Q4 2024 Keurig Dr Pepper Inc Earnings Call
Good morning, ladies and gentlemen, and thank you for standing by.
Welcome to Keurig, Dr. Pepper's earnings call for the fourth quarter and full year of 'twenty 'twenty four.
This conference call is being recorded and there will be a question answer session at the end of the call.
Speaker Change: I would now like to introduce Keurig, Dr. Pepper Senior Vice President Finance Jane Gelfand Mcguffin. Please go ahead.
Thank you and Hello, everyone.
Speaker Change: Earlier. This morning, we issued a press release detailing our fourth quarter and full year results, which we will discuss during this conference call and in the accompanying slide presentation that 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 T. D. P. S 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 T D 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 Form 10-K, which will be filed with the SEC later today.
Speaker Change: Consistent with previous quarters, we will be discussing our Q4 and full year performance on a non-GAAP adjusted basis, which reflects constant currency growth rate and excludes the items affecting comparability.
Speaker Change: Definitions and reconciliations toward the most directly comparable GAAP 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 Honshu, Preah Darci I'll now turn it over to Tim.
Tim Cofer: Thanks, Jane and good morning, everyone 'twenty 'twenty four was a pivotal year for Katy P.
Tim Cofer: In a demanding operating environment, we delivered attractive performance consistent with our long term algorithm and full year guidance.
Tim Cofer: We unveiled our refresh strategy, which we activated as the year progressed to set the stage for Kt piece next phase of growth.
Tim Cofer: And we took bold action to extend our portfolio into attractive white spaces and strengthen our commercial capabilities.
Tim Cofer: In short, we struck a thoughtful balance between achieving our annual commitments and setting up Katie P for consistent sustainable success.
Tim Cofer: 2025 is shaping up as another dynamic year for the CPG industry, and we will remain agile in our execution, while targeting a similarly balanced set of outcomes.
Tim Cofer: Delivering an algorithm financial results and simultaneously advancing strategic priorities to fortify our long term growth model.
Tim Cofer: Let me start with a quick review of our key 'twenty 'twenty, four accomplishments, which spanned each of our five strategic pillars.
Tim Cofer: Beginning with consumer obsessed brand building, a successful innovation slate and engaging marketing campaigns drove attractive growth across many of our iconic brands.
Tim Cofer: To provide just a few examples doctor pepper creamy coconut was our largest limited time offering ever and generated significant buzz.
Tim Cofer: We capitalized on the Dirty soda cultural phenomenon powered by social media, which helped drive our eighth consecutive year of market share growth for Doctor Pepper.
Tim Cofer: Canada dry is first brand extension in years fruit splash Cherry, what's the number one innovation in the CSD category.
Tim Cofer: The March fall marketing campaign, highlighting its fresh minimally processed apples fueled full year share gains in juice and strong back half momentum in sauces.
Tim Cofer: And in coffee, our owned and licensed brands accounted for over 50% of the pod category innovation spearheaded by our distinctive the original donut shop Refreshes line, which was the number one new product in the category and doubled.
Tim Cofer: Our initial plan.
Tim Cofer: We shaped our now and next portfolio seamlessly transitioning electoral lead and lock alone to our DSD network and Onboarding, several new coffee partners, including leading brands such as Black rifle in the U S and Canadian icon kicking horse.
Tim Cofer: Ghost is yet another example of our portfolio strategy in action.
Tim Cofer: Through this acquisition, which closed at year end, we added a successful emerging brand in the high growth energy category that will benefit from inclusion in our advantaged distribution system.
Tim Cofer: In total our actions accelerated Katy PS portfolio evolution to structurally faster growing segments within the beverage industry.
Tim Cofer: We amplified our route to market advantage and further extended the reach and power of the Katy P. D. S D system across multiple geographies and sites.
Tim Cofer: Most notable in 'twenty 'twenty four was the territory acquisition to extend our manufacturing and distribution presence into Arizona.
Tim Cofer: The transaction provided direct exposure to a growing market and added high quality scale to our supply chain and logistics networks.
Tim Cofer: We also executed well across our existing footprint translating to healthy marketplace trends for our base business and strong performance for our partner brands.
Tim Cofer: Our fuel for growth focus permeated the organization driving productivity savings at the high end of our target and generating S. G&A overhead leverage, particularly in the second half of the year.
Tim Cofer: And finally, we strengthened our free cash flow generation, which funded dynamic capital allocation activities.
Tim Cofer: These included $1.1 billion of share buybacks.
Tim Cofer: Our fourth consecutive annual dividend increase.
Tim Cofer: And over $1 billion of strategic investments that one, hence our ability to deliver consistent profitable growth in the future.
Our strategy and the five pillars underpinning it represent our north star in.
Tim Cofer: In 2025, we will set a high bar for operational excellence, while further advancing each of these pillars as we become an ever stronger and more advantaged beverage company.
Tim Cofer: To summarize our full year 'twenty 'twenty four financial performance, we delivered results consistent with our long term algorithm with constant currency net sales growing approximately 4% and E. P S growing 8%.
Tim Cofer: Strong productivity and overhead savings drove P&L leverage and funded higher marketing investment.
Tim Cofer: Free cash flow generation and conversion also improved considerably relative to prior year in keeping with our expectations.
Tim Cofer: The strong performance during the year was led by our U S refreshment beverages, and international segments, which each demonstrated standout momentum and together represent over 70% of revenue.
