Q2 2025 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 second quarter of 2025. This conference call is being recorded. And there will be a question and answer session. At the end of the call. I would now like to introduce Jane gulen senior vice president Finance at Keurig Dr. Pepper Miss gulen. Please go ahead.
Thank you and hello everyone.
Earlier this morning, we issued a press release detailing our second quarter results, which we will discuss during this conference call.
In real time on the live webcast.
Before we get started, I'd like to remind you that our remarks will include forward-looking statements, which reflect Katie's judgment assumptions and Analysis, only as of today,
Our actual results May differ materially from current expectations, based on a number of factors affecting KDP business.
Except as required by law, we do not undertake any obligation to update any forward-looking statements to discuss today.
Consistent with previous quarters, we will be discussing our Q2 performance on a non-gaap adjusted basis. Which reflects constant currency growth rates and excludes items affecting comparability.
Definitions and reconciliations to the most directly comparable gaap metrics are included in our earnings materials.
Tim Kofer: Here with us today to discuss our results. Our curig Dr. Peppers, chief executive officer Tim, kofer and Chief Financial Officer and president International Sudan, shu priyadarshi,
Tim Kofer: I'll now turn it over to Tim.
Tim Kofer: Thanks Jane and good morning, everyone.
Tim Kofer: We delivered strong second quarter results, closing out, a very good first, half of the year.
Tim Kofer: Our resilient performance is Testament to our advantage, business model execution and Agility while operating in a dynamic environment.
Tim Kofer: Looking ahead, the balance of 2025 will present challenges in the form of rising cost pressures including from tariffs that remain, highly fluid as well as continued consumer caution.
Tim Kofer: Despite this we remain on track to achieve our full year outlook. Thanks to strong first half delivery and well-calibrated back half plans.
Tim Kofer: While driving hard to deliver on our 2025 commitments, we continue to advance kdps long-term value creation strategy.
As a reminder, our strategic roadmap is focused in 5 areas.
Tim Kofer: Our entire organization is Galvanized around these goals with forward progress, being made each quarter.
Tim Kofer: Let me share some examples from Q2.
Tim Kofer: Starting with consumer, obsessed brand building in June. We published kdps inaugural state of beverages. Trend, report reinforcing our thought leadership in the beverage industry.
Tim Kofer: Drawn from National surveys and our own proprietary data. This Insight Rich report underscores, the important role beverages play in consumers. Lives, and how evolving preferences are shaping demand.
Tim Kofer: With consumers ever-changing needs at the heart of everything we do. It's no surprise that this report captures. Many of the trends we have been actioning against
Tim Kofer: For instance, we know that nearly half of all Americans, and almost 3 quarters of gen Z consumers. Try a new beverage every month.
This year we are satisfying. Their thirst and curiosity through a robust flavor oriented Innovation slate in carbonated soft drinks.
Tim Kofer: Which has been highly successful to date.
Tim Kofer: In fact, Dr. Pepper, Blackberry ranks as the number 1, new product. In the category this year,
while iconic 7 Up, is enjoying renewed momentum on the back of winning flavors, like, tropical as well as a refreshing Endless Summer, limited time offering
Our second pillar is reshaping our now and next portfolio and we continue to increase our exposure to attractive white spaces.
Tim Kofer: Energy is a major Focus for us and I'll speak more about our early success in that category in a moment.
But we have also made exciting progress in other adjacencies.
Tim Kofer: Scaled brand in the category benefiting from strong velocities DSD enabled, distribution expansion and product and packaging. Innovation.
Tim Kofer: The brand registered over 30%, retail sales, growth and gained, more than a point. And a half of share, in Q2, yet has still only scratched the surface of its potential.
We're also beginning to build a presence in new categories and segments.
During the second quarter, we took 100% ownership of De Brands. A key player in powdered drink mixes and liquid water enhancers
Tim Kofer: this small tuck in Builds on our productive, multi-year partnership as a minority investor,
Tim Kofer: Now, with full ownership, we will leverage DA's know-how and capabilities to expand our presence in an attractive and growing category, including by extending more KDP Brands into the space.
Tim Kofer: Prebiotics csds are another fast growing area of Interest having quickly captured nearly 3% market. Share of the 46 billion dollar carbonated soft drink category.
Tim Kofer: In Q3, we're entering this sub segment with the launch of Bloom, pop, a great tasting, soda, combining Bold bubly Flavor with gut health benefits.
Tim Kofer: This launch Builds on our successful energy partnership with Bloom which has rapidly scaled to nearly a SharePoint in energy, drinks and has strong crossover potential into Prebiotic csds.
Consistent with our third. Strategic pillar. We are amplifying our route to Market Advantage. Particularly in DSD.
Tim Kofer: This starts with investing in our existing system, including through enhanced digital tools and continues with selected Network expansion opportunities.
Tim Kofer: Last year we acquired bottling and distribution operations in Arizona. And I'm pleased with the high standard of execution that our teams have brought to this important geography.
