Keurig Dr Pepper Inc Stock

Okay. We're going to get started. So next up, we have Keurig Dr Pepper. As you all know, the KDP story, has changed meaningfully over the past year. What began as a complex transaction debate around the JDE Peet's acquisition and planned separation has increasingly become a discussion about whether the company can prove out 2 distinct investment cases: A growth-oriented beverage company with strong momentum, and a scaled global coffee company with more diversification, but still some near-term pressure in the U.S. business.

So joining us from the company today are both CEO, Tim Cofer; and CFO, Anthony DiSilvestro. Welcome, and thank you both for being here this year.

I'm going to skip any discussion or transaction rationale. I feel like that's been really well covered at this point and instead focus our time on how you're thinking about execution, proof points and what investors should be watching from here?

So assuming all goes according to plan, you're about half a year out, maybe a little bit less from the planned separation timing, which you've described as milestone-based. Where do you stand on that journey today? How are you balancing near-term execution with integration and separation work happening simultaneously?

Yes. Thanks, Lauren. Good morning. Great to be back at the Barclays conference here in Boston. 2026 is a pivotal year for KDP as we seek, as you said, to establish 2 advantaged pure-play companies next year. This year, our priorities were very clear, oriented around 3 big themes: Number one, successfully complete the acquisition and the integration of JDE Peet's; number two, prepare for a successful separation in 2027 into 2 advantaged pure plays; and number three, and I think most importantly, continue to deliver on the base business results and deliver on our commitments. I feel we've made very good progress on all 3. And I would tell you as a headline, we are on track.

Let me unpack each of the 3. First, on the acquisition and integration. Closed it right on schedule. No major surprises. Early April. Immediately got to work. Thanks to our work on diligence, a transformation management office. We, for example, in the U.S., moved immediately to one invoice, one sales team, one truck of our combined coffee entity. We started buying coffee together as one entity. We are now the world's largest buyer of green coffee.

And third is we started capturing the synergies, right? We've talked about $400 million of synergies over 3 years. And we hit the ground running in second quarter, you're going to see that ramp in Q3 and Q4 and into '27. So feel good about early days of integration.

Number two is planned for the separation. And as you think about what's required to execute a separation, there's a lot. But I feel good based on the milestones we've set that we're making the progress required to set up this '27 separation. What are those? Number one, named management teams for both new companies. We've not only named the leadership teams, we've named all of the players all the way down through the organization that will go to Coffee Co and go to Bev Co. With one, I think, notable exception, as you know, Lauren, and that is the new CEO of Coffee Co. And I can tell you today here at Barclays, we've made tremendous progress on that. I'm very excited about that future potential CEO. And I think you should expect to hear from us in the near term on naming that CEO that will lead Coffee Co in the future.

Second is Board of Directors. We have to establish 2 independent boards. Made good progress there. You would have seen, we named 2 new directors to KDP in the last couple of months. You'll probably see a few more of KDP in the year-to-go time frame. And then the balance will come on for respective Coffee Co and Bev Co next year.

Third, making progress on deleverage. You would have seen just in the last 10 days, an announcement about monetization of our Chobani minority equity and a broader deal that we struck with Hamdi and the Chobani team that we feel very good about. Continuing to progress the disentanglements required for separation, the TSAs, et cetera.

The other thing I'd tell you is making good progress on the new corporate identities. Newsflash Lauren, these 2 companies will not be called Bev Co and Coffee Co. There will be proper names. That's well underway. So we'll have the new names, the new corporate identities, the new strategic frameworks, et cetera, so that we're ready for next year. And then finally, get ready for early in the year, Investor Day, Investor Roadshow, Investor narrative. So great progress on separation.

Third and final and most important, deliver on our base business commitments. You saw our Q2 print. It ended a very strong front half for the year. We feel very good about what we'll do in the back half. I'll ask Anthony to talk in more detail, but we feel good about the guidance we provided and our ability to deliver on that guidance on a full year basis in the back half. And that's really underpinned by the way we've set up this interim operating structure. We've got strong TMO, transformation management office capability, internal, external advisers to prosecute that transformation agenda while allowing the vast majority of our colleagues to focus on base business delivery.

We've also set up an interim operating structure of a coffee operating unit, a beverage operating unit, leaders accountable and empowered to deliver their results. Overall, the model is working well. No real surprises. And as I said, I think we're on track with this transformational journey. You want to talk about '26 outlook?

Great. Thanks, Tim. Good morning, everyone. Great to be here. Just a quick note, Tim and I will be making forward-looking statements this morning referencing non-GAAP metrics. Additional information is on our website and in our filings.

As Tim mentioned, the business is performing well. We had a strong first half and we have good visibility to our full year guidance, which we can reaffirm here this morning. Our top line is expected to be $25.9 billion to $26.4 billion. That's comprised of 2 parts: legacy KDP at the upper end of our 4% to 6% range and an incremental $8.5 billion to $8.7 billion contribution from JDE Peet's for the 9 months of ownership.

At EPS, we expect low double-digit constant currency EPS growth, underpinned by legacy KDP at 4% to 6% and an additional 6 to 7 points of accretion from the JDE Peet's acquisition. For free cash flow, we are forecasting $2.5 billion of free cash flow, which will support our deleveraging efforts, which I'll talk about later. And as we do this, we are making investments in both of our coffee and beverage businesses to drive long-term sales growth. So sitting here today, we are very confident in the delivery of the guidance and positioning both companies Coffee Co and Beverage Co for long-term success.

Great. Let's turn to where execution has been the strongest and talk a bit about the U.S. RB business, broad-based sales growth. What gives you confidence in the durability of the momentum for that business?

Yes. We are very pleased with U.S. Refreshment Beverages. As you look at our performance over the last couple of years, Lauren, you'll see both on the top line and bottom line, high single digit even in some quarters, low double-digit performance. I'm not going to promise that type of performance going forward per se at the double-digit rate but feel very good that U.S. Refreshment Beverage can continue to deliver on that algorithmic outlook of MSD sales and HSD EPS.

Why? To your question. One, it starts with a great category. North American Refreshment Beverage, $300 billion TAM. I've worked in CPG 35 years across a lot of different categories. I would tell you refreshment beverage in North America is one of the most attractive spaces in CPG. It's a consistent growing category. It is a very dynamic category. It's a category where consumers continue to seek out new experiences, new brands that fit with their lifestyle, their wellness and they're willing to pay for it. It's also a fairly rational category as it relates to pricing dynamics. And for those reasons, we continue to favor the category in which we compete.

Now, number two, our portfolio. I think we have an advantaged portfolio. It's obviously anchored by our CSDs, carbonated soft drink position. Flagship, Dr Pepper, obviously, largest among them. But this is a $50 billion category. Once again, a consistent grower. And I think still has tailwinds for growth. It's still on a price per ounce basis, is one of the most affordable verticals within LRB and that suggests to me, with the right innovation and RGM tools that we and other leaders bring that category can continue to grow.

I like our portfolio within it. CSDs is roughly half cola, half flavor. We're the leader in flavor. Youth are attracted more to flavor CSDs, multicultural. So there's a lot of growth tailwind there. We have strong positions there. Another trend in CSDs, we feel great about is zero sugar. Dr Pepper is now the second largest zero sugar brand in the marketplace and over $1 billion in retail sales. You would have seen in Q2, I mentioned at a 30% growth rate. So like that position.

Beyond CSDs, we've done, I think, a good job of evolving our portfolio into more growth-accretive consumer preferred spaces. Think energy, right, 4 years ago, we basically had 0 share in energy. If you look at the most recent scanner data, last month, we crossed a 10% share in energy. Sports hydration. Ready-to-drink coffee, I see you enjoying the La Colombe there, premium water. So we've done a good job of building out the portfolio.

And the third and final point I'd make is around our capabilities, right, whether it's the strength of the brands, the precision marketing capability at KDP that we're investing in and will get better. We can talk more about that if you wish. Our DSD capability and the way that we go to market with that DSD strength. And I think our secret sauce is just our attitude, our entrepreneurial challenger culture in the company.

You put all that together, it does suggest to me that the strength you've seen in U.S. Refreshment Beverage can and will continue.

Going forward, do you expect Bev Co or Bev Co under its eventual name to be more selective or simply more flexible in how it pursues partnership opportunities? Sort of how should we think about the longer-term contribution of owned versus partner or distributed brands to that mid-single-digit algorithm for Bev Co?

Okay. Let me start first talking about our white space strategy and how we approach that as it relates to partners. And then Anthony can kick in and talk about how partners versus owned brands play into the growth algorithm, as you said there at the end.

So for us, it is about continuing to curate a portfolio that is exposed to consumer preferred growth accretive spaces. And when we see a durable, attractive white space, we look to capitalize on that opportunity where the nonnegotiables are, will we have brands that have enduring strength in that area? And will our model -- our economic model generate attractive returns?

But with those 2 nonnegotiables, we're actually quite flexible in how we get there. And let me demonstrate that through the last few years examples. We talk at KDP about a build, buy, partner approach, a flexible approach. So examples could be, we see a white space, and we elect to take an existing brand within our portfolio, extend it into that adjacency with our own R&D, our own supply chain, our own capital investment DSD. That's a build example.

You could do a partner example purely on a distribution agreement. We have a track record of doing just that. Most recent great example is Electrolit. Electrolit is now America's fastest-growing scaled sports hydration brand. We are the distribution partner with Grupo PiSA, created a great win-win partnership there didn't require capital.

Third example would be a minority ownership. A good example there is what we've done with Nutrabolt, Doss Cunningham, our great partner with brands like C4 and Bloom and energy and prebiotic sodas. There's a minority ownership and a distribution agreement.

And the final example is an outright acquisition. In the case of GHOST. We elected the best return would be to buy that business outright and consolidate that into our financials. While keeping all the founders and what made GHOST great.

So as you can see, Lauren, it is a flexible approach. It's not a one-size-fits-all. It's bespoke to the opportunity where what we're looking to do is do it, as I said, in a capital disciplined way and one where we've really got the returns and the long-term sustainability in mind.

Anthony, talk about growth versus partner brands in the algo?

Sure. Look, over the last few years, both our owned brands and our partner brands have contributed to top line growth. And it's been relatively balanced over the last few years. And as we look ahead, we expect both to contribute to top line growth going forward. Certainly, our owned brands and carbonated soft drinks, led by Dr Pepper, GHOST Energy, some of our still beverage icon brands as well.

And then our partner brands, C4 and Bloom. Tim talked about Electrolit, Vita Coco are all growth brands for us. We'll also likely to enter new categories or segments that Tim talked about in terms of our model.

So in terms of the algorithm, the mid-single-digit top line growth, we expect both to contribute and with healthy profitability, they support the HSD EPS algorithm as well.

As we approach the separation, we've definitely been getting more questions about the economics of partner brands versus owned brands. So maybe we can talk about that a little bit more. And are there minimum economic or strategic conditions a brand needs to meet before it deserves space in your DSD system?

Yes, I can take that one. We certainly expect our partner brands to contribute meaningfully to top and bottom line growth. So there are both strategic and economic threshold that these brands need to meet. From a strategic point of view, the categories in which they compete need to be growing and have growth potential. The brands need to resonate with consumers. They need to have a right to win. It needs to be a transaction that leverages KDP's capability. So it's a win-win for the partner and for KDP.

On the economic side, there's a few things that we look at. On a stand-alone basis, the sales potential has to be there, the distribution margin has to be attractive. And then there are several additional benefits. There's operating leverage. If we put more volume through our system, we can leverage our fixed costs across more cases. There is what we call a halo effect. And again, when you put more volume in our system, right, we can have greater frequency in stores, we can have larger drop sizes, right? This improves that customer relationship as well.

And the third benefit that we look for is potential minority stake investments that Tim talked about. And you put that all together, and it's healthy economic contribution. In fact, when you look back historically, since 2021, the mix of partner brands has increased, yet at the same time, our operating margin in U.S. Refreshment Beverage has increased by almost 100 basis points since 2021. And we would expect this dynamic to continue going forward and to support the MSD, HSD algorithm.

Okay. Great. And when I think about sort of flexibility and the rationale to the split. One of them is to give more flexibility to Bev Co. You've talked about investing differently in this as a stand-alone business. Stance on DSD is really clear. Where would you say though, you're still most -- the Bev Co piece is most subscale? And sort of what are the next logical opportunities to improve the route-to-market model?

And Anthony, you're speaking to volumes through the system. So how much of it is that volume through the system versus changes in territories, operating model or like digital tools and retailer level execution?

Good. Let me start with why DSD matters. Why it's so critical and then get to your question on what we're doing to invest and optimize our system. Fundamentally, in CPG, there's a basic growth model that says you need to make your brands mentally available and physically available. And I believe in that basic premise. We are a brand-led company. We are here to build our brands and both through mental and physical availability, that's how we'll achieve success.

Physical availability is absolutely critical in beverage, right? You want that beverage at every channel, at every outlet, whenever that consumer has a need or a demand space for a beverage. And so DSD is the critical and scarce asset to capitalize on that growth opportunity. You would know that at -- what will be Bev Co, we are one of only 3 national providers of coast-to-coast DSD. We cover with our own system, 80% of the U.S. population and the balance through great partners.

DSD gives distribution depth, breadth. It gives cooler space that's critical. It gives multiple points of interruption. It allows for superior merchandising and really influence at that local store level. DSD is also very local. It is not a national, again, one-size-fits-all.

So for us, to your question, it is about what's most important for me is access to and influence over the winning local DSD operation. When we look at any given territory, any given geography, we think about a few factors. One is scale. What is the scale required to run an efficient and effective DSD? Scale is the biggest friend to a DSD operation. There's a fixed cost associated, and so you need that scale.

The second is the operator's growth orientation and importantly, their focus on our brands. So if it's my team, I know we're going to get the focus because it's KDP. But if it's a third party, are they going to give the focus to Dr Pepper, Canada Dry, et cetera, that it deserves that our consumers deserve.

The third is obviously economics, deciding whether I want to invest in that locally and the capital required for that, will I get a return versus through a third party, and then it's a margin game. And the final consideration Lauren would be contractual rights because you would know as a long-term beverage student the [ labyrinth ] or mosaic of the contracts of Refreshment Beverage distribution is quite a thing. And so you need to -- and we will always respect the contractual rights that we have that have come before us.

When you look at those 4 factors I've just outlined, I would tell you it in majority of cases, favors our own ownership of KDP. And that's why you've seen us continue to invest. And to your question, I'd say we invest in 3 areas. Number one is adding additional scale. And that's through the organic growth of our own brands like Dr Pepper, Canada Dry, 7UP whatever as well as these new partnerships. The halo effect that Anthony just mentioned, adding the Electrolit, the La Colombe, the C4, et cetera, adds scale and helps that virtuous cycle grow.

Second is new territories. You've seen us be opportunistic on new territory opportunities, and we will continue to be. We look at everyone when it comes available. We've done 25-plus since KDP has come to fruition in the last 8 years. I've done 3 or 4 in my tenure as well. Kalil, Arizona would be one recent example.

And then the third area of investment is around tools. Digital tools, in particular, obviously, handheld system order taking, order fulfillment and selling tools so that our men and women are really focused on value add.

In the end, our DSD philosophy is not just ownership for ownership sake. It is about investing in the strength of the local winning system at attractive returns for our shareholders.

Okay. Great. I wanted to talk a little bit specifically about the Bev Co portfolio. You mentioned Dr Pepper Zero Sugar growing nearly 30% this last quarter. Creamy Coconut, LTO tracking ahead of its prior run. How do you think about the runway for the Dr Pepper brand? And with so many like compelling brands in your DSDs -- sorry, your CSD portfolio, how do you think about driving success more broadly? What do you see as the highest return opportunities for incremental investment? And what determines which brands move to the front of the line?

Yes. Good. Well, let's definitely start with Dr Pepper, our largest brand in the portfolio, $6 billion retail sales brand. You would know, Lauren, 2 summers ago, we passed another brand and are now the second largest brand in the CSD category, and that's a leadership position that's only strengthened in the last 2 years. We are the #1 brand Dr Pepper, among teens today. That's a good indicator of future health vitality of the brand. And we're a brand that very much invest in continuous recruitment and continuous -- to really fortify that share.

In fact, Year-to-date, Lauren, we're on track for share growth. And when we achieve it, it will be our 10th consecutive year of market share growth on brand Dr Pepper.

So when you say, okay, what's behind that? I'd point to a few things. One is very distinctive positioning. A brand needs great positioning. It needs to be distinctive. Dr Pepper is, right? What is Dr Pepper? It's not a cola. It's Dr Pepper. It's a unique blend of 23 flavors. And not only does that come through the liquid itself, but it's the brand personality. We talk about we're a unique one-of-a-kind brand. And I think for youth and a lot of our consumer cohorts, they identify with that because they're unique and one-of-a-kind, too, and that brand speaks to them. So a distinctive positioning. Really strong marketing and marketing that we're investing to get even better, more precise and more personalized, but it's a hell of a platform.

Right now, I don't know if there are college football fans here in the room in Boston, but college football is back Dr Pepper is one of our biggest platforms, college football, Fansville, 9th season, our strongest season yet, a lot of surprises coming if you're a football fan.

Winning innovation, you mentioned. This year was Creamy Coconut. Blockbuster success. Last year was Blackberry. We've done strawberries and cream. Zero Sugar, big success. So winning innovation. And then finally, the last element of that success toolkit for me is the strength of sales execution at DSD, whether it's our owned or our partner brand. So that's really the playbook that has worked on Dr Pepper.

To your question, then we now have the opportunity to extend that playbook to other brands. And we're doing that. And I would say we're in the early innings of that, which is why I'm bullish on continued growth potential on U.S. RB.

Let me give you 2 examples. First, Canada Dry. Canada Dry, $1 billion-plus brand, far and away leader in ginger ale. Distinctive positioning. All about the demand space of a relax and rejuvenate time, kind of kick your heels up after a tough, chaotic day with the kids at work, whatever. It's your time. Time to relax with a refreshing Canada Dry Ginger Ale. Really anchor the brand there, understanding the occasion, the demand space, the consumer.

Great marketing. We launched a campaign earlier this year. We call, Dry Time is My Time, right? It's your time to unplug and relax. That's seen great returns significantly better than what we've seen before.

Winning innovation, part of the playbook. We launched this Fruit Splash platform 2 years ago. Crisp, delicious taste of ginger, with a splash of cherry juice, a splash of strawberry juice. Finding that platform to be highly incremental to the base business, driving overall trademark sales. Great sales execution.

The other shout-out I'm going to give to in our brand portfolio is 7UP. And 7UP -- you think about Lauren, 7UP from when we were kids, the Uncola, right, the big lemon lime brand. Our marketing group has really come up with a clever relaunch. It's our largest relaunch of 7UP in at least 15 years. It just broke a couple of weeks ago, actually here at Barclays Boston in the coolers out there. If you haven't tried it, we've got the new 7UP formula. I encourage you to try.

But we're having a little fun, Lauren. And if you indulge me for 30 seconds. You know that, that segment is lemon-lime soda. Well the clever idea the marketing guys came up with is, why does lemon get all the love here? What is it about lemon, right? Lemon pastries, lemon cleaning products, lemon lime soda. Why isn't it lime lemon? And we've done a lot of work around lime over lemon. There's this whole campaign. You know who's keeping lemon on top, the Illuminati. But we are leading the resistance for a lime lemon soda.

So we've got an all-new formula. Lime over lemon. We've got a new visual ID. We've got a really clever marketing campaign. I think that's part of the success formula you're going to start to see employed across these brands. All told, got a lot of confidence that we can continue to grow, not only Pepper, but many of our other brands as well.

Okay. Great. Let's shift gears to coffee. So starting with U.S. Coffee business disappointed in the second quarter. How should we distinguish between issues that are cyclical, like elasticity to elevated pricing because of green coffee inflation and tariffs or issues that are actually more strategic like format competition or the rise of private label in pods?

Yes. So if you look at the most recent print in Q2, I think coffee in aggregate delivered a solid quarter, but you definitely see a diverging trends between legacy JDE Peet's Coffee and U.S. Coffee. And since your question was U.S. Coffee, let's go there.

Q2 was a little weaker than we had anticipated. Our profit declined at a rate similar to what we saw in Q1.

Why? The primary factor was cost, a highly unfavorable cost envelope. You would know that last year C-price hit an all-time high. And we've also shared that given our inventory positions, our hedging forward buy strategies, there's quite a lag between C-price when it hits the market and the P&L impact about 6 to 9 months. And so we saw peak unfavorable green coffee price pressure in the second quarter.

Second, tariffs. Tariffs were quite a headwind for us in Q2 as well. In addition to that, there was volume mix pressure. And the volume mix pressure manifested in 2 ways. And I think it all comes back to a bit of a pressured consumer, particularly low and mid-income, who is exhibiting a bit more value-seeking behaviors.

In aggregate, but I would say, in particular, in coffee, given that coffee is a high dollar per unit ring in the grocery store and has experienced multiple years of inflationary impact. And so these 2 factors were: one, we saw a bit of occasion leakage from our single-serve U.S. coffee stronghold into other more affordable formats like instant coffee, like a big pot of black [ drip ] coffee.

The other dynamic is you saw a little bit of growth in private label. And while we actually manufacture both private label and brand in our K-Cup line, no doubt, our share position is stronger in branded and our margin position is stronger. So you saw that unfavorable mix. When you hear all of that, Lauren, I do think, to your question, we would say this is cyclical, not structural. This is a response to a highly inflationary environment, that hit our P&L in the front half, and that is temporarily impacting consumer behavior. I've been in coffee for decades in a past life as well. And you see that especially on the tail end of an inflationary period.

So what about going forward? In the back half I expect a very different picture. Let's start with costs. I think the headwind you saw in Q1 and Q2 on green coffee, costs as well as tariff cost turns far more favorable and begins to present itself as a tailwind.

Second is, you will see good brewer shipments in the back half, a good early indicator of the future. We will grow household penetration again this year of Keurig installed base, and you will see a far more favorable pod trend.

Next, you're going to see early synergies floating through the U.S. Coffee P&L as U.S. Coffee and legacy Peet's Coffee come together for one U.S. Coffee business. And then finally, Anthony said this on the earnings call, the Peet's K-Cup business will shift from a reporting segment standpoint, from JDE Peet's and U.S. Coffee. For all those reasons, we're anticipating a much improved back half on U.S. coffee relative to front half.

Okay. Great. And when we think about coffee more broadly, the combined entity, what should investors look for over the next year to believe this is becoming a stronger coffee platform rather than just a larger one? And what do you think is the time line to realize some of the revenue synergies for the broader coffee business that you've talked about?

Yes. Look, ultimately, I expect the strength of this new platform to be evident in the results that we produce. And I'm going to start with the category here again. Global Coffee is a $400 billion TAM. It is a consistent growth category. In fact, if you look over the last 4 decades, you would see round about a 2% volume CAGR and a value or sales CAGR even stronger.

It is a ubiquitous habit, a wonderful habit. I can't imagine starting the day without coffee every day. And in fact, here in North America, it's the #2 most consumed beverage behind water, mostly tap water. And globally, it's the #3, which also presents a growth opportunity. It's behind water, tea and then coffee. And when you see a lot of the emerging world in global coffee, you see a step-by-step shift from tea culture to coffee culture among youth. Another tailwind in addition to premiumization. So we know what it takes to win in this category.

Scale matters in global coffee. Brands matter in coffee. And a set of capabilities oriented around consumer orientation. The platform we're building, this new Global Coffee Co is built for purpose to capitalize on that attractive category and really fortify those advantages.

We will have leadership positions #1 or #2 in 35 markets around the world. We will have the scale in supply chain, in coffee procurement. I've already mentioned, #1 buyer of the coffee bean globally. We will have $4 billion brands and a host of $100 million to $500 million brands, kind of taste-of-the-nation brands around the world. And we will have the breadth of the portfolio playing in every format, every major geography, channel, at home, away from home to really fortify that look.

As it relates to the combination benefits that you mentioned at the end of your question, there's definitely growth or revenue opportunities, and there's cost. Let me quickly hit on growth and revenue, and I'll ask Anthony to hit on cost. I'd point to 3 or 4 key areas right out of the gate. The first is Peet's. Peet's here in this country, it's a great brand, $1 billion-plus brand. California origin providence brand, really one of the pioneers, even before another brand you might know from Seattle that pioneered coffee here in the U.S. in the early days. And there is an opportunity to extend that brand nationally on the back of the Keurig national footprint and the great partnerships and scale we have with our retailers.

Second is the opportunity to take legacy Keurig brands, think Green Mountain, think Donut Shop, licensed brands like McCafé and extend those brands across all formats because heretofore, legacy Keurig, we basically played in one swimlane, K-Cup single-serve. We now have the set of capabilities to play in every across our brands.

The third revenue opportunity I'd speak to is around our systems or our brewers. One of the spikes of excellence of legacy Keurig is, we know brewers. We do our own brewers in-house, right? We lead that innovation, and we do it in a profitable way. There's a lot we can bring to the JDE Peet's side as it relates to brewers in that area.

And then the last one I just shout out here on stage, it's timely is Alta, right? Alta, you know, Lauren, is that new system. We're on track to launch that in a targeted way here in time for holiday '26, great new system. Brews, every cup of coffee you look for, high-pressure Espresso, Cappuccino, latte, et cetera, long drip black cup of coffee and do it in a very sustainable way, plastic-free, aluminum-free. We'll launch that here. But now courtesy of this combination, we can consider taking that on the road beyond the U.S.

You want to touch on cost synergy?

Sure. We're targeting $400 million in cost synergies over a 3-year period post acquisition. They come from 3 buckets: The first is IT and SG&A. We'll look to optimize the organizational structure. We'll look to consolidate IT systems and vendors, we'll look to increase the use of digital tools, including AI.

The second area is procurement. Obviously, we have significant coffee, green coffee buying scale that will leverage. We see efficiencies in other areas like packaging and media. Tim mentioned brewers. We'll look to consolidate our brewer design as well.

And the third area is supply chain. There's significant opportunities to consolidate manufacturing and distribution, particularly in North America across Peet's and Keurig. And that activity is already happening. In support of these individual work streams, there are dedicated teams across KDP, JDE Peet's, third-party experts as well that are all contributing. There are specific accountabilities and timetables and there's a management review process supporting the whole thing.

So we're very confident in the delivery of the synergies. We started to see some in Q2. This will step up in the back half and improve into '27 and '28. And synergy attainment is an important part of the HSD EPS algorithm for a future Coffee Co.

Okay. Great. We're going to have to end there, and we're going to go to breakout. But please join me in thanking KDP. And also for the cooler of beverages all week, too.

Great.

Thank you.

Thank you.

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to Keurig Dr Pepper's Earnings Call for the Second Quarter of 2026. This conference call is being recorded. [Operator Instructions]. I would now like to introduce Chethan Mallela, Vice President of Investor Relations at Keurig Dr Pepper. Please go ahead.

Thank you and hello, everyone. Earlier this morning, we issued a press release detailing our second quarter 2026 results, which we will discuss on today's call. and accompanying slide presentation is available and can be viewed in real time on the webcast.

Before we get started, I'd like to remind you that our remarks will include forward-looking statements, which reflects 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 today. For more information, please refer to our earnings release and the risk factors discussed in our most recent Form 10-K and our latest 10-Q, which will be filed with the SEC in the coming days.

Consistent with previous quarters, we will be discussing our Q2 performance on a non-GAAP adjusted basis. which reflects constant currency growth rates and excludes items affecting comparability. Definitions and reconciliations to the most directly comparable GAAP metrics are included in our earnings materials.

Here with us today to discuss our results are Keurig Dr Pepper's Chief Executive Officer, Tim Cofer; and Chief Financial Officer, Anthony DiSilvestro. I'll now turn it over to Tim.

Thanks, Chethan, and good morning, everyone. In Q2, we delivered another quarter of strong results. We demonstrated healthy momentum across the majority of our business, led by U.S. refreshment beverages, and our performance exceeded our expectations. Halfway through the year, we remain on track to achieve the goals we set at the beginning of 2026, delivering our low dull digit EPS growth guidance, integrating and activating JDE Peet's and hitting key separation milestones. While we expect the external environment to remain dynamic in the back half, our plans, executional discipline and year-to-date performance reinforce our confidence in delivering our 2026 guidance while setting up for a successful separation in early 2027.

Before turning to our results, let me begin with an update of our transformation work. We successfully closed the acquisition of JDE Peet's in early April and on day 1, stood up an interim operating model that is purpose built to support both near-term delivery and separation readiness. The model embeds distinct responsibilities and clear accountability across our KDP enterprise, beverage operating unit and coffee operating unit leadership teams, all of which are functioning well as we advance our integration and separation priorities.

Let me share some key highlights from our work. We've quickly begun to capture coffee co cost synergies with initial savings flowing through in the second quarter and have also commenced work to offset anticipated beverage co dissynergies. We've now consolidated our U.S. customers to an integrated sales force and single invoice for the joint Keurig and Peet's portfolio with the transition completed on schedule and without disruption. We've largely finalized our post-separation organizational structures, including the cross critical operational, commercial and finance functions. We've made significant progress establishing IT and financial reporting readiness for each future company. And we've begun deleveraging our balance sheet following the JDE Peet's close, reducing pro forma management leverage to 4.4x at quarter end. This was slightly better than our expectations, and we remain on track to end the year with leverage of 4.1x.

In addition, our search for the future CEO of Global Coffee Co is well underway. The Nominating and Governance Committee of our Board of Directors is leading the process and has engaged a top-tier executive search firm to help identify and evaluate candidates. The role has already attracted considerable interest and we're confident we will recruit the right CEO to shape and execute Global Coffee Co's value creation strategy.

Let's now turn to our second quarter results. Total net sales grew 75%, inclusive of the JDE Peet's acquisition impact. Net sales for legacy KDP increased at a high single-digit rate with both net price realization and volume mix contributing. We translated our top line improvement into significant profit growth with consolidated operating income up over 40% and EPS increasing 16% to $0.57. Overall, our second quarter was ahead of our expectations, primarily driven by upside in our JDE Peet's and U.S. refreshment beverages segments including some timing benefits that Anthony will discuss. We also delivered solid results in KDP International, partly offset by subdued trends in U.S. coffee.

Now let me walk through each segment in more detail. I'll start with U.S. refreshment beverages. Segment net sales and operating income each grew at a double-digit rate in the second quarter, reflecting strength across both our core portfolio and newer growth platforms. Our largest business, carbonated soft drinks continued to grow nicely. Category trends were healthy with consumers responding to the compelling value proposition and significant commercial activity from major players. We gained market share in the quarter, led by Dr Pepper.

The brand's Zero Sugar platform sustained its momentum, growing retail sales nearly 30% and gaining more share than any other trademark in the Zero Sugar space. driven by increasing household penetration. This reflected the benefits of marketing support, increased distribution and greater display activity, and we will continue to deploy these levers to drive further expansion. Dr Pepper franchise trends were also fueled by our creamy coconut limited time offering, which launched in April. The response to the innovation has been positive, with the distribution build, display support and most importantly, consumer sell-through, all tracking well ahead of creamy coconuts prior market run.

Canada Dry also had a robust quarter, with retail sales increasing at a double-digit rate. Our Fruit Splash platform continued to serve as a sustainable growth driver, with this year's highly incremental strawberry launch performing well. The brand was further supported by our impactful marketing investments, including the recent dry time is my time campaign. And Bloom Pop also contributed to our CSD growth. The brand is scaling rapidly, driven by distribution expansion and compelling innovation and with a leading market share gainer in prebiotic CSDs in the second quarter.

Moving to energy drinks. Our portfolio achieved a key milestone, crossing the 9% market share threshold in the quarter. Bloom and GHOST were 2 of the top-performing trademarks in the category, underscoring their meaningful consumer resonance and reflecting each brand's great tasting products, authentic positioning and social media savvy. Growth also came from high-quality frontline execution to expand distribution points and cooler penetration as well as compelling innovation, such as Bloom Crisp Apple and Summer Splash and the GHOST 7UP limited time offering.

C4 recently introduced updated packaging across its performance and ultimate lineups with clearer caffeine and benefit communication, bolder flavor cues and a simplified visual system. This refresh is designed to improve shelf presence and make the portfolio easier to shop and early results are encouraging, with a double-digit sales lift and significant velocity increases in geographies where it's present. We expect brand momentum to build as the new packaging rolls out more broadly. Overall, we continue to view our energy portfolio as advantaged with a long runway for each of our brands and good visibility to our double-digit market share goal.

Beyond energy, we also experienced meaningful traction in other high-growth areas of this segment, like sports hydration, coconut water and seltzer water. All in, our U.S. refreshment beverages business continues to enjoy strong momentum and we expect this segment will remain a key growth engine for KDP over the balance of 2026 and beyond. Moving to coffee. We delivered solid results at the enterprise level, but experienced differing dynamics between our U.S. coffee and JDE Peet's segments.

