig ecosystem.
Today, we are pleased to announce that announced that bills coffee a super premium brand based in San Francisco will be available on K Cup pods, beginning this fall.
Through the new partnership with bills as well as the additions of intelligentsia and black and bold announced last year. We are building a new Super premium segment for K Cup pods.
Our international segment, which represents just about 10% of our consolidated revenue encompasses both our Canadian coffee and beverages business as well as our <unk> businesses in Mexico, and Puerto Rico.
Our growth strategy for international Leverages enterprise wide insights and capabilities to grow household penetration in coffee and to drive share gains in <unk> bees through brand innovation and renovation.
<unk> space expansion and strengthening our routes to market.
We tailor our approach to local tastes and market structures, while exporting best practices and ideas across the whole of North America.
Q1, we were pleased to see broad based momentum across our brands and categories, including in mineral waters.
DS and single serve coffee.
Our partnership with Red Bull in Mexico continues to build and we also remained focus on expanding within the low or no alcohol category, including through our acquisition of eight to peak in Canada.
Both opportunities leverage our existing portfolio and distribution assets, including our DSD system in Mexico, and our alcohol alcohol portfolio and expertise in Canada.
Wrapping up we expect the operating environment to remain fluid and we see ADP as well positioned to continue to deliver strong consolidated performance in 2023.
We are reaffirming our 2023 outlook for constant currency net sales growth of 5% and adjusted EPS growth of 6% to 7%.
On an underlying basis. This implies adjusted EPS growth that is closer to 9% at.
At the top end of our long term algorithm.
In addition, <unk> has a track record of strong free cash flow generation and we expect to continue to unlock the potential for incremental shareholder returns through strategic capital allocation.
We have evolved our capital allocation approach to better fit our development stage as a company and to respond to a higher interest rate environment.
We are prioritizing internal investments partnerships and M&A.
Balanced against returning cash to shareholders through our dividend and opportunistic share repurchases, which we undertook this quarter and last quarter.
A recent upgrade by Moody's to a stronger investment grade credit rating recognizes the inherent portfolio of balance of our modern beverage company, along with our capital allocation philosophy and free cash flow profile.
All aspects that Sudan, Xu will talk more about next.
Thanks, Paul and good morning, everyone.
And kicking off 2023, we've made the decision to realign our segment reporting to more closely reflect hobby.
Ron and evaluate these businesses internally.
The new U S. Coffee segment will also enhance comparability relative to Harvey speak about our long term goals, including our 2 million annual U S household penetration target.
There is also the added benefit of giving you a more refined picture of our operation in the United States, which is by far our largest market.
We believe the size scale and margin profile of each U S segment becomes more visible externally, making it easier for you to track and analyze.
U S. Refreshment beverages is an 8 billion plus revenue business with a 28% adjusted operating margin.
The U S coffee business is $4 3 billion in revenue also very large we then adjusted operating margin above 32%.
Obviously, wotan high quantity CPG businesses.
With tremendous scale in the U S market.
At the same time, our fast growing international segment.
Proximity one 7 billion of revenue.
And at 24% adjusted operating margin is already meaningful and quite profitable.
We are pleased that ggp's portfolio delivered well on Q1 results, which were consistent with our going in expectations, even as performance among the segment Woodbury.
Q1 sales advanced 9% driven by our strong in market execution, particularly in the U S refreshment beverages.
Gross profit dollars grew at a similar rate.
And we increased marketing investments versus prior year.
At 34.
Our adjusted diluted EPS grew 3% versus Q1 last year.
Without a five cent headwind from the significant reduction in non operational items year over year underlying EPS growth in the quarter was in the high teens.
As discussed on our last earnings call.
We are committed to a step function decrease in the use of non operational items. This year and as this occurs the earning power of the business will become even more valuable.
Our actions also continued to reflect the revised capital allocation priorities.
In Q1, we saw and took advantage of a value opportunity in GDP share and bought back $6 6 million of share during the quarter.
