Keurig Dr Pepper Inc. (KDP) Earnings Call Transcript & Summary

This call is not for media representatives or investment bankers or Bank of America Securities' commercial bankers, including corporate and commercial FX. All such individuals are instructed to disconnect now. A replay will be available for Bank of America Securities investment bankers and commercial bankers, including corporate and commercial FX. The replay is not available to the media. Today, I welcome you to the KDP investor call. Today's conference is being recorded. For opening remarks and introductions, I would like to turn the conference over to Bryan Spillane. Please go ahead, sir.

Great. Thanks, Brian, and good morning to everybody. This is Bryan Spillane. I'm the food and beverage equity analyst at Bank of America Securities, along with Brian Callen, who's our investment-grade analyst. We are really pleased to be able to host Keurig Dr Pepper this morning for a call on -- with a bit of a cross-asset SKU. First of all, I want to make sure that everyone is under -- is well and safe. These times are troubling, and there's some -- certainly, did fill in a lot of questions, and there's certainly a lot of uncertainty in there -- out in the world out there. With us today is the management team from Keurig Dr Pepper, Bob Gamgort, CEO; Ozan Dokmecioglu, CFO; Maria Sceppaguercio, Chief Operating -- Affairs Officer; and Tyson Seely, VP of Investor Relations. So the format of this call is going to be a fireside chat. Brian Callen and I will conduct the Q&A. But maybe before we get started, Bob Gamgort, I'm going to ask you to maybe make a few comments upfront first.

Sure. First of all, Bryan and Brian, thank you for hosting us today. We welcome the opportunity to discuss our business and give you some thoughts about how we are managing through the current situation. I also echo your comments and hope that everybody who's calling in is safe and healthy and that your families are the same. Let me just take a minute or 2 and just talk about the business, and then we'll open it up to questions. First of all, demand continues to be strong. It's clearly tapering off a bit from the big surge that we saw 2 weeks ago, but it's settling in at levels that are well above normal. And as I'm sure we'll get into in the discussion, while overall demand is up, it's not evenly distributed. And we're seeing wide variances by channels, by segments, even down to pack sizes, which creates complexity on how all of us are managing through this. Our goal is really simple. It is to make sure that we're able to satisfy demand by keeping our employees safe and healthy. And also, we're pivoting our operations to make sure that we're able to deliver those areas where we're seeing extra high demand. And we're also managing the P&L impact of those areas that are experiencing reductions in demand, and this whole mix management is the way we describe it internally. Again, it's something that I'm sure that we'll get into. As many of you know, 2 weeks ago, we conducted an investor call. I'm sure many of you were on that call. And at that time, we issued an advanced press release that was affirming our guidance for the year. And we thought that if we were going to get into any real conversation that we couldn't avoid that conversation -- that guidance affirmation, which is why we put that press release out there. Our conclusions are -- today, 2 weeks later, are similar to where they were then. And then we have 3 incremental topics that really warranted another call. I think, first of all, we want to have more of a deeper conversation on cash liquidity and deleveraging to answer some of the questions and concerns that we receive that we don't think are -- the concerns we don't think are founded, so we want to be able to talk you through that. We also just got the IRI information today, so we want to take you through that, which now covers us through 322. And then I wanted to give a few thoughts on Q1 and Q2 phasing because there's a lot of uncertainty about how does all of this impact Q1 and what moves over to Q2. Let me give you some thoughts on that. So Bryan, with that, let me turn it back over to you for any questions.

All right. Maybe just as a start, can you give us a general sense of what changes are being made day-to-day -- on day-to-day operations to cope with COVID-19? How is the management team operating and what have you learned so far?

