Q3 2024 Keurig Dr Pepper Inc Earnings Call
Speaker Change: [music].
Good morning, ladies and gentlemen, and thank you for standing by.
Welcome to Keurig, Dr. Pepper's earnings call for the third quarter of 2024.
This conference call is being recorded and there'll be a question answer session at the end of the call.
Speaker Change: I would now like to introduce keurig, Dr. Pepper's head of Investor Relations Jane Gelfand Mcguffin you may please begin.
Speaker Change: Thank you and Hello, everyone earlier. This morning, we issued two separate press releases announcing third quarter results and our pending transaction with golf, we will discuss both topics. During this conference call and in the accompanying slide presentation.
Speaker Change: Which can be tracked in real time on the live webcast.
Speaker Change: Before we get started I'd like to remind you that our remarks will include forward looking statements, which reflect Katy piece judgment assumptions and analysis only as of today.
Speaker Change: Our actual results may differ materially from current expectations based on a number of factors affecting Katie piece of business.
Speaker Change: Except as required by law, we do not undertake any obligation to update any forward looking statements discussed today.
Speaker Change: 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.
Speaker Change: Consistent with previous quarters, we will be discussing our Q3 performance on a non-GAAP adjusted basis, which reflects constant currency growth rates and excludes items affecting comparability.
Speaker Change: Definitions and reconciliations to the most directly comparable GAAP metrics are included in our earnings materials.
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 could haunt you Preah Dashi I'll now turn it over to Tim.
Tim Cofer: Thanks, Jane and good morning, everyone. Our solid 'twenty 'twenty four year to date performance demonstrates Katie piece resiliency and flexibility. This morning, we reaffirmed our full year outlook, despite an uneven operating environment and we're targeting a strong finish to the.
Tim Cofer: Year in Q4 simultaneously, we are making good progress against our long term strategy laying the groundwork for multi year success.
Tim Cofer: Now before covering our quarterly results I want to highlight the just announced go steal as yet. Another example of how we are enhancing our portfolio, while exercising capital discipline.
Tim Cofer: We've reached an agreement to purchase a majority stake in ghost this year to be followed by the acquisition of the remainder of the business in the first half of 'twenty 'twenty eight this transaction strengthens our position in the attractive energy drink category and accelerates our.
Tim Cofer: Oh evolution towards consumer preferred and growth accretive spaces.
Tim Cofer: Ghost as young versatile and founder led.
With approximately a half a billion dollar portfolio anchored by its leading energy drink, while also spanning supplements and an emerging presence in other LRB categories.
Tim Cofer: The brand more than quadrupled in size over the last three years and remains one of the fastest growing in the energy category. Thanks to its unique brand identity distinctive flavors and packaging cross occasion appeal and strong consumer engagement, including on premise.
Tim Cofer: Ghost will complement Katie piece existing energy portfolio and substantially enhance our presence in the category.
Tim Cofer: We see significant potential to further scale goes in collaboration with its founders Dan Lorenzo and Ryan Hughes, who will continue to lead the brand as part of Kt Pes U S refreshment beverages unit.
Tim Cofer: I've been very impressed with Dan and Ryan and their tremendous success to date.
Tim Cofer: More importantly, I share their vision for strong growth in the years to come.
Tim Cofer: Together, we plan to take ghost to New Heights, as we build out Katy PS platform based approach to the energy category.
Tim Cofer: Now at 23 billion in size energy remains one of the fastest growing scaled categories in beverages and enjoys multiple structural growth characteristics.
Tim Cofer: These beverages satisfy a near universal consumer need for energy and alertness, which is increasingly relevant in a world with significant demands on our time and attention they appeal to consumers across all ages and demographics, including over indexing to Gen <unk>.
Tim Cofer: Yes.
Tim Cofer: There was significant headroom for household penetration to grow versus other leading beverage categories.
Tim Cofer: And the category is still in the development stage of price pack architecture and channel diversity.
Tim Cofer: All of these elements translate to a large total addressable market that we believe the category will grow into and on which Katie P is well positioned to capitalize.
Tim Cofer: As the energy drink consumption becomes more prevalent the category is evolving to serve distinct consumer need states and occasions. This landscape lends itself nicely to a portfolio approach, which we have successfully employed in premium water to become the number two.
