Keurig Dr Pepper Inc. Price & Performance (KDP)

And we talked about shaping our portfolio. And this year, we're some big moves capitalizing on year two of C4, year one of ElectroLETE, obviously a recently announced deal with Ghost. I feel good about this year, the progress we've made, the proof points up on the board. As we roll into 2025, it's really about plussing up all those dimensions. You're going to see a great slate of innovation impacting 2025 across beverage, You'll see us consolidate further DSD territory in 2025. You'll see that portfolio expand with the recent announcement of the Ghost [indiscernible] The other thing you're going to see is really an enhanced focus on productivity. To generate that fuel for growth. Look, I mean, it's a tough environment out there. It's a challenge consumer [indiscernible] perhaps getting a little bit better. You see differences in some categories. CSD is doing better than we thought. At home coffee is still a little sluggish. But I think our job is to deliver consistently predictably, and I feel good about our ability to continue to do that going into '25 Great. That's a great segue into Ghost and the most recent acquisition, which has been the biggest acquisition since your merger, you talked about the value of your distribution platform.

Maybe take us through on that deal why this is the right deal, why this is the right time, for your company, and also pursuing it as an acquisition as opposed to just increasing your stake or a minority stake as we've seen at some of the other [indiscernible] deals you've done over time.

Absolutely. I'd start by talking about the category. We like energy. Energy is a great category in liquid refreshment beverage, about a $24,000,000,000 category. Consistently the strongest, if not one of the strongest growers in total liquid refreshment beverage. And I think there's a lot of structure [indiscernible] It addresses the universal need around energy and alertness. It is still, I think, early in its development. Think about metrics like household penetration, Energy has not yet hit the high watermark of other categories like CSDs. About even the development of this category at its stage Before we get started, I'd like to remind you that our remarks will include forward looking statements which reflect KDP's judgment, assumptions and analysis only as of today. Our actual results may differ materially from current expectations based on a number of factors affecting KDP's business. Except as required by law, we do not undertake any obligation to update any forward looking statements discussed For more information, please refer to our earnings release and the risk factors discussed in our most recent Form 10 ks which will be filed with the SEC later today. Consistent with previous quarters, we will be discussing our Q4 and full year performance on a non GAAP adjusted basis which reflects constant currency growth rates, and excludes items affecting comparability.

Definitions and reconciliations toward the most directly comparable GAAP metrics are included in our earnings materials. Here with us today to discuss our results are Keurig Doctor. Pepper's Chief Executive Officer, Tim Kofer and Chief Financial Officer and President, International, Sutanshu Priyadarshi. I'll now turn it over to Tim.

Thanks, Jane, and good morning, everyone. 2024 was a pivotal year for KDP. A demanding operating environment, we delivered a attractive performance consistent with our long term algorithm and full year guidance. We unveiled our Refresh strategy which we activated as the year progressed to set the stage for KDP's next phase of growth. And we took bold action to extend our portfolio into attractive white spaces and strengthen our commercial capabilities. In short, we struck a thoughtful balance between achieving our annual commitments and setting up KDP for consistent sustainable success. 2025 is shaping up as another dynamic year for the CPG industry and we will remain agile in our execution while targeting a similarly balanced set of outcomes. Delivering on algorithm financial results and simultaneously advancing strategic priorities to fortify our long term growth model. Let me start with a quick review of our key 2024 accomplishments, which span each of our five strategic pillars: Beginning with consumer obsessed brand building, a successful innovation slate and engaging marketing campaigns drove attractive growth across many of our iconic brands. To provide just a few examples, Doctor Pepper Creamy Coconut was our largest limited time offering ever and generated significant buzz.

We capitalized on the dirty soda cultural phenomenon powered by social media, which helped drive our eighth consecutive year of market share growth for Doctor Pepper. Canada Dry's first brand extension in years FruitSplash Cherry, was the number one innovation in the CSD category. The Mott's full marketing campaign highlighting its fresh minimally processed apples fueled full year share gains in juice and strong back half momentum in sauces. And in coffee, our owned and licensed brands accounted for over 50% of the pod category innovation, spearheaded by our distinctive [indiscernible] which was the number one new product in the category and doubled our initial plan. We shaped our now and next portfolio seamlessly transitioning Electroleet and La Colon to our DSD network and onboarding several new coffee partners including leading brands such as Black Rifle in The U. S. And Canadian icon Kicking Horse.

