The paragraph is an introduction to Keurig Dr Pepper's Third Quarter 2024 Earnings Call. The Operator starts by welcoming participants and introduces Jane Gelfand, Head of Investor Relations. Jane mentions the release of their third-quarter results and a pending transaction with GHOST, which will be discussed during the call and webcast. She notes that the discussion will include forward-looking statements, which may differ from actual results due to various factors, and that they will present the Q3 performance on a non-GAAP adjusted basis. Jane introduces the speakers, CEO Tim Cofer and CFO Sudhanshu Priyadarshi. Tim Cofer begins by expressing confidence in KDP's solid performance in 2024 and reiterates their full-year outlook despite challenges in the operating environment.

The company is focused on a strong year-end finish and long-term strategic growth, highlighted by the acquisition of a majority stake in GHOST, a fast-growing energy drink brand. This purchase enhances the company's portfolio and presence in the energy drink category, marking a significant step in evolving towards consumer-preferred growth areas. The founders of GHOST, Dan Lorenzo and Ryan Hughes, will continue to lead the brand, collaborating to scale its success. The energy drink market, valued at $23 billion, is rapidly expanding, presenting significant growth opportunities for the company.

The paragraph discusses the growing relevance and potential of the energy beverage market, highlighting its wide consumer appeal and potential for household penetration growth. It mentions Keurig Dr Pepper's (KDP) strategic expansion in this category through its portfolio approach, similar to its success in the premium water market. Recent developments include partnerships with brands like C4, GHOST, Black Rifle Energy, and a new distribution agreement with Nutrabolt for the female-oriented Bloom energy drink. The GHOST transaction exemplifies KDP's efficient capital deployment strategy, maintaining leadership while expanding into new market spaces effectively.

The paragraph discusses Keurig Dr Pepper's (KDP) strategic focus on supporting visionary entrepreneurs like Doss Cunningham of Nutrabolt to build a strong energy drinks platform. In Q3, KDP saw a 3.1% increase in constant currency net sales and a 3.5% growth in volume/mix. There was modest pressure from net pricing, but improvements are expected in Q4 and 2025. The company emphasized productivity and cost discipline, leading to a high single-digit increase in operating income and a 6% rise in EPS. The company is balancing short-term performance with long-term strategic goals, including consumer-centric brand-building aimed at increasing market share.

In Q3, the company increased its market share across key product categories and regions, thanks to innovation, brand activity, and strong commercial execution, despite a softer consumer environment. The focus on reshaping its portfolio includes new partnerships with Electrolit and La Colombe, which have been integrated into their DSD network, enhancing financial contributions and market performance. A new transaction with GHOST highlights the commitment to growth. The company has efficiently integrated new assets in Arizona and is expanding its distribution network, including in Tennessee and through its company-owned network in Mexico, to strengthen competitive advantages.

During the third quarter, the company focused on expanding system coverage, selling routes, and improving cooler penetration, which contributed to positive trends. They achieved strong cost savings, productivity, and SG&A overhead leverage, surpassing yearly cost savings goals and preparing for future projects. Cash generation has strengthened, supporting various priorities, including growth, productivity, share buybacks, dividend increases, and a major acquisition. In the U.S. refreshment beverages segment, they saw increased revenue growth due to distribution transitions and strong base trends, despite a dynamic consumer environment impacting their portfolio.

The carbonated soft drinks (CSD) category is surpassing expectations due to accessible pricing and strong growth strategies, with Dr Pepper leading in performance thanks to innovations like a creamy coconut LTO and a zero sugar line. The brand's momentum is bolstered by its Fansville marketing campaign. Canada Dry Fruit Splash is showing strong potential, and 7UP has been revitalized with a new brand design and a successful limited-time flavor. However, some still beverage categories are underperforming, especially those in convenience stores and higher-priced segments like ready-to-drink teas. Efforts focus on engaging consumers with brand activities and emphasizing value pricing. Conversely, other still beverages, such as their successful warehouse-delivered MOTs brand, are performing well and receiving investment in 2024.

During Q3, the back-to-school campaign boosted top-line growth and market share for MOTs, particularly through a focus on fresh apples. The U.S. refreshment beverages segment showed strong performance, assisted by the Electrolit partnership. However, the U.S. coffee segment had a weaker quarter, hindered by heavy promotions affecting pricing and profitability. Despite low overall growth in at-home coffee consumption, single-serve and certain brands showed promise. The company is cautiously planning its coffee strategy, focusing on controllable elements such as pod market share. Their strategy involves affordability, premiumization, and cold coffee, which has driven share gains for brands like Green Mountain and The Original Donut Shop. They are also expanding the Keurig ecosystem with new brands, including Black Rifle K-Cup pods.