Tim Cofer: In the U S coffee, we made progress and strengthen our business resiliency as the industry heads into an inflation driven pricing cycle.
Tim Cofer: Moving to Q4 at the enterprise level, we finished the year with momentum.
Tim Cofer: During the quarter Kt Pea delivered a meaningful top line acceleration and solid bottom line growth.
Tim Cofer: Constant currency net sales increased more than 6% led by U S refreshment beverages, which delivered an impressive double digit sales gain.
Tim Cofer: Notably the net revenue trend across each of our three segments accelerated relative to the third quarter.
Tim Cofer: Volume mix was the primary top line driver with year over year growth in each business pre.
Tim Cofer: Price was also a positive contributor with gains in U S refreshment beverages and international more than offsetting temporary price pressure in U S coffee.
Tim Cofer: Our topline growth productivity savings and overhead discipline mitigated escalating inflation, enabling increased investment behind our brands and solid EPS growth.
Focusing on Q4 segment results U S. Refreshment beverages net sales grew a very strong 10%.
Tim Cofer: Led by a volume mix increase in the high single digits.
Tim Cofer: Our teams executed exceptionally well to deliver this growth, which reflected base business momentum.
Tim Cofer: Traction from new partnerships and route to market additions.
Tim Cofer: Carbonated soft drink momentum was particularly strong in Q4.
Tim Cofer: The category remains healthy and we benefited from compelling innovation and brand activity as well as offerings that appeal to value conscious consumers.
Tim Cofer: Our CSD brands continued to win in the marketplace with market share gains in the quarter.
Tim Cofer: Full flavor Doctor Pepper is now the number two CSD in the category.
Tim Cofer: And the Doctor Pepper brand is the undisputed leader in the vibrant CSD flavors segment.
Tim Cofer: Doctor Pepper was also the CSD categories largest share gainer during Q4, reflecting its consumer appeal unique positioning and the benefits of our commercial activities.
Tim Cofer: For example, the seventh season of our fans Ville College football marketing campaign was our most successful yet.
Tim Cofer: We also saw continued traction from Doctor Peppers zero sugar portfolio, which will remain a strong growth factor going forward.
Tim Cofer: Canada dry was another top CSD performer supported by our fruit Splash Cherry innovation.
Tim Cofer: And seven up grew market share as consumers responded to our Shirley Temple holiday L. T O and refreshed brand design.
Tim Cofer: In 2025, we expect robust CSD growth to continue supported by engaging full funnel marketing activations and a promising CSD innovation lineup designed to extend our flavor leadership.
Tim Cofer: This includes Doctor Pepper, Blackberry, which combines doctor peppers original twenty-three flavors with the rich sweetness of Blackberry.
Tim Cofer: Seven up tropical which blends the crisp taste of setting up with mango and Peach flavors.
Tim Cofer: And exciting seasonal activations across other iconic brands, including an indulgent and nostalgic N W. Ice cream sundae beverage and new flavors from our crush and Sunkist brands.
Tim Cofer: Notably Doctor Pepper, Blackberry marks the first time, we are simultaneously introducing and innovation across bottles and cans found.
Tim Cofer: <unk> and frozen to maximize availability across various formats that our consumers enjoy.
Tim Cofer: Beyond <unk>. The next largest driver of our Q4 growth was Electra elite, which is enjoying accelerating trends after converting to the K D. P DSD system.
Tim Cofer: Electra elite is one of the fastest growing brands in the sports hydration category and we see significant runway for future expansion.
Tim Cofer: In 2025, we will focus on strengthening electoral eats distribution, including further transitioning the brand from Hispanic specialty to the mainstream sports hydration aisle.
Tim Cofer: We will also leverage our DSD muscle to build electric <unk> presence in multi pack and zero sugar offerings, where the brand meaningfully under indexes versus the category leaders.
Tim Cofer: Also during Q4, we made significant progress advancing our energy strategy.
Tim Cofer: We drove strong growth for C for gaining share within the attractive performance energy space and achieving an additional equity milestone in the process.
Tim Cofer: We also began to transition black rifle energy and Bloom to our DSD distribution network and closed on the Ghost acquisition.
Tim Cofer: With a formidable distinctive and complementary energy portfolio now in place we are enhancing our operating structure and adding dedicated resources to ensure Katy piece success in this important high growth category.
Tim Cofer: Just three years ago, our share in energy would have been close to zero today.
Tim Cofer: Today it is over 6%.
In 2025, we expect well over $1 billion in retail sales from our energy brands and have set our sights on achieving a double digit share position in the coming years.
Tim Cofer: Overall, we're pleased with the performance of our U S refreshment beverages segment.
Tim Cofer: Our exceptional Q4 results capped a strong 2024, and we have exciting plans in place to support sustained momentum in 2025.
Tim Cofer: In U S. Coffee Q4, net sales decreased 2% with a modest volume mix gain including pod volume growth more than offset by a temporary net price decline.
Tim Cofer: We are encouraged by the improving state of the category and traction from our from our own portfolio efforts.
Tim Cofer: Let me elaborate.
Tim Cofer: First year over year trends in the at home coffee category improved on a value basis, when compared to Q3 and the exit rate was healthy with December representing the strongest month of the quarter.
Tim Cofer: Second in Q4, we continued to emphasize affordability drive premium sensation and advance at home cold coffee offerings. All initiatives that we believe will have multiyear relevance in the category.