Turning first to U.S. coffee. Second quarter performance was relatively consistent with our first quarter as net sales declined in the low single digits operating income declined 25%. Year-over-year profit pressure was primarily driven by the impact of significantly higher input costs. As we signaled last quarter, this was due to our hedging approach and inventory positioning, which caused elevated green coffee costs and tariffs to flow through our second quarter P&L. While we always anticipated subdued segment performance in the quarter, the magnitude was larger than we initially estimated. Top and bottom line results were impacted by single-serve category volume declines and unfavorable portfolio mix, which reflected increased consumer caution and value-seeking behavior. Despite these dynamics, we made progress across the business. Notably, brewer shipments returned to growth. supported by our great coffee without the grind curing marketing campaign, and we expect further improvements over the balance of the year.

In coffee products, our licensed MIC Cafe K-Cups grew retail sales at a mid-single-digit rate and expanded market share, reflecting high-quality commercial execution and effective marketing. Our cold coffee, La Colombe ready-to-drink platform also drove outsized momentum, growing retail sales over 50% and gaining more than 1 point of market share, driven by distribution gains, increased display activity and strong velocity. Importantly, we continue to have line of sight to improving segment trends over the balance of the year. Our cost envelope will become more favorable as lower cost inventory and improving tariff impacts flow through the P&L.

Our brewer business has started to inflect and should benefit from our commercial activity, and we're actioning plans to strengthen trends in pods and other coffee products. Ultimately, we believe our U.S. coffee segment is beginning to turn a corner as we enter the back half, and we remain confident in its long-term growth potential. Moving to the JDE Peet's segment. Quarterly net sales were approximately $2.8 billion, and operating income was $414 million. We delivered profitability ahead of our expectations, driven by a couple of factors. First, our teams executed well, particularly in navigating commodity volatility. We maintain pricing discipline as inflationary pressures began to ease, protecting profitability and preserving reinvestment flexibility.

In addition, we generated healthy productivity savings through our reignite amazing program, further enhancing operating income in the quarter. And second, this segment also benefited from favorable timing, which added to the profit upside. By brand, LOR maintained its robust momentum growing retail sales at a high single-digit rate. Brand performance was broad-based, with particular strength in capsules and beans, and was supported by our successful destinations innovation platform and awake in the Sensus brand marketing campaign. Peet's was another contributor with retail sales increasing through a combination of pricing and distribution growth. The brand's innovation activity also resonated with consumers, including the launch of Peet's middle ground, a half caffeinated medium roast designed for the afternoon pick me application, which achieved healthy on-shelf velocities.

Another coffee segment highlight in the second quarter was the successful integration of JDE Peet's and our legacy Keurig business. The newly created coffee operating unit team has collaborated well establishing integrated business plans, executing unified commercial programs and beginning to generate initial cost synergies, which are set to build over the balance of the year. In summary, we're pleased with JDE Peet's second quarter results and expect this business will be a significant contributor to our performance in 2026 and over the long term.

And finally, our KDP International segment strengthened from the first quarter as we expected, with net sales growing at a double-digit rate and operating income flat versus the prior year. Segment performance was balanced across our 2 key markets. In Mexico, pricing was a key driver. But our business also returned to volume growth and the impact of the beverage tax eased. Penafiel's Ades and Twist platforms each grew retail sales at robust double-digit rates driven by distribution expansion and in-store execution. Our teams also capitalized on sports enthusiasm through creative marketing activations, featuring squirt Penafiel mineral water and Clamato as the green, white and red of the Mexican flag. This activity contributed to healthy second quarter trends for each of these brands.

Canada growth was similarly broad-based. Our cold beverage performance was driven by a combination of pricing and volume mix with robust trends across CSDs and alcohol alternatives and newer categories like energy and ready-to-drink tea. In coffee, growth was led by price, though both pod and brewer shipments were also positive, underscoring the health of the Keurig ecosystem in Canada. Overall, we have momentum in our KDP International segment and expect the business to deliver solid results over the balance of the year.

In closing, our second quarter results capped a successful first half of 2026. We exceeded our EPS expectations for the quarter, reinforcing visibility to our full year guidance. We closed the JDE Peet's acquisition and quickly advanced integration activities, including synergy work streams, and we made important progress on key separation milestones. While there is still meaningful work ahead in the back half, we are confident in our ability to deliver on our 2026 commitments while advancing preparations to establish 2 world-class stand-alone companies.

And with that, I'll turn the call over to Anthony to walk through our financial results and outlook in more detail.

Thanks, Tim, and good morning, everyone. Our second quarter results were driven by strong execution and a dynamic operating environment and the incremental contribution from JDE Peet's. Consolidated net sales grew 74.6% in the quarter, reflecting the JDE Peet's acquisition, which closed on April 1. Excluding the JDE Peet's contribution, legacy KDP net sales grew 7.3%. Growth for legacy KDP was balanced with net price realization contributing 4.2 percentage points and volume mix adding 3.1 points.

By segment, legacy KDP's top line, was led by double-digit increases in U.S. refreshment beverages and KDP International, partly offset by a low single-digit decline in U.S. coffee. Consolidated gross margin was 46.5%, 860 basis points below the prior year, primarily due to the mix impact of adding JDE Peet's to the portfolio. Excluding the acquisition impact, gross margin contracted 210 basis points as elevated cost pressures more than offset the benefits of pricing and productivity. While gross margin for legacy KDP declined as a percent of sales, on an absolute basis, gross profit dollars increased 3.2%.

SG&A as a percent of sales declined 400 basis points. Excluding the mix impact from JDE Peet's, SG&A leveraged 100 basis points, driven primarily by productivity savings and disciplined cost management. In total, Q2 operating income increased 42.9% and including the below-the-line impact from acquisition financing, EPS increased 16.3% to $0.57.

Turning now to our segment results. U.S. Refreshment Beverages net sales increased 10%, driven by 6.5 percentage points of volume/mix growth and 3.5 points of net price realization. Growth was broad-based, led by energy, CSDs, water and sports hydration. Segment operating income grew 11.9% as net sales growth and productivity savings more than offset cost inflation.

Moving to coffee. Our performance in aggregate was solid but varied across the segments with pressure in U.S. coffee counterbalanced by strong results or JDE Peet's. The divergence was primarily driven by operating factors, which I'll discuss shortly. However, I'd also like to highlight a reporting dynamic that affected segment comparisons in the quarter. With the closing of the acquisition at the beginning of April, the partner economics for Peet's K-Cups, previously reported in U.S. coffee shifted to the JDE Peet's segment. We have since integrated distribution and transitioned to Peet's to a unified Keurig invoice. And as a result, the full sales and profit recognition for Peet's K-Cups will reside in U.S. coffee going forward. These reporting shifts had an unfavorable impact on U.S. coffee in Q2 and will be a benefit in the back half with the opposite effect on our JDE Peet's segment. Importantly, these changes are neutral at the KDP enterprise level.

With that background, let's now discuss the specific trends in each of our coffee segments. Starting with U.S. coffee, second quarter net sales declined 3.2%, with volume mix driving an 8.2 percentage point decline. Pod shipments declined 11.6% on an as-reported basis and 8.3% excluding the impact of the Peet's reporting shift. The decrease primarily reflected subdued category trends in the quarter. Brewer shipments increased 2.1%, returning to growth through impactful marketing and commercial activity as well as the benefit from lapping prior year retailer destocking. Net price realization contributed 5 percentage points to growth, driven by carryover pricing actions from 2025.

Turning to profit. Segment operating income declined 24.7%, driven by continued cost pressure from green coffee inflation and tariff impacts. The volume mix decrease and increased marketing spending also played a role, partially offset by net price realization and productivity savings. While we continue to expect subdued segment results for the full year, our cost profile should improve in the coming quarters and we have good line of sight to improving profit trends in the back half. Our JDE Peet's segment generated $2.8 billion in net sales and $414 million in operating income in the second quarter, exceeding our expectations.

Segment profitability was primarily driven by favorable pricing net of cost inflation, along with robust productivity savings. The business also benefited from timing factors, including related to the recognition of derivative gains as well as some marketing phasing. Looking ahead, we expect continued healthy results for JDE Peet's over the balance of the year, particularly as synergies built in the second half. That said, we now believe our second quarter operating profit likely represents the high watermark for JDE Peet's quarterly earnings contribution in 2026. Based on the timing benefits I just discussed as well as the impact of the Peet's K-Cup transition to U.S. coffee in the back half.

In our ADP International segment, both revenue and profit trends improved sequentially from the first quarter, consistent with our expectations. Net sales grew 12.4%, driven by 6.5 percentage points from volume mix gains and 5.9 points from net price realization. Segment operating income was flat versus the prior year. Benefits from net sales growth and productivity savings were offset by higher costs, including green coffee inflation and the Mexico beverage tax as well as increased marketing investments.

Turning to the balance sheet and cash flow. We generated healthy free cash flow of $714 million in the second quarter, driven by strong EBITDA and good cash conversion, including improved working capital trends, particularly in inventory. We continue to target approximately $2.5 billion in free cash flow for the full year. Our cash generation supported our deleveraging goals with pro forma management leverage of 4.4x at quarter end, slightly better than our expectations. We continue to expect to end the year with management leverage of approximately 4.1x.

Our capital allocation priorities remain unchanged. In the near term, we are focused on 3 areas: investing in our business, maintaining our current dividend and paying down debt, consistent with our commitment to investment grade credit ratings for KDP Beverage Co. and Global Coffee Co. Looking ahead, we expect each business to deleverage quickly, which will provide greater capital deployment optionality over the medium to long term.

With that, let me close with our full year guidance, which we are reaffirming. For the total company, we expect net sales in a range of $25.9 billion to $26.4 billion, including an $8.5 billion to $8.7 billion contribution from JDE Peet's. We continue to expect legacy KDP to grow 4% to 6% in constant currency, but now see the high end of the range as most likely. On the bottom line, we are reaffirming our outlook for low double-digit constant currency EPS growth. This consists of an anticipated 6 to 7 percentage points contribution from the JDE Peet's acquisition and 4% to 6% constant currency growth for legacy KDP.

Based on current rates, we continue to expect an approximately 1 percentage point FX tailwind to total company net sales and EPS growth for the full year. While our EPS outlook is unchanged, there are 2 new elements to highlight. First, during the second quarter, we completed the initial JDE Peet's purchase price allocation. This resulted in higher fixed asset depreciation expense for the acquired entity than we previously anticipated, and our guidance now incorporates an incremental 2% noncash expense headwind to 2026 EPS versus our prior view. Second, our outlook also now includes an anticipated onetime cash benefit from tariff refunds. On a net basis, we expect these 2 factors to largely offset resulting in a neutral impact to our full year EPS outlook.

Moving to below-the-line metrics. We are now assuming the following: interest expense of approximately $1.12 billion to $1.14 billion and effective tax rate of approximately 22% to 23%, approximately 1.37 billion diluted weighted average shares outstanding, approximately $190 million in pretax coffee JV costs, and convertible preferred P&L costs based on the securities approximately 8% proportionate share of earnings.

In closing, we delivered a strong second quarter. Exiting the first half, we are well positioned to meet our full year commitments while also preparing KDP for its exciting next chapter. With that, I will turn the call back to Tim for closing remarks.

Thanks, Anthony. As said, we're pleased with our strong second quarter results, which are a testament to the capabilities and hard work of our global team. I want to recognize and thank our more than 50,000 colleagues from around the world for their contributions to our inaugural quarter as a newly combined organization. Spending time with our teams in Amsterdam and Boston has reinforced my passion, enthusiasm and confidence in the future Global Coffee Co. And I'm equally energized by future Beverage Co. business, which continues to deliver outsized performance and is well positioned for stand-alone success. .

Indeed, our teams are executing with discipline across both coffee and beverages enabling KDP to deliver on our near-term objectives while making meaningful progress on integration and separation work streams. We have good momentum and well-calibrated plans for the balance of the year and look forward to a strong finish to 2026 while laying the groundwork for our separation in early 2027.

And with that, we're now happy to take your questions.

[Operator Instructions] The first question today comes from Chris Carey with Wells Fargo.

I wanted to ask about the strength that you're seeing in the U.S. refreshment business. Certainly, it continues to come in very strong. Can you help us understand the contributions of your underlying owned business, how partners are contributing to the business and expectations going into the back half of the year, I'm mindful that the outlook for the higher end of the net sales ex currency excluding JDE Peet's does imply a deceleration into the back half. U.S. refreshment is obviously a key enabler of your total company growth. So I would just love to get a bit more sense of what's driving Q2, how you see the segment performing into the back half of the year, perhaps some construct for volume mix versus pricing?

Yes, we feel very good about the performance of U.S. Refreshment beverages. Again, here this quarter, you saw the double-digit top and bottom line performance. And that was led by a 6.5% increase in volume mix. When you look at the drivers of the strength of that volume mix performance, you start with CSDs, carbonated soft drinks, reflecting healthy category, MSD type performance. And then on top of that, market share gains in our portfolio. I talked in the prepared remarks about continued strength of Dr Pepper, Zero Sugar where we saw about a 30% growth on that platform, the Creamy Coconut LTL as well as Canada Dry and our Bloom Pop offering within prebiotic CSDs, so really strong performance there. Outsized growth in energy would be the second driver driven by the momentum we have, in particular, in both Bloom and GHOST and good early traction from the brand refresh of C4.

Then you go to sports hydration, you see continued strong trends with our Electrolit offering. And finally, I'd point to improving still beverage performance led by Waters. So then to your question, that was the Q2 drivers. What about the balance of the year? We expect, quite honestly, these same drivers to support continued segment momentum. However, we will lap some tougher comps in the back half. And so we expect the magnitude of the growth, which was double digits so far this year to moderate a bit relative to H1. It will be another strong year of performance in '26 and sustain the momentum into the separation.

The second part of your question was around partners. And on that, I'd just say, look, you've heard us say, we have a very flexible build by partner model. It's been a core element of KDP's refreshment beverage strategy for years. It gives us the ability to meet evolving consumer needs while driving growth and profitability across our portfolio. And the benefits of this model were evident in our first half performance. And when you look at the contribution, both owned and partner brands each meaningfully contributed to the top in the bottom line. And I think you should expect the same going forward, owned and partner brands will continue to play that important and complementary roles for KDP, and you'll see us remain committed to investing in both as part of our balanced growth strategy.

The next question comes from Peter Galbo with Bank of America.

Tim, I wanted to go back to your comments around the CEO search for Global Coffee Co. Obviously, a bit of a restart on the process. It seems like your making good progress there, but maybe you could help us put a few more guardrails around timing of when we might expect an announcement. I don't know if it's by Q3. I think there's just a bit of concern in the market that any sort of further delay could potentially delay the spin. And so maybe you can just help to quell some of those concerns with a bit more finite time line.

Thanks, Peter. Yes. As said, the search for our future Global Coffee Co. CEO is well underway. And I would tell you, it's progressing nicely. What are we looking for? It's a world-class executive with significant and relevant experience to this platform. prior proven success, leading scale global businesses, a strong consumer orientation, a track record of navigating complex market conditions and leading through change. Finally, we're looking for a leader that can build culture, a winning culture and really generate a lot of followership. I can tell you this role has attracted considerable interest from highly qualified candidates. And we're well on our way through the interview and assessment process. So we remain confident we'll have a CEO in place with sufficient time to engage with the business, shape the strategy ahead of our targeted 2027 separation.

I'd say the last thing is we will prioritize finding the right CEO. It's critical that we've got the right CEO to really unlock the full potential as a stand-alone company, and we're not going to compromise on quality and service of speed, but we're confident we can do all of this on the time line we've shared.

The next question comes from Lauren Lieberman with Barclays.

Great. Given the green coffee volatility and the prior pricing actions in '25, just like where do you believe you are in the pricing recovery cycle? Just want to know how we should think about the balance between protecting margins and then restoring volume trends over the next several quarters in coffee. And in the prepared remarks, Tim, I know you specifically mentioned plans to strengthen pause and coffee products the second half. In this context, I want to hear a little bit more about that. .

Should we talk first a little about green coffee cost, Anthony, and then I can speak a little bit to pricing?

Sure, absolutely. As you know, green coffee costs have been highly volatile in recent years, inflationary in '24 and early '25, turning deflationary as we got into the latter part of '25 and early '26. And as you've seen inflationary again in the recent weeks. And just as a reminder, we've talked about this before. There is a lag between those green coffee price movements and when we see it come through the P&L. .

In terms of the most recent upward move, it's primarily related to speculation about El Nino's potential impact on supply. And because of that, we think it's likely a seat price could remain volatile until that situation evolves. And I'd say from a KDP perspective, our priority is to solve for the operational visibility, and we're not sitting here trying to predict future see price movements. And as a result, we typically forward hedge our commodity purchases. And there is that lag between coffee prices and when it hits the P&L and performance.

In terms of looking ahead, I'd say in the second half, we have really good line of sight to improving hockey costs that will move into lower cost inventory as well as tariff impacts easing, so the cost position for us in the second half will become more favorable as we look ahead.

Yes. And then I'll just pick up broadly on your pricing question. I guess, obviously, first, recognize pricing is a topic of high interest across CPG, given the overall inflationary envelope we've all had to manage through. Our goal over time at KDP and Bev Co. and Coffee Co. is to grow sales through a sustainable balance. So price mix and volume. And I think if you look at our Q2 print and it's a testament to this objective, KDP, if you look at a legacy KDP, you see a growing volume mix of 3% and a price of 4%. So pretty well balanced supporting that total sales of 7%.

You jump into coffee more specifically, no doubt the first half benefited from carryover pricing, but that will be increasingly anniversaried in the back half. And so in addition, with the coffee cost basket easing, JDE Peet's has already implemented some pass-through of lower coffee prices in certain formats and regions. U.S. coffee, Keurig and K-Cups model is less pass-through in nature and have some different cost phasing that Anthony and I talked about in the prepared remarks. But we'll also look for opportunities to invest in value for our consumers in the balance of the year. Overall, as you take these factors together, we expect enterprise pricing will probably be less of a net sales contributor in H2 versus H1, primarily due to the coffee dynamics that I discussed.

The next question comes from Peter Grom with UBS.

I kind of wanted to follow up a little bit on Lauren's question and stick with coffee, but maybe just more from like a U.S. coffee standpoint. And I know coming into the quarter, it was expected to be under some pressure, but I think it still came in a bit below your expectations. So can you maybe unpack the weakness, why you think performance fell short. And as we look out to the balance of the year, I think you mentioned that you'd expect to do top line with some improvement on profitability. Can you maybe just unpack what that looks like relative to what we saw here in the second quarter?

Sure, Peter. So if you elevate up to our new total coffee business, I think, solid results, but different trends across JDE Peet's and U.S. coffee and U.S. coffee is definitely under a bit of pressure. So the Q2 performance for U.S. coffee was similar to Q1. We knew the first half would be challenging given the elevated fee price impacting our P&L, and it was. And in addition, and I think more specifically to your question, that the Q2 trends were further impacted by a coffee category slowdown and a bit of unfavorable mix shift to private label, along with some continued trade inventory headwinds on pods.

Importantly, I'd say as we look to the back half, we do remain confident that we'll see better trends for U.S. coffee in the second half and certainly over the longer term. In the near term, the input cost envelope is set to become more favorable in the back half reflecting the timing of cost flow-throughs due to our hedging and inventory position, and we believe volume mix will start to improve as trade inventory dynamics and pods begin to normalize.

And then in addition to that, we think we'll benefit from some good ROI to support our sustainable long-term growth initiatives around pod and brewer innovation that we've got loaded for the back half, our precision marketing campaign, specifically driving curing brewer sales and incremental household penetration. And we believe we will be growing household penetration in the back half on Keurig brewers. So I think these initiatives will support both a category growth improvement and KDP share improvement as we go to the back half. So in aggregate, I do anticipate a subdued full year 2026 for U.S. coffee, but a significantly improved second half.

The next question comes from Robert Ottenstein with Evercore.

I was just wondering if you could remind us about the Bloom brand. It really looks like a phenomenal brand that has broad shoulders. So can you remind us what your ownership stake is, how it hits your income statement? I know you do distribution, do you do manufacturing what is the long-term plan for the brand? Is there any possibility of buying it and gain control, all those sorts of questions, again, really in the context of what an attractive brand this is?

We certainly share your view, Robert, on the attractiveness of the Bloom brand. And we have a tremendous relationship with Nutrabolt and the founders of Bloom. In fact, just last week, we had a meeting here in Dallas with both Nutrabolt founder and Bloom founder. And we've got exciting plans for the back half and for '27 to continue to grow this brand. This brand, as you know, is what we call a bit of a female-forward brand has done a tremendous job in both active nutrition powers, in energy and in prebiotic sodas of attracting quite a following. There's a tremendous amount of social savvy there, excellent capabilities in developing winning flavors and our customer partners are giving us appropriate focus and attention in terms of distribution and through our DSD capability and a lot of incremental displays. So love the brand and see continued robust growth potential going forward.

From an ownership standpoint, Bloom is part of the Nutrabolt organization where there's a strong ownership there. And we have a long-term partnership with Nutrabolt, for -- that obviously covers both C4 and Bloom. And we own a 36% stake in Nutrabolt and actually have multiple board seats. So that is that's the ownership stake that you had asked about. And overall, I'd say we're just excited to continue to work very closely with [indiscernible], the Founder of Nutrabolt, with Blooms Founder and we're quite bullish on our ability to drive mutual value creation in the years to come.

The next question comes from Robert Moskow with TD Cowen.

I was intrigued by your comment about the joint business plans that are now -- have been taking place between Keurig and JDE Peet's. Can you give a little more detail on what they're able to do on a joint basis? I think the perception out there is that these are still 2 very separate geographic businesses. And then maybe drill in a little bit on the synergies. Originally, the expectation is that you could get some synergies in coffee procurement I wanted to know, in this very volatile environment, is it still possible to get those synergies? Or are there any complexities that happen when coffee gets more volatile?

Good. I think I'll start, Anthony, on kind of the Keurig and Peet's combination benefits and then kick it over to you to talk more specifically on synergies. So we are already well underway and begin to capture the benefits of bringing these 2 companies together. I'll let Anthony, as I said, talk more specifically on the cost synergy side. On the, if you will, revenue synergy side, the biggest opportunity is here in the United States. This is the geography where you've got the biggest overlap between legacy Keurig Green Mountain and legacy Peet's brand. And the opportunities we've already got organizationally, we've moved to one team, right, under one leadership team. We've actually transitioned Keurig and Peet's to a single invoice and an integrated sales force and that really will help us unlock these opportunities.

We see opportunities for commercial investment, reinvesting some of the synergies that Anthony will talk to you about to fund high ROI marketing and promotions. We see coordinated programming opportunities for cross-portfolio marketing, promotions, it packs. We see new formats when you think about the Peet's legacy Peet's business, and the way that they participate across all formats and segments of coffee, there's opportunities for us to leverage that in our system. There's opportunities in cold coffee as you bring these 2 together. And then there's even opportunities to think about next-generation brewer. We've talked about Keurig Alta, and we have announced now that as part of the Keurig Alta, when we first go to market with that. here in the coming months, we will offer both Keurig and Peet's alto rounds as the consumable. So I can tell you, our teams in Boston, legacy Keurig and Emeryville, legacy Peet's are already working together quite well. They're presenting joint plans to the customer, and we think that can be an important unlock on the growth side. You want to talk costs?

Sure. To add to Tim's comments, we remain very confident in the $400 million cost synergy program. In fact, the deal closed April 1, but we had teams across KDP, JDE Peet's and third-party consultants working on this well ahead of the acquisition close in terms of identifying, planning and assigning ownership for a number of work streams and network has only accelerated since the deal closed. The financial contribution in Q2 fairly modest. We certainly have line of sight to a building benefit in the second half and certainly as we move beyond 2026.

In terms of breaking down the $400 million, there are a number of areas, Rob, one area you mentioned was procurement. And I would say that we see a sizable opportunity in procurement even with the current coffee volatility. And I would say even more so, given what's happening in the marketplace. IT and SG&A is another significant area in terms of simplifying the organization, rationalizing some of the applications and systems and eliminating duplication.

And then on the manufacturing and logistics, Tim referenced integration in North America that, in fact, has already happened in terms of bring in the distribution of pods together. We're on a single invoice at -- out of Keurig already. So we're well underway and are confident in achieving the $400 million.

The last question today comes from Filippo Falorni with Citi.

Can get a little bit more color on the energy drink category and your expectations there? You had a previous target of getting to double-digit market share, maybe where you stand versus the target? And then bigger picture, how are you thinking the growth in the categories impacting coffee? You've obviously seen a lot of younger consumer shift in the caffeine intake into energy drinks a replacement for coffee. So maybe if you can talk about the interaction between those categories and your perspective there will be great.

Sure, Filippo. So energy, we're big believers in energy. This is a fantastic category, a large category. $30 billion and one of the fastest-growing spaces in liquid refreshment beverage. I think there are multiple structural growth drivers that suggest that this growth won't end anytime soon. There are continued distribution point, expanding opportunities. There's household penetration upside when you look at household penetration on energy relative to other LRB more developed categories there are occasions that have yet to be fully fleshed out. There are cohorts. But certainly, these days, the female consumer who has not only entered the category, but really a growing affinity and usage there.

And there's channel diversity yet to be fully exploited. Obviously, the category was foreign and raised in C-store and continues to feature prominently there. But there's a lot of upside in other channels and opportunities across large format and others. So bullish on the category. Then our position, confident in our position. We like our portfolio. We've really curated this over the last many years. We're gaining market share. We've got real scale now. Right now, on a run rate basis, Filippo, we're looking at a $1.5 billion net revenue net sales business.

If you look at what's driving our performance, I think this portfolio with authentic and distinctly positioned brands. When you think about C4, Bloom, GHOST, Black Rifle, great tasting products great innovation, strong commercial programming and then overlay the DSD capability that KDP brings to the party strong frontline execution, driving distribution, driving display activity. I think the other thing to point out is we focus on the most attractive part of the energy category, which is Zero Sugar. That's our whole portfolio, and Zero Sugar is the outside contributor to category growth. So really proud of what we've done.

I would remind you that just about 4 years ago, we have less than a 1% market share and as I mentioned in the prepared remarks here in Q2, we're at 9% share, just crossed the 9% share a few years later. And that puts us well on our way to my goal of a double-digit market share. And in fact, I would tell you in 15 major customers across the U.S., we've already crossed that double-digit threshold. The other part of your question was are we seeing any sort of interaction between energy and coffee. And what I'd tell you is we monitor that potential shifting behavior very closely. And we have not seen any sustained share movement between coffee and energy.

Now in any given year, the share shift from a, say, a panel beta standpoint, can lean one way or another. But if you look at it over the last 3 to 4 years, I would tell you the impact is roughly neutral. There are some years where energy is in that gainer, there are other years where coffee is a net gainer. And when you look at it in aggregate over the last many years, you see it broadly neutral. So we continue to like in our current portfolio that we've got leading and winning solutions to serve that energy and alertness need that consumers have, whether that's through energy drinks or through pope.

This concludes our question-and-answer session. I would like to turn the conference back over to Chethan Mallela for any closing remarks.

Thank you for the time and the attention this morning. I know it's a busy earnings day, and the IR team is around if you have any follow-ups. Have a great day.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Okay. Welcome back, everybody. Thanks for joining us. For our next session, I am very excited to welcome Kerry Dr Pepper back to our conference. With us today from KDP are Chief Executive Officer, Tim Cofer; and Chief Financial Officer, Anthony DiSilvestro. Tim and Anthony are going to use the balance of our session today to run through a presentation to update us on the many things going on at KDP. And with that, I'm going to hand it right over to Tim to take us away.

Thanks, Steve. Thanks, Steve. Good morning, everyone. It's a pleasure to be back here in Paris at the Deutsche Bank conference. A lot has changed since we presented on this stage a couple of years ago. And I'm looking forward to sharing the exciting developments underway here at KDP. Now before jumping in, let me, of course, first call your attention to our standard safe harbor regarding forward-looking statements and our use of non-GAAP financial measures.

So with that out of the way, let me start with an overview of our company, including the recently acquired JDE Peet's business. KDP is now a scaled beverage leader with $28 billion in annual sales. Our business is global, with roughly 2/3 of the business in North America, 20% in Europe and remaining 15% in international markets. Our business is singularly focused on beverages, which in my opinion, is the best place to play in consumer staples. Why?

It's a large and growing market with approximately $1.4 trillion in global sales and a healthy mid-single-digit growth rate over time. And importantly, beverages benefit from strong structural tailwinds, including frequent and habitual consumption patterns continually evolving demand trends that create growth opportunities and ongoing premiumization. Within the beverage industry, KDP is a scaled challenger. We have leadership positions in sizable and attractive categories like carbonated soft drinks, mineral water and coffee, but also have significant white space and runway for future expansion.

As I'll discuss in more detail shortly, our recent acquisition of JDE Peet's tripled the size of our coffee business and added significant capabilities across formats, channels, and geographies. For the first time, we now have scaled and advantaged businesses in both refreshment beverages and coffee. So with this foundation in place, we plan to separate into two pure-play businesses, Beverage Co. and Global Coffee Co. Each future business will benefit from tailored strategies, operating models and capital allocation approaches aligned to their specific category and geographic exposures, enhanced organizational clarity, including aligned incentives and priorities, greater strategic optionality and distinct yet attractive investment cases.

As Anthony will discuss in more detail, we're making steady progress towards our separation with a targeted completion date in early 2027. Let me now walk you through each future business and its investment case in more detail, and I'll start with Beverage Co. The future Beverage Co. operates in the attractive $300 billion North American cold beverage market. The industry delivers consistent growth over time supported by its ability to continually evolve with consumer mega trends such as wellness, self-expression, convenience and entertainment. We are 1 of only 3 industry leaders, which together represent about half of the beverage category sales with the balance of the competitive landscape remaining fragmented, which provide meaningful opportunity for our business to gain share and drive industry consolidation over time.

Beverage Co. is a large and profitable pure play, $12 billion in annual net sales, $3.6 billion in EBITDA and a 30% margin. We are distinguished by key competitive advantages, including a portfolio of iconic brands. with leadership positions in attractive categories like carbonated soft drinks, energy, waters, tea, juices and others. A proven model to extend our portfolio into fast-growing beverage white spaces. Enhanced digitally enabled marketing capabilities to drive greater mental availability for our brands and a powerful and scarce direct store delivery route to market that drives superior point-of-sale execution. We believe these factors position Beverage Co. for strong stand-alone growth and superior returns over time.

Let me discuss each of these advantages in turn, and I'm going to start with the brands. So at its core, Beverage Co. is a brand-led company. We have over 50 brands, including 3 $1 billion-plus brands starting with our flagship, Dr Pepper, which has approximately $6 billion in retail sales, along with Canada Dry and Mott's. We have 12 additional brands with over $500 million in retail sales, including own trademarks like 7Up, Ghost, Penafiel and Snapple as well as partner brands like C4, Bloom, Electrolit and we have yet another 12 $100 million-plus brands.

Our brands are distinct. They're supported by a passionate consumer base and they command category leadership positions. Importantly, they also offer significant opportunities for future growth. Our brands play in attractive beverage spaces. Our largest category exposure is carbonated soft drinks or CSDs, which generate nearly $50 billion in annual retail sales in the U.S. and have grown at a mid-single-digit CAGR in recent years.

The category is roughly split evenly between flavors and colas with the former growing at a faster rate. This performance reflects a trend towards bold, varied flavors in beverages, which has been only amplified by the growing influence of Gen Z, Gen Alpha and multicultural consumers. Beverage Co. will be very well positioned to capitalize on this dynamic as our business primarily focuses on flavors and has the #1 portfolio in this high-growth space.

The CSD category has also proven effective in adapting to consumer wellness preferences through zero sugar and low-calorie options, which have grown at a double-digit rate and now represent 1/3 of the CSD category and our iconic Dr Pepper brand holds the #2 position in this dynamic zero-sugar CSD category. CSDs are also notable for the great value they provide consumers. You see on this chart, on a price per ounce basis, CSDs are among the most affordable category in beverages and screen particularly attractive relative to areas like energy drinks, ready-to-drink coffee and protein. The value proposition is further enhanced by the category's comprehensive price pack architecture with offerings that range from entry to premium price points and packages that are geared for both immediate and future consumption occasions.

Another notable category feature is a private label penetration of just 2% compared to 21% in the CPG average, reinforcing the power of brands in beverages. The combination of these factors underpins our confidence that the CSD category will remain an attractive space in the future. Now within carbonated soft drinks, Beverage Co.'s positioning is anchored by our flagship Dr Pepper brand. Dr Pepper has gained market share for 9 consecutive years. It's the #2 soft drink in the category. It ranks as the most popular beverage brand with teens and Dr Pepper has the highest engagement of any food or beverage brand on TikTok.

Importantly, despite the success, the brand retains significant runway for growth. And we're pursuing this growth through multiple initiatives. First, as I'll discuss shortly, we're raising the game on marketing to more precisely and powerfully appeal to both existing and new consumers. Second, we're applying localized strategies to strengthen our leadership in heartland markets and close market share gaps in underpenetrated regions. And third, we're continually aligning our portfolio with attractive growth areas, such as 0 sugar CSDs and cultural trends like dirty soda. As a result, we're confident that Dr Pepper can sustain its strong momentum in the coming years.

