Q1 2025 Keurig Dr Pepper Inc Earnings Call
The End
Speaker Change: Good morning, ladies and gentlemen, and thank you for standing by. Welcome to Peter Grig, Dr Pepper's earnings call for the first quarter of 2025.
Should you need assistance, please signally conference specialist by pressing the star key followed by zero. This conference call is being recorded and there will be a question and answer session at the end of the call.
Speaker Change: To ask a question you may press star than one on your telephone keypad to withdraw your question, please press star than two I would now like to introduce
Thank you and hello everyone.
Speaker Change: Earlier this morning, we issued two separate press releases detailing first quarter results and announcing the appointment of new independent directors to our Board of Directors.
Speaker Change: We will discuss these topics during this conference call and then 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 KDP'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 KDP's 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, 10K and 10Q, which will be filed with the SEC later today.
Speaker Change: Consistent with previous quarters, we will be discussing our Q1 performance on a non-GAAP adjusted basis, which reflects constant currency growth rates and excludes items affecting comparability [inaudible]
Speaker Change: Definitions and reconciliations to the most directly comparable gap metrics are included in our earnings material.
Speaker Change: Fear 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.
Speaker Change: Our first quarter results were strong. Net sales advanced more than 6% and EPS increased more than 10%
We believe KDP is well positioned in today's fluid macro-environment.
Speaker Change: The Operating and Regulatory backdrop demands a combination of organizational ballast and agility.
Speaker Change: as a scaled beverage player that is also the industry challenger.
KDP is fortunate to have both.
Q1, served as a good demonstration
Speaker Change: Our resilience was evident in the strong top and bottom line results.
Speaker Change: While each of our segments faced different conditions in Q1, we executed well to deliver strong
Speaker Change: During the quarter, we also moved quickly to assess and react to trade policy changes.
Speaker Change: Looking out to the balance of the year, our outlook now incorporates our best estimate of tariff-related pressures and mitigations based on the policies in place today.
Speaker Change: As a result, we continue to expect that 2025 will be another solid year of growth, and we are reaffirming our full-year guidance.
Let's now unpack the quarter's highlights and segment performance.
Speaker Change: Beyond the strong financial outcomes in Q1, there were several noteworthy achievements in the quarter, also worth highlighting.
Speaker Change: These include market share gains across iconic liquid refreshment beverage brands like Dr Pepper and Canada Dry, as well as newer brands like Electrolite and C4.
Speaker Change: Accelerating price realization across each of our segments, reflecting actions to effectively manage inflation in 2025.
A smooth start to the integration of ghost energy.
Speaker Change: We are hitting the ground running in establishing a true energy platform.
with a 6.5% market share position already and momentum building.
Strong operating discipline, particularly in overhead cost management.
Speaker Change: and Smart Capital Allocation, including the monetization of our very successful multi-year
Speaker Change: Vitococo has been a valued partner for the past 15 years and we recently extended our distribution partnership to capture the significant growth opportunity ahead.
Speaker Change: At the segment level, US refreshment beverages continued to outperform on the back of very strong
Speaker Change: U.S. coffee experienced a softer start as the category began to work through commodity driven inflationary challenges.
and international proved resilient against a dynamic macro backdrop.
Speaker Change: I'll now dive deeper into each of our segments. Let's start with US refreshment beverages, which was the clear standout in the first quarter.
Net sales grew 11% . .
Speaker Change: Driven by strength in our core CSD portfolio, as well as the initial contribution of our ghost acquisition.
Our CSTs outperformed in a healthy category.
Speaker Change: As consumer obsessed brand builders, we delivered this result through a combination of impactful innovation, strong commercial execution, and full funnel marketing.
Speaker Change: Dr Pepper had another great quarter with sizeable market share gains, including a meaningful contribution from our highly incremental Dr Pepper Blackberry launch in February
Speaker Change: The new product, which pairs the iconic Dr Pepper flavor with the rich sweetness of blackberry.
Speaker Change: The Dr Pepper franchise continues to gain distribution breadth and depth.
Thanks to Innovation and Zero Format Expansion.
which remains a multi-year growth opportunity for this powerhouse brand.
Speaker Change: Due to attractive returns on recently stepped up innovation, marketing support, and product refreshment, including our early 2025 launch of Seven Up Tropical.
Speaker Change: More exciting activity for these and other CSD brands like A&W is forthcoming.
Speaker Change: Our energy portfolio was another area of strength in the quarter.
Speaker Change: Entering year three of our partnership, C4 maintained its momentum, driven by DSD execution to expand the brand's distribution points and grow display penetration.