Combined with the share repurchases, we undertook in late 2022.
We have now returned more than $500 million.
To shareholders, we are opportunistic buybacks over the past two quarters.
Our high quality portfolio.
Consistent result.
Well capitalized balance sheet.
Our flexible capital allocation approach are being increasingly recognized.
As Bob mentioned, Moody's upgraded our credit rating earlier this month.
Which is especially notable in a weaker macro environment.
We believe our strong balance sheet.
And North American focus represent the sales happen in the current to Mercury's financial market.
Let's now take a closer look at consolidated Q1 results.
Consistent with the last couple of quarters, our top line growth was driven by pricing taken to offset inflation.
And a modest volume mix decline.
Net sales grew eight 9% to $2 4 billion with pricing up approximately 10%.
Gross margins were stable at 52, 7%.
Oh really reflected the combined benefits of pricing productivity gains and positive mix balanced against considerable input cost inflation.
Total SG&A as a percentage of sales deleveraged by about 100 bps versus prior year, reflecting continued elevated transportation warehousing and labor costs.
Despite these cost headwinds, we increased marketing investment to support our brand momentum.
We also lapped and SG&A benefit of $28 million from a stock comp accounting change in the prior year period.
The pricing actions announced earlier this year.
Volume mix was slightly positive in the quarter, reflecting very limited elasticity impact as well as the contribution from seaport energy.
This volume mixed result speaks to the Zillions consumer demand modest last as it is in our categories.
And a successful slaybaugh innovations and innovations.
Turkmen operating income increased 11.6%.
As the effectively translated topline momentum to bottom line results, despite inflation and packaging manufacturing and labor costs.
Our U S. Coffee segment represents a single so ecosystem in which other brewers create a platform for high quality coffee experiences to our high margin Conterminal key club parts.
Simply put we.
We are in the business of selling parts not drawers.
That's sad when you do Cook nice that the quarter of what actually game boards can sometimes distort the picture.
To help you further contextualized brewer trend.
We got introducing two additional disclosures.
Trailing 12 months or sold and associated Rodriguez.
You saw what are these you know a press release this morning.
Going forward why do we will continue to disclose or totally brewer sales and shipments you know what 10-Q.
We will focus our remarks in this forum advil at in the press release on trailing 12 months trends, which we believe smooth the inherent quarterly volatility of appliances relative to consumables.
Let's not get into the results.
In U S coffee.
You wanted a venue declined 1.3%, which pricing up 5.3%, but volume mix down 6.6%.
The environment for small appliances was more dynamic than we expected.
Reflecting the combination of software discretionary spending.
[noise] challenged specific to retailers landscape.
These factors, primarily impacted brewer shipments, which declined 49% in the water.
For perspective, Kewanee Darwin seasonally is smallest quarter of the year it counting for less than 20 per cent of ruler shipments.
On a trailing 12 months basis Brewer shipments total 10.2 million, reflecting a 9.8% decline you'd over here, but a strong growth of 25.6% relative to the pre pandemic period, ending Q1 2019.
Our goal of adding an incremental 2 million households in the U S. In joining twenty-three remains intact.
U S border venues grew 2.9% and fought volumes declined modestly down 1.9% in order one.
This was influenced by consumer mobility that was meaningful indifferent worse at the same time last year when the omicron. So it's led to more time spent at home.
There are other factors at play in the category such add some elasticity in response to pricing and makes it to a more normalised level of premium versus private label exposure.
However, we continue to believe that mobility is the largest driver of at home coffee categories softness over the past few quarters.
It follows that trend should improve with age too.
Has mobility defenses relative to last year begin to dissipate.
We continue to expect U S coffee volumes in quarter, two two remain under pressure against the year ago period than be successfully executed our coffee recovery program and rebuilt partner in retail in new entries after supply disruptions.
Inflation remains the headwind in U S. Coffee were segment operating margin contracted hunted 30 basis points in the courtroom and segment operating income declined 5.3%.