Ghost, is yet another example of our portfolio strategy in action. Through this acquisition, which closed at year end, we added a successful emerging brand in the high growth energy category that will benefit from inclusion in our advantaged distribution system. In total, our actions accelerated KDP's portfolio evolution to structurally faster growing segments within the beverage industry. We amplified our route to market advantage and further extended the reach and power of the KDP DSD system of across multiple geographies and sites. Most notable in 2024, was the Territory acquisition to extend our manufacturing and distribution presence into Arizona. The transaction provided direct exposure to a growing mark supply chain and logistics networks. We also executed well across our existing footprint translating to healthy marketplace trends for our base business and strong performance for our partner brands. Our fuel for growth focus permeated the organization. Driving productivity savings at the high end of our target and generating SG and A overhead leverage particularly in the second half of the year. And finally, we strengthened our free cash flow generation, which funded dynamic capital These included $1,100,000,000 of share buybacks, our fourth consecutive annual dividend increase and over $1,000,000,000 of strategic investments that will enhance our ability to deliver consistent profitable growth in the future.

Our strategy and the five pillars underpinning it represent our North Star. In 2025, we will set a high bar for operational excellence while further advancing each of these pillars as we become an ever stronger and more advantaged beverage company. To summarize, our full year 2024 financial performance we delivered results consistent with our long term algorithm with constant currency net sales growing approximately 4% and EPS growing 8%. Strong productivity and overhead savings drove P and L leverage and funded higher marketing investment free cash flow generation and conversion also improved considerably relative to prior year. In keeping with our expectations. The strong performance during the year was led by our U. S. Refreshing Beverages and International segments, which each demonstrated standout momentum and together represent over 70% of revenue. In U. S. Coffee, we made progress and strengthened our business resiliency as the industry heads into an inflation driven pricing cycle. Moving to Q4, At the enterprise level, we finished the year with momentum. During the quarter, KDP delivered a meaningful top line acceleration and solid bottom line growth Constant currency net sales increased more than 6% led by U. S. Refreshment Beverages, delivered an impressive double digit sales gain.

Notably, the net revenue trend across each of our three segments accelerated relative to the third quarter. Volume mix was the primary top line drive with year over year growth in each business.

Price was also a positive contributor with gains in U. S. Refreshment beverages and international more than offsetting temporary price pressure in U. S. Coffee. Our top line growth productivity savings, and overhead discipline mitigated escalating inflation, enabling increased EPS growth. Focusing on Q4 segment results, U. S. Refreshment Beverages net sales grew a very strong 10% led by a volume mix increase in the high single digits. Our teams executed traction from new partnerships, and route to market additions. Carbonated soft drink momentum was particularly strong in Q4. The category remains healthy and we benefited from compelling innovation and brand activity as well as offerings that appealed to value conscious consumers. Our CSD brands continued to win in the marketplace with market share gains in the quarter. Whole flavored Doctor Pepper is now the number two CSD the category. And the Doctor Pepper brand is the undisputed leader in the vibrant CST flavor segment. Doctor Pepper was also the CSD category's largest share gainer during Q4. Reflecting its consumer appeal unique positioning and the benefits of our commercial activities. For example, the seventh season of our Fansville college football marketing campaign was our most successful yet. We also saw continued traction from Doctor Pepper's Zero Sugar portfolio which will remain a strong growth factor going forward.

Canada Dry was another top CSD performer supported by our FruitSplash Cherry innovation, and 7UP grew market share as consumers responded to our Shirley Temple Holiday LTO and refreshed Brand design. In twenty twenty five, we expect robust CSD growth to continue. Supported by engaging full funnel marketing activations and a promising CSD innovation lineup designed to This includes Doctor Pepper Blackberry, which combines Doctor Pepper's original 23 flavors [indiscernible] Seven Up Tropical which blends the crisp taste of seven Up with mango, and exciting seasonal activations across other and nostalgic A and W ice cream sundae beverage and new flavors from our crush and Sunkist brands.