Tim Kofer: And later this year, we are capitalizing on a unique opportunity to add Dr. Pepper to our DSD portfolio, in critical, parts of California and Nevada, as well as certain areas in the Midwest.
Our teams are actively preparing for this transition, which will enable us to directly influence point of sale. Trends Drive greater efficiencies, across our DSD Network, and generate Halo effects. That benefit our other DSD brands.
Tim Kofer: Our focus on generating fuel for growth is ongoing and has taken on even more importance in the current inflationary environment.
Tim Kofer: We have a robust productivity program that delivered strong efficiencies in Q2 and we remain on track to achieve the high-end of our 3 to 4% savings Target this year.
Tim Kofer: We also continue to manage overhead costs with discipline as was evident in our quarterly results.
Tim Kofer: And finally, our Capital allocation approach, remains balanced and dynamic.
Tim Kofer: During the second quarter, we generated strong free cash flow and fortified our balance sheet by refinancing a portion of our debt.
Tim Kofer: Moving to Q2 results. We delivered strong Enterprise growth with net sales increasing 7%.
Tim Kofer: Growth included contributions from both price and volume mix reflected continued momentum. In our us, refreshment Beverages and international segments and Illustrated encouraging sequential progress in coffee.
Tim Kofer: We managed operating expenses with discipline protecting our margins and helping to translate our Topline gains into double-digit EPS growth.
Tim Kofer: Let's dive deeper into the segments and begin with us refreshment beverages.
Tim Kofer: Strength and Rapid expansion in recently entered whitespaces.
Tim Kofer: Starting with the core, our CSD performance was strong and we again gained market share in a growing category led by Dr. Pepper as well as 7 Up and Canada Dry.
Tim Kofer: When it comes to Dr. Pepper, our multi-year momentum is underpinned by many sustainable growth. Drivers. Some of which were apparent in Q2.
These include Innovation and renovation with Dr. Pepper Blackberry proving highly incremental to the franchise and are recent Graphics refresh for Dr. Pepper Cherry driving a meaningful acceleration in sales growth, velocity and buyers.
Tim Kofer: Distribution and Merchandising particularly in Dr. Pepper zero where we drove a double-digit increase in total distribution points and enhanced display activity contributing to 35% retail sales growth in the quarter.
Tim Kofer: And consumer engagement including a successful marketing. Tie-in, with the summer blockbuster, Jurassic world rebirth, which we Amplified through media and in-store activations.
Tim Kofer: Other core brands are also benefiting from the same playbook for example, Marketplace growth in moths our Powerhouse mom and kid, Focus brand accelerated in the back half of 2024 behind product and packaging Innovation and a new brand campaign.
Tim Kofer: Moz has sustained this momentum into 2025 with more exciting. News on tap for the fall, including the introduction of mats fruits smoothie pouches in time for the back to school season.
Tim Kofer: Beyond the core recent portfolio, evolution is beginning to more substantially, move the needle at the segment level.
This is most evident in energy, where we believe our multi-brand approach will be the key to winning in this attractive, high growth category.
Our 4 complementary Brands ghost, C4 Bloom and Black Rifle. Now combine to represent over 1 billion dollars in annual run rate, net sales for KDP and our scaling rapidly.
Tim Kofer: Each of these energy Brands contributed to our Q2 results.
Tim Kofer: the go acquisition was a meaningful, Topline driver and brand momentum continues to build under our ownership
Tim Kofer: Ghosts point of sale Trends marketed accelerated since we took over distribution in late, q1 as evidenced by our market share gains in Q2.
Tim Kofer: C4's core performance, platform, also continues to outpace the category.
Tim Kofer: Propelled by Innovative new flavors, like classic lemonade and healthy base velocities.
Meanwhile Bloom is scaling at an impressive rate. It has garnered nearly a full point of market share just a year after introduction and as quickly established its credentials in the female forward energy space,
Tim Kofer: Together, Our Brands are well positioned to achieve. Our goal of a double-digit share position within the fast. Growing 26 billion, energy category.
Tim Kofer: With 7% market share already.
Kdps energy. Portfolio is making quick progress against this target.
Tim Kofer: And for comparison, just a few years ago, our share was below 1%.
Tim Kofer: A combination of strategic portfolio, construction and excellent. KDP execution has powered these gains including nearly 1 point of market share growth in 2025 year to date.
Tim Kofer: And 30% plus retail sales growth in Q2.
Tim Kofer: Given the robust runway for further growth. We are allocating meaningful resources to support our category. Ambitions led by a dedicated internal organization focused solely on energy.
Tim Kofer: Commercial Playbook and go to market prowess, to continue to win in this important space.
Tim Kofer: the Q2 results demonstrate, how KDP is successfully building out a broad-based refreshment beverages, portfolio beyond our core CSD stronghold
Tim Kofer: as we capitalize on the expansion opportunity for our emerging brands in categories, like energy and sports hydration, we expect these areas to become increasingly important growth drivers for our us refreshment beverage business and for KDP as a whole
Tim Kofer: Moving to us coffee. The second quarter, demonstrated sequential progress for the category and KDP.