Speaker Change: Sure player.
Speaker Change: We're now using a similar playbook in energy, having accelerated our push into the category over the last 24 months, well see for ghost and Black rifle energy.
Speaker Change: In addition to todays ghost announcement.
Speaker Change: We just signed a distribution agreement with neutral bulk for bloom ready to drink energy Bill.
Speaker Change: Bloom is a highly promising emerging and distinctive beverage brand with a female oriented SKU.
Speaker Change: Together each of these brands can work in complementary ways to address consumer needs, while driving greater scale in the category and across our DSD infrastructure.
Speaker Change: Beyond its strategic merits. The goes transaction is another good example of how we approach efficient capital deployment.
Through an elegant deal structure, we are capturing the growth opportunity and paving the way for compelling financial returns, while retaining manageable balance sheet leverage and aligning long term incentives.
Speaker Change: Our chosen structure retains ghost leadership team reinforcing a unique element of Kt PS White space expansion strategy, our founder network.
Speaker Change: We work to keep visionary entrepreneurs at the helm of the brands they created while adding substantial scale and resources from Katy P.
Speaker Change: In energy drinks, we've seen the value of this arrangement firsthand through our close relationship with neutral bolt innovative leader Dos Cunningham.
Speaker Change: With alignment and support from energy leaders like Das, Dan and Ryan of Ghost and others. We are building a formidable energy platform that will drive win win outcomes for all involved.
Speaker Change: Let's now move to our third quarter results constant currency net sales grew three 1%.
Speaker Change: We made solid progress on volume mix with 3.5% growth in Q3.
Speaker Change: As anticipated U S refreshment beverages momentum strengthen considerably U S coffee volume mix grew nicely and international trends remained healthy.
Speaker Change: Total Katy P. Net price was a source of modest pressure in Q3, we.
Speaker Change: We expect sequential improvement in Q4, and a further step up into 2025, as recently announced pricing actions across meaningful parts of our portfolio, including C. S. DS and single serve coffee take effect early next year.
Speaker Change: Our focus on productivity and cost discipline continue to ratchet up in Q3. These elements help to support gross and operating margin expansion.
Speaker Change: As a result consolidated operating income grew in the high single digits and E. P. S grew 6% consistent with our plan.
Speaker Change: We are focused on near term delivery, while also truly orienting our business towards the long term.
Speaker Change: Our strategy provides a roadmap for achieving strong and consistent results over a multiyear time frame.
Speaker Change: And we aim to incrementally advance our strategic pillars, each and every quarter.
Speaker Change: Let me discuss our latest progress.
Speaker Change: I'll start with consumer obsessed brand building.
Speaker Change: Our consumer centric scorecards include awareness household penetration loyalty and other classic brand led metrics and yet how we ultimately measure success comes down to market share growth.
Speaker Change: In Q3, we gained share across each of our major product verticals liquid refreshment beverages, K Cup pods and Brewers and in each of our major markets, the United States, Mexico and Canada.
Speaker Change: We achieved this performance through a combination of exciting innovation and brand activity as well as strong commercial delivery.
Speaker Change: While our Q3 top line also reflected the impact of the softer consumer environment uncertain category growth rates our market share results are a good indicator that we are effectively stewarding, our brands and controlling the controllable.
Speaker Change: Our second pillar reshaping our now and next portfolio has been a major 'twenty 'twenty four priority, primarily through our new electro elite and lock Cologne partnerships.
Speaker Change: Both brands continued to transition to our DSD network during the third quarter with a growing financial contribution we are now able to more directly influence their marketplace performance and accordingly, our trends are accelerating with significant opportunity still ahead.
Speaker Change: Our just announced transaction with ghost furthers, our commitment to evolving towards high growth areas.
Speaker Change: We will continuously shape, our portfolio in the future, which will likely entail both brand additions and targeted pruning.
Speaker Change: Moving now to route to market during the third quarter, we closed on an integrated our recently acquired assets in Arizona.
Speaker Change: The transition of coverage to our network went smoothly and was achieved in record time.
Speaker Change: We have now shifted our focus to ensuring the Arizona operations run as efficiently as possible and leverage the network benefits of being part of Kt P.
Speaker Change: We also continue to opportunistically expand our distribution presence in other regions.
