Q2 2024 Keurig Dr Pepper Inc Earnings Call

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Unknown Executive: Good morning, ladies and gentlemen, and thank you for standing by. Welcome to Keurig Dr Pepper's second quarter 2024 earnings call. All participants will be in listen-only mode.

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

Speaker Change: Welcome to Keurig Dr Pepper's second quarter 2024 earnings call.

Unknown Executive: Should you need assistance, please signal a conference specialist by pressing star then zero on your telephone keypad. This conference is being recorded, and there will be a question and answer session at the end of the call. I would now like to introduce Keurig Dr Pepper's Vice President of Investor Relations, Jane Gelfand. Ms. Gelfand, please go ahead.

Speaker Change: All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing star then zero on your telephone keypad. This conference is being recorded and there will be a question and answer session at the end of the call.

Jane Gelfand: I would now like to introduce Keurig Dr Pepper's Vice President of Investor Relations, Jane Gelfand. Ms. Gelfand, please go ahead.

Jane Gelfand: Thank you and hello everyone. Earlier this morning, we issued a press release detailing our second quarter results, which we will discuss during this conference call. A slide presentation will accompany our remarks and can be viewed in real time on the live website. Before we get started, I'd like to remind you that our remarks will include forward-looking statements that reflect KDP's judgment, assumptions, and analysis only as of today. Our actual results may differ materially from current expectations based on a number of factors affecting KDP's business. Except as required by law, we do not undertake any obligation to update any forward-looking statements discussed today.

Jane Gelfand: Thank you and hello everyone. Earlier this morning, we issued a press release detailing our second quarter results, which we will discuss during this conference call. A slide presentation will accompany our remarks and can be viewed in real time on the live webcast.

Jane Gelfand: Before we get started, I'd like to remind you that our remarks will include forward-looking statements which reflect KDP's judgment, assumptions, and analysis only as of today.

Jane Gelfand: Our actual results may differ materially from current expectations based on a number of factors affecting KDP's business.

Jane Gelfand: Except as required by law, we do not undertake any obligation to update any forward-looking statements discussed today. For more information, please refer to our earnings release and the risk factors discussed in our most recent Forms 10-K and 10-Q filed with the SEC.

Jane Gelfand: For more information, please refer to our earnings release and the risk factors discussed in our most recent Forms 10-K and 10-Q filed with the SEC. Consistent with previous quarters, we will be discussing our Q2 performance on a non-gap adjusted basis, which reflects constant currency growth rates and excludes items affecting comparability. Definitions and Reconciliations to the Most Directly Comparable Gap Metrics are included in our earnings material. Here with us today to discuss our results are Keurig Dr Pepper's Chief Executive Officer Tim Cofer and Chief Financial Officer and President International Sudhanshu Priyadarshi. I'll now turn it over to Tim. Thanks, Jane. And good morning, everyone.

Jane Gelfand: Consistent with previous quarters, we will be discussing our Q2 performance on a non-gap adjusted basis, which reflects constant currency growth rates and excludes items affecting comparability.

Jane Gelfand: Definitions and Reconciliations to the Most Directly Comparable Gap Metrics are included in our earnings material.

Speaker Change: Here with us today to discuss our results are Keurig Dr Pepper's Chief Executive Officer Tim Cofer and Chief Financial Officer and President International Sudhanshu Priyadarshi. I'll now turn it over to Tim.

Timothy P. Cofer: It's been eight months since I joined this great young and dynamic company. I continue to be impressed with the caliber of the organization, the quality of our work, and the Challenger Mindset our people embody each and every day. Together, we delivered healthy second-quarter performance while making important progress to advance our strategic agenda, with our first half now in the books. We're on track to deliver full year results consistent with our on algorithm outcome. The operating environment remains uneven, with resilient demand from higher income consumers and Value Seeking Behavior among Low and Middle Income Consumers.

Timothy P. Cofer: Thanks Jane and good morning everyone. It's been eight months since I joined this great young and dynamic company. I continue to be impressed with the caliber of the organization, the quality of our execution.

Timothy P. Cofer: and the Challenger Mindset our people embody each and every day.

Speaker Change: Together, we delivered healthy second quarter performance while making important progress to advance our strategic agenda.

Speaker Change: With our first half now in the books, we're on track to deliver full-year results consistent with our on-algorithm outlook.

Speaker Change: The operating environment remains uneven, with resilient demand from higher-income consumers and value-seeking behavior among low- and middle-income consumers.

Timothy P. Cofer: We are highly attuned to these dynamics, and despite them, we still expect a top line acceleration over the balance of the year, thanks to several elements largely within our control, including new partnership growth and traction from innovation. At the same time, our first half-weighted EPS delivery helps to pave the way for on-plan performance as we also seed our multi-year growth agenda. In Q2, constant currency net sales growth sequentially improved to 3.4% and reflected a reweighting of our top line drivers with pricing moderating and volume mix accelerating to positive territory.

Speaker Change: We are highly attuned to these dynamics, and despite them, we still expect a top-line acceleration over the balance of the year, thanks to several elements largely within our control, including new partnership growth and traction from innovation.

Speaker Change: At the same time, our first half-weighted EPS delivery helps to pave the way for on-plan performance as we also seed our multi-year growth agenda.

Speaker Change: In Q2, constant currency net sales growth sequentially improved to 3.4% and reflected a reweighting of our top line drivers with pricing moderating and volume mix accelerating to positive territory.

Timothy P. Cofer: We entered 2024 anticipating net price realization for KDP and the industry would normalize from the unusually high levels over the past few years, and it has. It's encouraging to now see a more balanced top line growth profile begin to emerge. At the same time, we remain focused on generating leverage throughout our P&L to fund reinvestment and drive earnings growth. In Q2, continuous productivity savings and cost dis- drove strong operating margin expansion, helping to translate our top-line momentum to a solid bottom-line result with 7% EPS growth versus prior year. As we execute against our evolved strategic framework, we registered a number of wins in Q2.

Speaker Change: We entered 2024 anticipating net price realization for KDP and the industry would normalize from the unusually high levels over the past few years, and it has.

Speaker Change: It's encouraging to now see a more balanced, top-line growth profile begin to emerge.

Speaker Change: At the same time, we remain focused on generating leverage throughout our P&L to fund reinvestment and drive earnings growth.

Speaker Change: In Q2, Continuous Productivity Savings and Cost Discipline.

Speaker Change: Drove strong operating margin expansion, helping to translate our top-line momentum to a solid bottom-line result with 7% EPS growth versus prior year.

Speaker Change: As we execute against our evolved strategic framework, we registered a number of wins in Q2. Let me highlight a few that will continue to pay off throughout the year, along with focus areas for the long term.

Timothy P. Cofer: Let me highlight a few that will continue to pay off throughout the year, along with focus areas for the long term. As you know, one of our key strategies is the Consumer Obsessed Brand. Our innovation ramped up significantly in the second quarter, and as expected, these new products are seeing good marketplace traction. In U.S. refreshment beverages, Dr. Pepper Creamy Coconut is now our most successful limited-time offer.

Speaker Change: As you know, one of our key strategies is consumer-obsessed brand building.

Speaker Change: Our innovation ramped significantly in the second quarter, and as expected, these new products are seeing good marketplace traction.

Speaker Change: In U.S. refreshment beverages, Dr. Pepper Creamy Coconut is now our most successful limited time offering.

Timothy P. Cofer: Canada Dry Fruit Splash is also proving highly incremental to the brand. Together, these innovations are driving improved share trends across the CSD portfolio. Outside of CSDs, we're pleased with the initial response to our Buy Wonderwater refreshment, which is re-engaging consumers in its early stages. In US Coffee, our new refreshers from the original donut shop are on track to be the largest Keurig platform launch of the last several. These coffee shop inspired cold beverages are bringing new occasions and younger consumers into the single serve K-cup category and are supporting market share gains for our owned and licensed portfolio Outside the US, Pena Fial aids and twist products are extending the powerful Pena Fial brand into new white space segments and contributing to market share for our Mexico portfolio.

Speaker Change: Canada Dry Fruit Splash is also proving highly incremental to the brand. Together, these innovations are driving improved share trends across the CSD portfolio.

Speaker Change: Outside of CSDs, we're pleased with the initial response to our Buy Wonder Water restage, which is re-engaging consumers in its early days.

Speaker Change: In U.S. Coffee, our new refreshers from the original donut shop are on track to be the largest Keurig platform launch of the last several years.

Speaker Change: These coffee shop inspired cold beverages are bringing new occasions and younger consumers into the single serve K-cup category and are supporting market share gains for our owned and licensed portfolio.

Speaker Change: Outside the U.S., our Peña-Fial aids and twist products are extending the powerful Peña-Fial brand into new white space segments and contributing to market share gains for our Mexico portfolio.

Timothy P. Cofer: In total, these innovations will continue to develop over the coming months with additional news and activation across the portfolio, including in powerhouse brands like Mox and Green Mountain. We also made progress with new, as we focus on shaping our now and next beverage portfolio. With Electrolyte and La Cologne now part of that portfolio, our excitement about each brand's future and the win-win collaboration models behind them continues to build. As anticipated, revenue contributions from these brands increased during the second quarter and should further scale over the balance of the year. The transition of electrolyte volume to our DSD network is ongoing, with the handover expected to be complete in the back half.

Speaker Change: In total, these innovations will continue to develop over the coming months with additional news and activation upcoming across the portfolio, including in powerhouse brands like Mott's and Green Mountain.

Speaker Change: We also made progress with new partnerships as we focus on shaping our now and next beverage portfolio.

Speaker Change: With Electrolyte and La Cologne now part of that portfolio, our excitement about each brand's future and the win-win collaboration models behind them continues to build.

Speaker Change: As anticipated, revenue contributions from these brands increased during the second quarter and should further scale over the balance of the year.

Speaker Change: The transition of electrolyte volume to our DSD network is ongoing, with the handover expected to be complete in the back half.

Timothy P. Cofer: As we take on this distribution, we're beginning to unlock the brand's untapped potential with outsized market share gains in KDP served regions and channels. This performance under, our go-to-market capability spotlights the growth opportunity for electrolytes within the sports hydration category.

Speaker Change: As we take on this distribution, we're beginning to unlock the brand's untapped potential with outsized market share gains in KDP-served regions and channels.

Speaker Change: This performance underscores our go-to-market capabilities and spotlights the growth opportunity for Electrolyte within the sports hydration category.

Timothy P. Cofer: Similarly, we continue to cultivate our La Colombe partnership across both K-Cup pods and shelf-stable ready-to-drink coffee. Focusing on the latter, La Colombe's reformulated draft lattes are truly differentiated in this category and show strong promise. As we speak, our DSD organization is focused on expanding this unique product's availability and display to drive initial consumer trial, contributing to Strengthening Marketplace Trends.

Speaker Change: Similarly, we continue to cultivate our La Cologne partnership across both K-Cup Pods and Shelf Stable Ready-to-Drink Coffee.

Speaker Change: Focusing on the latter, the La Cologne's reformulated draft lattes are truly differentiated in this category and show strong promise.

Speaker Change: As we speak, our DSD organization is focused on expanding this unique product's availability and display to drive initial consumer trial, contributing to strengthening marketplace trends.

