Q3 2023 Keurig Dr Pepper Inc Earnings Call

Good morning, ladies and gentlemen, and thank you for standing by.

All mature Dr. Pepper's earnings call for the third quarter of 2023.

This conference call is being recorded and there'll be a question and answer session at the end of the call.

I would now like to introduce Keurig, Dr. Pepper's Vice President of Investor Relations.

Initiatives Jane Gelfand, Let's go. Please go ahead.

Thank you and Hello, everyone.

Earlier. This morning, we issued two press releases first detailing our third quarter 2023 rental sector.

In announcing our sales and distribution partnership with Grupo Pizza or Electorally.

During today's call and consistent with previous quarters, we will be discussing our Q3 performance on an adjusted basis.

Which reflects constant currency growth rates and excludes items affecting comparability.

The company believes that the adjusted basis, while not in accordance with GAAP provides investors with meaningful comparison and appropriate insight into our business and operating performance trends.

Details of the excluded items are provided in the reconciliation tables included in our press release, and our 10-Q, which will be filed later today.

Due to the inability to predict the amount and timing of certain impacts outside of the company's control, we do not reconcile our guidance.

We will also speak about the concept of underlying performance, which removes the impact of non operational items in the current and prior years.

These items include gains on asset sale leaseback transactions reimbursement of litigation expenses related to the successful resolution of our body armor lawsuit a business interruption insurance recovery and a change in accounting policy for stock compensation.

Finally, our discussion. This morning May include forward looking statements, which are subject to the safe Harbor provisions of the private Securities Litigation Reform Act of 1995.

These statements are subject to a number of risks and uncertainties that can cause actual results to differ materially and the company undertakes no obligation to update these statements based upon subsequent events.

A detailed discussion of these risks and uncertainties is contained in the company's filings with the SEC.

Here with us today to discuss our results are Katie P Chairman and CEO, Bob <unk>, and our Chief Financial Officer, Dupont Euphoria Dashi, I'll now turn it over to Bob.

Thanks, Jane and good morning, everyone. We are pleased with our Q3 results.

Adp's diversified beverage portfolio and strong execution continue to support consistent delivery of our company goals and commitments, even as the operating environment around us remains dynamic.

The Q3 healthy organic sales growth and significant gross margin progress fueled reinvestment and bottomline growth reinforcing visibility to our full year outlook, which remains unchanged.

Third quarter constant currency net sales grew four 1%.

As expected net price realization moderated from the first half, but we remain the primary topline growth driver.

While volume mix strengthened sequentially.

Our performance reflected continued share gains in U S refreshment beverages.

Gradual recovery in U S coffee segment results and strong momentum in our international business.

Gross profit margin expanded significantly up 100 basis points year over year, and the largest improvement in four years, reflecting an improved balance between ongoing inflation pricing and productivity.

Our gross profit growth enabled us to continue reinvesting in the business, including increased marketing for the third consecutive quarter.

While simultaneously driving bottom line growth.

Which was slightly above the expectations, we shared with you back in July.

As we move through Q4 and plan for next year, we expect our revenue growth drivers to continue to normalize.

Pricing moderates relative to recent history and volume mix continues to improve.

To be clear.

Pricing is expected to remain a key part of the topline equation, especially considering that inflation is likely to persist, albeit at more moderate levels than over the last couple of years.

Simultaneously, our focus will be on supporting volume mix by balancing margin flexibility between reinvestment in future top line growth and earnings flow through.

Let me take a step back and frame, how we assess consumer health.

Our portfolio and our strategy in the macro environment.

The consumer remains healthy.

With demand resilient and category Elasticities manageable.

Even so consumers are closely calibrating, where and how they shop.

For instance growth in club and other value oriented channels has accelerated.

While the convenience of e-commerce, and pickup and delivery services continues to resonate well after any pandemic related uplift would've normalized.

Consumers will remain responsive to high quality innovation and activation.

Price and package architecture is another increasingly important dimension.

Including smaller pack sizes that hit key price points, and multi pack that offer value and convenience.

On the margin. We also see some migration of lower to middle income households towards at home meals and beverage occasions, which should benefit our more essential categories like CSD and coffee.

Our business is well positioned against this backdrop, thanks to a compelling all weather growth model.

The ability to seamlessly meet the consumer across all beverage need states and to service those occasions across all channels was.

Was that the heart of why we formed this modern beverage company.

Since then we've made even more progress as we significantly grew the portfolio reach and strengthen our internal capabilities.

Looking forward our distribution prowess across retail is broad base with very strong in market execution.

Yeah, we also enjoy scaled online business, particularly on the coffee side.

Our robust 2024 innovation pipeline has been well received by the trade and spans product format and packaging news and captures a combination of value and premium price points as well as low and no calorie and indulgent beverages.

We also continue to price nimbly across the entirety of our portfolio, including by leveraging our strong mixed management capabilities.

Sure the consumers resilient for choice fall and Katie P is positioned to drive attractive top line growth through a combination of volume mix and price leaders.

Our successful growth model rests on our exclusive focus on North American beverages, and a winning strategy.

Begins with Katie piece powerful twin distribution assets are multichannel cold beverage distribution system, including DST and.

And an installed base of nearly 40 million active households, using the keurig system.

This is an unparalleled combination in the industry, which enhanced by strong R&D and commercial backbone enables us to grow our categories and gained share across our base business and further build out our portfolio through high value M&A and partnerships.

With counterparts, who increasingly seek us out.

When we fill in category white spaces, such as through our announcement today of the partnership with electrically.

It fuels the virtuous cycle of growth.

Smith and growing returns on that investment.

As the new brand scale, and our portfolio expands our capabilities get stronger.

Drop sizes get bigger.

Merchandising gets more impactful we service each store and household more frequently and.

In our commercial and consumer relationships tight.

This enables further investment in growth that begins to cycle anew.

We have proven this model over multiple years.

In U S. Refreshment beverages, we have consistently outperformed our categories.

Growing dollar share and at least 75% of our business and all but two quarters since the beginning of 2019.

We also entered multiple strategic white spaces within the past 12 months.

Such as ready to drink coffee and energy and after today's announcement sports hydration.

All were achieved in a very capital efficient manner.

The growth path ahead is increasingly evident.

With both owned and partner brands.

The latter where our relationships are strategic and long term.

Growth in mix are positive and our economics are attractive.

Coffee. The single serve segment has continued to steadily gained share of at home coffee cementing caring leadership position with this important category.

At the same time, we are expanding our total coffee strategy to encompass ice.

To drink and other forms of coffee within and beyond the K Cup format.

And in Canada, and Mexico, we have leveraged similar strategies across our refreshment beverages and coffee business.

As well as deeply experienced local teams to build a combined business approaching $2 billion in revenue.

With a mid twenties operating margin.

As a result, our international segment has become a scaled contributor to the overall portfolio with significant growth runway ahead.

I'll now briefly discuss how the strategy played out in Q3 with SEDAR two to follow with greater detail and guidance.

In U S refreshment beverages, 82% of our business outpaced category growth in the quarter.

The CSD business is healthy with Dr. Pepper building on the momentum of strawberries and cream earlier in the year with a successful sixth season of the iconic vans film marketing campaign.

Other brands, such as Canada, dry and Squirt also saw strong gains in.

Polish momentum continued in sparkling water.

Whereas now commands the number two volume share position.

Core and beyond remains strong drivers and premium waters with core in particular are seeing great traction from our partnership with U S gymnastics.

That said, we have work to do elsewhere in the still portfolio, including with bi which is undergoing a significant restage and reformulation next year.

Importantly, our partnership with neutral bolt on <unk> is proceeding very well.

In Q3 C forest market share and earn display accelerated.

Velocities remain strong across those regions, where Kt P has taken control of the brands route to market.

Even at the Seaport rollout continues in its first year, we have significant room for future growth in energy or <unk> market share is only 3% and see four has tremendous potential.

With the electrically to asthma and today, we are extending our portfolio into the large and important sports hydration category.

They're quickly growing mix accretive white space for Katy P.

I'll actually is a brand that has established a strong regional foot hole. Thanks to its unique product attributes scientific heritage and extremely loyal customer base.

The brand is the market leader in sports hydration in Mexico, and that popularity extends to the U S where electric fleet enjoys broad multicultural appeal, but over indexes with Hispanic consumers.

So it has good scale today in the U S and already generates more than $400 million in retail sales representing more than a 10 fold increase over the past five years Electorally has significant upside potential.

We are excited to partner with group of Pizza Electric <unk> parent company to meaningfully expand the brand's distribution breadth and depth in the U S.

And across all channels, while also leveraging adp's commercial expertise to further enhance the brand's position at retail.

With C four lakh Cologne and Electorally, having entered our portfolio over the last 12 months, we have meaningfully increased the growth potential for each of these brands, while extending a positive halo on the rest of our business.

For example, our total volume in chain convenience stores.

We will increase by approximately 50%.

After incorporating these brands, providing scale and efficiency benefits across the entirety of our portfolio.

This is a virtuous cycle that I described just a few minutes ago.

And which will continue to fall fuel Katy piece success.

Turning now to U S coffee or our back half is focused on driving segment margin improvement in the context of a gradually improving at home coffee category volumes.

With visible progress on both fronts, let's address each in turn.

I'll start with the segment margin improvement, which.

Which we have a greater ability to control in the short term than we do with category trends.

Q3, we began to deliver against our objective with a strong inflection in segment margins and operating income, which meaningfully improved both sequentially and year over year.

Importantly, we expect the margin improvements to continue.

We previously said the delayed pricing would flow through our partner brands and it has.

We have now strengthened the pricing protocols across these long term partnerships and do not expect any significant lag between inflation and pricing to recur in the future.

Bus.