We're also taking the core foundations of Dr Pepper's success, a distinctive brand position, impactful marketing, purposeful innovation, strong point-of-sale execution and applying this repeatable growth model to other brands. For example, we leaned into Canada Dry's positioning as a relaxing beverage, reinforced that identity with marketing like the current Dry Time is My Time campaign and complemented the work with our highly successful Fruit Splash innovation. As a result, Canada Dry has strengthened its leadership position in ginger ale and here in 2026, is on track to gain CSD market share for a fourth time in 5 years.

We're also beginning to activate the same playbook on other iconic brands, including 7Up in CSDs and Snapple and Mott's in still beverages. As those initiatives build momentum, we expect to see positive results.

Another core element of the Beverage Co. model is finding attractive opportunities to address durable and high potential white spaces. Over time, we've successfully evolved our portfolio through a flexible build-buy-partner approach, characterized by different models, levels of capital investment and commercial arrangements. The chosen model is tailored to each opportunity and can range from organic brand extensions to capital-light distribution partnerships like in the case of Electrolit, to equity investments like C4 and Bloom, and finally, to outright acquisitions like Ghost. Importantly, we have been and we will be patient and disciplined as we execute this strategy.

While we look at many options, we only move forward when we're confident in a partner or target brand's growth potential and when the economics are compelling.

The energy category is an illustration of how we successfully deploy this model. Energy drinks are large and a very attractive space with a $30 billion in annual retail sales and a double-digit multiyear CAGR. Just 4 years ago, KDP market share in this category effectively rounded to 0. Today, we have an over 8% share, which we've built through capital-light partnerships, equity investments and bolt-on acquisitions as well as organic growth for the brands we've added to the portfolio.

Looking ahead, we feel good about our positioning in the category. We have a portfolio of complementary brands that play in the fast-growing Zero Sugar segment while still serving distinct consumers and need states. Each of our brands has significant runway for growth, which supports our goal to achieve a 10% plus market share in the coming years. In fact, we've already crossed that market share threshold at 13 major customers in the United States.

Importantly, our white space expansion strategy provides both growth and healthy economics to KDP. For example, strong stand-alone sales and distribution emergence are a prerequisite for partner brands to enter our system. We then look to enhance the stand-alone contribution through 2 additional benefits. First, operating leverage as the added volume, obviously reduces our fixed cost per unit and second, halo effects from the additional scale enabling larger drop sizes, greater in-store frequency and stronger outlet level relationships, which, in turn, drives incremental volume and profit for other brands within our portfolio.

As a result as our partnership mix has grown in recent years, we've nonetheless expanded segment operating margins. We expect a similar dynamic to continue as we build our presence in more white spaces in the future.

Our brand building model is another growth lever with a simple goal to drive demand and win more beverage occasions. We do this by building physical availability to ensure we deliver the right product, package and price point in every channel where the consumer shops, strengthening mental availability and purchase intent through distinctive brand positioning and impactful marketing and driving a sustainable flywheel of growth by continuously recruiting new households while deepening engagement with existing consumers.

To deliver on these objectives, we've been enhancing our marketing function with a focus on 5 key capabilities. First, deeper consumer insights from better connecting existing databases and integrating new data sets. Second, precision marketing, which uses those consumer insights and improve measurement tools to direct the spend towards the highest return audiences. Third, deploying more impactful creative content including capitalizing on viral cultural moments to build consumer connection. Next, combining the first 3 capabilities to deliver very personalized and relevant messaging. And finally, applying these same tools to our innovation engine to improve success rates and increase incrementality.

Importantly, all of this is underpinned by advancements in AI capabilities, highly connected first- and third-party data sets and optimized workflows. As our largest brand, Dr Pepper has been one of the initial focus areas for these enhanced capabilities. For example, this past fall's College Football Fansville campaign included over 2,500 different marketing permutations, delivering to consumers tailored content based on many factors, like their location, their retailer of choice, the beverage and occasion preferences and even whether their favorite football team won or lost its most recent game.

Where we deployed these precision and personalization tools, we saw more than double the sales lift and roughly higher incremental return on ad spend relative to the national campaign average. As you can expect, we're now beginning to successfully apply these marketing tools to additional brands, and we expect these capabilities to become an increasingly meaningful top and bottom line enabler for our portfolio.

Our brand building model is further enabled by our scarce and differentiated direct store delivery, or DSD, capability. We operate 1 of only 3 national nonalcoholic DSD systems in the United States. We reach approximately 80% of the population through our own trucks and the remaining 20% through high quality partners. Whether owned or otherwise, access to effective DSD is absolutely critical in beverages. And when executed properly, DSD systems enable brands to serve stores that would otherwise be difficult to reach, strengthen relationships with store-level decision-makers and drive superior quality of distribution, including the very important cold drink assets.

Importantly, DSD systems are highly responsive to scale, with the additional volume driving operating leverage that can fund a virtuous cycle of reinvestment and further growth. As a result, we've invested in our DSD network in the form of new brands, more powerful digital tools for our frontline employees and opportunistic expansion into new geographies. These investments have generated healthy returns and we'll continue to prioritize a route to market as a focus area. So bringing all these elements together, we believe Beverage Co. is well positioned to create value as a pure-play public company.

The business will have strong and self-sustaining growth enabled by an advantaged brand portfolio, differentiated capabilities and an entrepreneurial challenger culture, enhanced by additional upside potential from strategic optionality over time.

Now let me turn to Global Coffee Co. I'll start with the category. Coffee is a $400 billion global category and one of the most popular beverages worldwide. The category is emotional. It's habitual and it provides clear functional benefits driving consumption with over 3 billion cups consumed every day. It is the #1 beverage American consumers say they cannot live without. And this is evident in our 97% household penetration. Importantly the category's resonance extends to younger consumers.

In the U.S. coffee's daily penetration with young adults has increased nearly 10 percentage points in the past decade, and we're seeing a similar trend in other countries as well. As a result of these factors, global coffee volume has demonstrated durable long-term growth at a 2% volume CAGR. And when you factor in the contribution from price, and favorable mix, dollar sales have increased even faster.

Global Coffee Co. is a scaled and profitable category leader with $16 billion in annual net sales, $3 billion in adjusted EBITDA and nearly 20% margins. The business ranks as the world's #2 coffee player by sales with leading share positions in over 35 markets. It has deep expertise in sourcing, blending and innovation. Our portfolio breadth is attractive with broad participation across formats, including outsized exposure to high-value growth areas like single serve.

As I mentioned earlier, we created Global Coffee Co. through a combination of KDP's Keurig unit and the acquired JDE Peet's business. Global Coffee Co. unites the best features of each legacy company, pairing Keurig's North American leadership and unparalleled single-serve capabilities with JDE Peet's global scale brand portfolio and broad coffee presence. We expect from new avenues of growth and value creation through an advantaged portfolio, enhanced revenue potential and clear and actionable synergies.

Let me start with Global Coffee Co.'s advantage and complementary brand portfolio. The company will be anchored by four $1 billion-plus icons, Keurig, Peet's, L'or and Jacobs, along with six $500 million-plus brands and eight $100 million-plus brands. These are category-leading trademarks that are beloved by their consumers in their key markets, including Keurig in North America, L'or right here in France, Jacobs in Germany and Central Europe, Douwe Egberts in the Netherlands and Belgium and Kenco in the U.K.

While these brands are strong today, we see further opportunity to reinforce their leadership positions and drive even more growth in the future. The combination of Keurig and JDE Peet's should also drive enhanced growth potential for Global Coffee Co. through revenue synergies. Key opportunities include strengthening the Peet's brand in North America, sharing technology between Keurig and JDE Peet's single-serve platforms, extending Keurig's coffee brands into additional formats and channels and expanding the new Keurig Alta platform to encompass additional brands and markets over time.

Let me briefly touch on each of these in turn. Starting with the Peet's U.S. opportunity. Despite its heritage as a coffee pioneer and its premium credibility Peet's remains underpenetrated outside the West Coast. We believe there is meaningful opportunity to build it into a truly national brand. The key enabler will be Keurig's scale, including our existing retail partnerships and coast-to-coast route-to-market capabilities, which we plan to leverage to increase the breadth and depth of Peet's distribution.

We expect to complement this with reinvestment of cost synergies behind high ROI marketing and promotions as well as coordinated commercial plans that capitalize on incremental growth opportunities for the combined Keurig and Peet's portfolios. As it relates to technology, one opportunity is in brewers. Keurig has always internally managed innovation and R&D, outsourcing only the production to third-party partners. As a result, Keurig's expertise in brewer technology has established us as the clear innovation leader in North America single-serve.

We can extend some of these capabilities to JDE Peet's single-serve systems, expanding the consumer benefits provided by L'or, Senseo and Tassimo brewers and ultimately unlocking additional growth opportunities.

Moving to the format opportunity. In the U.S., legacy Keurig has been concentrated in the single-serve segment of at-home and office coffee, which comprised less than 1/3 of total coffee occasions. Importantly, Keurig brands like Green Mountain and The Original Donut Shop, have consumer permission to stretch into new areas, which we can accomplish by leveraging JDE Peet's existing format capabilities in areas like roast and ground, whole bean, instant and coffee concentrate.

And finally, there's an opportunity related to Keurig Alta, our next-generation coffee system targeted for launch in North America in late 2026. Alta delivers multiple consumer benefits, including the ability to brew an unmatched variety of coffee and espresso-based beverages from a single machine. In addition, the platform's Alta Rounds is a consumable that is plastic-free and aluminum-free, providing significant sustainability advantages. We see multiple ways to unlock this system's full potential through the combination with JDE Peet's.

First, Peet's will be one of two brands available in the Alta system at launch, enhancing the premium positioning and broadening consumer appeal. Over time, we plan to include even more brands as part of Alta. And second, we believe Alta's consumer benefits are universally relevant. So while our near-term focus will be on North America, we also see an eventual international opportunity, which can be enabled over time by JDE Peet's global scale and it's recognizable and beloved multinational brands. We also expect that Global Coffee Co.'s revenue opportunities will be further enabled and supported by the same marketing strategy we're applying in Beverage Co. centered on deeper consumer insights, precision marketing, breakthrough creative content, personalization and stronger innovation.

We're implementing many of these same capabilities currently on our Keurig Anthem campaign, delivering content specific to individual households interests and needs and driving meaningfully higher returns. As we extend this approach across both legacy Keurig and JDE Peet's portfolios, we expect a measurable impact on our marketing effectiveness and growth potential. Beyond the revenue opportunities, Global Coffee Co. also has clear and actionable cost agenda. Work is actively underway to achieve our cost targets and we remain confident in delivering $400 million in synergies over 3 years.

Savings will come across SG&A and IT, procurement and manufacturing and logistics, driven by discrete work streams that are jointly owned by legacy KDP and JDE Peet's leaders. Importantly, these cost synergies are incremental to the EUR 500 million of longer-term cost savings targeted under JDE Peet's Reignite the Amazing Program, half of which is planned to be reinvested to drive growth. The legacy JDE Peet's team has already begun driving these savings through portfolio simplification, design to value, organizational streamlining and route-to-market consolidation.

And in addition, the legacy Keurig team continues to execute its ongoing annual productivity program. So overall, we expect Global Coffee Co. to be an attractive stand-alone company with steady and resilient growth and cash flow, supported by leading brands, combination-related revenue and cost opportunities and deep and focused coffee expertise.

With that, let me turn it over to our Chief Financial Officer, Anthony DiSilvestro.

Thanks, Tim, and good morning, everyone. I'm Anthony DiSilvestro, KDP's Chief Financial Officer. Today, I'll provide an update on our separation progress, discuss our capital allocation priorities and deleveraging plans, and then review our financial outlook for total KDP and for each company.

Let's start with the separation time line. As we have outlined in the past, we are taking a milestone-based approach to our work and will only complete the separation once our key objectives are achieved. Importantly, we are making steady progress. We have named CEOs for each future business with Tim to leave Beverage Co. and Rafa Oliveira, to head Global Coffee Co., and have also established executive leadership teams to manage each business during the transition period. We closed the JDE Peet's transaction on April 1 and have started integrating the business with our plans for synergy capture well underway and execution on track.

We have raised deal financing, including equity-like capital, have a clear deleveraging path and are committed to maintaining investment-grade ratings for KDP and each future company. And we have commenced work to establish independent corporate cultures and identities while also initiating the planning process for the future Boards of each business.

Based on our progress to date and the status of these milestones, we continue to target a separation in early 2027, subject to market conditions. Our capital allocation priorities are consistent with these separation milestones. In the near term, we will focus on organic investments in our business, maintaining our current dividend, and paying down debt to enable rapid deleveraging. We expect to reduce management leverage for total KDP to approximately 4.1x by year-end, supported by cash generation and EBITDA growth, and we'll continue to delever both Beverage Co. and Global Coffee Co. beyond this year.

Once each business has sufficiently delevered, it can consider a more balanced capital allocation approach, including potential dividend increases, opportunistic M&A and share repurchase activity. Free cash flow generation will be a primary enabler of our multiyear capital allocation. We expect to generate $2.5 billion in free cash flow during 2026, which includes a three-quarters contribution from JDE Peet's. On a combined Beverage Co. and Global Coffee Co. basis, free cash flow should step up in 2027 and 2028 reflecting the following: First, EBITDA growth from a full year contribution of JDE Peet's, underlying momentum in Beverage Co. and Global Coffee Co., and incremental cost and revenue synergy delivery.

Second, a meaningful reduction in transaction-related onetime cash expenses following a peak in 2026 and finally, working capital improvements, most notably in inventory. In total, we expect approximately $11 billion in combined free cash flow for Beverage Co. and Global Coffee Co. from 2026 to 2028. This will initially support deleveraging, but over time, will also provide meaningful financial optionality for both future companies.

As we execute on our transaction-related work, we are guided by 3 priorities: First, delivering our 2026 guidance. Second, integrating JDE Peet's with excellence and beginning to unlock combination benefits, including revenue and cost synergies. And third, preparing both pure-play companies for post-separation success. Consistent with those priorities, we are reaffirming our 2026 guidance and remain confident in our ability to deliver on our outlook for $25.9 billion to $26.4 billion in net sales and low double-digit EPS growth this year.

We are also reiterating our long-term growth expectations for each future company. Based on the enablers that Tim discussed, we expect Beverage Co. to deliver mid-single-digit net sales growth and high single-digit EPS growth. Global Coffee Co. is positioned to deliver low single-digit net sales growth over time with some year-to-year variability based on coffee costs and high single-digit EPS growth supported by its cost savings agenda, and we expect both businesses to be highly cash generative.

Overall, these are attractive growth algorithms within consumer staples which underpins our confidence in each company's standalone value creation potential. With that, let me turn it back to Tim for some closing remarks.

Thanks, Anthony. So to wrap up, let me bring together the key elements we've discussed today. First, KDP is a scaled leader in the large and growing beverage industry. One of the most attractive spaces within consumer staples. Second, from this strong foundation, we're pursuing an exciting separation into two focused, and advantaged pure-play businesses with distinct yet attractive investment profiles. Beverage Co. will be a North American-centric beverage business positioned for consistent growth enabled by iconic brands, a proven white space expansion playbook, enhanced demand generation capabilities and a scarce and advantaged route to market.

Global Coffee Co. will be a global category leader with strong positions across markets and formats, deep coffee expertise and compelling revenue and cost synergy opportunities. As stand-alones, each business will be optimized for strong performance with tailored strategies, sharper focus and purpose built organizational structures and cultures. And third, we have a robust integration process and operating model in place to support execution, including delivering on our 2026 plan with excellence and achieving our key integration and separation milestones.

In summary, this is an exciting moment for KDP and we are focused on delivering on the significant value creation opportunity ahead. Thanks for your time today.

With that, let me thank Tim and Anthony and KDP, and thank all of you for joining, and that's the balance of our time. So good luck in your next meeting, and thank you again.

Thanks, Steve.

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to Keurig Dr Pepper's Earnings Call for the First Quarter of 2026. This conference call is being recorded [Operator Instructions]

I would now like to introduce Chethan Mallela, Vice President of Investor Relations at Keurig Dr Pepper. Please go ahead.

Thank you, and hello, everyone. Earlier this morning, we issued a press release detailing our first quarter 2026 results, which we will discuss on today's call. An accompanying slide presentation is available and can be viewed in real time on the webcast.

Before we get started, I'd like to remind you that our remarks will include forward-looking statements, which reflects 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 today. For more information, please refer to our earnings release and the risk factors discussed in our most recent Form 10-K and our latest 10-Q, which will be filed with the SEC later today.

Consistent with previous quarters, we will be discussing our Q1 performance on a non-GAAP adjusted basis, which reflects constant currency growth rates and excludes items affecting comparability. Definitions and reconciliations to the most directly comparable GAAP metrics are included in our earnings materials.

Here with us today to discuss our results are Keurig Dr Pepper's Chief Executive Officer, Tim Cofer; and Chief Financial Officer, Anthony DiSilvestro.

I'll now turn it over to Tim.

Thanks, Chethan, and good morning, everyone. We are pleased with our start to the year. We closed the JDE Peet's acquisition and made steady progress on our transformation initiatives, while continuing to drive our base business, with first quarter results that tracked slightly ahead of our expectations.

In a dynamic operating environment, our teams remain focused on balancing longer-term foundational work with near-term execution. Looking ahead, our top priorities for 2026 remain unchanged: delivering our low double-digit EPS growth guidance in a high-quality way, seamlessly integrating JDE Peet's and beginning to unlock combination benefits, and achieving key milestones to set up a successful separation. While there's plenty of work ahead, our well-constructed plans and year-to-date progress reinforce our confidence in delivering on these commitments.

Before discussing our quarterly results, let me briefly touch on our transformation work. On April 1, we closed the acquisition of JDE Peet's, welcoming over 20,000 new colleagues to KDP and bringing our complementary portfolios and capabilities together, united by a shared passion for great brands and exceptional coffee experiences. With the transaction now closed, we have begun to operationalize our integration plans, led by a dedicated transformation management office and guided by clear work streams and accountability. At the same time, we're also advancing our work to separate into 2 advantaged pure-play public companies which will be well positioned to create value through increased focus and organizational clarity with fit-for-purpose strategies and capital allocation policies.

Beverage Co. will be a growth-oriented challenger in the large and attractive $300 billion North American refreshment beverages market. With iconic brands, differentiated go-to-market capabilities and a proven track record of white space expansion, the stand-alone beverage business should deliver compelling financial results while also possessing strategic optionality over time.

Global Coffee Co. will be a scaled leader in the $400 billion global coffee market with an enhanced set of capabilities to meet consumer needs across formats, channels and geographies. Supported by a portfolio of leading global and regional brands, deep expertise in sourcing, blending and appliances and strong synergy potential, the coffee business will also have a compelling value creation model.

As we balance near-term performance with our transformation agenda, we have put in place an operating model designed to maintain enterprise focus while preparing each business unit to operate independently at separation. Under this structure, the centralized KDP leadership team is responsible for strategic oversight, total company commitments and transaction execution. While our dedicated beverage and coffee operating units are accountable for delivering their 2026 business plans and shaping the strategic direction for each business.

As CEO of KDP and the future CEO of Beverage Co., I am overseeing both the KDP leadership team and the beverage operating unit. As we recently announced, JDE Peet's CEO, Rafa Oliveira, has been selected by the Board to lead the coffee operating unit and become the future CEO of Global Coffee Co. upon separation. Rafa has meaningful CPG experience, a track record of navigating complex global markets and is the architect of JDE Peet's brand-led strategy. He's the natural choice to lead our coffee business today and in the future, and I look forward to advancing our partnership as we prepare to stand up 2 winning companies.

Overall, our transformation work is progressing well, and we continue to target operational readiness to separate by the end of 2026, with the official separation likely to occur in early 2027, subject to market conditions.

Turning now to our first quarter results. Net sales grew 8%, with positive contributions from both net price, realization and volume mix. Top line performance was led by continued strong momentum in U.S. Refreshment Beverages and International, partly offset by previously discussed temporary pressures in U.S. Coffee. Our EPS of $0.39 declined from last year, reflecting the phasing of cost and tariff impacts and lapping a below-the-line gain in the year ago period. Importantly, as Anthony will discuss, we have visibility to healthy EPS growth beginning in the second quarter with further acceleration in the back half.

Let me now discuss our Q1 segment performance. I'll start with U.S. Refreshment Beverages, which delivered another robust growth quarter. Net sales and operating income each grew at a double-digit rate, driven by favorable trends in our core carbonated soft drink business and continued momentum in our portfolio's emerging growth areas.

Within CSDs, the category remained healthy, with Q1 retail sales dollars growing at a mid-single-digit rate and accelerating from Q4. While Dr Pepper faced a difficult innovation comparison versus the Blackberry launch last year, our underlying trends were strong, with the brand's 3 primary lines, regular, diet and zero sugar collectively gaining share during the quarter, supported by demand generation activity and point-of-sale execution.

CSD Innovation will play an important role in our plans for the rest of the year. Canada Dry Fruit Splash strawberry launch nationally in February and has driven healthy consumer trial, strong on-shelf velocities and incrementality to the franchise. The launch contributed to Canada Dry's Q1 share gains and should provide a further tailwind in coming quarters. In addition, the fan favorite, Dr Pepper Creamy Coconut limited time offering relaunched earlier this month, and we're confident it will build on its successful initial run during 2024 as it taps into ongoing consumer interest in dirty sodas.

Our performance in 2026 will also benefit from our continued focus on aligning our CSD portfolio with consumer needs around both value and wellness. With consumers seeking affordability in the current environment, we have refined our promotional strategies to offer compelling price points in key channels, while maintaining discipline to ensure net price realization continues to offset inflationary pressures. We're also leaning into the better few areas of our portfolio with Bloom Pop prebiotic CSDs expanding rapidly off a small base and our zero sugar CSD offerings growing at a double-digit rate in Q1.

Beyond CSDs, we continue to build our presence in emerging growth areas. In energy, we once again expanded market share during the first quarter, led by Bloom and GHOST, which were 2 of the top 3 fastest-growing major trademarks in the category. Our performance reflected strong innovation, incremental distribution wins and high-quality DSD execution. We believe our portfolio approach to the category remains a clear advantage, and continue to see meaningful growth potential across C4, GHOST, Bloom and Black Rifle.

Our sports hydration partnership with Electrolit is also delivering healthy results, with the brand gaining significant share in Q1 through distribution expansion and strong velocities. Overall, U.S. Refreshment Beverages continues to represent an outsized growth driver for KDP, and we expect this segment to remain a key contributor in 2026.

Turning now to U.S. Coffee. While both net sales and operating income declined, the quarter largely played out as we expected, and we have conviction in both the category and our business. I'd highlight a few key points.

First, the coffee category is healthy, with continued growth and manageable elasticities. The Keurig compatible subsegment grew retail sales at a nearly 4% rate, with our owned and licensed brands keeping pace. Our licensed Lavazza brand was a standout performer, growing K-Cup sales more than 50% in the quarter through brand strength, successful innovation and increased distribution breadth and quality.

Second, as expected, our reported results were impacted by some meaningful but temporary headwinds. Peak year-over-year cost pressures constrained Q1 segment profitability, reflecting the timing of higher cost green coffee hedges and tariffs. And as previewed last quarter, trade inventory adjustments pressured pod shipments, which declined 7% and lagged point-of-sale trends, weighing on operating income. Importantly, these headwinds should ease slightly in Q2 and moderate more meaningfully in the back half, providing visibility to improve top and bottom line trends over the balance of the year.

Third, despite the near-term profit pressure, we're thoughtfully investing in the long-term growth initiatives. Let me provide a few examples. We're enhancing our premium owned and licensed segment through the well-supported Keurig coffee collective innovation launch, which is off to an encouraging start with strong retailer enthusiasm and early consumer trial.

We are continuing to execute our coffee partnership strategy as evidenced by the recent renewal and expansion of our K-Cup agreement with Nestlé USA. This agreement deepens and extends a highly successful relationship, and will enable us to expand distribution and innovation for the Starbucks brand in the Keurig ecosystem.

And we continue to prepare the Keurig Alta system for its initial targeted direct-to-consumer launch planned for later this year. This disruptive next-generation coffee system will feature our Keurig brand, the newly acquired premium Peet's Coffee brand and over time, the likely participation of partner brands as well. Putting it all together, combining constructive category trends with our investments to support long-term growth initiatives, we remain confident in the prospects for our Coffee business.

In International, Q1 net sales grew at a high single-digit rate, driven by net price realization. While volume/mix declined modestly due to some short-term impacts related to the Mexico beverage tax, we're encouraged by the resilience of underlying consumer demand and our share trends across key categories. Despite the top line strength, operating income declined, reflecting cost pressures and higher investment spending in a seasonally smaller profit quarter. Looking ahead, we expect profitability trends to improve as inflationary pressures ease, volume/mix strengthens and we execute our commercial plans for the year, including summertime activations to drive engagement and celebrate soccer fandom.

Overall, we continue to expect our International segment will remain a meaningful growth contributor over time, given our strong local share positions in attractive categories as well as portfolio and distribution expansion opportunities in both Canada and Mexico. We will also be disciplined and opportunistic in targeting other geographies. For example, we recently evolved our Suntory partnership in Europe to a more collaborative concentrate supply model that will provide access to incremental consumers through a capital-light, low-risk model.

To close, we're starting the year on solid footing. We completed the JDE Peet's acquisition. We're making steady progress advancing our transformation agenda, and we remain on track to achieve our full year outlook. As we look ahead to the rest of the year, we're focused on sustaining base business momentum, integrating JDE Peet's with excellence and laying the groundwork for 2 strong standalone companies.

With that, I'll turn the call over to Anthony to discuss the financials in more detail.

Thanks, Tim, and good morning, everyone. We delivered solid first quarter results that were modestly ahead of our expectations, reflecting strong momentum, particularly in cold beverages. Net sales increased 8.1% in the quarter, led by strong gains in U.S. Refreshment Beverages and International, partly offset by a decline in U.S. Coffee, as expected. Net price realization was the primary top line driver, contributing 5.5 percentage points to growth, while volume mix added 2.6 points.

Gross margin contracted 220 basis points as elevated cost pressures were only partly offset by net price realization and productivity savings. We expect Q1 to represent the most significant year-over-year gross margin decline for our legacy KDP business, with trends improving as inflation and tariff impacts ease, particularly in the back half. SG&A was flat as a percent of sales, with transportation and warehousing efficiencies offsetting increased marketing spending across all 3 segments to support our key brand equities and compelling innovation slate. All in, Q1 operating income declined 1.9%. Including the below-the-line impact of lapping last year's $0.02 gain on the sale of our Vita Coco state, EPS decreased 7.1% to $0.39.

Moving on to our segments. U.S. Refreshment Beverages net sales grew 11.9%, with volume/mix contributing 7.2 points. Net price realization added another 4.7 points, reflecting inflation-driven price increases taken early in the year. On the bottom line, segment operating income was strong, increasing 9.8%, with net sales growth and productivity savings more than offsetting inflation and a higher marketing spending. Overall, U.S. Refreshment Beverages has strong momentum, led by healthy trends in carbonated soft drinks, energy and sports hydration. We have robust innovation and commercial plans in place for the balance of 2026, and expect another strong year for this segment.

In U.S. Coffee, our Q1 performance was largely as anticipated. Net sales declined 2.3%, with volume mix driving an 8.2 percentage point decline. Odd shipments declined 7%, reflecting trade inventory adjustments along with manageable price elasticities. Brewer shipments also declined at a high single-digit rate, primarily driven by elasticity. Net price realization added 5.9 points to net sales, driven primarily by carryover pricing in both pods and brewers.

Turning to profit. Segment operating income declined 21.3%. This was primarily driven by meaningful cost pressures as higher green coffee costs and tariffs flow through our results in the quarter. Profitability was also impacted by the pod shipment decline and increased marketing spending. Collectively, these factors more than offset benefits from net price realization and productivity savings. Ultimately, our U.S. Coffee segment is tracking with our plans. While we continue to expect subdued profit for the full year, we have visibility to progressive improvement, particularly in the second half when our costs improve and short-term trade inventory dynamics normalize.

In our International segment, constant currency net sales increased 8.5%. Net price realization contributed 9.2 percentage points, driven by pricing actions taken in response to cost pressures in both Mexico and Canada. Volume/mix provided a partial offset, declining 0.7 percentage points. International segment operating income declined 15.1% on a constant currency basis, primarily due to cost pressures, including the Mexico beverage tax and increased marketing spending. As we previewed last quarter, we planned for a softer start to the year in this segment, and we continue to expect profit trends to improve as 2026 progresses.

Turning to the balance sheet and cash flow. During the first quarter, we closed the financing for the JDE Peet's acquisition with an optimized structure comprised of a $4.5 billion beverage company convertible preferred equity investment, a $4 billion coffee company pod manufacturing JV minority investment, approximately $6 billion in newly issued long-term senior debt and an additional term loan borrowings. Based on this financing mix, we continue to expect net leverage of approximately 4.5x at midyear. We remain committed to investment-grade ratings for KDP and our 2 future companies and will prioritize debt paydown in the near term. Our plan is for free cash flow generation to serve as the primary deleveraging source, though we will also continue to assess noncore asset divestitures.

We generated $184 million of free cash flow in the first quarter and continue to expect legacy KDP will generate approximately $2 billion for the full year. Incorporating the net cash flow contribution from JDE Peet's this year, including the impact of incremental financing costs and onetime deal and transformation-related expenses, we expect approximately $2.5 billion of aggregate company free cash flow in 2026. Cash generation should increase beyond this year, enabling us to further optimize Beverage Co. and Global Coffee Co's. capital structures and over time, providing optionality for value-enhancing capital allocation.

Let me now turn to guidance. We are reaffirming our 2026 outlook, which uses current FX rates and includes the anticipated contribution from JDE Peet's as of the April 1 deal close date. We plan to report JDE Peet's as a separate segment until separation.

For the total company, we expect net sales in a range of $25.9 billion to $26.4 billion, reflecting 4% to 6% constant currency growth for legacy KDP and an $8.5 billion to $8.7 billion contribution from JDE Peet's. On the bottom line, we expect low double-digit EPS growth in constant currency, which includes an anticipated 6 to 7 percentage points contribution from the JDE Peet's acquisition and 4% to 6% growth for legacy KDP. Based on current rates, we anticipate that FX will represent an approximately 1 percentage point tailwind to total company net sales and EPS growth for the full year.

Below the line, we are assuming the following: interest expense of approximately $1.13 billion to $1.16 billion; an effective tax rate of approximately 22%; and approximately 1.37 billion diluted weighted average shares outstanding. As a reminder, beginning with the second quarter, our P&L will also have 2 new impacts to reflect the pod manufacturing JV and the convertible preferred security.

For the balance of 2026, we expect the following: approximately $190 million in pretax coffee JV costs, which will flow through the noncontrolling interest line, and convertible preferred costs that will flow through below net income to KDP and will be calculated each quarter as the greater of the roughly $53 million quarterly preferred dividend or the securities approximately 8% proportionate share of earnings. For 2026, we expect the calculation to default to the proportionate share of earnings. From a phasing perspective, we expect high single-digit EPS growth in Q2, with further acceleration in the back half as costs improve and synergies built.

In closing, we delivered solid Q1 results. Our teams executed well in a highly dynamic environment and made important progress preparing the company for its next chapter. We remain on track to deliver our full year commitments, while also building the foundation for our 2 future stand-alone public companies.

With that, I will turn the call back to Tim for closing remarks.

Thanks, Anthony. Overall, we're pleased with our start to the year. With clear priorities and well-crafted plans, we're striking a healthy balance between near-term fundamental delivery and our longer-term transformation initiatives. We will remain focused on disciplined execution to achieve our 2026 commitments and capitalize on the value creation opportunity we see ahead.

With that, we're now happy to take your questions.

[Operator Instructions] The first question today comes from Dara Mohsenian with Morgan Stanley.

So first, on U.S. Refreshment, clearly, strong sales growth on an underlying basis even adjusting for incremental gross distribution, et cetera. Can you just give us a bit more detail under the hood on what's driving the momentum in a segment and brand level and how sustainable you think those growth drivers are going forward? And any thoughts on the impact from SNAP changes so far?

And then if I can just slip one in on Coffee. There's obviously a lot of dynamic factors impacting profitability at this point. You have the higher commodity pressure, particularly with the hedgings and the inventory timing. But at the same time, obviously, green coffee prices have come off, the tariff situations improve. So just -- can you give us an update, on a quarterly basis going forward, how you see profitability in that segment playing out given those factors? And also how pricing ties into the cost dynamics, both in terms of what you're seeing in the marketplace and your own potential actions?