We expect an improvement in the relationship between inflation pricing and productivity in the back half.
Which provide good visibility to a strong margin recovery in the segment, leading to a year already improvement in gross margin in 2023.
In particular, we are really focusing on productivity in 2023. After much of 2022 was focused on prioritizing customer service.
I want to devote for a minute to Q1 performance.
Has it.
It would have been reported for the far more coffee system segment.
Constant currency the venue for coffee systems G, 1% in water, one with foster growth in Canada than it is to the U S.
Following the segment realignment and reflecting softer than expected brewer volume lean.
Not expect U S cooperative venue to grow approximately one percentage point twenty-three with segment operating income growth of 3% to 4%.
This incorporates plans for ongoing marketing reinvestment and the expected back half margin expansion.
Other consolidated outlook for KDB in 2020, and see which I will address in more detail shortly remains unchanged.
Our international segment four months in Q1, plus strong and well balanced.
Net sales increased 16.7% with net price realization contributing nine points of growth and volume mixed up 7.7% a year over here.
George was broad based and led by L. Rv's and single supports.
The combination of net price realization and productivity gains.
Help to offset internationally headwinds and together led to the strong segment operating income growth of 18%.
Turning briefly to Castro.
Free gasoline Q1, what 16 million.
This declined relative to last year.
Flexing the lapping of certain his creed benefit in Q1 2022, such as the body are but the duration settlement gain advil as a use of networking capital this quarter.
For the full year, they expect the right of free cashflow conversion to approach our long term target.
Q1 results largely as expected.
We continue to expect constant currency net sales to increase 5% in 2023, and adjusted EPS to growth 6% to 7%.
We continued to project currency translation.
To be a 50 basis points headwind to both top and bottom lines.
As Bob said underlined E. P. S growth is expected to be closer to 9% at the top end of our high single digits long term algorithm.
This basis removed the noise from your over the air defenses in nonoperational items.
Which we still expect to roughly half relative to 2022 levels.
Despite does he send news headlines about C. P. I N P. P I E using these.
Please continue to see significant cost infection.
Headwinds across realize that the opportunity cost transportation and labor, a sticky and persistent.
And we still expect mid single digit inflation in 2023.
We had highly focused on offsetting these patients through a combination of pricing.
Revenue growth management, and productivity initiatives, and we expect the gap versus inflation to reverse as it progresses.
Our fully or guidance or below the line items remains unchanged.
We expect interest expense in a 460 524 $70 million range, but it still includes 45 million related to the new travolta investments.
It could do method, earning from neutrals of approximately 40 to 45 million.
And effective tax rate of 22% for the year.
And approximately 1.42 billion diluted weighted average shares outstanding.
As it relates to order too.
E. P. S is expected to grow in the low to mid single digits range.
We still expect to have a gap between inflation and pricing and productivity in the corridor with the more beneficial relationship expected to materialize in the back half.
Marketing is also expected to increase in order to reflecting incremental investments across the board L. R B's and coffee, particularly behind the ice platform in U S coffee that ball highlighted earlier.
Which promises to demand enemy.
I will recap segments better eliminate the scale up all our businesses with distinct and clearly defined growth pillars in place for each segment.
Other band portfolio.
You know nation and innovation activity.
And in market execution remains very strong.
We are watching diligently to offset inflation and to drive margin improvement later in the year, while reinvesting in our brands.
And finally, our capital allocation of priorities as clear as we look to deploy other strong castro against the highest Ottawa opportunities.
Ah the locked on the call back to ball for closing comments.
Thanks, you don't Ya.
Before moving to Q&A I Wanna take a moment to thank Maria who was retiring in July after a distinguished 40 plus year career.
She will remain with Katie P as an advisor through here.
I know that most of you hold Maria in the highest regard.
Just as we do a Katie P where she has been a valued member of the executive leadership team for the last five years.
Marie and I have worked together for over a decade spanning two companies and countless deals including at IPO.