Speaker Change: Our integration of ghosts kicked off well, as did the distribution transition in late Q1.
Speaker Change: As we assume full influence over the brand all the way to the shelf, we are beginning to execute against ghosts significant growth opportunity.
Thank you very much.
Speaker Change: We are doing the same with emerging brands like Female Forward Bloom Sparkling Energy which quickly scaled to a half a share point in the category during Q1
and the recently launched mainstream-focused Black Rifle Energy Line.
Speaker Change: Now that our thoughtfully constructed energy portfolio is in place, we are confident in our right to win and our team is eager to seize the opportunity.
Speaker Change: In Sports Hydration, another exciting emerging category for KDP. Our work with Electrolead is entering year two on a strong growth trajectory.
In Q1, the brand enjoyed significant and accelerating sharegains.
Speaker Change: which should sustain as we pursue distribution white space and new packaging and product forms.
Speaker Change: which will be supported by a state-of-the-art manufacturing facility currently under construction in Texas.
Overall, we're very pleased with our U.S. refreshment beverages performance.
Ouer Portfolio Has Momentum
We are executing at a high level.
Speaker Change: and we have strong commercial plans for the rest of 2025.
Speaker Change: In U.S. coffee, Q1 was a challenging quarter, with a 3.7 percent net sales decline and profit pressure.
Speaker Change: Bill, the single-served category's transition in 2025 from volume-led to pricing-led growth requires some patience to navigate.
Our dual priorities are steadfast.
First, Mitigating Record Green Coffee Inflation
Speaker Change: and second, fortifying our long-term growth model by addressing evolving consumer needs.
Speaker Change: During the first quarter, we took actions in support of both of these priorities.
Thank you.
I'll begin with mitigating green coffee inflation.
Speaker Change: Given the magnitude of the pressure that we and the industry are facing, we implemented a price increase across our owned and licensed brands to start the year.
Speaker Change: These pricing actions appeared on shelf earlier than many peers, resulting in short-term volume and mixed trade-offs in Q1.
Speaker Change: As already announced industry pricing layers in over the coming months, we expect to see more typical price gaps among key single serve brands.
Speaker Change: and for the net impact of our actions to become more favorable looking out into the back half.
Speaker Change: We will continue to evaluate all available levers to offset inflation over the course of the year. These include potential additional pricing, more productivity savings, and a sharper focus on the highest returning products, channels, and households.
Speaker Change: This brings me to our second priority, fortifying our long-term growth model.
Speaker Change: We are going after premium, cold, and next-generation opportunities to drive at Keurig's future growth with Q1 progress across each dimension.
Speaker Change: We've been building a tier of premium and super premium coffees.
Anchored by brands like Lavazza, Lakalom, Fills, and others.
Speaker Change: when part of our portfolio. As an example, Lavazza K-Cup Pods saw over 30% growth in Q1 retail sales.
Another major focus area is capturing more cold occasions.
Through a variety of total coffee formats.
Speaker Change: In Q1, we introduced new flavors to expand on 2024's successful refreshers platform.
These products are proving highly incremental at key retailers.
Speaker Change: Our locollon ready-to-drink coffees also continued to scale nicely in the quarter, supporting the brand's transformation into a formidable challenger in this multi-billion-dollar beverage space.
Speaker Change: Our future coffee vision is also steadily progressing with behind-the-scenes work on the Keurig Altasystem and Plastic Free, Aluminum Free, K-Round Spods.
as well as plan for future commercialization.
Speaker Change: These examples illustrate how we are balancing our U.S. coffee activities this year between inflation mitigation and long-term growth initiatives.
Though segment performance is likely to remain subdued in 2025.
Speaker Change: We are laying the groundwork for stronger and more multifaceted growth in the years ahead.
Moving to International, Q1 sales grew in the mid-single digits.
Speaker Change: We're pleased with KDP's relative trends across our primary countries and will continue to lean in to bolster our momentum as the year progresses.
Speaker Change: In Q1, we saw strong growth in liquid refreshment beverages driven by Pena Fial and our CSD portfolio in particular Dr Pepper and Crush.
Speaker Change: Inflation-related pricing also started to flow through late in the quarter and supported top-line gains across the international portfolio.
Speaker Change: We expect segment growth to accelerate over the balance of 2025.
Speaker Change: Reflecting increased price realization and the activation of exciting commercial plans highlighting our key international brands many of which enjoy strong local identities.
Speaker Change: To wrap up, our dawn to dusk beverage portfolio is delivering strong enterprise results.
while continuing to evolve towards faster growing spaces.