Speaker Change: In May, we also announced a planned transaction with Khalil Bottling Company, another concrete step to amplify our route-to-market advantage, which is a key component of our strategic agenda.

Timothy P. Cofer: Another concrete step to amplify a route to market advantage, which is a key component of our strategic agenda. With one of only three nationwide direct store delivery options for LRBs. We understand the innate Competitive Advantage of controlling last mile distribution in our industry. This particular transaction will grant us full control of our brand's distribution in Arizona, a strategic and fast growing state, and with it the ability to optimize and extract even more leverage from our local DSDS.

Speaker Change: With one of only three nationwide direct store delivery systems for LRBs, we understand innately the competitive advantage of controlling last mile distribution in our industry.

Speaker Change: This particular transaction will grant us full control of our brand's distribution in Arizona, a strategic and fast-growing state, and with it, the ability to optimize and extract even more leverage from our local DSD assets.

Timothy P. Cofer: We are moving quickly towards completing the acquisition of Khalil's production, sales, and distribution operations in Q3, and we are honored that the Khalil family has entrusted us to carry on the legacy of their multi-generationalism. Perhaps less externally visible in any single quarter is the significant work we're doing to dial up our productivity and fuel for growth with Consumer Health Mix. Pockets of inflation are returning, like in the case of green coffee and Structural Costs.

Speaker Change: We are moving quickly towards completing the acquisition of Khalil's production, sales, and distribution operations in Q3, and we are honored that the Khalil family has entrusted us to carry on the legacy of their multi-generational business.

Speaker Change: Perhaps less externally visible in any single quarter is the significant work we're doing to dial up our productivity and fuel for growth engine.

Speaker Change: With Consumer Health Mixed.

Speaker Change: Pockets of inflation returning, like in the case of green coffee, and currency volatility increasing. We are reinforcing our attention on driving productivity, network optimization, and structural cost discipline.

Timothy P. Cofer: These focus areas are essential to securing additional near-term flexibility and room for reinvestment, and they are enablers of consistent delivery over the long term. We have an active agenda to support each element in 2024 and are laying the groundwork for meaningful further actions that will benefit us well beyond.

Speaker Change: These focus areas are essential to securing additional near-term flexibility and room for reinvestment, and they are enablers of consistent delivery over the long term.

Speaker Change: We have an active agenda to support each element in 2024 and are laying the groundwork for meaningful further actions that will benefit us well beyond this year.

Timothy P. Cofer: Also woven throughout our strategic agenda is a commitment to corporate responsibility and being a force for positive change. I'm proud of how our people incorporate this focus into everyday activities and decisions. We highlighted this important work once again in our 2023 Corporate Responsibility Report published just last month. I encourage you to give it a read, to track our progress, and to witness how we live up to our Drink Well, Do Good purpose.

Speaker Change: Also woven throughout our strategic agenda is a commitment to corporate responsibility and being a force for positive change.

Speaker Change: I'm proud of how our people incorporate this focus into everyday activities and decision-making while also pursuing a set of ambitious multi-year targets.

Speaker Change: We highlighted this important work once again in our 2023 Corporate Responsibility Report published just last month. I encourage you to give it a read, to track our progress, and to witness how we live up to our Drink Well, Do Good purpose.

Timothy P. Cofer: Now, let's turn to our Q2 segment, Top Line Performance. Sudhanshu will then discuss segment performance in more detail, including the strong margin expansion we deliver across the board. Starting with US refreshment beverages, revenue grew at a low single-digit rate in the quarter.

Speaker Change: Now, let's turn to our Q2 segment top-line performance. Sudhanshu will then discuss segment performance in more detail, including the strong margin expansion we deliver across the board.

Sudhanshu: Starting with U.S. refreshment beverages, revenue grew at a low single-digit rate in the quarter.

Timothy P. Cofer: Our performance was led by CSDs, which remain an outperformer in the liquid refreshment beverage space by offering compelling everyday value and variety within the CSD category, and, as expected, a relative market share trend improved as Q2 progressed and as our 2024 innovation and brand activations layered into the market, responding with consumers. Brand Dr. Pepper maintained its long-term track record of market share growth on the back of this year's dirty soda-inspired Creamy Coconut LTO and the marketing excellence behind our new It's a Pepper Thing campaign.

Sudhanshu: Our performance was led by CSDs, which remain an out-performer in the liquid refreshment beverage space by offering compelling everyday value and variety.

Sudhanshu: Within the CSD category, and as expected, a relative market share trend improved as Q2 progressed and as our 2024 innovation slate and brand activations layered into the market, resonating with consumers.

Sudhanshu: Brand Dr Pepper maintained its long-term track record of market share growth on the back of this year's dirty soda inspired creamy coconut LTO and the marketing excellence behind our new it's a pepper thing campaign.

Timothy P. Cofer: Our ability to steadily grow, Dr Pepper. Staying on top of trends and continually tapping into the cultural zeitgeist is a defining characteristic of the brand. It's on track for its eighth consecutive year of market share outperformance, and yet there is still substantial untapped opportunity to further expand its preferred status. Beyond CSDs, we also delivered another strong quarter of growth for C4 energy. Despite the energy category's recent moderation, it remains a highly attractive space with consistently faster volume growth than all major beverage categories, including on a year-to-date basis.

Sudhanshu: Our ability to steadily grow Dr Pepper by staying on top of trends and continually tapping into the cultural zeitgeist is a defining characteristic of the brand.

Sudhanshu: It's on track for its eighth consecutive year of market share outperformance and yet there is still substantial untapped opportunity to further expand its preferred status.

Sudhanshu: Beyond CSDs, we also delivered another strong quarter of growth for C4 energy.

Sudhanshu: Despite the energy category's recent moderation, it remains a highly attractive space, with consistently faster volume growth than all major beverage categories, including on a year-to-date basis.

Timothy P. Cofer: With C4, we also have a uniquely positioned brand that is gaining share with meaningful growth runway still available for us to reach. In some parts of the still beverages portfolio, we continue to see a more pronounced macro impact, leading to softer category growth. As a result, we're taking steps to ensure our brand's value propositions are clearly responding. This includes targeted, channel-specific promotion. Price pack work like smaller bottles and multi-packs and a focus on value-oriented channels like Club and Dollar.

Sudhanshu: With C4, we also have a uniquely positioned brand that is gaining share with meaningful growth runway still available for us to realize.

Sudhanshu: In some parts of the still beverages portfolio, we continue to see a more pronounced macro impact, leading to softer category growth rates.

Sudhanshu: As a result, we're taking steps to ensure our brand's value propositions are clearly resonating.

Sudhanshu: This includes targeted, channel-specific promotions.

Sudhanshu: Price pack work, like smaller bottles and multi-packs, and a focus on value-oriented channels like Club and Dollar.

Timothy P. Cofer: Simultaneously, we are investing to drive demand through innovation and brand activation, such as this year's rollout of reformulated Wonder Water and the Summer Olympics gymnastics tie-in for core hydration. Moving to U.S. coffee, we made further progress against key priorities during the quarter. While overall at-home coffee category trends remain subdued, our relative performance is strengthened, with pod shipments improving to flat year over year in Q2. This outcome reflected market share gains across our owned and licensed brands, including initial traction across our three focus areas.

Sudhanshu: Simultaneously, we are investing to drive demand through innovation and brand activations, such as this year's rollout of reformulated by Wonder Water and the Summer Olympics gymnastics tie-in for Core Hydration.

Sudhanshu: Moving to U.S. coffee, we made further progress against key priorities during the quarter.

Sudhanshu: While overall at-home coffee category trends remain subdued, our relative performance is strengthening with pod shipments improving to flat year-over-year in Q2.

Sudhanshu: This outcome reflected market share gains across our owned and licensed brands, including initial traction across our three focus areas, affordability, premiumization, and cold coffee.

Timothy P. Cofer: Affordability, Premiumization, and Cold Coffee. Together, these initiatives reflect a barbell strategy intended to highlight value for those consumers who are feeling stretched and provide premium options for those with more spending. When it comes to affordability, during Q2, we began rolling out smaller PAX intended to optimize the cost per package of K-cup pops. Because of its multi-serve nature, coffee is one of the highest dollar ring food and beverage categories.

Sudhanshu: Together, these initiatives reflect a barbell strategy intended to highlight value for those consumers who are feeling stretched and provide premium options for those with more spending power.

Sudhanshu: When it comes to affordability, during Q2 we began rolling out smaller pack sizes, intended to optimize the cost per package of K-cup pots.

Sudhanshu: Because of its multi-serve nature, coffee is one of the highest dollar ring food and beverage categories.

Timothy P. Cofer: And these price pack adjustments enable us to hit more attractive everyday and promoted price points across grocery and club channels. At the same time, we launched digital campaigns that emphasize the affordability of consuming coffee at home instead of at restaurants, which we see as particularly resonant messaging in the current environment. Our Q2 affordability strategy also extended to brewers, where we drove sizable Keurig share gains led by entry-priced machines and supported by some targeted value investment.

Sudhanshu: And these price pack adjustments enable us to hit more attractive everyday and promoted price points across grocery and club channels.

Sudhanshu: At the same time, we launched digital campaigns that emphasize the affordability of consuming coffee at home instead of at coffee shops.

Sudhanshu: Which we see as particularly resonant messaging in the current environment.

Sudhanshu: Our Q2 affordability strategy also extended to brewers where we drove sizable Keurig share gains led by entry-priced machines and supported by some targeted value investments.

Timothy P. Cofer: Shifting to premiumization, the combination of brewer innovation and an increasingly well-developed set of super premium pods is strengthening Keurig system credibility among coffee connoisseurs and tapping into more affluent consumers. This includes our work with Lavazza, now a licensed brand within our portfolio as of Q2.

Sudhanshu: Shifting to premiumization, the combination of brewer innovation and an increasingly well-developed set of super-premium pods is strengthening Keurig system credibility with coffee connoisseurs and tapping into more affluent consumers.

Sudhanshu: This includes our work with Lavazza, now a licensed brand within our portfolio as of Q2.

Timothy P. Cofer: With greater commercial influence, we have already secured expanded distribution for the brand and are just getting started on the activation. Moving to cold coffee, we are actively pursuing the significant number of iced occasions currently occurring away from home. Cold coffee represents less than 20% of at-home, While at certain coffee shops, cold beverages account for upwards of 70% of the world's population.

Sudhanshu: With greater commercial influence, we have already secured expanded distribution for the brand and are just getting started on the activation agenda.

Sudhanshu: Moving to cold coffee, we are actively pursuing the significant number of iced occasions currently occurring away from home.

Sudhanshu: Cold coffee represents less than 20% of at-home occasions.

Sudhanshu: While at certain coffee shops, cold beverages account for upwards of 70%.

Timothy P. Cofer: One way we are pursuing this white space is through K-Cup innovation, with significant activity during Q2, including refreshers and cold brew pods. These items performed well in the quarter, with wider distribution and support slated for the back half. We're excited to further address the cold opportunity through brewers, including the upcoming launch of our new K Brew & Chill Brewer in Q3, as well as through the continued expansion of La Cologne Ready to Drink Coffee.