Commodity cost headwinds are now moderating and productivity is building across the segment hampering our visibility to continuing to grow the bottom line, even with ongoing reinvestment.

Moving to category performance at home coffee category volume growth accelerated relative to Q2.

But the pace of recovery is admittedly gradual.

From Q2 to Q3 volume trends across a broader category strengthened by about 100 basis points in measured channels.

Volumes are still modestly lower year over year.

Single serve continues to gain share of at home coffee.

With our proprietary data, which is more comprehensive spanning both measured in untracked channels, indicating that Q3 keurig compatible pod consumption of volume was approximately flat versus year ago.

Improving from down approximately 3% in Q2.

These green shoots are encouraging and we will continue to nurture them as the single serve market share leader.

During the quarter, we saw our competitors begin to lean more aggressively into price promotions in the single serve category, resulting in some share shifts across the various brands in the ecosystem.

Operator: Good morning ladies and gentlemen, thank you for standing by. Welcome to Keurig Dr Pepper's earnings call for the third quarter of 2023. This conference call is being recorded and there will be a question and answer session at the end of the call.

As a reminder, because we manufactured nearly 80% of all keurig compatible pods in the U S. We tend to participate even a share changes occur between our branded and private label partner brands and our owned and licensed brands.

Jane Gelfand: I would now like to introduce Keurig Dr Pepper's first visit and invest in relations and strategic initiatives, Jane Gelfand. Ms. Gelfand, please go ahead. Thank you and hello everyone.

Nevertheless, we must responsibly manager manage our owned and licensed brands price gaps within the category.

Jane Gelfand: Earlier this morning, we issued two press releases. The first detailing our third quarter 2023 results and the second announcing our sales and distribution partnership with Group OPSUS for Electrolead. During today's call and consistent with previous quarters, we will be discussing our Q3 performance on an adjusted basis, which reflects constant currency growth rates and excludes items affecting comparability. The company believes that the adjusted basis, while not in accordance with GAP, provides investors with meaningful comparisons and appropriate insight into our business and operating performance trends.

And intend to stay nimble to the changing operating conditions around us.

Importantly, as we choose to surgically respond to the recent price activity, we expect segment margins to accelerate in Q4.

We also do not expect the competitive pricing activity to meaningfully accelerate at home coffee category volumes, which we know are far more responsive to high quality activities that influence consumer choice and lean into emerging trends.

As the single serve leader ADP will continue to drive category growth as we always have.

Innovation renovation and white space expansion that bill penetration with new households, and increased usage among our existing consumers.

Jane Gelfand: Details of the excluded items are provided in the reconciliation tables included in our press release and our TENQ, which will be filed later today. Due to the inability to predict the amount and timing of certain impacts outside of the company's control, we do not reconcile our guidance. We will also speak about the concept of underlying performance, which removes the impact of non-operational items in the current and prior years. These items include gains and asset sale leaseback transactions, reimbursement of litigation expenses related to the successful resolution of our body armor lawsuit, a business interruption insurance recovery, and a change in accounting policy for stock compensation.

With 90 million U S households, drinking coffee at home of which fewer than 40 million are actively using keurig Brewers. There is a significant multi year opportunity in buckhead.

In 2024, we will continue to pursue that growth through new consumables like cold brew expanded ice varieties and refreshes.

New brands like La Cologne, which by the way begins to ship and ready to drink and K Cup format starting in Q4.

Significantly new innovation in Brewers.

All supported by strong marketing and brand activation activity, including exciting new collaborations across our owned and licensed brands.

Jane Gelfand: Finally, our discussion this morning may include forward looking statements which are subject to the safe harbor provisions of the Private Security's litigation reform act of 1995. These statements are subject to a number of risks and uncertainties that can cause actual results to differ materially, and the company undertakes no obligation to update these statements based upon subsequent events. A detailed discussion of these risks and uncertainties is contained in the company's filing with the SEC.

Moving onto our international performance in Q3, which remained impressive with revenue growth once again in double digits and continued segment margin expansion.

Both our coffee and refreshment beverages businesses performed well.

Canada, the ready to drink alcohol and no alcohol segment is growing.

And we are contributing to that growth.

<unk> gained significant share as velocity and distribution built.

Jane Gelfand: Here with us today to discuss our results, our KDP Chairman and CEO Bob Gamgort and our Chief Financial Officer, Tudhantu Priodarshi.

And a blast from the past vodka base to heat treat RTD generated exceptional consumer demand.

In Mexico, our powerhouse Penn UCL in sport brands, both grew at a double digit rate.

Bob Gamgort: I'll now turn it over to Bob.

Bob Gamgort: Thanks Jane and good morning everyone. We are pleased with our Q3 results. KDP's diversified beverage portfolio and strong execution continue to support consistent delivery of our company goals and commitments, even as the operating environment around us remains dynamic.

Leveraging our strong go to market and DSD capabilities behind which we continue to invest.

In Mexico like in the U S. We have significant growth potential ahead across both our core portfolio and through partnerships.

As we leverage these use.

Distribution assets.

Bob Gamgort: In Q3, healthy organic sales growth and significant growth margin progress fueled reinvestment and bottom line growth, reinforcing visibility to our full-year outlook, which remains unchain. Third-quarter constant currency net sales grew 4.1%. As expected, net price realization moderated from the first half, but remained the primary top-line growth driver, while volume mixed strength and sequentially. Our performance reflected continued share gains in U.S, refreshment and beverages, gradual recovery in U.S, coffee segment results, and strong momentum in our international business.

P P strong balance sheet and cash generation profile of our powerful enablers.

Our growth strategy with today's actually an announcement yet another example of how.

We can grow our portfolio and market reach and a highly capital efficient manner.

As a result, our finance our financial policy approach can be flexible and dynamic.

This year, we are deploying some of our cash flows to strategically reduce our supplier financing program.

Simultaneously, we announced a seven 5% increase in our annual dividend furthering our track record of regularly growing dividend income for our shareholders.

With over $3 billion remaining on our share buyback authorization and having already repurchased 24 million shares of Kt <unk> stock over the last two years, we have substantial flexibility to opportunistically lean in when we see compelling value in the business we know best.

Bob Gamgort: Gross profit margin expanded significantly, up 100 basis points year-over-year, and the largest improvement in four years, reflecting an improved balance between ongoing inflation, pricing, and productivity. Our gross profit growth enabled us to continue reinvesting in the business, including increased marketing for the third consecutive quarter, while simultaneously driving bottom-line growth, which was slightly above the expectations we shared with you back in July. As we move through Q4 and plan for next year, we expect our revenue growth drivers to continue to normalize, as pricing moderates relative to recent history and volume mix continues to improve.

Wrapping up our third quarter results represented another period of consistent delivery against our commitments.

Our topline growth was strong and resilient and we reinvested in our brands and differentiated capabilities.

We also achieved important proof points in our margin recovery journey this quarter.

As visible in our consolidated gross margin progress and in U S coffee segment results.

Our Q3 results provide enhanced visibility to are unchanged 2023 outlook for constant currency net sales growth of 5% to 6% and adjusted EPS growth of 6% to 7%.

Bob Gamgort: To be clear, pricing is expected to remain a key part of the top-line equation, especially considering that inflation is likely to persist, albeit at more moderate levels than over the last couple of years. Timotainiously, our focus will be on supporting volume mix by balancing margin flexibility between reinvestment and future top-line growth and earnings flow through.

We expect to close out 2023, having significantly improved our composition of earnings profile lending further support to our aspiration to be an algorithm.

In 2024.

Now I'll turn it over to sit at you.

Bob Gamgort: Let me take a step back and frame how we assess consumer health, our portfolio, and our strategy in the macro environment. The consumer remains healthy with demand resilient and category elasticity is manageable. Even so, consumers are closely calibrating where and how they shop. For instance, growth in club and other value-oriented channels has accelerated, while the convenience of e-commerce and picked up and delivery services continues to resonate well after any pandemic-related uplift would have normalized.

Thanks, Bob and good morning, everyone.

Our consolidated third quarter results were solid.

Topline growth was resilient.

We supported future momentum.

If you're investing in the business.

And we delivered modest EPS upside relative to the expectations, we shared with you last quarter.

And then you advanced 5.1% to $3 8 billion with healthy constant currency sales growth of four 1%.

I think remain the primary growth driver contributing five five points.

As expected despite the moderation from the second quarter as prior year pricing actions were lapped.

Bob Gamgort: Consumbers remain responsive to high-quality innovation and activation, but price and package architecture is another increasingly important dimension, including smaller pack sizes that hit key price points and multi-packs that offer value and convenience. On the margin, we also see some migration of lower-to-middle income households towards at-home meal and beverage occasions, which should benefit our more essential categories like CSDs and coffee. Our business is well positioned against this backdrop, thanks to a compelling all-weather growth model.

While it makes it strengthened sequentially.

A modest one 4% decline year over year.

Gross profit margin inflected positively in the quarter and expanded our strong hundred basis points year over year as pricing and efficiency gains begin to offset input cost inflation.

Total SG&A Deleveraged 30 basis point year over year, reflecting our focus to reinvest in our brands and capabilities, while combating sustained inflation.

Bob Gamgort: The ability to seamlessly meet the consumer across all beverage needs states and to service those occasions across all channels, with at the heart of why we form this modern beverage company. Since then, we've made even more progress as we significantly grew the portfolio reach and strengthen our internal capabilities. Looking forward, our distribution prowess across retail is broad base with very strong in market execution. Yet we also enjoy a scaled online business, particularly on the coffee side.

SG&A saw another quarter of double digit increases in marketing spending.

Transportation warehousing and other corporate costs, such as labor remain headwinds.

Adjusted operating income grew three 1%, which combined with below the line leverage resulted in mid single digit EPS growth to 48 cents slightly ahead of the guidance, we shared last quarter.

