Keurig Dr Pepper Inc. · NASDAQ:KDP
Keurig Dr Pepper — Barclays Global Consumer Staples Conference 2019
55 slides from Keurig Dr Pepper's conference presentation, Sep 3, 2019
Slide 1: Keurig Dr Pepper Barclays Global Consumer Staples Conference
Keurig Dr Pepper Barclay’s Global Consumer Staples Conference September 3, 2019
Slide 2: Presenters
Robert Gamgort – Chairman & CEO Ozan Dokmecioglu – Chief Financial Officer Maria Sceppaguercio – Chief Corporate Affairs Officer Tyson Seely – Vice President Investor Relations Steve Alexander – Senior Director Investor Relations
Slide 3: Forward-looking statements & non-GAAP financial measures
Forward-looking statements & non-GAAP financial measures Certain statements contained herein are “forward-looking statements” within the meaning of applicable securities laws and regulations. These forward-looking statements can generally be identified by the use of words such as “outlook,” “anticip
Slide 4: Agenda
Agenda Overview Portfolio Selling & Distribution Financial Update Closing 4
Slide 5: Our vision
Our vision Portfolio Selling & Distribution “Retail” “Retail” Outlets Behaviors Shopper Consumer Formats/Brands Needs/Occasions A beverage for every need, available everywhere people shop and consume 5
Slide 6: Months since merging: integrated two companies and built a foundation for growth
In the 12 months since merging, we have integrated two companies and built a strong foundation for growth • United 25,000 employees under a • Acquired CORE Nutrition and common mission Big Red • Signed 8 new partner agreements • Broke ground on a state-of-the-art K-Cup manufacturing facility • Stren
Slide 7: Coffee Systems segment delivered strong results
Coffee Systems segment delivered strong results Retail Results – IRi 12 Months 6/30/191 Financial Results – 1st Four Quarters2 Single Serve Category Volume +6% KDP Pod Shipments +8% vs PY vs PY KDP Manufactured Pods Consumption +6% vs PY Segment Operating Margin +300 bps vs PY KDP Manufactured Pods
Slide 8: KDP outperformed the CSD category
KDP outperformed the CSD category KDP HOLDS THE #1 MARKET SHARE IN FLAVORED CSDs CSD $ Retail Growth 52 Weeks 6/30/19 3.5% 2.5% Category KDP 8 Source: IRi MULO+C; 52 weeks ended 6/30/19
Slide 9: KDP gained or held share across most other categories
KDP gained or held share across most other categories $ Market Share Growth 52 Weeks 6/30/19 Premium Unflavored Water +3.0 pts Enhanced Flavored Still Water -0.3 pts Fruit Drinks +0.2 pts RTD Tea -0.2 pts RTD Coffee +0.3 pts Energy -- Apple Juice +0.7 pts Vegetable Juice +0.5 pts Mixers +1.8 pts 9 S
Slide 10: Long Term Value Creation Model
Long Term Value Creation Model OUTLOOK SHARED DURING MARCH 2018 INVESTOR DAY 2019-21 Net Sales 2-3% CAGR1 Adjusted EPS 15-17% CAGR1 Synergies $600m $200m/yr. 2019-21 Management Leverage Ratio <3.0x 2-3 yrs. post merger close Dividends Per Share $0.60 Annually2 Total Shareholder Return: ~17-19% 2019-
Slide 11: We've delivered a strong First Year as KDP
We’ve delivered a strong “First Year” as KDP RESULTS ON TRACK WITH LONG-TERM TARGETS 40% TSR Since FIRST 4 QUARTERS Merger Close2 Net Sales 2% Underlying Adjusted EPS +28% Synergies On track Debt Reduction $1.65bn Management Leverage Ratio1 -1.1x Since merger close Dividends Paid $860m Results Note:
Slide 12: Coffee Systems – A Closer Look
Coffee Systems – “A Closer Look” STRONG, CONSISTENT PATTERN OF PERFORMANCE OVER TIME GETS LOST IN QUARTERLY “NOISE” Financial Results – 1st Four Quarters Quarterly “Noise” • Uneven pacing of Pod and Brewer shipments inherent in business KDP Pod Shipments +8% 3 Months Ended vs PY 18-Sep 18-Dec 19-Mar
Slide 13: Keurig pods are sold across a broad range of channels
Keurig pods are sold across a broad range of channels… EXTERNAL “VISIBILITY” LIMITED TO ~50% OF THE BUSINESS KDP Manufactured Pods - Retail Volume • Select Club • Ecommerce • Grocery US US • Mass Untracked • Away From Home IRi Tracked Channels • Department / Specialty • Select Club Channels • Milita
Slide 14: Untracked channels driving the fastest growth
