Keurig Dr Pepper Inc. (NASDAQ:KDP) Q4 2022 Earnings Call Transcript

Robert Gamgort: Sure. As we’ve talked about our long-term target for household penetration is 2 million households per year. We actually delivered slightly more than that in 2022. We did deliver significantly more than that in the previous two years. All our indications this year is the $2 million is still the right number to assume for household penetration going forward. And your question about mid-single-digits going forward, absolutely where we are. That’s what we talked about in the December fireside chat. We gave you the context of the long-term trends. And also, we looked at the first half of the COVID period and then the COVID recovery period. And how there’s been some shift between there. But 2 million households and mid-single-digits is still we have in view.

Sudhanshu Priyadarshi: Bob, I can take the — I can take the marketing question. So as we’ve said, our marketing spending will increase in 2023, but our learnings and marketing returns will decide which brand and how much we spend. So we don’t have a top term marketing target, we will watch our brand formal and elasticity during the year, and then we’ll make the decision of which brands we invest in.

Operator: Thank you. And our next question today comes from Lauren Lieberman with Barclays. Please go ahead.

Lauren Lieberman: Great, thanks and good morning. So we want to — I know we want to look forward and you’ve talked about plans on non-operating items for next year. But I did want to talk about the gross margin performance in the fourth quarter. Because my understanding had been that the expectation was for gross margin expansion and that kind of went the other way and then we had another sale leaseback gain. So I think it’s important for people just to understand what went on with gross margins this quarter when that kind of changed versus an expectation for the things to be improving already. Thanks.

Sudhanshu Priyadarshi: So Lauren, this is Sudhanshu. So for Q4 specifically, we saw the pricing — it continued to build, but still lag inflation, especially in the coffee segment. So that’s the other issue. But our full-year inflation for last year was 16% that was higher-than-expected. And as Bob mentioned, during our script. So we’ve seen that relationship improving, but we did not see that in coffee what we were expecting in Q4. So — but you’re seeing that in relationship between pricing and inflation is improving. And that’s the reason we are committed that in 2023, our gross margin will expand.

Lauren Lieberman: Okay. And is that going to be a beginning in Q1 do you think? Or is it later in the year that, that starts to kick in?

Sudhanshu Priyadarshi: It will be later in the year. As we said, we don’t buy on part. So it takes six to nine months to see the price included, but you will see that in the second half. And I talked about that in my prepared remarks. So you will see that in the second half, you will see the improvement in gross margin more as we will see the benefit of commodity deflation — not deflation, but moderating inflation on commodity.

Robert Gamgort: Yes. And look, we have good visibility, obviously, for the early part of the year and what commodity pricing is in the first quarter for — from a coffee perspective, is where we see the highest inflation and then it improves from there.

Operator: Thank you. And our next question today comes from Brett Cooper at Consumer Edge Research. Please go ahead.