Sudhanshu: One way we are pursuing this white space is through K-Cup innovation with significant activity during Q2 including refreshers and cold brew pods.

Sudhanshu: These items performed well in the quarter with wider distribution and support slated for the back half.

Sudhanshu: We're excited to further address the cold opportunity through brewers.

Sudhanshu: including the upcoming launch of our new K Brew & Chill Brewer in Q3 as well as through the continued expansion of La Cologne ready to drink coffee.

Timothy P. Cofer: All in all, we're encouraged by the progress we are seeing from our multiple coffee initiatives, which is visible in improving market share for both teacup pods and brewers. However, even so, and as with many food and beverage categories today, demand trends across the larger at-home coffee category are soft. In single serve, a promotional environment that is at odds with significant green coffee inflation also persists. This softer demand backdrop supports why we constructed our 2024 outlook, assuming a muted revenue growth contribution from US coffee, which remains an appropriate planning stance. Turning now to International.

Sudhanshu: All in, we're encouraged by the progress we are seeing from our multiple coffee initiatives, which is visible in improving market share for both teacup pods and brewers.

Sudhanshu: Even so, and as with many food and beverage categories today, demand trends across the larger at-home coffee categories are soft.

Sudhanshu: In single serve, a promotional environment that is at odds with significant green coffee inflation also persists.

Sudhanshu: This softer demand backdrop supports why we constructed our 2024 outlook assuming a muted revenue growth contribution from U.S. Coffee, which remains an appropriate planning stance.

Timothy P. Cofer: Impressive segment performance continued in the second quarter, with double-digit constant currency growth on the top and bottom lines and broad-based momentum across the portfolio. In cold beverages, strong in-market execution in both Mexico and Canada powered our results. Compelling Pea-Fial line extensions, momentum behind Clamato and Canada Drive, and ATI Peak share gains in the low and no alcohol category led the growth. Our Canadian coffee results were also robust in the quarter, driven by our owned and licensed brands and supported by nuanced portfolio management. With exceptional strength in the international business in Q2, we also seized the opportunity to reinvest in our brands and capabilities to seed future growth, adding to our competition.

Sudhanshu: Turning now to International.

Sudhanshu: Impressive segment performance continued in the second quarter.

Sudhanshu: With double-digit constant currency growth on the top and bottom lines and broad-based momentum across the portfolio.

Sudhanshu: In cold beverages, strong in-market execution in both Mexico and Canada powered our results.

Sudhanshu: Compelling Peña-Fial line extensions, momentum behind Clamato and Canada Dry, and ATI Peak share gains in the low and no alcohol category led the growth.

Sudhanshu: Our Canadian coffee results were also robust in the quarter, driven by our owned and licensed brands, and supported by nuanced portfolio management.

Sudhanshu: With exceptional strength in the international business in Q2, we also seized the opportunity to reinvest in our brands and capabilities to seed future growth, adding to our confidence in sustained segment momentum.

Timothy P. Cofer: Segment, in closing. We're pleased with our overall second quarter performance and remain on track to our full year outcome. At the same time, we are activating our strategic agenda. Our consumer-centric approach to brand building is resonating in the market.

Sudhanshu: In closing, we're pleased with our overall second quarter performance and remain on track to our full year outlook.

Sudhanshu: At the same time, we are activating our strategic agenda.

Sudhanshu: Our consumer-centric approach to brand building is resonating in market.

Timothy P. Cofer: Successful portfolio expansion into higher growth categories like energy, sports hydration, and ready-to-drink coffee continues, and multiple initiatives to strengthen an already potent route to market are underway, including our pending transaction with Khalil Bottle. We also remain highly focused on furthering our enterprise-wide efficiency and cost, which will underpin our visibility for the balance of the year and our ability to invest in the future. Throughout, our capital discipline is unwavering. And with a strong balance sheet and improving free cash flow, our ability to strategically deploy our cache is robust. With that, I'll turn the call to Sudhanshu.

Sudhanshu: Successful portfolio expansion into higher growth categories like energy, sports hydration, and ready-to-drink coffee continues.

Sudhanshu: And multiple initiatives to strengthen an already potent route to market are underway, including our pending transaction with Khalil Bodelen.

Sudhanshu: We also remain highly focused on furthering our enterprise-wide efficiency and cost agenda, which will underpin our visibility for the balance of the year and our ability to invest in the future.

Sudhanshu: And throughout, our capital discipline is unwavering, and with a strong balance sheet and improving free cash flow, our ability to strategically deploy our cash is robust.

Sudhanshu: With that, I'll turn the call to Sudhanshu.

Sudhanshu Shekhar Priyadarshi: Thanks, Tim. And good morning, everyone. Our solid Q2 financial performance speaks to KDP's strength of execution. Net sales growth sequentially accelerated with margin expansion powering double-digit operating income growth and high single-digit EPS growth, pre-capital conversion. Also, we are pleased with our progress year to date and have visibility to our full year outlook. Our constant currency net revenue grew 3.4% in the quarter.

Sudhanshu: Thanks Tim and good morning everyone. Our solid Q2 financial performance speaks to KDP's strength of execution.

Sudhanshu: Net sales growth sequentially accelerated with margin expansion powering double-digit operating income growth and high single-digit EPS growth.

Speaker Change: Pre-Catholic conversion also strengthened.

Sudhanshu: We are pleased with our progress year-to-date and have visibility to our full year outlook.

Sudhanshu: Our Constant Currency Net Revenue grew 3.4% in the quarter.

Sudhanshu Shekhar Priyadarshi: Performance was led by strong double-digit growth in our international segment and Healthy Trance in U.S. Refreshing Beverages, balanced against continued muted performance in U.S. costs. Consolidated volume mix grew 1.8% year over year, inflecting back to growth as new partnerships scaled, and our innovation gained traction in the market. We saw broad-based volume make progress across the business, with positive growth in each sector. 1.6 points of pricing also added to consolidated net sales growth.

Sudhanshu: Performance was led by a strong double-digit growth in our international segment.

Sudhanshu: and Healthy Trance in U.S. Refreshing Beverages.

Sudhanshu: Balanced against Continued Muted Performance in U.S. Coffee

Sudhanshu: Consolidated volume mix grew 1.8% year-over-year, inflicting back-to-growth as new partnerships scaled and our innovation gained traction in the marketplace.

Sudhanshu: We saw broad-based volume-mixed progress across the business.

Sudhanshu: with positive growth in each segment.

Sudhanshu: 1.6 points of pricing also added to consolidated net sales growth.

Sudhanshu Shekhar Priyadarshi: This reflected a more normalized level of net price realization in U.S. refreshment beverages relative to the recent quarter and ongoing gains in Interaction. However, this was partially reduced by the impact of previously discussed price cap adjustments in U.S. coffers. Rose Margin expanded strongly, up 130 basis points versus prior year. Driven by the favorable net impact of productivity, pricing, and inflation, Unigrew at a slower rate than itself, resulting in approximately 30 basis points of leverage in the quarter. All in all,

Sudhanshu: This reflected a more normalized level of net price realization in U.S. refreshment beverages relative to recent quarters and ongoing gains in international.

Sudhanshu: This was partially reduced by the impact of previously discussed price gap adjustments in U.S. coffee.

Sudhanshu: Gross Margin Expanded Strongly

Sudhanshu: Up 130 basis points versus prior year.

Sudhanshu: Driven by the favorable net impact of productivity, pricing, and inflation.

Speaker Change: As you may agree, at a slower rate than that self,

Speaker Change: Resulting in approximately 30 basis points of leverage in the quarter.

Sudhanshu Shekhar Priyadarshi: Total company operating income grew strongly, up 11% versus the prior year, even with some offset from below the line items. EPS growth was a healthy 7% in Q2. Moving to the segment.

Speaker Change: All in?

Speaker Change: Total company operating income grew strongly, up 11% versus prior year.

Speaker Change: Even with some offset from below-the-line items.

Speaker Change: EPS growth was a healthy 7% in Q2.

Sudhanshu Shekhar Priyadarshi: U.S. refreshment beverages net sales grew 3.3% in the quarter, led by 2.9 percentage points from net price realization. The pricing contribution reflected increases in CSDs taken in early 2024, although partly offset by targeted value investments across other parts of the portfolio. As expected.

Speaker Change: Moving to the segments.

Speaker Change: U.S. refreshment beverages net sales grew 3.3% in the quarter.

Speaker Change: led by 2.9 percentage points from net price realization.

Speaker Change: The pricing contribution reflected increases in CSDs taken in early 2024, partly offset by targeted value investments across other parts of the portfolio.

Sudhanshu Shekhar Priyadarshi: Segment volume made a return to growth in Q2, increasing 0.4%. This performance reflected a ramping benefit from the successful transition of electrolyte volume to our THC network, as well as our Q2 weighted innovation calendar. Our new products are responding in the marketplace, as evidenced by improving share trends for brands like Dr. Pepper and Canada Droid. We expect the building benefits from partnerships and innovation over the balance of the year to yield accelerated volume-mixed growth in the back half.

Speaker Change: As expected, segment volume makes return to growth in Q2, increasing 0.4%.

Speaker Change: This performance reflected a ramping benefit from the successful transition of electrolyte volume to our THC network.

Speaker Change: as well as our Q2-weighted innovation calendar.

Speaker Change: Our new products are resonating in the marketplace.

Speaker Change: as evidenced by improving share trends for brands like Dr Pepper and Canada Droid.

Speaker Change: We expect the building benefits from partnerships and innovation over the balance of the year to yield accelerated volume-mix growth in the back half.

Sudhanshu Shekhar Priyadarshi: Segment operating income grew 11.9% in the quarter, and margins expanded 230 basis points, primarily reflecting tailwinds from net pricing and production. We continue to expect healthy operating income growth in US refreshment beverages for the full year, though not at the same magnitude as we saw during the first half. In U.S. coffee, net sales declined 2.1%, with volume mixed growth of 0.8% offset by a 2.9% net pricing decline.

Speaker Change: Stagnant operating income grew 11.9% in the quarter, and margins expanded 230 basis points, primarily reflecting tailwinds from net pricing and productivity.

Speaker Change: We continue to expect healthy operating income growth in U.S. refreshment beverages for the full year.

Speaker Change: Though not at the same magnitude as we saw during the first half.

Speaker Change: In U.S. coffee, net sales declined to 0.1%.

Speaker Change: With volume mix growth of 0.8% offset by a 2.9% net pricing decline.

Sudhanshu Shekhar Priyadarshi: We have made sequential progress in driving improved K-Cup trends over the past few quarters, and we were pleased to see pod shipments stabilized in Q2, with 0.2% growth. As Tim described, their licensure games were a major driver.

Speaker Change: We have made sequential progress in driving improved K-Cup trends over the past few quarters.

Speaker Change: and we were pleased to see pod shipments stabilized in Q2.

Speaker Change: with 0.2% growth.

Tim: As Tim described,

Tim: On their license share gains were a major driver with traction across our strategic initiatives.

