Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the Keurig Dr Pepper's earnings call for the fourth quarter and full year of 2020. This conference call is being recorded, and there will be a question-and-answer session at the end of the call. I would now like to introduce Keurig Dr Pepper's Vice President of Investor Relations, Mr. Tyson Seely. Mr. Seely, please go ahead.

Thank you, and hello, everyone. Thanks for joining us. Earlier this morning, we issued two press releases, the first announcing that our Board has approved a 25% increase in our quarterly dividend from $0.60 to $0.75 per share on an annualized basis beginning with the second quarter dividend announcement subject to official declaration by our Board of Directors. As part of that announcement, we also indicated that the Board has declared a regular quarterly dividend of $0.15 for the first quarter of 2021. The second press release covers our fourth quarter and full year 2020 results. Both releases are available on our website in the Investors section. Consistent with previous quarters, today, we will be discussing our performance on an adjusted basis, excluding items affecting comparability. The company believes that the adjusted basis provides investors with additional insight into our business and operating performance trends. While the exclusion of items affecting comparability is not in accordance with GAAP, we believe that the adjusted basis provides meaningful comparisons and an appropriate basis for discussion of our performance. Details of the excluded items are included in our reconciliation tables, which are in our press release and our 10-K, which will be filed later today. Due to the inability to predict the amount and timing of certain impacts outside of the company's control, we do not reconcile our guidance. Here with me virtually today to discuss our fourth quarter and full year 2020 results are KDP Chairman and CEO, Bob Gamgort; our CFO, Ozan Dokmecioglu; and our Chief Corporate Affairs Officer, Maria Sceppaguercio. And finally, our discussion this morning may include forward-looking statements, which are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are subject to a number of risks and uncertainties that could cause actual results to differ materially, and the company undertakes no obligation to update these statements based upon subsequent events. A detailed discussion of these risks and uncertainties is contained in the company's filings with the SEC. With that, I'll hand it over to Bob.

Thanks, Tyson, and good morning. Before getting started, I'd like to express my best wishes to everyone that you and your families are well. It's hard to believe that we've all been operating under the pandemic for almost a year. And while vaccines are providing hope for a return to normalcy later this year, the spike in COVID cases in January, followed by extreme weather in February suggest that 2021 will be another unpredictable year. At the start of the pandemic, we put in place our ONE KDP plan, which prioritize keeping our employees safe and healthy, delivering for our customers and consumers and providing for our communities. These priorities have served us well. Additionally, our success in navigating this crisis to date has been aided by using data and technology to leverage the breadth of our portfolio and the unique reach of our distribution network to effectively manage portfolio and channel mix. In 2020, we delivered at or above the high end of the annual guidance we established at the beginning of the year. And the 2021 guidance we are providing today points to our confidence in achieving the 3-year merger commitments communicated in 2018, despite the macro environment becoming significantly more challenging since that time. As you saw from our earlier announcement, we are increasing our dividend rate by 25%, starting in the second quarter of this year. This reflects the line of sight we have to continued strong free cash flow, which enables us to simultaneously increase our return of value to shareholders, reach our deleveraging target by year-end and invest in expanded production capacity, innovation and technology. In fact, our dividend payout ratio, even after the 25% increase announced today, remains below 50% of free cash flow. Finally, we're fully committed to deliver both total shareholder return and environmental, social, and governance (ESG) initiatives. In 2020, we achieved nearly all of our aggressive sustainability