The operator welcomes listeners to Keurig Dr Pepper's Fourth Quarter 2023 Earnings Call and introduces the company's Vice President of Investor Relations and Strategic Initiatives. The VP reminds listeners that forward-looking statements and non-GAAP measures will be discussed and encourages them to refer to the earnings release and Form 10-K for more information. The concept of underlying performance, which removes the impact of nonoperational items, will also be discussed.

KDP had a successful year in 2023, with growth in share, expansion into new markets, and a focus on rebuilding margins and reinvestment. They returned a significant amount of money to shareholders and met their financial outlook while improving their earnings and strengthening their balance sheet. The company's performance demonstrated the resilience of their diverse portfolio, with strong momentum in U.S. refreshment beverages and international markets offsetting challenges in U.S. coffee. They also began a succession process to bring in new perspectives while maintaining continuity in leadership. The CEO, Bob Gamgort, has confidence in the company's future success under the leadership of COO Tim Cofer and the rest of the executive team.

In 2023, the company's hard work led to a stronger strategic plan and improved financial profile. In the fourth quarter, the company focused on rebuilding its margin structure and saw significant improvement in gross margin and operating margin. Despite some short-term challenges in the US coffee business, the company expects mid-single-digit net sales growth in 2024. The company also saw strong growth in its US refreshment beverages segment, with double-digit operating income growth and meaningful margin expansion.

The article discusses how value is a key consideration for consumers and how the company's business model is well-suited for a changing market. The company saw growth and share gains in their U.S. refreshment beverages business, particularly with Dr. Pepper. They also utilized marketing campaigns and revenue growth management to offer consumers compelling value. Additionally, they pursued white space opportunities and saw growth in their premium water portfolio.

The company's sales and distribution partnership for C4 Energy showed strong momentum in the first year, with plans to increase market share and expand into new categories. The company also has a full slate of innovative products launching in 2024. In addition, the company's integrated commercial and supply chain teams have resulted in significant efficiency savings. In the U.S. coffee market, the company continues to focus on controllable factors and saw improvement in Q4, although overall net sales declined due to short-term factors. These factors are expected to dissipate in 2024.

The at-home coffee category saw a decline in volume consumption in 2023, but there were signs of recovery in the fourth quarter. Single-serve coffee and Keuring compatible brewers continued to gain popularity. The company's 2024 strategy includes initiatives to increase household penetration and pod usage, as well as affordability and premium options. Despite a slower recovery in the at-home coffee category, there is still potential for growth as many households have yet to convert to single-serve.

Keurig has a strong vision for the future and will be sharing some of their plans at the Houseware Show. They have an exciting pipeline of innovative brewers and will be making a public announcement about these plans soon. They also have a robust 2024 pod program, which includes new products for both hot and cold occasions. They will also be collaborating with Kevin Costner to create unique blends and marketing events. Keurig is focused on building the super premium tier of pods and has recently introduced licensed pods and a partnership for ready-to-drink coffee. While they are not satisfied with their 2023 performance, they are taking steps to support a stronger 2024 and are investing in future growth opportunities.

The International segment of KDP saw double-digit revenue growth, driven by strong trends in cold beverages and expansion of ready-to-drink alcohol and alcohol alternatives. The company also made investments in distribution and consumer insights, and plans to expand their DSD system in Latin America. The innovation pipeline includes new products such as Schweppes mocktails and Dr. Pepper Dark Berry in Mexico.

KDP has experienced strong growth in their international business since their merger, and they expect this segment to continue contributing significantly to their overall results in the future. They have successfully delivered on their commitments and are focused on extending their leadership position in the beverage industry. They will be hosting an investor event to discuss their strategy and value creation opportunities. Tim Cofer, the new COO, has spent the past 3 months immersing himself in the business and has formed strong partnerships with the leadership team. He has also visited various KDP locations and received feedback from employees.

The speaker, who played a role in developing the 2024 plan, expresses confidence in KDP's ability to create value for shareholders and looks forward to sharing a comprehensive view of the company's strategy at an upcoming investor event. They highlight KDP's strengths as a market leader in the beverage industry with iconic brands, differentiated capabilities, and a challenger mindset. The speaker is honored to build on the company's strong foundation and is committed to delivering value to all stakeholders, including shareholders. The focus of their remarks will be on the quarter 4 results and the 2024 outlook.

In the fourth quarter, the company showed strong performance despite a challenging operating environment. Revenue increased by 1.7%, with net price realization up 4.8%. Gross margin grew by 450 basis points due to pricing, productivity savings, and performance incentives. Operating income and EPS also saw growth, with the potential for even higher growth if nonoperational benefits were excluded. In the U.S. Refreshment Beverages segment, net sales grew by 6.8%, driven by pricing and market share gains. In 2024, the company plans to continue its commercial momentum with new product launches, such as Dr Pepper Creamy coconut.

The company expects a good year for U.S. substation Beverages despite a temporary impact on market share due to calendar differences. Segment operating income and margins grew in the quarter, driven by net sales momentum and productivity. In the U.S. coffee segment, share gains and successful holiday programs contributed to strong margins. The decline in quarter 4 net sales is not indicative of overall performance, as pricing was positive and the decline in volume mix is expected to be transient. Brewer shipments returned to normal seasonal patterns, and pod shipments improved. However, pod revenue was impacted by a lower percentage of sales from in-licensed brands.

