The operator welcomes participants to the Keurig Dr Pepper's Second Quarter 2024 Earnings Call and introduces the Vice President of Investor Relations, Jane Gelfand. Gelfand reminds listeners of the forward-looking statements and non-GAAP adjusted basis being discussed. The CEO, Tim Cofer, and CFO and President, International, Sudhanshu Priyadarshi, will discuss the results. Cofer mentions that it has been eight months since he joined the company.

The organization continues to perform well and make progress on its strategic agenda, with a focus on delivering healthy second quarter performance and accelerating top-line growth. Despite an uneven operating environment, the company remains attuned to market dynamics and is seeing a more balanced top-line growth profile. Cost discipline and productivity savings have also contributed to strong earnings growth. In the second quarter, the company achieved several wins and will continue to focus on long-term goals.

The company's focus on consumer obsessed brand building has led to successful innovation in the second quarter, particularly with the launch of Dr Pepper Creamy Coconut and Canada Dry Fruit Splash. These new products have improved share trends in the CSD portfolio. The restage of WonderWater has also been well received by consumers. In the US, the new refreshers from The Original Donut Shop are driving market share gains for the owned and licensed portfolio. In Mexico, the Peñafiel brand has extended into new segments and contributed to market share gains. The company has also made progress with new partnerships, such as Electrolit and La Colombe, and expects their revenue contributions to increase in the second half of the year. The transition of Electrolit volume to the DSD network is ongoing.

The company is seeing success in their distribution of Electrolit and La Colombe products, as well as a planned acquisition of Kalil Bottling Company. They are also focusing on increasing productivity and cost discipline in light of market challenges.

The company has identified key focus areas for short-term flexibility and long-term success, including corporate responsibility. They have seen growth in their US Refreshment Beverages segment, particularly in the CSD category with the success of their "it's a Pepper thing" campaign and their ability to tap into current trends. They have also seen improvement in market share trends and have a strong innovation slate for 2024. Corporate responsibility is a key aspect of their operations and they have recently published a report showcasing their progress.

The company is performing well in the market and has potential for further growth. They have seen success with C4 Energy and are taking steps to ensure their brand's value propositions are resonating with consumers. In some categories, they are experiencing softer growth rates and are implementing strategies to drive demand. In the US Coffee sector, they have gained market share and are focusing on affordability, premiumization, and cold coffee. They have also introduced smaller pack sizes to optimize costs.

In the second quarter, the company implemented price pack adjustments for their coffee products to make them more affordable and launched a digital campaign to promote consuming coffee at home. They also saw success in their entry-level brewers and premium pods, including their partnership with Lavazza. The company is also focusing on the growing trend of cold coffee consumption and has plans to expand their offerings in this area through K-Cup innovation and the launch of a new brewer.

The company is seeing positive progress in their coffee initiatives, with improving market share for both K-Cup pods and brewers. However, overall demand for at-home coffee is soft, and the company has planned accordingly for muted revenue growth in the U.S. International segment continues to perform well, with double-digit growth and reinvestment in brands and capabilities. The company remains on track for their full-year outlook and is focused on their strategic agenda, including expanding into higher growth categories and improving their route to market.

In the paragraph, the speaker discusses the company's focus on efficiency and cost management, as well as their strong financial performance in the second quarter. They highlight their growth in net sales, operating income, and EPS, as well as their improved free cash flow conversion. The company saw strong growth in their International segment and positive volume mix across all segments. Gross margin also expanded due to productivity, pricing, and inflation. Overall, the company's performance in the second quarter was strong and they have a positive outlook for the rest of the year.

The US refreshment beverages segment saw a 3.3% increase in net sales in Q2, driven by a 2.9% increase in net pricing. Volume mix also returned to growth, with a 0.4% increase. The segment operating income grew 11.9% and margins expanded 230 basis points due to net pricing and productivity. In the US Coffee segment, net sales declined 2.1%, but volume mix grew 0.8%. The company expects to see sustained market share momentum in the back half of the year, but is also anticipating muted at-home coffee category trends.

In the second quarter, Brewer shipments increased by 2.1% and the rolling 12-month trend improved to 1.4% growth. The company's innovation and commercial strategies have led to significant share gains, particularly for their value brewers. Net pricing decreased by 2.9% due to investments in managing price gaps in a competitive single-serve environment. Operating income and margins also showed modest growth, with productivity savings and cost discipline offsetting the impact of price investments. International net sales grew by 15.5%, driven by volume mix growth and price increases. Segment operating income increased by 30.2%, thanks to sales gains and productivity. The company will continue to make investments to capture growth opportunities in their International business. In terms of cash flow, the company generated $543 million in free cash flow in Q2, due to seasonality, capital discipline, and reduced impact from their supplier financing program.

The company has seen a 50% increase in free cash flow and expects further improvement in the second half of the year. Their capital allocation priorities remain the same, with a focus on investments, strengthening their balance sheet, and returning cash to shareholders. They are committed to their long-term leverage target and have provided guidance for 2024, expecting mid-single-digit net sales and high-single-digit EPS growth. Despite potential challenges, they are confident in their ability to deliver on these expectations.