Speaker Change: Including the recent tack on of incremental territories in Tennessee.
Speaker Change: Our company owned DSD network in Mexico is another focus area given the vital competitive advantage. It provides in a market with a sizeable traditional trade.
Speaker Change: During the third quarter, we invested in expanding the systems coverage selling routes and cooler penetration all of which contributed to our strong relative trends.
Speaker Change: Turning now to our productivity and overhead discipline work to generate fuel for growth. This is a priority in all environments, but it's particularly critical in the current moment.
Speaker Change: As such we delivered strong savings during the third quarter with healthy productivity and the re emergence of SG&A overhead leverage for the first time in many quarters.
We are now on track to exceed our cost saving schools for the year, while also carrying a healthy pipeline of productivity and efficiency projects forward into 'twenty 'twenty five.
Speaker Change: Finally, our cash generation has strengthened as expected in 2024, and we are dynamically allocating this cash flow to support multiple parallel priorities.
Speaker Change: Our capital deployment. This year has thus far included capital expenditures to support our growth and productivity initiatives.
Speaker Change: Sizable share buyback near our stock's 52 week low.
Speaker Change: A 7% dividend increase announced in Q3, which marked our fourth consecutive annual raise.
Speaker Change: And now our pending acquisition of a 60% interest in ghost and.
Speaker Change: In other words, we are staying disciplined.
Speaker Change: Being opportunistic when compelling options become available and managing across our capital allocation objectives, including our commitment to a resilient balance sheet.
Speaker Change: Let me now share some observations on our third quarter segment performance, starting with U S refreshment beverages.
Speaker Change: We saw a nice sequential acceleration in revenue growth, which increased at a mid single digit rate in the quarter.
Speaker Change: Our volume mixed momentum built as we completed the distribution transition and significantly ramped display activity for Electra lead.
Speaker Change: We also delivered solid base business trends across our core brands.
Speaker Change: The consumer environment remains dynamic, which is having varying impacts across our portfolio.
Speaker Change: For instance, the carbonated soft drinks category is outperforming our expectations C. S. These have accessible price points and are supported by sophisticated revenue growth management capabilities, which make them well positioned to provide options for value seeking consumers.
Speaker Change: At the same time, we are also winning in the category with a strong innovation and commercial programming slate that is driving healthy share trends.
Speaker Change: Our CSD performance was led by brand Dr Pepper.
Speaker Change: Thanks in part to a very successful summer time L. P L with creamy coconut as well as the continued buildout of our zero sugar line.
Speaker Change: We expect the brand's momentum and share gains to sustain supported by our recent launch of the seventh season of our incredibly popular fans Bill College football marketing campaign.
Speaker Change: Elsewhere in Cst's, Canada, dry fruit splash the brand's most significant launch in years remains highly incremental to the franchise and is demonstrating the potential of this great brand.
Speaker Change: We're also stepping up support behind our iconic seven up.
With our first in a decade brand design refresh that debuted in Q3 and our limited time offering Shirley temple flavor that is just now rolling out and has been a hit on social media.
Speaker Change: Meanwhile, some still beverage categories remain under pressure, which we see as a reflection of the current consumer softness.
Speaker Change: This is particularly true for categories with a greater exposure to convenience stores and with higher average price per ounce products like ready to drink teas.
Speaker Change: In these categories, we must continue engaging consumers with compelling brand activity, while also appropriately emphasizing value at key price points.
Speaker Change: In other still beverages, we're seeing stronger trends.
Speaker Change: One example is our billion dollar warehouse delivered mott's brand.
Speaker Change: Which has been an investment priority during 'twenty 'twenty four.
Speaker Change: During Q3, our back to school campaign, which highlighted fresh minimally processed apples as a point of differentiation for March performed well supporting top line growth and share gains for the brand.
Speaker Change: In total we're pleased with the performance of the U S. Refreshment beverages segment in Q3 with notable progress made in scaling the Elektra lead partnership and supporting our core portfolio.
Speaker Change: In U S coffee, we experienced a soft overall quarter market share momentum drove solid volume mix, but pricing realization was challenged due to persistent category promotions, which weighed on segment revenue and profitability.
Speaker Change: We're not satisfied with this outcome and are actively working to improve these trends even in the context of escalating inflation.