Speaker Change: Simultaneously, we are capable managing through changing economic conditions and mitigating associated risks.
Speaker Change: As we move through the year, we will remain flexible and proactive as we work towards delivering on our 2025 financial commitments and advancing our long-term strategic priorities.
Speaker Change: I'll now turn the call to Sudhanshu and we'll return at the end with some closing thoughts.
Thanks to him and good morning everyone.
We had a strong start to 2025 .
Our business has momentum.
We are executing well.
and we are operating with discipline and agility.
Speaker Change: in our ability to continue to deliver solid results over the balance of the year.
Our top line was driven by...
Speaker Change: Strong double digit gains in US refreshment beverages and healthy trends in international
which more than offset a challenging quarter for U.S. coffee.
on a concerted basis.
Groth was supported by multiple net sales drivers.
Speaker Change: Net Price Realization increased 2.8% sequentially strengthening across each of our segments.
Speaker Change: This primarily reflected actions taken in response to inflation as well as some targeted trade spend refinements.
Speaker Change: Volume Mix Advanced, 3.6% in the quarter, which included solid-based business growth, particularly in liquid refreshing beverages.
Speaker Change: The addition of goes to the KDP portfolio also contributed 2.9% of its points to the top line.
Speaker Change: We expected this pressure given a difficult comparison and escalating inflation.
Speaker Change: Pricing and productivity should build in the coming quarters and our labs become easier.
which will help us better manage expected headwinds.
S.T.E.L. Everest 90 basis points.
Discipline Expense Management is an ongoing focus.
but is taking on even greater importance.
in today's less certain economic environment.
Extreme Lining where it makes sense. [inaudible]
and arriving at more efficient ways of working.
Speaker Change: These efforts will continue to bear fruit over the coming quarters driving operating
in total, operating income increased 3.9%.
Speaker Change: which was enhanced by below-the-line leverage, including a realized gain on the sale of our Minority Steak Invite a Coco.
Speaker Change: This transaction is testament to the merits of our flexible capital allocation approach.
which I will discuss in more detail shortly.
Moving to the segments
U.S. refreshment beverages posted another set of impressive quarterly results.
Speaker Change: Bass Business Momentum was also strong driven by CSTs and key partnerships.
Speaker Change: Net Price Realization contributed three points to segment that self, primarily reflecting
Segment Operating Income, Grue 8.7%
Speaker Change: as Netshells Momentum and Productivity Savings, More Than Offset Inflation.
Speaker Change: This growth also came despite a sizable net headwind from lapping a larger C4 performance
I've expected net price realization inflected positively.
Speaker Change: Contributing 1.5 points of growth as pricing actions on our own and licensed plans begin to flow through.
Speaker Change: However, this was more than offset by a 5.2% decline in volume mix.
Speaker Change: Part of the pressure reflected industry pricing layering in at different rates across the single subcategory.
which contributed to short-term volume and mixed impacts.
We also saw some retailers more closely managing trade levels.
As Price Increased [inaudible]
Tegment Operating Income, Declined 12.5%
in the first quarter [inaudible]
Speaker Change: Net Price Realization, and Productivity proved insufficient to fully cover green coffee in
Speaker Change: We expect both revenue and operating in compressor to ease in the back half.
Speaker Change: as the balance with been pricing, productivity, and inflation improves and as makes effects normalize.
In International,
Nashville's Crewe 5.4% with growth across regions and categories.
Wrote was led by favourable net price realisation of 4.1%
Speaker Change: driven by particular strength in liquid refreshment beverages in both Canada and Mexico.
Tecment Operating Income, Declined 4.6%
Speaker Change: Similar to last quarter, this reflected the phasing of DST investment in Mexico.
as well as an imbalance between pricing, productivity and inflation.
Speaker Change: Both factors for primarily a function of timing for the full year, our international segment should remain a strong top and bottom-line-goat contributor.
Moving to Caslow and Captain the location
Speaker Change: We generated $102 million in free cash flow in the first quarter.
Notably, this result included the known impact from a one-time...
225 Million Dollar, Ghost Distribution Transition Payment 225 Million Dollar, Ghost Distribution Payment
So, on an underlying basis, our performance was even stronger.
Our business model remains highly cash-generative.
Speaker Change: and we continue to expect a healthy free castle year in 2025.
Speaker Change: Our dynamic capital education strategy was on display during the first quarter.
as we monetized our multi-year equity stake in Vita Koko.
Speaker Change: This was a clear demonstration of the mutual value that our partnership model creates.
Since we begin working with Vita Coco
Speaker Change: We have helped to establish the brand as a clear leader in the vibrant coconut water category.