She has built a very strong corporate affairs team for K D. P. And we are pleased that she will stay on as an adviser to support the transition towards her successor upon heart.
We will all Miss working with Maria and wish her the very best and this next and well earned chapter.
I'll now turn the call over to the operator for questions.
We will now begin the question and answer session.
To ask a question you May Press Star then one on your Touchtone phone.
If you're using a speaker phone please pick up your handset before pressing the keys to withdraw your question. Please press Star then too and in the interest of time, please limit yourself to one question.
Time will pause momentarily to simpler roster.
Our first question.
<unk> comes from Andrea Tech Sierra from J P. Morgan. Please go ahead.
Thank you, everyone and and good morning, So I wanted to go back Bobby spoke about like the bird shipments and then I understand.
The volatility that allowed you to to change the reporting they were pointing ways in in an emerging the too.
I was just wondering embedded in you know commentary as well when you.
Spoke about the second corner, so being challenging and all the mobility aspects of.
Glory thing she can talk about a little bit of what are you, saying actually accident the quarter and as you laughed at all my chrome or they make benefits for for that.
Home consumption and then at the same time I understand you don't disclose what is out of home, but there are some out of home component of the pods. So how should the we've been thinking about that as well as entry destocking or retail their stockings.
Okay.
Questions are it's really three components quickly on brewer's I'll talk about mobility related to pause and then I'll add it and the last point about what are the away from home business impact on our pod business. So first one Brewers I.
I always need to go back and say, what we've said essentially every quarter is we don't see brewer sells as a good predictor of household penetration in our primary focus is driving household penetration.
And just so we're clear we said that in quarters were Brewers were plus 60% or plus 35% we felt the same way.
There is an inherent volatility in selling small appliances that is fundamentally different in selling consumable and that's why I'm looking at around a quarter by quarter basis makes that metric even less helpful. If you look at this quarter. In particular, you are seeing a lot of disruption in retail and thinking about one of our original retailers for the cure business actually went bankrupt.
So there's movement in inventory there's movement across retail channels on the Brewers side. So, it's particularly volatile having said that we don't believe it impact household penetration.
Just for perspective, we sell about 10 million Brewers for your career and we add 2 million households, So there's a significant difference there that is representative of upgrades or replacement masterpiece that I think people always forget the reason that we talking we're talking about Brewers on a rolling 12 month basis.
12 month basis.
That's at least take some of the the noise out of it and gives an accurate picture but of course, we didn't change the metric. We're just talking about that and we're still reporting the horribly metric as well. So we'll give you both with regard to mobility.
That has been the single biggest driver of at home coffee consumption and as we've talked about on the last call and it's still true today, we're seeing the exact same trend globally.
As it stands right now mobility the run rate if you want to think about it that way on mobility is pretty steady and what's happening now will be begin to laugh year ago numbers. There also are more normal that will happen in the back half of the year and we've been saying that for awhile everything seems to be on track.
For that and other people around the globe are in the coffee business are seeing the same kind of trends and saying the same thing. So I think there's a common view of what's happened with the consumer.
The biggest driver of consumption of coffee at home is time spent at all.
It's that simple and so that's what we're seeing happening right now and with regard to away from home. When you see the total pod number as you point out it's a combination of at home and away from home and a lotta people do that calculation for attachment rate and they divide the total pop number divided by the number of birds that embeds the away from home number which is really nothing to do with.
With an attachment rate that at home business, which was down almost gone in the early days of Covid has rebounded, but we think it is it is lower it is clearly lower than three COVID-19.
And we think that's the way it's going to stay for a while so I don't think there was good news to come on the away from home I also don't think there's there's bad news I think it's pretty stable right now, but it has been a significant drag on the business over the past couple of years, but it. It is on a if you were to calculate that and its impact on me a tatro right I described it would give the impression that attachment rate it.
Just simply because away from home in total was smaller than it once was.