Bob Gamgort: Our robust 2024 innovation pipeline has been well received by the trade and spans product, format, and packaging news that captures a combination of value and premium price points, as well as low and no calorie and indulgent beverages. We also continue to price nimble across the entirety of our portfolio, including by leveraging our strong mixed management capabilities. In short, the consumer is resilient but choiceful and KDP is positioned to drive attractive top-line growth through a combination of volume, mix, and price levers.

We achieved this result without the benefit of any non operational gains in the quarter.

As we continue to make progress on reinforcing our earning space looking out to next year.

Moving to the segments.

U S assessment beverages grew net sales five 9% led by 7.1 percentage points of pricing.

The price contribution moderated quarter over quarter I did dissipated.

As you begin to anniversary some of the lost is facing activity.

Bob Gamgort: Our successful growth model rests on our exclusive focus on North American beverages and a winning strategy. It begins with KDP's powerful twin distribution assets, our multi-channel called beverage distribution system, including DSD, and an install base of nearly 40 million active households using the Keurig system. This is an unparalleled combination in the industry which enhanced by strong R&D and commercial backbone, enables us to grow our categories and gain share across our base business.

Volume mix declined one 2%, reflecting outperformance sports is our categories.

Cross the vast majority of our portfolio and the growth contribution from seaport industry.

As Bob said, we expect price to remain a continued driver off the top line growth algorithm in quarter four and into next year.

Even as crude oil to rebalance is across volume mix and pricing contributions.

The consumer is resilient.

Bob Gamgort: And further build out our portfolio through high value M&A and partnerships, with counterparts who increasingly seek us out. When we fill in category white spaces, such as through our announcement today of the partnership with electorally, it fuels a virtuous cycle of growth, investment, and growing returns on that investment. As the new brand scale and our portfolio expands, our capabilities get stronger. Drop sizes get bigger, our merchandising gets more impactful, we service each store and health more frequently, and our commercial and consumer relationships tighten. This enables further investment and growth that begins to cycle a new.

Category Elasticities are manageable.

And inflation.

Rating remains a headwind.

Segment operating income grew six 1% in the quarter and segment margins were approximately flat year over year.

This performance reflected the favorable impact of pricing and productivity net of inflation offset by increased investment in marketing.

In U S coffee net sales decreased three 2% improving versus the second quarter trough as expected.

I think sequentially strengthen and contributed 3.1 percentage point of growth.

Bob Gamgort: We have proven this model over multiple years. In US refreshment beverages, we have consistently outperformed our categories, growing dollar share and at least 75% of our business in all but two quarters since the beginning of 2019. We also entered multiple strategic white spaces within the past 12 months, such as ready to drink coffee, energy, and after today's announcement, sport hydration. All were achieved in a very capital efficient manner. The growth path ahead is increasingly evident, with both owned and partner brands.

Some of this reflected pricing.

Lagged realize inflation across our partner portfolio and is now flowing through after a delay.

In future cycles, we expect pricing pass through necessary to offset inflation to be more seamless.

Volume mix declined six 3% year over year in quarter three.

Broad screen, 8% has been moved by Destocking in the first half.

And shifting with the important holiday period.

Well the back half as a whole.

We expect broad shipman to track point of sales strength.

Bob Gamgort: The latter, where our relationships are strategic and long term. Grothin Mixer Positives, and our Economics R Attractives. Coffee, the single-served segment, has continued to steadily gain share of at-home coffee, cementing Cherry's leadership position with this important category. At the same time, we are expanding our total coffee strategy to encompass ice, ready to drink, and other forms of coffee within and beyond the Cape Cup format. And in Canada and Mexico, we have leveraged similar strategies across our refreshment beverages and coffee business, as well as deeply experienced local teams to build a combined business approaching two billion dollars in revenue with a mid-20s operating margin.

Softer in today's macro environment, and I still declining in the mid to high single digits compared to last year.

Importantly, he already doors continue to gain share within the cup coffee maker category.

And we still expect to finish the year, having grown penetration to approximately 40 million households in the acuity ecosystem.

Compared to approximately $38 million at the end of 2022.

Well, our shipments declined 8% similar to last quarter.

Well I won't buy a major category conjunction volume in single cell or flat year over year across all channels.

The sequential improvement relative to quarter two.

Bob Gamgort: As a result, our international segment has become a scaled contributor to the overall portfolio with significant growth runway ahead.

As we previewed what happened last quarter.

Shipments lagged category in conjunction in the period due primarily to two factors.

Bob Gamgort: I'll now briefly discuss how the strategy played out in Q3 with Sudhanshu to follow with greater detail and guidance. In U.S, refreshment beverages, 82% of our business outpaced category growth in the quarter. The CSD business is healthy, with Dr Pepper building on the momentum of strawberries and cream earlier in the year, with a successful sixth season of the iconic Vansville Marketing Campaign. Other brands such as Canada Dry and Squirt also saw strong gains.

Lost the competition against the ear with channel inventory build and second the volume impact from our decision to exit certain low margin private label contracts.

We anticipate a smaller combined impact from these factors in quarter, four and expect our shipments to sequentially strengthened relative to quarter three.

The office segment operating income grew five 7% and operating margins expanded strongly.

Bob Gamgort: And Polar's momentum continued in sparkling water, where it now commands the number two volume share position. Core and Evion remain strong drivers in premium waters, with core in particular seeing great traction from our partnership with U.S, gymnastics.

At nearly 33% segment operating margins increased 280 basis points versus the prior year and also compared very favorably relative to 34% in the first half.

This significant inflection was driven by pricing productivity and moderating inflation and we expect it to sustain.

Bob Gamgort: That said, we have work to do elsewhere in the still portfolio, including with Buy, which is undergoing a significant restage and reformulation next year. Importantly, our partnership with NutriBolt on C4 is proceeding very well. In Q3, C4's market share and earned display accelerated, while velocities remain strong. Across those regions where KDP has taken control of the brand's route to market. Even as the C4 rollout continues in its first year, we have significant room for future growth and energy, where KDP's market share is only 3% and C4 has tremendous potential.

As Bob mentioned, the part of the expected revenue recovery is slightly attitude relative to our original plan due to some prudent price reinvestment in a competitive environment.

Nevertheless margin trends are expected to accelerate further in quarter four.

Fundamental progress is expected to drive continued solid operating income growth year over year, even as we lap a difficult competition given non operational benefits partially contributed U S coffee operating income last year.

Bob Gamgort: With the Electric Lead announcement today, we are extending our portfolio into the large and important sport hydration category. Another quickly growing, mix a creative white space for KDP. Electric Lead is a brand that has established a strong regional foothold thanks to its unique product attributes, scientific heritage, and extremely loyal customer base. The brand is the market leader in sport hydration in Mexico, and that popularity extends to the U.S, where Electric Lead enjoys broad multi-cultural appeal, with over-indexes, with Hispanic...

International segment sales increased 28% in the third quarter against a double digit growth calculation in the year ago period.

Boston currency sales growth was very strong at 12, 9% with volume mix, increasing 9% and pricing up three 9%.

Although the top line momentum, but broad based across Mexico and Canada.

Segment operating income grew very strongly at 39, 4% on a reported basis and 31, 7% in constant currency terms.

As to operating leverage and efficiency gains net being favorably against infection.

As anticipated our free cash flow conversion, our strength in sequencing in the third quarter to 459 million, reflecting the combination of profit growth and moderating working capital uses.

Bob Gamgort: Thank you for your time. Thank you, Katie Pease, commercial expertise to further enhance the brand's position at retail. With C4, Locke alum, and electorate having entered our portfolio over the last 12 months, we have meaningfully increased the growth potential for each of these brands, while extending a positive halo on the rest of our business. For example, our total volume and chain convenience stores will increase by approximately 50% after incorporating these brands, providing scale and efficiency benefits across the entirety of our portfolio. This is a virtuous cycle that I described just a few minutes ago, and which will continue to full fuel Katie Pease success.

And consistent with our expectation for free cash flow conversion to strengthen in the second half.

Our capital allocation approach remains unchanged.

Our priorities include organic and inorganic investments to support our growth.

Why did the strengthening our balance sheet consistent with our long term net leverage target.

Two to two and a half times.

And returning cash to shareholders through our dividend and opportunistic share buybacks.

We dynamically adjust between these properties on an ongoing basis.

In quarter three we closed on the highly strategic Lakanal partnerships flushed introduced in July which included a 300 million equity investment.

Bob Gamgort: Turning now to U.S. Coffee, where our back half is focused on driving segment margin improvement in the context of gradually improving that home coffee category volumes. With visible progress on both fronts, let's address each intern. I'll start with the segment margin improvement, which we have a greater ability to control in the short term than we do with category trends. The Q3, we began to deliver against our objective, with a strong inflection in segment margins and operating income, which meaningfully improved both sequentially and year over year.

Today, we announced another important partnership with group with visa to sell and distribute and merchandise lift elite in the U S.

This is a meaningful step forward into sports hydration for Katy P and establishes another mixed at creative growth platform, even as it comes with minimal capital commitments.

As Bob pointed out.

With entries into energy.

RTD coffee and sports hydration over the past 12 months.

Bob Gamgort: Importantly, we expect a margin improvement to continue. We previously said that delayed pricing would flow through our partner brands, and it has. We have now strengthened the pricing protocols across these long-term partnerships, and do not expect any significant lag between inflation and pricing to recur in the future. Plus, commodity cost headwinds are now moderating, and productivity is building across the segment, enhancing our visibility to continue to grow the bottom line, even with ongoing reinvestment.

Penetrated see large and important white space is fuller than it definitely modest capital outlay of less than one 3 billion.