Switching now to our 2025 guidance.
Our constant currency outlook is unchanged.
Speaker Change: with a bias towards the high end of the range and high single digit earnings for share growth.
Based on current rates, we now anticipate.
Speaker Change: that FX will represent approximately a one percentage point top and bottom line headwind for the full year.
Our below the line of junctions remain the same as our prior guidance.
Speaker Change: An effective tax rate of approximately 22% to 23% and approximately 1.37 billion diluted
Speaker Change: Based on what we know today, anticipated to add if impacts in 2025 appear manageable relative to our guidance.
Speaker Change: while we are not immune to the effects of these tariffs.
Speaker Change: Multiple counterbalances should keep us on track to deliver the year.
Speaker Change: These include a series of mitigation steps that we are pursuing.
Flexibility from first quarter over delivery
and other in-ear opportunities.
Having said that...
We recognize that some external elements.
Speaker Change: like future trade policy and potential consumer response are outside of our control.
Speaker Change: As a result, we will need to remain agile, as we seek to deliver responsible and sustainable outcomes for KDP and for our consumers.
Speaker Change: In closing, we are pleased with the business momentum and a strong execution that powered our first quarter results.
with our singular focus on beverages.
Scaled North American Operations and Challenge Your Mindset.
KDP is well suited to navigate.
Today's very dynamic, economic landscape.
while delivering consistently.
With that, I will turn the call back to Tim.
for closing remarks.
Thank you, Sudhanshu.
Speaker Change: This morning we also highlighted the continued evolution of KDP's Board of Directors to help steward our next stage of growth.
Speaker Change: First, following a rigorous and extensive recruitment process, we appointed two new independent directors.
Mike Van Devin, and Lawson Whiting.
Speaker Change: These highly qualified seasoned executives will bring valuable and complementary perspectives to our board.
Speaker Change: Second, Bob Gamgort's role is transitioning from executive chairman to non-executive chairman of the board, another natural next step in our governance.
Speaker Change: Having joined KDP more than 18 months ago and assuming the CEO role a year ago, I can say with confidence.
Speaker Change: that KDP has entered an exciting new chapter in our time as a public company.
Speaker Change: Together, we look forward to executing on the compelling growth and value creation agenda ahead.
With that, we're now happy to take your questions.
Speaker Change: We will now begin the question and answer session. To ask a question, you may press star than one on your telephone keypad. If you're using a speaker phone, please pick up your handset before pressing the keys.
Speaker Change: To withdraw your question, please press star then two. At this time we will pause momentarily to assemble our roster.
Speaker Change: The first question comes from Dara Mohsenian with Morgan Stanley . Please go ahead.
Hey, good morning!
Speaker Change: So first just a clarification on the physical 25 guidance there's obviously a lot of moving pieces just can you discuss high level [inaudible]
Speaker Change: Your level of confidence in maintaining the local FX guidance in 2025, how much flex do you think you have to manage through a difficult environment that's...
Speaker Change: Call us most of your peers at the lower guidance. Sudhanshu, the comments on tariffs were helpful. Can you give us a bit more detail on your exposure there and the potential offsets in the guidance.
Speaker Change: and then just separately, we've seen very healthy level of organic sales growth in US refreshment in the last couple quarters.
Speaker Change: A. On pricing, what are you seeing competitively, the willingness of retailers and consumers to stomach the additional pricing, and then be just level of confidence that the market share gains will continue, particularly on the CSD side. Thanks.
Thank you. Thank you. Thank you.
Speaker Change: Good morning, Dara. So, let me talk to you about the, I'm assuming you meant EPS guidance. So,
Speaker Change: Our philosophy is to issue a balanced guidance that includes both risk and opportunities. But based on what we see today, we continue to expect a high single-digit constant currency BS growth.
Speaker Change: Plus it's also including ghost accretion, distributors building and a strong productivity and discipline expense management which will support continued healthy brand investments level.
Speaker Change: As you know, there are incremental pressure points that has emerged even since February . Current tariffs now represent an additional headwind versus initial plan.
Speaker Change: Slower than expected, start in U.S. coffee, with improved men expected in second half.
Speaker Change: We believe we have identified these appropriate steps to offset these impacts and now we just have to execute.
Speaker Change: This includes pushing hard on cost savings, evaluating additional pricing and mixed management and pursuing alternate sourcing.
Speaker Change: Our Q1 EPS website also provides us some flexibility to absorb headwinds over the balance of year.
Speaker Change: But as you said, it remains a fluid environment. Future trade policy and consumer health are watchpoints.