…with untracked channels driving the fastest growth ACCURATELY MODELING KDP COFFEE BUSINESS USING EXTERNAL DATA IS INCREASINGLY CHALLENGED KDP Manufactured Pod Volume Key Takeaways % Growth vs. PY • Both tracked and untracked channels Untracked continue to grow at a healthy rate Channels • Untracked
Slide 15: Agenda
Agenda Overview Portfolio Selling & Distribution Financial Update Closing 15
Slide 16: Our vision
Our vision Portfolio Selling & Distribution “Retail” “Retail” Outlets Behaviors Shopper Consumer Formats/Brands Needs/Occasions A BEVERAGE FOR EVERY NEED, available everywhere people shop and consume 16
Slide 17: Strong positions in key categories across portfolio
Strong positions in key categories across portfolio EMERGING WHITE SPACE OPPORTUNITIES PROVIDE ACCELERATED GROWTH Coffee Water Makers CSDs RTD Tea #1 Single Serve #1 Flavored #2 Shelf-Stable #2 Premium Brewing System Premium Single-Serve Fruit Juices / Coffee Mixers Energy RTD Coffee Drinks 80%+ Pod
Slide 18: Category approach underpinned by strong brand portfolio
Category approach is underpinned by our strong brand portfolio CSDs Coffee Key Brands + ~100 Partner Brands RTD Coffee Water Energy Juice Mixers Tea 18
Slide 19: Three-pronged approach to portfolio growth
We are pursing a three-pronged approach to portfolio growth Core Brand Innovation/ Partnerships/ Marketing Renovation Acquisitions Investment 19
Slide 20: Brand Advertising: Fansville
Brand Advertising: Fansville
Slide 21: Fansville campaign was highly successful in 1st year
Fansville campaign was highly successful in 1st Year 2018 Campaign Metrics 1 billion impressions • 99th percentile in awareness index • 69% of 18-to-34-year-olds say Fansville makes them love Dr Pepper more, 2X prior campaign • 66% of Dr Pepper drinkers feel Fansville makes them want to buy more Dr
Slide 22: Innovation and renovation fueling topline growth
Innovation and renovation fueling topline growth CSDs Juice and Snacks Coffee Canada Dry Dr Pepper Mott’s Mott’s Apple Green Mountain Ginger Ale & Dark Berry Sensibles Cider Single Origin Lemonades LX Canada Sunkist Crush Mott’s Clamato Recyclable Strawberry Watermelon Clear Sweet & K-Cups Lemonade
Slide 23: Brewer line-up completely revamped since 2017
Brewer line-up completely revamped since 2017 – targeting consumer needs to drive household penetration Need VALUE CONVENIENCE IMAGE IMAGE VARIETY VARIETY State K-Compact™ K-Select™ K-Elite™ K-Mini™ K-Latte™ K-Cafe™ 2017 2017 2018 2018 2018 2018 23
Slide 24: Households using Keurig brewers continue to grow
Households using Keurig brewers continue to grow +33% Household growth 28m since 2015 26m 23m 21m 2015 2016 2017 2018 US Households Regularly Using Keurig Brewers 24 Source: Third Party Omnibus Study 2018
Slide 25: K-Duo 2019 launch targets largest unmet consumer need
K-Duo 2019 launch targets largest unmet consumer need – the ability to brew single serve and large batch K-Duo Essentials K-Duo K-Duo Plus VALUE SIDE BY SIDE FEATURE RICH SIDE BY SIDE PREMIUM INLINE DESIGN Launch supported by Year 3 Brew the Love campaign featuring James Corden 25
Slide 26: Partnerships & acquisitions critical to evolving KDP's portfolio
Partnerships & acquisitions critical to evolving KDP’s portfolio Representative Recent PARTNERSHIPS ACQUISITIONS Recent ADDITIONS RTD 26
Slide 27: Agenda
Agenda Overview Portfolio Selling & Distribution Financial Update Closing 27
Slide 28: Our vision
Our vision Portfolio Selling & Distribution “Retail” “Retail” Outlets Behaviors Shopper Consumer Formats/Brands Needs/Occasions A beverage for every need, AVAILABLE EVERYWERE PEOPLE SHOP AND CONSUME 28
Slide 29: Merger created a selling and distribution powerhouse
Merger created a selling and distribution powerhouse… SEVEN DISTINCT ROUTE-TO-MARKET MODELS OFFERS NEAR-UNIVERSAL COVERAGE 1 2 3 4 5 6 7 COLA Fountain & Company- Independent Warehouse E-comm Away From Systems Foodservice Owned Distributor Direct Home DSD Partners CONTINUITY GROWTH EFFICIENCY GROWTH
Slide 30: Integrated across the entire portfolio and continue to enhance
