Q3 2025 Earnings Call Transcript

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 are 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, 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 five points that I think the Board would like to emphasize at the start here. And 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 they 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 recognized 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. And we really think that 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 three 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 three-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 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.

If you 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 a high quality, and honestly, there is no alternative other than matching these two 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 seven years ago, a lot has changed in the world.

Competitors, consumers, our customers in 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 two 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 seven 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 two 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 two 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 these other presenters.

And as I said upfront, I look forward to being back up here at the end with Pam, and 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 it 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 two 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 two 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 four areas. Why is JDE 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, our five pillars. They serve as our blueprint for how we drive sustainable, consistent, compelling performance over time.

The first three of those are commercial priorities, broadly geared around the top line. The true 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 have 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 category's 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've 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 two subscale businesses. We did that to create a North American beverage challenger.

What's happened in the last seven 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've 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, in 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 a 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 Keurig 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 four.

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 three 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 JD 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 two businesses together, we believe the separation will provide clear benefits to both entities. 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 two 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 a 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 and 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 two cost-efficient transactions, a minority investment into a newly created coffee manufacturing [ JDE ] and a private convertible investment into our future Beverage Co. These two 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 Bev Co. in a range of 3.5x to 4x and Global Coffee Co. in a range of 3.75x 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-one 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 and 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. and Beverage Co., let me conclude with three 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 four, 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 in 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, Lavzza, Dunkin', Peet's, McCafé, La Colombe and Tim Hortons 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 one in four coffee makers sold at retail to being one in three 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 households, 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. McCafé 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 doughnut 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 consumed twice the daily average and has a 5x lifetime value versus the average household. With Keurig -- 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 five 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 still pot of office coffee. And on that foundation, we've built a very strong business in away-from-home with now 650,000 workplaces with active brewers and 1.2 million hotel rooms. 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 five years, averaging 4% in year-over-year cost saving through a series of initiatives ranging from tactical to strategic. These programs include brewer-direct import, [ large nested compact ], 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 four 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 owned premium brand. It features elevated packaging will -- sorry, elevated packaging.

It will have 30% more coffee within each cups 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 trends, 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.

Alta uses K-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 two complementary businesses will be even stronger together. Thank you.

All right. I will put in a plug for those last two 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 belt 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 that's 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 the 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 stateside 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 -- 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 retailers 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 Pet'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 three 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 two 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 two 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 two 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 non-coffee 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 than 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 five formats. Given the potential to expand Keurig's 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 synergistic 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 4x 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 three years spans 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 brands 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 one 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 on 30 years. I spent the first 20 in the [ R.E.D. ] system, and I just hit my 10th 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 megatrends, these are things we all experience in our day-to-day lives, convenience, wellness, the need for functionality. The fuel a 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 Bev Co. 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 one of only three national direct store delivery systems for nonalcoholic beverages here in the U.S. And we've invested significantly in our operations to 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 to 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 that 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 could speak for an hour to some brand Dr. Pepper alone.

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 and 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, 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 trademarks 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 or 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 we 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 two 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 man 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 the 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. Inserted formats like cup and jars, we're north of a 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 see on 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 five classic flavors, honoring the city where it was born and its five 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 standard data growing rapidly.

What's really remarkable about energy is just how over the past two 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 zero 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 their 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 four 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 two years. Through our long-term distribution partnership with Electrolit, we now have a strong play in sports hydration. Specifically, we are 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 prebiotic 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 fight 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 six 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 foodservice space. And finally, winning in e-com has become increasingly important.

By our measures today, roughly one in eight 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 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 and fixed costs. Scale drives a virtuous cycle that benefits from the leverage on that infrastructure and done well, it enables further reinvestment and growth. So let me orient you to our DSD network. These are the trucks that carry the majority of our portfolio.

Again, we have one of only three 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 six 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 let me 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 the 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 it can strengthen our ability to go capture growth, particularly in C-stores, which is an extremely profitable space. So 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 daughter. This is an application that's leveraging algorithms based on outlet-specific data to help pre-generate 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 for writing the next delivery order for.

Where we've been able to deploy this application, we are seeing meaningful improvement in in-stock rates as well as a significant reduction in the time it takes spent on lower-value activities, and 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 it with AI to help generate specific insights, that's going to help aid in their ability to work with the 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 a 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 a leading brand. It starts with our flagship brand Peñafiel. If you are not familiar with Brand Peñafiel, is 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 this together is why we feel great about our ability to 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, 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 for 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 occasions 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 will 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, Bev Co. has delivered consistent strong financial results. Since 2018, on a compounded 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 we 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 six 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 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 Bev Co., 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.

[Audio Gap] Each 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 Bev Co. projected to generate over $6 billion of cash flow -- free cash flow over the next three 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 you today is that across the two, we'll maintain the level of our current dividend to start. And we also come to you today with a clear view of starting net leverage for each stand-alone company. Upon separation, we expect Beverage Co. to have net leverage between 3.5x and 4x, with Global Coffee Co targeted between 3.75x 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 profile.

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 Beverages 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 -- 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 3.75x 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 two 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 two 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 a 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-one 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. I'll 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 two 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 sheet 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.