Notably Doctor Pepper Blackberry marks the first time we are simultaneously introducing an innovation across bottles, and cans, fountain, and frozen to maximize availability across various formats that our consumers enjoy. Beyond CSDs, the next largest driver of our Q4 growth was ElectroLETE, which is enjoying accelerating trends after converting to the KDP DSD system. ElectroLETE is one of the fastest growing brands. In the sports hydration category and we see significant runway for future expansion. In 2025, we will focus on strengthening [indiscernible] further transitioning the brand from Hispanic specialty to the mainstream sports hydration aisle, We will also leverage our DSD in multipack and zero sugar offerings [indiscernible] the brand meaningfully under indexes versus the category leaders. Also during Q4, we made significant progress advancing our energy strategy. We drove strong growth for C4 gaining share within the attractive performance energy space and achieving an additional equity milestone in the process. We also began to transition Black Rifle Energy and Bloom to our DSD distribution network and closed on the Ghost acquisition. With a formidable distinctive and complementary energy portfolio now in place, we are enhancing our operating structure and adding dedicated resources to ensure KDP's success in this important high growth category Just three years ago, our share in energy would have been close to zero Today, it is over 6%.

In 2025, we expect well over $1,000,000,000 in retail sales from our energy brands and have set our sights on achieving a double digit share position in the coming years. Overall, we're pleased with the performance of our U. S. Refreshing Beverages segment. Our exceptional Q4 results capped a strong 2024 and we have exciting plans in place to support sustained momentum in 2025. In U. S. Coffee, Q4 net sales decreased 2% with a modest volume mix gain including pod volume growth, more than offset by a temporary net price decline. We are encouraged by the improving state of the category and traction from our own portfolio efforts. Let me elaborate. First, year over year trends in the at home coffee category improved on a value basis when compared to Q3. And the exit rate was healthy. With December representing the strongest month of the quarter, Second, in Q4, we continued to emphasize affordability drive premiumization, and advance at home cold coffee offerings all initiatives that we believe will have multiyear relevance in the category. Consumer acceptance, of our price pack down counts remained strong. Our premium product tier continued to grow through our expanded commercial relationship with Lavata, and we captured incremental consumers and occasions through cold offerings.

Like K Cup refreshers and our new K Brew and Chill brewer. Third, we made progress. Expanding our participation in coffee formats and channels [indiscernible] Our Ready to Drink Coffee partnership with La Colomb performed very well with retail sales growth meaningfully accelerating in Q4, Momentum in away from home coffee also improved in the quarter and we see significant opportunity into 2025 As in office work ramps, and we further push into channels like hospitality, The combination of these factors put U. S. Coffee on firmer footing. Exiting 2024, positioning it to be more resilient in 2025. We expect category conditions to be quite different this year given the inflationary pressure from coffee commodity costs. Accordingly, we are managing the business with two primary objectives. First, to preserve profit dollars and our ability to reinvest despite escalating green coffee costs. In response to this inflation, we announced pricing in Q3 that began to take effect in January and saw many competitors take similar steps However, and we are evaluating all available options to offset the incremental pressure. These levers include driving greater productivity, optimizing mix, and may also require further pricing actions with some elasticity offset. Our second objective is to continue to steward the single serve category through marketing, innovation and activation in brewers and pods while expanding our presence across total coffee occasions and solutions.

We are planning to introduce compelling new products in various formats this year and behind the scenes we are advancing work on more disruptive launches like Keurig Ulta, [indiscernible] for the years to come. Turning now to International. We delivered another quarter of healthy top line growth with constant currency net sales increasing at a high single digit rate. Momentum was broad based across the portfolio In international coffee, our top line was driven by market share gains for brewers and pods. In cold beverages, our performance was led by Mexico LRBs, which grew nicely despite some signs of a macroeconomic slowdown, These results were propelled by Pena Fial line extensions the expansion of power brands like Doctor Pepper within Mexico and route to market investments across traditional and modern trade During the quarter, we signed a Canadian licensing deal for Nest Tea, the leading iced tea brand in the country. Furthering our international partnership strategy. The partnership will pick up later in 2025 and through this iconic brand addition to the portfolio, we in an important LRB category while benefiting from enhanced scale across our total Canadian operations. All in, our international segment continues to perform well We are prioritizing this business for reinvestment underpinning our confidence it can remain and out In closing, I'm pleased with our performance during 2024 we delivered strong results in a challenging environment while simultaneously positioning the business for the long term.

This outcome was a direct output of the talent dedication and hard work of our 29,000 colleagues across KDP.