Speaker Change: At the same time, we're planning prudently regarding U S. Coffees rule in our near term overall enterprise performance. The reality is that at home coffee category consumption remains muted.
Speaker Change: However, within that single serve is outperforming.
Speaker Change: And within that our brands are as well.
Speaker Change: But because the categories absolute growth rate is below the long term trend we are choosing to be judicious.
Speaker Change: And we're focusing on the elements within our control.
Speaker Change: Let me dive deeper into three such areas that together should result in improving revenue trends for the coffee segment overtime.
First.
Speaker Change: We have good pod market share momentum.
Speaker Change: Our three pronged strategy focused on affordability premium musician and cold coffee translated into further meaningful owned and licensed share momentum in the quarter.
Speaker Change: We saw strength across both Green mountain and the original donut shop, including particular traction and incrementally from our new line of refreshes, which we are building into a distinct single serve platform.
Speaker Change: At the same time, we are attracting new brands into the keurig ecosystem, including the recent addition of Black Rifle K Cup pods, which began to scale our network during Q3.
Speaker Change: Taken together, our favorable owned and licensed market share trends and new partnerships position us for a stronger set of financial outcomes as the category recovers.
Second Brewer trends continue to move in the right direction in Q3, we drove strong double digit growth in brewer shipments.
Speaker Change: While quarterly trends are inherently lumpy.
Speaker Change: The coffee maker category has returned to more stable footing and keurig and keurig compatible Brewers are gaining significant share.
Speaker Change: This speaks to our ongoing appeal among coffee consuming households, and should be supportive of future pod consumption.
Speaker Change: Looking out to the important holiday season, we are well positioned with excellent retailer and consumer feedback for K brewing chill in the early days of our launch and good momentum behind our entry priced models.
Speaker Change: Third while not yet evident in category trends or our results. We are encouraged by recent category pricing in response to escalating inflation.
Speaker Change: The competitive environment in the third quarter was notably promotional as in the first half.
Speaker Change: And we do not expect any immediate easing in Q4, however industry pricing should build over the coming quarters.
Speaker Change: Given recently announced competitor price increases as well as our early 'twenty 'twenty five single serve increase.
Speaker Change: Even with an anticipated elasticity impact and some related volume trade off we'd expect this to result in a healthier overall revenue trend.
Speaker Change: All in though the path ahead will likely come with some quarter to quarter variability, we continue to see traction occur.
Across our U S coffee segment.
Speaker Change: As long as the at home coffee category remained soft we will continue to plan with restraint.
Speaker Change: All while positioning keurig and our assortment of brands to win longer term in other words, we are playing the long game by driving high quality innovation and marketing and attracting new brands into the keurig ecosystem.
Speaker Change: Turning now to international.
Speaker Change: We delivered another quarter of good performance with constant currency net sales growth nearing the high single digits.
Speaker Change: We drove gains across multiple regions and categories.
Speaker Change: In Mexico market share grew in almost every category in which we operate reflecting productive brand building activity and DSD investments bearing fruit.
Speaker Change: We often talk about the success of our powerhouse opinion, Seattle brand, which maintained its trajectory in Q3, but squirts performance was also notable.
Speaker Change: The brand recently achieved a significant milestone.
Speaker Change: Becoming the number two flavored CSD and Mexico.
Speaker Change: And is a great example of another iconic Katy P brand with local traction and momentum.
Speaker Change: Our cold beverages performance in Canada was also robust.
Speaker Change: Led by growth in Canada, dry and Dr. Pepper as well as continued strength in our low and no alcohol portfolio.
Speaker Change: In international coffee as in the U S. Our three pronged strategy helped to drive market share gains across both Brewers and parts.
Speaker Change: Overall, we feel great about our international momentum and with ongoing investment expect this segment to remain an outsized growth driver for Kt Pete.
Speaker Change: In closing, we're pleased with our team's strong execution in what remains a dynamic operating environment.
Speaker Change: We are on track and focused on closing out the year strong while pushing ahead on key strategic initiatives and setting the stage for healthy consistent financial performance beyond 2024.
Speaker Change: And with that I'll turn the call to sit onshore.
Speaker Change: Thanks, Tim and good morning, everyone.