The next question comes from Brian Spillane from Bank of America. Please go ahead. Thanks operated good morning, everybody and Maria Congratulations it's been a pleasure working with you you'll definitely be missed.
Oh, that's so nice lying look forward to seeing you soon okay. I guess you stayed for more than just a cup of coffee.
Yeah, [laughter] waiting for that Ah you know when they come out of you to eat it up [laughter]. So so Ah actually my questions for Sudan, too and just around your comments around cash flow you know the [noise] table.
Tables, you know working capital was a pretty negative swing in the first quarter.
And I think it's it's if you can clear if you can clarify for this that this is partly just reducing the size of your factoring program.
So if you can confirm that and then the second is just how you get to approaching I guess 100 per cent free cash flow converting cause if you're starting from a pretty big hole in the first quarter. So [noise].
I guess, if you can kind of clarify how close you'd think you'd get to the long term target and again just.
Kind of how that evolves over the course of the year given you know given the the impact on cash from operations in the first quarter.
So hi, Brian is a great question. So you'll see Q1 operating basketball is downwards as a year ago, but last year, we had a lot of one off items. So it's lord mainly driven by those states, but also there is some timing ultra fighting financing would be quality factory.
And this program was great in the beginning but interest rates are low, but we have a lot of options of our cats, who saw or whatever it is target. These two and half times. So we make the right optimal to nicer decision, whether it's interest rate factoring also takes care of them interest rate is in fact, Hello, P&L. So we're making.
A lot of those decisions without dynamic, but then I said today I still expect that we should be pretty close to our long term target of cats and abortion either.
I don't see any shred her right now, but we will be making these.
Dynamic spirit up decisions every month or every quarter and we will update you more if you see something different.
The next question comes from learn Lieberman from Barclays. Please go ahead.
Great. Thanks, good morning, and very much appreciate that the conversation I'm trying it in fact cause there must be an smoothed out the conversation I'm I'm birdhouse in particular and also in pods mm across multiple corners.
I was wondering why the comparison is being me too trailing 12 months ending.
The March quarter of 19 cause that's basically comparing to 2018 and you know I wouldn't think that with the pandemic starting as it did that there was any big real acceleration in shipments there may have been take away in retail, but shipments wouldn't have changed very much since last two weeks of March of 2020th so.
By comparing it to effectively 2018, rather than to 10 2019. Thanks.
Laura this Saddam shoes that agent did it give you a more clear picture in Q1 2028, you see the China started having locked down and then we saw the late March there was some details even more to give you the.
B G ability, but.
That's what he does with it is more because Q1 2020 had more noise. So we just wanted to have a peek over your number but will continue to give you a trailing 12 months.
As you can see this time be declined 90.8%. So you will always have this metrics, but that's it easier because Q1 2000 when he had some noise. So we just wanted to be more bleed, yeah, and just just to build on that one.
One of the points is if you take a look at how we're expecting so for Brewers the playoffs in 2023.
And to be up nicely versus 2019, or you could pick a date prior to 2019, all of which we at all of which were years in which we added $2 million or more households. So one of the points were trying to make on this is there were a number of of upgrades and replacements that were accelerated during the pandemic second we have people spending more time at <unk>.
<unk> people are spending money on their home and also there was government subsidies as well, but if you're if in the end we sell Brewers as part of household penetration actually the household penetration is what drives brewer sales, primarily and if you go back and you start the 1918 17.
2023 numbers no matter, how you look at it are going to be up nicely verse of that and we added 2 million households in all of those years and that's the point, we're trying to make.
The next question comes from Chris Kerry from Wells Fargo. Please go ahead.
Hi, Good morning can you just comment on the coffee margin.
In the quarter, you know just give in volume decline I.
I actually think it came in a little bit better what are some of the drivers what are you seeing from commodity inflation what are you seeing from.
Transportation you know what are you seeing from.
Volume deleverage in the quarter.
And then also what are you seeing from productivity standpoint.
