Keurig Dr Pepper Inc. (NASDAQ:KDP) Q2 2023 Earnings Call Transcript

Page 7 of 7

Steve Powers: I wanted to ask on the free cash flow conversion. Sudhanshu, you talked about the improvements to come which is great. I guess there a way to frame where you think you’ll land on convergence for the year? And as we think ahead, is there any reason that a return to 100% free cash flow conversion or thereabouts is too ambitious for ‘24 and beyond? And I guess, within that, if there’s any – is there any changes that you’re thinking about or that you’ve implemented more structurally with regards to supply chain financing that’d be useful to know. Thank you.

Sudhanshu Priyadarshi : So, it’s a great question. As you know KDP had been a highly cash-generative since merger and we expect to continue to generate significant free cash flow going forward. In our first half, our cash flow generation was lower primarily due to two factors versus last year. One was the lapping on some discrete items and also our proactive choice to selectively reduce a portion of our supplier financing program in a less attractive rate environment. The free cash flow conversion will be significantly higher in the second half versus second quarter and also first half, though it’s for the year, it will improve somewhat below 100% for the full year, but as you know, we look beyond 2023, we continue to target industry-leading levels of free cash flow conversion.

So there’s not too many changes. We are still generating a lot of cash. It’s a second half business. You will see it. But we are making some proactive choices with supply chain financing. That was very attractive in low-rate environment, but now it’s not that attractive.

Steve Powers: And last point, are you through those changes? Or do you anticipate there may be still changes to come given where rates are and where they may go?

Sudhanshu Priyadarshi : No, so, we look at more of a – as the overall capital allocation policy as we came in, in the summer and we have our growth is. Our goal is to – low leverage, but we generate a lot of cash. So be make those decisions case-by-case. So I wouldn’t say that supply chain financing will – the number will become zero, but yes, we’re looking at case-by-case it’s a gradual and we are looking at the benefit of – its also has a benefit on operating income. So it’s – first, in the in the beginning, you feel the most pain is the working capital has a short-term pain, but in the long run, it’s beneficial and we make the right economic decision. So it’s case-by-case supply chain financing is proactive choice.

We are making the decision based on where we see is better economic benefit. But it’s a gradual and it will not happen everything this year, like we will not reduce everything to this year. It will continue for next couple of years. It will be a gradual reduction.

Operator: This concludes our question and answer session. I would like to turn the conference back over to Jane Gelfand for closing remarks.

Jane Gelfand: Thanks, Anthony, and thank you, everyone. We appreciate your time and attention on what we know is a busy morning. And the investor relations team is available should you have any follow-up questions Have a great day.

Operator: The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect

Follow Keurig Dr Pepper Inc. (NYSE:KDP)

Page 7 of 7