Speaker Change: We delivered a solid quarter with operational discipline, driving strong oi growth and accelerating cash generation.
Speaker Change: We are on track to a strong finish to 2024, while also making important strategic progress like today's announced transaction with ghost.
Speaker Change: The actions, we are taking to support base momentum and enhance our portfolio help reinforce the visibility to consistent performance in the years ahead.
Speaker Change: Third quarter net sales grew 3.1% in constant currency.
U S refreshment beverages topline accelerated U S coffee posted a soft quarter.
Speaker Change: In international growth remained healthy.
Speaker Change: I will discuss each segment in more detail shortly.
Speaker Change: On a consolidated basis volume mix was the primary sales driver.
Speaker Change: Thing two or 3.5% gain.
Speaker Change: We grew share across our portfolio and also benefited from a building contribution from new partnerships.
Speaker Change: Net price realization declined due to a 0.4%.
Speaker Change: Pricing was positive across most of the business, but the pressure confined to U S coffee.
Speaker Change: We expect consolidated pricing to turn positive once again in quarter four.
Speaker Change: Gross margin expanded 20 basis points versus prior year.
Speaker Change: This reflected good productivity delivery.
Speaker Change: And our performance incentive problem see for <unk>.
Speaker Change: Which contributed approximately 50 basis points of expansion.
Speaker Change: SG&A also leveraged 80 basis points.
Speaker Change: The lean overhead discipline, we are embedding across the organization is beginning to more meaningfully benefit results.
Speaker Change: This will remain a focus area going forward.
Speaker Change: All in operating margins expanded 110 basis points and operating income grew 7.5%.
Inclusive of our net had been below the line.
Speaker Change: E. P. S grew a solid 6% consistent with our plan.
Speaker Change: Moving to the segments.
Speaker Change: U S. Refreshment beverages net sales grew five 3% accelerating from a low single digit rate in quarter two.
Speaker Change: Volume mix led the way up 4%, including a growing contribution from electoral eight as volume fully transition to our DSD network.
Speaker Change: Our base business trends also is 10 10 led by our CSD portfolio.
Speaker Change: Pricing contributed 1.3% to the top line.
Speaker Change: Selecting favorable price realization and see as these and.
Speaker Change: And targeted value investment in box off they still beverages portfolio.
Speaker Change: We expect segment net sales growth to improve further in quarter four.
Speaker Change: Selecting a healthy partnership contribution and base business trend.
Speaker Change: Yeah.
Speaker Change: Segment operating income grew six 8%.
Speaker Change: With 40 basis points of margin expansion.
Speaker Change: The improvement was driven by our net sales momentum.
Speaker Change: Productivity and the C for performance incentive.
Speaker Change: This was partially offset by cost inflation across key inputs.
Speaker Change: In the U S coffee <unk>.
Speaker Change: Revenue and operating income declined three 6% and seven 2% respectively.
Speaker Change: Obviously.
Speaker Change: We are not pleased with these results.
Speaker Change: But this performance desserts greater context.
Speaker Change: Despite still muted coffee category.
Speaker Change: We drove improving volume mix in the third quarter.
Speaker Change: With 2.7% growth.
Speaker Change: This was comprised of flattish barge and 14% growth in brewer shipments.
Speaker Change: We enjoyed good market share momentum.
Speaker Change: Ross both product lines tanks.
Speaker Change: Thanks to a strong innovation and retail execution.
Speaker Change: This market share trend, so sustaining quarter for <unk>.
Speaker Change: As we continue to benefit from our three strategic focus areas.
Speaker Change: And for the ability to do my Jason and Cold coffee.
Speaker Change: Third quarter pricing was soft declining six 3%.
Speaker Change: We lapped a challenging ear to go pricing competition.
Speaker Change: And like in the first half continued to respond to industry promotions.
Speaker Change: Which remained at odds with coffee commodity moves.
We do not expect the competitive picture to moderate immediately.
Speaker Change: Which gives us optimism looking out to 2025.
Speaker Change: International constant currency net sales grew six 5%.
Speaker Change: Our 0.4% on a reported basis.
Speaker Change: Topline growth was balanced with volume mix, increasing three 1%.
Speaker Change: And net price realization, adding another two 4%.
Speaker Change: Our growth was strong in absolute terms.