Sure. Our management team is operating very well, although our routine is quite different than it was just about 3 weeks ago. So at that time, when we saw the crisis emerging, we established a task force at the executive level. So every one of the -- my direct reports and some additional senior leaders are part of that task force, and I chair it. And we use that group to really run the company today. We mobilize the entire organization to be able to react very differently in this environment because it's changing rapidly. That group has specific roles and responsibilities. There are subgroups that work underneath there. It's quite structured. And we meet on a daily basis as one entire group with a set agenda to review changes that have happened in the previous 24 hours. How we're reacting to them? And that we're able to escalate -- any big decisions that weren't made already, we're able to escalate them to the entire group. And it's working really well. As we get together every day, as I said upfront, our biggest priority that we start with in our conversations is how do we keep our employees safe and healthy. You have to realize that 21,000 out of the 26,000 employees that we have are out on the front line. They're in plants, warehouses and restocking at the store shelves. So we spent a lot of our time making sure that we're taking every step possible to protect their health and safety as they're out there doing really important work right now. The other side, that's the supply side. The demand side, we've learned that a lot of the data sources that we've relied on in the past haven't been that helpful in this environment because the information is changing so rapidly. And so we've had to develop our own tools. Some of them are quite proprietary to be able to look at demand changes on a daily basis so that we're ahead of the game and not following the changes in demand, and we'll probably talk about some of those. And then very importantly, we have a daily S&OP meeting. Typically, we would have had a weekly S&OP meeting, and it takes those early demand signals that matches with capacity and availability of inventory, and we make real-time decisions every day on where to deploy that inventory. And I think the last part is we had to adapt to a new way of working. For those working at home will use every bit of collaboration tools we have in place. As I said 2 weeks ago on the call, because of the merger, we implemented a large suite of collaboration tools to be able to manage with multiple headquarters. That is serving us well right now that every person is working from home, has a laptop and has the ability to video conference and connect through a variety of different ways. So I would say, 3 weeks into this, we're all adapting to this new routine. We're prepared to do this for as long as we need to. And the business, as a result, is performing quite well.

It's Brian Callen. I'll jump in here. Ozan, a question for you. The market generally has a heightened focus on balance sheets and leverage positions since this crisis is unfolded. What steps have you taken or are available to you to support liquidity? And I'm thinking about kind of revolver or CP access. And then can you provide us just an overall sense with how you're feeling about your liquidity today?

Absolutely. And good morning, and thank you, Brian, and good morning, everyone. So let me start assuring everyone that we have ample unused credit capacity and absolutely no liquidity issues or concerns whatsoever. The confidence is based on a number of very important factors that I'm going to take everyone through. First, and I have discussed this recently, the sustainability of our cash generation remains strong. As a reminder, in 2019, we generated $2.4 billion in free cash flow, which equated to a 140% cash flow conversion ratio. For KDP, I can assure you that we are extremely well positioned. We have all the programs and initiatives in place and our expectations for cash flow and deleveraging for 2020 remain very much intact. We still expect a high free cash flow conversion ratio this year. As a result of this, we continue to expect our management leverage ratio to be between 3.5x and 3.8x by the end of this year. Let's turn now to short-term liquidity, which includes the commercial paper market. Since the inception of KDP, we have already taken a conservative approach to our finances between short- and long-term borrowings. As you know, the CP market has been highly inefficient lately. Despite recent Fed intervention, rates are still extremely high. To counter this, we have taken a proactive approach to replace our maturing CP balances with bank loan borrowings, which is lower cost to us. And we have the capacity to replace all of our outstanding CP with bank loans without increasing our total debt. This maintains our total debt at the same level and changing the composition of it to a more favorable mix. So to sum it up, we feel very good about our current liquidity position. We have ample unused credit capacity, and we have strong and thoughtful programs in place, and we are always evaluating these ever-changing market conditions to ensure our overall financing and liquidity as strong as possible. So Brian, back to you.

Yes, that's very helpful, Ozan, all of that color. I guess, just sticking with liquidity, in June of this year, your revolver covenant steps down to below 4.5x leverage. I guess, how are you feeling about your ability to manage against that leverage covenant?