Tim Kofer: Starting with the category, both at home and single serve sales. Growth accelerated from the first quarter as incremental pricing to offset inflation flowed through and volume remained resilient.
Tim Kofer: The manageable category elasticity to date is encouraging.
Tim Kofer: Particularly as additional industry, pricing actions have been announced including our increase. That will take effect during Q3
Tim Kofer: Kdps us coffee business. Also exhibited sequentially improving Trends in Q2
Tim Kofer: We made encouraging progress in pods with a better relationship between pricing and volume mix.
Tim Kofer: In Brewers though, shipments remained pressured point of sale consumption was stable.
Tim Kofer: Looking to the back half the US coffee segment will need to manage through impacts from higher commodity inflation, increased tariffs and consumer uncertainty in the face of additional pricing.
Tim Kofer: As a result, we expect segment performance to remain subdued for the balance of the year.
Tim Kofer: Even as we navigate some quarter to quarter volatility, we continue to advance multiple initiatives. Designed to return our coffee business to consistent long-term growth.
Tim Kofer: To provide a few examples.
Tim Kofer: We continue to expand our premium and cold offerings into consumer preferred sub-segments.
Tim Kofer: in the premium set, in Q2 we began rolling out luvata flavored K cup varieties inspired by classic Italian desserts like tiramisu
Tim Kofer: Already a best-selling. Premium brand lavatas, entry into flavored coffee extends the brand into an attractive category, sub segments that over indexes to frequent consumers.
Tim Kofer: We're also seeing strong results in ready to drink coffee 1 of our key cold initiatives.
Tim Kofer: The superior LOM brand continues to generate triple digit retail sales growth as it attracts new and younger consumers to the category.
Tim Kofer: In Brewers, we are innovating at both opening and premium price points.
Tim Kofer: During Q2 we launched K mini mate, our smallest Brewer ever.
Tim Kofer: Featuring a new consumer preferred visual identity with a more modern and colorful aesthetic all at an affordable. Entry-level price point.
Tim Kofer: And next month, we will introduce K Crema a premium Brewer with the ability to produce. Crema topped coffees from traditional K cup pods
Tim Kofer: Both Brewers address unmet consumer needs and will help attract incremental households and occasions to the Keurig ecosystem.
Tim Kofer: Finally, we are making great progress advancing our next Generation Vision with the Keurig Ulta Brewer and K rounds plastic free aluminum free pods.
Tim Kofer: Ongoing, in-home consumer beta testing is providing valuable user feedback while validating that the new system delivers a premium best-in-class at-home coffee experience.
Tim Kofer: We're applying the learnings from our beta test to our commercial plans in support of a targeted launch in late 2026.
Tim Kofer: Brewers and Next Generation systems are all indicative of our sharp, strategic focus in the US coffee segment.
Tim Kofer: Combined with encouraging category Trends. We are confident, they will help return our structurally attractive business to sustainable growth over time.
Tim Kofer: in our International segment, Q2 performance remained, quite solid particularly, considering tough year ago, comparisons and the softer backdrop in Mexico,
Tim Kofer: Net sales, increased 6% led by pricing and operating income returned to growth.
Tim Kofer: We continued to drive, strong relative performance across our business with market share gains in key categories, such as mineral water in Mexico and kup pods in Canada.
Tim Kofer: Our CSD portfolio also remained healthy across markets benefiting from new campaigns and zero franchise gains for Brands like Dr. Pepper and Crush, as well as high-quality execution.
As we look to the back half, we expect to maintain our relative momentum in international. Thanks to strong base plans, our entry into the Canadian ready to drink tea category with Nest tea and additional pricing to help offset inflation and tariffs.
Overall, I'm pleased with our Enterprise performance. During the second quarter, we're building a track record of delivery by executing with excellence and Agility. While remaining focused on the Strategic framework that will position KDP for sustainable multi-year growth.
Speaker Change: I'll now turn the call to soudansho and I'll return at the end with some closing thoughts.
Soudansho: Thanks, Tim and good morning everyone.
Soudansho: We delivered a strong second quarter results.
Soudansho: Capping off a very healthy plus half in a fluid operating environment.
Soudansho: Robust commercial plans.
Soudansho: Coupled with sharp execution are driving our business momentum.
Soudansho: And we continue to Target an unchanged. Full year outlook.
Second quarter, net sales increased 7.2% in constant currency.
Our Topline momentum was broad-based.
Soudansho: With double-digit gains in US, refreshing beverages.
Soudansho: Solid. Mid single digit growth in international.
Soudansho: And increasing sequential Improvement in US coffee.
Net sales growth was supported by multiple drivers.
Net price, increased 2.2% with positive contributions, across all 3 segments.
Soudansho: pricing reflected, the continued impact of actions taken to combat Rising inflation particularly in US, coffee and International
Soudansho: Volume mix, grew 5% in the quarter.
Soudansho: We experienced growth across our core liquid refreshment beverages portfolio.
Soudansho: And the ghost acquisition, also added 4 percentage points to the Top Line.
Soudansho: Gross margin contracted 110 basis points versus the prior year due to inflationary pressures that more than offset pricing and productivity savings.