Tim Cofer: Consumer acceptance of our price pack down counts remained strong.
Tim Cofer: Our premium product here continued to grow through our expanded commercial relationship with Lavazza.
Tim Cofer: And we captured incremental consumers and occasions through cold offerings like K Cup refresh yours, and our new K brewing shell Brewer.
Tim Cofer: Third we made progress expanding our participation in coffee formats and channels, where we have historically been underrepresented.
Tim Cofer: Our ready to drink coffee partnership with Lotte Cologne performed very well with retail sales growth meaningfully accelerating in Q4.
Tim Cofer: Momentum in away from home coffee also improved in the quarter and we see significant opportunity into 2020 five as in office work ramps and we further push into channels like hospitality and foodservice.
The combination of these factors put U S coffee on firmer footing exiting 'twenty 'twenty four positioning it to be more resilient in 2025.
Tim Cofer: We expect category conditions to be quite different this year, given the inflationary pressure from coffee commodity costs.
Tim Cofer: Accordingly, we are managing the business with two primary objectives.
Tim Cofer: First to preserve profit dollars and our ability to reinvest despite escalating green coffee costs.
Tim Cofer: In response to this inflation, we announced pricing in Q4 that began to take effect in January and saw many competitors take similar steps.
Tim Cofer: However, the commodity price has continued to move even higher since then and we are evaluating all available options to offset the incremental pressure.
Tim Cofer: These levers include driving greater productivity optimizing mix and May also require further pricing actions with some elasticity offset.
Tim Cofer: Our second objective is to continue to steward the single serve category through marketing innovation and activation in Brewers and pods, while expanding our presence across total coffee occasions and solutions.
Tim Cofer: We are planning to introduce compelling new products in various formats this year and.
Tim Cofer: And behind the scenes, we are advancing work on more disruptive launches like keurig Alta N K rounds, plastic and aluminum free pods for the years to come.
Tim Cofer: Turning now to international we delivered another quarter of healthy top line growth with constant currency net sales increasing at a high single digit rate.
Tim Cofer: Momentum was broad based across the portfolio in international coffee, our topline was driven by market share gains for Brewers and pods.
Tim Cofer: In cold beverages, our performance was led by Mexico, L Arby's, which grew nicely. Despite some signs of a macroeconomic slowdown.
Tim Cofer: These results were propelled by Pena female line extensions the expansion of power brands like Doctor Pepper within Mexico, and route to market investments across traditional and modern trade.
Tim Cofer: During the quarter, we signed a Canadian licensing deal for NES T. The leading ice tea brand in the country furthering our international partnership strategy the.
Tim Cofer: The partnership will pick up later in 2025 and through this iconic brand addition to the portfolio, we expect to establish a leading position in an important LRB category, while benefiting from enhanced scale across our total Canadian operations.
Tim Cofer: All in our international segment continues to perform well we are prioritizing this business for reinvestment underpinning our confidence it can remain an outsized growth driver going forward.
Tim Cofer: In closing I'm pleased with our performance during 'twenty 'twenty four.
Tim Cofer: We delivered strong results in a challenging environment, while simultaneously positioning the business for the long term.
Tim Cofer: This outcome was a direct output of the talent dedication and hard work of our 29000 colleagues across Katy P.
Tim Cofer: On behalf of my executive leadership team I'd like to thank them for their efforts and impact.
Tim Cofer: Our challenger mindset is well suited for the current environment.
Tim Cofer: And we expect to continue to see strong results in 2025 from empowering our teams to play offense and take calculated risks.
Tim Cofer: I'll now turn it over to sit onshore and will return with some closing thoughts about the year ahead.
Sit Onshore: Thanks, Tim and good morning, everyone.
Tim Cofer: We are pleased with our results for the year.
Sit Onshore: This is demonstrated.
Sit Onshore: Excellent execution across the organization.
Sit Onshore: We delivered three 9% net sales growth.
Sit Onshore: [noise] drove robust productivity to expand gross margin.
And leverage SG&A to tight expense management.
Sit Onshore: As a result.
Sit Onshore: We grew operating income 9% and.
Sit Onshore: E P S seven 8%.
We also meaningfully strengthen our cash flow generation.
Sit Onshore: And as Tim outlined made no table, our strategic progress.
Sit Onshore: To lay the groundwork for our Texas in 2025 and beyond.
Sit Onshore: Although fourth quarter close the year on a strong note.
Sit Onshore: Net sales grew six 2% in constant currency showcasing an acceleration there that day.
Sit Onshore: Through the first three quarters.
Sit Onshore: Led by U S refreshment beverages and international.
Sit Onshore: Enterprise volume mix grew five 3%, reflecting healthy base business trends.
Sit Onshore: And an ongoing contribution from new partnerships.
Sit Onshore: Net price realization was also a positive contributor increasing 0.9%.
Sit Onshore: Gross margin contracted 120 basis points versus the prior year.
Sit Onshore: We generated significant productivity savings in the quarter.
Sit Onshore: And also benefited from positive price realization.
Sit Onshore: However.
Sit Onshore: This was more than offset by building inflationary pressures.
Sit Onshore: And the impact of lapping a tough year ago comparison.
Sit Onshore: SG&A leverage 20 basis points.
Sit Onshore: Despite an increase in marketing investment.