Speaker Change: And also came against a tough year to low competition.
Speaker Change: During quarter, three our local execution by the exceptional draw.
Speaker Change: Driving market share gains in our major categories and markets.
Speaker Change: International top line growth should accelerate in quarter four.
Speaker Change: As our market share of outperformance.
Speaker Change: Sustains and comparisons begin to ease.
Speaker Change: Beyond this year, we have exciting plans to continue to capture the significant long term growth opportunity we see for this segment.
Speaker Change: International segment operating income advanced meaningfully in the quarter growing 16, 6% in constant currency.
Speaker Change: The strong bottom line result was driven by net pricing and productivity.
Speaker Change: This more than offset continued inflationary pressures and helped fund incremental marketing.
Speaker Change: Moving to the balance sheet cash flow and capital allocation.
Speaker Change: In the third quarter, we generated more than $500 million in free cash flow.
Speaker Change: Consistent with our expectations free cash flow dollars and conversion are improving.
Speaker Change: We remain on track for a meaningful step up in full year cash flow compared to prior year.
Speaker Change: The accelerating Castro profile is supporting our ability to advance multiple capital allocation priorities.
Speaker Change: Ghost will enhance our presence in an attractive white space category.
Speaker Change: By utilizing a taut produced structure.
Speaker Change: We are setting up to deliver compelling multiyear financial returns.
Speaker Change: Again until early 2025.
Speaker Change: We also expect a modest FX translation headwind to both top and bottom line.
Speaker Change: In closing we are pleased with our overall performance in quarter three.
Speaker Change: In an uneven operating environment.
Speaker Change: We are focused on executing our plans over the balance of the year.
Speaker Change: Emphasizing Q4 delivery advancing our strategic pillars.
Speaker Change: <unk> actively planning for another year of consistent performance in 2025.
Speaker Change: Other non pass onto Tim to wrap with some brief remarks about next year.
Tim Cofer: Thanks, Sudan sure before we move to Q&A I want to leave you with a few closing thoughts first and foremost we are laser focused on finishing 2024 on a strong note.
At the same time similar to many of you our internal attention is increasingly shifting to 2025.
Tim Cofer: While it's premature to provide an exact outlook I can share a few preliminary thoughts.
Tim Cofer: As we build our 2025 plan, we see considerable opportunity and also some risk.
Tim Cofer: On the one hand, the operating environment remains subdued with no immediate signs of relief for stretched consumers.
Tim Cofer: Pockets of escalating inflationary pressure are necessitating industry pricing.
Tim Cofer: But because consumer health is varied the elasticity impact is uncertain.
Tim Cofer: On the other hand, our strategic progress in 2024 will provide long tailed benefits in 2025.
Speaker Change: Large consistently fastest growing over the last many years I think what we're starting to see is as that category matures. It is evolving to serve distinct consumer need states and occasions, and we believe that that landscape lends itself well to a poor.
Speaker Change: Folio approach.
Speaker Change: And that's what we're pursuing with today's announcement is a collection of brands that work in complementary ways to address different consumer needs in different occasions, while obviously generating scale.
Speaker Change: That will benefit our DSD system. So when you think about it step back just two years ago Katy P. Basically had very little if any presence in the energy category. As a result of today's announcement primarily around goes but also around bloom, we now have a portfolio of <unk>.
Speaker Change: Four to five <unk>.
Speaker Change: Material brands in the category that will allow us to establish a multifaceted energy platform.
Speaker Change: Very quickly on each one to your question as you look at sea for Das Cunningham has done a great job of establishing a strong performance based positioning with products that really provide functional efficacy targeted largely at Jim and fitness occasions and everyday energy.
Speaker Change: It's also from a consumer standpoint tends to be more male and skewing a little bit millennial then you get to ghost goes tens of more lifestyle positioning bold flavor forward products are.
Speaker Change: Popular with gamers, social settings, and increasingly a business that lends itself to on Prem on premise, including occasions like music festivals also a slightly more balanced male female split.
Speaker Change: A little bit more Gen Z and a real growing authority and zero sugar in fact, a recent data would suggest six of the top 30 skus.
Speaker Change: Capabilities.
Speaker Change: Marketing strength, our commercial teams.
Speaker Change: Our GM skill sets.