Soudansho: Strong sgna. Leverage served as a counterbalance to the gross margin compression.
Soudansho: Reflecting discipline expense management, across the organization.
Soudansho: All in our Topline gains translated into 7% operating income growth.
Soudansho: As operating margins held steady with the prior year.
Soudansho: EPS grew double digits in the second quarter.
Soudansho: Bringing first half growth to nearly 10%.
Soudansho: Consistent with our expectation of a front half weighted year.
Soudansho: Moving to the segments.
Soudansho: Us refrigerant beverages delivered. Another good quarter.
Soudansho: With net cells growing 10.5%.
Soudansho: Volume mix was the primary driver increasing 9.5%, including a 6.6 percentage Point contribution from Ghost.
Soudansho: Net price realization also added 1% to the Top Line.
Soudansho: Our base business Trends remain solid with positive momentum in Dr. Pepper and 7 Up in csds.
Soudansho: Electrolyte in a sports hydration.
Soudansho: And across our energy portfolio.
Soudansho: We are gaining market share within overall, liquid refreshing beverages.
And have compelling back. Half commercial plans to sustain our strong relative performance.
Segment, operating income increased a healthy 8%.
Soudansho: Fooled by Topline growth and productivity savings.
Soudansho: Which were partially offset by cost pressures.
Soudansho: In the US coffee segment.
Soudansho: Net sales decline modestly.
Soudansho: Down 2% in the second quarter.
Soudansho: Our Top Line demonstrated notable sequential improvement from the first quarter.
Speaker Change: Under pin by the increasing category. Trends that Tim discussed earlier.
Speaker Change: Lead price realization. Strengthened to 3.6%.
This primarily reflected a building contribution from the early 2025 price increase across our own and licensed portfolio.
Speaker Change: Which was taken in response to escalating. Green coffee costs.
We expect a further Step Up in net, price. Realization in the back half.
As additional.
Speaker Change: Already announced pod and Brewer pricing actions flow through in the market.
Speaker Change: Segment volume. Mix. Decline 3.8%.
Speaker Change: Trends in Parts improved sequentially.
Speaker Change: Reflecting manageable category elasticity and effective commercial programming.
On the other hand.
Speaker Change: Brewer results.
Speaker Change: Pressuring shipments, despite stable consumer culture.
Speaker Change: Segment, operating income grew 2%.
Building net pricing benefits.
Speaker Change: And continued strong productivity helped to offset commodity inflation though. Operating income also benefited from some cost facing
Speaker Change: with tariffs and higher cost coffee Hedges. Due to play a larger role in the coming quarters.
Speaker Change: and given uncertain future category, elasticity
Speaker Change: We continue to expect some segments operating income pressure in the remainder of 2025.
Speaker Change: In international. Net sales, grew 5.7%.
This was driven by net price realization of 5.3% and a volume mix increase of 0.4%.
Speaker Change: With the latter against a very difficult year ago. Comparison.
Speaker Change: The macro backdrop was challenging in the quarter.
Particularly in Mexico where unfavorable weather was also a factor.
Speaker Change: Despite this.
Speaker Change: Our International portfolio as a whole maintained good relative Market momentum.
Speaker Change: Supported by Innovation and activation.
Speaker Change: A strong in Market execution.
Speaker Change: And ongoing investments in route to Market.
Speaker Change: Segments operating income increased 2.6% reflecting and improving balance between pricing.
Speaker Change: Productivity and higher costs.
Speaker Change: On a go forward basis.
Speaker Change: We have well constructed plans for the back half.
Speaker Change: And expect to deliver healthy International top, and bottom line growth.
Speaker Change: Moving to cash flow and capital allocation.
Speaker Change: We generated 325 million in free cash flow in the second quarter.
Which sequentially strengthened from the first quarter?
Speaker Change: We expect.
Cash flow to accelerate further in the second half.
Speaker Change: And we remain on track for healthy cash, generation for the full year.
Speaker Change: Our Capital allocation priorities are unchanged.
Speaker Change: Organic and inorganic Investments to further our growth?
Speaker Change: Continuing to strengthen our balance sheet.
Speaker Change: And returning cash to shareholders through a steadily growing dividend and we are opportunistic. Share BuyBacks.
Speaker Change: Improving cash flow, generation enables us to dynamically action against these priorities based on the most compelling opportunities. We see
Speaker Change: Our current balance sheet also provides ample near-term flexibility.
Speaker Change: With today's leverage at a comfortable 3.3 times.
Speaker Change: Though, we remain committed to our long-term goal of 2.5 times or lower over time.
Speaker Change: 15. Now to our 2025 guidance.
Speaker Change: Our constant currency Outlook is unchanged.
Speaker Change: We continue to expect mid single digit, net sales, growth.
Speaker Change: With a bias towards the high end of the range.
Speaker Change: And high single digit earnings per share growth.
Speaker Change: Based on current rates.
Speaker Change: We now anticipate that FX will represent approximately half a percentage point headwind to the top and bottom line for the full year.