On behalf of my executive leadership team, I'd like to thank them for their efforts and impact. Our challenger mindset is well suited for the current environment and we expect to continue to see strong results in 2025 from empowering our teams to play offense and take calculated risks. I'll now turn it over to Sudanshu. And will return with some closing thoughts about the year ahead.

Thanks, Tim, and good morning, everyone. We are pleased with our results for the year which demonstrated excellent execution across the organization. We delivered 3.9% net sales growth drove robust productivity to expand gross margin, and leveraged SG and A through tight expense management. As a result, we grew operating income 9%, and EPS 7.8%. We also meaningfully strengthened our cash flow generation and as Tim outlined, made notable strategic progress to lay the groundwork for our success in 2025, and beyond. Our fourth quarter closed the year on a strong note. Net sales grew 6.2% in constant currency showcasing an acceleration relative to the first three quarters, and led by U. S. Refrigerant Beverages and International. Enterprise volume mix grew 5.3% reflecting healthy base business trends and an ongoing contribution from new partnerships. Net price realization was also a positive contributor increasing 0.9%. Gross margin contracted 120 basis points versus the prior year. We generated significant productivity savings in the quarter and also benefited from positive price realization. However, this was more than offset by building inflationary pressures And the impact of lapping a tough year ago comparison. SG and A leverage 20 basis points despite an increase in marketing investment, reflecting an enhanced overhead efficiency mindset across the organization.

All in, operating income grew 3.4% and including a tailwind from lower shares outstanding EPS advanced 5.5%. Moving to the segments. U. S. Refresher and Beverages net sales grew an impressive 10.3% accelerating from a mid single digit growth rate in the third quarter. Volume mix was the primary driver increasing 7.5% led by base business momentum, particularly in CSDs. We further benefited from an incremental contribution from Electrolate where our partnership is progressing well, and growth is accelerating. The quarter also included the modest benefit of an extra shipping day due to calendar shifts. Pricing grew 2.8% in the quarter primarily reflecting favorable price realization in our CSD portfolio. Segment operating income increased 8.6% driven by the very strong net sales growth and robust productivity savings, We delivered this result while reinvesting Even as the absorbed and net headwind from lapping a larger C4 performance incentive in the year ago period. In U. S. Coffee, net sales declined 2.4%. Volume mix grew 0.7% in the quarter driven by a 1.1% increase in port shipments. Our strategic initiatives showed traction with the underlying teams of affordability, hold to remain in place on a multiyear basis. Brewer shipments declined 4% in the quarter below point of sale consumptions due to seasonality.

On a full year basis, which smooths out the seasonality related noise, Brewer shipments increased 7.3%. Segment pricing declined 3.1% in the fourth quarter. We had expected some lingering pressure this quarter but nonetheless encouraged by the improving trend. We anticipate category pricing will strengthen further in 2025 based on actions taken [indiscernible] including our January price increase. Fourth quarter segment operating income declined 5.7% with productivity savings more than offset by the net price decline and green coffee inflation. Moving to international, net sales grew 8.5% in constant currency. This strong result was led by volume mix which increased 6.5% reflecting positive momentum across regions. Net price realization was also a growth driver contributing 2%. Inclusive of unfavorable FX, reported net sales increased 0.8%. Segment operating income declined 8.6%. This reflected two primary factors. First, strong reinvestment in the quarter including DST expansion activities in Mexico, and higher marketing across the segment. Second, escalating green coffee costs in the fourth quarter with relative pricing actions in Canada due to take effect, the middle of the first quarter. Importantly, we see these as temporary dynamics and expect our international segment to remain a strong top and bottom line growth driver in 2025 as a whole.

Moving to the balance sheet and cash flow. We generated a strong free cash flow of almost 700,000,000 during the fourth quarter. This brought full year free cash flow to $1,700,000,000 a significant step up versus prior year. And we expect further progress in 2025. Cash generation is the hallmark of KDP and we remain on track to restore our business to healthy structural conversion levels over the next couple of years. As Tim discussed, during 2024, we deployed the cash flow we generated in a variety of value enhancing ways. Including Over $1,000,000,000 of strategic investments to acquire a 60% ownership in Ghost, and expand our DSD footprint into Arizona. Dollars 1,100,000,000.0 worth of share buybacks and a 7% increase our quarterly dividend marking our fourth consecutive year with a dividend raise. We ended 2024 with management leverage of 3.3 times, which reflected the ghost transaction. This was above our long term target of less than 2.5 times and more of our focus in 2025 will be on deleveraging. However, we feel comfortable that our accelerating free cash flow profile can support a disciplined multi pronged capital allocation strategy that also includes investments and steady dividend growth. Moving now to our 2025 guidance.