Sit Onshore: Reflecting and enhanced overhead efficiency mindset.
Sit Onshore: The organization.
Sit Onshore: All in operating income grew three 4%.
And including a tailwind from lower shares outstanding.
Sit Onshore: E P S advanced five 5%.
Sit Onshore: Moving to the segments.
Sit Onshore: U S refreshment beverages net sales grew an impressive 10.3%.
Sit Onshore: Accelerating from a mid single digit growth rate in the third quarter.
Sit Onshore: Volume mix was the primary driver increasing seven 5% led by base business momentum, particularly in CST.
Sit Onshore: We further benefited from an incremental contribution from electoral it we had our partnership is progressing well and growth is accelerating.
Sit Onshore: The quarter also included the modest benefit of an extra shipping day due to calendar shifts.
Sit Onshore: Pricing grew two 8% in the quarter.
Sit Onshore: I'm already reflecting favorable price realization in our CSD portfolio.
Sit Onshore: Segment operating income increased eight 6% driven by the very strong net sales growth and robust productivity savings.
Sit Onshore: We delivered this result, while reinvesting.
Sit Onshore: Even as the ads jogged, a net headwind from lapping a larger seafood performance incentive in the year ago period.
Sit Onshore: In the U S coffee next.
Sit Onshore: Net sales declined two 4%.
Sit Onshore: Volume mix grew 0.7% in the quarter drew.
Sit Onshore: Driven by a 1.1% increase in port shipments.
Sit Onshore: Our strategic initiative showed traction.
Sit Onshore: But the underlying themes of affordability.
Sit Onshore: <unk> and premium to remain in place on a multiyear basis.
Sit Onshore: Brewer shipments declined 4% in the quarter.
Sit Onshore: Below point of sale conjunction due to seasonality.
Sit Onshore: On a full year basis, which is food solve the seasonality related noise.
Sit Onshore: Shipments increased seven 3%.
Sit Onshore: Segment pricing declined three 1% in the fourth quarter.
Sit Onshore: We had expected some lingering pressure this quarter.
Sit Onshore: Nonetheless encouraged by the improving trend.
Sit Onshore: We anticipate category pricing will strengthen further in 2025 based on actions taken in response to Green coffee innovation, including our January price increase.
Sit Onshore: Fourth quarter segment operating income declined five 7%.
Sit Onshore: With productivity savings more than offset.
Sit Onshore: By the net price decline and green coffee inflation.
Sit Onshore: Moving to international net sales grew eight 5% in constant currency.
Sit Onshore: This strong result was led by volume mix.
Sit Onshore: Which increased six 5%.
Sit Onshore: Collecting positive momentum across regions.
Net price realization was also a growth driver contributing 2%.
Sit Onshore: Inclusive of unfavorable FX reported net sales increased 8%.
Sit Onshore: Segment operating income declined eight 6%.
Sit Onshore: This reflected two primary factors.
Sit Onshore: Bust.
Sit Onshore: Strongly investment in the quarter.
Sit Onshore: Including DSD expansion activities in Mexico.
Sit Onshore: And higher marketing across the segment.
Sit Onshore: Second escalating green coffee costs in the fourth quarter.
Sit Onshore: It's relative to pricing actions in Canada due to take effect in the middle of the first quarter.
Sit Onshore: Importantly.
Sit Onshore: We see these as temporary dynamics.
Sit Onshore: And expect our international segment to remain a strong top and bottom line growth driver in 2020 five as a whole.
Sit Onshore: Moving to the balance sheet and cash flow, we generated strong free cash flow of almost 700 million during the fourth quarter.
Sit Onshore: This brought full year free cash flow to $1 7 billion.
Sit Onshore: Significant step up versus prior year.
Sit Onshore: And we expect further progress in 2025.
Sit Onshore: Cash generation is a hallmark of GDP.
Sit Onshore: And we remain on track to restore our business to healthy structural conversion levels over the next couple of years.
Tim Cofer: As Tim discussed during.
Sit Onshore: During 2024.
Sit Onshore: We deployed the cash flow will be generated in a variety of value enhancing ways, including.
Sit Onshore: Over 1 billion of strategic investments to acquire a 60% ownership in ghost.
Sit Onshore: And expand our DSD footprint into Arizona.
Sit Onshore: 1.1 billion worth of share buybacks.
Sit Onshore: And a 7% increase in our quarterly dividend.
Sit Onshore: Marking our fourth Kunz you could do here with the dividend raise.
Sit Onshore: We in the 'twenty 'twenty four with management leverage of three three times.
Sit Onshore: It's reflected the gaucher injection.
Sit Onshore: This was above our long term target of less than two five times.
Sit Onshore: And more of our focus in 2025 will be on deleveraging.
Sit Onshore: However, we feel comfortable.
Sit Onshore: That's our accelerating free cash flow profile and support a disciplined multi pronged capital allocation strategy.
It also includes investments and a steady dividend growth.
Sit Onshore: Moving now to our 2025 guidance.
Sit Onshore: On a constant currency basis.
Sit Onshore: We expect mid single digit net sales growth.
Sit Onshore: And high single digit earnings per share growth in line with our long term algorithm.
Sit Onshore: Based on current rates.
Sit Onshore: We anticipate that FX will represent.
Sit Onshore: And additional one to two percentage point headwind.
Sit Onshore: Our outlook assumes good momentum in our U S refreshment beverages and international segments.