Speaker Change: Which equates to about a penny impact to eps.
Speaker Change: Below the line, our guidance. Now, reflects the following assumptions,
Speaker Change: Interest expense of approximately 700 million.
Speaker Change: An effective tax rate of approximately 23%.
Speaker Change: And approximately 1.36 billion diluted weightage average shares outstanding.
Speaker Change: Taking a step back, the operating backdrop. Continues to actively evolve.
Speaker Change: And certain external factors.
Speaker Change: Most notably trade policy.
Speaker Change: Remain uncertain and outside of our control.
Speaker Change: We are actively evaluating proposed future tariffs.
Speaker Change: Potential mitigation steps.
Speaker Change: And implementation timelines for those strategies.
Speaker Change: All oriented around. Delivering, solid Fuller performance.
Speaker Change: The specific to the balance of fear.
Speaker Change: our guidance assumes our Topline momentum sustains
Speaker Change: But cost pressures mount.
Speaker Change: As a result.
Speaker Change: We continue to expect some marginal pressure in the back half.
Speaker Change: Which should contribute to a moderating EPS growth rate relative to the first half.
Speaker Change: In closing, we are pleased with how our teams translated, robust plan into a strong execution, and results in the first half of the year.
Speaker Change: Our Focus remains on delivering the full year.
Speaker Change: While building a foundation for attractive long-term performance.
Tim Kofer: With that, I will turn the call back to Tim for closing remarks.
Tim Kofer: Thank you sir Anew, with our strong first half results in the books. We remain on track to deliver our 2025 Outlook, even in a highly Dynamic operating landscape.
Tim Kofer: At the same time, we continue to advance our long-term value creation strategy. With steady progress year to date across each of our strategic pillars.
Tim Kofer: Long-term oriented thinking.
Tim Kofer: We strongly believe that operating with this sort of discipline should support consistent and compelling results for KDP over time.
Tim Kofer: 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 then 1 on your telephone keypad. If you are using a speaker-phone please pick up your handset before pressing the keys. If at any time your question is been addressed and you would like to withdraw your question please press star. Then 2 we ask that you limit yourselves to 1 question and 1 follow-up.
Tim Kofer: At this time, we'll pause momentarily to assemble our roster.
Speaker Change: And the first question comes from Chris Carey with Wells. Fargo, Security's, please go ahead.
Chris Carey: Hi, good morning, everyone.
Speaker Change: Hey, good morning, Chris.
Chris Carey: Uh, I wanted to ask about
Chris Carey: the US refreshment portfolio with the split between kind of partner assets and core.
Chris Carey: Regarding the the partner side or it, it, which I would actually include Ghost in This bucket.
Chris Carey: Can you just talk about how you see?
Chris Carey: The evolution or the relative contribution of these businesses.
Chris Carey: You know a bit more medium-term say over the next 12 to 18 months and where you're most excited about, you know, incremental contribution, you're talking about electrolyte doing over 30% growth, you've got gluten pop coming, blue is still scaling goes, pshhh is accelerating. So can you just give us a sense of where we are in the Journey of these um you know, parts of the portfolio and where they could go and just connected on the base business with Dr. Pepper. You've been so successful with, um, share gains on the base and and also Innovation, you know, do do you think that the, the brand is starting to see any ceiling or do you still see some runway for, you know, incremental lto or permanent Innovations, you got to move on DSD, so just where you see kind of the runway on, on the bass. Dr. Pepper business. So, thanks for the split of the, the US refreshment, you know, portfolio along those lines. Thanks.
Tim Kofer: Thanks Chris. Yeah, I mean look overall you see our Q2 results in US refreshment beverage and I think performance was strong and
Tim Kofer: You break it apart and you see really solid contributions from both the face business and the new partner editions. And as you said, certainly, the ghost acquisition, it's pretty broad-based momentum. Um we'll start with csds, carbonated soft drinks. Robust growth continued in Q2 underpinned, by market share gains led by Flagship Dr. Pepper by the way, this year we are on track for a ninth consecutive year of market. Share growth with brand Dr. Pepper we also saw share growth with 7 Up behind some of the new innovation. I spoke to in the
Tim Kofer: Prepared remarks and market share gains in Canada trees. So it starts with a really healthy base and quite honestly, we expect that to continue. Then next I would speak to energy. We're seeing rapid expansion and energy. I spoke to it in our prepared, remarks that we've, this has been probably the best example of portfolio transformation in the last few years.
Tim Kofer: Just a few years ago, we have less than 1 share. Uh, now, as of Q2 we have a 7 share and that full portfolio of Brands, ghosts, C4 Bloom, and Black Rifle, I think are a winning combination and energy and we expect that to be an even more meaningful. Contributor to the overall us RV growth profile uh, going forward.
Tim Kofer: growth and importantly uh contribution from Ghost and the energy portfolio and all of this will support that MSD contribution uh from us RB to our long-term algorithm
Speaker Change: In your next question, comes from Peter Grom with UBS. Please go ahead.