Sudhanshu Shekhar Priyadarshi: Transcribed by https://otter.ai, of market share momentum to sustain into the back half. At the same time, we built our full-year plans, assuming only muted, at-home coffee category trends, which is what we have experienced here today. We are expecting similar category dynamics for the balance of the year. Brewer shipments increased 2.1% in Q2, with the rolling 12-month trend improving to 1.4% growth.

Tim: of a market share momentum to sustain into the back half.

Speaker Change: At the same time, we built our four-year plan, assuming only muted, at-home coffee category trends.

Tim: Which is what we have experienced year to date.

Tim: We are expecting similar category dynamics for the balance of the year.

Tim: Brewer shipments increased to 0.1% in Q2.

Tim: With the rolling 12-month trend improving to 1.4% growth.

Sudhanshu Shekhar Priyadarshi: Our innovation and commercial strategy are driving meaningful share gains, particularly for our value brewers. And we expect this year's momentum to persist in the second half. In the U.S., pricing decreased 2.9%. Similar to last quarter, this reflected investment to appropriately manage price gaps in a competitive single-serve environment.

Tim: Our innovation and commercial strategies are driving meaningful share gains, particularly for our value brewers.

Tim: And we expect this year's momentum to persist in the second half.

Tim: Segmented pricing decreased 2.9%.

Tim: Similar to last quarter, this reflected investments

Tim: To appropriately manage price gaps in a competitive single-serve environment.

Sudhanshu Shekhar Priyadarshi: Cost of Operating Income grew modestly versus the prior year, and margins expanded 70 basis points, with Productivity Savings and Cost Discipline effectively neutralizing the profit impact of price investment. As expected, our year-over-year margin trend is moderating as we calibrate our growth drivers to achieve greater balance between our top and bottom lines. This very likely will play out to an even greater degree in the back half, as we face more difficult competitions and combat inflation.

Tim: U.S. Cost of Operating Income grew modestly versus prior year, and margins expanded 70 basis points.

Tim: with Productivity Savings and Cost Discipline, Effectively Neutralizing the Profit Impact of Price Investments.

Tim: As expected, our year-over-year margin trend is moderating as we calibrate our growth drivers.

Tim: to achieve greater balance between our top and bottom line delivery.

Tim: This will likely play out to an even greater degree in the back half.

Tim: As we lab more difficult competition and combat inflation.

Sudhanshu Shekhar Priyadarshi: Though we still expect segment margin expansion on a full year basis, international net sales grew 15.5% on a reported basis and 14.7% in constant currency, segment growth was comprised of very strong 10.4% volume mixed growth and a 4.3% increase in price.

Tim: Though, we still expect segment margin expansion on a full year basis.

Tim: International net sales grew 15.5% on a reported basis and 14.7% in constant currency.

Tim: Segment growth was comprised of very strong 10.4% volume mix growth and a 4.3% increase in price.

Sudhanshu Shekhar Priyadarshi: Our performance reflected growth across markets and categories, including Canada Coffee and Latin American LRBs, driven by excellent execution. Checkmate Operating Income Advanced Significance, increasing 30.2% in constant currency terms. Growth was driven by net sales gains and net productivity, which more than offset a significant increase in the market. We will continue to make high quality investments, as they execute our strategy, to capture the outside growth opportunity in our international business, moving to the balance sheet and in Q2. We generated $543 million in free cash, reflecting a combination of typical seasonality and other factors.

Tim: Our performance reflected growth across markets and categories.

Tim: including Canada Coffee and Latin American LRBs driven by excellent execution.

Tim: Segment Operating Income Advanced Significantly

Tim: Increasing 30.2% in constant currency terms.

Tim: Growth was driven by net sales gain and net productivity.

Tim: which more than offset a significant increase in marketing.

Tim: We will continue to make high quality investments.

Tim: As we execute our strategy to capture the outside growth opportunity in our international business.

Tim: Moving to the balance sheet and cash flow.

Tim: In Q2,

Tim: We generated $543 million in free cash flow.

Tim: reflecting a combination of typical seasonality

Sudhanshu Shekhar Priyadarshi: Capital Discipline and a More Modest Impact from our Supplier Financing Program Reduction. For the first time in total, free cash flow grew roughly 50% versus the prior year, and Conversion Improved. We expect the second half free cash flow conversion to improve further relative to the first half. The accelerating free cash flow profile supports an unchanged capital allocation agenda. Our priorities remain, organic and inorganic investments to further our growth, continuing to strengthen our balance sheet, and returning cash to shareholders through a steadily growing dividend. And we are Opportunistics here, bye-bye.

Tim: Capital Discipline and a More Modest Impact from our Supplier Financing Program Reductions.

Tim: For the first time in total,

Tim: Free cash flow grew roughly 50% versus prior year and conversion improved.

Tim: We expect back half free cash flow conversion to improve further relative to the first half.

Tim: The accelerating free cash flow profile supports an unchanged capital allocation agenda.

Tim: Our priorities remain the same.

Tim: Organic and inorganic investments to further our growth.

Tim: Continuing to strengthen our balance sheet.

Tim: and returning cash to shareholders through a steadily growing dividend.

Tim: and we are Opportunistic Share Buy Backs.

Sudhanshu Shekhar Priyadarshi: We dynamically manage these options in the short term with a balanced approach over the long term. For example, following our significant share repurchase activity in Q1, we had more modest discretionary cash outlays in the second quarter, resulting in a slight reduction in management leverage during the period.

Tim: We dynamically manage these options in the short term.

Tim: with a balanced approach over the long term.

Tim: For example,

Tim: Following our significant share repurchase activity in Q1,

Tim: We had more modest discretionary cash outlays in the second quarter.

Tim: Resulting in a slight reduction in management leverage during the period.

Sudhanshu Shekhar Priyadarshi: We remain committed to our long-term leverage target of 2 to 2.5 times, though we are comfortable following a nonlinear path. Moving on to our 2024 guidance, on a constant currency basis. We continue to expect mid-single-digit net sales growth and high-finger digit EPS growth in 2024, both consistent with our long-term financial algorithm. Our plans embed a net sales acceleration over the back half of the year, which is based largely on factors within our control like partnerships and innovation. Even so, we are cognizant of mixed consumer involvement and are focused on strong execution.

Tim: We remain committed to our long-term leverage target of 2 to 2.5 times.

Tim: Though are comfortable following a non-linear path.

Tim: Moving now to our 2024 guidance.

Tim: On a constant currency basis, we continue to expect mid-single-digit net sales.

Tim: and High Finger Digit EPS Growth in 2024.

Tim: Both consistent with our long-term financial algorithm.

Tim: Our plans embed a net sales acceleration over the back half of the year, which is based largely on factors within our control, like partnerships and innovation.

Tim: Even so, we are cognizant of mixed consumer involvement.

Sudhanshu Shekhar Priyadarshi: Secured Fully Delivered, Even as revenue growth accelerates, we do expect back half EPS growth to moderate sequentially. That is, the strong first half EPS profile provides us with sufficient flexibility to manage through accelerating inflation as a headwind and ongoing investments in the back half of the year while delivering on full year expectations. From a phasing perspective.

Tim: and are focused on strong execution.

Tim: to secure full air delivery.

Tim: Even as revenue growth accelerates,

Tim: We do expect back half EPS growth to moderate sequentially.

Tim: That is, the strong first half EPS profile provides us with sufficient flexibility to

Tim: to manage through accelerating inflation, forex headwinds, and ongoing investment in the back half of the year.

Tim: while delivering on full year expectations.

Tim: From a phasing perspective,

Tim: We expect roughly similar rates of EPS growth in Q3 and Q4.

Sudhanshu Shekhar Priyadarshi: We expect roughly similar rates of EPS growth in Q3 and Q4. Our full year 2024 outlook embeds the following unchanged below the line assumption: interest expense in a 625 to 645 billion dollar range, an effective tax rate of approximately 22 to 23%, and approximately 1.37 billion diluted weighted average shares outstanding.

Tim: Our full year 2024 outlook embeds the following unchanged below-the-line assumptions.

Tim: Interest expense in a $625 to $645 billion range.

Tim: An effective tax rate of approximately 22 to 23 percent.

Tim: and approximately 1.37 billion diluted weighted average share outstanding.

Sudhanshu Shekhar Priyadarshi: In closing, we are quite pleased with our second quarter results and feel good about our ability to deliver the year while also focusing on Strategic Initiatives with Malta Air Payback. With that, I will now turn the call back to Tim to close. Thanks, Sudhanshu.

Tim: In closing, we are quite pleased with our second quarter results.

Tim: and feel good about our ability to deliver the year.

Tim: While also advancing

Speaker Change: Key Strategic Initiatives with Malta Air Payback Windows

Tim: With that, I will now turn the call back to Tim to close.

Timothy P. Cofer: Now halfway through the year 2024, everything is progressing well and according to plan. We knew that our top line momentum would build quarter over quarter, and it has. Improving market share trends and strength of execution should support further net revenue acceleration in the back half. However, we also knew that margin and EPS gains would be tilted toward the first half, and we delivered. With 9% EPS growth in the first six months of the year, we have good visibility to delivering on-algorithm performance in 2024 while solidifying our focus on the strategic initiatives that will fuel consistent growth over multiple years.

Tim: Thanks, Sudhanshu. Now, halfway through the year, 2024 is progressing well and according to plan.

Tim: We knew that our top line momentum would build quarter over quarter, and it has. Improving market share trends and strength of execution should support further net revenue acceleration in the back half.

Tim: We also knew that margin and EPS gains would be tilted towards the first half, and we delivered.

Tim: With 9% EPS growth in the first six months of the year, we have good visibility to delivering on-algorithm performance in 2024, while solidifying our focus on the strategic initiatives that will fuel consistent growth over multiple years.

Timothy P. Cofer: Before moving to Q&A, I'd like to take a moment to recognize our greatest source of competitive advantage, our talented employees. I'm thankful to our 28,000 colleagues for the hard work and dedication reflected in our Q2 results. And on the strategic agenda, we are simultaneously activating that will benefit us in the future. Thank you for your time, and we're now happy to take your questions. We will now begin the question and answer session. To ask a question, you may press star, then one, on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys.

Tim: Before moving to Q&A, I'd like to take a moment to recognize our greatest source of competitive advantage, our talented people.

Tim: I'm thankful to our 28,000 colleagues for the hard work and dedication reflected in our Q2 results and in the strategic agenda we are simultaneously activating that will benefit us in the future.

Tim: Thank you for your time and we're now happy to take your questions.

Speaker Change: We will now begin the question and answer session.

Speaker Change: To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys.

Tim: If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. Please limit yourself to one question and one follow-up.

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

Unknown Executive: If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. Please limit yourself to one question and one follow-up. At this time, we will pause momentarily to assemble our roster. Our first question comes from Bryan Spillane with Bank of America. Please go ahead.

Tim: The first question comes from Bryan Spillane with Bank of America.

Bryan Douglass Spillane: Hi. Thanks, Operator. Good morning, everyone.

Bryan Douglass Spillane: Please go ahead. Hi. Thanks, operator. Good morning, everyone. You know, Tim, I wanted to just pick up on maybe some of the comments you made about, you know, some of the things that have changed, like inflation, you know, the dollar.