We also have the ability and desire to continue to return cash to our shareholders.

In September we announced a seven 5% dividend increase marking our third consecutive year of growing our dividend and representing a cumulative 43% increase over that time.

Our share repurchases, we remain opportunistic.

Bob Gamgort: Moving to category performance, at home coffee category volume growth accelerated relative to Q2, but the pace of recovery is admittedly gradual. From Q2 to Q3, volume trends across the broader category strengthen by about 100 basis points and measure channels, though volumes are still modestly lower year over year. Single-serve continues the gain share of at-home coffee, with our proprietary data, which is more comprehensive, spanning both measured and untracked channels, indicating that Q3 sharing compatible pod consumption volume was approximately flat versus year ago.

And we have demonstrated our willingness to step in when our share price becomes dislocated from the long term value we expect to create.

It's approximately $3 2 billion remaining on our city bullshit authorization, we will continue to assess the market for such opportunities.

Moving now to guidance.

Yeah, Yeah pardon me other consolidated outlook for 2023 and continue to target constant currency net sales growth of 5% to 6%.

Adjusted EPS growth of 6% to 7%.

Our EPS outlook assumes to minimal benefits from non operational items in 2020, three implying double digit EPS growth on an underlying basis.

Bob Gamgort: Go. Improving from down approximately 3% in Q2. These green shoots are encouraging and we will continue to nurture them as the single-served market share leader. During the quarter we saw our competitors begin to lean more aggressively into price promotions in the single-served category, resulting in some share shifts across the various brands in the ecosystem. As a reminder, because we manufacture nearly 80% of ulterior compatible pods in the U.S., we tend to participate even as share changes occur between our branded and private label partner brands and our owned and licensed brands.

Our guidance for below the line items is consistent with last quarter.

Well the ear, we continue to expect.

Interest expense in the 472 475 million range.

And effective tax rate of 22%.

And approximately 1.41 billion diluted weighted average shares outstanding.

We expect a strong end to the year in quarter four.

Bob Gamgort: Nevertheless, we must responsibly manage our owned and licensed brands price gaps within the category and intend to stay nimble to the changing operating conditions around us. Importantly, as we choose to surgically respond to the recent price activity, we expect segment margins to accelerate in Q4. We also do not expect the competitive pricing activity to meaningfully accelerate at-home coffee category bias, which we know are far more responsive to high-quality activities that influence consumer choice and lean into emerging trends.

With similar top line dynamics to quarter, three and even a stronger gross margin expansion.

At the same time, we'll be lapping approximately 67 million of non operational gains in last year's fourth quarter.

We're really concentrated in the U S coffee segment, which creates a challenging comparison.

Netting these factors together, we expect Q4 adjusted EPS of approximately 54 tense.

Or 8% year over year growth.

On an underlying basis. This represents strong double digit EPS growth.

Bob Gamgort: At the single-served leader, KDP will continue to drive category growth, as we always have, through innovation, renovation, and white space expansion that build penetration with new households and increase usage among our existing consumers. With 90 million U.S, households drinking coffee at home, of which fewer than 40 million are actively using cured brewers, there is a significant multi-year opportunity ahead. In 2024, we will continue to pursue that growth through new consumables like cold brew, expanded ice varieties, and refreshers.

With that I will not turn the call back to ball for closing comments.

Thanks, It out you I'd like to close by saying how excited we all are the Tim Cofer is joining Katie P. As chief operating officer on November six.

From there we were looking forward to a smooth CEO transition between Tim and me in Q2 next year and continuity and I serve as Katie Pease Executive Chairman thereafter.

Upon joining Katie P. Tim's immediate focus will be immersing himself in the business.

He will also partner with suite at you the full executive leadership team and me to drive our annual operating planning process for 2024.

Bob Gamgort: New brands like Locke Alone, which by the way begins to ship and ready to drink and cake up format starting in Q4, significantly new innovation and brewers, all supported by strong marketing and brand activation activity, including exciting new collaborations across our owned and licensed brands.

A lot of robust work is underway and we expect to provide you with a detailed outlook when we report our Q4 results.

For now let me just say that our entire organization is focused on delivering a strong finish to 2023.

Bob Gamgort: Moving on to our international performance in Q3, which remained impressive with revenue growth once again in double digits and continued segment margin expansion. Both our coffee and refreshers beverages businesses perform well. Canada, the ready to drink alcohol and no alcohol segment is growing, and we are contributing to that growth. A to peak gain significant share at velocity and distribution bill, and a blast from the past vodka based Tahiti Treat R.T.D, generated exceptional consumer demand.

We expect that Tim will join should answer on me in this forum in February and I know you will enjoy meeting him after that.

I'll now turn the call back to the operator for questions.

We will now begin the question and answer session.

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At this time, we will pause momentarily to assemble our roster.

Bob Gamgort: In Mexico, our powerhouse Pennia C.L, and Square Brands both grew at a double digit rate, leveraging our strong go-to-market and DSD capabilities, behind which we continue to invest. In Mexico, like in the U.S., we have significant growth potential ahead across both our core portfolio and through part- as we leverage these unique distribution assets. KDP's wrong balance sheet and cast generation profile are powerful and dealers of our product growth strategy. With today's electrolyte announcement yet another example of how we can grow our portfolio and market reach in a highly capital efficient manner. As a result, our financial policy approach can be flexible and dynamic. This year we are deploying some of our cashflow to strategically reduce our supplier financing program.

Our first question will come from Andrea Teixeira with Jpmorgan.

You May now go ahead.

Hey, Good morning. This is Julian on for Andrea Thank you for taking our question.

So I first wanted to ask on U S. Coffee, if you could talk more specifically to the trends during the quarter both in tracked and untracked channels. If the recovery is sort of playing out sequentially as you expected and what we could think about the exit rate for September and October being and then secondarily I think they are.

Expectation was for pod volumes to perhaps see moderating declines in the quarter they were pretty flat.

So anything change incrementally during the quarter from our pod shipment perspective. Thank you.

Sure sure. Thanks for the question on our last call. We talked about two drivers of improved coffee performance going forward, one was margin improvement and the other one was rebound in the total at home coffee category and so that goes beyond single serve to all forms of coffee consumed it.

Bob Gamgort: Finalaneously, we announced a 7.5% increase in our annual dividend, furthering our track record of regularly growing dividend income for our shareholders. With over three billion dollars remaining on our share buyback authorization and having already repurchased 24 million shares of KDP stock over the last two years, we have substantial flexibility to opportunistically lean in when we see compelling value in the business we know best.

Obviously as you saw the results we've received the arb, we've experienced the inflection that we expected in the margin side.

And that's largely under our control and a big driver of our performance the category is experiencing sequential improvement.

Bob Gamgort: Wrapping up our third quarter results represented another period of consistent delivery against our commitments. Our top line growth was strong and resilient and we reinvested in our brands and differentiated capabilities. We also achieved important proof points in our margin recovery journey this quarter. As visible in our consolidated gross margin progress, and in U.S, coffee segment results. Our Q3 results provide enhanced visibility to our unchanged 2023 outlook for constant currency net sales growth of 5% to 6% and adjusted EPS growth of 6 to 7%. We expect to close out 2023, having significantly improved our composition of earnings profile, lending further support to our aspiration to be on algorithm in 2024.

But admittedly it is gradual when we take a look at consumption of singles.

Single serve and we use our proprietary data, which looks attractive untracked channels and remember.

<unk> channels represent roughly 60% of total consumption, we're saying that the volumes are flat.

<unk>, which is an improvement sequentially, but a bit slower than we expected and so that's really the core of any shipment shortfall versus expectations.

It was really driven by the category I would remind you within that.

Single serve and Katie P continues to grow share within that category.

Sudhanshu Priyadarshi: Our now turn it over to Sirachu. Thanks Bob and good morning everyone. Our consolidated third quarter results were solid. Top line growth was resilient. We supported future momentum by reinvesting in the business and we delivered modest EPS upside relative to the expectations we shared with you last quarter. The venue advanced 5.1% to 3.8 billion with healthy constant currency sales growth of 4.1%. I think remain the primary growth driver contributing 5.5 points.

So the theme that we've talked about before about controlling the controllable margin share performance are all are really quite good. The challenge is really this total at home coffee category, which is moving in the right direction.

Be it at a slower pace my last comment on that is what we're experiencing on Adam coffee in the U S is not unique to the U S. It's a trend that we're seeing.

In most developed markets as well.

Our next question will come from Dara <unk> with Morgan Stanley.

You May now go ahead.

Uh huh.

Just to follow up.

Sudhanshu Priyadarshi: As expected, this was a moderation from the second quarter as prior year pricing actions were lacked. Volume makes strength and sequentially hosting a modest 1.4% decline year over year. Most profit margin inflected positively in the quarter and expanded a strong 100 basis points year over year as pricing and efficiency gains began to offset input cost impression. Total HGNA delivers 130 basis points year over year, reflecting our focus to reinvest in our brand and capabilities while combating sustained inflation.

Do you expect the category will continue to recover going forward sequentially from here can we get back to growth going forward and maybe can you detail, what's driven the acceleration in non tracked channels and how sustainable that is going forward.

And then just second if you could take a bit of a look out to 2024, you mentioned or are they all go for the total company does that apply to the coffee business in terms of a more normalized organic sales growth and profit growth pace as you look out to 2024.

Sure.

I think that when you take a look at.

The shipment or the trajectory of the coffee category I think it speaks for itself, we talked a lot about mobility as a big driver and we certainly weren't the only ones that we're looking at that so mobility is no longer a factor it's gone back to more of a normalized environment and so I think that the trajectory that we're <unk>.