Sure. Very good point. So as I stated before, we feel really good about our overall liquidity, which includes our bank covenants as well. Part of this confidence comes from the fact that we have taken an extremely conservative approach to calculating our leverage ratio, which we call our management leverage ratio by not including in our adjusted EBITDA with full synergies we expect from the merger and other base productivity programs, which we are allowed to do under our covenants. For perspective, had we calculated our 2019 year-end ratio using this allowable methodology in bank covenants, our management leverage ratio would have been well below 4x at year-end versus the 4.5x we reported. Our maximum leverage covenant for the year-end 2019 was 5x. So clearly, we had a great deal of headroom, which we have no intention of needing or utilizing. Also, we will continue to have a great deal of headroom when the leverage covenant steps down to 4.5x in June 2020, as you mentioned. Given our strong free cash flow and continued deleveraging, a calculation that still utilizes the conservative methodology we use in calculating our management leverage ratio. Brian, back to you.

That's helpful.

So Bob, maybe -- Nielsen and IRI data was out this morning. And so -- and certainly, we've seen a demand surge across a lot of categories. We'd love to get your takeaways in terms of what you're seeing. And maybe are there certain categories that you're seeing more demand than others and just anything that might be surprising or notable into that regard.

Yes. Sure. We're digging through those. We were going through them right before this call because we just got them as well. Let me talk through some of the highlights that jumped out since. So just for clarity, the data that we receive is IRI, so maybe a little different than Nielsen, and we're looking at the 4 weeks ending March 22. Although, we can also drill down and look at the 2-week data, which I'll voiceover as well. So it's 2 more weeks of data since the last time we were able to talk about this. So if I start with LRB, total dollar consumption is up about 19% across the entire category, all manufacturers. And if I look at KDP, our consumption is in line with that 19% on an LRB basis on a 4-week basis. We're seeing accelerated growth in nearly every segment. Water, by far, the leader. Sports drinks are up there as well. We see strength in CSDs and juices also. And so pretty much across the board, there's growth, but those are the areas where we're seeing some real spikes in demand. If we take a look at the 2-week numbers, ending 322, you see even further acceleration. So total LRB over the 2 weeks is plus 31%. And if you look at KDP's performance in there and you look at it in key segments, our performance in the 2-week segment accelerated further. So our share gains were greater in a 2-week period than the overall 4-week period. And we see real share strength in CSDs and juice and premium water as well. So that's the landscape of LRB. If I go into single-serve coffee, on a 4-week basis, we're seeing consumption up 25%. On that 2-week basis, it actually accelerated to plus 50%. And again, there's some slight differences, but there's growth everywhere. And we're seeing about the same level of growth in our owned and licensed portfolio and our partner portfolio as well as private label. It's well distributed within that segment. But let me give you a couple of voice comments that makes you think about coffee. Remember, every time we do one of our earnings calls, we talked about IRI, Nielsen as not being that reliable in terms of giving you an indication of the performance in the category because it only covers about 50%. Interestingly, we're seeing a convergence during this time period between all the channels. And so our untracked channels are performing about the same as the numbers you're seeing in these track channels. And it's staying on the surface, but doesn't that include e-commerce? That must be going through the roof, which it is. But also, don't forget in the untracked channels, you also have office coffee, which is way down and, also, specialty stores that are closing their doors. So those pluses and minuses add up to about the numbers that you're seeing in IRI. So that's 25% on a 4-week basis, 50% on a 2-week basis. We also are able to access our own connected panel. So just to remind everyone, we have these several -- multiple thousand, 10,000, 12,000 connected brewers that we've used now for 3 years as the first point of consumption data in CBG. And I'm not going to disclose any specific numbers in there, but I will tell you that we saw an immediate and sustained lift in brews per machine as soon as this COVID crisis hit. So elevated consumption across the board. A couple of thoughts, before I give it back to you, Bryan. I think one is, if you listen to what I just said, you'd say, "This must just be an absolute windfall for all beverage companies for KDP." You have to remember, though, that there are untracked areas that aren't showing up and that are much more negative. So we need the strength in the at-home business to offset the weaknesses as office coffee, as I mentioned before, and on the cold side of our business in fountain and foodservice. Why we think we're unique is we have such a broad portfolio and such a broad set of choices of route to market that we're able to play the strength to offset the weaknesses, and that's why we were as confident as we were when we talked 2 weeks ago and we are today. And a lot of that, I think, since then has been even supported further by even-stronger offtake numbers than probably any of us expected.

