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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Ozan Dokmecioglu

of 15% to 17%, representing $1.20 per share to $1.22 per share. This guidance is in line with our long-term merger target. We expect net sales growth to approximate 2%, which is also in line with our long-term merger target of 2% to 3%. This net sales guidance includes an approximate 100 basis points headwind impact from the changes in the Allied Brands portfolio. We continue to expect merger synergies of $200 million in 2019, which is consistent with our long-term merger target, and we continue to expect these synergies to fully flow through to EPS. We now expect interest expense to be in the range of $550 million to $565 million. This reflects our expectation of significant cash flow generation and continued deleveraging during 2019 as well as the first half benefit in 2019 totaling $40 million from the unwinding of interest rate swap contracts. In the second half of 2019, we are not currently planning to unwind any additional interest rate swap contracts. Also impacting the expected interest expense in the year is the exclusion from our adjusted results of non-cash amortization of the fair value adjustment related to the merger on a portion of our debt.

In finalizing our measurement period associated with the merger, we made this change to recognize this as an item affecting comparability to be consistent with the manner in which we treat amortization of intangibles. The effect of this reduces full year 2019 adjusted pro forma interest expense by $26 million and 2018 interest expense by $22 million, having virtually no impact on our overall year-over-year results. We continue to estimate our effective tax rate for 2019 to be in the range of 25% to 25.5% for the year. We continue to expect our diluted weighted average shares outstanding to approach 1.42 billion in 2019.

While we are not providing EPS guidance by quarter, we continue to expect EPS growth versus 2018 to be tempered in quarter three due to comping the significant one time gains recorded in the prior year totaling approximately $30 million related to previously disclosed gains on Allied Brands. We continue to expect our second half synergies to be greater than our first half synergies. We continue to expect inflation to moderate somewhat in the second half.

And finally in 2019, we continue to expect free cash flow to approximate $2.3 billion to $2.5 billion. With this strong cash flow generation, we expect our management leverage ratio to be in the range of 4.4 times to 4.5 times by the end of 2019. We also remain confident that we will achieve our leverage target of below 3 times within three years from merger closing.

And with that, I will hand it back to the operator to open it up for questions.