…that we have integrated across the entire portfolio and continue to enhance One Integrated Selling Integrated Commercial Combined Warehouse Ecommerce Organization Support Capabilities Direct Businesses Expertise • United HQ selling teams • One center of expertise • Single integrated invoicing • Lev
Slide 31: Agenda
Agenda Overview Portfolio Selling & Distribution Financial Update Closing 31
Slide 32: 2019 First half Adjusted results vs. prior year
2019 First half Adjusted results Vs. Prior Year Net Sales - Reported -0.7% Net Sales – Underlying1 +2.4% Operating Income +10% Operating Margin +244 bps Earnings Per Share +25% Free Cash Flow2 $1.1bn Management Leverage Ratio3 -0.5x Note: Prior year results are Adjusted pro forma 1 32 Excludes impac
Slide 33: First half segment Adjusted results
First half segment Adjusted results Vs. Prior Year Operating Net Sales Income Coffee Systems +3.0% +7.8% Packaged Beverages – Reported -5.0% +9.0% Packaged Beverages – Underlying* +1.2% N/A Beverage Concentrates +3.9% +7.7% Latin America Beverages +3.2% -15.8% Note: Prior year results are Adjusted p
Slide 34: Strong first half operating margin driven by value capture
Strong first half operating margin driven by value capture STRONG SYNERGY PROGRAMS AND PRODUCTIVITY SAVINGS REMAIN ON TRACK SYNERGY PRODUCTIVITY Procurement Logistics / Warehousing Manufacturing • Overlapping vendors • Warehouse consolidation • Process efficiencies • Economies of scale • Combined sh
Slide 35: A balanced approach to capital allocation
A balanced approach to capital allocation STRONG CASH FLOW ENABLES A STRATEGICALLY BALANCED APPROACH TO CAPITAL ALLOCATION Debt repayment CAPEX for growth Dividend Flexibility for investments payment additional value creation 35
Slide 36: Significant debt reduction one year after acquisition
Significant debt reduction one year after acquisition Net Debt KDP Management Leverage Ratio* -$1.6bn -1.1x $16.8bn 6.0x 5.4x 4.9x $15.8bn $15.1bn 7/9/2018 12/31/2018 6/30/2019 7/9/18 12/31/18 6/30/19 Note: Net debt defined as debt less unrestricted cash and cash equivalents and excluding capital le
Slide 37: 2019 Outlook on an Adjusted basis
2019 Outlook on an Adjusted basis IN LINE WITH MERGER TARGETS 2019 FY Net Sales Growth – Reported +1% - +2% Net Sales Growth – Underlying1 +2% - +3% Earnings Per Share $1.20 - $1.22 % vs. Prior Year +15 - 17% Free Cash Flow2 $2.3 - $2.5bn Management Leverage Ratio 4.4x - 4.5x Note: Prior year result
Slide 38: Agenda
Agenda Overview Portfolio Selling & Distribution Financial Update Closing 38
Slide 39: Closing Thoughts
Closing Thoughts • Successful integration into one company, with continued strength in business momentum • Delivered/exceeded financial goals in first year, with significant debt reduction and value capture • Well-positioned to capitalize on further growth and white space opportunities • On track to
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Slide 41: Appendix
APPENDIX
Slide 42: Summary Reconciliation of Certain Reported Items to Non-GAAP Adjusted Items
KEURIG DR PEPER INC. SUMMARY RECONCILIATION OF CERTAIN REPORTED ITEMS TO CERTAIN NON-GAAP ADJUSTED ITEMS (Unaudited) Six Months Ended June1 Operating Income as a (in millions, except per share data) Net Sales Operating Income % of Net Sales Diluted EPS 2019 2018 % Chng. 2019 2018 % Chng. 2019 2018 b
Slide 43: Condensed Consolidated Financial Information
KEURIG DR PEPPER INC. CONDENSED CONSOLIDATED FINANCIAL INFORMATION (Unaudited) Trailing Trailing Six Months 12 Months Six Months 12 Months Three Months Ended Ended1 Ended2 Three Months Ended Ended1 Ended3,4 5 5 (in millions, except per share data) Sep-2017 Dec-2017 Jun-2018 Jun-2018 Sep-2018 Dec-201
Slide 44: Summary of Pro Forma Adjustments
Summary of Pro Forma Adjustments Pro forma adjustments included in the Pro Forma Combined Statements of Income are as follows: a. A decrease in Net sales to remove the historical deferred revenue associated with DPS' arrangements with PepsiCo, Inc. and The Coca-Cola Company, which were eliminated in
Slide 45: Pro Forma Condensed Financial Information