Peter Grom: Operator. Good morning everyone. So I was hoping to get some perspectives, just on coffee. Um, you know, some solid, sequential progress, the, the best organic performance in a couple of years, so maybe just to start when you look at the second quarter, you know, how did it compare to to your expectations and then just as we think about the balance of the, the year, can you mentioned subdued performance? Can you maybe put some guard rails around what that means from a top line perspective. I I think the prior uh thought was for sequential Improvement in the segment as we move to the year. So just curious if if that's still the case from a from a sales growth standpoint. Thanks.
Speaker Change: Yeah, thanks Peter. Um look I am pleased with the sequential Improvement. You see in US coffee in the second quarter and that performance.
Speaker Change: Was really underpinned by a strengthening pod category that translated to improving pod, revenue and pod shipment trends.
Speaker Change: As well as healthy cost efficiencies.
Speaker Change: Um,
Speaker Change: You know while I'm encouraged by the progress in US coffee in the second quarter, there's no doubt. As we roll into the back half, the segment will face some challenges and some of its ongoing, some of its incremental
Speaker Change: Commodity inflation will build as we roll into the back half and we roll into our higher cost Hedges on green coffee.
Speaker Change: The Tariff impacts will become prominent and we all know that that tariff situation is a bit fluid. Um we have included all tariffs, you know, as implemented as of today and we know that those tariff impacts will be more prominent and put some additional pressure. I also think our Retail Partners will likely continue to manage their inventory levels, tightly, in particular, on Brewers,
Um and then finally, you know we uh we did a round of pricing at the beginning of the year. We've announced another round of pricing that will take effect next month and we'll need to closely monitor how that elasticity evolves. We feel good about the elasticity, uh, response we've seen so far, but, you know, rolling into the back half. Uh, we'll keep a close eye on.
Speaker Change: so, I think we have good plans in place to manage through these Dynamics, but we still expect some impact, and that's why we are planning for some
Speaker Change: Segments, oi pressure in the second half and at the same time, of course, that is captured as part of our Enterprise guidance.
Speaker Change: I think overall you know the the business is on the right track, the path may not be completely linear but we feel good and confident that over a long time. Horizon will get us coffee back to its rightful role of LSD. Contributor.
Speaker Change: Great. Thanks so much. I'll pass it on.
Speaker Change: And your next question comes from Bonnie Herzog, with Goldman Sachs. Please go ahead.
Bonnie Herzog: All right. Thank you. Good morning.
Bonnie Herzog: I, um, I had a question on your outlook for Topline growth. You know, once you lap the ghost acquisition, you know, which was you know, another nice boost to your net sales and the quarter. I guess, how should we think about the levers? And, you know, maybe confidence, you have to continue to hit your mid single digit, long-term, growth algo, without another acquisition. And then despite the strong Topline growth in the quarter, you're still seeing a fair amount of operating, you know, the leverage or just not much leverage. So how should we think about that in the back half of the year and then, you know, maybe what initiatives or cost savings do?
Bonnie Herzog: Have or could realize to mitigate some of these pressures. Thank you.
Bonnie Herzog: For us coffee and internationally hsd sales growth.
Bonnie Herzog: And if you look at last 4, 5 years, this is consistent with what these businesses have proven. They can deliver over time obviously uh, operating income uh that drives, the EPS is to outpace our Topline growth.
Bonnie Herzog: And we have opportunity to expand margin across all of these segments. And the typical levels are price productivity makes and and overhead. Uh we doing
Bonnie Herzog: Higher end of our productivity Target. We are also focused on, uh, sgna and overhead and all of those, uh, things will help us deliver. Continue to deliver MSD sales and hsd Epps.
Bonnie Herzog: Uh, your question about the second half, uh margin? Uh yes. And in Q2 gross margin contracted but we were expecting it. As you know, price realization, uh and healthy productivity, did not offset inflation on the margin basis, but the relationship was more favorable on a dollar basis. And, and we glucose profit dollar.
Bonnie Herzog: And I talked about, you know, we managing costs with discipline, uh, and that supporting our healthy operating income growth and stable, why margin?
Bonnie Herzog: I talked, uh, on the prepared. Remark, you know, second half, uh, we expect some operating margin pressure, but we will still grow profit dollar.
Speaker Change: And, you know, you all know the second half, we have some incremental, cost, headwinds like commodity inflation. Uh, Tim talked about tariff beginning to more prominently impact our results. And we also have some, uh, 1-off last year, uh, in Q3 and Q4 with the sum earn Equity gains, but on the flip side of pricing, uh, should build productivity will be strong in back half and those are the reasons that will support, uh, profit dollar growth.
Speaker Change: In your next question comes from K milk, garage Rolla with Jeff please go ahead.
Speaker Change: Good morning. Um,
Speaker Change: congratulations on the
Speaker Change: speaking up of,
Speaker Change: In California and some other places can you maybe just talk about, you know, the infrastructure within your existing DSD Network? Do you, you know, do you have as much information as is necessary to be able to, you know, take on a brand of that size and um, is just the beginning of perhaps um, the turning over of the Dr. Pepper brand to more and more regions over time, thanks.
