Keurig Dr Pepper Inc. Q4 FY2024 earnings call

Management Statement and Operational Highlights

• 2024 Key Accomplishments:
  • Consumer-obsessed brand building: Successful innovation slate and marketing campaigns drove growth for iconic brands like Dr Pepper, Canada Dry, Mott's, and coffee brands.
  • Portfolio shaping: Transitioned Electrolit and La Colombe to DSD network, onboarded new coffee partners, and acquired GHOST to extend into high-growth energy category.
  • Route to market advantage: Amplified DSD system, acquired territory in Arizona to extend manufacturing and distribution presence.
  • Fuel for Growth: Drove productivity savings and SG&A overhead leverage, particularly in the second-half of the year.
  • Cash flow: Strengthened free cash flow generation, funding share buybacks, dividend increases, and strategic investments.
• 2025 Plans: Set high bar for operational excellence, advance each of the five strategic pillars, remain agile in execution, target balanced outcomes including delivering on algorithm, financial results, and advancing strategic priorities.

Segment Performance

• U.S. refreshment beverages: 2024 full-year constant currency net sales grew ~4%, and in Q4, net sales grew a very strong 10%, led by a volume mix increase in the high-single-digits. Carbonated soft drink momentum was strong, with CSD brands winning market share gains. Electrolit is enjoying accelerating trends after transitioning to the KDP DSD network. Represents over 70% of revenue together with international segment.
• U.S. Coffee: Q4 net sales decreased 2% with a modest volume mix gain offset by a temporary net price decline. The category is improving, with efforts on affordability, premiumization, and expanding into new formats/channels. Facing coffee commodity cost inflation, aiming to preserve profit and reinvest, evaluating options to offset pressure and steward the single-served category.
• International: Delivered healthy top line growth in Q4 with constant currency net sales increasing at a high-single-digit rate. Momentum was broad-based across the portfolio, with international coffee driven by market share gains for brewers and pods, and cold beverages led by Mexico LRBs. Continues to perform well and is prioritized for reinvestment.

Guidance

• On a constant currency basis, expect mid-single-digit net sales growth and high single-digit earnings per share growth in line with long-term algorithm. FX expected to represent an additional 1-2 percentage point headwind. Outlook assumes good momentum in U.S. refreshment beverages and international segments and incremental contribution from GHOST acquisition. U.S. Coffee likely to remain subdued in dynamic commodity environment. Forecast interest expense in $680 million to $700 million range, effective tax rate ~22%-23%, and ~$1.37 billion diluted weighted average shares outstanding. Q1 reflects impact of later Easter and one fewer shipping day, with growth expected to accelerate in Q2-Q4 as calendar normalizes, gross distribution ramps, and pricing builds.

Risks

• Coffee inflation: Escalating green coffee costs pose challenges, requiring evaluation of options to offset pressure.
• Macro uncertainty: Impact of uneven consumer sentiment, higher inflation, and shifting regulatory landscape on business performance.
• Exchange rate fluctuations: FX expected to be a headwind, affecting reported results.

Q: Chris Carey asked about 2025 Q1, revenue and profit building, year-to-date consumption trends, top line drivers (volume mix vs price) and bottom line trends.

A: Sudhanshu Priyadarshi said they are well set up to deliver on algo, revenue growth expected towards upper end of mid-single-digit range driven by U.S. RB, international, and GHOST; EPS expected from net sales growth, operating margin leverage, and GHOST accretion, but offset by inflation; Q1 has less shipping day and later Easter, with growth accelerating later.

Q: Peter Grom asked about coffee category in 2024, improvement taking longer, reasons for subdued growth, and drivers of stronger exit rate.

A: Tim Cofer said coffee is attractive long-term, 2024 was benign inflation year focusing on volume stabilization, exit rate improved with better category state, and 2025 focus on preserving profit, reinvesting, and expanding coffee portfolio.

Q: Steve Powers asked about energy market in 2025, consumer demand, and portfolio positioning.

A: Tim Cofer said energy is fast-growing, KDP's portfolio of complementary brands (C4, Black Rifle, Bloom, GHOST) can target distinct cohorts, bullish on energy category, and aim for double-digit share.

Q: Andrea Teixiera asked about coffee pods volume recovery, elasticity, and energy share.

A: Tim Cofer said pod price increase in January, consumer response in line with expectations, evaluating options to offset pressure; on energy, KDP's portfolio is well-positioned, GHOST distribution to start in March, aiming for double-digit share.

Q: Kaumil Gajrawala asked about modern soda play.

A: Tim Cofer said KDP will continue to shape portfolio to future-proof in LRB, evaluating entry avenues in areas like modern soda through organic or partnerships.

Q: Filippo Falorni asked about gross margins in 2025, hedging, aluminum inflation, and productivity.

A: Sudhanshu Priyadarshi said 2025 outlook implies modest operating margin expansion from volume mix, pricing, mix management, productivity (3%-4% expected), and overhead discipline; aluminum sourced through supplier contracts with longer coverage; hedging delays but doesn't permanently offset, and they feel good about MSD and HSD EPS