Yes. I'll tackle the first 2, and I'll take it over to Anthony to talk about coffee profitability. Look, on U.S. Refreshment Beverage, we're very pleased with our start to the year. You saw the print, double-digit growth both on the top line and the bottom line. And in terms of your question on sustainability, we expect this segment will continue to deliver strong results in the balance of the year, both top and bottom.

As you think about the top line, we've got a great innovation slate lined up. You've already seen the impact on our second largest CSD brand, Canada Dry, with the Fruit Splash innovation and news there, that drove share gains. Literally in the last days a week, we've launched Dr Pepper Creamy Coconut. We expect that to be a big hit this year, capitalizing on dirty sodas.

Feel very good about our DSD route to market execution and the ability to continue to drive distribution gains for key brands, both owned brands that are showing strong growth continued momentum like our zero sugar lineup and a lot of partner brands, think energy, rapid hydration, prebiotic CSDs.

Last thing I'd say on the top line driver is stepped up brand support. We are planning to increase marketing this year. We did it in the first quarter. You'll see it on a full year basis, and really dialing up our precision marketing capabilities and our digital agenda.

Having said that, I will say net sales will likely moderate relative to the Q1 elevated levels. The quarter, as you mentioned, Dara, did benefit from some incremental GHOST distribution year-over-year on a comparison basis and some outsized growth in some partner brands. Having said that, top line growth will remain strong for the remainder of the year, healthy volume trends, positive net price realization and U.S. Ref Bev will be an outsized contributor relative to our MSD net sales growth guide for legacy KDP, and I expect this top line growth momentum will also translate into continued operating income as well.

You then referenced SNAP. I would tell you this, we're seeing healthy trends across our categories. Even with the pricing actions to offset inflation, the volume we're seeing in CSCs at a category level and broader LRB have been positive this year. And I think this underscores the value that our categories provide to our consumers and what we're doing around affordable pack sizes and some of the work on price pack architecture and RGM. The innovation is still ringing true to consumers and providing continued appeal.

So the SNAP impacts to date have been manageable and largely consistent with our expectations and our plans. We know and we monitor closely state-by-state, how these waivers roll out, and you'll expect us to continue to monitor that and adjust in our RGM capabilities to ensure that we deliver on our guide.

On the Coffee phasing question, let me start by saying on a full year basis for 2026, we do expect a modest year-over-year profit decline for U.S. Coffee with the cost pressures continuing to exceed pricing and productivity, particularly in the first half, and you saw it in our first quarter. Our results will also reflect our decision to prioritize investment spending as we set up the business for separation despite the inflationary backdrop.

From a phasing perspective, we would expect the Q1 decline will be the most significant for the year as the inflation cost pressures peaked on a year-over-year basis, and you're seeing the green coffee cost inflation come through the P&L. And as we've talked about in the past, it does lag market prices by about 6 to 9 months, given our hedging programs and our inventory cycle.

I would also say in the first quarter, a little bit of extra drag, top and bottom line from some adjustments and reductions in trade inventory levels, particularly in pod. And also, as I said, our higher marketing spend behind initiatives like Keurig Coffee Collective and the Keurig Anthem campaign.

This pressure should begin to moderate a bit in Q2, but the larger improvement will be in the back half. Cost inflation will meaningfully ease in the second half and our innovation and commercial [ programming ] will begin to kick in and we should see some top line improvement. And I would end by saying, look, based on current coffee prices, this could be a tailwind for us going into 2027.

The next question comes from Chris Carey with Wells Fargo.

So I wanted to follow up on this line of thinking. Just [ 2 ]. Number one, you stress test confidence a bit more. I look at consensus estimates for coffee margins specifically and see roughly 1,000 basis points of margin improvement into the back half of the year. Certainly, you're not talking about guiding to segment margins, but there's clearly some nice improvement in margins if you're going to see modest profit declines in the full year. There's also roughly high teens or 20% earnings growth in the back half if you're delivering high single digits in Q2.

So I just wanted to maybe dig in a bit deeper on the cost front. How much visibility do you have in your coffee costs at this point of the year, I assume, high? And secondly, how much visibility do you have that your stronger consumption trends in coffee will be reflected in stronger shipment trends so as to avoid some of the volume mix deleverage into the back half of the year?

And just one quick follow-up as well on U.S. Refreshment. From the Creamy Coconut launch, are you expecting any uplift into Q2? Because I would imagine that would offset some of the drop-off in GHOST.

Okay. Let me start broadly with -- talking about U.S. Coffee and how we're seeing the various puts and takes on the year. And then, Anthony, maybe you can talk more specifically on green coffee cost and how we're seeing that flow through the P&L on a quarterly basis.

I think -- our focus in 2026 in U.S. Coffee is to navigate these near-term headwinds while really positioning our business for long-term success. So as we anticipated and as we shared at the guide at the beginning of the year, the first half of the year features headwinds from real peaking cost pressures and some trade inventory adjustments. And so you've seen that flow through, impacting both our top and our bottom line performance in the first quarter, but this is tracking right on to our expectations.

Anthony mentioned this a minute ago, we're also deliberately stepping up our investment behind long-term growth initiatives even as we manage through these higher cost peak inflationary environment in Q1 from a P&L standpoint. So we've meaningfully increased our Q1 marketing. Anthony said it earlier, on both pods and brewers and against our fairly robust active innovation slate on both the pod and the brewer side, Keurig coffee collective new brewers and then preparing for Alta.

All of this gives us good line of sight to an improving top and bottom line trend as the year progresses. Net sales will improve as our innovation, our marketing, our commercial investment will build through the quarters, and operating income will also benefit from the improving coffee cost envelope, particularly starting in the second half.

Anthony, do you want to talk a little more on coffee cost, green...

Sure. Let me step back a bit. We are guiding -- and we have a high degree of confidence to our low double-digit EPS guide. And as Tim mentioned, that's going to accelerate as we go through the year here for a number of reasons. The most significant one would be green coffee cost, and we have very good visibility to how this will flow through balance of the year, given our current hedging program as well as our inventory cycle. I would add to that, we are mostly hedged on other commodities, including those that have been impacted by the recent conflicts in the Middle East.

We are also bringing on board, obviously, JDE Peet's. And JDE Peet's profile will follow a one that's similar to our U.S. Coffee segment, right? As coffee prices improve, their quarterly performance will improve as well. And also, again, we have good visibility to that. Now as they bring JDE Peet's into the fold, we will build synergies throughout the year, and that will obviously have a building impact on our performance as we go through the quarters. So sitting here today, good visibility to the rest of the quarters and -- which gives us a high level of confidence in our guide.

Yes. And then, Chris, your last question back on Dr Pepper and Creamy Coconut. As you think about Q1 on Dr Pepper, it did reflect a bit of innovation timing shift. So Blackberry a year ago launched early in the year, and we lapped that. So we saw a little bit of pressure there. But as I mentioned in my prepared remarks, our 3 core Dr Pepper lines, regular, zero, and diet Dr Pepper collectively grew share. So overall, I feel great about Pepper momentum, now layer in Creamy Coconut. And we've got a lot of confidence. Creamy Coconut is going to be a big success this year. Already in the first few weeks, we've seen a ton on social and in-store activity. There's a lot of excitement building as we roll into summer on Creamy Coconut, and I do think that will be an important contributor year to go for brand Dr Pepper.

On top of that, I would tell you, we still have -- we're going after some unique occasions and consumers. There's still distribution gaps we can close. Dr Pepper Zero Sugar continues to grow at a double-digit rate and has upside. And we're layering on our enhanced precision and personalized marketing capabilities. So Dr Pepper will be a great growth standout. We expect another year of share growth and a meaningful contributor to outsized growth in U.S. Refreshment Beverage.

The next question comes from Michael Lavery with Piper Sandler.

You touched on each of the segments and just unpacked how some of the year unfolds. Helpful color. But could you walk us through the JDE Peet's piece of that and just considerations on what's left for the rest of the year and how to think about just moving parts and what's going on there?

Sure. Let me start by saying, overall, we closed the deal April 1. And I think, overall, I'd tell you, what we've learned in the last few weeks confirms everything we saw in our planning process and the deal close period. This is a business that has a healthy foundation, strong brands, strong capabilities and a talented team.

I'm seeing already the energy and the opportunity behind both their, what they called reignite the amazing strategy, which is in its early stages but has lots of runway, and now the combination benefits of combining legacy Keurig Green Mountain with JDE Peet's. We've announced and we can confirm confidence in the $400 million in synergies as well as some incremental revenue opportunities, in particular here in North America between the Peet's brands and the Keurig brands. So feel very good broadly about what we've seen since the close.

In terms of performance of the business, obviously, we just took ownership of the business, so I'll speak at a high level on what we've seen year-to-date. I would say the trends are consistent with our expectations. Even back to when we announced the deal, obviously, back in '25, they delivered a solid year, managing through the very unfavorable see price inflation. And we are on track for another good year here in 2026.

I would say the phasing of the results will be influenced by commodity cost timing just like we're seeing in the KDP Coffee business. And the profit will be more constrained in this inflationary first half. We saw that in Q1. We expect that to continue into Q2. But at the same time, we have good visibility to accelerating trends in the second half as green coffee becomes more favorable.

The next question comes from Andrea Teixeira with JPMorgan.

I was hoping to see if you can talk about like as the green cost prices improve, are you planning to roll back some of the pricing you had for [ coffee ] parts to just reignite volumes and improve operating leverage?

And just as a clarification, as we decompose U.S. Refreshment Beverages volume mix, in particular because of cost, can you comment on how it behaves on a more organic basis?

Sure. I'll start on the coffee pricing question. So in coffee, our pricing in 2026 that you're seeing in the sales bridge is primarily the carryover from 2025 actions that we took to offset inflation. And as we talked about the inflation, it's persisting in the first and second quarter of this year as we see it come through the P&L. And as we move into the second half, that the current coffee price pullback should ease pressure on our P&L. So we should see a moderating impact of year-over-year pricing as that happens and that moderation come through in the second half, and we lapped some of those prior year increases.

Beyond that, it's probably not appropriate for us to speculate on future pricing actions. We'll certainly continue to monitor the inflationary environment. We keep an eye on the elasticities. We are mindful of any price gaps and certainly prioritize providing value to our consumers as we consider these longer-term pricing actions.

Good. And then Andrea, you asked a question related to GHOST, and I think I mentioned that in response to Dara's question. Q1 did benefit from some incremental year-over-year GHOST distribution benefits. And if I had to dimensionalize that, that's worth a couple of points in terms of that onetime impact as we lap that a couple of points to the US RB growth performance.

Now we've cycled that kind of onetime benefit. And now we're just in core KDP DSD growth, which we expect will continue to be outsized, right? There's still distribution growth opportunities feature and display, cold cooler presence as well as a robust innovation slate for GHOST. So GHOST will continue to be an outsized growth driver, but Q1, in particular, benefited from a couple of months of outsized performance.

The next question comes from Peter Galbo with Bank of America.

Anthony, I wanted to go back to a comment that you made around kind of being hedged on input costs that may be tied to the Middle East, at least for the remainder of this year. I think maybe it would just be helpful to sensitize or help us sensitize some of the exposures to things like aluminum and PET, if we do get a prolonged kind of rally here in resins and aluminum costs that lasts into '27. So just any additional color you can help us with there as we start to contemplate maybe what the margin implication could be going forward?

Sure, sure. Look, as with many CPG companies, we have both direct and indirect exposure to commodities that have been impacted by the Middle East conflict. And this includes a number of inputs tied to the packaging and energy areas such as aluminum, resins, diesel, that's in our DSD network, freight costs. And I would say that no single one of those inputs has an outsized impact on our cost structure, but they're all important. And as we've seen the recent inflationary moves, we have a very systematic and comprehensive hedging program, and those hedges and forward cover are in place to help insulate us in the near term from that volatility.

For 2026, we are largely hedged and wouldn't expect to see the recent movement impact our P&L in 2026. But I would say, to the extent those higher prices sustain, we would develop mitigating action plans that we would execute longer term to protect our margins.

The next question comes from Robert Moskow with TD Cowen.

You may have mentioned it before, but you said in your prepared remarks that after the split, you'll have optionality for value-enhancing capital actions. I want to know if you could give any more color on what those actions might entail? And would they have anything to do with the convertible you have and the minority investments?

Yes. I'll take that. And I did make that comment as it relates BevCo. I think specifically, obviously, both companies on the other side of this separation will have the independent optionality to make the best choices for their business and their shareholders.

As I think about BevCo, let me start by saying that I love this portfolio, the leadership positions we have across the LRB categories, the advantaged capabilities that we've built and really this very entrepreneurial challenger culture that runs through our company. And I'm confident that with these set of characteristics and advantages, we can deliver consistent top-tier results and we can create a lot of value.

As an independent company, we -- I do believe we'll have some additional strategic optionality that perhaps was less actionable under a combined KDP umbrella. And what could those look like? I mean one is around route to market. I'm a big believer in the power of DSD. It's a source of competitive advantage. And I do think today, it is optimal for us to own DSD in most markets. We take a very local decision case by case and we let the scale and the economics and what's best for our brands dictate that ultimate route to market. But as a stand-alone, BevCo will be incentivized to continue to test the optimal model as it relates route to market. And I think as a stand-alone company, we've got that optionality.

The other area is just around portfolio and continuing to future-proof this portfolio, ensure this portfolio is structurally advantaged, pursuing white space expansion has always been a priority for KDP. And I think BevCo will be even more agile and even more proactive in this area. We can consider earlier-stage partnerships, new geographies, more creative structures. So overall, we've got a lot of conviction in the future of BevCo and our ability to drive healthy top and bottom line growth in our current portfolio and with enhanced optionality.

Next question comes from Kaumil Gajrawala with Jefferies.

I guess one quick just clarification on the guidance for Q2. Is that total company guidance? Or is it, I guess, legacy KDP?

And then sort of drafting off of Robert's question on the portfolio. Maybe just to add to that, what Anthony had mentioned on the potential sale of noncore assets, what types of things would that be? And is the intention just to maybe have a tighter portfolio there? And -- or is it more in the spirit of bringing down leverage?

Yes, in answer to your first question, the high single digit is total company outlook for the second quarter.

In terms of your other question, just stepping back a little bit, we are very focused on committed to investment-grade ratings, not only for KDP, but for the 2 future companies. And our ability to deleverage is primarily driven by our ability to generate significant free cash flow. And you heard it in our prepared remarks, we are expecting $2.5 billion of free cash flow, which includes 9 months of JDE Peet's and all the related costs of the debt financing.

We also said that free cash flow obviously will support our dividend and enable us to deleverage by about [ a half a turn ] per year. And that will get us to our stated leverage target that separation, which is 3.5 to 4x for BevCo, [ 3.75 to 4.25 ] for Global Coffee Co., but we also said we'll look for additional opportunities to accelerate deleveraging. Not appropriate to getting any specific details, but there are a number of things that we're looking at across non-core assets and minority investments to help us along.

The last question today comes from Filippo Falorni with Citi.

I wanted to ask on your energy drink portfolio. We continue to see very solid growth for both GHOST and Bloom in track channel data. Can you comment a bit on the shelf space gains that you're realizing in the spring resets? Like how much room do you see in terms of further distribution for both brands? And then on the other side, C4 has been a little bit softer. Do you see any cannibalization from GHOST? Or what are the plans to reaccelerate that brand?

Sure. Thanks, Filippo. You've heard me say this many times, big believer in energy as a category. It's 29 billion. It's growing mid-teens. And there are structural growth drivers in place that suggests this is a category that continues to have a long runway for growth. I think there's distribution expansion, particularly when you think about channels outside of C-store. There's household penetration upside. There's occasions to go after. There's cohorts, obviously, female forward brands are experiencing tremendous growth right now, and we have one of those in our portfolio in Bloom. So it's a great category, strong growth, and we see continued runway.

We like the approach we've taken. We've taken a portfolio approach. We have 4 brands of scale that we go to market with. GHOST, a great lifestyle brand; C4 in performance; Bloom, female forward; and Black Rifle in mainstream, and feel good about that position. And you saw continued market share growth here in the first quarter, and we expect that to continue on the year. Our portfolio is well over $1 billion now, and we see continued upside.

As it relates to your other 2 kind of sub-questions on -- one on shelf space and one on C4. On shelf space, we had a successful sell-in cycle for our energy portfolio this year. And we are beginning to see and would expect on the year meaningful distribution gains, incremental PDPs or total distribution points, including in the critical convenience retail channel expanded space as well in kind of up and down the street. And you're seeing that particularly with GHOST and with Bloom.

On C4, we feel great about our partnership with Nutrabolt, and what we're building together on C4, we've created a lot of value for both parties. Since we first took distribution back in 2023, C4 has more than doubled its retail sales, added more than 1 point of market share. And as it relates near in performance, it is fair to say we made some decisions together with our Nutrabolt partners to rationalize some elements of the portfolio. So there was a smart subline that we're no longer distributing through DSP, and the ultimate line has been repositioned for even stronger performance, and that's in the high stimulation 300 mg type of caffeine segment. So when you adjust for those factors, we feel good about the underlying trends and kind of the core yellow can performance line, excited about the innovation that we're bringing to market with our Nutrabolt partners and confident in C4's long runway ahead to drive brand momentum.

This concludes our question-and-answer session. I would like to turn the conference back over to Chethan Mallela for any closing remarks.

Thanks, Betsy, and thanks, everyone, for joining us today and for your interest in KDP. The IR team is available if you have any follow-ups. Thanks so much, and have a great day.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Good morning, ladies and gentlemen and thank you for standing by. Welcome Keurig Dr Pepper's earnings call for the fourth quarter of 2025. This conference call is being recorded. [Operator Instructions] I would now like to introduce [indiscernible], Senior Director of Investor Relations at Keurig Dr Pepper. Mr. Mallela, please go ahead.

Thank you, and hello, everyone. Earlier this morning, we issued a press release detailing our fourth quarter and full year results, which we will discuss during this conference call and in the accompanying slide presentation that can be tracked in real time on the live webcast.

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 today. For more information, please refer to our release and the risk factors discussed in our most recent Form 10-K, 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 to the most directly comparable GAAP metrics are included in our earnings materials.

Here with us today to discuss our results are Keurig Dr Pepper's Chief Executive Officer, Tim Cofer; Chief Financial Officer, Anthony DiSilvestro, and SVP of Strategic Finance and Capital Markets, Jane Gelfand. I'll now turn it over to Tim.

Thanks, Stefan, and good morning, everyone.

2025 was a strong year for KDP. We delivered healthy results that achieved our annual guidance. We drove winning innovation and commercial performance generating the fastest U.S. retail sales growth among top food and beverage manufacturers with market share gains across our portfolio. And we laid the groundwork for KDP's transformational next chapter through the announced acquisition of JDE Peet's and planned separation into two leading pure-play companies Beverage Co and Global Coffee Co. Said differently, we navigated a dynamic operating environment with agility while strengthening our foundation for the long term.

And the same can be said for JDE Peet's, which earlier this morning issued 2025 results that demonstrated solid financial performance and strong progress, advancing its refreshed strategy. In 2026, we will build upon our momentum with a focus on three objectives that should translate to shareholder value creation.

First, delivering our low double-digit full year EPS growth guidance in a high-quality way. Second, closing and seamlessly integrating JDE Peet's and ultimately, third, establishing two advantaged stand-alone businesses positioned for success.

At our recent Investor Day, we outlined our milestone-based approach to executing our transformation work streams. Let me share updates on a few of these milestones. Starting with the JDE Peet's acquisition, we have secured key regulatory approvals and launched the tender offer, positioning us to close the acquisition in early April. We've already made significant progress on integration planning including multiple active work streams spearheaded by leaders from both companies and capable advisers with deep and relevant experience.

Our teams are collaborating well to establish joint ways of working and a unified operating philosophy, all while exhibiting strategic alignment, shared purpose and a palpable excitement to build a global coffee leader. At the same time, we're taking steps to ensure operational readiness to separate by the end of 2026. We're ready to implement a combined KDP operating structure for the interim period between deal close and separation, which will facilitate near-term performance while supporting a steady transition towards our future state as stand-alones.

We're also advancing work streams to deliver against key separation milestones, including capturing initial deal-related synergies, appointing independent leadership teams and Boards and establishing appropriate capital structures for the two pure-play companies. Our precise separation timing will depend on a number of considerations, including market conditions, but we are progressing well against all elements within our control.

Turning to our results. We are pleased with our 2025 enterprise performance. Net sales increased almost 9% and driven by approximately 5 points of growth from our base business and a nearly 4-point GHOST contribution, and EPS grew 7%. On a segment basis, U.S. Refreshment Beverages was the standout performer, delivering double-digit net sales growth and high single-digit operating income growth. International was resilient in the face of dynamic macro trends growing on both a top and bottom line basis. And as expected, U.S. coffee trends were softer in aggregate but demonstrated underlying progress.

KDP's 2025 included multiple noteworthy commercial achievements. To name just a few, we gained market share in Dr Pepper for the ninth consecutive year, driven by the category-leading Dr. Pepper Blackberry innovation, our college football Fansville activation as well as the brand's continued broad consumer resonance which was most recently demonstrated by the viral jingle, "Dr Pepper Baby, it's good and nice", that lit up social media and became a cultural moment. Our agile marketing team quickly incorporated this user-generated creativity into a college football national championship ad spot and Dr Pepper strengthened its position as the most engaged CSD brand on TikTok.

We seamlessly integrated GHOST and successfully transitioned it to our DSD network, accelerating the brand's market share as we expanded distribution and display while maintaining high on-shelf productivity. We elevated our agile, digitally led approach to marketing, leveraging data and technology to enable more powerful real-time insights, more precise segmentation and more effective marketing content across consumer and shopper media as evident in emerging proof points that I will discuss shortly. And we significantly progressed the development of our disruptive Keurig Alta next-generation coffee platform, completing a series of successful beta tests and building critical capabilities to support a targeted late 2026 launch.

Collectively, these highlights not only mark substantial achievements for 2025, but also provide benefits that will carry forward into future years.

Moving now to our Q4 results. Net sales grew 10% and led by mid-single-digit net price realization, including positive contributions from each segment. Volume mix grew against a difficult comparison, driven by an incremental contribution from GHOST and modest base business growth. As we anticipated, profit flow-through in the quarter was limited by cost pressures and higher reinvestment spending. These factors, along with modest below-the-line headwinds, more than offset strong productivity savings and continued overhead discipline. As a result, Q4 EPS grew 2%.

Diving into the segments, U.S. Refreshment Beverages demonstrated continued top and bottom line momentum in the quarter. Net sales grew at a low double-digit rate through both volume mix and net price realization and operating income increased at a high single-digit rate. We drove these results with a combination of healthy core portfolio trends and contributions from emerging growth areas. Starting with our core, the carbonated soft drink category remained strong, despite the uneven consumer environment as innovation, brand activity and an attractive value proposition resonated.

Our portfolio performed well within the category, driven by several factors. We had winning innovations, not just for brand actor Pepper, but also through offerings like 7UPs, Seasonal Shirley Temple LTO and Bloom Pop in the prebiotic CSD space. We leveraged our newly enhanced precision marketing capabilities to apply personalization at scale for our largest campaign, Fansville, generating more than 3,000 unique creative units driving optimized consumer conversion paths and attracting new brand buyers for the Dr Pepper franchise at a high ROI.

And we managed a well-executed transition of Dr. Pepper to our DSD network in parts of California, Nevada and the Midwest quickly and effectively putting resources in place to ensure high-quality service and continuity. Customer feedback and support has been positive. The near-term financial performance is tracking to our plans, and we will continue to unlock additional benefits from our enhanced scale in the future.

Beyond the core in Q4, we saw strong performances in some of our emerging growth areas. Our multi-branded energy platform of C4, GHOST, Bloom and Black Rifle once again outperformed the category with market share increasing nearly 1.5 points. We are seeing momentum across brands, supported by distribution gains, increased cold vault penetration and healthy velocities, and we remain on track to achieve our double-digit market share goal in the coming years.

Outside of energy, we drove continued robust growth for Electrolit, which was the sports hydration category's largest share gainer in Q4 and Vita Coco, the established leader in coconut water that nonetheless grew retail sales in excess of 20%. Emerging categories and brands already contribute meaningfully to our U.S. Refreshment Beverages growth, and we expect them to play an even larger role as they scale. We also intend to deploy our flexible build, buy, partner model to expand into additional white space areas over time, including through capital-light structures, and this should further enhance our portfolio's growth potential.

Moving now to U.S. Coffee. While Q4 was a softer quarter, let me contextualize our performance with three observations. First, segment revenue increased 4%, reflecting solid category and market share trends. Second, we are managing through cyclical cost pressures which is having a temporary but meaningful impact on profitability. And third, despite the cost backdrop, we are investing to position our business for long-term success. I'll unpack each of these in turn.

First, coffee category trends remain resilient despite some challenges, with secured compatible pod category growing retail dollars at a mid-single-digit rate in Q4. While category growth admittedly remains pricing-led, elasticities have been manageable and consumers remain engaged, both of which bode well for volumes once cost pressures normalize. Within the category, both owned and licensed brands and Keurig manufactured pods gained share in Q4, contributing to U.S. Coffee's solid top line results.

However, our top line growth did not translate to Q4 operating income, which declined at a high single-digit rate. This brings me to the second point, cost pressure. Our intention to offset inflation over the commodity cycle is unchanged, but there are always periods when the timing of costs and implemented mitigations do not align. As expected, we saw this play out in Q4 when significant cost pressure flowed through our P&L without a proportionate offset, weighing on profitability. As Anthony will discuss, we anticipate this temporary imbalance to persist in the first half of 2026 before easing over the course of the year.

Moving to my third point. We recognize our current pricing-driven growth in coffee is more cyclical in nature and we are actively investing to position our business for sustainable long-term volume and mix growth. Importantly, we have chosen to protect these investments even as we navigate an inflationary period, which is creating some additional near-term profit pressure, but should pay future dividends.

Let me discuss a couple of our Q4 investment areas in more detail. During the quarter, we applied our enhanced marketing capabilities to launch a new Keurig brand equity campaign, the first such activation in multiple years. This data-driven Anthem campaign showcases the benefits of brewing coffee with the Keurig system and was delivered to consumers through targeted storytelling across thousands of ad permutations, informed by their coffee purchase history and our rich insight into demand spaces.

The campaign exceeded our targets on key KPIs like brand attention and return on ad spend and produced halo benefits that we are beginning to see across our entire coffee business. We intend to extend this marketing approach as we step up our brand building investment in 2026. We also advanced preparations for the upcoming launch of our next-generation Keurig Alta platform, including the development of our final brewer model and building out multiyear commercialization and go-to-market plans.

Consumer testing has validated that this system delivers a great tasting, superior experience across an unmatched variety of coffee and espresso-based beverages. We see significant long-term potential for this platform and have and will continue to invest ahead of scale to capture this opportunity.

So to summarize the key themes we saw for U.S. Coffee in Q4, resilient pod category and KDP top line trends, elevated cost inflation and continued investment to support long-term initiatives. While the same factors are also likely to translate into subdued financial results in 2026, particularly early in the year when cost headwinds peak and we manage through some retailer inventory adjustments, we have built our plans accordingly, while pursuing the right actions to secure healthy longer-term performance.

Turning now to international. We delivered a very strong quarter, with mid-teens constant currency net sales growth and 20% operating income growth, which was partly aided by timing. Momentum was led by our business in Mexico, where our cold drinks continue to outperform as the economy began to find its footing after a challenging 2025. Strong brands and effective commercial execution, including ongoing DSD expansion, translated to share gains across the portfolio.

Penafiel Aids and Twist extensions and Dr Pepper, all grew nicely.

In Canada, performance was led by healthy coffee trends as our significant pricing actions in pods and traditional coffee have so far translated into only minimal volume elasticity. In 2026, we will continue to invest in this growth segment, including building capabilities that will help the business scale well beyond the current year. Though we'll need to navigate continued input cost inflation and new developments like an increased Mexico beverage tax early in the year. We remain focused on sustaining our relative strength in both Canada and Mexico.

At the enterprise level, we have bold innovation plans for 2026 to power our continued portfolio momentum. In Refreshment Beverages, our slate is anchored by meaningful activity in CSDs. We will welcome back a record setting, Dr Pepper Creamy Coconut LTOs, extend our successful Canada Dry Fruit Splash line into a second flavor strawberry, expand our presence in prebiotics with new Bloom Pop flavors and activate other key brands with seasonal LTOs.

In energy drinks, we are building off a very successful 2025 with exciting flavor innovation for C4, GHOST, Bloom and Black Rifle, while also extending GHOST's portfolio into 8.4 ounce small cans, opening up new channels and new occasions for the brand. In still beverages, we have big plans for some of our icons, including a Snapple brand refresh and a first-ever 0 sugar beverage offering from Mott's. And in our fast-growing sports hydration segment, we have new flavors for our Electrolit partner brand.

Moving to coffee. Our innovation suite spans our full portfolio. In brewers, along with the disruptive Keurig Alta system I mentioned earlier, we are launching a new version of our K Supreme, which will have additional features and a refreshed design and introducing K-Mini Make Plus, a new model in our miniline. In pods, our big bet for 2026 is the Keurig Coffee Collective, which marks the Keurig brand's first entry into coffee. This expertly crafted premium offering has been enthusiastically embraced by retailers and early consumer sell-through is encouraging.

We also have significant product activity for the original donut shop, including a water mill and breeze variety of our popular refreshers line and new innovation that extends the brand into Macha, a consumer-preferred high-growth white space. Finally, in ready-to-drink, we will build on our partnership momentum with La Colombe through the introduction of great tasting, seasonal draft latte flavors. We are partnering closely with retailers to help consumers find, engage with and experience this great set of new products, including through incremental shelf space and compelling programming.

In total, our innovation, in-store activations and marketing investments are not only important to supporting our 2026 results, but also ensuring our Refreshment Beverage and Coffee portfolios are healthy and well positioned heading into separation.

In closing, our 2025 performance was strong as we delivered on our commitments while laying the foundation for our exciting next chapter as two pure-play companies. We intend to continue executing on this vision in 2026, while reinforcing our base business momentum with three key objectives for the year, delivering on our low double-digit EPS growth plans, unlocking initial combination benefits as we integrate JDE Peet's and executing critical milestones as we drive towards a successful separation into Beverage Co and Global Coffee Co.

Now before turning the call to our new CFO, Anthony DiSilvestro, let me first formally introduce him. Anthony is a seasoned consumer sector executive with over 40 years of industry experience, including in areas relevant to KDP's current priorities, such as M&A integrations, cost saving programs, and balance sheet recapitalizations. He has hit the ground running in his first few months, quickly coming up to speed on our business and transformation work streams And we are already benefiting from his financial leadership and acumen. I'm looking forward to continuing to partner closely with him as we guide KDP through an exciting and pivotal time for our company.

With that, I'll pass it on to Anthony to walk through our financial performance and 2026 outlook before I return with closing thoughts.

Thanks, Tim, and good morning, everyone. It's a pleasure to be here with you today.

I was drawn to KDP by its iconic brand portfolio, a leadership team and strategy, I believe in, and what I see as a unique value creation opportunity. Over the past 3 months since I joined, my conviction in the company's direction, people and potential has only grown. I'm energized to partner with Tim and the entire executive team to position both KDP and the forthcoming separate companies for future success.

I'll now review our financial performance in more detail, beginning with the full year. We delivered healthy results consistent with our 2025 guidance. On a constant currency basis, we grew net sales 8.6%, operating income 4.9% and EPS 7.3%, all while navigating a challenging industry backdrop and beginning to execute our transformation agenda to shape KDP's next chapter.

Moving to the quarter. We finished the year with a solid Q4. Net sales increased 9.9%, with growth in all three segments, led by strong performances in U.S. Refreshment Beverages and International. Net price realization was a significant growth driver contributing 6 percentage points to the top line. Volume mix added 3.9 points, reflecting 3.6 points from the addition of GHOST as well as a modest increase on the base business. Gross margin contracted 150 basis points as elevated inflationary pressures were partly offset by net price realization and productivity savings.

On the other hand, SG&A improved 80 basis points as a percent of sales, primarily due to overhead efficiencies. All in, Q4 operating income grew 4.8% and incorporating headwinds from interest expense and a slightly higher tax rate, EPS increased 1.7% to $0.60.

Moving on to our segments. U.S. Refreshment Beverages delivered a strong performance growing net sales 11.5%. Volume mix contributed 7 points primarily driven by the addition of GHOST coupled with modest gains on the base business. Net pricing added 4.5 points led by CSD increases taken earlier in the year. Segment operating income increased 8.7% driven by double-digit net sales growth and productivity savings, partly offset by cost inflation, higher SG&A costs and the impact of lapping a C4 performance incentive in the prior year.

Looking ahead with continued momentum in both our core and quickly scaling growth platforms, we expect U.S. Refreshment Beverages to deliver another year of strong top and bottom line growth in 2026. However, it is worth noting that our innovation cadence differs slightly from last year. Most notably, our Dr Pepper Creamy Coconut LTO will launch in Q2, which compares to the Dr Pepper Blackberry line extension that launched in Q1 2025. This timing difference could impact Dr Pepper's market share comparisons early in the year, but we expect good full year performance.