On a constant currency basis, we expect mid single digit net sales growth and high single digit earnings per share growth. In line with our long term algorithm. Based on current rates, we anticipate that FX will represent an additional 1% to two percentage point headwind. Our outlook assumes good momentum in our U. S. Refresher and Beverages and International segments, and an incremental contribution from the Ghost acquisition. The plan also recognized that U. S. Coffee is likely to remain more subdued In a dynamic commodity environment, even higher pricing.

We expect strong productivity and overhead discipline to generate fuel for growth and to support healthy operating income gains in the coming year. Below the line, we forecast interest expense in a $680,000,000 to $700,000,000 range, and effective tax rate of approximately 22% to 23% and approximately 1,370,000,000.00 diluted weighted average shares outstanding. There are a couple of factors worth considering when it comes to the quarterly phasing in 2025, For one, Q1 will reflect the impact of a later Easter and one fewer shipping day compared with prior year.

Plus the balance between inflation pricing and productivity generation is slated to improve over the course of the year. As a result, we anticipate stronger top line and bottom line momentum in Q2 through Q4. Particularly as the contribution from ghost bills following the transition our distribution network. In closing, we are pleased with our 2024 performance and the good finish in the fourth quarter. We drove healthy marketplace strength across our base business secured additional scale in attractive white spaces strengthen our advantaged route to market system and embedded a greater efficiency focus throughout the organization. And we did this all while delivering on our plans. We are confident 2025 will be another year of progress [indiscernible] We expect to showcase our operating agility in a dynamic environment our relative insulation for currency volatility and most importantly, our building momentum in the industry. With that, I will turn the call back to Tim for closing remarks. Thanks Sudhanshu.

We achieved a great deal in 2024 and we're committed to delivering another strong performance in 2025. As we look to the year ahead, we are cognizant of the demanding operating backdrop and will act with agility to navigate uneven consumer sentiment higher inflation and a shifting regulatory landscape. We have momentum across much of the portfolio with an exciting slate [indiscernible] innovation and sales activation plans. We are moving with speed to unlock significant productivity savings and where appropriate implement pricing. In response to inflation and to ensure continued investment in the business. And we are hitting the ground running which we will activate in a big way as we transition distribution over the coming months, These factors support our confidence on algorithm year. During which we will continue to distinguish ourselves as an advantaged player in the exciting beverage industry for the long term. Thank you for your time.

If you are using a speakerphone, The first question today comes from Chris Carey with Wells Fargo. Please go ahead.

Hi, good morning, everyone. So I wanted to just maybe talk through the building blocks for 2025 beginning with the commentary on Q1 you've got the leap year and you've also got the E [indiscernible] and you also have green coffee. So revenue and profit do build but I think there's also a dynamic where we're looking at year to date consumption trends which are very strong, particularly in your U. S. Refreshing business. So Are you seeing anything different versus what we're seeing? Or are we really just talking about some calendar timing dynamics and green coffee inflation as we build through the year? And just connected when you think about the overall delivery from a top line standpoint from volume mix versus price and from a bottom line standpoint, you have any thoughts on kind of where you would be thinking you're trending within the range given we're so early in the year. So just any thoughts on that underlying momentum you see in the business? Entering the year and just some thoughts on relative ranges and drivers for top line and bottom line? Thanks so much.

Thanks, Chris. So first of all, we are pleased with our on algo performance in 2024 and you saw the exit run rate in Q4 and we feel we are well set up to deliver our algo MSD top line and HSE EPS yet again in 2025. Let me walk you through the sales and EPS driver as we see them today This year will be here with a lot of macro things moving, but what we see today there are some differences in how we think on sales and how we think on EPS. So when it comes to the revenue growth, it's fair to say that we see a path towards the upper end of our MSD net sales growth range And the key drivers are continued momentum in U. S. RB and international, This is underpinned by strong innovation, commercial plans and some modest net pricing. As I said before, a subdued trend in U. S. Coffee in a dynamic commodity environment even with higher pricing and we think this is an appropriate planning stance.