Speaker Change: Hey, good morning KL. Thanks for the question. You know. Look, you've heard me say this many times. I'm a big believer in the power of DSD. I think direct store delivery is such a critical and really scarce asset in beverages and I believe it it. As we strengthen it, it provides our business with a sustainable competitive advantage. And accordingly. We prioritize investments in our DSD to further, strengthen our Network, build our capabilities, and really improve how we serve our, our customers and our consumers. And you see that in what we've done over these last few years we're building capabilities, we're investing in digital tools to drive greater efficiency Drive our in store Effectiveness. We're broadening our Geographic footprint and I'll speak specifically to the, to the example, you gave. But we, you've seen us over the last many years. Expand our Network, through opportunistic, uh, expansions of geographic territories. Last year we did that, in Arizona,
Speaker Change: Picking up that, uh, acquisition. And now we've got our trucks rolling and we've got manufacturing and warehousing in that key growth State. And then the other thing to, to keep in mind, is as we enhance our portfolio as we bring in the Electoral leads in sports hydration, the lock columns and registering coffee the ghosts, and C4s and energy. We are increasing our scale by adding high quality. High Velocity volume to our portfolio, which allows us
Speaker Change: To make that BSD economic flywheel and that virtuous cycle of growth. Um, go turn even faster because that scale allows us
Speaker Change: To then have greater drop sizes, greater store frequency improved, the efficiency in economics of the fixed cost, associated with the SD.
Speaker Change: We already had in that region. We had existing, uh, operations there in this. Added more scale to that DSD operation. Obviously adding Flagship Dr. Pepper is a unique opportunity for us to uh, to build out that scale. And in this case, it was, I would say a unique contract structure that gave us the option to repatriate or not. And so, you know, there's uh, in in this case, a lot of work underway to ensure successful transition, our teams are energized to do this, right? Um distribution transitions like this. Do come generally which short-term disruption
Speaker Change: And clearly some initial investment, but we're prepared for all of that as you'd expect us to and we've captured that in the Outlook and and we're confident long term, you'll see us continue to unlock substantial commercial and financial outcomes as it relates DSD expansion.
Speaker Change: In your next question comes from Rob, bottin with evercore, please go ahead.
Rob Bottini: Great, thank you very much. Um, I was just wondering if you could talk to us a little bit about the uh the pricing Dynamics. Um in in the US on liquid refreshment beverages, um, I get a sense, you know, from the results that some some products are probably up a lot. Others may be down, so maybe a little bit of a better understanding there and then
Rob Bottini: How you're seeing the consumer? We've heard from other companies, that affordability is becoming more important, um, maybe how you're, um, you know, pulling on various, um, rgm levers to, to address that. Thank you.
Rob Bottini: So the US RB, uh, first of all, as Tim said, uh, we are very, uh, happy with the first half performance for us. RB, it was strong, uh, high quality. Uh, our growth reflected combination of ghosts, based business of volume makes and net price realization.
Rob Bottini: And in back half also we expect the segment performance, uh, to remain robust, uh, with contribution from the same, uh, same factors specifically to net price. Uh, we have seen positive contribution here today, uh, as primary, uh, primarily when driven by CSD. Uh, we also announced a typical CSD price increase that to affect in q1. We should continue to flow through, uh, through our results, uh, for, for the entire year.
Rob Bottini: They're always you will see some quarterly variability in actual net price revolution in our pnl. Uh, but you should look at more uh is first half. Uh, second half basis uh
Rob Bottini: And we feel good about where we are, uh, in H2.
Do you want to talk about uh, the consumer consumer? Sure. Yeah, Rob, I'll, I'll take the consumer part of the question. I mean,
Rob Bottini: You know, we uh, we put the consumer at the center of everything. We do say that you'd imagine, we, we monitor their health closely and that's everything from the public data, you would see our own proprietary data. And then the other thing back to common question is, you know, we have a real-time feedback loop in the form of DSD. Where, you know, every day we get a good sense of in-store shopping behavior and and uh, Trends in real time
Rob Bottini: I would say for us, we're seeing a fairly resilient consumer.
Rob Bottini: even in this backdrop of an inflationary and somewhat uncertain environment,
Rob Bottini: you know, at the same time, there is some caution out there and our consumers are being selective and how and where they shop. I think this is particularly true for the lower income consumer, where that purchasing power is, is most constrained. And you see this manifest in a couple of different ways. I mean first is there are some
Rob Bottini: Pullbacks in certain more discretionary channels, you know, qsrs and are away from home fountain business, you know, a little softer convenience.
Rob Bottini: Consumers and, you know, a simple, indulgent pleasure uh of of a carbonated soft drink or, you know, health and wellness oriented beverages from from energy to sports hydration. So I think our portfolio is demonstrating strong momentum. Uh, Innovation is a big part of it and despite a a some areas of concern on the uh, on the macro environment, we feel good overall about our portfolio and our ability to continue to deliver on that MSD sales growth.
Speaker Change: In your next question comes from. Dara, Mosen with Morgan Stanley. Please go ahead.