In U.S. Coffee, net sales grew 3.9%. Net price realization added 8 percentage points with inflation-driven increases across both pods and brewers. Volume mix was a partial offset, declining 4.1 percentage points. Pod shipments were down a modest 2.8% demonstrating resiliency as pricing increased. Brewer shipments declined 16.8%, reflecting higher price elasticity and reductions in retail inventory levels similar to the last few quarters.

Segment operating income declined 8.8% as the impacts of cost inflation and the volume/mix decline were only partly offset by net price realization and productivity savings. The elevated inflation in the quarter reflects a meaningful lag before coffee market price changes and tariffs affect our cost of goods sold, given our hedging activity and the timeframe that inputs are held in inventory.

Looking ahead, we expect profit to remain under some pressure for U.S. Coffee in 2026, largely reflecting two factors: First, year-over-year cost headwinds, primarily due to increased coffee price and tariff impacts, which should be most pronounced in Q1 before easing over the course of the year, particularly in the back half. Second, we are also planning significant marketing and other investment spending in 2026 to support the growth initiatives Tim discussed earlier, such as the Keurig Coffee collective rollout and the launch of Keurig Alta. These planned investments, which are captured in our outlook, will help us to create a sustainable platform for stronger future segment performance.

In the International segment, healthy trends across regions and categories drove a 16% constant currency net sales increase. Growth was balanced with net price realization contributing 9.2 points and volume mix adding 6.8 points. Factoring in a favorable FX translation benefit, reported net sales increased 21%. Q4 segment operating income increased 20% driven by sales growth and productivity savings, which more than offset continued inflationary pressures. These exceptional Q4 results reflected the combination of base business momentum as well as some timing benefits.

For example, in Mexico, we saw some buying ahead of a significant beverage tax increase that took effect at the beginning of 2026. Though the reversal of these benefits will result in a softer start to this segment in Q1, our full year plan for International incorporates healthy top and bottom line delivery.

Moving to the balance sheet and cash flow. We remain committed to a strong balance sheet with investment-grade ratings for total KDP and for the future beverage company and global coffee company upon separation. These objectives will first and foremost be underpinned by our ability to generate significant cash flow. In 2025, our free cash flow was $1.519 billion. Notably, this included the unfavorable impact of onetime $225 million GHOST distribution termination payments early in the year.

We feel good about our underlying performance and expect stand-alone KDP free cash flow to increase in 2026 to approximately $2 billion. We will update this target to include expected JDE Peet's free cash flow when we report next in April. The free cash flow of the combined businesses should enable swift deleveraging post deal close.

As you saw in our announcement yesterday, we have also further refined the financing structure for the JDE Peet's acquisition to deliver [indiscernible] and facilitate a timely separation. First, based on strong demand, we have chosen to increase the size of our beverage company convertible preferred equity raise to $4.5 billion versus the previously announced $3 billion. Second, we have finalized and are preparing to close our $4 billion global coffee company pod manufacturing JV. Third, we plan to fund the balance of the acquisition through debt. And fourth, we will continue to assess noncore asset divestitures to accelerate deleveraging.

With the refined financing plans in place, we will no longer consider a partial IPO, a beverage company in the future.

Turning now to our 2026 P&L guidance. which we are providing inclusive of the JDE Peet's acquisition based on the expectation of an early April close and using current FX rates. We expect net sales in a range of $25.9 billion to $26.4 billion. This outlook assumes continued momentum in U.S. Refreshment Beverages, and healthy trends in International as well as growth in U.S. Coffee. It also embeds an incremental contribution from JDE Peet's beginning in Q2 which we expect to add approximately $8.5 billion to $8.7 billion to net sales.

On the bottom line, we expect low double-digit EPS growth in constant currency. This includes an anticipated 6 to 7 percentage points contribution from JDE Peet's on a 3-quarter basis, consistent with our unchanged outlook for approximately 10% accretion in the first year after acquisition close. For stand-alone KDP, our outlook embeds 4% to 6% net sales growth and 4% to 6% EPS growth, both in constant currency. Based on current rates, we anticipate that FX will represent an approximately 1 percentage point tailwind to stand-alone KDP net sales and EPS growth for the full year.

To help with your below-the-line modeling, we expect the following for 2026: Interest expense of approximately $1.07 billion to $1.12 billion, an effective tax rate of approximately 22% to 23%, and approximately 1.37 billion diluted weighted average shares outstanding. Once the JDE Peet's acquisition closes, we will also have two new impacts on the P&L to reflect the Pod manufacturing JV and the convertible preferred security. Assuming an early April deal close, we expect the following impacts over the last 3 quarters of 2026.

Approximately $190 million in pretax coffee JV costs, which will flow through the noncontrolling interest line and convertible preferred costs that will flow through below net income and will be calculated each quarter as the greater of the roughly $53 million quarterly preferred dividend or the securities approximately 8% proportionate share of earnings. Pre separation, we expect the calculation to default to the proportionate share of earnings.

Now let's discuss quarterly basis. While we are planning for healthy EPS growth on a full year basis, we expect Q1 EPS to be in the range of $0.36 to $0.37 compared to $0.42 in the year ago quarter. This is due to three primary drivers. First, the unfavorable comparison of lapping a $0.02 per share provider cocoa gain in Q1 2025. Second, a peak year-over-year cost headwind in Q1 driven by the impact of green coffee inflation and tariffs on cost of goods sold. And third, anticipated retailer inventory adjustments that will negatively impact top and bottom line performance in U.S. Coffee.

We expect these transitory EPS pressures to begin to ease after Q1 and in the case of coffee costs, more meaningfully improve in the back half. As a result, we have good visibility that stand-alone KDP EPS growth will be positive in Q2 and accelerate further in the second half. In addition, we will start to benefit from accretion once the JDE Peet's deal closes in early Q2, further enhancing EPS growth for our combined company.

In closing, 2025 was an important year for KDP. We extended market share gains in key areas, made strides on multiple strategic initiatives and set the stage for a transformative next chapter, all while delivering on our financial commitments. We will look to build on this performance in 2026 and are fully focused on executing with excellence to achieve our base business, integration and separation objectives.

With that, I will turn the call back to Tim for closing remarks.

Thank you, Anthony. As KDP transitions into a new chapter and we prepare for our separation into 2 pure-play companies, our Board and governance are also evolving. At the end of Q1, Pam Patsley, our Lead Independent Director, will assume the role of Board Chair as Bob Gamgort steps off the Board. Bob has been a core part of making KDP into the formidable company it is today and a mentor and partner to me for the last 2.5 years. We are grateful to him for his many years of service and countless contributions to the company.

At the same time, Pam is uniquely suited to step into the chair role. She knows KDP deeply and has very strong Board and executive experience. While I look forward to working with her in this new capacity as we lead KDP through a transformative period, Pam has already been a great partner to me as Chair of the Nominating Committee in Director Recruitment and Board structure. In addition, as recently announced, we are pleased to add two new independent directors to our Board in early March. Amy Tiner, Alphabet's Corporate Controller and Chief Accounting Officer; and Bill Newlands, Constellation Brand's President and Chief Executive Officer.

Amy and Bill are both highly accomplished and experienced executives who will bring valuable capabilities and perspectives to our Board room.

Finally, we are separating our existing Remuneration and Nominating Committee into newly created Nominating and Governance and Compensation committees, which will further align our governance with best practices. Each of these steps will support the company's ongoing transformation and will help us to ultimately establish two world-class Boards for Beverage Co and Global Coffee Co, with more announcements to come over time.

So in closing, I'd like to thank our more than 30,000 KDP colleagues for their focus and adaptability through a period of significant change. And I look forward to welcoming our more than 21,000 new JDE Peet's teammates to the company in the coming months and to successfully executing on our shared vision in 2026 and beyond.

With that, we're now happy to take your questions.

[Operator Instructions] The first question today comes from Chris Carey with Wells Fargo.

I wanted to -- I wanted to just start with some context on the top line performance for stand-alone KDP, specifically contribution from the U.S. Refreshment business relative to the rest of your businesses. It does seem to imply a pretty solid outlook for the top line in U.S. Refreshments. I wonder if you could just maybe help us understand pricing contribution of your partner assets and then kind of base business performance within the U.S. Refreshments business specifically?

And then just if I could add a follow-up, it would be what are the assumptions that you're embedding for the JDE Peet's business within this 6 to 7 percentage point EPS contribution that you flagged when you think about 2026, whether top line or margins?

Thank you. I'll start on that one. Let me go back to the overall guide, we are expecting low double-digit EPS growth, and we're doing this on a combined basis. So obviously, KDP base for 12 months and then adding 3 quarters of the incremental impact of the JDE Peet's acquisition that we expect to close in early April. When you unpack that, the KDP stand-alone guidance is 4% to 6% top line and 4% to 6% EPS growth, all on a constant currency basis.

And when you look at the top line combination of pricing and vol/mix gains with sales growth expected across each segment, the most significant driver is expected to be U.S. Refreshment Beverage. We expect a strong top and bottom line performance following equal -- equally strong results in 2025. And as Tim talked about, we're seeing a lot of innovation. We've been gaining share in CSD, sports hydration and energy. So those growth vectors together with our core business, driven by innovation and some pricing expected to continue to grow into 2026.

The second part of your question was around the contribution from JDE Peet's. And what we said in the guidance is $8.5 billion to $8.7 billion of incremental revenue and the related operating income contribution. We have -- this is all informed together with JDE Peet's and they're kind of baseline planning for 2026. We can't get too much into detail given that JDE Peet's is still a stand-alone business. But net-net, when you add the revenue, the operating income related to that, early gains on our synergy capture towards the $400 million 3-year target, when you incorporate the incremental financing costs across the convertible preferred, the pod manufacturing joint venture, and the incremental debt that we've talked about, it all nets down to a 6- to 7-point EPS benefit in 2026, consistent with our previous outlook for 10% accretion on a full year basis post acquisition.

The next question comes from Steve Powers with Deutsche Bank.

Question for each of you, if I could. The first one, Anthony, on -- with the updated capital structure news from overnight. I think a lot of the pieces are coming into view. One thing that I am left questioning, though, is the existing KDP debt and how that is to be allocated across future Bevs versus Coffee Co, so any thoughts on that would be very helpful? And then, Tim, on energy. You talked about the strong momentum and the confidence going forward, including future space gains in '26. I guess I'm curious a bit of kind of where that space is coming from. Is it really a function of the category gaining space? Are you gaining disproportionate share within category expansion? And is there any element of the energy gains that you're foreseeing that might come out of other aspects of your portfolio?

I'll take the first part of that question. And as you saw, we did announce an updated financing plan yesterday. It included a few elements, an upside on the Beverage company convertible preferred equity to $4.5 billion. The finalization of the coffee pod manufacturing JV that's $4 billion and then $9 billion of debt, which is a combination of senior debt and we're going to draw under the existing term loan facility, and that will get repaid with junior subordinated notes at a future date. And then also, we'll be assuming $5 billion of the existing JDEP debt.

Now that $9 million incremental and the $5 billion rollover will stay with Coffee Co. The existing KDP debt will stay with beverage company, together with the $4.5 billion convertible preferred.

Yes, Steve, I'll take your second question on energy. You've heard us say before, we're big believers in this category. We like this category. That's why we did the GHOST acquisition and have assembled this portfolio of four great and quite distinct brands. I think this category overall has multiple structural growth drivers that will keep it fueled for growth for many years to come. I think there's continued distribution expansion for energy in aggregate at a category. I think there's household penetration gains that we can still capture at a category and brand level. Occasion gains, price pack architecture, a channel distribution opportunities.

We're seeing with a couple of other brands in our Bloom brand, the incremental female consumer coming into the category. So we continue to like this. And that's why it's a $28 billion category that's growing in the teens. You saw that in '25, and you see that continue into 2026. We like our portfolio, GHOST, C4, Bloom and Black Rifle. We feel very good about our position, the fact we added 1.5 share points last year, and we believe we will continue to grow share this year.

We've got a great innovation lineup across all 4 brands, some really exciting new flavors, some partner flavors. GHOST expanding our price pack architecture into 8.4 ounce cans, which I think opens up a lot of new occasions and formats.

Regarding specifically your comment on shelf space. We've had a very good sell-in for our energy portfolio across our customer base, both C-Store and larger format, and we are expecting significant incremental distribution points, particularly in convenience with expanded space there across our brands. So I think the punchline to your specific shelf space question is, I would expect both energy in aggregate as a category to gain shelf space relative to other LRBs and KDP, in particular, to add shelf space.

Do I think it is cannibalistic to the balance of our portfolio? No. I think you'll see that continue to grow and add to the KDP sales.

The next question comes from Filippo Falorni with Citi.

I wanted to ask more about the coffee business. Tim, and Anthony, both you guys mentioned that the first half of the year, there's going to be more commodity headwinds, given your hedging. But obviously, the commodity has come in quite a bit from the peak. So when based on your hedges, should we start to see some more relief from the commodities? Is it really late in 2026? Or could it come in a little bit earlier in kind of like in Q3 timeframe?

And then on the pricing side, some of your competitors have talked about potentially giving back some of the commodity benefit in the form of lower prices? What are your pricing plans in coffee? Do you think you can hold the price, take more price? If you can give us a sense there, that would be helpful.

Yes, I'll start on this one. As we look at the coffee business for 2026, we do expect some phasing as we go through. I would start by saying we expect the year-over-year cost headwinds, both green coffee prices and tariffs, to be most impactful in the first quarter of the year, and it's part of the reason why we're guiding to what we are for the first quarter. And it reflects a couple of things. One is there is about a 6- to 9-month time lag between market price changes and when you see it throw through our P&L.

And that's a combination of 2 things: one, the time that input costs sit in inventory; and second, our forward hedging activities. And so it will be probably the latter part of the second half before we see the current market prices come through. But should it sequentially improve, right? There will be a headwind in Q1, a lesser headwind in Q2 and flip in the second half. And it's somewhat mechanical at this point because, obviously, we know the costs that are sitting in inventory. We know our forward hedging costs and we can look to the forward market price for green coffee to see what will impact our P&L in the latter part of the year.

Yes, maybe I'll build on that, Filippo, just to say, look, we're certainly well aware that pricing has been a big topic of conversation across the industry. And our goal, obviously, is to drive sustainable volume and mix-led growth across all of our categories. At the same time, it's important for us to offset inflation when it occurs, to protect that ability to continue to reinvest in our business for the long term. And so if you think about U.S. Coffee, there's no doubt that the category and KDP, we've taken some meaningful pricing in recent years and in '25. And we passed through some significant inflation as C price hit unprecedented levels early last year and as tariffs were implemented.

Despite this, you've seen the consumers remain highly engaged with the coffee category. We feel very good about our elasticity. It's tracking to our expectations and it remains healthy. And so we don't believe the category is overpriced. And we expect year-over-year cost headwinds as Anthony just reinforced to persist going into early '26 given that hedge and inventory timing lags. But that will ease as the year goes on and I think put us in a good position to see the coffee category return to solid top line performance with volume and mix meaningfully contributing.

The next question comes from Peter Grom with UBS.

Maybe two for me. Just first on the phasing of the year. You provided some good color on what to expect in the first quarter from an earnings standpoint, but just given some of the retail inventory dynamics and some of the timing nuances you outlined in U.S. Beverages and International, curious how you see organic sales growth in the first quarter in the context of the full year guidance and a relatively strong 4Q exit rate?

And then just a second question, just on the partner brands and the broader strategy. It's obviously been a strong driver of growth. I would love to get your perspective on this strategy as you go through this transition over the next several months? I guess asked another way, what's your willingness to add more brands as you go through the separation?

Yes, so let me address the first part of the question and thinking about the gaining of our top line. On a full year basis, the base KDP business, 4% to 6% top line growth and I would say, fairly stable, a little bit of pressure in Q1 around retail inventory adjustments, particularly in coffee and pods. And it's -- that impact is one of the three reasons that the bottom line will be under a little bit of pressure in Q1. Obviously, we're wrapping the Vita Coco $0.02 gain. We expect the cost headwinds in coffee, in particular, to be peaking in Q1 relative to the balance of the year. And secondly, there is some anticipated retail inventory adjustments in coffee, as I mentioned.

So obviously, that's a top line as well as a bottom line impact. That said, we have very good visibility to EPS growth in Q2 and a further acceleration in the back half. Obviously, the Vita Coco issue is behind us. The cost headwinds, as I just mentioned, are going to moderate as we move through the year. The inventory adjustments will impact the first quarter to a lesser extent, Q2 and then kind of get more in balance as we go into the second half. And we should also benefit from either the innovation and stepped-up marketing activities that Tim mentioned in his remarks.

Yes, peter, I'll take your second question on partners. Look, first, I'd say it's important for us to have a healthy balance between core brand growth and partnerships. Both have featured well in the growth history of KDP, and I expect both will continue to going forward. You saw that last year. When you look at the kind of decomp of our growth, you saw a healthy base business growth in our core positions led by CSDs and you saw contribution from partner brands. I think brands like Electrolit and Vita Coco and some of the Nutrabolt brands.

As you know, at KDP, we really pride ourselves on a flexible buy-build partner model as we think about capturing white space opportunities. And one of the reasons I love this beverage industry is how dynamic it is. Consumer preferences will continue to evolve, and that will always create interesting growth phases for us. And we've got a flexible model that allows us to capture those through by builder partner. I think we also have a track record of creative and highly capital-efficient ways to tap into that.

A recent example that was -- produced meaningful growth last year and will again this year is our Electrolit partnership. That is a no capital partnership, where we are the distribution partner of the largest share gainer in sports hydration and one that we've got continued confidence will grow. So I think you'll see that flexibility going forward, and you'll see us continue to tap into white spaces, and you'll see us continue to put a premium on a balanced approach of base business growth and partnership growth.

The next question comes from Lauren Lieberman with Barclays.

I wanted to check in on, one was just the comments both on 1Q, then you saying, yes, we'll get to growth implies a very, very big ramp on EPS growth for underlying KDP in the back half, so just wanted to kind of confirm that. And even with that, like strong double digit, you have to do that in order to get to the low end of that 4% to 6%. So I just want to make sure I'm thinking about that the right way. And then just any update on leadership search for Coffee Co and kind of who the Board is looking for profile-wise. Is this an endeavor that's underway and being led by the KDP Board?

I was just kind of curious on how that would fit. And then finally, very last thing, just any thoughts on free cash flow. I know it's tough to kind of mush two companies together and comments on free cash before you're together, but there's any thoughts on that for '26.

Okay. I'll start. I mean just confirming, yes, we do expect accelerating EPS growth on the base KDP business as we go through the year. And the primary swing item does relate to coffee cost and tariff impact on the P&L and the sequencing of those through the year. And also the addition of JDEP and the 6 to 7 points of accretion, obviously, is quarters Q2 -- Q2 through Q4. So obviously, that's a back half weighted impact.

Before going back to Tim, I'll comment on free cash flow. First, this is important metric for us, a focus area as we look to continue to delever post acquisition. We did $1.5 billion of free cash flow in 2025 and are forecasting $2 billion of free cash flow in 2026. So a significant improvement. Part of that is we're lapping some distribution payments related to GHOST, but also growth in EBITDA, better performance on working capital, particularly inventory will contribute to that. When we get to the next quarter, we'll be able to incorporate the JDE Peet's outlook. They had a very good year on free cash flow in 2025, exceeding EUR 1.1 billion in terms of free cash flow generation.

So both of these businesses are highly cash generative, which gives it, obviously, a lot of strength and the ability to delever going forward and as well as post separation.

Yes, I'll take the second question, Lauren. Obviously, one of our top priorities. And as we signaled back on Investor Day, one of our separation prerequisites is establishing strong leadership teams and Boards of Directors for each of our future pure-play companies. Specific to the Global Coffee Co CEO, I can tell you we're in the final stages of our internal and external search, and we will plan to have a public announcement by deal close. That process is being led by the KDP Board, specifically by Pam Patsley, our incoming Chair and Chair of the Nom Gov Committee and me, and with involvement of the entire KDP board. And I am confident we will appoint a CEO with the right set of capabilities and background to position Global Coffee Co for long-term success.

The next comes from Peter Galbo with Bank of America.

Anthony, thanks for all the modeling detail. Tim, I wanted to maybe focus back on refreshment beverage and particularly just what's been happening through the start of the year on some of the SNAP waiver adjustments in certain states. Obviously, there's a few big states that start to roll on in the spring. So just any early reads on kind of what you have seen and whether or not the guidance, at least on the CSD side incorporates any sort of disruption as Texas and Florida kind of start to roll into that wafer program?

Yes, Peter. As you can imagine, we are looking at that dynamic very closely, including a state-by-state analysis that I actually review with our teams every other week. And when it comes to SNAP restrictions, I would say, kind of think about it in two areas. One is category eligibility of SNAP benefits. And the other is more broader across-the-board SNAP benefit changes in magnitude. As it relates to first bucket, we see changes to categories eligible for SNAP as more likely to drive really shifts in the payment method versus necessarily resulting in a meaningful change in consumption.

So when you think about CSDs in particular, we know that CSDs have a prominent kind of top 5 role in grocery bills for both SNAP recipients and non-SNAP households. We also know that SNAP recipients fund their grocery bills through a combination of SNAP benefits and their own money. And so we've seen that there is often a reallocation kind of left pocket, right pocket as it relates to that.

On the other hand, I think history would suggest that if there are meaningful changes in the magnitude of SNAP benefits in aggregate, that can be more impactful on certain grocery purchasing power for consumers and can merit some trade-off decisions. So the way we're thinking about it is obviously closely monitoring the situation, including the 5 or 6 states that have already implemented that eligibility SNAP restrictions. We're monitoring that closely. I think it's too early to draw firm conclusions. We're seeing some mixed signals, quite honestly, across the specific states.

We've baked in some allowance into our 2026 plan. But I think the overall impact on the business is going to be manageable, and you should expect us to respond as we learn more in a way that prioritizes delivering our plans, and effectively serving our consumers, which can include offering other price pack architecture and affordability options, mini cans, 2-liter, value pack, certain promotions, et cetera. So we'll stay dynamic as we continue to monitor, but feel good that we've got our arms around this in the guide that we've shared today.

This concludes our question-and-answer session. I would like to turn the conference back over for any closing remarks.

Great. I just want to thank everybody for their time and attention this morning, and the IR team is around if you have any follow-ups. Thanks so much.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Good morning, and welcome, everyone. We appreciate you taking the time to join us today both in person in New York City and over the webcast.

Before walking through the agenda, let me first draw your attention to the slide in recognition of the forward-looking statements we'll make today. Please also keep in mind that we will be citing non-GAAP financial measures throughout our remarks and in the presentation that is posted on our website.

Now let's discuss what to expect during our time together. Our Chairman, Bob Gamgort, will kick off the formal presentation with welcome remarks; followed by our CEO, Tim Cofer, discussing our value creation framework and the strategic rationale for the JDE Peet's acquisition and our planned separation. Tim and Olivier Lemire, our newly appointed President of U.S. Coffee, will then walk through our future Global Coffee Co. business in more detail.

After a short break, Eric Gorli, our President of U.S. Refreshment Beverages, will discuss the future Beverage Co.; SVP of Finance, Jane Gelfand, will provide an update on financials and capital structure; and Roger Johnson, our Chief Transformation and Supply Chain Officer, will walk through our integration and separation plans. Finally, Tim will provide an overview of Q3 earnings and share some final thoughts.

In total, the prepared remarks portion of the day should take around 2.5 hours. We'll then break for 45 minutes to allow the in-person attendees to explore our product showcase, and then we'll return for a Q&A panel. We expect to conclude our event and the webcast at around 1:00 p.m. Eastern Time. We hope it will be a productive and insightful session for you.

Let me kick things off by welcoming our Chairman, Bob Gamgort, to the stage, and he will introduce the rest of the Board members joining us today. Over to you, Bob.

Good morning. It's great to see everyone. Thanks for joining us here. We've got updates to provide on KDP in general, on the transaction that we announced in August. We also have some great Q3 results to talk about. So we don't want to forget those either.

As Chethan mentioned, we've got a number of directors here today. And what I'd like to do is just take a minute to introduce them. They are mostly all located to our right over here. .

Pam Patsley is our Lead Independent Director. She chairs our Remuneration Committee. She's our longest-standing director, having been at Dr Pepper Snapple Board prior to joining KDP. Tim Cofer, our CEO, you're going to hear a lot from him today.

Juliette Hickman is right over there. Juliette serves on our Audit Committee. And one of our very newest directors Mike Van de Ven, who also serves on our Audit Committee. And the directors are going to be available to interact with you during breaks and during the product demonstration. So please engage with them. Pam and I are going to come back on stage with the management team at the end of the day and answer questions as part of the formal Q&A session.

So my purpose today is really to represent the perspective of the Board. And I want to kick off today by offering 5 points that I think the Board would like to emphasize at the start here. First of all, KDP has a long and consistent track record of delivering strong results. Since formation, 6% revenue CAGR, 11% EPS CAGR, and that places us in the top tier of CPG peers.

But from a Board perspective, our job is not to look backwards and congratulate ourselves on good results. It's really to position the company for future success. And that's why we have conviction in this acquisition and separation. What's important is for you to have more detailed information, more insight in our thought process. And that's what we want to do today, so that you can come along with us on our journey on how we came to that conclusion and why we continue to have great confidence in the value creation potential of the transactions.

Having said that, we heard your feedback. We certainly noted the market reaction. And it made it really clear to us that we needed a day like today to better explain the strategy and the thought process behind it, as I said. We also recognize we needed to change some of the executional elements of the transaction. You saw the press release today. Those are good developments, and we'll talk about more optionality going forward. But we really think we're on the right track and are being very responsive to your feedback.

So going from today to this future end state requires great execution. So in addition to talking about the end state, we need to give you confidence in execution. And we'll do that today by showing you our integration plans. But I think more importantly, we're going to give you exposure to more people on our management team who are actually responsible for that and for running the company and making sure that we continue to deliver great results like we just did in Q3. So you'll meet them.

And then we're going to be flexible. I mean you've seen that we've been flexible since announcement. We're going to look for other opportunities to maximize value, and we'll talk about some of the areas where we're thinking about flexibility going forward throughout this presentation.

So I think there are 3 points that I would like to comment on before I turn it over to Tim, because I'm in a unique position to do this. So first of all, is the global coffee category. So you'll find it interesting, but the left-hand side there is my trophy from 1985. This was an on-campus competition sponsored by General Foods, and it was called the Maxwell House Brand Management Challenge. And it was about the coffee category. And my team won it, which is why we have the trophy. It sparked my career in CPG; it also is how I entered General Foods. And it also started a 40-year relationship with the coffee category. So I've seen it over an extended period of time.

So there's no question, in the post-COVID period, we saw a slowdown in the global coffee category. We also are beginning to see signs of recovery. And what typically happens is a 3-year window starts to become reality. We never thought that this was anything more than temporary or cyclical. It's not structural. And if you look at the category over 40 years, you will see periods of time where the category slowed down, only to accelerate rapidly afterwards. And that's exactly where we think we are right for now. We're in the beginning of a recovery period.

Over that 40-year period, the volume growth of coffee is a 2% CAGR. And we know that in CPG, volume growth, real growth is scarce and important. But it's undeniable when you look at a 40-year trend on coffee, the trajectory continues to be going in the right direction. Actually, Tim has a chart that will show you that very, very clearly.

So let's think about this. We believe it's cyclical and we're in the beginning of a recovery, we have a strong business in KDP coffee, anchored by Keurig, we really believe to succeed going forward in coffee, you got to be global. We'll talk a bit about that. So if you want to form a global coffee powerhouse, the best partner is JDE Peet's. This is a scarce and valuable asset. It's of high quality. And honestly, there is no alternative other than matching these 2 businesses together. And when you see the fit, it is striking how much each business complements each other. And we're confident that together, we will form a formidable global coffee competitor.

So that gets to another question that came up from time to time in the past couple of weeks, which is, what happened to the investment thesis? How has it changed? So I'll start with a real obvious comment, which is since we put the companies together 7 years ago, a lot has changed in the world. Competitors, consumers, our customers and the way they think about it. Certainly, the macro environment is different. So I think it's natural and necessary to evolve our strategy as well.

In 2018, the play was a really good insight at that point in time. We took 2 subscale beverage companies who are solely focused on North America. We brought them together to create a beverage challenger of scale. And it was wildly successful. If you take a look at what's happened over the past 7 years, I gave you the aggregate financial performance. But beyond that, the strength of each individual company enhanced significantly over that time.

So if we're going to put together these 2 companies to form a global coffee competitor, and we'll talk about why global is important later, we could run them together. It is an option to run them as one company, but we think it is optimal to separate them. One company focused on a global opportunity, which is a very different management mindset, obviously, on one category, coffee, across the entire world of all forms. And the other to continue to run this very valuable North American refreshment beverage growth machine that has significant runway still in front of it.

It also gives investors a choice in 2 different styles of running these companies. More to come on that, but it really shows that there was this natural evolution that started in 2018 and is our choice to run them separately.

You're going to hear from a number of speakers.

And I think the third area where I can offer unique perspective is my confidence in the management team. Tim, who you're going to hear from right after me, will run the combined businesses. And then upon separation, he will be the CEO of our stand-alone beverage company. Olivier, Eric and Roger, I have worked with since the take-private of Keurig in 2016. My experience with Jane goes back further than that. Jane was at Barclays in 2012, and she was part of the team that supported the IPO of Pinnacle Foods where I was CEO.

And the reason I give you that time period of my experience is I have seen this team deliver across a wide variety of challenging situations time and time again. I have the highest level of confidence in their ability to execute, and that gives me confidence that we can get from where we are today to an outstanding end game when we separate these companies.

So with that, let me turn it over to Tim Cofer, our CEO. He'll take you through a significant amount of content along with all of these other presenters. And as I said upfront, I look forward to being back up here at the end with Pam. We'll be happy to answer your questions at that time. So Tim, over to you.

All right. Good morning, everyone. Great to see all of you again. I hope you've had a chance already to enjoy some of the amazing beverages that we have across these stations, for those of you that are here live with us at NASDAQ. I can imagine the coffee stations were hit pretty hard if being a Monday morning and all.

So building on Bob's comments, we have strong conviction in the strategic and financial merits of this acquisition of JDE Peet's and the subsequent separation into these 2 pure-play companies. We are creating North America's most agile beverage challenger and a true global coffee powerhouse.

At the same time, as Bob said, I have spent the last 2 months absorbing shareholder feedback and, of course, the initial market reaction post the announcement. And I recognize that there are a few areas of concern as well as some open questions that would benefit from more explanation. That is why we're here today.

So in my discussions, with each of you, I think the questions have largely spanned these 4 areas. Why is Peet's the right acquisition? What does the separation into Beverage Co. and Global Coffee Co. uniquely enable? How will we optimize KDP's capital structure post the acquisition and establish appropriate balance sheets for each of these separate entities? And how will we ensure that KDP delivers with success throughout this process? Over the next couple of hours, we will answer these questions and more.

Now before diving into these topics, let's reground you in our business and our strategy. We operate with a sole focus on beverages. I truly believe this is the best sector in CPG. It's large. It generates $1 trillion at a global level. It's growing. We expect a mid-single-digit CAGR in the coming years, supported by structural tailwinds to sustain that momentum. It's dynamic with ever-evolving consumer preferences that create endless opportunities to drive consistent growth through innovation, through mix management, through premiumization. It's financially attractive, strong profitability, compelling industry return profiles.

So we understand this beverage industry very well. and we have a proven, and successful value creation strategy. At the core of this, as you see on this slide, are 5 pillars. They serve as our blueprint for how we drive sustainable, consistent, compelling performance over time. The first 3 of those are commercial priorities, broadly geared around the top line. The 2 enterprise enablers support that growth in a profitable, efficient and high-return way.

Let me touch very briefly on each one. Championing consumer-obsessed brand building. This means being consumer-led, consumer-centric as we nurture and expand our iconic brands, shaping our now and next beverage portfolio to access growth-accretive white spaces via our flexible build, buy or partner model, amplifying our route-to-market advantage, strengthening our multichannel leadership with differentiated distribution capabilities.

Generating fuel for growth by reinforcing a continuous productivity mindset and a lean overhead operating model. And of course, dynamically allocating capital to support that long-term value creation.

How we applied that to our businesses? Let's start with Refreshment Beverage. Our results speak for themselves. Our flagship Dr Pepper, we've turned this into the CSD categories, innovation and marketing leader. We've driven nearly a decade of consistent market share gains, and we've established ourselves as the #2 market share position in the category.

We've thoughtfully built out meaningful incremental growth platforms in white spaces that we previously didn't compete in, like energy and sports hydration. And we've strengthened our competitively advantaged route-to-market DSD network through capital-efficient territory expansions, through brand partnerships and capability investments. The result of the efforts, you see at the bottom of the page, a high single-digit net sales CAGR since 2018. And we're just getting started, with business momentum that should support continued sustained growth into the future.