The paragraph discusses the positive outlook for the company's coffee segment due to favorable market share trends, new partnerships, and strong brewer shipment growth. It highlights the momentum of Keurig and Keurig-compatible brewers gaining market share and anticipates future pod consumption growth. While the competitive environment has been promotional, the company expects industry pricing to rise in response to inflation, potentially leading to healthier revenue trends despite some volume trade-offs. The company plans to continue innovating and expanding its brand ecosystem in the U.S. while remaining cautious due to the soft at-home coffee market. Overall, the focus is on long-term success, with an emphasis on high-quality innovation and marketing.

In the paragraph, the company reports strong quarterly performance, with high single-digit growth in net sales in constant currency. Gains were achieved across regions and categories, with notable success in Mexico, particularly through market share increases in various categories and the strong performance of the Penafiel and Squirt brands, the latter reaching the status of the second-largest flavored CSD in Mexico. Canadian cold beverage sales were robust, driven by growth in Canada Dry and Dr Pepper. International coffee experienced market share growth through a specific strategy. The company's overall international momentum is positive, and future investments are expected to drive growth. The paragraph concludes with the company's anticipation of a strong 2024 finish, ongoing strategic initiatives, and a transaction with GHOST to enhance the portfolio. Third-quarter net sales increased by 3.1% in constant currency in the U.S.

In the discussed period, the company's consolidated volume/mix growth drove a 3.5% sales increase, though net price realization fell 0.4%, mainly due to U.S. coffee pricing pressures. Gross margin improved by 20 basis points, aided by productivity and a C4 performance incentive. SG&A showed an 80 basis points leverage due to disciplined overhead management. Overall, operating margins expanded by 110 basis points, and operating income rose 7.5%, leading to a 6% EPS growth. In the U.S. refreshment beverages segment, net sales increased by 5.3% with a 4% volume/mix growth, partly from Electrolit's transition to their DSD network, and a 1.3% positive pricing impact. The segment's operating income grew 6.8%, benefiting from sales momentum, productivity, and the C4 incentive. The company anticipates further improvement in sales growth for the next quarter.

The paragraph discusses the challenges and strategies in the U.S. coffee market. Despite a 3.6% decline in net revenue and a 7.2% drop in operating income, there was a 2.7% growth in volume/mix, driven by flat pod sales and 14% growth in brewer shipments. The company maintained good market share momentum through innovation and retail execution, focusing on affordability, premiumization, and cold coffee. Third quarter pricing dropped 6.3% due to competitive pressures. Price increases are planned for early next year, which may impact elasticity. The company aims to enhance revenue through market share growth and better pricing. Q3 operating income fell despite productivity savings, due to net price declines. Moving forward, the company will address this with price increases, modulating promotions, productivity improvements, network optimization, and broader cost controls.

The paragraph discusses the company's strong performance in international markets, with a 6.5% growth in constant currency net sales and significant operating income growth driven by net pricing and productivity. Despite inflationary pressures, they have achieved market share gains and are optimistic about future growth, particularly in the fourth quarter and into 2025. The company generated over $500 million in free cash flow in the third quarter, which supports their capital allocation priorities and a 7% dividend increase. There are plans to enhance their presence in a new category, ensuring financial returns and maintaining a resilient balance sheet through thoughtful restructuring.

The paragraph discusses the company's outlook for 2024, expecting mid-single-digit net sales growth and high single-digit EPS growth, despite inflation pressures and modest currency headwinds in Q4. They remain focused on executing strategic plans and delivering strong results, especially in Q4. Looking ahead to 2025, there's a cautious but optimistic view, with opportunities alongside risks due to a challenging operating environment and consumer constraints. Tim concludes by expressing a commitment to finishing 2024 well and beginning strategic planning for 2025.

The paragraph discusses the company's approach to managing inflationary pressures by implementing strategic pricing and innovation plans. It highlights the uncertainty of consumer response due to varied economic conditions, but expresses confidence in long-term benefits from their 2024 strategies impacting 2025. The company plans to enhance productivity, cost discipline, and utilize the brand GHOST for flexibility in planning. Overall, the company expects a balanced performance aligning with their long-term goals and will provide official 2025 guidance in the next earnings cycle. During a Q&A, Kaumil Gajrawala from Jefferies inquires about the synergy in the company's energy portfolio, specifically mentioning C4, GHOST, and Black Rifle, to which Tim Cofer responds, emphasizing the growth potential in the energy sector.

The paragraph discusses KDP's strategic approach to expanding its presence in the energy drink category by creating a diverse portfolio of brands to cater to various consumer needs and occasions. The company, which had little involvement in the energy sector two years ago, now collaborates with brands like GHOST and Bloom to build a multifaceted energy platform. It highlights different brands under its umbrella: C4, which focuses on performance-based products for gym and fitness, appealing primarily to male millennials; GHOST, known for its bold flavors and popularity among gamers and at social events, with a balanced gender appeal and significant zero sugar offerings; and Black Rifle, positioned for mainstream energy and coffee-energy hybrid markets. This portfolio approach aims to enhance consumer reach and benefit KDP's distribution system.