Timothy P. Cofer: You know, Tim, I wanted to just pick up on maybe some of the comments you made about, you know, some of the things that have changed, like inflation, you know, the dollar. Strengthening a bit. I just can can you give us a perspective on? What the operating conditions or what the segment, you know category Dynamics are today versus maybe where they were At the start of the year when you set your plan, you know, the guidance isn't changing But I guess it feels like the the categories have a little bit and I know one major theme that we've seen You know across earning season is just you know demand in the u.s You know across a lot of categories not as you know strong as expected and we've got some companies rolling back on price So just want to kind of want to get your perspective of you know Is it accurate that maybe the categories may be not as strong as you all thought at the start?

Speaker Change: Strengthening a bit. I just can you give us a perspective on what the operating conditions or what the segment, you know, category dynamics are today versus maybe where they were

Speaker Change: At the start of the year, when you set your plan, you know, the guidance isn't changing, but I guess it feels like the categories have a little bit. And I know one major theme that we've seen.

Tim: You know, across earning season is just, you know, demand in the U.S.

Tim: Robert Gamgort, Timothy Cofer, Jane Gelfand, Timothy Cofer, Robert Gamgort, Timothy Cofer,

Timothy P. Cofer: You know what adaptations you've made and maybe if I could slip into that in CSDs US, in particular, the app that the consumers ability to absorb or take on more price increases. I know there's a lot there, but thanks. Yeah, thanks, Brian.

Speaker Change: You know, what adaptations you've made and maybe if I could slip into that.

Speaker Change: In CSDs, U.S. in particular, if needed, the consumer's ability to maybe absorb or take on more price increases. I know there's a lot there, but thanks.

Timothy P. Cofer: You know, I'd start by saying we are pleased with our execution and our results in Q2, despite an uneven, I think was the word I used earlier, uneven or mixed consumer environment. And I think when you ask about how the categories are evolving, obviously, it starts with the consumer. And we continue to see, I mentioned this in our last quarterly call, we continue to see a bifurcation across income levels. So we're seeing the high-income consumer continuing to be resilient in their purchases and their demand. And we're seeing a low and middle-income consumer that's under pressure and seeking value.

Speaker Change: Yeah, thanks, Brian . You know, I'd say...

Speaker Change: I'd start by saying we are pleased with our execution and our results in Q2 despite an uneven, I think was the word I used earlier, uneven or mixed.

Speaker Change: Robert Gamgort, Timothy Cofer, Jane Gelfand

Speaker Change: So we're seeing the high-income consumer continuing to be resilient in their purchases and their demand, and we're seeing a low- and middle-income consumer that's under pressure and seeking value. And that manifests in many ways as it relates to the beverage industry.

Speaker Change: Consumers are being more selective.

Timothy P. Cofer: And that manifests in many ways as it relates to the beverage industry; consumers are being more selective around when they're buying, where they're buying. We are seeing a little bit more purchase in key categories around holiday periods, you know, waiting to stock up for that Memorial Day or July 4 period, for example. We're also seeing a shift in spending to more value-oriented channels, like club, dollar, and value. And I would say over the course of Q2, these dynamics became a bit more pronounced.

Speaker Change: around when they're buying, where they're buying.

Speaker Change: We are seeing a little bit more...

Speaker Change: of the Purchase in Key Categories.

Speaker Change: around holiday periods, you know, waiting to stock up for that Memorial Day or July 4 period, for example. We're also seeing a shifting in spending to more value-oriented channels like Club, like Dollar and Value.

Speaker Change: And I would say over the course of Q2, these dynamics became a bit more pronounced.

Timothy P. Cofer: But the way we look at it, given our broad portfolio across liquid refreshment beverages, is that this backdrop creates both opportunities and challenges. And I think about opportunities, and I'll connect it to the end of your question, I start with CSDs. CSDs right now are highly resilient, and it's clear that CSDs continue to offer value to consumers.

Speaker Change: But the way we look at it, given our broad portfolio across liquid refreshment beverage,

Speaker Change: is, you know, this backdrop creates both opportunities and challenges. And I think on opportunities, and I'll connect it to the to the end of your question.

Speaker Change: I start with CSDs.

Speaker Change: CSDs right now are highly resilient and it's clear that CSDs continue to offer value.

Timothy P. Cofer: This category is even outperforming our expectations back when we created the plan for the year. We're seeing a robust category, both in value and dollars and on volume. And within that, of course, we're seeing a strong performance from KDP brands, led by Dr Pepper, which grew share again in Q2. I also think on the coffee side, while we're seeing a more muted total coffee contribution, it's a great opportunity to bolster at-home coffee consumption through value-oriented tactics. I talk about affordability as one of our three key tactics.

Speaker Change: This category is outperforming even our expectations back when we created the plan for the year.

Speaker Change: We're seeing a robust category both on value and dollars and on volume.

Speaker Change: And within that, of course, we're seeing a strong performance from KDP Brands led by Brand Dr Pepper, which grew share again in Q2.

Speaker Change: I also think on the coffee side, while we're seeing a more muted total coffee contribution, it's a great opportunity to bolster at-home coffee consumption through value-oriented tactics. I talk about affordability as one of our three key tactics.

Timothy P. Cofer: Think opening price point brewers, value messaging versus coffee shops, which we put out there in Q2, and so on. There are challenges as well in certain parts of our portfolio, and the one that I speak to is still beverages. I think beverages and some of the other categories, perhaps even energy that skew themselves towards C-Store, towards single bottle or can purchase, those we're seeing a little bit more pressure on. So that's how we're seeing it.

Speaker Change: Think Opening Price Point Brewers, Value Messaging vs. Coffee Shops, which we put out there in Q2, and so on.

Speaker Change: There are challenges as well in certain parts of our portfolio and and the one that I speak to is still beverages I think still beverages and some of the other categories perhaps even energy that skew themselves

Speaker Change: C-Store, Single Bottle or Can Purchase, those we're seeing a little bit more pressure. So that's how we're seeing it. The great news is when you look at the entire basket of our portfolio, I would say it is...

Timothy P. Cofer: The great news is when you look at the entire basket of our portfolio, I would say it is on plan, and that's why that gives us the confidence that and the strength of our ramp in the back half around partners gives us the confidence to continue to confirm MSD on the top line. Thanks, Tim. I appreciate it. The next question comes from Peter Grom with UBS. Please go ahead. Thanks, Operator, and good morning, everyone. I hope you're doing well.

Speaker Change: on plan. And that's why that gives us the confidence that and the strength of our ramp in the back half around partners give us the confidence to continue to confirm MSD on the top line.

Tim: Thanks Tim, appreciate it.

Speaker Change: The next question comes from Peter Grom with UBS. Please go ahead.

Peter K. Grom: So I was hoping to get some color on the organic sales guidance for the back half of the year, which implies a pretty decent acceleration. You both touched on this acceleration being driven by areas where you have control, so partner brands and innovation. So maybe can you just speak to how we should anticipate this contribution building? And then just on the underlying business, you know, obviously a lot of moving pieces. Tim, you just touched on a lot of those in response to Brian's question. But do you need any improvement in core trends in order to hit this target? Or can this current environment hold, and you would still see this acceleration?

Peter K. Grom: Thanks, Operator, and good morning, everyone. Hope you're doing well.

Peter K. Grom: I was hoping to get some color on the organic sales guidance for the back half of the year, which implies a pretty decent acceleration.

Speaker Change: You both touched on this acceleration being driven by areas where you have control, so partner brands and innovation.

Speaker Change: Maybe, can you just speak to how we should anticipate this contribution building?

Tim: And then just on the underlying business, you know, obviously, a lot of moving pieces, Tim, you just touched on a lot of those, to Brian's question, but do you need any improvement in core trends in order to hit this target? Or can this current environment hold and you would still see this acceleration?

Timothy P. Cofer: Yeah, thanks, Peter. Yeah, I tell you, we have a good line of sight to sequentially stronger top-line growth in the back half of Q3 and Q4. And the good news for us is that it reflects factors largely within our control. I would say it is not predicated on, you know, a need for significant change in terms of consumer health or macro. The single greatest driver of that top line acceleration does lie with these partnerships that are continuing to scale.

Tim: Yeah, thanks, Peter.

Tim: Yeah, I tell you, we have a good line of sight.

Tim: to sequentially stronger.

Tim: Top Line Growth.

Speaker Change: In the back half, in Q3 and Q4, and the good news for us is it reflects factors largely within our control. I would say it is not predicated on, you know, a need for a significant change in terms of consumer health or macro.

The single greatest driver of that top-line acceleration does lie with these partnerships that are continuing to scale.

Timothy P. Cofer: Leading among them is Electoral, and Electrolyte will continue to ramp up in Q3 and Q4. We're very pleased with the distribution handover that we've had so far, and that is continuing to ramp on a geographic and an account level, and will be a meaningful incremental contributor in Q3 and Q4. Shifting to the coffee side of the house, I'd point out Black Rifle.

Speaker Change: Lead among them is Electrolyte.

Speaker Change: Electrolyte will continue to ramp into Q3 and Q4. We're very pleased with the distribution

Speaker Change: handover that we've had so far, and that is continuing to ramp on a geographic and an account level, and will be a meaningful incremental contributor in Q3 and Q4.

Timothy P. Cofer: Black Rifle is a new brand that we signed on, I think I mentioned it, at the tail end of last call, and that will continue to ramp into Q3 and Q4. La Cologne is another that will contribute more to the top line in the back half. So partnerships is a big part of it. On the basic business side, I mentioned some of our innovation. We're really pleased with what we've seen on, for example, Creamy Coconut, Canada Dry Fruit Splash, the By Wonder Water re-stage, and then we have more to come that will actually begin to hit in Q3, Think, Core, Hydration, Olympics, and sponsorship with U.S. Gymnastics.

Speaker Change: Shifting to the coffee side of the house, I'd point out Black Rifle. Black Rifle is a new brand that we signed on, I think I mentioned it at the tail end of last call, and that will continue to ramp into Q3 and Q4.

Speaker Change: Locke-Sloan is another that will...

Speaker Change: contribute more to the top line in the back half. So partnerships is a big part of it. On the base business side, I mentioned some of our innovation. We're really pleased with what we've seen on, for example, Creamy Coconut, Canada Dry Fruit Splash, the Buy Wonder Water restage.

Speaker Change: And then we have more to come that actually will begin to hit in Q3. Think Core, Hydration, Olympics, sponsorship with U.S. Gymnastics. We've got a big program for Mocs at Back to School. I'd say one of our biggest in years.

Timothy P. Cofer: We've got a big program for Mocs at Back to School, I'd say one of our biggest in years, and I can't hesitate to tell you about another season of Fansville. I've seen the team's work on Dr Pepper Fansville, and I'm telling you, if you're a college football and Dr Pepper fan, you're going to be excited about what we have. And I remind you, we've got an extended season of college football this year. So we feel good about it.

Speaker Change: Yeah.

Speaker Change: I can't hesitate to tell you about another season of Fansville.

Speaker Change: I've seen the team's work on Dr Pepper fans Bill and I'm telling you if you're a college football and Dr Pepper fan You're going to be excited about what we've got

Speaker Change: We feel good about it. The last one I want to talk about is international. International right now, strong double-digit growth in Q2 and we expect international to continue.