What about in coffee? Look, we know the operating backdrop in U.S. coffee has been more dynamic over the last few years, particularly in that post-COVID world and the multiple commodity cycles like the one we're in now. And yet, we made important strides. We've reinforced Keurig's position as the #1 North American single-serve system across both brewers and pods. We've extended our portfolio into exciting growth areas like cold and super premium. We've continued to expand the number of households that brew Keurig every morning, now at 47 million strong and growing. And we are preparing to catalyze the next chapter of our growth agenda with disruptive innovation.

We've invested in unique assets that drive competitive advantage, including our differentiated and highly profitable direct-to-consumer e-commerce capabilities. All of these initiatives have supported a steady, low single-digit sales CAGR in recent years, consistent with our go-forward expectations.

So through these commercial achievements as well as robust productivity and thoughtful cash deployment, we've delivered strong results at an enterprise level. Since KDP's formation in 2018, as you see on this slide, we've grown net sales at a 6% CAGR. We've grown adjusted EPS at an 11% CAGR, while also returning meaningful cash to our shareholders.

Now at the same time, both our businesses and the external environment have changed in significant ways since 2018. Just as Bob discussed earlier, the original merger thesis was really predicated on combining what at the time was 2 subscale businesses. We did that to create a North American beverage challenger.

What's happened in the last 7 years? Our Refreshment Beverage business is no longer subscale. In fact, it is the same size today as total KDP at merger. Our actions to evolve our Ref Bev portfolio to strengthen our route to market have also structurally raised the organic profile of this business relative to 2018.

And in coffee, while we made progress, we acknowledge that the category growth trend has fallen short of our expectations in recent years. And while we're the clear leader in North American single-serve, that business is arguably subscale, in particular, relative to our global competitors that can leverage broader advantages in technology and sourcing and who can participate across the entire global coffee category.

So as a Board and a management team, we observed these changes since 2018. We discussed these and we reached a couple of conclusions. First, our Refreshment Beverage business has both the scale and the advantaged positioning to succeed, as Bob said, either as a combined company or a stand-alone. And second, while our Coffee business has clear strengths, it is not yet optimized to reach its full potential in current form. And we decided as a Board that it needed further assessment and it could benefit from potential enhancement.

So the first step in that assessment was to step back and take a fresh look at the coffee category. You've heard Bob's story, 40 years ago, the Maxwell House Award. I've also spent a lot of my career in coffee in a past life different employer. We're long-term believers in the attractiveness of the global coffee category. We believe in the structural tailwinds supporting future growth. But we did the analysis once again to underwrite our confidence.

Let's start with the consumer lens. Coffee remains a preferred way to address the universal human need for energy, and it's ever more important these days. Coffee is a highly emotional category. It evokes passion. It's artisanal. Craft specialization plays a key role in premiumizing the category, which is a clear growth tailwind. Coffee is habitual. Coffee has unmatched global frequency of consumption.

And coffee is healthy, even as defined by regulators, both in this country and globally. Simply put, coffee is the #1 beverage American consumers cannot live without. And I am certainly one of them. And it enjoys that similar status in so many markets around the world.

Now to see the evidence of this category's essential nature, look at the long-term trend on the chart. Bob mentioned this in his opening remarks. What you'll see over 40 years is a low single-digit global volume growth. And in dollar terms, recent growth trends are even faster, thanks to premiumization and innovation. Importantly, the structural factors supporting consumption growth remain as powerful as ever. And I would highlight that increased adoption, especially in emerging markets, as younger generations embrace coffee culture and begin to shift versus historic tea culture, is yet another growth tailwind long term.

Now as with many categories, coffee goes through cycles, including most recently this post-COVID lull that we've experienced. But as Bob said and as this chart, I think, pays off nicely, the historic pattern is that these lulls are temporary and the category recovers to its long-term growth trajectory.

We're seeing signs of this right now in the United States, this post-COVID recovery is underway. Category volume trends bottomed out in 2022. They've been stabilizing ever since. And encouragingly, this dynamic also holds true this year, year-to-date 2025, even as this high inflation has fueled significant price increases. You see here that the elasticities on an absolute basis compare favorably to the historic trend.

So that was our assessment, our step-back assessment, on the coffee category. With renewed confidence in the attractiveness of that global coffee category, our challenge was then to determine, how do we optimize our coffee business? Our goal here was to create an even stronger business, with higher growth prospects, greater resilience and improved operational efficiencies.

And look, we considered all options. All options were on the table. Sell the business. Spin it off as a stand-alone. Continue to operate it as part of KDP. But ultimately, after thorough diligence, our management team and our Board of Directors determined that the acquisition of JDE Peet's represented the most attractive and actionable path for maximizing the value of our Coffee business.

Here's the reality. Scale matters in coffee. The category addresses a universal need state: common formats, common consumer trends, similar premiumization opportunities across markets. This means that consumer insights, innovation, technologies can be leveraged and reapplied across markets. And of course, in coffee, there are clear economies of scale in operations and costs. Bob said it in his opening remarks, JDE Peet's is one of the very few assets of global scale in this category, and it will step-change curing in several ways.

You see it on this chart. Our coffee net sales will more than triple to $16 billion, making us the second largest global coffee player and the largest pure play. We'll gain access to additional geographies, including many high-growth markets. We'll become a significantly larger manufacturer and the #1 coffee buyer in the world. These elements are critical to fortifying Keurig as an even stronger coffee player. In JDE Peet's, we also see a unique fit with the Keurig business.

Through this combination, we can bring together the best of both companies: Keurig's North American leadership, know-how, innovation prowess; and JDE Peet's global reach, leading brands and full format expertise. The resulting Global Coffee Co. will enjoy an advantaged and complementary portfolio, incremental revenue opportunities, visible, actionable, achievable cost synergies and greater resilience.

Let's unpack each of these 4. Starting with advantaged and complementary portfolio. The combined company will be able to benefit from global category growth given its strong brand portfolio, including 4 billion-plus trademarks, broad participation across every coffee [ subsegment ] and geographic diversification.

Moving to enhanced revenue potential. We see upside potential from scaling Keurig's system expertise and JDE Peet's format capabilities across more brands and more markets, capitalizing on the growth runway for Peet's here in the United States and extending Keurig's next-generation coffee systems beyond North America.

The third is clear and actionable cost synergies. We will discuss this in more detail, but we have identified clear and actionable efficiencies that we know will generate $400 million in savings in the next 3 years. These synergies can fund reinvestment while also supporting earnings growth.

And finally, increased resilience. Obviously, as a larger company with greater supply chain capabilities, we will be much better positioned to navigate external volatility like tariffs and commodity fluctuations. Together, the union of JDE Peet's and Keurig will create a stronger business that is more efficient and more capable of delivering consistent, profitable growth.

So upon closure of the JDE Peet's acquisition, we will, for the first time, have scaled advantage platforms in both Refreshment Beverages and Coffee. Through the subsequent separation, each of these businesses will become that focused pure play with attractive yet distinct profiles. Beverage Co., a growth-oriented player, supported by a leading brand portfolio, a competitively advantaged route to market. The business will be disruptive. The business will be entrepreneurial, and it will deliver an attractive growth profile with potential upside from strategic optionality over time.

Global Coffee Co. will be a steady grower, with strong and resilient cash flow, enhanced by near-term synergy capture opportunities. Performance will be supported by differentiated deep coffee capabilities and expertise.

And as we've said earlier, while we could conceivably run these 2 businesses together, we believe the separation will provide clear benefits to both entity. What are those benefits?

First, focus. Each company will tailor its strategy, its operating model, its capital allocation priorities, to align with distinct category and geographic exposures. Culture. The respective leadership teams will have strategic clarity, and we can structure and incentivize our organizations accordingly. Strategic optionality. Each stand-alone entity can think creatively and flexibly in pursuing additional value creation opportunities. And finally, shareholder benefits. Investors will be offered the opportunity for 2 very attractive yet distinct investment opportunities.

Now as I said at the beginning of my remarks, we have conviction in these transactions and we have a clear view of the compelling destination once this is complete. It's now on us to execute with excellence. And that all begins with a robust plan and the right team.

So we've recently established a Transformation Management Office or TMO to drive this comprehensive integration program. Bob mentioned it earlier. It will be led by our newly appointed Chief Transformation and Supply Chain Officer, Roger Johnson. You'll hear more from Roger in a minute.

The TMO structure is designed to establish the processes and the workflows to guide our integration teams, while also, importantly, freeing up the rest of the KDP organization to focus on maintaining that great base business momentum that you've seen us deliver again in Q3. The TMO will be comprised of a dedicated internal team, in partnership with key advisers that will be responsible for the integration planning, the future company design for the value capture. Our Board of Directors and my executive steering committee will obviously provide support and oversight.

Importantly, many of these leaders, team members, advisers obviously have significant experience in executing complex transactions like this. As just one example, among others, I was fortunate enough to have a central role in the Kraft acquisition of Cadbury and the subsequent separation into Mondelez International Kraft Foods Group. Many of the other leaders, including those you'll hear from today, have had similar experience with complex transactions like this. We will draw upon those collective experiences to further derisk the next steps.

So one important element of executing these transactions is ensuring that we have the appropriate capital structures for KDP at acquisition close and, importantly, for each independent entity upon separation. We are well aware that some investors were uncomfortable with our initially proposed post-transaction leverage. And as you've seen today in the press release, we've taken meaningful action to address those concerns.

So we've announced 2 cost-efficient transactions: a minority investment into a newly-created coffee manufacturing JV and a private convertible investment into our future beverage co. These 2 equity-like instruments will help to shore up our balance sheet.

As you see on this slide and in the release, we now expect net leverage to be below 5x when the acquisition closes. And we're also targeting initial leverage ranges for BevCo in a range of 3.5 to 4x, and Global Coffee Co. in a range of 3.75 to 4.25x. Based on the anticipated cost of this new financing, we continue to expect very attractive returns on our JDE Peet's acquisition, including year 1 EPS accretion of approximately 10%.

These capital raises also have the benefit of partnering and aligning KDP with sophisticated strategic investors, including Apollo and KKR, who understand and appreciate our vision.

Let me walk you through the key acquisition, integration and separation milestones from here. We said this back when we announced the deal in late August. We continue to expect that the JDE Peet's deal will close in the first half of 2026. Our path to separation will be milestone-based with a plan for us to be operationally ready by the end of 2026.

But before separating, we want the following conditions to be in place. First, a quick start to synergy capture. Second, balance sheet readiness for both companies. Third, an independent Board of Directors, an experienced leadership team for each stand-alone company. And finally, market conditions that are conducive.

But as we've said all along, we will be flexible in our approach to secure the best outcome. In that spirit, as we optimize from here, one element where we're taking a refreshed approach is to our leadership. We've made the decision to not name the leader of Global Coffee Co. at this time. And we no longer intend for Sudhanshu Priyadarshi to serve in that future role. We will name full leadership teams of both new companies at a future date closer to separation.

So before we unpack both Global Coffee Co. coal and Beverage Co, let me conclude with 3 priorities to maximize value creation. First, maintaining base business momentum. As you saw this morning, we reported strong Q3 results. In fact, we raised net sales outlook and we reaffirmed our full year EPS guidance. You should have also seen that JDE Peet's this morning reaffirmed its full year guidance. Indeed, we are initiating this transformation from a position of strength.

Second priority: integrating with excellence to achieve our key deal objectives. You'll hear more from Roger about the processes and the plans we're putting in place to underwrite successful outcomes. And third, setting up each company for success with focused strategies, tailored operating models, purposeful capital allocation. After the separation, we expect both companies will offer their shareholders quality, consistency, simplicity and be viewed as world-class leaders in their sectors.

Okay. With that, let's move to Global Coffee Co. We're going to bring this new company to life in a couple of sections. First, I'll invite Olivier Lemire to stage. He's our recently appointed President of U.S. Coffee, and he'll give an overview of the attractive Keurig Coffee business. I'll then return to talk about JDE Peet's specifically, and then the combined Global Coffee Co.

Real quick, additional intro on Olivier. He is a tremendous leader. He's been with KDP for 14 years. The last 4, he was President of our KDP Canada business. And I can tell you, in that capacity, he led KDP Canada to significant coffee outperformance, consistently growing pod volume, brewer volume, net sales and operating income. Indeed, Olivier knows the coffee business.

He has deep experience with integrations as well, including steering the former Keurig Canada and Canada Dry Mott's integration. Overall, he built a very strong Canadian organization, and we're very excited for him to take this U.S. coffee desk.

Olivier, over to you.

Thanks, Tim. Good morning, everyone. So after 14 years in the coffee and beverage industry, I've seen firsthand the unique power of coffee to bring people together, whether it's friends, families, colleagues. There's just no other beverage like it. And from my time and country of origin with coffee farmers to walking the floor of our different coffee labs and manufacturing facilities, to building strong relationship with our many brand partners, my passion for coffee and strong conviction about the future of our coffee business has only grown. So it's a real honor to now lead our U.S. Coffee business and the amazing team behind the Keurig system.

And with this system, we've created and now drive a highly profitable subsegment of the coffee category. Over the last 12 months, we've driven $4.6 billion in net sales and $1.4 billion in adjusted EBITDA. We are trusted by some of the best coffee brands in the world with unmatched capability, quality and scale. Brand names like Starbucks, Lavazza, Dunkin', Peets, McCafe, La Colombe and Tim Horton's and many more. And it goes as well for our own powerhouse coffee brands: Green Mountain Coffee, the Original Donut Shop and Van Houtte.

Keurig is -- and it's all driven by the Keurig brand. Keurig is a beloved brand with 94% brand awareness. It is truly the undisputed leader in single-serve coffee. Keurig is one of those handful of businesses that have become synonymous with their categories. People don't say, "I hope our vacation rental as a single-serve coffee maker." They say, "I hope our Airbnb has a Keurig."

And we don't take that lightly. Since 2019, we've added 13 million active households, reaching 47 million in North America by 2024. We've gone from being 1 in 4 coffee makers sold at retail to being 1 in 3 today. And the Keurig system over these years continue to gain market share in both the coffee makers but also the coffee categories, with K-Cup pods now being the largest coffee format and actually driving twice the retail sales to the next closest format.

And from the start, the Keurig system was designed to offer variety and choice to our consumer. And this open system drives significant value for all of our stakeholders. Our consumer love us for quality, our convenience and the variety of brands and beverages they can enjoy. Our partners value our quality, our system expertise and coffee know-how. And the retailers would recognize that we've driven premiumization in the coffee category with single-serve and K-Cup pods driving more revenue per every cup of coffee. So this creates a very strong growth engine. More brands, more variety, appeals to more household, generating more profit to be reinvested in the system.

We also have a very strong track record of building and accelerating coffee brands, starting with our very own Green Mountain Coffee now realizing more than $800 million in retail sales annually and holding the #2 position in the Keurig system. It is part of a robust owned and licensed portfolio of brands that drives strong distribution and, obviously, retail activation.

Here are a few examples. McCafe was a brand in decline when it transitioned over in our system mid-2020, and has been growing share every year since. Lavazza is the fastest-growing brand since we took over the selling rights, and we see acceleration in distribution and retail activation. And finally, the Original Donut Shop, we know flavored coffee is actually growing faster than black coffee and is the leader in flavored coffee growth with unique partnerships and beverage types.

In addition, we have a very powerful asset in our business with keurig.com. The keurig.com consumer consumes twice the daily average and has a 5x lifetime value versus the average household. While keurig.com is an excellent sales channel for our coffee business, it is also a significant driver of household penetration, being the fourth largest sales channel for brewers in volume. The site enables us to have a one-on-one relationship with more than 1.5 million consumers each month. If it were to be part of our retail channels, keurig.com would be amongst our top 5 with other industry giants.

For those that know our brand history know that Keurig was actually founded in the workplaces, delivering a fresh brewed solution over the dreaded stale pot of office coffee. And on that foundation, we've built a very strong business and away from home with now 650,000 workplaces with active brewers and 1.2 million hotel room. And we actually see significant upside in large away-from-home areas, primarily corporate workplaces, manufacturing, health care, construction.

There is a powerful synergistic relationship between our out-of-home and at-home channels, with workplaces serving as a great trial environment for both the Keurig system and our many brands in the portfolio.

Our Coffee business has actually delivered meaningful productivity over the last 5 years, averaging 4% in year-over-year cost savings through a series of initiatives ranging from tactical to strategic. These programs include brewer-direct import, large [indiscernible], lightweight cups, and meaningful reductions across process and product waste. Our productivity initiatives usually serve dual purpose of generating cost savings and advancing our sustainability agenda, reducing packaging, eliminating waste and driving a more efficient logistics.

So by being cost conscious and driving a productivity mindset throughout the organization, we unlock fuel to reinvest in our business. And with that fuel, we can actually drive and accelerate our strategic imperatives. We know our business is strong and we know we can improve. And over the last year, we've actually refined our consumer-centric strategy.

And we're focused on 4 key areas: driving household penetration, growing premium coffee, scaling cold coffee solution and defining the future coffee system.

In terms of Keurig, we're excited about our new marketing campaign hitting in Q4. It will have strong in-market presence. And we believe that with consumer insights and strong data-driven campaigns, we will be able to continue to unlock household penetration.

With premium coffee, we are on the eve of launching our first-ever coffee brand with the Keurig name: the Keurig Coffee Collective. It will be our first scaled and premium own premium brand. It features elevated packaging. It will -- sorry, elevated packaging. It will have 30% more coffee within each cup, and will have distinctively delicious blends.

And we're leaning into cold coffee solutions with innovations across brewers, pods and ready-to-drinks. We've actually recently launched new refreshers based on TikTok, and we found new ways to offer consumer the way to customize their favorite cold beverages.

And as you would have seen in the product showcase, and invite you to do so at the break, we are getting ready to disrupt once again the coffee category with the launch of a breakthrough system, Keurig Alta. Keurig Alta uses round plastic-free and aluminum free pods. It is designed to offer a large range of barista-style beverages, including rich cups of coffee, authentic espresso and a variety of coffee shop style beverage, either hot or cold.

We have completed multiple rounds of in-home testing with the Keurig Alta system, supported by pilot production of the K-Rounds. And we are looking forward to sharing this innovative format with consumers soon. And while it's early days, we are excited to think about scaling this innovation in the future.

So with that, I'd like to welcome Tim back up to speak to JDE Peet's and how these 2 complementary businesses will be even stronger together. Thank you.

All right. I will put in a plug for those last 2 coffees that Olivier shared with you. If you've not tried our new Keurig Coffee Collective, for those of you in the room, it's in that station back there, my favorite new K-Cup pod, outstanding cup of coffee. And then Alta. Please be sure and try Alta before you go today.

So I will start this next section with thoughts on JDE Peet's, including an overview of the business, why we think it's such a compelling asset and some of the recent strategic changes that are underway at that management team. Then I'll discuss Global Coffee Co. and highlight how the complementary nature of JDE Peet's and Keurig creates this attractive pure play, is truly positioned to win.

So if you're wondering, what am I doing here? Why am I the guy talking about JDE Peet's? The answers are, number one, I will be responsible for it while we run for a period of time as a combined company. Number two is I do have an up-close perspective on this having spent months of diligence on this acquisition and getting to meet and interact with this leadership team. And number three is, believe it or not, I used to run some of these brands back in a past life, brands like Jacobs, Tassimo, Kenco, Gevalia and others. So I actually think I know firsthand the strength of these brands and the roles that they play in the lives of our consumers and our customers.

I also want to tell you, we are very pleased that we actually have the CEO of JDE Peet's, Rafa Oliveira, in the room. Rafa, you can give a quick wave. There he is. He's in the audience. Rafa and I, as you might imagine, have gotten to know each other pretty well over the last few months. And he's actually here States side for a couple of days. Tomorrow, he'll be at our Boston headquarters as we're advancing our integration and transformation agenda.

So let's talk about JDE Peet's. JDE Peet's is a unique asset. It's large. It's profitable. It is a global pure-play coffee company. $11 billion in net sales, nearly $2 billion in adjusted EBITDA. The company holds the #1 or the #2 share position in dozens of markets around the world, reflecting an enviable portfolio of leading coffee brands.

The business is anchored by billion-dollar icons like Peet's, L'OR, Jacobs, but it also boasts a sizable regional and local portfolio, brands like Pilão, Moccona and Friele, among others.

JDE is also distinguished by its rich coffee heritage. This company has deep, deep coffee expertise. Its participation in coffee dates back to the 1700s with the founding of Douwe Egberts in the Netherlands. And its capabilities are quite strong.

As one example, we put it on this chart, the company has the ability to produce over 1,000 distinct coffee blends. You can imagine that's a skill and capability, especially useful in times of extreme coffee inflation and the tariff volatility.

For me, one of the simplest ways to understand this company's strength is by looking at a map of the world. Many countries have large and vibrant coffee categories, and JDE Peet's is present in most of those countries, often with a leading position. Coffee is a category in which the market leader is frequently a regional or local favorite, not necessarily a global brand. Consumers are fiercely loyal to their local brands, particularly in the largest and most developed coffee markets. And JDE Peet's has a portfolio aligned to that reality.

So in the Netherlands and Belgium, Douwe Egberts is the category standard. In the U.K., it's Kenco. In Brazil, it's Pilão. In Germany and actually much of Central and Eastern Europe, it's Jacobs. And in France, it's L'OR. And that's just scratching the surface of their market leadership.

So we recognize that this company's brands may be less familiar to an American audience, but as you can see, they're powerful equities with strong resonance in their core markets. And I'd be remiss to say that these brands also produce a very good tasting cup of coffee, each very individualized kind of taste-of-the-nation qualities. Again, for those of you that are here, there's a station on my back left there that will give you a nice assortment of their brands. And I highly recommend, if you haven't had enough coffee already, please try it at the next break.

Another hallmark of JDE Peet's is the broad category participation. The company has an offering spanning all major coffee formats, from whole bean, roast-and-ground, single-serve, liquid, ready-to-drink, concentrate. The portfolio also captures the full price tiers, from mainstream to super premium. The channel diversity is universal, including all major at-home and away-from-home channels where coffee is consumed. You can imagine, there are significant strategic benefits to this broad category participation.

Now given its advantaged brand portfolio and strong capabilities, it's probably no surprise that JDE Peet's is also a leading partner to retailers across the globe. I'll give you one example. This chart here of a retailer -- a major retailer in France. L'OR actually holds the distinction as the #1 brand in all of CPG, driving growth for the retail trade in France over the last 10 years, ahead of even the biggest global trademarks like Coca-Cola. These photos that you see on the slide underscore the level of in-store activation that retailer support because of the power of these coffee brands and the central role that they play in building shopper basket and driving category growth.

JDE Peet's brand strength also extends to the consumer. Its portfolio has beloved trademarks, obviously, evidenced by those strong market shares I showed you. But what's equally important and I think encouraging for future growth prospects is the brand's particular resonance among younger consumers.

In some markets, here are 3 examples. The sub 30-year-old demographic prefers the leading JDE Peet's brand by nearly a 2:1 margin relative to the next largest player. That type of brand loyalty among the next generation is priceless. As younger consumers grow their spending and influence in coffee as they age, JDE Peet's appeal to these groups should represent a growth tailwind.

The company also has brands with a demonstrated ability to stretch, and I'll give you 2 examples on this chart. Take L'OR. L'OR began as a roast-and-ground coffee staple. But it's now expanded into basically all other consumable formats, including into appliances. And these adjacencies now account for a meaningful percent of total L'OR brand sales.

The other example, Jacobs. Jacobs started as a German icon. But over the last couple of decades has successfully established #1 positions across Central and Eastern Europe. In fact, in 19 markets. Now more than half the sales of Jacobs is outside of its home country of Germany.

I think this is notable because one of the incremental revenue opportunities from combining Keurig and JDE Peet's is the pairing of our technology and our innovation with JDE Peet's brands. We believe the stretch potential of these JDE Peet's trademarks can create intriguing growth opportunities down the road.

Beyond the commercial success, the JDE Peet's business has also demonstrated resilient financial performance. I'm sure I don't need to tell anyone in this room. In fact, a few chats I did prior to the start reflect this, that the last few years has been marked by quite a bit of unusual level of green coffee inflation. Triple-digit cumulative cost pressure on arabica and robusta. You see the numbers on this chart. And yet, even as a coffee pure play, this business has delivered steady and consistent gross profit growth. I think another indication of brand strength.

Bringing it all together, it's clear for us that JDE Peet's has a strong structural foundation. This is a good business. It's got iconic brands, it's got significant capabilities. Yet it's also true that it's a business with significant value creation potential that has yet to be fully realized.

To be clear, JDE Peet's management team recognized this, and they've already begun the important work to begin to capture that potential upside. They hosted a Capital Markets Day back in July and they set a path to become a more agile, more focused, more commercially capable organization. I visited Amsterdam a few times with Rafa and team. And I can already see the early stages of this important cultural shift taking hold.

The centerpiece of their approach is an evolved strategy, and they aptly call it "Reignite the amazing." Now there are many elements to the plan, but I'll just highlight a few notable points. An emphasis on fewer, bigger bets, with resources and management attention going towards the largest brands. Greater consumer centricity and commercial excellence. And a stepped-up productivity flywheel to unlock savings, flexibility and agility.

The strategy makes sense, and it's definitely aligned with CPG best practices and operating principles. And upon integrating JDE Peet's with Keurig, we would expect to continue this work and harmonize it into a combined strategic playbook for Global Coffee Co.

It remains early days as they've embarked on this new strategy, but I would tell you, there's already some initial proof points showing up from this refined strategic approach. I'll give you a couple of examples. On big bets, JDE Peet's is prioritizing leveraging insights and infrastructure to launch compelling innovations and ideas across multiple brands and multiple geographies in a highly efficient and profitable way. As one example, right now, there's a hot trend out there called Dubai Chocolate. JDE Peet's was able to quickly launch a Dubai Chocolate coffee mix across multiple brands in 20 markets this year using this platforming approach.

Less visibly but no less critically, the company has also made progress in refining its marketing approach and building capabilities in key areas like revenue growth management. We certainly know from experience the payback from these investments can be very high when you get it right.

And finally, JDE Peet's is also beginning to progress its productivity program that they unveiled on their Capital Markets Day. The plan targets EUR 500 million in savings through 2032, with roughly half being reinvested in the business.

Four primary areas underpinning this target. Portfolio simplification across brands and SKUs and the manufacturing and distribution footprint. Simplified ways of working, which involves removing complexity and generating savings accordingly. Continuous improvement in sourcing, in design and plant level productivity. And driving improvements in the company's asset-light route-to-market system.

As you can imagine, we carefully vetted this program as part of our diligence, and we're confident that the savings are achievable. JDE Peet's has already begun to implement this program, including some plant closures and other operating efficiencies that they announced this morning in their press release.

So you've now heard Olivier talk about the strengths and our future growth plans for Keurig. You've now heard me walk through the virtues of JDE Peet's. Let's now talk about what happens when we put these businesses together.

So let's start with some background. These businesses are strong in their own right. They've proven resilient and they've delivered solid performance in a very challenging operating backdrop the last few years. You see on this chart, sales growth and adjusted EBITDA ranging in the low single digits.

And importantly, each business has proven highly cash generative. For example, you see here, Keurig, we expect to deliver more than $600 million of free cash flow this year. And JDE Peet's this morning reaffirmed its outlook for the year of EUR 1 billion, about $1.2 billion. When we put these 2 companies together, we expect even stronger top and bottom line growth going forward. And let me take you through why we believe that.

To start, Global Coffee Co. will be an advantaged market leader in the $400 billion global coffee category. And as I said previously, scale matters in coffee. This business will have it. Global Coffee Co. will be the #2 coffee player in the world by revenue and the #1 pure-play operating across 100 countries. It will have a strong portfolio of brands, diversified across formats, across channels. It will have a strong financial profile, $16 billion in net sales and over $3 billion in adjusted EBITDA.

The combined entity will have a broader product line than either stand-alone company had, but in particular, relative to Keurig. Prior to the combination, as you see on this first bar, our business was almost exclusively focused on the single-serve subcategory here in North America. But with the addition of JDE Peet's, you now see Global Coffee Co. will have a format mix that's far more closely aligned with the global category split and yet still with a favorable skew to the high-margin single-serve segment and other more value-add areas.

What does that mean? Global Coffee Co. can then fully participate in the growth of the entire category, both in meeting existing consumer preferences and emerging growth opportunities.

Similarly, as a true multinational now, Global Coffee Co. will be better positioned to capture a fair share of category growth. At the category level, Coffee has 2 large structural growth drivers. We think both of these are evergreen. The first is per cap consumption growth. This has been and we expect will continue to be a tailwind for the category. It's supported by elements like a rising middle class and ongoing preference shifts, particularly in noncoffee legacy markets, of preferences driven by youth from tea to coffee.

The second is premiumization as measured by value per cup. This trend is occurring across all formats. And you see it most evident in the growth of premium solutions like single-serve, but it's occurring across brands as well, with premium trademarks growing faster than mainstream and value. So while per capita consumption is a greater opportunity perhaps in less developed coffee markets and premiumization is a bigger trend in established countries, we actually see significant runway in both of these structural growth drivers.

The business will also enjoy unique revenue opportunities arising from this very complementary combination. Let me quickly talk to these 5. Formats. Given the potential to expand Keurig brand equities now into new subcategories, leveraging JDE Peet's full segment exposure. Technology, especially in brewers. Keurig is best-in-class in brewers. We've been an innovation leader. We know how to produce them at an efficient and profitable manner. We can provide insights to some of JDE Peet's systems like Senseo, Tassimo and L'OR.

Channels. We can capitalize on our complementary footprints, including in away-from-home. Next generation. Next-generation, exciting Keurig Alta and K-Rounds innovation now has the potential to think about expansion beyond North America. And brands, targeting growth opportunities for specific brands in the portfolio, and one I'll call attention to is Peet's, and I'll give you more in a moment. As you see, the center-logistic growth opportunities are ample and indeed global.

Let me talk a little bit more about Peet's just to bring that to life. We all know that brand, I think, pretty well here in the U.S. It has a rich heritage. It's a coffee pioneer. It's got strong brand awareness premium coffee credentials across the U.S. But as this map shows, the map on the left, its market penetration is very much concentrated in the West Coast, and in particular, California, the home territory.

And its commercial execution at point of buying meaningfully lags Keurig's. But as a combined entity, Global Coffee Co. can utilize Keurig's significant commercial scale, our very strong customer relationships to improve Peet's geographic footprint.

I'll give you one example with numbers. You see that on the far right. We have the ability to achieve -- well, today, Keurig achieves almost 4 times the feature and display activity of brand Peet's. We can and we will close that gap. The result can be a much larger, faster-growing Peet's premium brand over time.

So we've talked about the revenue opportunities, but we also see visible cost synergies at Global Coffee Co. Our $400 million synergy target in the first 3 years span several areas. In procurement, we will benefit from enhanced scale across green coffee sourcing as well as direct and indirect spend pools. In manufacturing and logistics, we have plans for network optimization, for route-to-market consolidation and other go-to-market efficiencies. And for SG&A, we've already identified corporate scale efficiencies as well as IT infrastructure and other system savings.

Importantly, these synergies have been scoped and we've developed concrete and actionable plans to deliver on these cost synergies, if not exceed them.

Ultimately, we expect Global Coffee Co. will generate consistent, attractive profit growth. This will be driven by a few factors. First, obviously, profitable top line growth. This company will be well positioned to capture its fair share of the coffee category's volume growth, which, as you've heard a couple of times, consistently grows on a volume basis at a low single-digit rate over time. This will obviously generate fixed cost absorption, operating leverage benefits. And in addition to that, the innovation that you've heard about today, our price pack architecture and RGM work, promotional effectiveness, can further translate that top line growth into nice bottom line growth.

Next, Keurig and JDE Peet's each have robust productivity programs, even beyond the deal synergies I just covered. And obviously, some of these savings will be earmarked for reinvestment, but others will flow through to the bottom line.

And finally, it's not built into our baseline financial outlooks, but it's our belief that current coffee prices are clearly well above the long-term trend, and they do not appear to be supported by market fundamentals. I'm not going to try to predict commodity market gyrations on this stage, but it is worth noting that any normalization in this cost would clearly drive a cyclical profit tailwind.

Bringing these elements together. The business' structural advantages, the potential revenue synergies, the cost synergies of the combination, the other profit levers available to the business, Global Coffee Co. will support an attractive growth algorithm.

Now there certainly can be some year-to-year volatility in top line due to commodity volatility, but over time, we project low single-digit net sales growth and high single-digit adjusted EPS growth. And we would expect this business to be highly cash generative. As you see on this chart, anticipated cumulative free cash flow of more than $5 billion from '26 to '28.

We are excited to create this global coffee powerhouse, the world's largest coffee pure play, and a stable of the best-loved brand powered by advantaged capabilities.

All right. I think you've earned a well-deserved break. Let's take a 15-minute break, and we will come back and talk about Beverage Co. Thank you.

[Break]

We're starting in 1 minute. Everyone find your seats.

Please welcome Eric Gorli, President of U.S. Refreshment Beverages.