And the incremental contribution from Ghost which we begin to consolidate in Q1 at a smaller contribution but it will ramp as distribution builds primarily starting in Q2. Now let me come back to EPS. So we expect net sales growth and moderating a modest operating margin leverage that will translate into HST constant currency EPS growth. We should have a good profit flow through from volume mix momentum both in U. S. RB and international Now we also feel that Ghost will be modestly this year, a bit better than we originally expected due to earlier distribution, But on the flip side, the inflation outlook is certainly more challenging than we thought even three months ago.

Based on the direction of green coffee We will look to offset this through pricing, strong productivity, mix and overhead discipline. So as As we think right now all in, MSG and HST percentages are the right range to target in constant currency. I'll also remind you in reported term, we expect an additional one to two point FX headwind But as I said, this is a challenging environment and this outlook requires discipline and agility in the face of record cough inflation. And macro uncertainty. When it comes to quarter one and phasing, Q1, we do have a less shipping day, a fewer shipping day and also later Easter. And only a partial benefit from coffee pricing and a smaller gross contribution as distribution transition occurs. So as I said during the call, we expect growth to accelerate over the balance of the year as the calendar normalizes gross distribution ramps and pricing builds. [indiscernible] EPS to Q1 EPS growth will be limited by net sales phasing a lag of pricing to inflation, A tough lap from C4 Earn equity in prior year period and a full quarter of financing costs for Ghost with limited contribution from from distribution.

We also expect EPS to accelerate over the balance of the year reflecting a better expected balance between pricing inflation the gross distribution wrap and the phasing of productivity and sales realization.

The next question comes from Peter Grom with UBS. Thanks, operator. Good morning, everyone. Hope you're doing well. So Tim, I was hoping to get some perspective on coffee, just you look back to 2024, it's been a category that's been more difficult to call. I think the improvement has taken bit longer than many anticipated. So I guess just as you look back, do you feel like you have a better understanding on maybe why category growth remained more subdued And then just as you think about the stronger exit rate, what do you think drove that? And I know you're expecting more subdued growth in '25, but I guess my question is, do you feel like you have better visibility on category growth where we sit today versus maybe where we've been over the last year. Absolutely, Peter. So I think stepping back first, coffee remains an attractive category long term.

We remain committed and bullish on long term coffee that it is a ubiquitous category. It maintains wide and passionate consumer appeal. It the most consumed beverage outside of water. I think we believe even in inflationary environment, there's ongoing opportunity for premiumization. We think there's an opportunity for us to have an even wider diversity of formats and channel penetration to distinct different to attract and capitalize on different need states.

And I think in this inflationary environment, that we've transitioned into, there's an opportunity for us to further showcase the value of at home coffee relative to away from home.

And that includes obviously our single serve leadership position but also our ready to drink offering with the new partnership with La Colon. So to your question, back in 2024, It was a year of relatively benign inflation.

And it didn't start to ramp until the very end of the year. So our focus in much of the category was on volume stabilization. And I'll tell you overall, we were pleased and we felt like we were successful. Volume mix in the year grew about 1% in 2024. You saw pod volume turn positive in Q4.

Obviously, now as we go into '25, we're in a completely different environment with record green coffee costs We are shifting our focus We must protect our ability to invest for long term.

We understand that with the pricing moves that we and others have made, will be some volume elasticity trade off. We're willing to accept that because overall, we think we need to play the long game here. And so as I said in my prepared remarks, as we go into 2025, it's really two primary objectives. One, preserving those profit dollars in light of that inflation through a combination of the pricing action we've taken, mix, productivity, etcetera, and continuing to invest in the future. Which we do think remains bright for coffee across our innovation, and activation plans, pods, brewers and really stepping back and making sure we're expanding in the full coffee portfolio beyond single serve position where we've got strong leadership. Having said all that, I'll remind you what both Sudhanshu and I said in the prepared remarks. We're planning for U. S. Coffee segment performance to remain subdued. And even with that, we feel confident in our overall KDP enterprise outlook of MSD on the top and EPS HSD.

The next question comes from Steve Powers Please go ahead.

Thanks very much. Good morning, everybody.