That's helpful. Maybe a follow-up in the timing of this the effect of the virus and when it began to impact consumer purchasing powder -- patterns in the U.S. and what the Nielsen data you just walked through us reflects, could you maybe give us an idea of how you think this demand changes reflect in context of the first quarter?

I think -- and I'm glad we're able to talk about this because we're getting a lot of questions on this. The short answer -- and then I'll give you some more detail. The short answer is, the great majority of the impact of this is going to be in Q2. We're talking about this acceleration at the end of Q1. Then there's always a lag between consumption and shipments, and I'll take you through that because it differs by business that really puts us in position where it's more in Q2. And quite honestly, some of the negatives on away-from-home coffee and fountain and foodservice hit us early, without the ability to offset with some of the positives that I just took you through some very large at-home numbers. So let's just, for a minute, go through our business and say, where is there a difference between consumption and shipments? If you think about DSD, there's very little discrepancy between consumption and shipments as you would expect. So that's clear. On our Warehouse Direct business and our Beverage Concentrates business, there's a slight lag between consumption and shipments because there's inventory for retailers and bottlers to draw from before they put a new order in. We do -- did see an immediate reduction in our fountain and foodservice business, which we ship directly to restaurants, and you can imagine their business slowed down very fast and in turn they slowed down their orders to us almost immediately. On the coffee side, there's an even greater lag between consumption and shipments. And the reason for that is not only is there the normal inventory that we talked about. But remember, for a big chunk of our coffee business, we ship to partners who ship to retailers. So there's actually 2 pockets of inventory that can be drawn from, the retailer inventory and the partner inventory. So that's the area where we see the greatest lag in shipments versus those extraordinary consumption numbers that I talked about before. So in that case, virtually nothing will hit us in Q1 in a positive sense. And the one area where we ship directly to customers is away-from-home coffee. We're seeing an immediate negative impact from that. So if I step back, as I said upfront, in Q1, you're going to see some increased demand in DSD and some in our warehouse direct business, and both of those sit in what we call PB. You're going to see more of a negative impact in our Beverage Concentrates business because there's a lag in which the consumption translates to shipments to our bottlers. And the fountain and foodservice weakness emerged very, very fast. And coffee's a very similar story to that, as I just described, in terms of it's even greater lag. And by the way, while I'm talking about coffee, I want to restate some of the things we said before as people are thinking about Q1, Q2. We said before that we had intentionally shifted some brewer shipments from March to April to manage global supply, which Asia has been changing. And also, don't forget, we have Q1 tariffs, and inflation will outpace productivity. We said all that on our earnings call, none of that has changed. If I look to Q2, we're seeing this continued strong consumption now, and we expect it to go forward. Clearly, that translates into increased shipments because now the gap between consumption and shipments go away. And I'll just leave you with one thought because I know you cover a lot of categories, and a lot of your investors who have dialed in cover -- are looking at businesses across multiple categories. And I've been at CPG for about almost 35 years. So when I look at an extraordinary event like this, and I see this surge in demand, you have to be thoughtful about it because not all of it is going to be sustainable. And I put categories into 3 buckets. I say there are those that are clearly pantry load. They're being bought because of this event. They may or may not get consumed in the house, and they probably won't get bought a second time. There's another category where beverages falls into mostly, which is expanded consumption. There's a surge of bringing the product at home. But once it's in-home, people eat or drink more of it. And certainly, snacks fall into that category, but definitely, beverages fall in that category. So that means beverages will be more sustained. And then there's a third bucket, there's only a few categories that could come up with that are in there where there's a structural change in consumer behavior. Coffee falls into that category. We're seeing it in our connected panel. People are moving from working out of home to in-home, they're moving from going to their coffee shop to in-home. And that's -- there may be a little bit of pantry load in the upfront numbers, but there is some underlying strength there because behavior has just fundamentally changed. So hopefully, that helps you guys think about not only our business, but other businesses as well.

Yes. It's very helpful.

And then lastly I had been using my Keurig machine pretty aggressively. So I can speak to that myself.

Same here.