Sudhanshu Priyadarshi: S.GNA saw another quarter of double-digit increases in marketing spending while transportation, warehousing and other corporate costs, such as labor remains headwinds. Adjusted operating income grew 3.1%, which combined with below-the-line leverage resulted in mid-single-digit EPS growth to 48 cents, slightly ahead of the guidance we shared last quarter. We achieved this result without the benefit of any non-operational gains in the quarter, as we continue to make progress on reinforcing our earning space looking out to next year.

Being right now unimproved coffee consumption will continue.

The drivers of that I think it's it there are multiple contributors to the slower but steady improvement in the category.

Including really a change in work routines, where you're looking at more hybrid work. The afternoon occasion for example changes on that.

The margins, we could see some impact from pricing and inflation and also some of the trends in cold coffee, which also indexes to out of home, but there's nothing structural going on right now and you can imagine we spent a lot of time digging into the fundamental consumer drivers of coffee.

Sudhanshu Priyadarshi: Moving to the segments. US investment beverages grew net sales 5.9%, led by 7.1% is points of pricing. The price contribution moderated quarter over quarter as it dissipated, as we begin to anniversary some of the last year's pricing activity. Volume makes decline 1.2%, reflecting out-performance versus our categories across the vast majority of our portfolio, and the growth contribution from seafood energy. As Bob said, we expect price to remain a continued driver of the top-line growth algorithm in quarter four and into next year, even as growth rebalances across volume, mix, and pricing contributions.

The tail winds are incredibly strong.

The movement towards improving growth looks to be right in front of us here, but we're being honest in saying that the total coffee category has been more gradual than we'd originally expected. Although we don't like I said, we don't see anything structural with regard to the untracked channels why is that stronger it's it's really driven.

[noise] by club and E Commerce.

E Commerce, which was growing prior to the pandemic.

Accelerate its significantly during the pandemic and it really has shown no signs of pulling back from that and we've talked before about the importance of E Commerce and our total business, but you can imagine when you look at individual segments.

That single serve coffee is really an ideal segment for E Commerce, it's lightweight high value long shelf life.

Not fragile a ship. So you can really have a quite a good business on E. Commerce. In addition to that remember we've been increasing our own subscription business is a business and services to the consumer and as we put more smart Brewers out there and allows for <unk>.

Sudhanshu Priyadarshi: The consumer is resilient, category elasticity is manageable, and inflation through moderating remains a headwind. Segment operating income grew 6.1% in the quarter, and segment margins were approximately flat year over year. This performance reflected the favorable impact of pricing and productivity net of inflation, offset by increase investment in marketing. In US coffee, net sales decreased 3.2% improving versus the second quarter-troth as expected. Pricing sequentially strengthened and contributed 3.1% is point of growth.

Smart consumption base reordering I think that ecommerce will continue to grow and I think club yeah. It was.

The overall consumer shift towards that channel as it represents a good value I also think that some of the changing away from home coffee trends being office coffee trends have also.

Benefited the club channel as well as the people in small and midsize offices are picking up their supplies there as well as in E. Commerce, and then with regard to 'twenty 'twenty four I mean, we've given you our macro outlook, we're not going to break it down by individual segments. The one thing I would say that I believe is important is this this gradual or more gradual rebound.

Sudhanshu Priyadarshi: Some of this reflected pricing that lagged realize inflation across our partner portfolio and is now flowing through after a delay. In future cycles, we expect the pricing pass through necessary to offset inflation to be more seamless. Volume makes decline 6.3% year over year in quarter three. Brewer's grew 8% has removed past destocking in the first half and shipped in for the important holiday period. For the back half as a whole, we expect brewer shipment to track point of sales trend.

In coffee is something that we've been able to factor in our thought process as we think about our total company algorithm and obviously, it's something that we've we've digested and built into our expectations.

Our next question will come from Bryan Spillane with Bank of America.

You May now go ahead.

Thanks, operator, good morning, everyone.

Maybe Bob maybe to just pick up on that last point, and maybe a little bit higher level, just thinking about the consumer.

You know as we've gone through this earnings season. It's you know, they're just seems like economizing behavior and a lot of different forms has kind of evolved more as we've moved through.

Sudhanshu Priyadarshi: Williams, which remains softer in today's macro-involvement and is still declining in the mid to high single digits compared to last year. Importantly, hearing brewers continue to gain share within the coffee maker category, and we still expect to finish the year having grown penetration to approximately 40 million households in the QD ecosystem as compared to approximately 38 million at the end of 2022. Forshipments decline 8% similar to last quarter. However, by our measure, category consumption volume in single-servor flat year-over-year across all channels.

You know the back half of this year and you know her she talked a little bit about it this morning, as well and so can you give perspective on two things one.

Just you know, how you're thinking or how Kt P is thinking about the consumer next year, you know stronger weaker and and how maybe you're adjusting your plans across all businesses for that and then the second just because it's it's been so topical just you know kind of how you how kt P is digesting all of the.

The sort of information about G. L. P. One and is that something you'd be getting the factor into your longer term plans. Thank you. Yes. Thank you Brian thanks for those questions.

Are we plan our business on a range of outcomes, we said that before we've been very.

Watchful of the consumer and concerned about trade down behaviors as a result of of financial pressures as we said the consumer today remains incredibly resilient.

Sudhanshu Priyadarshi: A sequential improvement relative to quarter two. As we previewed would happen last quarter, shipments lagged category consumption in the period due primarily to two factors. First, the competition against the year ago channel inventory billed and second, the volume impact from our decision to exit certain low margin private label contracts. We anticipate a smaller combined impact from these factors in quarter four, and expect power shipments to sequentially strengthen relative to quarter three.

But we're thoughtful about how that might shift into the future. We look across our entire portfolio. We have the ability to shift across formats mix channels price pack architecture on both the refreshment beverage side and the cold beverage side I mean in the coffee side.

To be able to react to any of those changes, but as of right. Now we haven't I haven't really seen that there is a potential cascade that happens where you could talk about within traditional retail where consumer looks to lower priced items and shops in more value oriented channels theres another piece as well.

Sudhanshu Priyadarshi: Office segment operating income grew 5.7% and operating margins expanded strongly. At nearly 33%, segment operating margins increased 280 basis points versus the prior year, and also compared very favorably relative to 30.4% in the first half. This significant inflection was driven by pricing, productivity, and moderating inflation, and we expect it to sustain. As Bob mentioned, the path of the expected revenue recovery is slightly altered relative to our original plan, due to some prudent price investment in a competitive environment.

As a cascade from away from home to in home and some of the surveys that I've looked at recently as you know if you are pinched. These are consumer surveys if your pitch what do you give up first and what the consumer gives us first as dining out of home.

And travel.

I think that what happens is that moves those occasions and home, where we benefit from them and you could take a look at it.

Portfolio across all formats, but also specifically with a coffee.

We've been working really hard to provide the consumer with options to produce specialty coffee cold coffee coffee, if any for them that they could get out of home in home and so I actually think that's a benefit for the category going forward. So.

The conclusion is nothing as we sit here today.

Sudhanshu Priyadarshi: Nevertheless, margin trends are expected to accelerate further in quarter four. Fundamental progress is expected to drive continued solid operating income growth year-over-year, even as we lap a difficult comparison given non-operational benefits partially contributed to US coffee operating income last year.

Possible in the future and certainly in our range of planning, but lots of flexibility for us to deal with it and potentially some upside on certain segments, including coffee.

With regard to G. L P. One.

We've had the opportunity to look at every trend possible from a consumer perspective for opportunities and risk. We've spent a lot of time digging into the most robust data that's available and I would caution everybody that the data that is actually available is really limited at this point.

Sudhanshu Priyadarshi: International segment sales increased 20.8% in the third quarter against a double digit growth comparison in the year ago period. Constant currency sales growth was very strong at 12.9% with volume mix increasing 9% and pricing up 3.9%. Our top-line momentum was brought based across Mexico and Canada. Segment operating income grew very strongly at 39.4% on a reported basis and 31.7% in constant currency terms. Thanks to operating leverage and efficiency gains netting favorably against inflation, and Anticipated, our free cashflow conversion strengthened sequentially in the third quarter to 459 million, reflecting the combination of profit growth and moderating working capital users, and consistent with our expectation for free cashflow conversion to strengthen in the second half.

What we would want to see as an industry before you came up with any conclusions as you'd want to see known G. L. P. One users and be able to match their behavioral data overtime self reported data survey data trying to figure out who might be a G. L. P. One consumer is really dangerous.

The data that we're able to get into which is quite limited on actual G. O P users and they're known consumption for US is is neutral.

Maybe it would be different than that but many more positive, but let me just say neutral right now and your the fact that I think it actually makes sense with just.

Blaine good sense, which is.

There's no evidence that people drink less in terms of beverages. So unless you believe the consumption of tap water is going up.

No indication of that and somebody in the beverage industry is picking up those sales are mixed shift possible absolutely, but we haven't seen anything significant in the data that we have in front of us within the world of beverage.

Sudhanshu Priyadarshi: Our capital allocation approach remains unchanged. Our priorities include organic and inorganic investments to support our growth, further strengthening our balance sheet, consistent with our long-term net leverage ratio target of two to two and a half times, and returning cash to shareholders through our dividend and opportunistic share by bags. We dynamically adjust between these priorities on an ongoing basis.

And I would remind you that we have a very very broad portfolio and in fact more than 60%.

All of our products.

As in our corporate responsibility report are classified as positive nutrition. So it's very similar to the conversation all recession.

Consumers don't drink left if they change their mix in terms of which formats and types of beverages. They consume we have one of those occasions and also we have the ability to innovate should we choose to we've had some questions on coffee specifically all of the data that we can see right now there's no impact on coffee consumption.

Sudhanshu Priyadarshi: In quarter three, we closed on the highly strategic La Colombe partnerships, first introduced in July, which included a 300 million equity investment.