Timothy P. Cofer: The last one I talk about is international. International right now has strong double-digit growth in Q2, and we expect international to continue to be a meaningful contributor. So it is not an easy operating environment.

Sudhanshu Shekhar Priyadarshi: It is mixed and uneven, but we're confident about our plans and really focused on strong execution to deliver our outcome. Thanks, and maybe just one quick follow-up. You mentioned green coffee prices starting to move higher. How should we think about this dynamic impacting your pricing strategy for coffee and maybe what you'd expect from the category more broadly as we move forward here? So Peter, this is Sudhanshu.

Speaker Change: It is not an easy operating environment, it is mixed and uneven, but we are confident about our plans and really focused on strong execution to deliver our outlook.

Speaker Change: Thanks, and maybe just one quick follow-up. You mentioned green coffee prices starting to move higher. How should we think about this dynamic impacting your pricing strategy in coffee and maybe what you'd expect from the category more broadly as we move forward here?

Sudhanshu Shekhar Priyadarshi: Good morning. You're right, the green coffee price is higher, and we've talked about before that it's been factored in our guidance. We hedge for six to nine months, and that factor is part of the guidance, so our top line and bottom line guidance includes that. Your question about, you know, pricing. And as a category steward, we always focus on high quality activity to drive category growth.

Sudhanshu: So Peter, this is Sudhanshu. Good morning. You're right. Green coffee price is higher. And we've talked about before that it's been factored in our guidance. We hedge for six to nine months.

Sudhanshu: be a factor in as part of the guidance so our top line and bottom line guidance includes that your question about you know pricing

Speaker Change: As a category steward, we always focus on high-quality activity to drive category growth. Tim mentioned in the call, right now we're seeing the promotional dynamics at play in the category, which is at odds with where the green coffee prices are.

Sudhanshu Shekhar Priyadarshi: Tim mentioned in the call that right now we're seeing the promotional dynamics at play in the category, which is at odds with where the green coffee prices are. We have continued to take steps to appropriately position ourselves versus the competition. But as I said before, if we are monitoring the situation, it's part of our guidance we have factored in. But yeah, it does create a headwind in H2.

Speaker Change: But we have continued to take steps to appropriately position ourselves versus the competition.

Speaker Change: But as I said before, we are monitoring the situation, it's part of our guidance, we have factored in, but yeah, it does create a headwind.

Lauren Rae Lieberman: But our intent is to continue to responsibly manage our price gap, but we must protect our ability to fund high-quality investment on behalf of these categories within our brand. The next question comes from Lauren Lieberman with Barclays. Please go ahead.

Speaker Change: in H2. But our intent is to continue to responsibly manage our price gap, but we must protect our ability to fund high-quality investment on behalf of these categories and our brands.

Speaker Change: The next question comes from Lauren Lieberman with Barclays. Please go ahead.

Timothy P. Cofer: Great, thanks. Good morning. And just coming back to coffee again, seems like great timing, but you had a plan already in place and underway to address affordability as well, you know, given what we're seeing, call it acceleration in the consumer environment. But I was curious, I guess, given the mentions about the promotional environment and investments already made to date, where do you stand on price gaps? So, are you feeling good about where you are?

Lauren Rae Lieberman: Great, thanks, good morning. Just coming back to a coffee again, I mean, seems like great timing that you had a, you know, a plan already in place and underway to address affordability as well, you know, given what we're seeing, call it accelerate in the consumer environment.

Speaker Change: But I was curious, I guess, given the mentions on the promotional environment and investments already made to date, where do you stand on price gaps? So are you feeling good about where you are? Is there incremental investment needed in price gaps, you know, to narrow them or in promotion specifically? Amen.

Timothy P. Cofer: Is there incremental investment needed in price gaps to narrow them or in promotion specifically? And then, on the more structural sort of strategic elements here, where are you seeing, how fully rolled out are you on those smaller packages, more affordable price points? Or is that something that also keeps building as we move through Q3? Yeah, thanks, Lauren.

Speaker Change: On the more structural strategic elements here, where are you seeing, how fully rolled out are you on those smaller packages, more affordable price points, or is that something that also keeps building as we move through Q3?

Timothy P. Cofer: As mentioned, you know, when we think about driving our coffee business, we're really focused on three areas, affordability, premiumization, and cold coffee. And I think those first two do reflect this barbell strategy, as we've called it, and the bifurcation we're seeing across the consumer landscape. Your question primarily was about that affordability area.

Lauren: Yeah, thanks, Lauren.

Speaker Change: As mentioned, you know, when we think about driving our coffee business, we're really focused in three areas, affordability, premiumization, and cold coffee. And I think those first two do reflect this barbell strategy, as we've called it, and the bifurcation we're seeing across the consumer landscape.

Timothy P. Cofer: And indeed, you know, pricing and absolute price and price gap is one element of that. I would say specifically to your question on how we're feeling about price gaps: we feel good. We feel good. The move that was made late last year did put us more at historic price gap levels.

Speaker Change: Your question primarily was in that affordability area and indeed, you know, pricing and absolute price and price

Speaker Change: Gap is one element of that. I would say specifically to your question on how we're feeling on price gaps We feel good. We feel good. The move that was made late last year did put us more at historic price gap levels

Lauren Rae Lieberman: I do think, as Sudhanshu said, and as we said in the prepared remarks,

Timothy P. Cofer: I do think, as Sudhanshu said, and as we said in the prepared remarks, with green coffee going up right now, it is a little bit at odds with the current promotional dynamic that's going on. We're going to closely monitor that and, obviously, take a measured and nuanced approach. But our affordability strategy is much more than, and one of them is the down counts. And that was part of your question as well. Specifically, on two of our key sizes, 12 count at the food channel, we downsize to 10 count.

Lauren Rae Lieberman: With green coffee going up right now, it is a little bit at odds with the current promotional dynamic that's going on. We're going to closely monitor that and obviously take a measured and nuanced approach. But our affordability strategy is much more than that.

Timothy P. Cofer: That is done in terms of from a production standpoint. So you'll continue to see a little bit of that 12 count still out in the marketplace, but it's rolling through as we speak. Some retail some channels are already fully in 10. Others are still working through 12.

Speaker Change: And one of them is the down counts, and that was part of your question as well. Specifically, on two of our key sizes, 12 count...

Lauren Rae Lieberman: at Food Channel. We downsized to 10 counts.

Lauren Rae Lieberman: That is done in terms of, from a production standpoint, so you'll continue to see a little bit of that 12 count still out in the marketplace, but it's rolling through as we speak.

Lauren Rae Lieberman: Some retail, some channels are already fully in 10, others are still working through 12.

Timothy P. Cofer: We've seen a good response from that, Lauren, in terms of volume, as we would expect. And obviously, that allows us to hit an everyday price point and a promoted price point that is more in line with what consumers are looking for, especially at that low and mid-income level. I'll remind you that, as you look at total food and beverage, Bothy is actually a top five dollar per unit outlay because of its multi-serve nature. And this countdown counts 12 to 10, and then I'll reference the other big one in the club channel.

Lauren Rae Lieberman: We've seen a good response from that, Lauren, in terms of a volume response.

Lauren Rae Lieberman: As we would expect and obviously that allows us to hit an everyday price point and a promoted price point

Lauren Rae Lieberman: that is more in line with what consumers are looking for, especially at that low and mid-income level. I'll remind you that as you look at total food and beverage,

Speaker Change: Bothy is actually a top five.

Lauren Rae Lieberman: dollar per unit outlay because of its multi-serve nature.

Lauren Rae Lieberman: And these down counts, 12 to 10, and then I'll reference the other big one in the club channel.

Timothy P. Cofer: It was a 100 count, and that's down to an 80 count, and that also allows us to hit key price points. So you've got to pack down the counts. You've got the value messaging. I think in the last quarter, Lauren, you asked me a question about that, and indeed, we went live with that, feeling good about it. I think that is very responsive and compelling messaging, positioning our coffee single serve at home, the quality, and the variety in a broader frame of coffee shops and away from home.

Lauren Rae Lieberman: It was a 100 count, and that's down to an 80 count, and that also allows us to hit the key price point. So, you've got the pack-down counts.

Lauren Rae Lieberman: You've got the value messaging. I think in the last quarter, Lauren, I remember you asked me a question on that, and indeed we went live with that. Feeling good about that. I think that is very resonant and compelling messaging. Positioning our coffee single serve at home, the quality, the variety.

Lauren Rae Lieberman: in a broader frame of coffee shop and away from home.

Timothy P. Cofer: And the last thing I'd point to on affordability is entry-priced brewers. We're seeing that we're growing the Keurig system within the total coffee maker category, and part of that is entry-priced brewers. So that's affordability.

Lauren Rae Lieberman: And the last thing I'd point to on affordability is entry price brewers.

Lauren Rae Lieberman: We're seeing that we're growing the Keurig system within the total coffee maker Category and part of that is entry price brew ups

Timothy P. Cofer: I will stop there, but I remind you and others that there's also a great premium strategy as well, as well as a big push into cold coffee. The next question comes from Dara Mohsenian with Morgan Stanley. Please go ahead.

Lauren Rae Lieberman: So, that's the affordability. I will stop there, but I remind you and others that there's also a great premium strategy as well, as well as a big push into cold coffee.

Lauren Rae Lieberman: The next question comes from Dara Mohsenian with Morgan Stanley . Please go ahead.

Dara Warren Mohsenian: Hey, good morning. So I just wanted to get a bit more granular on the take-home coffee category. Obviously, there's been a slowdown in the last year and a half, which seems to be improving. But more recently, now, we've seen a pronounced slowdown at the same time in energy drinks. So the broader energy, let's say caffeine, complex seems to be a bit under pressure. So I would just love your perspective on that.

Dara Warren Mohsenian: Hey, good morning.

Dara Warren Mohsenian: So I just wanted to get a bit more granular on the take-home coffee category.

Dara Warren Mohsenian: Obviously, there's been a slowdown in the last year and a half, which seems to be improving. But more recently now, we've seen a pronounced slowdown at the same time in energy strength. So

Dara Warren Mohsenian: the broader

Timothy P. Cofer: What's driving that? Is it more short-term macroeconomics, the low to middle-end consumer pressure you mentioned, or other longer-term factors? And just B, is there opportunity in coffee to source a greater share from energy here as you think about share of stomach? And then also, maybe you can just touch on any shifts you're seeing in away from home coffee to at home coffee and in brewing versus ground coffee and at home, just as you move through Q2 and here so far in Q3. Thanks.

Speaker Change: Energy, let's say caffeine complex seems to be a bit under pressure. So, A, we just love your perspective on that, what's driving that, is it more short-term macros, the low to middle-end consumer pressure you mentioned, or other longer-term factors?

Speaker Change: and just be as their opportunity in coffee.

Speaker Change: The source greater share from energy here as you think about share of stomach

Speaker Change: And then also maybe you can just touch on any shifts you're seeing in away from home coffee to at home coffee and in brewing versus ground coffee and at home just as you move through Q2 and here so far in Q3. Thanks.