goals. And in 2021, we have signed up for new and expanded ESG goals, including health and well-being and diversity and inclusion. We will publish specifics for each in our corporate responsibility report in June. All of this underpins our journey from 2 separate companies to a combined new challenger in the beverage industry to a Modern Beverage Company with an exciting future. We look forward to sharing our long-term vision and plans for KDP when we conduct an Investor Day in the second half of this year. Let me take a few minutes to step back and provide key highlights of our 2020 performance. We delivered accelerated constant currency net sales growth of 5% in 2020, with strong momentum exiting the year. Driving that revenue growth were exceptionally strong in-market results across the business. In cold beverages, we gained market share in more than 90% of our retail base, including market share growth in excess of 1 full point in carbonated soft drinks (CSDs). This was driven by double-digit consumption growth of Dr Pepper and Canada Dry, our largest CSD brands, as well as A&W, 7UP, Sunkist and Squirt. Dr Pepper & Cream Soda became the #1 new flavor in the CSD category in 2020, while Canada Dry Bold also performed exceptionally well. Canada Dry is now the only CSD brand to achieve volume and dollar growth for the past 14 consecutive years. Strength in cold beverages extended well beyond CSDs, with KDP share growth in premium water, ready-to-drink tea, shelf-stable fruit drinks and Mott's apple juice and sauce. As we discussed on previous earnings calls, the pandemic required us to manage mix across channels, beverage segments and even pack types to react to dramatic shifts in consumer shopping and consumption patterns. This is driving growth in multipacks and cans sold in large outlets and e-commerce to offset slowdowns in fountain foodservice, convenience and gas channels and as a result, impulse packs. Our speed in pivoting to these changes was enabled by new uses of data and technology, consistently strong in-market execution, leveraging our highly developed e-commerce capability and a flexible and resilient supply chain team. Our coffee business also had a strong year. Consumer purchases of Keurig manufactured K-Cup pods registered double-digit growth, while brewer shipments grew 21%, which reflects a combination of new households entering the system as well as existing households upgrading their brewers. Household expansion of the Keurig system was very strong this year with approximately 3 million new households entering the system. That translates to 10% household growth, nicely above our longer-term pre-pandemic trend of approximately 7% growth per year. Not surprisingly, the consumer shift to work-from-home meant at-home consumption of K-Cup pods was strong throughout the year, while the away-from-home channel, which is focused on offices, remained a significant headwind. And while we expect the away-from-home business to improve slowly over the course of 2021, we will begin to lap the 2020 declines in the second quarter of this year. In addition to our strong top line results, our bottom line performance was also strong for the year, with adjusted diluted EPS growing 15% to $1.40, which represents the high end of our 2020 guidance. This was achieved by offsetting significant mix headwinds and operating cost pressures with revenue growth that was above our targets, continued strong productivity and merger synergies and reductions in discretionary spending. We also drove strong free cash flow, which enabled us to reduce our indebtedness and improve our management leverage ratio to 3.6x, while also making significant capital investments, specifically: our new Spartanburg, South Carolina coffee pod facility, which will be the largest LEED-certified manufacturing facility in North America; our Allentown, Pennsylvania cold beverages facility, which was recognized as Plant of the Year by Food Engineering magazine; and our Newbridge, Ireland facility, which represents our second manufacturing location for our important Beverage Concentrates business. In 2020, we also invested in the expansion of our portfolio and direct store delivery (DSD) network through multiple transactions, including a long-term agreement we announced with the Honickman Companies that provides KDP with sales and distribution for key brands in the metro New York area, a national franchise agreement with Polar Beverages and other numerous