As a result of that so when we step back or where we are surprised by the reaction and quite honestly, we're surprised that the conversation is about food and beverage I don't we don't participate in the food industry, but I can tell you in the beverage industry.

Sudhanshu Priyadarshi: Today, we announced another important partnership with Group of PISA to sell, distribute and merchandise electolate in the U.S. This is a meaningful step forward into sports hydration for KDP and establishes another mix of creative growth platforms, even as it comes with minimal capital commitments. As Bob pointed out, with interest into energy, RDD coffee and sports hydration over the past 12 months, we have penetrated three large and important white spaces for a relatively modest capital outlay of less than 1.3 billion.

I really think that there is a little to be concerned about here, having said that we're going to continue studying will get more robust data won't be able to see what I said before which is known G. L. P. One users and their actual consumption patterns over time.

And I think the picture will become much clearer, but that's our conclusion today.

Our next question will come from Robert on still on steam with Evercore.

Oh go ahead.

Great. Thank you very much two questions first.

Congratulations on the deal with electrical it when I was at next month or so ago. It was all the rage a lot of talk about it.

Can you just you you mentioned that it was accretive to your mix.

Sudhanshu Priyadarshi: We also have the ability and desire to continue to return cash to our shareholders. In September, we announced a 7.5% dividend increase marking our third consecutive year of growing our dividend and representing a cumulative 43% increase over that time. Our share in purchases will remain opportunistic and we have demonstrated a willingness step in when our share price becomes dislocated from the long-term value we expect to create. With approximately 3.2 billion remaining on our seary purchase authorization, we will continue to assess the market for such opportunities.

Can you talk about what that means because I would've thought. This is just a distributor margin that you're getting so maybe talk to us about you know the the.

The impact on your business and then the second question.

Is.

And this is kind of outdated if you go back before keurig and you talked to the old management team about the smaller pack sizes.

You know Dr. Pepper was lagging and there was you know a little bit of pushback, saying, they're going into these you know different variety of pack sizes and can sizes.

I would add you know unneeded complexity and I know a hell of a lot has changed since then I'm. Just wondering where you are in terms of your manufacturing and end and canning capabilities into today in terms of meeting that greater variety of pack sizes. Thank you yeah.

Sudhanshu Priyadarshi: Moving now to guidance, we are reaffirming our consolidated outlook for 2023 and continue to target constant currency net sales growth of 5% to 6% and adjusted EPS growth of 6% to 7%. Our EPS outlook assumes minimal benefits from non-operational items in 2023, implying double digit EPS growth on an underlying and Mrs. Our guidance for below-the-line items is consistent with last quarter. For the year, we continue to expect interest expense in a 470 to 475 million range, an effective tax rate of 22%, and approximately 1.41 billion diluted weight-ish average shares outstanding.

So Robert I'm glad that you saw electorally.

Dax and they are excited about this is a business that we've been tracking for some time and we've been really impressed with their strong.

Strong growth there.

At their consumer target is multicultural and it's a perfect example, as we discussed with C. Four with like Cologne Polar where we can take a brand that is very strong and as a clear consumer base and opportunity.

And help them grow through expanded distribution improved merchandising and access to our R. R. G M capabilities category management capabilities and more and so this one I think is is another one of these win win structures.

Sudhanshu Priyadarshi: We expect a strong end to the year in quarter-four with similar top-line dynamics to quarter-three and even stronger growth margin expansion. At the same time, we will be lapping approximately 67 million of non-operational gains in last year's fourth quarter, primarily concentrated in the U.S, coffee segment, which creates a challenging comparison. Letting these factors together, we expect you for adjusted EPS of approximately 54 cents or 8% year-over-year growth. On an underlying basis, this represents strong double-digit EPS growth.

When we think about electorally coming into our business and its implications on 2024, clearly its a contributor to revenue growth.

Similar to what we talked about with C. Four in its first year of incorporation. We don't think about it is as much of a driver of profit growth, but when you get into its second year, it will be able to contribute profitability and will provide.

Framing around that at that time.

And that's because we make significant investment in the first year to get the brand on board and also as we discussed earlier. This gives us a wonderful opportunity to put more investment.

Our route to market system.

To be able to improve coverage.

Bob Gamgort: With that, I will not turn the call back to Bob for closing comments. Thanks a lot, Chu. I'd like to close by saying how excited we all are.

With the fact that we now have larger drop sizes and increased frequency and as we set a number of times that benefits all brands within our system in the fact that we put in the.

Bob Gamgort: The Tim Kofur is joining KDP as Chief Operating Officer on November 6th. From there, we are looking forward to a smooth CEO transition between Tim and me in Q2 next year and continuity, as I serve as KDP's executive chairman thereafter. Upon joining KDP, Tim's immediate focus will be immersing himself in the business. You will also partner with Sudachu, the full executive leadership team and me, to drive our annual operating planning process for 2024.

And we put in the prepared remarks about the 50% growth in large outlet C stores for us is a very significant.

Consideration here in terms of our ability to cover our convenience stores for our entire portfolio. So this is yet another great example of how we're able to build our capabilities.

Pointed out smaller pack sizes as you know the world has changed quite a bit we have substantial distribution and we have good manufacturing flexibility on small pack sizes.

We see them as an incremental driver of growth. They happen to also be margin accretive they're very much in line with consumer trends wherever if somebody wants to treat themselves in a portion of our portfolio is in the treat need state that we give them an opportunity to entity to do so in a smaller pack sizes and that's been the case.

Bob Gamgort: A lot of robust work is underway, and we expect to provide you with a detailed outlook when we report our Q4 results. For now, let me just say that our entire organization is focused on delivering a strong finish to 2023. We expect that Tim will join Sudachu and me in this forum in February, and I know you will enjoy meeting him after that.

Others CPG industries.

And as we think about our manufacturing base going forward flexibility in formats and pack sizes.

Operator: I'll now turn the call back to the operator for questions. We will now begin the question in the intercession. To ask a question, we will press star to one. If you're using a speaker phone, please pick up your headset before pressing the keys. To withdraw our question, please press star to two. We ask that you ask one question and one follow-up. At this time, we will pause momentarily to assemble our roster.

A critical capability that we continue to invest in to give us the optionality of price pack architecture architecture moving forward.

Our next question will come from Bonnie Herzog with Goldman Sachs.

No go ahead.

Alright. Thank you good morning, everyone. Bob I was hoping you could give us some more color on the exiting of certain private label contracts in terms of maybe you know how big these customers are and if theres an expectation for Marty com.

Andrea Teixeira: Our first question will come from Andrea, Tech Sierra, with GP Morgan. You may now go ahead. Good morning. This is Drulivian on for Andrea. Thank you for taking our question. At first, I want to ask on U.S, coffee.

And then you called out a tough comparison on your pipelines in the quarter you know given the trade inventory builds in the year ago period. So just trying to understand how big of an impact do you think that was in and could you just confirm I'm frightened.

Unknown Executive: If you could talk more specifically to the trends during the quarter, both in tracking-on-track channels, if the recovery is sort of playing out sequentially as you expected, and what we could think about the exit rate for September and October being. And then, secondarily, I think the expectation was for pod volumes to perhaps see moderating declines in the quarter. They were pretty flat. So anything changed incrementally during the quarter from a pod shipment perspective. Thank you. Thanks for the question.

Are you already starting to see hard volume improve in Q4.

Yeah. So on the on the first one on the.

Exit of some private label partners that really began in Q2 I mean, the best way for you to size. It as you can you can take a look at the track data for the most part and just C. J D. P manufactured share and it's going to show you where unlicensed versus licensed private label is.

Unknown Executive: On our last call, we talked about two drivers of improved coffee performance going forward. One was margin improvement and the other one was rebound in the total at home coffee category. And so that goes beyond single serve to all forms of coffee consumed at home. Obviously, as you saw in the results, we've received the or we've experienced the inflection that we expected in the margin side. And that's largely under our control and big driver of our performance.

And I don't I don't think that that's a it's not a it's definitely not a driver of profitability and it's a minor contributor to our revenue, but it's the right thing to do over the long term, we offer significant value to our partners.

And were also the driver and the the player who invest in Brewer innovation Brewer watches, which is the catalyst for the tire industry and from time to time in these negotiations we find partner Sandoz side, who.

Unknown Executive: The category is experiencing sequential improvement, but admittedly, it is gradual. When we take a look at consumption of single serve, and we use our proprietary data, which looks at tracked and untracked channels. And remember, the track channels represent a roughly 60% of total consumption. We're saying that the volumes are flat, which is an improvement sequentially, but a bit slower than we expected. And so that's really the core of any shipment shortfall versus expectations is really driven by the category.

Don't want to pay for the value added we theres a point in which we don't drop price because we know that we add that value and I would also point out that in almost every circumstance.

Unknown Executive: I would remind you within that that single serve and KDP continues to grow share within that category. So this theme that we've talked about before about controlling the controllables, margin, share performance, all are really quite good. The challenge is really this total at home coffee category, which is moving in the right direction, albeit at a slower pace.

<unk>.

Both partners have.

Come back to us over the long term because they miss what they get from from Kt piece. So you'll see it in the tracked channels and I don't think it's a big deal second part of the question was about the you're asking a bit about inventory and that's really a question about the gap between shipments and consumption.

But the best way to characterize that is that if we tell you that the category rebound is.

Going in the right direction, but not at the pace that any of us expected and I'd say any of US anybody who operates in the coffee industry developed markets globally.

Then there's always going to be a disconnect between shipments and consumption and there may be some shipments ahead of consumption based on those expectations.

That that's happened that's normalizing expect that gap to narrow further in Q4.

So to me that's a lagging indicator, it's a contributor to the shipment piece, which.