Hey, good morning.
Speaker Change: Daryl.
Speaker Change: Tim you made some changes recently on the marketing side with a new CMO appointed last year, including a heightened digital Focus. I just was hoping you could give us a review of the biggest changes you've put in place how you think that might drive demand and impact Roi going forward. And if you're seeing any fruits from those efforts so far, or that's more going forward from here, thanks.
Tim Kofer: Yeah, thanks Tara. Um you know you guys know first strategy here at KDP is a consumer. Obsessed brand builders and uh
Marketing Excellence will be foundational to the growth model, uh, and remains a top priority. And and dare I, uh, we we talked a few weeks ago when we were together we did make
A change on the chief marketing officer and feel very good. Early days about what we're seeing in terms of a bit of a marketing transformation here at KDP. It is 1 where we are um putting data technology and digital at the center of the marketing flywheel and that's really to enable more powerful real-time insights.
Tim Kofer: Create more precise consumer, segmentation consumer targeting, generate more effective sometimes AI enabled, marketing content. And I think you'll begin to see this show up, um, as early as Q3 and Q4, uh, a place to start.
Tim Kofer: Will be brand. Dr. Pepper. Um, we're about to embark on our eighth season of fansville and this year, not only is the work great. I saw the work just a couple of weeks ago, really excited about the new season of fansville but you're going to also see it materialize in a more personalized digitally enabled consumer engagement. Um you'll also see it on the coffee side, you'll see us the way we're leveraging.
The new digital.
Tim Kofer: Uh, approaches in marketing to identify and to Target higher value households, both existing curig users, and new high-value households to really drive that lifetime value and get the most out of new curig household placements. So uh I'm optimistic overall. There are on what we're going to see from marketing as we take this next step. And I think you know what you should expect is um you know, higher rois and more impactful spend
Speaker Change: And your last question will come from philipo Forney with City, please go ahead.
Philipo Forney: Hi. Good morning everyone. Uh, Tim. I wanted to get your perspective of just on the protein um uh beverage space. Um, you talked in the past as an area of opportunity. Uh, maybe give us context in terms of how you're planning to play in the category and also given the in the context of the dial brand taken acquisition how that fits into your strategy. Thank you.
Philipo Forney: Absolutely. So, 2 parts, uh, first around wellness and protein and then around Dila,
Philipo Forney: um, you know, 1 of the great things about beverages is the way consumer preferences are ever changing. And, you know, by the way, I, I'll do a plug here. We we issued our state of beverages report uh, back in June last month. And it really underscored this health and wellness Mega Trend and how it's impacting consumer behavior and Beverages. And I think it's the single most significant consumer Trend, impacting Beverages, and consumers are really looking to beverages to provide a wide array of Health and Wellness, uh, benefits and and it ranges from your question on protein to, you know, fiber and gut health.
Philipo Forney: Energy and alertness. So we're we're all over this. As you would expect as consumer. Obsessed brand builders. And I think what you've seen from us is we've done a good job responding to these health and wellness, Trends broadly in beverages
Philipo Forney: We will continue to evaluate those places which are more white spaces and I believe protein is 1 of those no doubt consumers are looking for more functional attributes and the Beverages and protein is part of that Trend and um, we think that KDP can and will participate in that over time.
Philipo Forney: As as we have done in other spaces, we, we will evaluate that through a buy Builder, partner Blends right? Is this something we can extend to organically, uh, from our own shop here in KDP potentially leveraging. Our own Brands, is this something we want to partner with? Uh, someone else? Is this something we want to do an acquisition, full ownership, or minority nothing to announce today. But you can bet that we're looking at all these health and wellness spaces, including protein. I think, overall we feel good about our track record there, including how we've been, you know, creative and capital efficient in how we go about that on your second question on dialogue.
Philipo Forney: You know, dial acquisition, uh, really was an opportunistic tuck in and, uh, it allowed us to penetrate and attractive category of 4 billion dollar drink mix and liquid water, enhancer category and do it with a relatively modest Financial outlay. This is a business that's had a double digit growth cager for the last many years.
Philipo Forney: Previously we were a partner in minority investor in De and we thought now was the right time to go ahead and do the full acquisition. We like to steam, we like the capabilities. We like the R&D here, by the way, back to the health and wellness points. 60% of that portfolio. 60 is functional uh you know around ingredients and and great claims around hydration, energy immunity Etc. So we took advantage of this opportunity. Um, we can leverage DA's know-how and extend additional KDP Brands. We think it's a nice small tuck-in transaction. It's unlikely to move the needle on on Enterprise Trends. But we're excited to welcome our new friends from diala, The Talented team there and to partner closely to further expand our beverage industry leadership.
Speaker Change: This concludes our question and answer session. I would like to turn the conference back over to Jane gelfinbein.
Jane gelfinbein: Thank you, Michael. And thank you everyone for joining us this morning. We appreciate your interest and your support. Please reach out to the investor relations team with any questions and we wish you a great day.
Jane gelfinbein: The conference has now concluded, thank you for attending today's presentation. You may now disconnect