In the fourth quarter, the company faced temporary challenges such as a decline in the brewing sector and private label exits, but these are expected to have less impact in the coming quarters. Despite a 2.8% decline in operating income, the underlying growth was in double digits due to improved pricing and productivity. The international segment saw a 11.5% increase in net sales and a 25.6% increase in operating income, driven by pricing and productivity. The company plans to reinvest in the segment in 2024. The company also made a strategic decision to reduce their supplier financing program, which impacted their free cash flow but strengthened their balance sheet.

In 2024, the company expects to have mid-single-digit growth in net sales and high single-digit growth in EPS, with a slight currency headwind. They plan to continue investing in their business, strengthening their balance sheet, and returning cash to shareholders through dividends and share buybacks. In 2023, they prioritized direct shareholder returns, repurchasing 22 million shares and raising their dividend by 7.5%. Their long-term priorities remain intact, but they may prioritize certain areas in any given year.

In 2023, KDP expects to see top line growth from new strategic partnerships and a more normalized inflationary environment. They also anticipate strong productivity savings and operating profit growth, but below-the-line headwinds from interest expense may constrain EPS growth. The company expects to see momentum build throughout the year, with first quarter net sales and EPS growth in the low single digits. Overall, 2023 was a successful year for KDP, with increased share, gross margin, investments, and a strengthened balance sheet.

The speaker discusses the company's strong performance in 2023, attributing it to hard work and strong execution. They express confidence in their ability to continue delivering consistent results in the dynamic market. They also mention the company's growth since the merger, with a focus on reinvesting in the business and returning value to shareholders. The speaker looks forward to sharing more about their strategic plans at an upcoming event and mentions the new management team. They then take a question about their operating assumptions for 2024.

The speaker is curious about the expectations for the U.S. coffee business and when an improvement in category growth may occur. The response from Robert Gamgort and Timothy Cofer highlights their involvement in the development of the 2024 plan and their focus on factors within their control. They also mention a strong outlook for Refreshment Beverages, with a more balanced pricing environment and strong innovation lineup, including expansion into new white spaces.

The company has seen significant growth in its international business since the merger and expects this momentum to continue. However, the U.S. coffee sector is expected to have a muted contribution to sales in 2024, but the company has plans for improvement and is confident in its value proposition compared to coffee shop alternatives. When it comes to operating profit and margins, the company has good visibility and is focused on controlling the controllables.

The long-term trend for at-home coffee and single-serve has been volatile, with a sharp increase during COVID followed by a slow decline. However, the single-serve segment consistently outperforms other forms of coffee. The company is not satisfied with the pace of recovery but expects a gradual improvement. They have control over margins and have seen an increase in operating income margin in the second half of 2023. They expect further progress in 2024, but caution against relying on the second half margin as a long-term indicator.

The company has successfully onboarded several brands and has developed a playbook for efficiently transitioning them into their distribution system. Recent additions include C4, La Colombe, and Electrolit, and the company has seen no decrease in performance during the onboarding process.

The company is seeing increased availability, merchandising quality, and display and promotional activity. This has resulted in share gains for their partner brands, including La Colombe and Electrolit. The company has a track record of improving performance for their partner brands and this has attracted other brands to join their system. The company is disciplined in choosing which brands to partner with and they are able to construct win-win deals that are capital efficient and give them exposure to higher growth segments. The question from Dara Mohsenian is about the top line in the at-home coffee category, specifically in the single-serve segment.

The company experienced volatility in their single-serve coffee segment, with slower than expected recovery in 2023. This was mainly due to the impact of COVID-19, but there may have been other factors at play. Looking towards the future, the company believes that single-serve coffee will continue to mirror the overall at-home coffee category, and minor changes in consumer behavior can greatly affect the business. While mobility was a factor, it was not the sole reason for the slow rebound. The company is still trying to understand the underlying issues and other companies in the industry are facing similar challenges.

The coffee industry has been experiencing a slow decline, but there is no major structural change or consumer behavior shift. The company plans to continue driving the category through innovation and marketing, and will be introducing new breakthrough products soon. They are also targeting affordability for both high and low income consumers, and are being selective in promotions and pricing strategies. While the pace of improvement in the category is not as fast as desired, the company is taking a prudent approach and expects to see positive results in the future.

During the earnings call, Andrea Teixeira asked about the price mix for the coffee parts, and Robert Gamgort explained that there was a shift in volume and focus on affordability. He also mentioned that the cadence of the pod recovery is expected to continue improving. Gamgort also discussed the impact of mix on revenue and profit, noting that there was a higher revenue contribution from licensed products. He also mentioned that the category had become more promotional due to soft consumption, but Keurig is focused on overall category growth rather than individual player promotions.

The company expects its promotional and marketing efforts, as well as innovation, to lead to growth in 2024. They anticipate a return to more balanced pricing and volume mix in the U.S. refreshment beverage market, with partnerships contributing to growth. The growth in this segment is expected to be more second half focused due to the timing of Dr. Pepper innovation.

The company is ramping up their Electrolit business, which is expected to have a significant impact on their growth rate in the second half of the year. They expect to work with the brand to improve its performance. The company urges investors to think about longer-term trends in the category. The conference call has concluded and the Investor Relations team is available for any further questions.

This summary was generated with AI and may contain some inaccuracies.