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

Good day, and welcome for the annual meeting -- welcome to the Annual Meeting of Stockholders for Keurig Dr Pepper Inc. I would now like to turn the conference over to Mr. Bob Gamgort to begin.

Thank you, and good morning. I'm Bob Gamgort, Chairman and CEO of Keurig Dr Pepper, and it's my pleasure to welcome all of you to the 2020 Annual Stockholders Meeting. We're pleased to host today's meeting through this virtual online platform, which allows us to facilitate access and participation in the meeting from all stockholders from around the world. [Operator Instructions] Our rules of conduct for this meeting are posted on the virtual meeting site and provide the guidelines for the meeting and for the Q&A. Please remember that you may also vote your shares online at any time during this meeting prior to the closing of the polls. If you have already voted prior to the meeting, there is no need to vote again unless you wish to change your vote. At this time, please let me take the opportunity to introduce you to the other members of KDP's Board of Directors, all of whom are attending today's virtual meeting: Olivier Goudet, Managing Partner and Chief Executive Officer of JAB; Peter Harf, Managing Partner and Chairman of JAB; Genevieve Hovde, Partner of BDT & Company; Anna-Lena Kamenetzky, Partner and Head of Business Development of JAB; Paul Michaels, former Global President of Mars; Pamela Patsley, former Chief Executive Officer and Executive Chairman of MoneyGram International; Gerhard Pleuhs, Executive Vice President and General Counsel of Mondelez International; Fabien Simon, Partner and Chief Financial Officer of JAB; Bob Singer, former Chief Executive Officer of Barilla Holding; Dirk Van de Put, Chairman and Chief Executive Officer of Mondelez International; and Larry Young, former President and Chief Executive Officer of Dr Pepper Snapple Group. Next, I'd like to introduce you to Ozan Dokmecioglu, our Chief Financial Officer; Maria Sceppaguercio, our Chief Corporate Affairs Officer; and Jim Baldwin, our Chief Legal Officer, General Counsel and Secretary, who are all on the line with us today. Also with us are Anthony Shoemaker, our Senior Vice President and Assistant General Counsel, who will act as secretary of this meeting; and Tyson Seely, our Vice President of Investor Relations, who will facilitate the question-and-answer period. Doug Fici, our Engagement Manager with Deloitte & Touche, who oversees our annual audit is also available to answer questions during the question-and-answer period. Robert Johnson, a representative of the Carideo Group is serving as inspector of the election and attending today's virtual meeting as well. Now we'll move to formal business items. I've been informed by the secretary that notice of the meeting was duly given on or about April 28, 2020 to holders of the company's common stock at the close of business on April 27, 2020, the record date, and the number of shares of common stock present or represented by proxy constitutes a quorum. Therefore, I declare this meeting duly convened for the purpose of conducting the business set forth in the notice of annual meeting and proxy statement. Jim, please introduce the proposals to be voted upon.

Thank you, Bob. Each of the proposals that we are voting on were fully described in the proxy statement. The first proposal on the ballot is for the election of directors to hold office for a 1-year term or until their successors have been duly elected and qualified. The following persons have been duly nominated by our Board of Directors for election as directors: Robert Gamgort, Olivier Goudet, Peter Harf, Genevieve Hovde, Anna-Lena Kamenetzky, Paul Michaels, Pamela Patsley, Gerhard Pleuhs, Fabien Simon, Robert Singer, Dirk Van de Put and Larry Young. No other nominations have been received. In accordance with the bylaws, the nominations are closed. The second proposal on the ballot is to ratify the appointment of Deloitte & Touche LLP as KDP's independent registered public accounting firm for fiscal year 2020. The third proposal on the ballot is an advisory vote by the stockholders on a resolution to approve the compensation of our named executive officers. The first and second proposals will be adopted, if approved by a majority of the votes cast on each such item. The third proposal is an advisory vote. As such, the vote is not binding on the company or its Board, but the Board intends to consider the outcome of this vote when making future compensation decisions for our named executive officers. With that, I will now turn the meeting back to Bob.

Thanks, Jim. We do not intend to present any additional formal remarks concerning these proposals because the proxy statement describes them in detail. However, I will remind you that the Board of Directors of KDP recommends that you vote for each of the 3 proposals presented. I hereby declare the polls open for voting on the proposals. If you have not already voted, I encourage you to vote online now. I will close the polls at the end of Q&A session relating to the matters to be voted on today. We will now pause for a minute or so to allow stockholders an opportunity to submit questions about the voting matters online. Please save any general questions about our business until the Q&A session following the formal business portion of the meeting. Tyson, do we have any questions about the proposals that have been submitted online?

Bob, we have not received any questions from our stockholders related to the voting matters. I'll turn it back to you. [Operator Instructions] Thanks, Bob.