Speaker Change: These drive a wider range of outcome that is not always predictable. Having said that, we feel good about our ability to influence the factors within our controlling 2025, which is why we have reaffirmed our outlook today.
Speaker Change: Yeah, and Dara, I'll take the question on U.S. for a freshman beverage and as I said in my commentary, no doubt we're pleased with the outperformance.
Speaker Change: Strong Consumer Value and Appeal in that category overall, and continued price and mix opportunity for us.
Speaker Change: Within a healthy category, KDP is outperforming. I mentioned Dr Pepper, which remains very strong, we're very happy with the black very launch continued expansion of the zero platform and distribution gains, Canada dry gains share in the quarter. Seven up is back to share growth.
Speaker Change: Given a brand repression launch at Tropical, so CSDs are really firing on all cylinders for us.
Second in energy.
Speaker Change: We had a strong quarter of the energy. I think our portfolio of energy brands is starting to show C4 as maintain momentum as it enters year three of the partnership. We expect continued growth there. Ghost, it was a good start.
Speaker Change: On Ghosts in Q1, the distribution's transitioned over to us and you saw a good growth there, and Bloom is scaling very nicely, very quickly in this female forward sub-segment. [inaudible]
Speaker Change: I go to sports hydration, electrolyte, very pleased, growing strong double digits.
Speaker Change: We expect robust growth on the year for electrolyte. We've just lapped our initial introduction of electrolyte into the portfolio and believed that with our DSD execution we can really magnify that growth opportunity, scale it nationwide, bring it into mainstream aisle, bring some innovation to market. So overall I think as you look at USRB, a great quarter, robust innovation, marketing, strong DSD activation and
Lee continue to be bullish on the year.
Speaker Change: and obviously Ghost Contribution. Pracing will be a contributor this year as primarily CSDs. We announced our, you know, what you call, typical CSD price increase, that took effect at the beginning of the year. That's filtering through the P&L, and I think, as I said earlier, it's clear from the...
Speaker Change: Overall, category resilience that consumers continue to see great value in the CSD category relative to LRBs.
Speaker Change: You know, now that tariffs are in the picture, it does introduce another dimension that will need to sink through.
Speaker Change: At least in part reliant on some aspects of global supply chain and so as that develops we'll consider all potential mitigations which could include additional pricing actions late in the year to protect our long-term ability to invest and keep this business as healthy as we've seen it in Q1.
Speaker Change: The next question comes from Lauren Lieberman with Barclays. Please go ahead.
Strain Consumer Environment, Edelman,
Speaker Change: Absolutely, Lauren. So, you know, no doubt in this inflationary environment that we find ourselves here in 25, as I said, we've got two main priorities on the coffee business this year. The first is mitigating that green coffee inflation, including now tear-related impacts.
Speaker Change: and the second is making sure we are playing the long game and we're advancing long-term initiatives specifically for us. That means cold, that means premium, and next generation propositions.
Speaker Change: We implemented a pod price increase in January on our owned and licensed portfolio.
Speaker Change: and, you know, as we look at the Q1 marketplace dynamics and the data that you see we did.
Speaker Change: Yeah, I think it's clear competitor pricing layered in at different rates across brands and channels and so far at a category level the elasticity is certainly manageable and not particularly surprising [inaudible]
but the slower than expected.
Speaker Change: and I would say the price gaps weren't normal or consistent with historical norms. So we were under some pressure, therefore, in Q1, and quite honestly, I'd expect those pressure points will persist likely into Q2, but we do expect it to ease looking into the second half. And we're already seeing evidence that competitive pricing is starting to accelerate across the category, especially if you look at the last few weeks of that.
of Gata, so.
Speaker Change: You know, in the guidance that Sudhanshu and I provided, we've calibrated for that reality and we can stay patient as this plays out You know, as you go into the back half, you know, we will consider additional inflation mitigation steps
Speaker Change: in response to both green coffee and tariffs. Additional price could be one of the levers, but there are others as well. Productivity, mix, and a broader cost base.
Speaker Change: You know, we've talked in the past, Lauren, that you know, at home coffee given its multi-served nature is more exposed on a total dollar outlay. And so to address this, we are focusing in two areas.
Speaker Change: and I remind you and others that last year we actually did a price pack adjustment that I think will service wellness environment to hit a lower total dollar outlay per pack. So think 12 to 10 or at club, you know, 100 to 80 count. And the other to your question is emphasizing the relative value of our proposition relative to at home coffee. And we think that that can play well. Thank you very much.