It is worthy for a conversation this quarter, but over the long term the pieces to really watch our how's the cabinet at home coffee category, performing because that really drives everything.

Unknown Executive: My last comment on that is what we're experiencing on at home coffee in the US is not unique to the US. It's a trend that we're seeing in most developed markets as well.

How is our share being total single serve in total GDP share of at home coffee that continues to expand.

Dara Mohsenian: Our next question will come from Dara, most senior with Morgan Stanby. You may now go ahead. So just to follow up, do you expect the category will continue to recover going forward sequentially from here? Can we get back to growth going forward? And maybe can you detail what's driven the acceleration and untracked channels and how sustainable that is going forward? And then just second, you could take a bit of a look out to 2024.

And then the last part of it is our margin against that volume, which also is very high and improving the combination of those three really does create value, but again. It has created some short term disruption as we get out of this.

Still the after effects of the rebound.

From the pandemic piece.

Our final question will come from Chris Carey with Wells Fargo Securities You May now go ahead.

Dara Mohsenian: You mentioned on Algo for the total company. Does that apply to the coffee business in terms of a more normalized organic sales growth and profit growth pace as you look out to 2024? Thanks. Sure. I think that when you take a look at the trajectory of the coffee category, I think it speaks for itself. We talked a lot about mobility as a big driver. Only certainly weren't the only ones that were looking at that.

Hey, everyone.

Good morning, Chris.

I know you're not going to specify what drove.

The margin improvement in the quarter specifically.

But but can you maybe help frame.

The relative contribution of our pricing.

Productivity.

Dara Mohsenian: So mobility is no longer a factor. It's gone back to more of a normalized environment. And so I think that the trajectory that we're seeing right now on improved coffee consumption will continue. The drivers of that, I think they're multiple contributors to the slower but steady improvement in the category, including really a change in work routines where you're looking at more hybrid work. The afternoon occasion, for example, changes on that. You know, on the margins, we can see some impact from pricing and inflation and also some of the trends in cold coffee, which also indexes to out-of-home.

Of easing commodity inflation or maybe it was even a benefit.

And and also you've been quite adamant that the mix impact of your own portfolio of underperforming is not as great. As what is sometimes you know debated and and so you know I wonder how that impacted the quarter as well and you're you're clearly looking for an acceleration.

And margins in Q4, and I think really what I'm trying to do is you'll get get some confidence that well OK part volumes could be volatile within your portfolio. They could be volatile, but as you go into next year, Here's why we're going to continue to have visibility on market <unk>.

Dara Mohsenian: But there's nothing structural going on right now. And you can imagine we spent a lot of time digging into the fundamental consumer drivers of coffee. The tail winds are incredibly strong. The movement towards improving growth looks to be right in front of us here. But we're being honest in saying that the total at-home coffee category has been more gradual than we originally expected, although we don't, I guess we don't see anything as structural.

Shipments or otherwise are are a bit different than maybe what we would expect one quarter or two quarters out right. So we're really trying to help frame that Q3 margins.

Yeah, it's kind of get some some help on the on the go forward. Thanks, so much.

Yeah, Let me, let me talk about the margin inflection that we've seen.

In the quarter and we talked about prior to that.

Dara Mohsenian: With regard to the untracked channels, why is that stronger? It's really driven by club and e-commerce e-commerce, which was growing prior to the pandemic accelerated significantly during the pandemic. And it really has shown no signs of pulling back from that. And we talked before about the importance of e-commerce in our total business, but you can imagine when you look at individual segments, that single-served coffee is really an ideal segment for e-commerce.

And then I'll ask Sudan to you to take a look at where we are on from a segment Oi perspective, and our forward outlook on that yeah. We had a number of conversations in the past as you'll recall about.

The gap between pricing to partners in private label.

Versus the inflation that was that we're experiencing that had never been contemplated in the years in which we had to prior years in which we had signed those agreements.

Dara Mohsenian: It's lightweight, high-value, long shelf life, not fragile a ship. So you can really have quite a good business on e-commerce. In addition to that, remember we've been increasing our own subscription business and services to the consumer. And as we put more smart brewers out there and allows for smart consumption-based reordering, I think that e-commerce will continue to grow. And I think club is the overall consumer shift towards that channel. It represents a good value.

And remember that's very different than pricing that you see at retail just to be clear because I know when I say pricing people immediately go to retail pricing when I'm talking about is the contractual pricing that we have with partners in private label, who then in turn set their own retail pricing as a result of that.

So Hum you said that there was a lag but it would flow through it's flowing through we have great visibility to it going forward to answer your question, because it's contractual and I think the other point to make and it's an emphasis of the prepared remarks is that we've now adjusted Oi.

Dara Mohsenian: I also think that some of the changing away from home coffee trends, meaning office coffee trends, have also benefited the club channels, as well as people in small and mid-size offices are picking up their supplies there, as well as in e-commerce. And then with regard to 2024, I mean, we've given you our macro outlook. We're not going to break it down by individual segments. The one thing I would say that I believe is important is this gradual or more gradual rebound in coffee is something that we've been able to factor in our thought process as we think about our total company algorithm. And obviously it's something that we've digested and built into our expectations.

All of those agreements going forward.

And we don't expect a substantial lag to between pricing and inflation to occur in the future. So lessons learned from the past bit of pain that we had to incur over the past couple of years, but that's all catching up right now and you're seeing that flowing through in addition to that partner and private label pricing flowing through we're also.

Seeing some moderation in inflation and we're experiencing an increase in productivity as we set a couple of times. When we were in a supply chain disruption mode and we were trying to get every case out the door productivity takes a backseat, where I'm really good shape on our supply chain from a capacity standpoint.

Bryan Spillane: Our next question will come from Bryan Spillane with Bank of America. You may not go ahead. Thanks, operator.

Bob Gamgort: Good morning, everyone. Maybe Bob, maybe to just pick up on that last point, and maybe a little bit higher level, just thinking about the consumer. We've gone through this earnings season. There just seems like economizing behavior in a lot of different forms has kind of evolved more as we've moved through the back half of this year. Hershey talked a little bit about it this morning as well. Can you give perspective on two things?

And we have the ability now to focus on productivity and dial that up so it's a combination of partner private label pricing productivity and moderating inflation that is contributing to the margin inflection you're seeing now and also our confidence and visibility into the future, but so that's what I should pick up a minute and talk more about that last piece. Thanks Paul.

Chris If you think through well think about Q4 and beyond are in Q4, though we are expecting a sequential improvement in port shipment category is gradually recovering.

Bob Gamgort: One, just how you're thinking or how KDP is thinking about the consumer next year. Or stronger, weaker, and how maybe you're adjusting your plans across all businesses for that. And then the second, just because it's been so topical, just how KDP is digesting all of the sort of information about GLP1. Is that something you're beginning to factor into your longer term plans? Thank you. Thank you, Brian. Thanks for those questions. You know, we plan on a range of outcomes.

We are also planning to have margin expansion in quarter four higher than quarter, three we've talked about that before.

And you'll also see a solid operating income growth in quarter four even a stronger underlying as you. All know we had a lot of nonoperating benefit.

Benefit in coffee. So you would have a stronger underlying growth that'd be planning minimal non operating thing how did you think through 2020 pool. Our plan is to continue to gradually rebuild margin are in the coffee category has started with quarter three.

Bob Gamgort: We said that before. We've been very watchful of the consumer and concerned about trade down behaviors as a result of financial pressures. As we said, the consumer today remains incredibly resilient, but we're thoughtful about how that might shift into the future. We look across our entire portfolio. We have the ability to shift across formats, mix, channels, price pack architecture on both the refreshment beverage side and the cold beverage side. I mean, in the coffee side, to be able to react to any of those changes.

Bob Gamgort: But as of right now, we haven't really seen that. There is a potential cascade that happens where you can talk about within traditional retail where consumer looks to lower priced items and shops in more value oriented channels. There's another piece as well, which is a cascade from away from home to in home. And some of the surveys that I've looked at recently is, you know, if you are pinched, these are consumer surveys.

They've been from 30% roughly putting plus top to 33% Q4 will expand further.

You will see this gradual buildup of rebuild up over our margin in 2024.

This concludes our question and answer session I would like to turn the conference back over to Jane Gelfand for any closing remarks.

Thanks, Anthony and thank you everyone. We appreciate your time and attention this morning, and as always the Investor Relations team is available to answer any follow up questions. You may have a great day.

The conference has now concluded. Thank you for today's presentation you may now disconnect.

Bob Gamgort: If you're pinched, what do you give up first? And what the consumer gives up first is dining out of home and travel. So I think that what happens is that moves those occasions in home where we benefit from them. And as you can take a look at broad portfolio across all formats, but also specifically within coffee, we've been working really hard to provide the consumer with options to produce especially coffee, cold coffee, coffee of any form that they get out of home in home. And so I actually think that's a benefit for the category going forward.

Bob Gamgort: So the conclusion is, nothing as we sit here today, very possible in the future and certainly in our range of planning, a lot of flexibility for us to deal with it and potentially some upside on certain segments, including coffee. With regard to GLP1, we've had the opportunity to look at every trend possible from a consumer perspective for opportunities and risk. We've spent a lot of time digging into the most robust data that's available and I would caution everybody that the data that is actually available is really limited at this point.

Bob Gamgort: Point. What we would want to see as an industry before you give up with any conclusions is you'd want to see known GLP-1 users and be able to match their behavioral data over time. Self-reported data, survey data, trying to figure out who might be a GLP-1 consumer is really dangerous. The data that we're able to get into, which is quite limited, on actual GLP users and their known consumption for us is neutral, may even be different than that by meaning more positive, but let me just say neutral right now.