Ozan, you currently have a mid-BBB investment-grade rating. Can you offer us some color on actions you might be willing to take to protect that in this volatile backdrop?

Sure, sure. So we remain committed to our investment-grade rating, which is, as we said, and as everyone would recall, it is Baa2 with Moody's and BBB with S&P. This commitment is embedded in our public financial targets that we guided everyone, as Bob said, some weeks ago when we put our Q4 and full year 2019 earnings call, which include obtaining a management leverage ratio in the range of 3.5x to 3.8x by the end of 2020. I would also point out that as you might expect, we have regular dialogue with credit rating agencies regarding our business, financial performance, cash flow and deleveraging objectives. As we have already stated, we are confident in our ability to deliver upon our commitments and both through our investors and to the rating agencies as well as our ability to maintain our investment-grade rating. Back to you, Bryan.

Bob, we talked a little bit about consumer demand. And now, maybe could you give us a little bit more color about demand by channel? What you're seeing in foodservice, convenience, maybe gas versus grocery and mass merchandisers? Maybe not just what you're seeing now, but how you may think it's going to evolve over the next couple of quarters?

Yes. We're seeing some huge differences in channels, and it's driven by the -- all by consumer behavior. We've talked before about, immediately, we saw a reduction in shopping occasions for fill in or from impulse, and it moved to all stock up. That seems to continue to be the behavior. And you're seeing some real lags now between stock-up purchases as people want to go -- are trying to go out as little as possible. They're going to fewer occasions, much bigger purchases at the same time. And we're seeing that continue and actually accelerate, especially in areas where there are shelter in place warnings out there or requests, I should say. Look -- when I look at the latest IRI, again, we're just digging through and I look at that. As I mentioned, the latest 2-week data, the LRB category was up 31%. If I double-click on that, food is up 53%, the C-stores are down 7%. And so the gas convenience, anything impulse related is really declining right now. And I think that's going to accelerate again for the reasons I just talked about. And we're seeing the remaining purchases shift to those large outlets where people can go on make those big purchases and then go home. E-commerce is booming, not a surprise. Anything that's to restaurants, in our case, our fountain and foodservice business, way down. That will continue to accelerate down for a while. That's what we forecasted for the second quarter. And the same thing on our office coffee business. We're getting big gains at home, but we're seeing losses at the office. Our share of coffee is greater in home than it is in the office. So that's one of the net positives for us as we look at all the puts and the takes. I think, again, when we look at this, this is a changing landscape. It's changing -- we look at it as a matrix. We're on one side, we have all of the segments. On the other side, we have all the routes to market. And you just see these big pluses and minuses on this playing board, game board here. What we do is play against the entire thing with our incredibly large portfolio and a really unique route to market. And as I said before, I think we're in a unique position because of the breadth of the portfolio, and the uniqueness of our route to market that we're able to play the winners against the decliners and navigate ourselves to a good place.

That's helpful.

Ozan, I guess, another question for you, and it's a bit of a loaded question here. I guess, we've been getting a lot of questions from investors around the working capital. So can you just describe in simple terms how your accounts payable or your reverse factoring program works? And then maybe more specifically, help us with color on the firms that make up kind of the middle counterparty. How well capitalized are they? What are the risks that investors should be thinking about to this program in this environment?