transactions with smaller but strategic independent bottlers to ensure competitive distribution scale for our brands. Consistent with our focus on improving the effectiveness of our distribution system, we exited some nonstrategic SKUs during the year, enabling us to keep our high-volume brands in stock and creating space for new partnerships and 2021 innovation. In 2020, we also made great progress on our sustainability initiatives. We now responsibly source 100% of our coffee and 85% of our brewers and have improved the livelihoods of over 1 million people in our supply chain. We also completed our multiyear conversion to 100% recyclable K-Cup pods. And during the year, we co-founded 2 industry coalitions focused on enhancing U.S. recycling infrastructure. We launched our first post-consumer recycled, or PCR, packaging in cold beverages, putting us on track to deliver our goal of using 30% PCR in our packaging across the business by 2025. This long list of accomplishments would be impressive in any year, but it is even more so against the backdrop of the challenges and uncertainty we faced in 2020. I'm proud of and grateful for the nearly 27,000 team members across KDP who have proven to be our underlying competitive advantage. Turning now to our outlook for 2021. The guidance we're providing today is consistent with the commitments we laid out at the time of the merger announcement and position us to meet our 3-year merger targets. Specifically, for 2021, we expect constant currency net sales in the range of 3% to 4% and adjusted diluted EPS in the range of 13% to 15%. On a 2-year stack basis, which eliminates any noise from COVID impact, this translates into net sales growth of over 8% and adjusted diluted EPS growth of nearly 29%, both at the midpoint of the ranges. Our confidence in 2021 growth is supported by both innovation and renovation, both of which will be backed by increased marketing investment. Ongoing productivity savings and our final year of merger synergies will help offset increased inflation. We expect our management leverage ratio to improve by 3x by year-end, driven primarily by our continued strong free cash flow generation. In 2021, we are rolling out zero-sugar varieties across our CSD portfolio. For most brands, the new zero offerings represent a rebranding of our existing diet SKUs to more clearly articulate the zero-sugar benefit to consumers. For Dr Pepper, the introduction of a zero-sugar variety will be in addition to original Dr Pepper and Diet Dr Pepper. We are also introducing Bai Boost, a new platform with caffeine, and Mott's Mighty, a line of juices and sauces fortified with vitamins and fiber. In addition, we will be launching new flavor varieties across many of our brands. We've begun the staged rollout of our new Snapple bottles made with 100% recycled PET and featuring new graphics. Also, we are now producing all CORE hydration bottles with 100% rPET. In coffee, we have another strong lineup of new brewers planned for this year, including our first connected brewer for the broader consumer market. We'll share additional information on this exciting new brewer and other brewers planned as we get closer to launch. In 2021, we expect continued strength in owned and licensed coffee. Last year, we reversed long-term trends by expanding sales and consumption of our owned and licensed brand portfolio. Within that portfolio, we have been able to improve the sales trajectory for the McCafé brand, in partnership with McDonald's, which became a licensed brand for us in the second half of 2020. In 2021, we will launch Green Mountain Coffee Roasters Brew Over Ice pods, which taps into the growth of cold coffee. The majority of our brewers launched since 2018 also have a Brew Over Ice option. We are expanding our highly successful Original Donut Shop One Step Lattes introduced in 2020 into One Step cappuccinos. Last year, The Original Donut Shop brand registered double-digit consumption growth and market share expansion on the strength of the new One Step offerings and a new marketing platform. Before turning it over to Ozan, I'd like to recognize the entire KDP organization for their tireless efforts in delivering such strong and well-balanced results. Because of their success, we have confidence in our 2021 goals, and we look forward to sharing our longer-term outlook at an Investor Day later this year. I'll now hand it over to Ozan to take you through the specifics of our financial results.