Right. You all hear me? Excellent. Good morning. Thrilled to be here getting to represent this great business. And most likely, I'm a new face to most of you. Believe it or not, I've actually been in this industry closing in now in 30 years. I spent the first 20 in the [ red system ] and I just hit my tenth year anniversary here at KDP.

And look, as I've told Tim, Bob, our Board, there is absolutely no other place than I'd rather be right now than here with this collection of iconic brands and the incredible team that we've been able to assemble. So let me tell you why I feel that way.

Tim hit some of this to start with. We work in a fantastic industry. It is large, over $300 billion in retail sales. And most importantly, year after year, it has demonstrated the ability to consistently grow sales dollars north of 3%. And what fuels that growth is just how dynamic the consumer and her ever-increasing demands are.

Underlying mega trends, these are things we all experience in our day-to-day lives: convenience, wellness, the need for functionality. These fuel the cycle of innovation and the opportunity to continuously participate in new pockets of growth.

And this landscape is way more fragmented than most people realize. We view this as an opportunity for future expansion, particularly with our unique build-buy-partner model.

So let's talk a bit about BevCo and why we feel like we are uniquely positioned to be a formidable challenger in this industry. We have scale. We exited 2024, as you saw in Tim's slides, north of $11 billion in net sales. Our business is profitable. Our EBITDA margin is at 30%. And again, importantly, we're growing. Since 2018, we've averaged a top line growth rate of 8%.

We have incredible portfolio of brands with incredible organic growth upside. That's going to be most of my presentation today, just the confidence we have in these products. We also have an advantaged commercial and route-to-market model. This includes 1 of only 3 national direct store delivery systems for nonalcoholic beverages here in the U.S. And we've invested significantly in our operations to go support network expansion. And yet, we still have so much room for improvement.

So I'll now get into the details on why I personally have so much confidence we can maintain this momentum into the next chapter. So one of the things that is so very special about beverages is just how they are so very personal. These are products where consumers create deep, lifelong relationships with their favorite brands. We have many of these brands inside our portfolio, brands that consumers love, brands that our retailers value.

So a few facts and figures. On the slide, you'll see over 25 brands that have over $100 million in annual retail sales. They are led by our $3 billion trademarks, brand Dr Pepper fast approaching the $6 billion mark, as well as category leaders like Canada Dry and Mott's. Some other key brands, you'll see icons like Snapple, A&W, 7UP. As well as a few fast-growing disruptors like Bloom, Ghost and Electrolit. Today, we believe we have a portfolio that not only provides us with exposure to growing categories, but it creates scale for us with our customers and efficiency inside of our operations.

So over the past several years, we've done a really nice job of being very thoughtful in how we want to evolve our portfolio. As you heard Tim mention, we employ a flexible but disciplined model that's really centered around building, buying or partnering. It all starts with build. And you can see on the slide where we have demonstrated a really strong track record of bringing innovation. No better example of this than inside of our CSD portfolio. Here we are repeatedly recognized by our retailers for our market-leading innovation.

We've also been very purposeful in our approach to utilizing different ways to go expand the portfolio, particularly our partnership model. Our approach of partnerships is very, very unique in the industry. We work hard to ensure that there is a win-win in the relationship, that we have aligned incentives and that both partners are in it for the long term. These partnerships are able to go leverage our DSD network and allow us to rapidly participate in growth pockets with a very capital-efficient model. And in a number of cases, they provide us with a superior risk-adjusted return than we likely could achieve on our own through a build model.

So we'll start now with the portfolio with my favorite brand, our flagship brand Dr Pepper. I literally can speak for an hour just on brand Dr Pepper load. It is a brand that has had incredible success and yet we still believe tremendous headroom for growth. A couple of years ago, you heard Tim say Dr Pepper became the #2 most consumed soft drink brand. This year, 2025, we will complete our ninth consecutive year of share growth.

This is all built upon a consumer obsession for the brand. You can see that demonstrated in category-leading household penetration growth as well as industry recognition for our marketing campaigns. We believe we have a repeatable playbook that works. It starts with Dr Pepper's unique flavor, its distinct positioning. It plays firmly in wins in what we call the treat demand space. We're able to take that positioning and then make meaningful connections with what consumers really care about and where their passions are. Right now, you can see that on Any Given Saturday come to life in season 8 of our highly successful Fansville campaign.

We also leverage winning innovation, innovation that creates excitement not only with our consumers, with our retailers and our distributors. That drives some of the scale retail activation you'll see in market for the full trademark. Importantly, not only for the innovation, this also attracts new households into our base flavor, and we execute this well.

So this is great, but what excites me the most is the runway we still have ahead of us. Let me talk about Dr Pepper Zero Sugar, still very much in its early days. You'll see in your scan data, it's already the #2 zero sugar CSD, but still has significant opportunity in terms of distribution, display presence, even consumer awareness. As a percentage of the trademark's mix, we're still only about 60% of the development of the #1 zero sugar CSD.

Point number two, Dr Pepper is Gen Z's most popular beverage brand, and we've rapidly been adding households within this cohort. If you are like myself, a student of our industry, you know that this type of trend is highly encouraging for longer-term consumption growth.

And then finally, we have outsized growth opportunities in specific geographies. While we're currently approaching a [ 13 share ] nationally. However, in any given local market, we could be as high as the mid-20s in our heartlands were mid-single digits on the coast. What's really encouraging right now is we are growing share across all market types. In lower-share markets, our innovation has been the most impactful in actually bringing new households into the trademark.

And then final point, as good as the marketing has been on brand Dr Pepper, we honestly believe it can get even better. This year we've begun to leverage some of our new capabilities in precision and personalized marketing. This is now allowing us to go reach target consumers with relevant content in a hyper-efficient approach. We'll speak a little bit more about that in a couple of minutes.

So this playbook, we think it's a repeatable model that we can go apply to other parts of our portfolio. And let me just give you 2 quick examples of work in flight today.

So Canada Dry, #1 ginger ale, a long track record of growth. Canada Dry plays in the relaxed demand space. It also has a unique and ownable position. Here we've seen innovation also play an important role. Back in 2024, we launched what we call our Fruit Splash platform. That year, it was recognized as the #1 CSD innovation. We're bringing a second flavor in for 2026. And much like brand Dr Pepper, Canada Dry also has geographic opportunities. While it's a 3 share nationally, it's as high as a 12 share here in parts of the Northeast.

And let's take a minute to talk about Mott's. Mott's, #1 apple juice and sauce brand, a staple for moms, incredible equity and health. Here, though, we still have potential for growth. Great example you see on the slide is in our sauce portfolio. Inserting formats like cups and jars, we're north of the 50% share. But we have been a relatively small player in the growing pouch segment. Over the past year, with a focused marketing and commercial activation plan, specifically against pouch, we've been able to unlock significant growth.

So I'll let you scan the right-hand side of the slide. You can see a host of other iconic brands within our portfolio that we think we can deploy the same playbook to unlock organic growth. For those of you, probably most of the audience here, local to New York City, you may have noticed Snapple has both a new campaign. And just last week, the return of its iconic glass packaging in 5 classic flavors, honoring the city where it was born and its 5 boroughs.

So let me shift gears here, another space I probably consume too much of, but we're excited about as a company, the energy category. Energy now the third largest category in beverages, $28 billion. If you look at the scanner data, growing rapidly. What's really remarkable about energy is just how over the past 2 decades, this category has continued to reinvent itself. It's been able to leverage different product profiles, whether it be ingredients, caffeine amounts, serving sizes, brand positionings. The category has been able to continually unlock additional occasions and bring in new households. Right now we're really seeing the latest iteration of this with the female targeted product lines.

Three years ago, we rounded honestly to a 0 share in energy. We knew this was a big opportunity. So we set out to go create a portfolio to win where we saw the growth occurring: products with great taste, products that played in the zero sugar space, products that we could target against distinct demand spaces with unique authentic brands. Today we believe we have a complementary portfolio of brands that can win within the respective segments, especially when you couple that with our commercial approach and our national distribution network.

You'll see in your scanner data, over the past 4 weeks, we've now surpassed the 7.5 share and we have line of sight to our stated goal of the 10 share in the next few years.

So aside from energy, we've also established platforms in several other high-growth categories over the past 2 years. Through our long-term distribution partnership with Electrolit, we now have a strong play in sports hydration, Specifically, we're the #1 player in the rapid hydration segment. This is a $2 billion segment that is growing at a blistering pace.

This summer, we entered the probiotic CSD space with Bloom Pop, building on Bloom's incredible success to date in energy. In its launch retailer, velocity per SKU was on par with the market leaders. We're really excited about Bloom Pop's potential, and we just began scaling this nationally at the end of Q3 through our DSD network.

And then finally, earlier this summer, we had an acquisition, a company called Dyla Brands, which has allowed us to go play in the drink mix space. Dyla is bringing both brands as well as capabilities. Additionally, it's going to let our broader portfolio to instantly access this high-growth and attractive functional powder segment.

So a lot of effort has gone into building this portfolio. However, entering a category is one thing, the bigger question, can you effectively sustain the success? And you can see on the slide, across a variety of time horizons in a spectrum of categories how we have been able to significantly increase our market share relative to pre-KDP distribution. This reinforces that access to our network. It's more than distribution. It's our ability to step-change the selling and activation for a brand, all the way from the national buying desk down to the outlet level.

So part of the secret, whether it's successful innovation or some of the partnership scaling I just spoke about, are some of the top-tier capabilities that we've been able to create in our marketing and commercial functions. I mentioned earlier, with brand Dr Pepper, my excitement around our new capabilities to go amplify what we already believe is world-class marketing. This is all grounded in new abilities to go leverage AI-powered data and analytics to go create a deeper understanding of the consumer. This helps us guide our innovation, it's helping us set brand strategy, and now it's also allowing us to create highly relevant, personalized content and creative.

Our marketing and communication platforms are increasingly connected across both channels and platforms. This is going to let us unlock precision media capabilities, allowing us to go target the individual and drive efficiency and effectiveness in how we flight our marketing investments. Right now at KDP, we think we have access to the right data, the right systems and, most importantly, the right talent, underpinned by an agile operating model to measure and react almost real time to ensure we're driving the best returns for our marketing investments. This fall, we started to go deploy this with our Fansville campaign. You're going to hear us talk a lot more about this in the future.

And then an area that I've spent a great deal of my time helping to go build out is the middle part of the slide, is what we call our commercial engine. So this is the function which really serves as the critical link between our brands, and ultimately, our routes to market. So inside the gears of the engine, you see some of the best-in-breed capabilities we've created. It could be omni-marketing, revenue management, category management, how we show up with our customers.

These are capabilities that allow us to effectively represent our products with our customers with a high degree of confidence in the ability to go create value. The advantage of us doing this well, so regardless of the brand owner or the route to market, is we can create a seamless experience for our retailers, bring them meaningful commercial solutions that can fully take advantage of the breadth of what our portfolio has to offer.

And then final point on the slide, we all know it, strong national distribution, absolutely critical to go win in beverages. Right now, we have 6 different options that we can go use and it really depends on what is the right fit for the product or what is the need of the retailer. So let me speak a bit more about those options.

So I'll talk more about company-owned DSD. We have it both here in the U.S. and in Mexico. But we also are able to go leverage some leading bottlers that complement our company-owned DSD footprint in specific geographies. For some products, we still utilize the effect of warehouse direct model, particularly for categories that have lower velocities or where there's a real preference by the retailer for that mode.

Fountain, foodservice and on-premise, extremely important. These channels provide access to high-value away-from-home occasions. These are critical for building brands. Notable, brand Dr Pepper is the most pervasively available fountain beverage. This allows us to go have direct relationships with most major operators and customers in the food service space.

And finally, winning in e-comm has become increasingly important. By our measures today, roughly 1 in 8 cold beverages, the purchases are occurring in a digitally oriented means. And in many categories and retailers, it's providing over 100% of the growth. We are making the right investments to ensure we've got the specialized capabilities to effectively partner for growth, whether it's a pure play or our omnichannel retailers.

So let's talk a bit more about DSD. Why does it matter so much for beverages? Well, when you get into it, great DSD execution is more than just a replenishment model. Done well, it is a powerful competitive advantage that allows you to build brands over time. DSD provides access to outlets that are not serviced by warehouse direct. Most of the convenience retail channel, most of on-premise cannot get there with that DSD.

And even within retail channels, it allows a local selling associate to build a meaningful relationship with decision makers at the outlet level. These relationships, coupled with the merchandising resources we provide, can translate into a superior retail presence for our brands as well as getting you critical access to cold drink equipment and other means of trial.

Scale is what makes a DSD system work. To generate the local brand building benefits, there is significant labor in fixed cost. Scale drives a virtuous cycle that benefits from the leverage on that infrastructure. And done well, it enables further reinvestment in growth.

So let me orient you to our DSD network. These are the trucks that carry the majority of our portfolio. Again, we have 1 of only 3 systems that can cover the entirety of the U.S. footprint. Our company-owned trucks, they're depicted in the maroon on the slide, they cover roughly 80% of the population base. And for the balance of the country, we have long-standing, strong strategic relationships with leading independent distributors who operate with scale in their own respective geographies.

Look, I've had the chance over the past few years to spend a great deal of time with some of the 13,000 DSD employees that we have. When you get a chance to experience the passion these team members have for our brands, the expertise they bring to our customers every day, hitting almost 200,000 outlets, you can see firsthand why this is such a powerful competitive advantage.

So we're really proud over the past 6 years of the work we've done to go strengthen our DSD network. Look, we're improving every day in terms of both the service, the capabilities that we're providing our retailers. So when we talk about each of these vectors, we'll start with territories.

Since 2019, as Tim mentioned, we've made over 30 acquisitions, some relatively modest, a few rather large. What's universal though is where we made these investments, we've been very satisfied with the returns that they've generated. That said, there is not a one-size-fits-all model here. Our primary goal is to have a scaled and relevant DSD operation that puts the right focus on our brands. Whether it's a partner or something we own, access is what is key.

Let me shift to portfolio. One of the goals of our portfolio expansion has actually to go help us generate additional scale for our company-owned DSD operations, meaningful participation in categories like energy or sports hydration. They've had a material impact within specific channels. No better example than inside of convenience retail. Here we've been able to improve our drop sizes close to 70%, and in some instances, have had the opportunity to go revisit our service frequency to go map better to some of our customers' needs. Again, a great example of that virtuous flywheel I spoke about a moment ago and how we can strengthen our ability to go capture growth, particularly in C-stores, which is an extremely profitable space.

So a final point on the slide is going to reference some of our digital capabilities. These here are really focused on our frontline selling. We're rolling these out recently in the market, really pleased with the results.

The one I'll highlight is our Perfect Order. This is an application that's leveraging algorithms based on outlet specific data to help regenerate the order for the next delivery. And just to bring this home, if you think about a big-box store, generally a couple of hundred thousand square feet, we may have 250 different SKUs spread across that store that a sales associate is responsible providing the next delivery order for. Where we've been able to deploy this application, we're seeing meaningful improvement in in-stock rates as well as a significant reduction in the time it takes spent on lower-value activities, [ in ] counting, walking around the outlet. So with that additional time, we can enable these same individuals to shift their focus to local selling activities.

Here we're also implementing real-time access to outlet specific data. We're starting to enable with AI to help generate specific insights. That's going to help aid in their ability to work with a local customer decision maker to unlock growth inside of that outlet. Extremely excited about where this is going to go.

So shift gears a minute, let's talk about Mexico. We also have the fast-growing, profitable $1 billion-plus business in Mexico. Though it's at an earlier stage, we think the same model that has driven success in the U.S. also can be leveraged here. We have the leading brands. Starts with our flagship, brand Peñafiel. If you're not familiar with brand Peñafiel, it's a 100-year-old locally sourced icon that is the #1 mineral water in Mexico. We're now seeing that brand have success moving into some adjacent spaces.

We also believe some of our U.S. trademarks can play a much bigger role in the Mexican market, particularly brand Dr Pepper. Finally, like the U.S., we continue to make meaningful investments in expanding our DSD network. Much like the U.S., for Mexico, a critical enabler of brand development, particularly in a market where the traditional trade is still thriving. Today our company-owned footprint, we reach about half of the marketplace, we cover population centers in the central and northern part of the country. All of this together is why we feel great about our ability to go generate strong returns from Mexico for many years to come.

So spoken a lot about growth. I also want to emphasize, though, we are focused on the right kind of growth, growth that's going to allow us to go expand our margins over time. Pricing, a critical lever. We are very well positioned to drive sustained net price realization across our major categories.

Another key thing is our largest category, CSDs, we still believe has a very, very attractive price-to-value ratio, particularly when you compare that to other beverage options per purchase.

Let's talk about mix management. We have very strong revenue management capabilities. Done well, we're able to go meet both some affordability requirements, but also identify different levers to improve our unit economics, whether it's through promotional optimization or package and product mix. I highlighted the virtuous cycle in convenience stores. The ability to continue to grow immediate consumption soft drink and [indiscernible] as well as energy, these are really profitable levers to continue to go get great margin accretive mix in your portfolio.

And then finally, I'll touch on productivity. We all know productivity, it supports reinvestment back into the brands, ideally can help expand margins. Annually, we target 3 to 4 points of productivity, and we've been able to consistently deliver in that range over the past few years. Specific focus areas where we have made and we'll continue to make investments are in our network, both within our manufacturing and our distribution facilities. We've got opportunities to further leverage automation and optimize our footprint.

Digital, I spoke a lot about frontline a few moments ago. We also have digital initiatives in flight to help step-change our demand and supply planning visibility across the vast network.

And then finally, operating model. We're continuing to strengthen how we manage this productivity pipeline, increasingly driving accountability down to our local orbits.

So when you bring it all together, BevCo has delivered consistent strong financial results. Since 2018, on a compounded and annual basis, top line growth approaching 8%, EBITDA growth almost 12%. And look, we've achieved these outcomes through what I covered today, strong base business momentum and share gains; deliberate, capital-efficient portfolio reshaping initiatives; and targeted actions, which were able to mitigate inflation and help us go reinvest back against the core tenets of our business.

And we expect to sustain this momentum that supports the algorithm you'll see up on the page: mid-single-digit net sales growth and high single-digit adjusted EPS growth. Additionally, we expect to generate significant free cash flow, which will, as Tim mentioned, provide optionality for us to either invest against organic or potentially inorganic additional growth levers.

So a few points to reiterate as I close here. This is a powerful platform in a fantastic industry. Over the past 6 years, this team has proven its ability to consistently deliver attractive financial returns. We now head into the future we're equipped with a fortified portfolio, the right brands, the exposure to high-growth demand spaces, which we believe can meet our growth goals organically.

Additionally, we're poised to benefit from a step change in our new digitally enabled marketing capabilities. We have a model against our portfolio that creates optionality against how we can add to the portfolio in a very capital-efficient manner. We are strengthening our network, and we're going to continue to recognize the benefits of improved execution. These improvements will drive growth in margin-accretive categories, packages and channels.

And then finally, we have demonstrated the ability to unlock meaningful productivity. And we believe we have a robust pipeline of opportunities to come.

So as you assess the some of these efforts, I think now, hopefully, you can understand why I have so much confidence in this team. And as we head into the next chapter for BevCo, confidence about our future and our ability to go deliver this very attractive algorithm we have up on the page.

Thank you guys so much for your attention this morning. I'm now going to turn the podium over to Jane.

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Independent company remain the same as we outlined in August. For Beverage Co, that includes an outlook of mid-single-digit net sales growth and high single-digit adjusted EPS growth. And for Global Coffee Co., we envision an outlook and long-term targets consistent with low single-digit net sales growth and high single-digit EPS growth. These will be strongly cash flow generative businesses, with BevCo projected to generate over $6 billion of cash flow -- free cash flow over the next 3 years and Global Coffee Co. set to produce more than $5 billion.

While the exact dividend at each company will be determined closer to separation, what we can commit to today is that, across the 2, we'll maintain the level of our current dividend to start.

And we also come to you today with a clear view of starting that leverage for each stand-alone company. Upon separation, we expect Beverage Co. to have net leverage between 3.5 and 4x, with Global Coffee Co. targeted between 3.75 and 4.25x. Of course, both companies will continue to delever and strengthen their balance sheets following the separation as we keep to a commitment to strong investment-grade profiles.

Let's zoom in on each company in a little bit more detail, and this will build on the remarks of my colleagues. For Beverage Co., the financial algorithm and capital structure that we've laid out are carefully designed to enable its growth potential, its growth strategy and continued outperformance. As you just heard from Eric, our Refreshment Beverage business has already proven itself to be an agile challenger in North American beverages, and we fully intend to build on this standing with long-term targets that reflect that.

Multiple factors are expected to contribute to mid-single-digit net sales growth. Over the last several years, we have worked really hard to evolve our portfolio mix towards a faster-growing weighted category average, which now features a well-balanced set of volume, mix and price drivers. On top of that, we layer a proven track record of market share gains supported by strong innovation and commercial capabilities. And in addition, our ability to enter white spaces and activate capital-efficient partnerships now and in the future -- they're [ attacked ], which means further growth optionality as we move through this period of integration and then afterwards during the -- after the separation.

So combined with operating margin upside and some below-the-line leverage, what becomes clear is the path to high single-digit EPS growth for the Beverage Co. And to facilitate this, we expect the capital structure at separation will be only modestly above where KDP's would have been prior to the deal, with cash flow to delever quickly thereafter.

Separately, we will optimize Global Coffee Co. for more resilient growth and strong cash flows. What that means is our vision remains to create a pure-play cash-generative global coffee company. How does that manifest financially? A combination of low single-digit net sales growth over time with some volatility up and down over the course of commodity cycles due to pricing pass-through dynamics and high single-digit EPS growth, thanks to a combination of actionable cost synergies, continuous productivity and below-the-line leverage. This combination should drive more steadily growing cash flow with upward potential should the coffee price normalize from here.

And for Global Coffee Co. too, what we want is a balanced capital structure out of the gate, which means net leverage likely between 3.75 and 4.25x at separation.

So you now kind of better understand the financial vision, and I'd like to shift the discussion to how we get there. Over the last several weeks, we set out to optimize our acquisition financing mix with 2 objectives. The first was to lower leverage at acquisition close, and the second was to establish a clear line of sight to solid capital structures for each of the individual separated companies. That process successfully culminated in today's announcement of a combined $7 billion strategic equity investment anchored by 2 leading global investment firms, Apollo and KKR.

I would highlight several benefits to the revised financing package. One, we will, in fact, reinforce our investment-grade profile as a combined company with net leverage at close now approximately 1 turn lower than our original plan entailed. Secondly, we will have greater visibility to investment grade-worthy capital structures for each independent company akin to what I just described. And even though the new capital is equity-like, it comes with a reasonable cost while pairing us up with world-class investors who see the strength of the opportunity at KDP and its successor companies.

All in, against the backdrop of more comfortable leverage and attractive year 1 EPS accretion of approximately 10%, we hope this update will allow the strategic logic and value of the deal to take center stage in your evaluation.

Let's take a closer look at the structure of the deal. Under our previously announced plan, assuming a June 2026 close, net leverage at 2026 year-end was projected in the low 5s. What that meant was a starting point at close that would have been at approximately 5.6x. After today, we expect initial leverage at close to be in the mid-4s. And from there, we plan to delever at roughly 0.5 turn a year, thanks to a strong focus on cash flow.

The new investments will allow us to replace the full balance of junior subordinated notes and a smaller portion of senior debt that were originally intended to be part of the financing package. And all in, the weighted average cost of capital of the deal is expected to be only modestly higher than original plan.

The new instruments we've stood up take 2 forms. Let's start with the creation of a new Global Coffee Co. joint venture with a consortium of investors led by Apollo and KKR. The JV will focus on single-serve manufacturing in North America, with the earnings from pod manufacturing to be split among the partners, including KDP. In fact, KDP will retain a controlling interest in the JV as well as operational control of the assets. And in establishing the JV, we'll receive $4 billion in total proceeds at a cost of capital of just above 7%, in a 7.3% to 7.4% range, an addition projected.

In addition, KKR and Apollo have made a strategic investment into KDP and, ultimately, the Beverage Co., yielding $3 billion of incremental capital.

The second instrument is an attractively priced convertible security. It features a preferred dividend of 4.75% to be netted against any common dividends. And the conversion price is 37.25. That's a 6% premium to where KDP last traded prior to the announcement of the acquisition, an outcome that speaks to the upside potential we all see here. I should mention that we plan to offer our shareholder partners an opportunity to participate in this financing.

To help with your modeling, you'll find a page in the appendix that outlines the accounting implications of each instrument. And when you run your models, what you'll see is that we've been able to effectively drive leverage lower while making a manageable trade-off in terms of accretion and cost of capital. Based on your feedback, which informed our decisions over the last several weeks, we believe this is a more optimal balance to strike.

As Tim said, ensuring solid balance sheets for each company is one of the critical milestones towards a successful separation, and we expect to be operationally ready to go by year-end 2026. In the meantime, our job will be to focus on EBITDA growth and cash flow generation to facilitate that time line.

However, should we want to further accelerate the deleveraging path, there are other levers that we could employ to raise additional capital. For instance, we might consider monetizing select noncore minority stakes and nonstrategic brand assets. And we may also evaluate a partial IPO of Beverage Co. to begin the separation process, which could raise additional primary proceeds.

To be clear, these are simply options for us to consider. The only concrete commitment on this page and on this stage is the strong free cash flow generation to support our transformational vision of the future.

And speaking of commitments, we recognize we have come to you with quite a bit of news today and we're focused on supporting your full understanding. So of all the messages I hope you'll take away from my presentation, it's the following.

We will ensure an appropriate capital structure for KDP at transaction close as well as each individual company at separation and beyond. Our focus is on strong cash flow to support deleveraging as well as maintaining our competitive and attractive dividend. Through all of this, our unwavering goal is to set Beverage Co. and Global Coffee Co. up for financial success and operational success. And as we do so, we will stay consistent and transparent in our financial communications to help build and maintain your confidence.

With that, thank you very much, and I'll pass it on to Roger Johnson.

Okay. My name is Roger Johnson. And I have the privilege of being the Chief Transformation Officer and Chief Supply Chain Officer here at Keurig Dr Pepper. And in my capacity of Chief Transformation Officer, I am responsible for the integration of JDE Peet's into KDP and then the subsequent separation into Global Coffee Company and Beverage Company. So I'd like to take a few minutes today to just walk through our approach and the execution of the transformation and maybe give you some more details of how we're approaching the work in front of us.

First off, we are genuinely excited about the opportunities ahead for both stand-alone companies. And as Bob and Tim mentioned earlier, we have strong support and oversight from our Board of Directors and the especially created Transaction Committee. To guide this transformation, we've established an executive steering committee that meets weekly to provide critical oversight and timely strategic direction. We've also added rigor through a Transformation Management Office or our TMO, which is focused on capturing synergies and driving growth opportunities.

To keep everyone focused, we've named a dedicated internal TMO team to lead these initiatives, allowing most of our teams to continue driving base business momentum. This process is fostering strong communication between JDE Peet's and KDP leadership as well as our both internal functional experts.

And to ensure success, we've partnered with outside advisers who bring deep experience in integrations and complex transactions, and they are long-standing relationships both for us and JDE Peet's, which means we can leverage their detailed knowledge of our collective businesses and their proven expertise from hundreds of similar processes across industries worldwide.

Let me add some more context in the scope of our Transformation Management Office. We've fully stood up critical work streams focused on objectives of integration planning, future company designs, separation, synergy value capture and spin readiness. For both Global Coffee Company and Beverage Company, these efforts have been mobilized in collaborative but discrete work streams.

We've organized these objectives into 3 primary focus areas for execution. First and foremost, change management. We're engaging the hearts and minds of our organizations, showcasing future opportunities and creating that winning culture as we move towards stand-alone success. In commercial and supply chain, we're leveraging this unique moment to optimize and unlock growth and the potential across marketing, selling organizations and key go-to-market opportunities. And then finally, for enterprise functions, we are focused on building fit-for-purpose teams, calibrated to each company's unique needs and scale, ensuring both organizations have the strength and agility to succeed.

As we fully mobilize the TMO, I've seen fantastic collaboration across our teams in these early days. It's really inspiring to watch our leaders really lean in to the road ahead. Together we've shifted into the next gear and planning against key milestones.

First of all, I'd say we're focused on integration planning following the acquisition close with detailed action plans to capture synergies. And we're also accelerating readiness work, developing future company operating models for both Global Coffee Company and Beverage Company and getting into the functional specific preparation required for success.

Secondly, we're deep into separation planning to ensure clean operational readiness for 2 world-class public companies. Our goal is to be ready to separate by year-end 2026. And that means everything within our control will be stood up and ready by then.

As Tim mentioned earlier, the actual timing will depend on achievement of multiple milestones, including our own. But our commitment is clear: secure operational readiness is early and as robustly as possible while actively capturing cost synergies. And our goal is clear: to build a global coffee powerhouse and the most agile North American beverage leader. This transformation approach will make that vision a reality.

To make sure both stand-alone organizations reach their full potential, we've placed a heavy focus on communications and change management. Recently, we had the chance to spend meaningful time with the JDE Peet's team on International Coffee Day, very fitting. And it was a fantastic event in Amsterdam, where we shared our vision, answered questions and amplified the excitement across both teams. A shared love of coffee brought the teams together and really gave everyone, including myself, a glimpse of what a true coffee powerhouse could feel like.

At the same time, we launched aligned communications approaches, high-frequency town halls, feedback loops, multichannel digital outreach, both internally and externally. And this really ensures we're reaching every employee and engaging top leadership, including our director and above populations.

For many, this is the first time in their careers they've experienced a transformation of this scale, and enrolling them in the journey is an exciting opportunity. To reinforce collaboration, we've shared clear guiding principles and leadership commitments on how we will work together for the outstanding outcomes we expect. We believe a consistent drumbeat of communication is critical to a seamless integration and eventual separation without missing a beat.

So far, employee feedback has been very positive, especially around leadership transparency, communication depth and the opportunities ahead of us. And I can tell you firsthand, from Amsterdam, Frisco, Burlington, all over, our colleagues are energized about the future potential of these 2 great companies.

As mentioned earlier, our coffee company value capture plan, about $400 million, is well underway with opportunities across procurement, manufacturing and SG&A and IT. This target has been validated through both top-down and detailed bottoms-up planning, and we see it as highly actionable. As Tim highlighted, these efficiencies are balanced across the 3 major buckets of procurement, manufacturing and logistics, SG&A and IT. And ahead of close, we've established clean teams to ensure that work can happen outside the day-to-day business, so we can move quickly once the acquisition closes.

Immediately after close, we'll activate each functional focus area to deliver on our 3-year synergy capture plan. And we're confident these cost synergies, combined with future growth opportunities, will set Global Coffee Company up for long-term success.

And our job to do the same for Beverage Company, minimizing dis-synergies before and after separation. We expect that impact to be approximately $75 million, and we largely plan to offset it. That means we got to redesign organizations and spend structures with agility in mind, keeping any leakage manageable within the Beverage Company's overall P&L.

I hope you can see and feel my excitement and confidence in our ability to land the right structure, build 2 successful companies and create value for everyone throughout this transformation. So thank you for your time and engagement. I'm going to turn it over back to Tim to give a Q3 earnings update. Thank you.

All right. We are coming down the home stretch. Thank you, Roger. Look, one of the main objectives, obviously, in establishing that TMO is not only to do the hard work around separation -- integration separation, but importantly, to minimize the disruption of that activity so that our core teams can focus and deliver on the base business quarter after quarter.

And I think our Q3 results that you've probably already seen in the press release are a testament to this approach. We continue to operate with focus, with discipline. We delivered another strong quarter here in Q3 even with that tough macroeconomic backdrop.

So let me share some highlights on the quarter. Net sales accelerated in Q3. They accelerated sequentially. They increased at a double-digit rate, with strengthening performance across all 3 of our reported segments. We gained market share in key categories like CSDs and energy. We successfully implemented another round of pricing on our coffee business. And in international, we drove healthy relative trends among challenging macro conditions.

So as you've heard throughout the morning, we are advancing a lot of exciting initiatives right now at KDP across both Refreshment Beverage and Coffee. And these are, as evidenced in the results, really contributing to this near-term performance and, I think, continued momentum.

Having said that, as expected, inflationary pressures ramped during Q3. And even despite this, we delivered solid bottom line growth and generated meaningful cash flow in the third quarter.

So with 1 quarter remaining in the year, as you've heard, we are raising our constant currency net sales outlook and reaffirming our EPS growth guidance. We're confident that our robust commercial plans, our innovation plans, our operating rigor will help us achieve these updated targets and finish 2025 on a strong note.

So let's move to the consolidated results. You see it on this slide. Net sales specifically grew 10.6%, led by about a 6.5% increase in volume mix, with strong results in U.S. Ref Bev and international.

The Ghost integration continues to perform very well. It's meeting all of our key metrics that we set out and delivering on year 1 of our investment thesis. It's contributed 4.4 points to the top line.