Speaker Change: and even on the premium end, you can have that incredible cup of Lavazza, Locke Lone, Kicking Horse, Fills Coffee, all the quality, all the value, all the convenience at a fraction of the coffee shop alternative price point. So that is certainly something we will leverage in this inflationary environment.
Nick Modi: The next question comes from Nick Modi with RBC Capital Markets. Please go ahead.
Nick Modi: Yeah, thanks. Good morning, everyone. This is two quickings from me. Just came out to love your perspective on.
Nick Modi: You know, activity amongst Hispanic Latino consumers here in the U.S. I mean, obviously it's, uh...
Nick Modi: I think it's been pretty volatile. We're hearing in April , for instance, very high Hispanic populated areas and brands lever to those areas are actually doing much better. I would just love your thoughts on what you're seeing in the market and how you think this will play forward. [inaudible]
Nick Modi: and then just one question on SNAP, you know, given all these state-level initiatives, you know, what exactly is the industry's response or can the industry's response be from some illegal perspectives? Just given that there's a lot of arguments to be made against actually banning soda from SNAP.
Nick Modi: For instance, Juice Drinks, some of them have more sugar than CFP's, just as an example. So just would love your thoughts on that.
Speaker Change: Yeah Nick, so we'll start with Hispanic, you know, as you well know, the Hispanic consumers, the second largest.
Demographic Group
Speaker Change: We have many great brands that appeal to Hispanic consumers, but I would say our exposure to this group is in line with our peers and the overall category dynamic.
Speaker Change: Over the last couple of months our data certainly is aligned with yours in terms of seeing softening trends among Hispanic consumers relative to the broader population.
Speaker Change: and when you dig into that, you see that manifesting both in terms of fewer trips and lower spend per trip.
Speaker Change: Having said all that, I would say that the slow down year to date that we're seeing in the Hispanic consumer purchase dynamic is not yet sufficient to move the needle on our enterprise trends.
Speaker Change: and I think you see that overall in the, you know, total enterprise results that we printed here for Q1. So, the way I characterize it is, it is a watch point.
I think it's contributing to the overall dampened.
Consumer Sentiment
Speaker Change: You're seeing in the US, we are seeing some modest changes in consumer behavior and you know overall signs, same signs you see that external macro factors are starting to have an impact.
Speaker Change: in terms of consumer sentiment. But it's not yet sufficient to meadle and I think our point of sale trends and our core categories show that we've remained resilient.
Thank you.
Speaker Change: then to your second question on SNAP. You know, I'd start with a couple of facts for you and others on the call and that is when you look at the grocery bill receipts of SNAP recipients and non-SNAP households, they're actually strikingly consistent.
Speaker Change: and you see beverages playing an equally prominent role in both sets of households. Second thing I'd say is SNAP recipients.
Speaker Change: Fund, part of their grocery bill through SNAP subsidies and part of their grocery bill with their own money.
Speaker Change: And I think all of this tends to suggest that should there be changes in SNAP, you could see a shift of kind of source of funds from left pocket to right pocket. But I'm not sure and we would not expect a significant change to our categories.
Speaker Change: You ask about, you know, our position as an industry, and we certainly stand with our industry colleagues to advocate for consumers.
James Deggendid,
Dignity is anyone else to give them the choice. [inaudible]
Speaker Change: to buy the food and beverage brands that they'd like, and of course providing transparency on our ingredients. And I think as a beverage industry, we've actually done a great deal. You might say more than anyone else to reduce.
Total Chloric Load
in the U.S. Calories from beverages are actually down 40 percent.
since 2000.
Speaker Change: and 60% of the beverage portfolio in the industry and here at KDP are lower, no calorie and zero sugars. So, you know, we've done a lot here. We will continue to work with the administration and our industry colleagues to advocate for consumers.
Speaker Change: And the last thing I'd say is, you know, to the extent there is any exposure here, KDP exposure would be similar to our peers.
Chris Carey: The next question comes from Chris Carey with Wells Fargo Securities. Please go ahead.
[inaudible]
Hi, good morning, everyone.
Yes?
Speaker Change: I wanted to ask about free cash flow. So obviously it was an noisy quarter with ghost.
Speaker Change: But we're getting to this point where free cash flow is going to be less impacted by the payables program. Obviously we've got this hit in Q1. You've kind of talked about capital allocation in the quarter or as a general concept today.
Speaker Change: Can you maybe just help us frame how you would view maybe with a bit more specificity your free cash flow development as we go through this year and really into 2026?
Speaker Change: and perhaps comment on how we should be thinking about free cash flow conversion.