Speaker Change: Connections and top to tops, obviously with our customers in.
Speaker Change: Building out the doors price pack architecture, and then over time, I think a lot of synergies as well from the procurement side.
Speaker Change: Manufacturing long term.
Speaker Change: There's quite a few cost synergies that we can think about so overall I feel good about.
Speaker Change: Our model the strong momentum that we have with.
Speaker Change: With thoughts and see for and our ability to replicate this once again with goes.
Speaker Change: And I think the last part of your question.
Speaker Change: No doubt this will help drive the total KDB DSD flywheel when you look at what we've done here over the last few years.
Speaker Change: The last three years, we've gone at at C store in particular from about a seven share to approaching a 10 share across total LRB.
Speaker Change: C stores, obviously critical for the energy segment and with the addition of goes that will probably added close to 20% additional scale in small format too.
Speaker Change: Adp's footprint, and obviously that drives the entire DSD flywheel and economics.
Speaker Change: The next question comes from Dara <unk>.
Speaker Change: Damien with Morgan Stanley. Please go ahead.
Speaker Change: Hey, good morning.
Speaker Change: I'm, sorry can you spend a lot of time on your plans and the coffee segment, and obviously theres a lot occurring from an industry standpoint here.
Just wanted to get your perspective, it does sound like you've taken a step back in terms of what you assume from an industry perspective and coffee.
Speaker Change: Obviously there'll be an elasticity impact as is usually the case, but this should translate to a healthier top line trend.
Speaker Change: As well as continued good market share as we go into 2025, and then maybe Scott you want to speak to margin, yes, Thanks, Tim Hey thereof. So as you know we indicated consistently that our plan for U S. Coffee margin in 2004 was as good as Q2 first half and that's mainly driven by the.
Speaker Change: Timing of Green coffee cost impacting our P&L, because we had six to nine months.
Speaker Change: And then as you would've seen this cadence has generally played out consistently with our expectation our first half margin expanded nicely.
Speaker Change: And then margins started to come under pressure versus last year in quarter, three which we expect will continue in quarter four now.
Speaker Change: Now if you look at 2025, we expect cost inflation to continue to run.
Speaker Change: We will look to offset with pricing that is going into market early in the Tim said and will also will have heightened focus on productivity and other expense discipline.
As is typical in inflationary environment. Our plan is to manage for operating profit growth and not the margin percentages. However, as inflation normalizes, we continued to see opportunity to rebuild segment margin on a multiyear basis and our focus on delivering that outcome.
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change: Your next question comes from Chris Terry with Wells Fargo Securities. Please go ahead.
Speaker Change: Hi, good morning.
Speaker Change: One quick follow up on <unk> question, just around coffee do you have any shipments.
Speaker Change: Yes timing impacts from storms in the quarter Pos came in a bit below consumption and I would just love your thoughts on that obviously, a less material over the long term, but but perhaps if there is any caveat there I'd be curious and then really Tim.
Speaker Change: Tim you've been.
Kindle increased complexity.
Speaker Change: And then just more of an execution issue and he comments on our plans to transition from the Anheuser Busch distribution system to yours for ghost and and kind of roughly how long do you expect that to take things.
Speaker Change: Yeah.
Speaker Change: Robert I.
Tim: I think you know a little bit to your practice, we've spoke about this a little bit, but let me try to unpack it a little bit more in short I think we are well prepared and well positioned to take on the new growth sector with ghost I think evidence of that is what you've seen.
Tim: Stu the last couple of years see four I gave a lot of stats earlier to one of the earlier questions on our success with <unk> four.
Tim: Electoral lead has been a very smooth and successful transition. This year, we have an incredible relationship with with Electorally management and the family at Grupo Pizza I was actually there a few months ago talking about the transition and I think today and we are.
Very pleased with that handover in that transition.
Tim: Youre seeing the good early results and you will see more next year, we've had a very successful sell in into 2025 resets on Elektra lead.
Tim: I think the Katy P. DSD system is showing its resilience.
Tim: Point in fact, I met with our DSD leadership team. The last couple of days here and in Frisco headquarters and they are feeling very bullish about what we're doing on C for an electric fleet and I know there I told him for all the right reasons, obviously, we didn't share the news of this morning until this morning I've told them.