Of course. This is one of my most favorite topics, by the way. So KDP, first of all, let me explain, I mean -- and getting into the details as well as a little bit of how our program works. KDP offers a unique supply chain financing program to suppliers who deserve to get paid earlier than returns, they would get it directly from KDP. This is a program that I put in place approximately 4 years ago, then Keurig Green Mountain was private. So nothing new. The program was developed to create an ecosystem where all parties, who participate, benefit. A win-win-win type of scenario, which is very important. The program was also uniquely designed to consider multiple macroeconomic conditions that could occur and put contingencies in place. Let me talk about some of the details of the program and actions we have taken to reduce any potential risk. First, the program is entirely voluntary. We are completely indifferent to a supplier decision to participate in the program or not, which means that suppliers who will participate do so willingly and because it makes sense for them to do so, not because they felt like they had to. Second, the funding for the program is diversified across more than 12 different financial institution counterparties. Furthermore, these institutions are diversified across the U.S.A., Europe and Asia, and includes several large U.S. and international money central banks. So unlike other programs that may have one program that is built around just one concentrated institution, ours is diversified across many, which is very important for risk diversification purposes. Third, we utilize an independent administrator to manage this program. So we are not tied to any one financial institution's platform. It's another important factor. Fourth, the cost of participating in the program is related to our credit rating. We achieve a huge benefit for our suppliers, particularly in a downturn situation. Not to mention, in a downturn, those suppliers would be getting paid faster, which is a very important element. Finally, our program is unique in that it allows for rapid onboarding and transition of our suppliers into the program. Allowing us to move quickly means that our suppliers can get paid fast, and that we can quickly realize the benefits. Let me finish by saying that this is a strong program, where our suppliers with funders of the program in KDP will benefit by participating. KDP is a valuable program in the liquidity it provides, especially in stressful market conditions. And as I have laid out, we have taken thoughtful steps to derisk the program. This program was a significant source of working capital improvement in 2019, helping to drive the 140% free cash flow conversion ratio that I spoke of earlier. We anticipate there will be additional suppliers, who will join the program in 2020, helping to further drive working capital improvements but not at the level we saw in 2019.

And that may have -- I guess, a follow-on to that, Ozan, and that may have been partially addressed it here. But in a worst-case scenario, if the markets stay where they are today, I guess, what are the implications to KDP? Sort of the derisking you just talked about, how have you derisked to prepare for those scenarios or just thinking through a worst-case scenario? You may have partially addressed that just now, but thinking through kind of the downside case?

Sure. I just gave a handful of examples on the steps we have taken in our program to balance these factors appropriately. However, let me give you additional thoughts as well. First, and this is very important, the program is only about 60% utilized. We have brought on many of our suppliers already, and the financial institutions still have ample capacity available. We are not bumping up against the ceiling nor do we intend to, which is a very important element. The only utilization in our program to date has been only 60%. Second, in the case of market distress. The financial institutions are able to change pricing to reflect market costs. This flexibility is extremely important and allows the institutions to adopt to evolving market conditions. These 2 additional factors, along with everything else I laid out, should give you confidence in the efforts that we have taken to prepare for the times of significant market stress. Brian, back to you.

Yes. That's very helpful. I appreciate it. And then specifically on the structured payables program, what are your plans there going forward as it relates to the usage of that program?

Sure. Let me start by saying that this program was always meant to be a temporary program. It was first put in place back when we closed the merger in July of 2018, and had the opportunity to purchase Big Red, which is a very strong regional soda brand. We had to close quickly. And so we put this program in place, which is essentially a virtual credit card program. In those early days of the merger, a subset of our suppliers also joined the program. This is not a program that KDP is offering to our current suppliers any longer, as I said because it meant to be a temporary one, and we answered accordingly. In fact, we are seeking to wind down and transition supplier participation in this program over time as well. Back to you, Brian.

That's super helpful.

For Bob Gamgort, we're getting a lot of questions about just the ability to supply the demand, right? So if you could give us a little bit of perspective on first, just are you able -- any issues sourcing raw materials? And then the second, if you can kind of talk about getting products on the shelf, maybe a little bit about your own DSD network and what the employees are seeing on the front line? And also, you've got independent distributors, right? So either the Coke and Pepsi system or the red/blue system or the impendent white system. So if you could just give a sense of how you're feeling about their ability to meet demand as well?