You know, conscious that. [inaudible]
Speaker Change: You know, free cash flow has been a major debate on the company, but, you know, the payables program hanging down was a meaningful part of that. And so just trying to understand the past to, you know, a more tangible free cash flow of flexion. And what you would, you know, tend to do with that cash as it as it starts coming through in a more meaningful way. Thanks.
Speaker Change: You can see our pre-castropopilot accelerating and we made significant progress in 2024 and we plan to have a further improvement in 2025.
Speaker Change: Gordverly Caslo, can be lumpy, you talked about Q1, but we had a good start in Q1.
Speaker Change: and for the up-year-over-year, even with the high one-time course distribution termination fee.
Thank you.
Speaker Change: In the long run, we are on track to restore business to the long-term target conversion level over the next couple of years. Our goal remains, which I have said before, to return to the conversion level that I have commenced with our largest peers.
Speaker Change: It would take us a couple of years, but you will see 2025, more half second-half waited, but it should be better than 2024, especially after you take into account the 2025 million distribution payment. Your question on capital allocation?
Speaker Change: We are highly focused on deploying this gas, as we generate, the gas we generate in a smart discipline and dynamic way. Our long-term capital allocation priorities are unchanged, they include internal investments.
Speaker Change: partnership, M&A, steady dividend growth, and opportunistic share repo, and we strive to keep our leverage below 2.5 times. In the current environment,
Speaker Change: B.L.A. Virginia Priority, but will continue to consider opportunities to invest in growing the business while staying disciplined on our capital returns.
[inaudible]
[inaudible]
Speaker Change: The next question comes from Peter Grom with EVS. Please go ahead.
Peter Grom: Thanks operator, good morning everyone, hope you are doing well. I wanted to ask about ghost.
Speaker Change: You know, the performance for the brand was very strong, but I think the expectation was...
Speaker Change: that the contribution would be the smallest in the first quarter and then build from here. Is that still the right expectation as we think about the model moving forward?
Speaker Change: And then just second, a lot of discussion on moderating category growth across many of your categories, but
Speaker Change: Energy drinks seem to have gone the other direction a year or a day, so just be curious what you think is driving the improvement and whether you would anticipate growth to kind of continue to accelerate particularly as the industry starts to cycle easy compare or easier comparison in the summer year thanks. .
Speaker Change: You know, it's been a fast start out of the gate in Q1 for us on our energy platform broadly.
Speaker Change: and it's exciting to see already our platform of brands winning and showing up as anticipated in terms of very complimentary and incremental to one another. At a category level to the second part of your question,
Speaker Change: Energy, as he said, is one of the fastest growing categories within liquid refreshment beverage.
Speaker Change: You know, you saw a little bit of softness, kind of last summer, Q3, et cetera. You saw it start to pick up in Q4 and year-to-date retail sales are in the high single digits. And you know, like you, we look at scanner data every week and I think you've seen robust growth, you know.
To the last seven, eight weeks in a row, double digits.
Speaker Change: So, feeling good about the category, feeling good about the fact that it serves that universal need, feeling good even as we go into the back half and we lap some of the softness that you saw in 20.
Speaker Change: for those are good comps at a category level. Then talking KDP specifically, our portfolio has great momentum and I've mentioned and I'll cover the other three and then get in the ghost but
Speaker Change: C4, we're now entering your three of the partnership. Let's get started.
Speaker Change: Big strong player in the performance sub-segment and performing very well. Bloom energy, off to a...
Speaker Change: A Red Hot Start, strongly resonating with women, a still young brand, already captured more than a half a point, and Blackriple Energy just beginning to hit shelves.
Speaker Change: and then you get to Ghost and you know, you see us growing double digits at a retail level. I'm very happy with our progress year to date.
and I highlight a few points. Number one is…
Speaker Change: We've got a great working relationship with the ghost team. We're aligned on our vision and their vision. We've got strong coordination. We've got complementary cultures. It's working kind of at the people and team level. [inaudible]
second
Speaker Change: We're well into transitioning to distribution and setting in motion our joint commercial plans. The process is going smoothly so far. It's on schedule. The handovers are going well. And now that we've got greater control over the brand all the way to that point of buying, I think you're seeing those marketplace trends accelerating. It's exciting.
Speaker Change: Obviously, our focus on maximizing distribution, TDPs, total points of distribution, cooler space, displays, etc.
Speaker Change: And third and I think most importantly, we are on track to deliver on our plan and our expectations for 2025 and the long term and yes to your question we do believe we will continue to build momentum and the balance of the year.
Speaker Change: The next question comes from Bryan Spillane with Bank of America. Please go ahead.
Speaker Change: Hey, hey, good morning. It's Pete Gellel. Can you hear me?