The key you know kind of debate for investors and again just want to understand some of the components that came in and you want and you know maybe helping build confidence on you know what you expect for the full year, including the back half recovery. Thanks.
So Chris there are three things that impacted in Q1, one was cause it was narrowed gap between pricing and innovation. There was mixed with bin part and also the Brewer failed C Brewer declined 90%.
How's the margin.
Productivity Bend was there too, but that's the ramp up more to watch the second half. So you can look at our U S. Coffee guidance, He said roughly 1% top line growth and 3% to 4% profit growth.
Seeing those those leverage will become more and more second half.
Relationship improving recruiting patients in pricing productivity and makes it help us deliver to pull your number. So Q1, all those things impacted but you will see this benefit more in the second half.
The next question comes from Steve Powers from Deutsche Bank. Please go ahead.
Great. Good morning, Thank you.
Hi, good morning.
Yeah, so almost resegmentation I think.
Think I I definitely appreciate the simplicity of it I think over time, it'll become shorthand for all of US I think.
The incremental disclosure you spoke to on that had been speaking to one coffee systems <unk> will help I guess, that's where it.
As I'm thinking about it my question is really on on the refresh my beverage aside because it's you know the historical.
Economic differences both revenue mixed implications.
Margin mix implications of the the former beverage concentrates.
Versus package beverages business.
It was a big spread there so as you're talking about that business going forward. We're thinking about you know forecasting that business going forward.
How should we think about that.
Information, maybe an accusing kids going forward it will help us to kind of tease out those potential mixed implications. It's really I'm just trying to think through that and also refresh my beverages, because I I don't know if you're gonna give this or not but just the neutral <unk> contribution to growth in the corner and expected over the year. Just so we can frame sort of the underlying versus but.
You all in revenue correct. Thank you.
So Steve this upon shoot the region is this resegmentation, we didn't do it seems to be most most people running the business.
Same way, but internally.
U S freshman beverages, you with coffee and international so that's the reason.
Required to read.
Report results to you they'll be weird on the business. We also feel that the U S. Coffee then give people will get locked more visibility because we talk about to him, but he got household people look at I R. I.
China's athletes will have more <unk> more clarification and people who can relate to what internal numbers like swelling numbers are regarding this freshman beverages, you'll have to see.
But the trillions of three and Martin and sale. So you can see from there and we will continue to disclose the key drive us up there for a minute, but that's the baby runs a business as usual cause we also deeply noise from xxxx predicting noise from before it was Canada and he would combine so a lot of those things will help you simplify it and we will eat you if you.
Have any questions on building your modal neutral boat.
Just water bus medium lemonade did help us, but for the ear and N B C.
Depending on the interest rate rebate and just cost and also that you can pick up your little dig it is mancino it will see more improvement at Christian to our EPS in 2024.
The next question comes from Brett Cooper from Consumer Energy Research. Please go ahead.
Good morning, and congrats Murray as well.
Next question for your own distribution system.
There's been a lot of change in the marketplace and I think you're in a unique position given that you're non distributed volume goes through Coke goes through Pepsi brought to market. The Bureau route to market.
And given that perspective, I was hoping to get off of your thoughts on the potential for distribution relationships and partnerships as a means to enhance scale capabilities in economics, and then obviously ultimately brand performance in the years to come.
Outside of those brands everything goes through our distribution system and we cover about 75 per cent of the U S population and then the rest of that is covered by a a network of independent operators most of whom we'd have long term relationships with so we have always stated that we want to be a catalyst.
For consolidation on the distribution side of the business. We think it is what retailers are gonna want overtime. We believe it's highly cost efficient. We also think from an environmental impact taking miles off. The road is a is a smart thing to do our way of doing that has been to consolidate overlapping territory's with.
Our company on routes match up against independent operators and we've done about twenty-five transactions over the past couple of years to make that happen. We think that consolidation will continue over time, we think that there is you know all the macro drivers that we just talked about and we stand ready and are are driving our role.