Sit Onshore: And and incremental contribution from the Goldstar acquisition.
Sit Onshore: The plan also recognized.
Speaker Change: That's U S coffee is likely to remain more subdued in a dynamic commodity environment, even with higher pricing.
Speaker Change: We expect strong productivity and overhead discipline to generate fuel for growth and to support healthy operating income gains in the coming year.
Speaker Change: Below the line, we forecast interest expense in the 682 700 million range.
Speaker Change: And effective tax rate.
Speaker Change: <unk>, 22% to 23%.
And approximately 1.67 billion diluted weighted average shares outstanding.
Speaker Change: There are a couple of factors one considering when it comes to the quarterly phasing in 2025.
Speaker Change: For one.
Speaker Change: Q1 will reflect the impact of a later Easter.
Speaker Change: And one fewer shipping day compared with prior year.
Speaker Change: Plus the balance between inflation.
Speaker Change: Pricing and productivity generation is slated to improve over the course of D. R.
Speaker Change: As a result, we anticipate stronger topline and bottom line momentum in Q2 through Q4.
Speaker Change: Particularly as the contribution from Ghost bills following the transition to our distribution network.
Speaker Change: In closing we are pleased with our 2020 full performance.
Speaker Change: And the good finish in the fourth quarter.
We drove healthy marketplace trends across our base business.
Speaker Change: Secured additional scale in attractive white spaces.
Speaker Change: Strengthen our advantage route to market system.
Speaker Change: And embedded a greater efficiency focus throughout the organization.
Speaker Change: And we did this all while delivering on our plans.
Speaker Change: We are confident 2025 will be another year of progress for K D. B.
Speaker Change: We expect to showcase.
Speaker Change: Operating agility in a dynamic environment.
Speaker Change: Although relative insulation for currency volatility.
And most importantly.
Speaker Change: Our building momentum in the industry.
Speaker Change: With that.
Tim Cofer: I will turn the call back to Tim for closing remarks.
Speaker Change: Thanks, Sudan true.
Speaker Change: We achieved a great deal in 'twenty 'twenty, four and we're committed to delivering another strong performance in 2025.
Speaker Change: As we look to the year ahead, we are cognizant of the demanding operating backdrop and will act with agility to navigate uneven consumer sentiment higher inflation and a shifting regulatory landscape.
Speaker Change: We have momentum across much of the portfolio with an exciting slate of marketing innovation and sales activation plans.
Speaker Change: We are moving with speed to unlock significant productivity savings and where appropriate implement pricing in response to inflation and to ensure continued investment in the business.
Speaker Change: And we are hitting the ground running with ghost.
Speaker Change: Which we will activate in a big way as we transition distribution over the coming months.
Speaker Change: These factors support our confidence in another an algorithm year during which we will continue to distinguish ourselves as an advantaged player in the exciting beverage industry for the long term.
Speaker Change: 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 one on your Touchtone phone.
Speaker Change: If you are using a speakerphone please pick up your handset before pressing the keys.
Speaker Change: Is it any time your question has been addressed and you would like to withdraw your question. Please press Star then two.
Speaker Change: We ask that you please limit yourself to one question and one follow up.
Speaker Change: At this time, we will pause momentarily to assemble our roster.
Speaker Change: The first question today comes from Chris Carey with Wells Fargo. Please go ahead.
Chris Carey: Hi, good morning, everyone.
Mike: Hey, Mike.
Speaker Change: So I wanted to just maybe talk through the building blocks for 2025, beginning with <unk>.
Speaker Change: The commentary on Q1, you've got the leap year and you've also got the Easter dynamic so revenue and profit well and you also have green coffee, so revenue and profit do build but I think there's also a dynamic where we're looking at.
Speaker Change: Year to date consumption trends, which are very strong, particularly in your U S. Refreshment business. So are you seeing anything different versus what we're seeing or are we really just talking about some calendar timing dynamics and green coffee inflation as we as we build through the year and just connected.
Speaker Change: When you think about the overall delivery from.
Speaker Change: From a top line standpoint from volume mix versus price and from a bottom line standpoint.
Speaker Change: Do you have any thoughts on kind of where you would be thinking you're trending within the range. Given we're so early in the year. So just any thoughts on that underlying momentum you see in the business entering the year at just.
Speaker Change: Some thoughts on relative ranches and drivers for topline and bottomline. Thanks, so much.
Chris Carey: Thanks, Chris So first of all we are pleased with our on our to go performance in 'twenty four and you saw the exit run rate in Q4.
Chris Carey: And we feel we are well set up to deliver on our outgo MST topline and adjusted EPS, yet again in 2025.
Let me walk you through the sales and EPS driver as we see them today.
Chris Carey: This year will be up.
Chris Carey: With a lot of macro things moving but what we see today.
Chris Carey: There are some differences in hardware sales and how do we think on EPS.
Chris Carey: So when it comes to the revenue growth, it's fair to say that we see a path towards the upper end of our MST net sales growth range and the key driver was our continued momentum in the U S Army and international.
Underpinned by a strong innovation commercial plans and some modest net pricing.
Chris Carey: I said before a subdued trend in the U S coffee.
Chris Carey: In a dynamic commodity environment, even with higher pricing.
We think this is enough for all periods planning stance.
Chris Carey: And the incremental contribution from ghost.