The speaker, Tim Cofer, is pleased with the company's second quarter results and is confident in their ability to deliver for the rest of the year. He acknowledges that top-line momentum will continue to improve and that margin and EPS gains have been strong in the first half of the year. He also recognizes the company's talented employees as their greatest source of competitive advantage. The speaker mentions changes in inflation and the strengthening of the dollar.

Tim Cofer, the speaker, is asked about the current operating conditions and dynamics in the beverage industry compared to the start of the year when their plan was set. He acknowledges that the categories have changed and that the consumer environment is uneven, with high-income consumers being more resilient and low and middle-income consumers seeking value. Consumers are being more selective in their purchases and are shifting towards value-oriented channels. Despite this, the company is pleased with their execution and results in the second quarter.

In the second quarter, the beverage industry faced challenges but also opportunities. CSDs are performing well and KDP brands, led by Dr Pepper, are gaining share. There is a chance to increase at-home coffee consumption through affordability tactics. However, certain parts of the portfolio, such as still beverages and energy drinks, are facing pressure. Overall, the company is on track to meet its goals and is confident in its future performance.

Tim Cofer, the speaker, discusses the company's organic sales guidance for the back half of the year, which is expected to accelerate due to partnerships with brands like Electrolit and Black Rifle. This growth is largely within the company's control and does not rely on significant changes in consumer health or macro trends. The partnerships will continue to ramp up in Q3 and Q4 and contribute to the company's top-line growth.

The speaker discusses the company's recent innovations, including Creamy Coconut, Canada dry Fruit Splash, and the Bai WonderWater restage. They also mention upcoming plans for core hydration, Mott’s, and an extended season of College Football. They are confident in their international growth and acknowledge the challenge of rising green coffee prices. The company will factor this into their pricing strategy and continue to focus on high quality activities to drive category growth.

The company has been working to position itself against competitors and is monitoring the situation. They acknowledge that there may be challenges in the second half of the year, but they are committed to managing price gaps responsibly while also investing in their categories and brands. The company's focus on affordability, premiumization, and cold coffee reflects a barbell strategy to address the current consumer landscape. They feel good about their current price gaps and have made moves to improve them, but are also continuing to invest in smaller, more affordable packages.

The speaker discusses their strategy for maintaining affordability in light of rising green coffee prices. They mention downsizing certain product counts and implementing value messaging to appeal to low and mid-income consumers. They also mention the success of entry price brewers in growing the Keurig system.

The speaker discusses the performance of the at-home coffee category, which has seen a slowdown in the last year and a half. They mention that this is not uncommon for many food and beverage categories at this time. However, the single-serve category has continued to perform well. The speaker also mentions their focus on affordability, premiumization, and cold coffee, but states that their outlook for the rest of the year takes into account the muted revenue contribution from coffee. They note that in tough economic times, there may be a shift in consumption from away-from-home to at-home channels.

The speaker discusses how the current trend towards at-home consumption is benefiting their coffee and liquid refreshment beverage business. They also mention that energy is a highly attractive category with consistent volume growth, but recent slowdown may be due to macroeconomic factors. Despite this, the speaker remains optimistic about the energy category and sees potential for growth, particularly in sub-segments and in comparison to other beverage categories. They also mention their excitement about their brand C4 and its strong momentum.

The speaker discusses the company's growth in the C4 business and their belief that there is still room for growth. They then answer a question about the stabilization of the US Coffee business and the potential for improvement in the back half of the year. They also mention the contribution of distribution partnerships and innovation to the improvement in the US refreshment sector.

The speaker discusses the progress and success of the company's owned and licensed business, specifically in the areas of affordability, premiumization, and cold coffee. They also mention partnerships with new brands and the expected impact on sales. In response to a question about the company's international business, the speaker expresses confidence in its growth potential and hints at potential future expansion through both organic growth and acquisitions.

The performance of the company is a result of expansion in both geographic and category-wise areas, particularly in Canada and Mexico. The team in these markets understands the consumer and is investing in routes to market and cooler execution. The company has a buy, build, and partner model in these markets and is considering inorganic entry into other international markets. The company expects similar growth in the international business as in the past five years. In the US Coffee segment, volume has improved but pricing came in lower sequentially. The company may reduce promotional intensity in the second half but it is uncertain if this is necessary for further volume improvement.

The speaker, Tim Cofer, discusses the company's focus on driving sustainable growth in the single-serve category and their efforts to balance promotional dynamics and maintain a strong margin structure. He also mentions the potential impact of higher green coffee prices on their P&L in the second half of the year. The company's goal is to responsibly manage price gaps while continuing to invest in the single-serve category. The conference call is then concluded by Jane Gelfand.

Investor Relations is always available to answer any additional questions and the operator thanks everyone for attending the presentation and ends the call.

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