The catalyst to continue to make that happen so a lot more to come there.
Our next question comes from Kevin Granthi from Jeffrey Please go ahead.
Great. Good morning, everyone and I want to extend my congratulations.
Ah as well once it come back to neutral and the C. Four brand Bob you sounded pretty bullish both near term and long term a few questions related to that this one maybe comment on how quickly you think you can ramp that brand from a distribution perspective, some color on the spring shelf space resets and where do you think that brand is possibly gaining share and that's an answer to follow up on <unk>.
These questions I think there'd be some interest in the revenue contribution I think.
Guidance for equity earnings is helpful, but the the revenue contribution on the distribution agreement that would've gone through the old T. V segment is that something you're willing to provide with respect to the quarter and enter the full full year in terms of what's embedded in your outlook the bank for all that appreciate it.
Sure early days on C. For you know we're in the in the boat of transitioning from the their current distribution system into ours I can tell you that that's gone very smoothly. So far and if you look at the syndicated data you can see that the points of distribution are on the rise which is really.
What our our initial objective is.
It's more than just the quantitative increase in distribution and it's also the qualitative increase in terms of quality of placements distributions merchandising and placement for all of that is very much going on track and the good news is you'll be able to track our progress on both the the distribution game and you'll be able to monitor velocity.
He's ah through syndicated data, so you'll be able to track our progress we're talking about the <unk> contribution.
S cabin so the.
The seafloor contributor to volume and you are successfully resisted in Q1 should be expected country with a <unk> with a similar to other distribution partnership.
We are not quantifying default blind contribution and Bob said, they will call. This out as a driver and you can track performance in Canada. It's it's a very small you can look at our 8 billion dollar.
U S affecting beverages, it's a very small liberal called that as a driver for you and then once it becomes big.
Big enough to really meaningful impact our revenue and profit.
Taking in Hollywood Bullshit.
Our next question comes from Bonnie Herzog from Goldman Sachs. Please go ahead.
Thank you good morning, everyone wearing body.
I just had a couple of questions on your coffee segment, you know Bob I understand your point about.
You know versus household penetration bank gas.
I'm trying to understand your expectations for Brewer volume Fitzgerald, especially you know if that's a pretty big driving for your top line that smells in packs on margin since they're just slightly profitable. So you know how should we think about borough volumes for the year, especially given how elevated your inventory levels still are you know I mean is it fair to us.
[noise] your volume this will likely now be down more than you originally thought and then I can't. It's so is that also a teacher and I broke while you're expecting margin expansion in attack and have any contact with me I appreciate it. Thanks.
Sure. So on our last call we set the expectation for 2023 that Brewers would be down modestly.
When you take a look at it on a trailing 12, but basis you see those kind of trends that we described here down to 9.8 per cent. This quarter as we said in the prepared remarks with softer than expected and I don't take a look at any one of these quarters and projected as a longterm trend there's a lot of volatility in this quarter.
Compared to a normal quarter, which is Ah Brewers, which is which has volatility and part of that as we talked about is retail disruption.
With regard to you know some of the specialty reappeared was being really challenge and one of them going bankrupt, having said that.
Other retailers will pick up the consumer slack and.
And the consumer demand and we will certainly be there at all those retailers, where we have distribution everywhere and a lot of this is moving online where we are very very strong and so as I said before it just like in quarters were plus 60%. We said don't project this quarter out anywhere that's the inherent volatility on saying the same thing about this quarter.
With regard to Brewers, I mean inventory, it's not a it's not an issue from our standpoint, we manage that very very well. So it's it's not a it's not a negative and with regard to the second half margins are expected reduction birth is not a driver of our margin assumptions the back half of the year, that's not built into any of our assumptions.
The next question comes from Peter grown from you B S. Please go ahead.
Thanks, operator, and good morning, everyone and Maria Congrats as well.
Maybe just two questions.
On coffee and maybe one just housekeeping, Bob you mentioned bed Bath and beyond.