Chris Carey: Which we begin to consolidate in Q wanted a smaller contribution but it will ramp as distribution build primarily starting in Q2.
Chris Carey: Now, let me come back to EPS.
Chris Carey: So we expect net sales growth and moderating of modest operating margin leverage that will translate into HST.
Chris Carey: TPS growth.
Chris Carey: Have a good profit flow through from volume mix momentum both in U S R B and international.
Chris Carey: Now we also feel that our goals will be modestly accretive this year a bit better than originally expected due to early on distribution, but on the flip side. The inflation outlook is certainly more challenging than to be taught it was three months ago based on the direction of Green coffee.
Chris Carey: We will look to offset this through pricing strong productivity makes an overhead discipline.
Chris Carey: So as.
Chris Carey: And we think right now all in.
Chris Carey: MST and at just 3% as are the right trades to target in constant currency.
Chris Carey: I would also remind you of any reported we expect an additional one to two point FX headwind.
Chris Carey: But like I said this is a challenging environment and this outlook requires discipline and agility in the face of record coffee innovation and macro uncertainty.
Chris Carey: When it comes to quarter, one and phasing.
Chris Carey: Q1.
Chris Carey: We do have a.
Chris Carey: Unless shipping there are fewer shipping day and also later Easter and one partial benefit from coffee pricing and a smaller gross contribution as distribution trying you shouldn't walk US sorry, I said during the call we expect growth to accelerate over the balance of year as the calendar normalizes.
Chris Carey: Both distributions ramps and pricing bills.
As to Q1.
Chris Carey: <unk> growth will be limited to buy natural phasing of lack of pricing to inflation.
Chris Carey: Lap from seafood arent EQT and prior year period, and a full quarter of financing costs for growth with limited contribution from them from distribution. We also expect EPS to accelerate over the balance of year, reflecting our better than expected balance between pricing inflation the gross distribution wrap.
Chris Carey: And the phasing of productivity savings realization.
Chris Carey: Okay.
Chris Carey: Yeah.
Moderator: The next question comes from Peter Grom with UBS. Please go ahead.
Peter Grom: Thanks, operator, and good morning, everyone hope you're doing well so Tim I was hoping to get some perspective on coffee just as you look back to 2024.
Peter Grom: It's been a category that's been more difficult to call I think the improvement has taken a bit longer than many anticipated.
I guess just as you look back do you feel like you have a better understanding and maybe why category growth remained more subdued and then just as you think about the stronger exit rate. What do you think drove that and I know youre expecting more subdued growth in 'twenty five but I guess my question is do you feel you have better visibility on category growth, where we sit today versus.
Peter Grom: Where we've been over the last year.
Peter Grom: Absolutely.
Peter Grom: Absolutely Peter So you know I think stepping back first.
Peter Grom: Coffee remains an attractive category long term.
Peter Grom: We remain committed and bullish on long term coffee prospects I.
Peter Grom: I remind you and others.
Peter Grom: That it is a ubiquitous category it maintains wide and passionate consumer appeal, it's the most consumed beverage outside of water.
Peter Grom: I think we believe even in an inflationary environment there is ongoing opportunity for premium amortization.
Peter Grom: We think theres an opportunity for us to have an even wider diversity of formats and channel penetration two distinct different too.
Peter Grom: Attract and capitalize on different need states.
Peter Grom: And I think in this inflationary environment that we've transitioned into there is an opportunity for us to further showcase the value of at home coffee relative to away from home.
Peter Grom: And that includes obviously, our single serve leadership position, but also a ready to drink offering with the new partnership with Lotte Cologne.
Peter Grom: So you know to your question back in 'twenty four.
Peter Grom: Was a year of relatively benign inflation.
Peter Grom: And it didn't start to ramp until the very end of the year. So our focus and much of the category was on volume stabilization and I will tell you overall, we were pleased and we felt like we were successful volume mix in the year grew about 1% and 24, you saw pod volume turned positive in.
In Q4.
Peter Grom: Obviously now as we go into 'twenty five we're in a completely different environment with record green coffee costs.
Peter Grom: We are shifting our focus we must protect our ability to invest for the long term, we understand that with the pricing moves that we and others have made there will be some volume elasticity trade off were willing to accept that because overall, we think we need to play the long.
Peter Grom: Game here and so as I said in my prepared remarks, as we go into 'twenty five it's really two primary objectives, one preserving those profit dollars in light of that inflation through a combination of the pricing action, we've taken mix productivity et cetera, and continuing to invest in the future, which we do think remains bright for <unk>.
Peter Grom: Across our innovation and activation plans pods Brewers and really stepping back and making sure we're expanding in the full coffee portfolio beyond single serve a position where we've got strong leadership.
Speaker Change: Having said all that I'll remind you what both Sudan, Sheila and I said in the prepared remarks, we're planning for U S. Coffee segment performance to remain subdued and even with that we feel confident in our overall ADP enterprise outlook of MST on the top and EPS.
Peter Grom: Steve.
Peter Grom: Okay.
Speaker Change: The next question comes from Steve Powers with Deutsche Bank. Please go ahead.
Peter Grom: Yeah.
Steve Powers: Thanks, very much good morning, everybody.
Oh I see okay.
Speaker Change: Hey, So I was hoping you could maybe building on what you outlined in your prepared remarks around <unk> ambitions in energy, maybe just a little bit more color on how.
Speaker Change: How you're viewing that market in 2020 fives.
