Keurig Dr Pepper Inc (NYSE:KDP) Q2 2019 Earnings Conference Call - Final Transcript

Aug 08, 2019 • 09:00 am ET


Keurig Dr Pepper Inc (NYSE:KDP) Q2 2019 Earnings Conference Call - Final Transcript


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Robert Gamgort

year in connection with the Big Red acquisition and a one time reimbursement from a resin supplier. The significant operating income growth combined with lower interest expense versus the year ago period drove a 15% increase in adjusted diluted EPS for the quarter, which is right in line with our long-term targets. Free cash flow generation of $575 million for the quarter was also robust, which enabled us to repay debt of more than $300 million in the quarter and nearly $720 million in the first half of the year. The quarter marks a significant milestone for us as it closes our first 12 months as a combined company.

Before we jump into the details of the latest quarter, we believe it's helpful to recap what KDP has delivered in its first year as a public company. From a financial results perspective, at the time of the acquisition announcement, we targeted a three year average adjusted diluted EPS growth rate of 15% to 17%, fueled by top line growth of 2% to 3% combined with expansion in margin resulting from $600 million in acquisition synergies and ongoing productivity programs. We delivered well above the high end of our expectations in year one with 12-month adjusted diluted EPS growth of nearly 30% and operating margins expanding by 250 points as we delivered synergies at the pace we committed to last year. Debt reduction is also an important part of our value-creation story, and we are well on track to reach our target of reducing leverage to below 3 times by July of 2021, having paid down approximately $1.65 billion worth of debt and returning over $860 million in dividends to our shareholders in our first 12 months.

Additional year one achievements include growing retail dollar consumption and gaining or maintaining market share in the majority of the categories in which we compete, signing 8 new Allied and partner agreements, acquiring that CORE Hydration and Big Red businesses and strengthening our innovation pipeline, launching 7 new Keurig brewers and over a dozen brand extensions across our cold portfolio, breaking ground on a state-of-the-art K-Cup manufacturing facility in Spartanburg, South Carolina, where we remain on track to begin production in late 2020, launching our Drink Well. Do Good. corporate responsibility platform and commitment, leveraging our expanded operations, broadened community presence and combined resources to make it even greater positive for our stakeholders and most importantly, uniting 25,000 employees under a common mission to become the new challenger in the beverage history by being the first company to bring hot and cold beverages together at scale. In that respect, we believe we're just getting started towards realizing our full potential.

With that year one context in mind, you will note that the second quarter of 2019 was a continuation of our strong value creation story. I'll start with in-market results based on IRI. Retail market performance was solid in the quarter. We grew or held market share in the key categories of CSD, single-serve