Speaker Change: Hey, Pete, we here you. Hey, hey guys, how are you? Thanks. Thanks for taking a question. Appreciate it. Just, just, just.
Maybe one clarification and then one broader question.
Speaker Change: But, Sudhanshu, maybe you can just help us a bit more. I think it was about four cents of upside.
Speaker Change: You know, on the quarter relative to consensus, obviously you're not changing the guide and you've outlined that [inaudible]
Speaker Change: You know, related to Tara and maybe the consumer environment, but maybe you can just help us a little bit with the phasing and how you're thinking about the build of EPS over the rest of the year from a cadence perspective.
Thank you.
Ashrafid Ab.
The beat in Q1 was...
Speaker Change: Some was driven by, you know, Wighter Kokosel, we sold Wighter Kokos take with a very successful stake and we had a gain of close to like one and a half cents if you think about it. So obviously this giving us flexibility and balance of here to manage all the consumer headwind and tariff.
B.
Speaker Change: We guide for the year, and we reaffirming the guide that it will be MSD sales with the buyers towards the higher end of sales and the EPS mid single digit. Obviously, Q1 was a double digit growth, but you saw the below the line helped.
Speaker Change: HSCPS, and Q1 is giving us flexibility to manage through all the headwinds with a straight
and I can help you more towards modeling.
if you have more questions.
Speaker Change: The next question comes from Kaumil Gajrawala with Jeffries. Please go ahead.
Kamil Ghajarwala: Hey guys, good morning. It's spring your kid to work day at Jeffrey, so I'm gonna have my son Cameron ask a question.
Thank you.
Speaker Change: Dr Pepper's Blackberry is already once a term like it's here and was only lost in temporary, having a computer will it be for the year.
Did you guys get that?
Speaker Change: Wow, fantastic. I think it's my first ever question from a young person, and I appreciate a camera, and I hope camera is a big fan of Dr Pepper Blackberry. Indeed to his question, we're really pleased with brand Dr Pepper.
and the results in Q1. You know, this is…
Speaker Change: This is, as you know, the number two CSD brand by volume now for two straight years and...
Speaker Change: and we are on track for our eighth consecutive year of market share growth. We think that we've got continued runway for growth through our strategy of bringing great flavors like Dr Pepper Blackberry.
Speaker Change: into the portfolio. We think we can grow through closing distribution gaps.
Speaker Change: and we think we can also grow through this zero platform which continues to grow at a double digit rate. Specifically, the Cameron's question, Dr Pepper Blackberry, it's on par already with some of the strongest innovations over the last few years.
Cameron: and Linear channels. And I think you'll see continued strength of Dr Pepper year to go. Thanks, Cameron.
Speaker Change: The next question comes from, and is the last question today comes from Filippo Falorni with City. Please go ahead.
Hey, good morning everyone.
Speaker Change: I was wondering if you can provide a little bit more color on kind of the cadence of coffee going forward. I know you mentioned there were puts and takes in Q1 and you're expecting some sequential improvement but maybe...
Speaker Change: some direction on the improvement there and then specifically on the tariff side still in coffee can you remind us like the implication both on the brewers and the raw material impact how you should impact the PNL and how you're planning to mitigate it. Thank you.
Speaker Change: I'm assuming you meant I'm giving you on some more of the O.I. operating income. So we had a disaster to one O.I. and both Revenue and...
Speaker Change: and Y and we anticipated a muted start of the year but it was worsen but we expected in quarter one and Tim gave the region it was mainly driven by timing of industry pricing phasing into market. It was slower than what we anticipated.
Speaker Change: We continue to think that, you know, 2025 will have sales and O.I. pressure in US coffee. Relative to our visual planning stands, we have tempered our segment outlook to reflect to factor first.
What we saw in Q1, we will continue.
Speaker Change: It will be a Q2 to work through such a volumic fragment, and then the second, your question or incremental impact of tariff that has currently in place, it applies to green coffee and it's also...
Speaker Change: He applies to Brewer. We already announced Brewer price increase in the market, so we are trying to manage for profit dollar for the year.
Speaker Change: But we feel that, you know, whatever coffee does this year, it will continue to be subdued. We feel good about our full-year guidance of MSD sales and HSDPS at the enterprise level.
Thank you. Thank you.
Speaker Change: This concludes our question and answer session. I would like to turn the conference back over to management.
Speaker Change: Thanks so much Drew and thank you everyone for joining us on a busy morning. The IR team is here all day to answer any follow-ups you may have and we appreciate the interest. Thank you.
Speaker Change: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.