Timothy P. Cofer: Thanks, Dara. No doubt at home coffee volumes remain muted in Q2 and I'd say at a similar level to what we saw in Q1. I would also say it's not all that different from many food and beverage categories today. Importantly, within at-home coffee, the single-serve category outperformed as it has for the last many years and did so well. We're feeling good about the progress we've made across a number of initiatives. The ones I mentioned to Lauren, affordability, premiumization, and cold costs.

Speaker Change: Thanks, Dara. No doubt at-home coffee volumes remain muted in Q2 and I'd say at a similar level to what we saw in Q1.

Speaker Change: I would also say it's not all that different from many food and beverage categories today.

Speaker Change: Importantly, within at-home coffee, the single-serve category outperformed, as it has for the last many years, and did as well.

Speaker Change: We're feeling good about the progress we've made across a number of initiatives.

Speaker Change: to Lauren, affordability, premiumization, and cold coffee. But I think we have an appropriate outlook for the balance of the year in terms of expectations.

Timothy P. Cofer: But I think we have an appropriate outlook for the balance of the year in terms of expectation, and our guidance contemplates that muted revenue contribution from coffee. Um, you know, in tougher macroeconomic times. We have seen shifts in consumption from away from home channels to at home channels, and that does tend to benefit our business. On the coffee side, as well as on the liquid refreshment beverage side, obviously, more of our business is an at-home business than away from home.

Speaker Change: And our guidance contemplates that muted revenue contribution from coffee.

Speaker Change: You know, in tougher macroeconomic times,

Speaker Change: We have

Speaker Change: We've seen shifts in consumption from away-from-home channels to at-home channels, and that does tend to benefit our business on the coffee side as well as on the liquid refreshment beverage side. Obviously, more of our business is an at-home business than away-from-home.

Timothy P. Cofer: So I think in general, if we see that trend, and certainly based on some of the actions we're taking around price promotion, down counts, around value marketing in the broader frame, I think that can serve us well. You also referenced energy, and let me give you a few comments on that. Energy, in my view, is a highly attractive space. It has consistently had faster volume growth than really any other major beverage category over the last many years. That is also the case on a year-to-date basis.

Speaker Change: So, I think in general, as we see that trend, and certainly based on some of the actions we're taking around price promotion, around down counts, around value marketing in the broader frame, I think that can serve us well.

Speaker Change: You also referenced energy, and let me give you a few comments on that.

Speaker Change: Energy, in my view, is a highly attractive space. It is, over time,

Speaker Change: Over these last many years, consistently faster volume growth than really any other major beverage category.

Timothy P. Cofer: On a year-to-date basis, from a volume standpoint, energy remains the fastest growing, as it did in 23 and in 22. Now, within that, we have seen a slowdown of late, and volumes have moderated. I do think that is related to the broader macro and some of the pressure we're seeing on consumers, particularly in low and mid-income. Energy, obviously, skews to C-store. It's used for single bottle purchase.

Speaker Change: That is also the case on a year-to-date basis. On a year-to-date basis, from a volume standpoint, energy remains the fastest growing, as it did in 23 and in 22. Now, within that, we have seen a slowdown of late, and the volumes have moderated.

Speaker Change: I do think that is related to the broader macro and some of the pressure we're seeing of consumers, particularly in low and mid-income. Energy obviously skews to C-store.

Timothy P. Cofer: And that's where you're seeing a little bit more pressure on certain channels like gas and convenience. But for me, that doesn't change what I characterize as a constructive view on the energy category. Energy addresses a clear set of needs for consumers. It occupies clear demand spaces I think there are a lot of interesting nuances and opportunities within energy to build out subsegments, and you're seeing that today in terms of challenger brands that are coming in relative to the big, large, you know, historic incumbent.

Speaker Change: It's used to single bottle purchase, and that's where you're seeing a little bit more pressure in certain channels like gas and convenience. But for me, that doesn't change what I characterize as a constructive view on the energy category. Energy addresses a clear set of needs for consumers. It occupies...

Speaker Change: Clear demand spaces. I think there's a lot of interesting nuances and opportunities within energy to build out subsegments

Speaker Change: And you're seeing that today in terms of challenger brands that are coming in relative to the big, large, you know, historic incumbents.

Timothy P. Cofer: And I would tell you, Dara, that you know this, there's significant household penetration gains still for the energy category as it relates to other beverage categories, you know, think CSDs. Last thing I'll tell you on energy is we continue to be excited about our position with C4. C4 has strong momentum.

Speaker Change: And I would tell you, Dara, that...

Dara Warren Mohsenian: You know this, there's significant household penetration gains still for the energy category as it relates other beverage categories, you know, think CSDs. Last thing I tell you on energy is we continue to be excited about our position with C4.

Timothy P. Cofer: I think in the quarter, our C4 business on a retail sales basis grew about 30%, and at only 3% market share, we believe we have meaningful runway for growth. The next question comes from Chris Carey with Wells Fargo Security. Please go ahead.

Speaker Change: C4 has strong momentum. I think in the quarter, our C4 business on a retail sales basis grew about 30%. And at only 3% market share, we believe we have meaningful runway for growth.

Unknown Executive: The next question comes from Chris Carey with Wells Fargo Securities. Please go ahead.

Dara Warren Mohsenian: The next question comes from Chris Carey with Wells Fargo Securities. Please go ahead.

Christopher Michael Carey: Hey, good morning, everyone. So I wanted to just follow up on some of the back half commentary, which has been well covered, but in the U.S. coffee business, we've seen this stabilization, dare I say, sequential improvement in pods specifically. I know you're talking about muted performance for the full year, but is there any reason to believe that going into the back half of the year, this stabilization, in your mind, would not sustain, maybe even continue to improve as you fold in partners?

Christopher Carey: Hey, good morning, everyone. So I've got wanted to just follow up on some of the back cap commentary, which has been well covered. But if the U.S. coffee business, we've seen this stabilization.

Christopher Michael Carey: Hey, good morning, everyone. So I wanted to

Christopher Michael Carey: Just follow up on some of the back half commentary, which has been

Christopher Michael Carey: Well covered, but in the U.S. coffee business, we've seen this stabilization.

Christopher Carey: Dara State's sequential improvement in pods, specifically, I know you're talking about muted performance for the full year, but is there any reason to believe that going into the back cap of the year this stabilization to your mind would not sustain, maybe you've continued to improve as you fold in partners. And similarly, is there any reason to your mind that the pricing that we've seen, which did down a little bit, should materially improve into the back cap. So it's a bit of opposite questions between the two.

Speaker Change: There is a sequential improvement in PODs.

Speaker Change: I know you're talking about muted performance for the full year, but is there any reason to believe that going into the back half of the year, this stabilization to your mind would not sustain?

Speaker Change: Maybe even continue to improve as you fold in partners.

Christopher Michael Carey: And similarly, is there any reason in your mind that the pricing that we've seen, which dipped down a little bit, should materially improve in the back half? So it's a bit of an opposite question between the two.

Speaker Change: And similarly, is there any reason...

Speaker Change: To your mind that pricing that we've seen which dipped down a little bit should materially improving in the back half. So it's a bit of opposite questions between the two. And if I can sneak this in, just given we're at the end of the call, but the back half of US refreshment improvement is there a way that you'd framed,

Christopher Carey: And if I could seek this, it's given worth the end of the call, but the back half of the U.S. refreshment improvement is, is there a way that you'd frame the contribution from the distribution partnership ramp, relevant innovation, is it mostly distribution and innovation is a kicker? So, you know, thanks for those two on on copy it and U.S. Refreshments in the back half.

Timothy P. Cofer: And if I could sneak this in, given we're at the end of the call, but the back half of U.S. refreshment improvement, is there a way that you'd frame the contribution from the distribution partnership ramp relative to innovation, or is it mostly distribution and innovation is a kicker? So, you know, thanks for those two on coffee and US refreshments in the back half. Yeah, got it, Chris.

Speaker Change: The contribution from the distribution partnership ramp relevant innovation is it mostly distribution and innovation is a kicker. So, you know, thanks for those two on coffee and US refreshments in the back half.

Dara Mohsenian: Yeah, got to Chris.

Timothy P. Cofer: So let's start with coffee in the second half, and then we'll go to wrap up. As you said, we are encouraged by the slow and steady progress we're seeing in K cup volume, and I will point out that we've now had four consecutive quarters of sequential improvement in K-cup volume. And we were pleased to see our K-cup shipment stabilized in the second quarter, you know, flat, I think up 20, 20 base points.

Dara Mohsenian: So let's start with coffee, back half, and then we'll go to rough them. As you said, we were encouraged by the slow and steady progress we're seeing in kick-up volume trends. And I will point out that we now have four consecutive quarters of sequential improvement in kick-up volume. And we're pleased to see our kick-up shipments stabilized in the second quarter, you know, flat. I think up 20, 20 basis points. So this slow and steady improvement trend is clearly there. There's always going to be potential for quarter-to-quarter lumpiness. But I would expect that the age to second half pop ship and trend will improve versus H1, in particular in Q4.

Speaker Change: Yeah, got it, Chris. So let's let's start with coffee back half and then we'll go to rough path. As you said, we we're encouraged by the slow and steady progress we're seeing in K-cup volume trends.

Speaker Change: And I will point out that we've now had four consecutive quarters of sequential improvement in K-cup volume. And we were pleased to see our K-cup shipment stabilize in the second quarter, you know, flat, I think up 20 bases points. So

Timothy P. Cofer: So, this slow and steady improvement trend is clearly there. There's always going to be potential for quarter-to-quarter lumpiness, but I would expect that the H2 second-and-a-half pot shipment trend will improve versus H1, in particular in Q4.

Speaker Change: This slow and steady improvement trend is clearly there. There's always going to be potential for quarter-to-quarter lumpiness, but I would expect that the H2 second-half POP shipment trend will improve versus H1, in particular in Q4.

Timothy P. Cofer: And indeed, you know, that improvement has been underpinned by the progress we're making in our owned and licensed business, the market share progress we're seeing. I referenced some successful innovation, the work we're doing, again, in the three areas around affordability, premiumization, and cold coffee. We have a big push into cold coffee in the back half. That's pods, that's refreshers, and that's also our new brew-and-chill brewer, and that'll be the first brewer that actually brews a cold cup of coffee.

Dara Mohsenian: And indeed, you know, that improvement has been underpinned by the progress we're making in our own in license. Business, the market share progress we're seeing. I referenced some successful innovation. The work we're doing again in the three areas around the portability, premiumization, cold coffee. They have a big push into cold coffee in the back half. That's pods, that's refreshers. That's also our new Brew and Chill brewer. And that'll be the first brewer that actually brews out a cold cup of coffee. So feeling good about the progress in coffee and in the back half.

Speaker Change: And indeed, you know, that improvement has been underpinned by the progress we're making in our own and licensed.

Speaker Change: Business, the market share progress we're seeing, I referenced some successful innovation, the work we're doing again in the three areas around affordability, premiumization, cold coffee. We have a big push into cold coffee in the back half. That's pods.

Speaker Change: That's Refreshers. That's also our new Brew and Chill Brewer. And that'll be the first brewer that actually brews out a cold cup of coffee. So, feeling good about the progress in coffee and the back half.