Bob Gamgort: And here are the facts and I think it actually makes sense with just plain good sense, which is there's no evidence that people drink less in terms of beverages. So unless you believe the consumption of tap water is going up, there's no indication of that, then somebody in the beverage industry is picking up those sales. Our mix shift possible, absolutely, but we haven't seen anything significant in the data that we have in front of us within the world of beverage.

Bob Gamgort: And I would remind you that we have a very, very broad portfolio and in fact more than 60% of our products as in our corporate responsibility report are classified as positive nutrition. So it's very similar to the conversation on recession. Tubers don't drink less if they change their mix in terms of which formats and types of beverages they consume, we have one of those occasions, and also we have the ability to innovate should we choose to.

Bob Gamgort: We've had some questions on coffee, specifically all the data that we can see right now. There's no impact on coffee consumption as a result of that. So when we step back, we are surprised by the reaction. And quite honestly we're surprised that the conversation is about food. In beverage, we don't participate in the food industry, but I can tell you in the beverage industry, I really think that there's a little to be concerned about here. Having said that, we're going to continue study. We'll get more robust data. We'll be able to see what I said before, which is known GLP one users and their actual consumption patterns over time.

Bob Gamgort: And I think the picture will become much clearer, but that's our conclusion today.

Robert Gamgort: Our next question will go from Robert on Steve with better core. You may now go ahead. Great. Thank you very much. Two questions. First, congratulations on the deal with electrolyte when I was at NAACS month or so ago, it was all the rage. A lot of talk about it. You mentioned that it was a creed of to your mix. Can you talk about what that means? Because I would have thought this is just a distributor margin that you're getting.

Robert Gamgort: So maybe talk to us about the impact on your business. And then the second question is, and this is kind of outdated, if you go back before curing and you talk to the old management team about the smaller pack sizes, Dr. Pepper was lagging, and there was a little bit of pushback saying that going into these different variety of pack sizes and can sizes would add unneeded complexity. And I know a hell of a lot has changed since then. I'm just wondering where you are in terms of your manufacturing and canning capabilities today in terms of meeting that greater variety of pack sizes.

Robert Gamgort: Thank you. Yeah, so Robert, I'm glad that you saw it electrally at NAX and the excitement about this is a business that we've been tracking for some time and we've been really impressed with their, you know, the strong growth. The fact that their consumer target is multicultural and it's a perfect example as we've discussed with C4, with Locke Alone, with Polar, where we can take a brand that is very strong and as a clear consumer base and opportunity and help them grow through expanded distribution and improve merchandising and access to our RGM capabilities, category management capabilities and more.

Robert Gamgort: And so this one I think is another one of these win-win structures. When we think about electrally coming into our business and its implications on 2024, clearly it's a contributor to revenue growth. Similar to what we talked about with C4, in its first year of incorporation, we don't think about it as much of a driver of profit growth, but when you get into its second year, it will be able to contribute profitability and will provide framing around that at that time.

Robert Gamgort: And that's because we make significant investment in the first year to get the brand on board. And also as we discussed earlier, this gives us a wonderful opportunity to put more investment in our route to market system to be able to improve coverage with the fact that we now have larger drop sizes and increased frequency. And as we said a number of times, that benefits all brands within our system. The fact that we put in the prepared remarks about the 50% growth in large outlet C stores for us is a very significant consideration here in terms of our ability to cover our convenience stores for our entire portfolio.

Robert Gamgort: So this is yet another great example of how we're able to build our capabilities. Your point about smaller pack sizes is the other world has changed quite a bit. We have substantial distribution and we have good manufacturing flexibility on small pack sizes. We see them as an incremental driver of growth. They happen to also be margin of creative. They're very much in line with consumer trends where if somebody wants to treat themselves in a portion of our portfolio is in the treat needs state that we give them an opportunity to do so in a smaller pack size.

Robert Gamgort: And that's been the case in other CPG industries. And as we think about our manufacturing based going forward flexibility in formats and pack sizes is a critical capability that we continue to invest in to give us the optionality of price pack architecture moving forward.

Bonnie Herzog: Our next question will come from Bonnie Herzog with Goldman Sachs. You may not go ahead. All right. Thank you. Good morning, everyone. Bob, I was hoping you could give us the more color on the exiting of certain private label contracts in terms of maybe, you know, how big these customers are. And if there's an expectation for more to come. And then you called out a tough comparison on your pod volumes in the quarter, you know, given the trade inventory bills in the year ago period.

Bonnie Herzog: So just trying to understand how big of an impact you think that was and could you just confirm. I thought you said that you're you're already starting to see pod volumes improve in Q4. Yeah, so on the first one on the act of some private label partners that really began in Q2, I mean, the best way for you to size it is you can take a look at the track data for the most part and just see KDP manufacturing chair and it's going to show you we're unlicensed versus licensed private label is and I don't I don't think that that's, you know, it's not it's definitely not a driver of profitability and it's a minor contributor to revenue, but it's the right thing to do or the long-term meeting we offer significant value to our partners and we're also the driver and the player who invest in brewer innovation brewer launches, which is the catalyst for the entire industry and from time to time in these negotiations we find partners on the other side who don't want to pay for the value added and we there's a point in which we don't drop price because we know that we add that value and I would also point out that in almost every circumstance both partners have come back to us over the long term because they miss what they get from KDP so you'll see it in the track channels and I don't think it's a big deal.

Bonnie Herzog: Now, second part of the question was about the you know you asked a bit about inventory and that's really a question about the gap between shipments and consumption. You know, the best way to characterize that is that if we tell you that the category rebound is going in the right direction but not at the pace that any of us expected and I say anybody who operates in the coffee industry develop markets globally.

Bonnie Herzog: Then there's always going to be a disconnect between shipments and consumption and there may be some shipments ahead of consumption based on those expectations. That's happened, that's normalizing, expect that gap to narrow further in Q4. So to me, that's a lagging indicator, it's a contributor to the shipment piece which is worthy for a conversation in this quarter but over the long term the pieces to really watch are how is the category performing.

Bonnie Herzog: Because that really drives everything. How is our share being total single serve and total KDP share of at home coffee that continues to expand. And then the last part of it is our margin against that volume which also is very high and improving the combination of those three really does create value but again it's created some short term disruption as we get out of this. We've got to fill the after effects of the rebound from the pandemic piece.

Unknown Executive: Our final question will come from Chris Kerry with wealth bargo securities. You may now go ahead. Hey everyone. I know you're not going to specify what drove the margin improvement in the quarter specifically but can you maybe help frame the relative contribution of pricing of productivity of easing commodity inflation or maybe it was even a benefit, and also you've been quite adamant that the mixed impact of your own portfolio underperforming is not as great as what is sometimes, you know, debated.

Unknown Executive: And so, you know, I wonder how that impacted the quarter as well and you're clearly looking for an acceleration in margins in Q4. And I think really what I'm trying to do is you'll get some confidence that, well, OK, pod volumes could be volatile within your portfolio, they could be volatile. But as you go into next year, here's why we're going to continue to have the stability on margin, even if shipments or otherwise are a bit different than maybe what we would expect, you know, one quarter or two quarters out, right? So, really trying to help frame the Q3 margins and, you know, to kind of get some help on the go forward. Thanks so much.

Bob Gamgort: Let me talk about the margin inflection that we've seen in the quarter and we talked about prior to that. And then I'll ask Sudhanshu to take a look at where we are on from a segment OI perspective and a forward outlook on that. You know, we had a number of conversations in the past, as you'll recall, about the gap between pricing to partners and private label versus the inflation that was, that we were experiencing that had never been contemplated in the years in which we had the prior years in which we assigned those agreements.

Bob Gamgort: And remember, that's very different than pricing that you see at retail, just to be clear, because I know when I say pricing people immediately go to retail pricing, what I'm talking about is the contractual pricing that we have with partners and private label who then in turn set their own retail pricing as a result of that. And so, you said that there was a lag, but it would flow through. It's flowing through.

Bob Gamgort: We have great visibility to it going forward to answer your question, because it's contractual. And I think the other point to make, and it's an emphasis of the prepared remarks, is that we've now adjusted all of those agreements going forward. And we don't expect a substantial lag between pricing and inflation to occur in the future. So, lessons learned from the past, bit of pain that we had to incur over the past couple of years, but that's all catching up right now and you're seeing that flowing through.

Bob Gamgort: In addition to that partner and private label pricing flowing through, we're also seeing some moderation and inflation, and we're experiencing an increase in productivity. As we said a couple of times, when we were in a supply chain disruption mode and we were trying to get every case out the door, productivity takes a backseat. We're in really good shape on our supply chain, from a capacity standpoint, and we have the ability now to focus on productivity and dial that up.

Bob Gamgort: So, it's a combination of partner and private label pricing, productivity, and moderating inflation, that is contributing to the margin of flexion you're seeing now, and also our confidence and visibility into the future. But so, not so much to take up a minute and talk more about that last piece. Thanks, Bob.

Sudhanshu Priyadarshi: Chris, if you think about Q4 and beyond, in Q4, we are expecting a sequentially improvement in partnership, as category is gradually recovering. We're also planning to have margin expansion in Q4 or higher than Q3. We talked about that before. And we'll also see solid operating income growth in Q4, even stronger underlying, as you all know, we have a lot of non-operating benefits in coffee. So, you will have a stronger underlying growth because you're planning minimal non-operating things.

Sudhanshu Priyadarshi: And as you think through 2024, our plan is to continue to gradually rebuild margin in the coffee category. With Q3, you saw we went from 30% roughly in past half to 33%, Q4 will expand further, and you will see the gradual build-up or rebuild-up of our margin in 2020.

Unknown Executive: Thank you for your time and attention this morning, and as always, the Investor Relations team is available to answer any follow-up questions you may have.

Operator: Have a great day.