Good. 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 specially 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 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 three 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 two 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 as 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 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.

The 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 two 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 three 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 three-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 is 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 two successful companies and create value for everyone throughout this transformation. So thank you for your time and engagement. And I'm going to turn it over back to Tim to give a Q3 earnings update.

Thank you.

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 three 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 one 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-one 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, sea 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 three reported segments, starting with Refreshment Beverage. We maintained what I 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% 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 are 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, on 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 four 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 four questions. First, why the acquisition?

Because after careful consideration, we concluded that the acquisition of JD 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 it 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 stand-alone. 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 two 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 two-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. We're 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. Dara?

Dara, right here in the front row, okay.

So, Tim, it's been a couple of months now since you announced the transaction. Just can you give us an update as you've done more detailed work and look more under the hood at 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.

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

Look, over the last eight 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 in terms of the growth opportunities everything from what we can do on the brewer side, one of 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 The 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 as best we can as two 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 tariff, 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 into 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 your large shareholders and things of that nature? I'd appreciate your thoughts.

Okay. I'll start off on there. Yes. I think -- I mean, Kevin, I think we were 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 you need 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 its 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, to 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 that 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 KDP's coffee business anchored by Keurig and 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, Pam, to 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 two 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'll 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 JAB 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 Pets 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 interest. I think we've done a very good job. But there's no question, maybe just taking our time a little bit would -- slowing a few decisions down would be the biggest takeaway in terms of learnings. I 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 two 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 going to carry into the front half of next year. Potentially that has EBITDA risks, okay, if EBITDA comes in a bit lower, now we finance -- or we tap into these financings. What are the thresholds by which those become near-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 Jane, you're well placed to answer Chris' two questions.

Thanks for teeing me up the questions, Chris. So first on free cash flow. What -- our goal and objective for today is to give you more clarity, more data points against which to plan and model and 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 Bev Co. and over $5 billion for Global Coffee Co. in free cash flow generation to be is truly a three-year view, and we will unpack 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 5.6x to 4.6x 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?

So, 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 the JDEP, and we have the details for the JDEP. Obviously, there is a lot of kind of optimization 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 with to 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 seven years, half of which will be reinvested in the business. The acquisition integration synergies are $400 million over three years as a result of the combination.

And we have spent a great deal of time leading up to the acquisition announcement first at a high level. And in the last eight 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 two numbers over those two time frames are incremental. Roger, what else would you say on Andreas, 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 preserve 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, and then Filippo.

Peter Grom from UBS. So, two 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 ball 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, do you want to take that, Jane, 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, 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 sea 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, go ahead.

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 of the fastest growth categories within beverages? And even from a long-term standpoint, like we've seen some of the 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 can talk about the piece about the second -- the first part of the question. So I'm going to go back to 1985 in 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 that was on campus in 1985. And so the point is there are always the 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 really interesting about coffee and the reason that it is so powerful over the long term is what Tim said in his section.

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. If you did in 1985, you would have saw 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 0 belief that, that is something that is a long-term structural change in the category.

You said it well.

Okay. 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 two?

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 five years in coffee. Volume has grown over the past five years, but KDP's volume is down and JDE's volume is down, too. So who's taking all that coffee? Like who -- where is all that volume going, if not to the European leader and the single-serve leader here?

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? But -- 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 -- 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 four years, we saw a spike in consumption in at-home through COVID and then decline in in-home as people return 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 with 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, and then Steve Powers.

Lauren Lieberman from Barclays. So I think I sensed a change potentially on time line to separation is sort of like at or before by year-end '26 or we'll be ready to go. So at the risk of word-sniffing, 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, coffee. What changes, if anything, for Bev Co. 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 a 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 agile, 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 825, 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 Bev Co. and what an independent Bev Co. looks like?

I was able to talk to you guys for about 25 minutes on kind of our playbook, 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 Bev Co. 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 a 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're going 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 rev 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 five5 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.

Steve?

I was actually going to ask along a similar line, which shocking. We have a habit of doing that. So, it's Steve Powers from Deutsche Bank. So I get the -- that future focus and optionality post transaction.

But as you assess this initiative today going out and kind of doubling down on coffee and separating coffee, that's a big project that wasn't envision. 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 refresh and 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 code? 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, we 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 Bev Co. 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?

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 on the algo targets? And then second question, just on the pace of delevering.

Originally, you had expected about a 5.6x at close and 5.2x at the end of the year, around half a year, obviously, around 0.4 turn. Now you're calling out about 0.5 turn on a full year. But did anything change? Or is that conservative?

How do we think about the half turn?

Again, I'll take the first. Jamie 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 two 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 5.6x. We've made a set of announcements today that give us visibility to about 4.6x 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 half a turn a year and some of the assumptions that were built into the 5.2x, which would have included some synergy capture in year one. And so look, I think what you're hearing from us is the 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 half a turn and then the commitment to see if we can accelerate that responsibly is what you should anchor to from here.

Kaumil?

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? Why were they 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 only had five 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 two new investors, KKR, 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 Bev Co. 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, two fully independent boards able to field the requisite committees, and it is our goal to make those 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 two 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 two pure-play companies, and we hope you share our excitement about the future for KDP. Thank you.