Primo Brands Corporation Q2 FY2026 earnings call

• Overall Business Momentum

  • The business delivered a second consecutive quarter of year-over-year net sales growth, outperforming management expectations, with accelerating momentum and strengthening fundamentals. Growth is broad-based across both retail and direct delivery, building on improved customer experience in direct delivery and share gains in retail bottled water.
  • Balance sheet health improved: net leverage fell to 3.42x from 3.52x in Q1, on track to hit the near-term target of below 3x. Adjusted free cash flow improved $30.4 million year-over-year to $200.1 million, with $953 million in total available liquidity.
  • The company simplified its leadership structure by eliminating the COO role, adding an experienced beverage industry president of customer direct and go-to-market, and elevating the chief supply chain officer to report directly to the CEO. This change is designed to speed decision-making, improve agility and accountability, and better support customer service and growth priorities.

• Direct Delivery Operational Progress

  • The segment returned to year-over-year growth one quarter ahead of plan, with improving customer quality from reduced historical incentives, narrowing revenue gaps between new and tenured customers. Key service metrics (OTIF, churn, call volume, NPS, Trustpilot ratings) all improved sequentially through Q2.
  • Ongoing initiatives include simplified customer billing, expanded payment options, the Solve by Sundown program for faster issue resolution, and investments in technology like a new warehouse management system to further improve customer experience and stabilize the business ahead of accelerating profitable growth.

• Retail Growth Strategy & Highlights

  • Growth is broad-based across channels and brand tiers, with continued dollar and volume share gains in bottled water. Premium brands Saratoga and Mountain Valley are early in their growth journey, with strong brand health, expanded distribution, and new capacity supporting continued long-term scale and margin expansion. The cold/immediate consumption segment remains a high-growth, high-margin underpenetrated opportunity.
  • The company is implementing a more strategic, holistic revenue growth management (RGM) approach across price points, packages, and channels that centers consumer value while incorporating cost and competitive dynamics, with disciplined pricing actions taken across select portfolio areas in H1 2026.

Overall Q2 2026 comparable net sales were $1.8 billion, up 4.2% year-over-year, with 4.3% contribution from price/mix and a -0.1% contribution from volume. Adjusted EBITDA increased 5% to $385 million, with a comparable adjusted EBITDA margin of 21.4%, up 10 basis points year-over-year.

• Retail Segment: Net sales grew broad-based across all channels (mass, grocery, away from home) and pack sizes. Regional spring water net sales increased 4.1% year-over-year, purified water increased 1.9%, and premium water brands increased 30.5%. Premium growth was particularly strong in retail channels, with ongoing recovery in the direct delivery channel. The segment gained both dollar and volume share in the bottled water category.
• Direct Delivery Segment: Comparable net sales increased 0.4% year-over-year, a 340 basis point sequential improvement from Q1, meeting growth expectations one quarter ahead of schedule. Growth was driven by price/mix benefits, partially offset by lower volume from a smaller historical customer base. Operational metrics improved sequentially, with on-time-in-full (OTIF) reaching the mid-90s, and customer churn and contact center call volumes declining to pre-integration levels.

• Comparable 2026 net sales growth guidance is raised to 2% to 4%, up from the prior 1% to 3% guidance, marking the second consecutive upward revision. This adjustment reflects Q2 outperformance versus expectations and broadening growth momentum across both retail and direct delivery.
• Adjusted EBITDA guidance is maintained at $1.465 billion to $1.515 billion. Management will continue investing behind growth initiatives while navigating the dynamic macro cost environment, with the midpoint implying a flat 21.8% adjusted EBITDA margin year-over-year.
• Adjusted free cash flow guidance is maintained at $790 million to $810 million, with free cash flow quality expected to improve sequentially through H2 2026 as integration-related add-backs decline.
• Annual regular capital expenditures are expected to equal approximately 4% of net sales, in addition to $100 million in total 2026 integration-related capital expenditures, with ~$18 million remaining as of Q2 end.
• The Board of Directors reaffirmed the $0.12 quarterly dividend ($0.48 annualized per share), and the share repurchase program has $62.8 million remaining in authorization as of Q2 end.

• The company faces ongoing cost pressures from higher transportation costs, driven by a tighter freight market and elevated spot rates, as well as lingering commodity inflation. These cost pressures are being managed via multiple mitigation levers including disciplined pricing, supply chain productivity initiatives, and financial hedging programs.
• Full stabilization and volume growth recovery in the direct delivery segment is still ongoing, with work remaining to further improve customer experience, optimize the cost base, and roll out new operational technology.
• The broader macroeconomic and geopolitical environment remains dynamic and uncertain, which could impact consumer demand and input cost dynamics.
• The company continues to work through post-merger integration, with incremental investment required to complete remaining integration milestones and stabilize operations.

Q: Can you update on the cadence of net new customer adds in direct delivery, summer volume trends in retail, and the sustainability of recent improvements? / A: Direct delivery saw accelerating monthly performance in May and June, with the first positive net add month in Q2. All leading and lagging service metrics (OTIF, churn, call volume, customer satisfaction) have improved dramatically, with supply chain disruptions now fully behind the company. Management expects this recovery trend to continue through H2. Retail growth is broad-based across all brands, channels, and price tiers, with both value and volume share gains continuing. Growth remains balanced between volume and price year-to-date, and management is encouraged by the sustainability of the retail momentum. The 30.5% premium growth, with a slight deceleration driven by temporary supply constraints for Mountain Valley, remains on track with long-term expectations, and both premium brands gained share in Q2. They are still early in their growth journey with plenty of room for continued distribution and penetration expansion.

Q: How will the recent leadership reorganization change the company’s investment strategy and offensive priorities for H2 2026, now that performance is better than expected? / A: The reorganization’s core goal was to improve speed and agility by eliminating a layer of management, aligning leadership more directly with customer experience priorities, and bringing in specialized beverage industry expertise. The company remains in a phase of moving from post-merger stabilization to optimization, with near-term focus still on growing the core business. Additional incremental investment will be directed to call center capacity, technology and AI, marketing, and brand building capability, with more strategic growth options expected to open up as stabilization progresses.

Q: What is your outlook for pricing actions, and can you share retailer and consumer reactions to recent immediate consumption pricing, and is current retail growth sustainable? / A: The company’s pricing framework centers consumer value first, then prioritizes competitiveness, then accounts for cost and margin needs. Earlier this year’s immediate consumption pricing closed a large gap with competitors, and the portfolio remains competitively priced, with no significant pushback from consumers or retailers. Future pricing will be targeted, focused on specific packages and brands where profitability needs improvement, and will adjust underperforming trade spend to improve returns. Current retail growth is balanced between volume and price, supported by a well-positioned portfolio across the entire consumer value spectrum, so management expects the current momentum to be sustained.

Q: With top-line guidance raised but EBITDA guidance maintained, can you explain the level of reinvestment and current 2027 planning dynamics amid changing inflation? / A: The maintained EBITDA guidance reflects ongoing planned reinvestment in direct delivery service and capabilities, paired with current inflationary pressures in freight, particularly the spot third-party freight market. The company is investing in expanding its private fleet to reduce long-term friction costs from the spot market. Direct delivery route sizing is now more aligned with demand than it was in Q1, with further route optimization expected after Q3 to match slower seasonal demand in Q4 and Q1 2027, which will help reduce excess costs. Management notes lower current oil prices, but still plans to maintain disciplined investment in growth initiatives while navigating the dynamic cost environment.