Sure. Let me start with the supply side, and then we'll get into DSD and independent distributors. On supply, our supply chain has held up well. We've been able to increase output significantly. As I said, not only is there a total level of increased demand, but there are pockets and where you see really significant spikes, and so that always stresses the supply chain. But it's held up really well, and we're able to also put out significantly more volume on our DSD trucks. That S&OP meeting, the daily S&OP meeting that I talked about before, that's at a senior level, has helped us quite a bit because we're reacting every single day to the changes in demand and the product availability and making the right decisions. Now one of the decisions we made several weeks back, for example, is prioritizing SKUs. Only focusing in on the highest velocity SKUs, that gives us longer runs and more output. It makes our suppliers' lives easier in terms of getting raw materials packaging to us. And so that's one example of the kind of decisions we're making in this daily S&OP meetings that have allowed us to meet demand. There are -- as I mentioned, in general, we're seeing that we're able to meet it. There are certainly areas like premium water. And if you double-click within CSDs, cans, where the significant spike in demand has outpaced even our increased capacity. But we'll see how that plays out over the coming weeks, as I said, if we get up to this initial surge, we're seeing elevated demand, but it will be more reasonable in line with our supply. On the DSD side, clearly having a company-owned DSD network that covers 75% of the country is a real asset to us. The fact that we have not only delivered well but have gained share in this environment across nearly every segment in which we compete tells you that our DSD system and our team on the front line is executing incredibly well in this challenging environment. But we also are staying close to our independent distributors because they're important to deliver our product in the remaining 25% of the country. And we want to make sure that they're going through the same challenges right now, and we're trying to see what we can do to help them get through this. And then your last point about the part of our portfolio that goes through Coke and Pepsi, we're seeing really good performance there. And the total share numbers that I gave you are really brand-driven and it reflects performance across every one of those segments. And that tells you that the entire system across all of our distribution partners is doing very well right now.

Ozan, if I could just shift gears a little bit and ask you about commodities. Oil and, obviously, other input commodities have declined pretty rapidly. How long until we actually see a benefit from those commodity declines in your cost of goods sold? And then maybe more broadly, could you just offer an outlook for, I guess, to the best of your ability for 2020?

Sure. And as we have stated previously, we would expect inflation to moderate as the year progresses. The first quarter will be the highest inflationary quarter for us without question. This is part of the reason we have said, in particular, our coffee systems and Beverage Concentrate businesses will get off to a slower start to the year. Further, as you would likely expect, we look for as much cost certainty as we can get in our commodities, whether through forward buying or hedging. Given that the favorability we are seeing right now across various commodities likely will not be an immediate impact as we cannot pass it through. As we roll on new coverage in the back half of this year and into 2020, we would expect to see and start to realize the benefit of the lower commodity price environment, and we will act accordingly. And back to you, Brian.

Okay. It's very helpful.

So we're coming out towards the end of the time. Bob, I'm going to turn it back to you for some closing remarks before we sign off.

Sure. Look, again, thank you for hosting us today, and thanks everyone for dialing in. We know this is a volatile and an unpredictable environment, and we're committed to providing as much clarity on how we see the overall environment and more importantly, how KDP is navigating through this. I would say that despite all of the challenges that we just talked about here, this gets down to a couple of things. One is, do we have the right portfolio and the right business model to be flexible enough to navigate through all the pluses and minuses I talked about earlier, and I would say, we clearly do. I think the second part is, this is a big management challenge because this is not a windfall that is hitting any one company. Even though there are pockets of extreme growth, it is a great management mix challenge. We have to leverage the strengths to offset the weaknesses, and you have to manage your P&L and your resources in a much more aggressive and nimble way. And not only the processes that we put in place, but the fact that I believe we have a very talented senior leader team who has been forced to work together in a very different manner because of the integration of the 2 companies and the robustness of that integration process, all of that put together is serving us really well, which puts us in a position where, again, 2 weeks ago, we go out and say that we can affirm our annual guidance. I will tell you, the way that we will get there will be very different than the way that we intended at the beginning of the year. But because we have such a broad portfolio and a management discretion to be able to navigate all these pluses and minuses, we're feeling really fortunate right now to be able to make a commitment like that. So thanks, again, to you guys for hosting us and stay tuned. I'm sure this will all be evolving over the coming weeks.

All right. Thanks, Bob, and thank you, Ozan, Maria and Tyson for spending some time with us, and everybody for dialing in today. Hope everybody stays safe. And we'll be in touch soon. Thank you.

Thank you.

Okay. And thank you, Bryan. Bye-bye.

This concludes today's call. Thank you for your participation. You may now disconnect.