Speaker Change: For you guys goes to is a big part of your plans for the year plus activity around this before black rifle and Bloom and we've we've seen a lot of activity.
Speaker Change: Articulates from other players as well, whether it's red lobster and the news last week regarding Celsius, and a lot of news. So maybe just a little bit of perspective, and how you are you seeing consumer demand taking shape within the category and then how your portfolio is positioned to take advantage of white space opportunities within that fairly busy and changing competitive landscape. Thank you.
Speaker Change: Yes, Steve we're bullish on energy no doubt about it we all know it's one of the fastest growing categories within LRB close to a double digit mark over the last three years I think there remains lots of opportunity to continue to offer differentiated brands that hit unique demand space.
Speaker Change: This is an unique targets. We also like the profitability of the energy category because it really helps to fund high quality long term brand building.
Speaker Change: The need is there.
Speaker Change: Ever present ever more so in terms of a universal need for alertness, and I think youre seeing a growing category sophistication in energy.
Speaker Change: Meaning that yes. There is continued upside in household penetration, but channel development there is still upside.
Speaker Change: Segmentation price pack architecture, and again unique positioning so.
Speaker Change: One of the things you mentioned in your question is we've seen some category consolidation, including some news last week, including our own exciting acquisition of Ghost.
Speaker Change: That we closed on December 31 of last year, I think that speaks to the attractiveness of energy and quite honestly. These last few moves.
Speaker Change: Make us feel optimistic that it will help fuel healthy high quality competition that should benefit the consumer and really expand the overall pie within energy we feel good that we've constructed now a portfolio that has a right to win in energy.
Speaker Change: Remind you what I said in the prepared remarks, three years ago Kt sharing energy was basically zero sitting here today, it's over 6%.
Speaker Change: Well over $1 billion in retail sales.
Speaker Change: And as I've said, we've got a double digit share goal in the years ahead. When you look at this portfolio. We've assembled a series of complementary brands that can really target distinct consumer cohorts in demand spaces.
Speaker Change: Before.
Speaker Change: Large anchor brand today in the performance space in fitness.
Speaker Change: Strong offerings in high stimulation segment with the ultimate line.
Speaker Change: Our black rifle partnership mainstream veteran founded Unapologetically American or the new Bloom distribution deal that we have a female forward brand with a very strong following tremendous momentum just getting started and then ghost a lifestyle brand.
Speaker Change: Our younger Gen Daniel target really exciting flavor range, a leader in zero sugar Skus.
Speaker Change: We.
Speaker Change: We get deeper and deeper with ghost we feel great about this deal I think it's an attractive asset its fast growing brand theres opportunities for ADP to add the value that you've seen us add in other partnership deals.
Speaker Change: Quite honestly just yesterday I was with the founders here in our Texas headquarter office, Dan and Ryan We've got Big plans and we are taking the.
Speaker Change: Distribution here in just a couple of weeks here in early March as Sundar said Youll see us ramp from there but.
Speaker Change: But I think that that gives us an opportunity to significantly impact the brand's trajectory.
Speaker Change: And we're bullish on what we can do under <unk> ownership for ghost and for our entire portfolio of energy.
Speaker Change: Yeah.
Speaker Change: The next question comes from Andrea Teixeira with Jpmorgan. Please go ahead.
Andrea Teixeira: Thank you. Good morning. So my question is first what is embedded in for the pod volume recovery.
Speaker Change: Obviously, the price mix impact.
Speaker Change: It's probably gonna hopefully inflect in the next two quarters with pricing, alright announced and potentially as just had additional pricing.
Speaker Change:
Speaker Change: Your study and how has the elasticity that having less there's been one of your competitors have talked about it let's just coming in a little bit better than expected.
Speaker Change: A follow up Oh energy.
Speaker Change: To get to the double digit share based.
Speaker Change: Basically you're thinking.
Speaker Change: Are you thinking to parts of the same question, one organic or M&A or a combo epitope as you once it comes from six two to double digits.
Speaker Change: And have you been able to secure some of the distribution gains that you've called out with ghost coming up in March AR as well as the S. Sephora. What are you looking in terms of velocity as you expect to reach that type of change it.
Speaker Change: Gration. Thank you.
Andrea Teixeira: Thanks Andrea.
Speaker Change: With your coffee question.
Speaker Change: You know as single serve coffee category leader, it's critical that we protect our ability to continue to fund high quality reinvestment.
Speaker Change: Including an even especially in these times of inflation and so we implemented a pod price increase in January we announced that in the fourth quarter.
Speaker Change: Many of our competitors, but not yet all have taken similar action.
Speaker Change: And anytime we take pricing we plan for a level of elasticity, obviously volume is going to be weaker it's a little early to get a clean read on elasticity at this point in the year and part of that is because the industry and competitive pricing is layering in right now at different rates.
Speaker Change: Different times in different channels I would tell you on the whole the consumer response to date has not been especially surprising.
Speaker Change: Largely in line with our expectations.
Speaker Change: Price has moved higher and it's been up and down.
Speaker Change: As we track it daily obviously and so we're looking at any and all options to offset any sort of incremental pressure beyond that first move.
Speaker Change: That includes productivity incremental productivity mix.
Speaker Change: Expense discipline.
Speaker Change: They require another pricing move we'll assess that each and every day and as we make our decisions. We will continue to monitor consumer response, and really focus on that first priority that I mentioned, which is preserving profit as the number one priority and our ability to continue to invest.