Net price increased 4.2%, primarily that's reflecting the pricing actions we took on our Coffee business in response to, obviously, [indiscernible] price inflation.

On the bottom line, operating income increased roughly 4%. Net sales growth, productivity savings were partially offset by that inflationary pressure I referenced. All in, EPS grew 6% to $0.54, and that included a modest below-the-line benefit from a minority partnership gain.

Okay. Let's do a quick tour of the 3 reported segments, starting with Refreshment Beverage. We maintained what I'd characterize as exceptional momentum on this business, with net sales growing 14.5% driven by volume mix increase of over 11%. Net price was also a driver; it added about 3 points to net sales. Ghost clearly was a strong contributor to our growth, but also our base business. In fact, our base business accelerated in Q3, increasing in the high single digits, led by CSDs, energy, sports hydration.

Overall, the segment results in Ref Bev were prepared by that growth playbook that Eric took you through just a few minutes ago. Brand building, innovation, commercial execution each contributing to the strong performance you see. And we see significant runway for future growth in Ref Bev, and we have strong plans in place going into '26 to ensure we deliver on that momentum.

What about segment operating income? You see it grew 10% and with net sales gains and ongoing productivity savings more than offsetting the impacts of inflation as well as lapping earned equity gains that were larger in the prior year.

Let's shift to U.S. Coffee. In U.S. Coffee, we continued our recovery trend. We drove modest growth in both the top and bottom line. Net sales increased 1.5%. Net price realization was 5.5% as we implemented additional pricing actions on our pods business and our brewers business in response to inflation. This was obviously partially offset by a volume mix decline of about 4 points, primarily driven by lower brewer shipments. And I will tell you, during the quarter, retailers are continuing to manage brewer inventory very tightly, and there's some adjustment to the recent price increases by consumers. Pod shipments also declined, but more modestly, and the elasticities are remaining quite manageable and within our overall expectation.

Overall, the coffee category remains resilient in our view relative to the significant increase in input costs, and we're also seeing improvements in our own business. Admittedly, the commodity backdrop is difficult and price overall is driving our top line.

Olivier told you earlier, we're actively advancing robust innovation plans. He covered many of them: marketing plans, driving more brewer sales, some exciting news going into '26 with Keurig Coffee Collective and beyond. And overall, we would say while pod shipments declined, we feel good about what we're seeing from an elasticity standpoint.

Let's talk about segment operating income. It grew about 2.5%, with pricing and cost savings more than offsetting inflationary pressures. We're improved by -- we're -- sorry, we're encouraged by the improved trajectory on the bottom line, but we do expect impact from green coffee inflation and tariffs to build into the fourth quarter.

All right. Now international. Net sales grew 10% in constant currency. That's a 6% increase in net price, a 4% increase in volume mix. Results reflected strong relative performance in Mexico, despite what you know our widely reported macro challenges as well as the pricing-led growth in our Canadian coffee business.

International operating income declined about 4%, primarily reflecting the impact of inflationary pressures as well as a tough year-ago comparison. This was partially offset by the strong top line growth that I referenced in productivity savings. Overall, in international, I would tell you, we continue to see significant potential for this segment to have outsized top and bottom line contribution over time.

These Q3 results also underscored the cash generative nature of our business. Free cash flow was more than $500 million in the quarter, bringing that year-to-date total to $955 million. But importantly, and you see it in this box, this year-to-date figure includes the unfavorable onetime impact of the $225 million Ghost distribution payment that we made in Q1 as we acquired this business and took over distribution. Obviously, excluding the impact of this one-timer, we would have generated more than $1.1 billion in free cash flow on a year-to-date basis, representing obviously a sizable step-up from last year.

Looking ahead, you've heard us say it and Jane mentioned it, we expect strong cash generation, both in Q4, obviously, and a full year basis, and in the years to come, which will help support those deleveraging goals that Jane shared with you earlier.

All right. Let's move to guidance. Three quarters of the year behind us, we are raising our constant currency net sales outlook to high single digit from mid-single digit previously. We're also reaffirming and remain on track to deliver [ HSD ] EPS growth guidance.

We recognize that the environment remains dynamic, especially when you think about tariffs, the building inflationary impacts. But we've got the innovation, we've got the commercial plans, we've got execution in a great place as well as disciplined expense management. And all of that for us means we can continue to deliver on our guidance and for our shareholders.

All right. Let's wrap this up and then we'll go to a break before Q&A.

So we've reviewed the strong Q3 results. I want to now come back to the 4 questions I put up right when I took the stage this morning. And I think over the last couple of hours, I hope you'd agree, we provided meaningful updates and further details on our transformative value creation plans. Let's go back to these 4 questions.

First, why the acquisition? Because after careful consideration, we concluded that the acquisition of JDE Peet's is a unique opportunity to strengthen our coffee business by adding substantial, complementary global scale. This combination will catalyze meaningful revenue opportunities, cost synergies and, in turn, drive strong financial delivery and sustainable competitive advantage.

Second question, why separate at all? You have the option to run it as a combined company. Because we believe in the power of focus. We believe strong and distinct cultural identities at Global Coffee Co. and Beverage Co. can create even greater alignment and more purposeful action. And we believe that strategic optionality should be more available and accessible to each business as a standalone.

Third question, how do we tailor our capital structures to enable these outcomes? By making revisions. We've solved for a more comfortable leverage at acquisition close with a different and attractive financing mix. And we've enhanced visibility to 2 properly calibrated balance sheets for each of these independent companies.

And finally, how do we ensure success? By focusing on milestones rather than dates. By putting the right processes in place to achieve those milestones. And by appointing the right leaders with the right experience to drive towards those goals.

All right. Let me wrap it up by stating the obvious, and it's on this slide. We are truly just getting started. The market reaction after August 25 was not what we hoped for. But I can tell you the reaction from our other stakeholders, including commercial partners, customers, KDP employees and future colleagues at JDE Peet's have all been strongly positive. We've given folks a very inspiring destination and they're ready to go.

We're excited about this future transformation as well. But I also want to be clear, we're not in a rush. We are making a big bet because we see enormous potential, and we're going to be highly deliberate in how we go about unlocking it. I hope you sense that after today.

Our management team, our Board of Directors see a tremendous amount of value creation opportunity from this 2-step transaction, and we will not rest until we get that done.

So as you heard today, this was a slide Bob started with, we do have a consistent and proven track record of creating value in beverages. We create vibrant businesses through a playbook that works. We have deep insights that underpin our conviction in this deal. And we have a clear plan to deliver on its promise. At the same time, we're listening and we are adjusting as and when needed. And this leadership team has the confidence, it has the experience to successfully carry out this transaction. But we also have the wisdom, we have the willingness to stay flexible in our approach.

Again, I hope you've seen that today. And you will continue to see that as we chart our course to establishing North America's most agile beverage challenger and a true global coffee powerhouse.

Thank you for your time. Those of you that are here with us at NASDAQ, we're going to take a break before we come back for Q&A. I again encourage you to take full advantage of these fabulous beverage stations. And those that are joining verbally, we are going to -- or sorry, virtually, we are going to come back at 12:15 East Time. Thank you very much.

[Break]

Ladies and gentlemen, please welcome members of Keurig Dr Pepper's Board of Directors and management team to the stage.

Thank you. I hope you enjoyed that break and were able to try some of our great beverages. I will now move to a Q&A session with the panel. So we're happy to take your questions.

So Tim, it's been a couple of months now since you announced the transaction. Just can you update as you've done more detailed work and look more under the hood? Any incremental opportunities as you see it on the JDE side as you've looked at the business the last couple of months? And specifically on the cost synergy side, potential maybe for upside there, level of visibility that you can deliver the savings you outlined?

And then just secondly, on the base KDP business today, can you just give us an update on the tariff situation, what's embedded in '26 guidance, how we should think about incrementality in '27? But also really wanted to understand how you're managing pricing on both the coffee side as well as the CSD side given what we're seeing with tariffs and the volatility there?

I'll start, and Roger, I might kick it to you on cost synergies, and then I can come back on the tariff and cost outlook.

Look, over the last 8 weeks, as I said, I've spent a lot of time with our colleagues at JDE Peet's multiple trips into Amsterdam, et cetera. You can imagine, we did a great deal of due diligence prior to announcing this acquisition. But at some point, that's kind of public company due diligence. So now being able to really get underneath the hood, meet the leadership team, review things like brand plans, early thoughts on innovation and so on, what I'm seeing is, number one, this is a good business. These are good bones, the brands, the positions, et cetera. And you saw a lot of supporting evidence on stage earlier today.

I think the other is improved confidence in our synergies, both on a revenue basis [indiscernible] in terms of the growth opportunities, everything from what we can do on the brewer side -- one of the many towering strengths of legacy Keurig is our brewer know-how, [ our brewer innovation], our brewer cost structure and our brewer economics. And having seen the other side brewers and having run one of those businesses in my past life, I think there's real benefits there.

I think a lot of the take Keurig legacy brands, think of Green Mountain and a Donut Shop and take it across all formats now in a more profitable way, that's an opportunity for us. Then we start talking about things like Alta, et cetera.

So I'm -- the more that I learn, the more excited I am on the base business itself, the early stages of the "Reignite the amazing" strategy that that team is embarking upon as, well as the synergies. You want to talk a little more on cost, Roger?

Yes. So in the remarks that I had, we talked about from a cost side, procurement, manufacturing, logistics and SG&A and IT. And after the diligence work concluded, kind of had a chance to dive in deeper and really start to underpin that, right, Learn more about the "Reignite the amazing" and then see what's complementary. And I'd echo what Tim said around maybe more obvious things, brewers or otherwise. But then things about manufacturing footprint, routes to market and associated IT systems that I would I have confidence as we're building out the plans the best we can as 2 separate companies, that I'm confident in it. And then we'll get into the clean rooms a little more detail over the next couple of weeks to substantially underpin those more.

And then on tariffs, lastly, and then next, Kevin, looks like is, look, first of all, unique to U.S., right? So it's not a global impact here for the others. No doubt that cost pressure is a back half '25, early '26 phenomenon. So that pressure will continue into that. As part of your phrasing the question, what's built into '26 guidance? There is no '26 guidance. That's not the purpose of today. You guys know we have an algorithm. That's an algorithm that we feel strongly about. But today is not the day for '26 guidance. I will tell you, cost pressure will continue to mount in Q4 and carry over in the front half of next year.

Great. Kevin Grundy, BNP Paribas. Two questions. Just kind of taking a step back, strategically with respect to the deal. Maybe just spend a moment on the structure of the deal and why the Board believed it made more sense than potentially a spin or sale of the Coffee business where you still get sort of the strategic focus that that sort of transaction would lend itself to?

And then relatedly, what learnings does the Board take from this and the market reaction in terms of the way you think about capital allocation, communication with the large shareholders and things of that nature? I'd appreciate your thoughts.

Yes. I'll start off from here. I mean, Kevin, I think we we're incredibly transparent in one of the slides that Tim had today that said we contemplated all potential alternatives: status quo, selling, spinning and then this combination here. And we analyzed each one of those and looked at the potential value creation from that.

The problem with selling it is that [indiscernible] a party on the other side who's willing to buy it and buy it at a price that you think is fair. And this is a really large asset.

Spinning it off on his own does nothing. It weakens the business. It's -- I talked about before about creating a scale player on a global basis. Spinning off Keurig on its own is one that we thought would have destroyed value and we would have lost a lot of the synergies and the scale that we get as a combined company.

Theoretically, one of the questions I think we were talking at a break that you could spin it and then merge it at some point in time, well, that's an unknown. You're not actually not allowed to spin it tax free and have a prenegotiated deal, so we couldn't do that, and then you're left with a lot of uncertainty.

And some of these spin, sale conversations are because there are a group of investors, and I understand it, who think the coffee is a problem, they don't like the coffee business. We actually do like the coffee business. And we, as a Board, are responsible for creating value across our portfolio. So separating it so that people could come in and buy the Refreshment Beverage business and then let the Coffee business language out there is not the Board's responsibility.

And so when we took a look at all of the possibilities, we firmly believe, and you see that today that the combination of Keurig's -- KDP's coffee business, anchored by Keurig JDE Peet's is a perfect match. These are complementary businesses that create a real global leader in coffee. And this was the way that we chose to get there.

I don't know, [indiscernible] take the second part in terms of lessons from the Board or build on that one before I take this over too much?

No, that's okay. I'll take the easy part. We did learn a lot. And otherwise, we wouldn't be here again today almost just 2 months after some of us spoke to you all the first time. And I think taking time and we did have a lot of outside advisers, as you would expect, all summer long, spring, summer, we solicited other input, other advisers. And certainly, everyone in this room also was listened to and was heard.

And so I think -- I'm not sure there will ever be another one of just this thing again, but so that part is definitely a learning. I will emphasize what Bob said that -- and you heard it both from Bob and Tim in the more formal remarks, that we did consider a lot of alternatives. And along that way, because we've heard feedback about [ JAV ] and question marks about that, when we were doing some of that strategic analysis, survey of the market survey of alternatives, whenever it involved JDE Peet's or something, we had a separate committee of the Board of disinterested and independent directors. So that feedback and survey part of the market always went to just that group.

So I feel very good about our governance, our rigor around governance and our respect of independence and competing interests. I think we've done a very good job. But there's no question maybe just taking our time a little bit with slowing a few decisions down would be the biggest takeaway in terms of learnings. Hope that was helpful.

Chris Carey, Wells Fargo. Two questions, please. First, on the free cash flow outlook 2026 to 2028. Is this a view on free cash flow conversion? Or are you implicitly giving any expectations for net income growth in that time frame? I'm conscious that the algorithms that you've laid out today are longer term. But are you also underwriting high single digits over 2026 to 2028 for those 2 businesses from an earnings growth perspective. So perhaps you can give any context on that. I mean obviously, we've gotten concrete expectations for 2026 to 2028 free cash flow. That's why I'm kind of testing that.

The second thing would be, in what backdrops would you tap into these additional financing paths, if you will, right, beverage IPO, selling of minority stakes, green coffee inflation is getting carried into the front half of next year. Potentially, that has EBITDA risks, say, okay, if EBITDA comes in a bit lower, now we finance -- or we tap into these financings. What are the what are the thresholds by which those become nearer-term realities? So the free cash flow and then the financing.

I think most of you in this room know Jane and know her well. She's our Head of IR and CFO International. But in addition, over the last few months, Jane has jumped into an expanded role as SVP of Strategic Finance and Capital Markets. And I think, Jane, you're well placed to answer. Chris' 2 questions.

Thanks for teeing me up, Tim. Good question, Chris. First, on free cash flow. What our goal and our objective for today is to give you more clarity, more data points against which to plan and model just understand better what we mean by the vision for Beverage Co. and Global Coffee Co.

In doing so, we thought it would be prudent to give you a view of what we think the cash generation potential of each of those businesses is over the next several years rather than pinning you down to any particular year. And so what I would interpret the over $6 billion for BevCo and over $5 billion for Global Coffee Co. in free cash flow generation to be is truly a 3-year view. And we will impact that as we go forward, as we give you more perspective on 2026 specifically.

But I think what you're hearing us do is try and give you a view as we operate as a combined company into each of the pieces because we know, ultimately, that will be what you are -- we're all marching towards.

Then anyone else want to chime in on alternatives? Otherwise, I'll take it. So look, what we've done here over the last several weeks is take a fresh look at the financing, right, and make sure that we're solving for the things that we know are important for the company and for shareholders, which is a balance sheet that is solid and visibility to balance sheets that are appropriate for the individual pieces. I think we've done that very successfully today, moving your point of view from 5.6% to 4.6 at transaction close, assuming June 2026. You also have a view of what the deleveraging potential is of the business, right, at about 0.5 turn a year.

So very quickly, you see that, particularly with a muscle that we already have proven over time around emphasizing cash flow generation. We can get to a blended point for net leverage that gives us real visibility to that separation.

Now businesses naturally are variable, markets are variable, conditions change. And so what you should expect us to do is to evaluate all of our options, right? To build on what Pam said, like the lesson is, you got to be flexible. You know where you're marching, you got to get there in a value-maximizing way. And what you're hearing from us is that there is a set of potential options and levers we could pursue, but we will only pursue those if we believe they unlock maximum value and better outcomes for the business.

Andrea Teixeira, JPMorgan. So my question is on the synergies. I understand that the $400 million is on top of the EUR 500 million from JDEP. And we have the details for the JDEP. Obviously, there is a lot of the brands and facilities as well. So I was hoping to see, out of that $400 million, I understand, Tim, you said a lot of this is SG&A, but thinking of like how the hedging of the commodities and procurement can be weaved into all of these, and then I understand JDEP has a very strong capability for hedging, so thinking of how that can be linked and how conservative were you setting that guidance of $400 million and how to think as investors.

Thanks, Andrea. Let's -- first, I want to just clarify the baseline here, and then I'll ask Roger to build from his unique position, both as Head of Supply Chain and Procurement and Chief Transformation Officer.

For clarity to Andrea's question, the JDE Peet's cost-out program is EUR 500 million over 7 years, half of which will be reinvested in the business. The acquisition integration synergies are $400 million over 3 years as a result of the combination time. And we have spent a great deal of time leading up to the acquisition announcement first at a high level, and in the last 8 weeks at a far more detailed level as we've kicked off this Transformation Management Office and with external advisers as well who have worked with both our company and JDE Peet's company to comfort ourselves that those 2 numbers over those 2 time frames are incremental.

Roger, what else would you say on Andrea's double-click?

Yes. So from a building the -- to the extent we can, right, understanding the -- each of the programs, right, and independent programs, I think we've arrived at a good place where we have confidence in the underpinnings. We always reserve the right to get smarter, but one of the principles we have is best of both, right, and really bringing that to light as we're really underpinning the plans. Again, the next step is to get into the clean room and understand detailed policies and what have you.

The coffee market is a fairly efficient market on its own. And I think there's other opportunities there as we look at the capabilities, whether it's technology, whether it's development or what have you, to really bring some flexibility to unlock further places to look, specifically around coffee formulation and what have you. And so I'm looking forward to the next couple of weeks of getting into that. I'll be in Amsterdam next week to start that process of going into the next click of it.

But to date, what we've seen is underpinning the numbers in a way that we feel confident, and we reserve the right to accelerate that more and drive where we see opportunities. We know we have to phase it. We know we have to make choices, right? We can't do everything all at once. But sitting here today, I have confidence in that number. And then as we learn more about policies and how to action those numbers, we'll come back to you with the schedules after we build them.

Peter Grom from UBS. So 2 Coffee questions. Just maybe a follow-up on that. So the long-term algorithm of low single-digit top line growth into high single-digit EPS growth, is that inclusive of the synergies? Or are there other factors that drive that degree of operating leverage?

And then just on the business itself, so just vol mix for coffee this quarter. it didn't really change that much sequentially despite pricing stepping higher. So how much of that is actually the mix component versus shipments actually holding stable? And then just on elasticities, how are you thinking about that through the balance of the year?

Yes. I can start. I think the first answer is inclusive. Obviously, that's near term. That's a long-term algorithm, near term that's an enabler for that. On the Coffee quarter, the second question, you want to take that, Jane or Olivier?

I'll start, Olivier, if you want to add. I had a conversation with some of you offline about, hey, what gives you confidence in the coffee category recovery? And I think if you zoom out, right, and we've had a couple of years now of sequential volume improvement, we're not where we expect to be longer term. But this year and the year-to-date experience, I think, would be very supportive of this trend, right? There is record pricing in the market because we have record set prices. And yet despite that, what we are seeing is very manageable elasticity.

So to answer your question specifically, Peter, you did see some volume trade-off as more pricing was enacted in the market. At the same time, you had favorable mix within that sort of U.S. Coffee segment. I will say that pods are quite resilient. You are seeing more elasticity on the brewers, but that would have been expected.

Filippo Falorni, Citi. So going back to the coffee category, more long term. Bob and Tim, you talked both about the attractiveness of the category. Maybe can you expand a little bit more on the rationale of the deal. Why was coffee the best category to double down compared to maybe some other fastest growth categories within beverages? And even from a long-term standpoint, like we've seen some other categories taking some share in terms of caffeine consumption like energy drinks. So what gives you the confidence that that 2% 40-year CAGR is still kind of the right trajectory?

Given that I've been around for 40 years, I'll start with the last one. I seem to be an expert on that. And then Tim will talk about the piece about the second -- the first part of the question.

So I'm going to go back to 1985 and that case study. You know what the case study was? How do you fix the coffee category given that everyone at below a certain age is switching to Diet Coke? That was the case. It was on campus in 1985.

And so the point is there are always these short-term trends where categories are challenged by new formats, new varieties. But that's why it's always important, I think, in CPG to step back and take a long-term view, and I could give you 25 examples of short-term trends that never panned out. What's is really interesting in coffee and the reason that it is so powerful over the long term is what Tim said in his comments. There's an emotional element to it, there's a premiumization element to it, there's a comfort element to it. And also, it is one of the few food and beverage products I have worked on in my 40-year career where it is deemed healthy. Other than water, I haven't worked on one that the government wasn't trying to limit some version of consumption.

And so this is a rare situation where it's energy and it has all the other attributes, and it has a health tailwind to it. And that's why there is no suggestion over the long term that it's going to change. And all of the diagnostics that we were doing, even post-COVID when it was slowing down, there's nothing negative we could find about coffee. If you do some analysis, you'll always find something on the fringe. We did in 1985. You would have seen the Diet Coke coming in was replacing some of the occasions for a period of time. You see the same thing now to a degree on energy, but we have zero belief that that is something that is a long-term structural change in the category.

You said it well. Rob?

Rob Moskow, TD Cowen. I wanted to know about the high single-digit EPS growth target for Coffee. There's a lot of leverage there implied because the net sales target is only low single digit. And what gives you confidence that there's enough leverage to bridge those 2?

And if I could also come back to your 40 years of experience. The volume growth, I know it's in the USDA chart, shows volume growth over the last 5 years in Coffee. Volume has grown over the past 5 years. But KDP's volume is down. And JDE's volume is down too. So who's drinking all that coffee, like who -- where is all that volume going, if not to the European leader and the single-serve leader here?

Do you want to take the first one, on [ HSD]?

Sure. Look, I mean what we're laying out for you are very identifiable actionable cost synergies that we're going after in short order and then longer-term opportunities, both in terms of top line. And kind of continuous productivity and the "Reignite the amazing" target through 2032 is a part of that. All of which is to say, when we think about HSD, certainly in the first years out of the gate, that's very visible from a cost synergy standpoint, right? And also deleveraging can help bridge that.

As you go forward, you're going to have that much more traction on the various opportunities that Tim unpacked for you. And you'll also drive a more resilient business such that you can get more ongoing operating leverage. But we'll have to prove it to you, right? Again, out of the gate, you have a lot of visibility between below-the-line leverage and the cost synergies. And you heard Roger talk about his confidence there.

Yes. Maybe from a total at-home consumption, obviously, last 4 years, we saw a spike in consumption in at-home through COVID and then decline in at-home as people returned to normal life and work. This has been stabilized over the last few years. And we're coming from a very strong foundation with 47 million households and very good intel that we've got tens of millions of high-value households that have yet to convert into the Keurig system.

So we strong marketing campaigns coming up hitting in Q4, with good promise to consumer, great coffee without the grind, and a series of innovation, and we saw new coffee system we're very confident that we'll be able to return to growth from a volume standpoint.

Lauren Lieberman from Barclays. So I think I sense a change potentially on time line to separation is sort of like at -- or before, by year-end '26, we'll be ready to go. So at the risk of wordsmithing, like confirm if that's right or not. But notwithstanding the comments on like lessons learned and we should go more slowly, I'm just curious why, like what the determining factors would be to decide to move more slowly or to do it right away? What you'd be looking to achieve or benefit from going more slowly?

And then secondly, I feel like we're spending a lot of time talking about coffee, why coffee, coffee. What changes, if anything, for BevCo going forward? And I'd love to hear about that.

Great. I'll take the first one, and Eric, why don't you take a shot at the second? Lauren, I would say I'm not sure you heard a definitive change in time line. What we said on August 25 was we anticipated that this could close by the mid of next year, and separate by the end of next year. You heard something similar today, but there was a shift around we still expect mid of next year for the close, and that we will be ready to separate year-end. So those times are the same. The difference is in that nuance.

And I think what you heard from us today is it will be milestone based. We are not going to commit to a hard date to you today. And recall what those milestones are, right? We want to be sure that our business is continuing to perform well. Guess what, you saw it again today. It is, and we're committed to that. We want to be sure that we have the right capital structures in place. And you heard us make big steps today towards that in terms of improved leverage at close and stated targets at separation.

You also heard us say we need to be sure we've got world-class, independent boards of directors, and proven, experienced, high-caliber leadership teams, and you heard even an update on one of those points today around leadership of Global Coffee Co., which we're beginning process to find that right leader. And then you also heard, let's make sure from a market condition standpoint that we've got the right conditions that could support a potential option, not yet a firm decision, we'll stay flexible and natural, and Jane covered that in her section.

So I think the broad time line, Lauren, and group here, is similar to what we said on 8/25, but with an important nuance where we'll be milestone-based and we'll do it at the right time when we're ready to get the right outcome for our shareholders.

Do you want to talk about BevCo and what an independent BevCo looks like?

Yes. I was able to talk to you guys for about 25 minutes on kind of our playbook that has been driving success. We really feel like that playbook is going to work in the future as well, and I gave a number of examples.

I think the separation, Tim hit on it, the focus on the BevCo entity from the management team, from our supporting functions, from the Board, I think that's probably going to be the biggest benefit. There is definitely a different culture for a fast-moving soft drink centric, DSD centric organization versus warehouse model. I think the amplification of that and just how we go about creating the company's culture coupled with the management team's focus will probably be the biggest underpinnings. That said, we've got a playbook that's working. And I would expect you to see more of the same.

No doubt. And the only build on Eric's point, for sure, around focus and culture, I think there are upside benefits to a stand-alone pure-play Ref Bev business. The other that I briefly mentioned in my remarks was around strategic optionality. And certainly, today, I'm not going to give you the list of here are the 5 things. But I would say, as you continue to advance a scaled, strong brand portfolio, many different categories of participation, strengthen that DSD muscle, there could be options down the road that present themselves around ownership in different levers of the business, brands, distribution, et cetera.

So we'll take a step at a time. But I do think an option like that longer term is enhanced. It's more accessible, more available, more actionable, should we choose that that's in the best interest of the shareholder as a stand-alone Ref Bev company.

I was actually going to ask along a similar line, which is shocking. We have a habit of doing that. So it's Steve Powers from Deutsche Bank. So I get the -- that future focus on optionality post transaction. But as you assess this initiative today going out and kind of doubling down on coffee and separating, that's a big project that was envisioned. So just the opportunity -- how do you get comfortable with the risk and opportunity costs of pursuing that and maintaining all the good that you've been doing on Refreshment Beverages, how do you handicap that? And how big of a consideration was that? Really my main question.

I do have a secondary question, which probably is for Jane. Just on the separation, I think the base case is to spin Coffee. But then earlier when you talked about the different optionalities, you talked about partial IPO of beverages. Just what that means for the existing debt that KDP has? Does that stay with Beverage Co.? Does that go to Coffee Co.? Do we know?

I'll start with the first one and Jane can take the second one. Look, Steve, it is all about execution. This is not something that's unique in the world. We would agree that it's a big undertaking and has complexity to it. That's not daunting for us. As I shared on stage, many of us on this stage right now have experience in large acquisitions, integrations, separations, right? We've done it before, many of these people on stage.

And then it's really about, do you have a great plan, set of processes? That's why we elected today to also ask Roger to unpack our Transformation Management Office and our approach to that, obviously, external advisers, et cetera. Carving off a group of individuals who are focused on that to then allow the vast majority of our 29,000 colleagues at KDP to deliver their mission day after day after day.

And I think Q3, quite honestly, is an early proof point. This was a challenging quarter, one might argue, a quarter where there were some distractions, right? And look, we put up a pretty good quarter here that we're proud of. And so it is just about the right plan, the right governance around it, the right people with the right experience executing well.

Steve, good question on separation plans. You're right that we've now named a couple of options to pursue a separation. The common element across those is it's a tax-free separation. And that piece is sacrosanct and we're going to solve for that first and foremost. .

Secondarily, you got to think about, well, what's the optimal separation mechanism? And that depends on the circumstances in the market and, again, what we think will create the most value, right, for our shareholders. And so one potential is a tax-free spin. Another is this partial IPO concept, which would allow all of our shareholders to participate as we could consider floating a small portion of BevCo as well as bring in additional participants, right, and raise primary proceeds, which can be used to accelerate deleveraging.

We haven't made a decision. I think what you should expect us to do is to solve for optionality as long as possible, and then think about, to your point, the debt structure, how we raise the debt, how we think about those moving pieces to maximize our flexibility. Not all of that has been decided yet, but that is something that we are very actively considering.

Michael Lavery, Piper Sandler. Just wanted to come back to some of the milestones you laid out, one of which is operational performance. Would that include both businesses running the algo targets?

And then second question just on kind of the pace of delevering, that originally you had expected about a 5.6 at close and 5.2 at the end of the year, around 0.5 a year, obviously around 0.4 turn. Now you're calling out about 0.5 turn on a full year. Did anything change, or is that conservative?

Again, I'll take the first, Jane can take the second. Look, our expectation is we continue to perform at a high level at both KDP and JDE Peet's. You've seen us do it so far this year, and that's the expectation going forward. And yes, we do believe, I said it on stage earlier, we're doing this transformational next step from a position of strength, and we think that's the best position to launch 2 new companies.

As it relates to the leverage, right? So just to clarify because there are a bunch of numbers that we've thrown around, and I want to ground us in what we're talking about. The original plan, as was announced in late August, would have contemplated a net leverage at acquisition close, assuming June 2026, at 5.6. We've made a set of announcements today that give us visibility to about 4.6 on the same time frame.

You're also right that we've talked about pace of deleveraging, right? And there is a little bit of delta between what we're seeing today, which we feel very, very good about, right, the 0.5 turn a year and some of the assumptions that were built into the 5.2, which would have included some synergy capture in year 1.

And so look, I think what you're hearing from us is a commitment to maximize, right, cash flow and get to a very quick pace on deleveraging. I wouldn't read too much into exactly this number versus this number, the 0.5 turn, and then the commitment to see if we can accelerate that responsibly is what you should anchor to from here.

Kaumil Gajrawala from Jefferies. I guess a couple of things as you responded to the market reaction and you were thinking about all of your options. Why was the Apollo, KKR option -- really the best partners? I believe they have a Board member coming on. Will that Board member be on both sides of future co, just one of the sides?

And then when we think about -- we've only had 5 hours to think about this, but when we think about the new structure, you've talked about all the benefits, why it should work, everything that's -- how everything is intended to go. But what were the risks that you considered under this new structure on what if things don't go right, how much flexibility do we have to be able to get to where we're looking to go?

I think Pam will take the Board member question. Do you want to take the 2 new investors, KKR and Apollo?

Yes. Look, we're extremely excited to partner with Apollo and KKR. Obviously, there is real strategic merit in the investments that they've underwritten, right? You see an expressed conviction in each of the future successor companies, right, and the value of the assets there and the upside opportunity, particularly as you think about BevCo and all of the optionality that we've talked about here, but also in terms of the single-serve prospects in North America and in the JV.

Beyond just the sort of economic profile of all of that, we get the benefit of some of the smartest minds in the financial world with a ton of experience in transactions, complicated transactions, across industries across the world, and we're excited to partner together and leverage that insight.

I will pass it on to Pam in terms of the Board member and all of those Board dynamics. But I'll just say all of the work that we've done over the last several weeks have absolutely been confirmatory of that partnership and the mindset with which we're walking into these strategic investments and partnerships, and we're excited.

Great. With regard to what was in the press release this morning about it would be our intent to name Brian Driscoll as -- put him forward in the proxy for election to our Board of Directors. I believe the press release said in conjunction with the transactions, which we were outlining in that press release.

However, we are initiating and have a very robust process using an outside search firm to help us because, at the end of the day, whenever separation comes, we will have to stand up, as you've heard, 2 fully independent boards able to field the requisite committees, and it is our goal to make this best-in-class. While we may have some supposition and ideas in our head as to who might go where, we are way not at that point to begin to talk about that because we don't have enough people to field both.

So it's going to be an iterative process, and we will use someone from the outside. And we have an internal committee that will be doing a lot of the leg work on behalf of the full Board, but -- of independent directors, and of course, Tim and Bob participating as we go through the interview process and looking at candidates. We always look for diversity of background, diversity of skills and filling in gaps in terms of capabilities as we look around the Board table, and we have to keep that in mind now for 2 boards ultimately. So hopefully, that answers your question.

Great. I think that's about all the time we have today. So I just want to thank everybody joining us in person and on the webcast for your interest in KDP. I think you've heard very clearly about our conviction in the acquisition of JDE Peet's and the planned separation into 2 pure-play companies. And we hope you share our excitement about the future for KDP. Thank you.