Timothy P. Cofer: So, I'm feeling good about the progress in coffee and the back half. As it relates to refreshment beverages, I'm pleased with both the base business and the new partners, and they will both play a meaningful role in the back half.

Dara Mohsenian: As a release, refreshment beverages. I'm pleased with both the base business and the new partners. And they will both play a meaningful role in the back half. The ramp, as I said earlier, will be more around what we see from partner contribution, electorally, lock, alone, see, for, et cetera. And I think we've said earlier than, on a full year basis, we expect those new partnerships to add about 200 basis points to total company in that sales. And I would tell you we continue to feel good about that. Thankfully both, you know, let's, if the pioneer here in, in single serve in the category steward, we're most focused on high quality activity to drive sustainable single serve category growth.

Speaker Change: As it relates, refreshment beverages.

Timothy P. Cofer: The ramp, as I said earlier, will be more around what we see from partner contribution, Electrolyte, La Cologne, C4, etc. And I think we've said earlier that on a full year basis, we expect those new partnerships to add about 200 basis points to total company net sales. And I would tell you, we continue to feel good about that. The next question comes from Bonnie Herzog with Goldman Sachs; please go ahead. All right, thank you. Good morning, everyone.

Speaker Change: I'm pleased with both the base business and the new partners.

Speaker Change: They will both play a meaningful role in the back half. The ramp, as I said earlier, will be.

Speaker Change: More around what we see from partner contribution, Electrolyte, La Colombe, C4, etc. And I think we've said earlier that on a full year basis, we expect those new partnerships to add about 200 basis points.

Speaker Change: It's a total company net sales and I would tell you we continue to feel good about that number.

Speaker Change: The next question comes from Bonnie Herzog with Goldman Sachs. Please go ahead.

Bonnie Lee Herzog: I am. I have a question about your international business. It's clear you've been making a significant push. I'd be curious to hear what you believe are the key drivers that are going to allow you to continue to win internationally and, second, how will you evaluate whether it's best to enter new markets organically or possibly through acquisitions and, finally, what percentage of your sales do you think your international business could ultimately represent? Thank you. Good morning, good morning.

Bonnie Lee Herzog: Thank you. Good morning everyone. I have a question on your international business. It's clear you've been making a significant push, so I'm curious to hear what you believe are the key drivers that are going to allow you to continue to win internationally.

Speaker Change: Second, you know, how will you evaluate whether it's best to enter new markets organically or possibly through acquisitions? And then finally, what percentage of your sales do you think your international business could ultimately represent? Thank you.

Sudhanshu Shekhar Priyadarshi: So you're right, we have international is doing well. We said that this would be a growth driver for our business, for overall KDP. And we are very pleased with the momentum in our international segment. This performance basically reflects a combination of growing categories as well as share gains. So a geographic and category-wide space expansion, and we're seeing low and no alcohol in Canada and Mexico, and we're also seeing line exchanges in Mexico. We're investing in route-to-market and new coolers in Mexico, and we're seeing execution there. And also the local team; they understand the market consumer, seeing the On and Life is Pod momentum in Canada.

Speaker Change: Good morning. So you're right, we are internationally doing well. We said that this will be a growth driver for our business, for overall KDP, and we are very pleased with the momentum in our international segment.

Speaker Change: This performance basically reflects combination of growing categories as per their share gains.

Speaker Change: So a geographic and category-wide stress expansion and we're seeing low and no alcohol in Canada and Mexico and we're also seeing penicillin line exchanges in Mexico.

Speaker Change: We're investing in Route2Market and New Cooler in New Mexico, and we're seeing the execution there. And also the local team, they understand the market consumer, you're seeing the on-and-licensed pod momentum in Canada.

Sudhanshu Shekhar Priyadarshi: And we continue to have confidence that this growth-accurate contribution from international will continue. Regarding your question on the future market. First, we have a lot of work to do in our base businesses, basically Mexico and Canada and LAB. And we have a significant opportunity to drive outside growth. But we do look at both inorganic and organic strategies to unlock this potential. We have a similar model in those markets, what we have in the US, you know, buy, build, and partner model.

Speaker Change: And we continue to have confidence that this growth-accurate contribution from international will continue.

Speaker Change: Regarding your question on the future market...

Speaker Change: First, we have a lot of work to do in our base businesses, basically Mexico and Canada and LAB, and we have significant opportunity to drive outside growth.

Speaker Change: But we do look at both inorganic and organic strategy to unlock this potential. We have a similar model in the wood market, what we have in the U.S., you know, buy, build, and partner model.

Sudhanshu Shekhar Priyadarshi: And we will look at some international markets to see whether we can make some inorganic entry. But the main focus right now is driving what we are driving in Mexico and Canada. And while I don't have a number of... to give you an idea of what the mix will be.

Speaker Change: And we will look at some international markets to see whether we can make some inorganic entry but the main focus right now is driving what we are driving in Mexico and Canada. And while I don't have a number of...

Sudhanshu Shekhar Priyadarshi: But the math you see, over the last five years, international business has grown close to double-digit CAGR, and we expect a similar type of growth coming to the business. Our last question today will come from Filippo Falorni with Citi. Please go ahead.

Speaker Change: to give that what will be the mix of it but the math if you see last five years international has grown close to double-digit CAGR and we expect similar type of growth coming to the business.

Speaker Change: Our last question today will come from Filippo Falorni with CIGI. Please go ahead.

Filippo Falorni: Hey, good morning, everyone. So Tim, I wanted to go back to US Coffee and the second half outlook. Obviously, it's good to see the volume improvement in part and the total segment. But obviously, pricing came in worse sequentially.

Filippo Falorni: Hey, good morning everyone. Um, so Tim, I wanted to go back to U.S. Coffee.

Filippo Falorni: and the second half outlook. Obviously good to see the volume improvement in parts and the total segment.

Filippo Falorni: but obviously pricing came in worse sequentially, so should we expect this level of promotional activity to remain consistent in the second half, would you think about

Speaker Change: maybe reducing a bit the promotional intensity. And do you need that level of promotional activity to get further volume improvement in the second half? Just to give some some context that will be will be helpful. Thank you.

Timothy P. Cofer: So should we expect this level of promotional activity to remain consistent in the second half? Would you think about maybe reducing the promotional intensity a bit? And do you need that level of promotional activity to get further volume improvement in the second half? Just to give some context, that would be helpful.

Timothy P. Cofer: Thank you. Thanks, Filippo. You know, as the pioneer here in single serve and the category steward, we're most focused on high-quality activity to drive sustainable single serve category growth. And that's, of course, for us but also for all of our participants and all of our partners in the Keurig ecosystem. And that includes our work on innovation, in consumer marketing, and value messaging, both on brewers and on marijuana. That's it. Right now, there are some promotional dynamics at play in the category, and in response to that, Kind of at the end of the year and early this year, we did take some steps to appropriately position ourselves versus competition.

Filippo Falorni: Thanks, Filippo.

Speaker Change: You know, as the pioneer here in single serving the category steward, we're most focused on high quality activity to drive sustainable.

Dara Mohsenian: And that's, of course, for us, but for all of our participants and all of our partners in the Keurigiko system. And that includes our work on innovation, in consumer marketing, value messaging, both on growers and on pots. That's that right now there are some promotional dynamics at play in the category. And in response to that kind of at the end of the year and early this year, we did take some steps to appropriately position ourselves versus competition. I think inherent in your question is this tension, Filippo, that the building backdrop around green coffee prices is a bit at us with some of the promotional activity.

Speaker Change: Single Serve Category Growth. And that's, of course, for us, but for all of our participants and all of our partners in the Keurig ecosystem. And that includes our work on innovation, in consumer marketing, value messaging, both on brewers and on pods.

Speaker Change: That said, right now, there are some...

Speaker Change: Promotional Dynamics at Play in the category.

Timothy P. Cofer: I think inherent in your question is this tension, Filippo, that the building backdrop around green coffee prices is a bit at odds with some of the promotional activity and, I would say, over the long term, does not appear to be sustainable.

Speaker Change: at the end of the year and early this year, we did take some steps to appropriately position ourselves versus competition. I think inherent in your question is this tension, Filippo, that the building backdrop around green coffee prices.

Dara Mohsenian: And I would say over long term does not appear to be sustainable. So, from our standpoint, of course, we're doing the right thing around striking net balance around protecting our positions. And making sure that we also have the margin structure we need to continue to drive the entire ecosystem. Obviously, part of that is the way that we manage commodities in our hedging position, which I think we've shared in the past, usually 6-9 months out. And so that means, you know, the higher green coffee could begin to impact our P&L progressively over the course of H2 second half.

Speaker Change: is a bit at odds with some of the promotional activity and I would say over long term does not appear to be sustainable.

Timothy P. Cofer: So from our standpoint, of course, we're doing the right thing around striking that balance around protecting our positions and making sure that we also have the margin structure we need to continue to drive the entire ecosystem. Obviously, part of that is the way that we manage commodities and our hedging position, which I think we've shared in the past, usually six to nine months out. And so that means, you know, the higher green coffee could begin to impact our P&L progressively over the course of H2's second half.

Speaker Change: So, from our standpoint, of course, we're doing the right thing around striking that balance, around protecting our positions, and making sure that we also have the margin structure we need to continue to drive the entire ecosystem.

Speaker Change: Obviously, part of that is the way that we manage commodities and our hedging position, which I think we've shared in the past, usually six to nine months out.

Speaker Change: And so that means, you know, the higher green coffee could begin to impact our P&L progressively.

Dara Mohsenian: So, you know, we're going to continue to closely monitor this situation. Our intent here is to responsibly manage our price gaps while also protecting our ability to fund high quality reinvestment to drive this single serve category.

Timothy P. Cofer: So, you know, we're going to continue to closely monitor this situation. Our intent here is to responsibly manage our price gaps while also protecting our ability to fund high-quality reinvestment to drive this single-serve category. This concludes our question and answer session. I would like to turn the conference back over to Jane Gelfand for any closing remarks. Thank you, Drew. And thank you everyone for participating this morning. We appreciate your support. Investor Relations is available all day to answer any follow-up questions you may have. I appreciate it and have a great day. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect. [inaudible]

Speaker Change: Over the course of H2 second half. So, you know, we're going to continue to closely monitor this situation. Our intent here is to responsibly manage our price gaps while also protecting our ability to fund high quality reinvestment to drive this single-serve category.

Unknown Executive: This concludes our question and answer session.

Jane Gelfand: I would like to turn the conference back over to Jane Gelfind for an eclosing remarks.

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

Jane Gelfand: Thank you, Drew, and thank you everyone for participating this morning. We appreciate your support. Investor relations is available all day to answer any follow-up questions you may have.

Jane Gelfand: Thank you, Drew, and thank you, everyone, for participating this morning. We appreciate your support. Investor Relations is available all day to answer any follow-up questions you may have.

Jane Gelfand: Appreciate it, and have a great day.

Unknown Executive: The conference has now concluded. Thank you for attending today's presentation.

Jane Gelfand: Appreciate it, and have a great day.

Speaker Change: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Unknown Executive: You may now disconnect.

Speaker Change: © BF-WATCH TV 2021

Unknown Executive: Dr. Pepper, John