The paragraph discusses Keurig Dr Pepper's (KDP) recent strategic moves and acquisitions. They have signed on to distribute Bloom, a female-oriented product, nationwide after its successful launch at Target. The conversation then shifts to the GHOST transaction. Brett Cooper asks about KDP's impact on GHOST's market presence and the benefits for KDP in the convenience store channel. Tim Cofer highlights KDP's success with brands like Doss, Nutrabolt, and C4, noting significant growth in market share, distribution points, and display activity in less than two years, which KDP aims to replicate with GHOST.

The paragraph discusses a company's successful execution of a proven strategy, initially with C4 and now aiming to replicate it with GHOST. The company brings various strengths to the partnership, including R&D, innovation, marketing, and commercial capabilities, alongside long-term cost synergies in procurement and manufacturing. This model and strong momentum, particularly in C-store for the energy segment, have seen market share growth from 7% to nearly 10% in three years. The addition of GHOST is expected to enhance KDP's footprint by approximately 20% in small formats, boosting their DSD flywheel and economics. After this, Dara Mohsenian from Morgan Stanley questions Tim on their perspective regarding changes in the coffee industry's dynamics.

The paragraph discusses the company's positive outlook on the long-term prospects of the coffee market despite current challenges. Tim Cofer explains that while the at-home coffee segment is recovering slower than anticipated, the single-serve category is performing well, and their brands are excelling within this segment. The company focuses on controllable factors and plans cautiously for the industry's recovery, including expectations for the remainder of the current year and preliminary insights into 2025. Cofer remains optimistic about coffee's structural tailwinds and ongoing market consumption.

The paragraph discusses a strategic plan that focuses on affordability, premiumization, and cold coffee, which is working well and is evidenced by market share gains in pods and brewers. Despite facing an increase in green coffee costs, the business aims to manage revenue growth, acknowledging the impact of inflation. Pricing adjustments are planned for early 2025 to maintain a positive top line trend and market share. Sudhanshu Priyadarshi mentions that U.S. coffee margins in 2024 were initially strong but have since come under pressure due to rising green coffee costs. For 2025, the company plans to counteract continuing coffee inflation with early-year pricing changes, productivity focus, and cost management, prioritizing operating profit growth over margin percentages.

The paragraph discusses the impact of hurricanes on coffee shipments at the end of the quarter, noting that a significant facility was temporarily affected by the storms, which negatively impacted their Q3 results. Regarding portfolio optimization, Tim Cofer emphasizes the importance of continually refining the company's portfolio by adding high-growth assets and removing underperforming components to create a more efficient and growth-oriented business over the next one to two years.

The paragraph discusses a strategic approach to optimizing a company's portfolio by evaluating and deciding which categories, brands, and specific SKUs to emphasize. This process can lead to more efficient operations across procurement, manufacturing, and distribution, although it may involve a trade-off in net sales. The long-term goal is to achieve a faster-growing portfolio with higher service levels and a more attractive cost structure. The context is within KDP, a young company focusing on integrating past acquisitions and capturing synergies, and now turning to portfolio optimization, particularly in the U.S. refreshment beverage sector. The introduction of a high-growth brand like GHOST in the energy category offers flexibility and potential for both top-line growth and margin improvement as the company moves toward making strategic choices.

In the paragraph, Robert Ottenstein congratulates the company on its successful brands, GHOST and Bloom, but raises concerns about whether the company might be overextending itself with too many simultaneous initiatives, including the transition of GHOST's distribution from Anheuser-Busch to their own system. Tim Cofer responds by reassuring that the company is well-prepared to handle these complexities. He highlights past successes with C4 and Electrolit, mentioning a strong relationship with Electrolit's management and a successful transition. Cofer is confident in the robustness of their infrastructure, including warehouses, logistics, and IT systems, as well as the KDP DSD distribution system.

In the paragraph, the speaker discusses a meeting with the DSD leadership team at their Frisco headquarters, highlighting their optimism about projects involving C4 and Electrolit. The team is excited about KDP's accelerated progress, especially in convenience stores. Investments in infrastructure and acquisitions in territories like Arizona and Tennessee are emphasized as signs of confidence in DSD. Looking forward, there's a potential significant announcement for 2025. The speaker also addresses the transition of distribution responsibilities for GHOST from AVI to KDP in mid-2025, following a six-month termination notice. The conference concludes with closing remarks from Jane Gelfand, who thanks participants and acknowledges the busy earnings period.

The paragraph expresses gratitude for the audience's support and mentions that the Investor Relations (IR) team will be available to answer any follow-up questions throughout the day. It concludes with a thank you and a wish for a great day, followed by the operator announcing the end of the conference and instructing attendees to disconnect.

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