Hey, Steve. Hey, so I was hoping you could maybe building on what you outlined in your prepared remarks, around KDP's ambitions in energy, Maybe just a little bit more color on how you're viewing that market [indiscernible] Obviously, for you guys, Ghost is a big part of your plans for the year. Plus activity around C4 and Black Rifle and Bloom. And we've we've seen a lot of activity articulated from other players as well, whether it's Red Bull or Monster, the news last week regarding Celsius and Aloni news. So maybe just a little bit of perspective on how you're seeing consumer demand taking shape within the category? And then how your portfolio is positioned to take advantage of white space opportunities within that fairly busy and changing competitive landscape? Thank you.

Yes, Steve. We're bullish on energy. No doubt about it.

We all know it's one of the fastest growing categories within LRB close to a double digit mark over the last three years. I think there remains lots of opportunity to continue to offer differentiated brands that hit unique demand spaces and unique targets. We also like the profitability of the energy category because it really helps to fund high quality long term brand building. The need is there. Ever present, ever more so in terms of a universal need for alertness. And I think you're seeing a growing category sophistication in energy, meaning that yes, there's continued upside in household penetration. But channel development and again unique positioning. So one of the things you mentioned in your question is we've seen some category consolidation, including some news last week, including our own exciting acquisition of Ghost that we closed on December thirty one of last year. I think that speaks to the attractiveness of energy and quite honestly, these last few moves make us feel optimistic that it will help fuel healthy high quality competition that should benefit the consumer and really expand the overall pie within energy. We feel good that we've constructed now a portfolio that has a right to win in energy.

I remind you what I said in the prepared remarks, three years ago, KDP's share in energy was basically zero.

Sitting here today, it's over 6%.

Well over $1,000,000,000 in retail sales, And as I've said, we've got a double digit share goal in the years ahead. When you look at this portfolio we've assembled, it's a series of complementary brands that can really target distinct consumer cohorts and demand spaces. C4 our large anchor brand today in the performance space in fitness strong offerings in high stimulation segment with the ultimate line are Black Rifle partnership, mainstream veteran founded unapologetically American, The new Bloom distribution deal that we have, a female forward brand with a very strong following, tremendous momentum just getting started. And then Ghost, a lifestyle brand, a younger gensennial sugar SKUs. We as we get deeper and deeper, with Ghost we feel great about this deal. I think it's an attractive asset. It's fast growing brand. There's opportunities for KDP to add the value that you've seen us add in other partnership deals.

Quite honestly, just yesterday, I was with the founders here in our Texas headquarter office Dan and Ryan, we've got big plans and we're taking the distribution here in just a couple of weeks here in early March. As Sudhaku said, you'll see us ramp from there. But I think that gives us an opportunity trajectory And we're bullish on what we can do under KDP's ownership for Ghost and for our entire portfolio of energy.

Please go ahead. Thank you. Good morning. So my question is first, what is embedded in for the pause volume recovery?

I mean, obviously, the price mix impact is probably going to hopefully inflect in an actual quarters with pricing already announced and potentially as you said additional that you're studying? And how has [indiscernible] coming in a little bit better than expected. And a follow-up on energy. To get to the double digit share, basically you were thinking are you thinking two parts of the same question. One organic or M and A or a combo of growth? As you [indiscernible] And have you been able to secure some of the distribution gains as you called out with Ghost coming up in March as well as the SC4. What are you looking in terms of velocity as you expect to reach that double digit aspiration? Thank you.

Thanks, Andrea. Starting with your coffee question, As single serve coffee category leader, it's critical that we protect our ability to continue to fund high quality reinvestment including and even especially in these times of inflation. And so we implemented a pod price increase in January. Announced that in the fourth quarter. Many of our competitors, but not yet all have taken similar action. And anytime we take pricing, we plan for a level of elasticity. Obviously, volume is going to be weaker. It's a little early to get a clean read on elasticity at this point in the year. And part of that is because the industry and competitive pricing is layering in right now at different rates, at different times and different channels. I would tell you on the whole, the consumer response to date has not been especially surprising. Largely in line with our expectations. Sea price has moved and it's been up and down. As you we track it daily, obviously, [indiscernible] And so we're looking at any and all options to offset any sort of incremental pressure beyond that first move. That includes productivity, incremental productivity mix, expense discipline, It may require another pricing move.