KEURIG DR PEPPER INC. PRO FORMA CONDENSED FINANCIAL INFORMATION (Unaudited) Trailing 12 Six Months Months Ended Ended Jun-18 Three Months Ended Sep-17 Three Months Ended Dec-17 Jun-18 DPS DPS Third Reported Pro Forma Pro Forma Reported Fourth Pro Forma Pro Forma Pro Forma Pro Forma Quarter of KDP1 A
Slide 46: Pro Forma Condensed Financial Information
KEURIG DR PEPPER INC. PRO FORMA CONDENSED FINANCIAL INFORMATION (Unaudited) Trailing Six Months 12 Months Three Months Ended Sep-18 Three Months Ended Dec-18 Ended Jun-19 Ended Jun-19 DPS July 1- Reported Pro Forma Pro Forma Reported Pro Forma Pro Forma Pro Forma July 8 Reported4 KDP1 Adjustments3 C
Slide 47: Reconciliation of Certain Reported Items to Non-GAAP Adjusted Items
KEURIG DR PEPPER INC. RECONCILIATION OF CERTAIN REPORTED ITEMS TO CERTAIN NON-GAAP ADJUSTED ITEMS (Unaudited) Three Months Ended Sep 2017 Three Months Ended Dec 2017 W eighted W eighted Income Diluted Income Diluted Operating Average Operating Average from Net income earnings from Net income earning
Slide 48: Reconciliation of Certain Reported Items to Non-GAAP Adjusted Items
KEURIG DR PEPPER INC. RECONCILIATION OF CERTAIN REPORTED ITEMS TO CERTAIN NON-GAAP ADJUSTED ITEMS (Unaudited) Six Months Ended Jun 2018 Trailing 12 Months Ended Jun 2018 W eighted W eighted Income Diluted Income Diluted Operating Average Operating Average from Net income earnings from Net income ear
Slide 49: Reconciliation of Certain Reported Items to Non-GAAP Adjusted Items
KEURIG DR PEPPER INC. RECONCILIATION OF CERTAIN REPORTED ITEMS TO CERTAIN NON-GAAP ADJUSTED ITEMS (Unaudited) Three Months Ended Sep 2018 Three Months Ended Dec 2018 W eighted W eighted Income Diluted Income Diluted Operating Average Operating Average from Net income earnings from Net income earning
Slide 50: Reconciliation of Certain Reported Items to Non-GAAP Adjusted Items
KEURIG DR PEPPER INC. RECONCILIATION OF CERTAIN REPORTED ITEMS TO CERTAIN NON-GAAP ADJUSTED ITEMS (Unaudited) Six Months Ended Jun 2019 Trailing 12 Months Ended Jun 2019 W eighted W eighted Income Diluted Income Diluted Operating Average Operating Average from Net income earnings from Net income ear
Slide 51: Summary Reconciliation of Segment Items to Non-GAAP Adjusted Segment Items
KEURIG DR PEPPER INC. SUMMARY RECONCILIATION OF SEGMENT ITEMS TO CERTAIN NON-GAAP ADJUSTED SEGMENT ITEMS (Unaudited) Six Months Ended June Six Months Ended June Net Sales Operating Income Net Sales Operating Income (in millions) 2019 2018 % Chng. 2019 2018 % Chng. $mm 2019 2018 % Chng. 2019 2018 % C
Slide 52: Reconciliation of Coffee Segment Items to Non-GAAP Adjusted Segment Items
KEURIG DR PEPPER INC. RECONCILIATION OF COFFEE SEGMENT ITEMS TO CERTAIN NON-GAAP ADJUSTED SEGMENT ITEMS (Unaudited) 6 Months 12 Months For the Three Months Ended Sep-2017 For the Three Months Ended Dec-2017 Ended Jun-18 Ended Jun-18 Items Items Adjusted Adjusted Adjusted Adjusted Pro Forma Affecting
Slide 53: Reconciliation of Adjusted EBITDA
KEURIG DR PEPPER INC. RECONCILIATION OF ADJUSTED EBITDA (Unaudited) Pro Forma Pro Forma Adjusted Three Months Ended Trailing Twelve Months as of Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q2 20181 Q4 20182 Q2 20193 (in millions) Net income $ 253 $ 1,074 $ 211 $ 323 $ 1,861 $ 1,108 $ 1,106 Interest expense 165
Slide 54: Reconciliation of Management Leverage Ratio
KEURIG DR PEPPER INC. RECONCILIATION OF MANAGEMENT LEVERAGE RATIO (Unaudited) July 9, December 31, June 30, (in millions, except ratio) 2018 2018 2019 Principal amounts of: Commercial paper $ 1,900 $ 1,079 $ 1,461 Term loan 2,700 2,583 1,735 Senior unsecured notes 12,225 12,225 11,975 Total principa
Slide 55: Reconciliation of Net Cash Provided by Operating Activities to Free Cash Flow
KEURIG DR PEPPER INC. RECONCILIATION OF NET CASH PROVIDED BY OPERATING ACTIVITIES TO FREE CASH FLOW (Unaudited) Free cash flow is defined as net cash provided by operating activities adjusted for purchases of property, plant and equipment, proceeds from sales of property, plant and equipment, and ce
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