How impactful is up to the business I'm, assuming it's embedded in the outlook, but just wanted to understand if there's something we need to think through what model.
The grown from here and then I I guess I just wanted to follow up on Christians earlier question around operating margin and coffee, but more from a longterm recovery perspective, you know.
I understand you expect improvement in the back half of the year, but how would you frame the longterm opportunity may be more specifically you know how quickly can you get back to operating margin and kind of a mid to high 30 per cent range. Thanks.
Yeah, I mean, the the the disruption from any particular retailer is not a major factor over the long term to consumer demand remains they just shift their demand to other retailers and I said before we have great relationships and great availability across the board, including E. Commerce, we are always trying to work with retailers even when their challenge.
And so in a given quarter. It causes some disruption based on shipments versus year ago et cetera, but like I said. This has no impact on household penetration nor does it have any impact on the long term outlook that we have or even the annual off but we have.
With regard to price margins Sinatra gave you the reasons why margin was what was all on the right trajectory. If you continue to look forward I'll give you a couple of factors wanted to narrowing of pricing versus inflation as we talked about on our contracts with our partners. We have long term contracts that you said a number of times that there is.
A lag in being able to secure the pricing versus inflation. So as time goes forward, we're able to do that.
And the other part that we talked about his productivity productivity a year ago. When we were in a supply chain rebuild mode with a very very low focus for us, but there was no phone because we were just trying to get somebody out there to rebuild inventories now that we're way ahead of the game from a manufacturing standpoint. It allows us to focus on productivity and then of course, we talked about.
'bout big structural productivity projects like Spartanburg, and we said that we view that it's been a delay which is challenging in the in the past 12 months and.
And currently but as you look forward to think of that one is deferred productivity spilled a cup. So yeah. It's all about the narrowing of our cost structure, which is inflation minus productivity versus pricing and they continue to get more favorable as we move forward.
Our last question comes from Rob <unk> from Evercore. Please go ahead.
Great. Thank you very much first just a point of clarification that my real question of clarification is I, just Wanna make sure I heard it right that the pod sales in the second quarter.
Will be affected by Oh, mccaughan last year and and.
On your digital initiatives N e-commerce. Thank you.
Sure all the just to clarify the pot conversation the primary driver of pod volume is the mobility in it.
Before time spent at home is the biggest driver of coffee consumed at all no big surprise, there, but it's a it's a it's a very direct relationship there the run rate that we're seeing on mobility is relatively stable over the past couple of months and we continue to expect that going forward, it's the lap versus year ago. It becomes <unk>.
More neutral slash favorable as you get to the second half of the year and that's why we're saying second half of the year for all forms of out of a coffee would look better on a volume perspective, the unique element in your comparison to Q2.
In addition to the mobility comparison is we were rebuilding inventory after the late.
Two four Q1 supply chain issue and so we out shipped ourselves in the second quarter of last year, and we were really clear when that happened that that was the rebuild of inventory. So that's why we talk about Q2 being more challenge on a comparison basis. It's the combination of still the rebound and the mobility versus year ago with this unique situations due to which the <unk>.
Bill with regard to gender, we don't have a lot of time to talk about that right now I mean, I think that's a conversation for another day, we have initiatives across the board in terms of the way that we plan and run the business as well as the way that we identify and optimize our consumer marketing.
With regard to direct to consumers you know we are.
We've talked before but we believe we are one of if not the leader and certainly in the food and beverage a world in terms of Ah direct consumer cell and the technology that we continue to build on the curious either business, which is the the connected brewers with the ability to understand consumption on a real time basis <unk>.
Complaining that into a smart auto reorder program is very exciting as we continue to move forward and build the number of households that have a smart brewer. So a lot more conversation on that point to come I can't really do it justice in this period of time, but I appreciate the question.
Thank you Jason and thank you everyone for joining us on a busy morning I. Our team is available available to answer any questions. You may have to please do reach out. Thank you again.
Okay.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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