Okay. Great. So Tyson, we're going to pause for a minute or so to allow stockholders an opportunity to complete their online voting. [Voting]

Now to wrap up our formal business today, I declare the polls for voting closed. Will the secretary of the meeting please report on the results of the voting.

Thanks, Bob. The inspector of election has informed me that each of the nominees for directors set forth in proposal 1 as well as the proposal to ratify the appointment of Deloitte & Touche set forth in proposal 2 have received the affirmative vote of the holders of a majority of our common stock who are present either in person or represented by proxy and who actually cast their vote. With respect to the advisory vote on the resolution to approve executive compensation as set forth in proposal 3, the stockholders have voted by a majority of the votes cast to approve the resolution. Therefore, under the company's bylaws, each of the directors has received the requisite number of votes to be elected. The proposal to ratify the appointment of Deloitte & Touche has been approved, and the stockholders have voted, on a nonbinding basis, to approve the resolution on executive compensation. That concludes the report of preliminary voting. Details of the final results will be available for all stockholders in a Form 8-K filed with the SEC within 4 business days.

Thank you, Anthony. That concludes our formal business for this meeting. While we will not be making any specific remarks today on the company's recent performance, our 2019 performance is described in our annual report and our earnings release for the first quarter of 2020 sets forth the company's Q1 results. We now have the opportunity to take general questions from our stockholders not related to the proposals. We'll pause for a moment or so to allow stockholders an opportunity to submit questions online.

Tyson, do we have any questions not related to the proposals?

Bob, yes, we do. There are a number of questions related to the COVID crisis. So can you give a general update on how the business is performing during the crisis as e-commerce increased consumer stockpile during the time as examples?

Sure. So on our Q1 earnings call, which the transcript is available on our website, we did go into some great detail on how the company has performed during the initial phases of the COVID crisis. I can provide an update on where we stand with regard to our in-market performance, which is publicly available information. And then I would remind everyone that our upcoming earnings report for Q2 will go into great detail on the financial and operational implications of COVID on our business. So from a consumer behavioral standpoint, which is probably the right place to start, we saw elevated consumption for beverages of all forms, both hot and cold. And we saw an initial phase during the beginning of the work-from-home and shelter-in-place orders where consumers stocked up. That was followed by a destocking where we saw consumption decline as consumers worked off the inventory that they had in their pantries. And then we saw a return to the marketplace where we see an elevated at-home consumption of all beverages. So as we discussed on our Q1 call, we look at this as a giant mix exercise because at-home consumption of all beverages is up. But remember, we also have business in the away-from-home consumption areas, restaurants, institutions and offices, for example, which are down greatly. So our challenge as an organization is to leverage the areas of growth, which is at-home consumption, to be able to offset those areas of decline, which are in the away-from-home consumption areas. While we've seen consumption increase largely across the board with a few exceptions, e-commerce has been a particular area of growth in this time period, and certain segments like at-home coffee as well as carbonated soft drinks have seen elevated and sustained levels of growth. And when I talk about elevated and sustained levels of growth both in coffee, carbonated soft drinks and in liquid refreshment beverages, I'm talking about category growth that's north of 10%. So again, more details to come on our business, and this topic will be very much front and center in our Q2 earnings. Tyson, do we have any other questions?

Yes, Bob. We have 2 more right now. One shareholder is asking, are there too many players in the coffee category or is there room for everyone to play?

Well, coffee category is a very sizable and growing category. In fact, there was very robust growth in the coffee category prior to the COVID crisis. And so there's always a situation where smaller or weaker players may be shaking out over time, but there's plenty of room for growth in this category and the participants and certainly our participation in that category is with strong brands and through an especially strong segment, which is single-serve coffee. So we continue to be very bullish on the long-term prospects of coffee and are very favorable about our competitive position within that category. Any other questions, Tyson?

Thanks, Bob. We have one more. Diversity has been shown to enhance decision-making and provide protection against insularity and group thinking. How does the company think about the challenge of diversity at the Board level, particularly racial diversity?

Yes. I mean this is a topic that's very much on our mind today. Let me remind you that we are a very new company. We completed our merger less than 2 years ago, and our focus has been very much on the continuity of our combined company and on the heavy lift of integrating 2 organizations to make sure that we are operational. As you've seen from our results, in our initial 1.5 years or so of reported earnings since the completion of the merger, we've done that quite well. If you look at our Board composition right now, about 25% of our directors are female. And our belief is that over time, as the company evolves, we will become a more diverse Board and management team. Tyson, any other questions to address today?

No. Thank you, Bob. That concludes the questions. I will hand it back over to you for concluding remarks.

Okay. Thank you. I appreciate the questions from our shareholders and your participation today. Our meeting is now concluded and adjourned. We appreciate all of the stockholders' participation, and I want to thank you for your ongoing support.

Thank you for attending today's presentation. You may now disconnect.