We'll assess that each and every day. And as we make our decisions, we'll continue to monitor consumer response and really focus on that first priority that I mentioned, which is preserving profit as the number one priority and our ability to continue to invest over time. So I think that largely handles the coffee question. And then the other was back on Ghost. As I mentioned earlier in Steve's question, we feel great about the Ghost acquisition. As I've gotten deeper into it, with the team. I think it's a very attractive [indiscernible] Distribution is obviously chief among them, but it goes beyond that. I think there's supply chain opportunities for us, R and D, insights, etcetera.

The distribution handover is going to take place here into KDP DSD starting in March. And so we have the opportunity similar to what we've done with other partner brands you've seen in the past to build ACV, build average items carried, build the quality of the display, secondary location, coolers etcetera. And obviously, we're working hand in hand with our customers and I think our customers are excited about what we will bring to the party on Ghost And consistent with what I said to Steve's question, we're bringing this full portfolio of distinctive and complementary brands that I think can really reinforce one another help drive our energy sales and also have a benefit back to total KDP DSD in terms of drop size store frequency. And DSD economics.

The next question comes from Camille Gargiwala with Jefferies.

Please go ahead.

Hey guys, good morning. Over the years, no one's been better than you guys at finding partnerships and alignments. I guess, tons of conversations about energy, but the new At least big hot thing seems to be around modern soda.

There's been some transactions in the place. Coke's launching one of their own.

Curious how you plan to play there and what sort of structures you'd consider?

Thanks.

Absolutely.

I'll step all the way back to our vision.

Our vision is to provide consumers with a beverage for every need anytime, anywhere. And I think as you referenced in your question, KDP has done a very good job of shaping our portfolio as a key pillar of our strategy. And we've made great progress in the last few years. And certainly energy is the one we're talking about a lot today, but as you say, the addition of Electro Leap sports hydration, La Coloman and ready to drink coffee and many other partners across Still, VitaCoco, Evian and Water, etcetera. You will see us continue to do that. You'll see us continue to transition our portfolio to areas where the puck is going and where consumers have strong interest. And that includes appealing to health conscious consumers. We've seen that in our own portfolio. 60% of our portfolio today is what we call positive hydration, lower low calorie or the addition of nutrients, a serving of fruit, no sugar added, etcetera. Where we see those durable high potential white spaces, including the area that you mentioned in your question, you can be sure we're evaluating any and all entry avenues to participate in that growth pocket. That might be organic.

That might be through partnerships. But as you've seen us do, we will skate to that and we will continue to future proof our portfolio to have the most growth accretive position in LRBs. The last question today comes from Filippo Falerno with Citi.

Please go ahead.

Hi, good morning everyone. I wanted to ask about the puts and takes for gross margins in 2025.

Obviously, we talked a lot about green coffee inflation.

You talk a little bit about your hedging? How much visibility you have there? Then also in terms of other inflation, particularly aluminum for the Refreshing and Beverage business. Then overall, it sounded like you have a lot of productivity. Should we think the margin expansion is more below the gross margin line or you still expect potential for gross margin to be consistent or maybe expanding in 2025. So this is Suthan Shul.

So first, our 2025 outlook implies modest operating margin expansion. And let me give you a few key drivers. First is operating leverage from healthy volume mix growth. Positive pricing and active mix management across each of our segments, And yes, we do expect another strong year of continuous productivity at the top end of our range 3% to 4%. We had a very good year in 2024 and then ongoing overhead So as of now, we feel very good about our plans and obviously we will remain agile in managing across various P and L levers to deliver on our commitment, while continue to invest. In the long run.

Your question about aluminum so as you know, our general approach, we had six to nine months but Aluminium is an exception since we do not purchase it directly. Instead, like much of the industry, we source ferrouscan and list from U. S. Based suppliers. We lock in pricing through supplier contracts and often take longer coverage that for direct commodity purchases. So but hedging only delays, it doesn't permanently off where we are, all of these things we have factored in our outlook and we feel good about MSD and HSD EPS.

This concludes our question and answer session.

Would like to turn the conference back over to Jane Gilfin for any closing remarks Thank you, Betsy, and thank you everyone for participating. We will be available all day to answer any follow-up. Thanks again and have a great day. The conference is now concluded. Thank you for attending today's presentation.