Speaker Change: Overtime, so I think that largely handles the coffee question and then the other was was back on ghost.
Speaker Change:
Speaker Change: I mentioned earlier and Steve's question, we feel great about the ghost acquisition as I've gotten deeper into it with the team.
Speaker Change: It's a very attractive asset and there is significant opportunity for ADP to add value.
Speaker Change: Distribution is obviously chief among them, but it goes beyond that I think there is supply chain opportunities for us R&D insights et cetera. The distribution handover is going to take place here in <unk> DST starting in March and so we have the opportunity similar to what we've done with other partner.
Speaker Change: Brands have seen in the past to build HCV build.
Speaker Change: Build average items carried build the quality of the display secondary location coolers et cetera.
Speaker Change: And obviously, we're working hand in hand, with our customers and I think our customers are excited about what we will bring to the party on coast and consistent with what I said to Steve's question, we're bringing this full portfolio of distinctive and complementary brands that I think can really reinforce one another helped drive our energy sales.
Speaker Change: And also have a benefit back to total <unk> DST in terms of drop size store frequency and DSD economics.
Speaker Change: Yeah.
Speaker Change: The next question comes from can now go into law with Jefferies. Please go ahead.
Speaker Change: Hey, guys good morning.
Speaker Change: Over the years no one has been better than you guys had funding partnerships and <unk>.
Speaker Change: Alignments, I guess tons of conversations about energy, but the new at.
Speaker Change: At least big heart things seems to be around modern soda.
Speaker Change: Some transactions in the place coax launching one of their own I'm curious, how you plan to play there and what sort of structures you could consider thanks.
Speaker Change: Absolutely.
Speaker Change: I'll step all the way back to our vision.
Speaker Change: Our vision is to provide consumers with a beverage for every need anytime anywhere.
Speaker Change: And I think as you referenced in your question <unk> done a very good job of shaping our portfolio.
Speaker Change: As you know a key pillar of our strategy and we've made great progress in the last few years and certainly energy is the one where we're talking about.
Speaker Change: A lot today, but as you say the addition of electro lead and sports hydration lock lohmann and ready to drink coffee and many other partners across still Vita Coco Evian and water et cetera.
Speaker Change: You will see us continue to do that Youll see us continue to transition our portfolio to areas.
Speaker Change: Where the puck is going and where consumers have strong interest and that includes appealing to health conscious consumers, we've seen that in our own portfolio, 60% of our portfolio. Today is what we call positive hydration nowhere low calorie or the addition of nutrients to serving the fruit no sugar.
Speaker Change: At it et cetera.
Speaker Change: Where we see those durable high potential white spaces, including the area that you mentioned in your question you can be sure we're evaluating.
Speaker Change: And all in tree avenues to participate in that growth pocket that might be organic that might be through partnerships, but as you've seen us do we will scale to that and we will continue to future proof our portfolio to have the most growth accretive position.
Speaker Change: Nlrb's.
Speaker Change: Yeah.
Speaker Change: The last question today comes from Filippo <unk> with Citi. Please go ahead.
Speaker Change: Hi, good morning, everyone.
Speaker Change: I wanted to ask about the puts and takes for gross margins in 2025.
Speaker Change: We've talked a lot about green coffee inflation can you talk a little bit about your hedging and how much visibility you have there and then also in terms of other inflation, particularly in aluminum, Florida refreshment beverage business and then overall it sounded like you have a lot of productivity should we think the margin expansion is more b.
Speaker Change: The gross margin line or do you still expect a potential for gross margin.
Speaker Change: To be consistent or maybe expanding until 'twenty five thank you.
Speaker Change: So this is onshore so plus all of our 25 outlook implies a modest operating margin expansion and let me give you a few key drivers Foster's operating leverage from healthy volume mix growth.
Speaker Change: Positive pricing and active mix management management across each of our segments.
Speaker Change: And yes, we do expect another strong year of continuous productivity at the top end of our range of two to two 4%.
Speaker Change: We had a very good year in 2024, and then ongoing overhead discipline. So we feel very good about our clients and obviously, we will remain agile in managing across various P&L levers to deliver on our commitment while continuing to invest in the long run.
Speaker Change: Your question about alimony M O.
Speaker Change: As you know.
Speaker Change: Our general approach.
Speaker Change: Had six to nine months, but as ammonia was an exception and since we do not purchase a directory instead like much of the industry. We sourced finished scan analyst from U S based suppliers be lock in pricing through supplier contracts and often take longer coverage.
Speaker Change: That puts us direct commodity purchases.
Speaker Change: So, but hedging only delayed it doesn't permanently offset well.
Speaker Change: We are all of these things to be a factor in our outlook and we feel good about our M.
Speaker Change: MST and it just EPS.
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 Becky and thank you everyone for participating we appreciate your attention and your support and Investor Relations will be available all day to answer any follow up thanks, again and have a great day.
Jane Gelfand: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Jane Gelfand: Yeah.
Jane Gelfand: [music].
Jane Gelfand: Okay.
Jane Gelfand:
Jane Gelfand: [music].
Jane Gelfand: Yeah.
Jane Gelfand: [music].
Jane Gelfand: Yeah.
Jane Gelfand: Yeah.
Jane Gelfand: [music].
Jane Gelfand: Yeah.