Thanks, Bob, and good morning, everyone. Continuing, on an adjusted basis, I will briefly review our performance for the fourth quarter, which our press release discusses in significant detail, and then turning to our full year 2020 performance and our 2021 guidance. In the fourth quarter, constant currency net sales increased 6.6%, fueled by higher volume/mix of 6.3% and favorable net price realization of 0.3%, with our Coffee Systems, Packaged Beverages and Latin America Beverages segments, all posting growth. Adjusted operating income increased 5.5% in the quarter, driven by strong net sales growth, continued productivity, merger synergies and lower discretionary spending, which includes marketing. These drivers were partially offset by the unfavorable comparison to a $30 million gain in the prior year on the sale-leaseback of 3 manufacturing facilities, higher operating costs in the current year associated with increased consumer demand and inflation in logistics. On a constant currency basis, adjusted operating income grew 5.7%. Adjusted diluted EPS grew 11.4% in the fourth quarter, driven by the growth in adjusted operating income and lower interest expense and lower effective tax rate. Let me turn now to our full year results for 2020. Constant currency net sales increased 5%, driven by higher volume/mix of 5.6%, partially offset by lower net price realization of 0.6%. Adjusted operating income increased 10.4%, and adjusted operating income margin expanded 150 basis points to 27.5%. This performance was driven by strong revenue growth, continued productivity, merger synergies and lower discretionary expenses. These drivers were partially offset by higher operating costs associated with increased consumer demand for our products, inflation in logistics and certain other COVID-19-related costs. On a constant currency basis, adjusted operating income grew nearly 11%. For the year, pretax operating costs directly related to COVID-19 totaled $150 million, of which $128 million were recognized as items affecting comparability. These costs consisted of temporary and unusual compensation increases, incentives for frontline employees, incremental health and safety measures across our employee base and enhanced sanitation expenses for our facilities. The remaining $22 million of costs represented inventory write-downs and bad debt expense that were incurred in the first half of 2020 and included in adjusted results. Adjusted diluted EPS advanced 15% to $1.40 for the year. This strong performance was fueled by the growth in adjusted operating income, lower interest expense as a result of continued deleveraging and the lower effective tax rate. Turning to our segment performance for the year. Coffee Systems constant currency net sales increased 4.8%, driven by higher volume/mix of 7.2%, partially offset by lower net price realization of 2.4%. The volume/mix performance reflected pod volume growth of 6.3%, driven by double-digit at-home consumption, partially offset by the significant decline in the away-from-home coffee businesses. The strong 21% increase in brewer shipments for the year was fueled by continued expansion of households coming into the system and existing households upgrading their brewers, continued brewer innovation, marketing investments to grow household penetration and a very successful holiday season. Adjusted operating income for Coffee Systems increased 7.9%, and adjusted operating margin grew 110 basis points to 34.2%. This performance was fueled by the net sales growth, continued productivity and merger synergies and lower discretionary spending. These drivers were partially offset by the unfavorable margin mix related to the very strong brewer shipment growth for the year. Packaged Beverages constant currency net sales grew 8.5% for the year, driven by strong volume/mix of 8.2% and higher net pricing of 0.3%. This performance reflected particularly strong growth in our company-owned DSD operations and our warehouse direct business, driven by very strong execution that drove market share expansion across the portfolio, including carbonated soft drinks, premium unflavored water, ready-to-drink tea, shelf-stable juice drinks, apple juice and apple sauce. Adjusted operating income for the segment increased 30%, and adjusted operating margin expanded 320 basis points to 19%. This performance reflected the strong net sales growth, continued productivity and merger synergies and lower discretionary expenses, partially offset by higher operating costs to meet strong consumer demand and inflation in logistics. On a constant currency basis, adjusted operating income increased 31%. Beverage Concentrates constant currency net sales declined 6% due to unfavorable volume/mix of 5.8% and lower net pricing of 0.4%. This performance reflected the impact of COVID-19 on the fountain foodservice business, which primarily serves the restaurant and hospitality sector. Adjusted operating income for Beverage Concentrates decreased 2% due to lower net sales, partially offset by lower discretionary expenses, while adjusted operating margin advanced 310 basis points to 70.8%. And finally, Latin America Beverages constant currency net sales grew 3.8%, reflecting strong net pricing of 5.8%, partially offset by lower volume/mix of 2%, due primarily to the impact of COVID-19 in Mexico. Adjusted operating income increased 32%, driven by continued productivity and lower discretionary spending, partially offset by the impact of foreign currency transaction expense and inflation in logistics. Adjusted operating margin increased 620 basis points to 21.7%. On a constant currency basis, adjusted operating income grew nearly 43%. Turning to synergies. We delivered approximately $200 million in 2020, bringing total merger synergies to approximately $400 million over the past 2 years. Free cash flow in 2020 was again exceptionally strong at approximately $2.2 billion. This translated into an adjusted free cash flow conversion ratio in excess of 110%. We also ended the year with $240 million of unrestricted cash on hand. Our strong free cash flow performance enabled us to reduce outstanding bank debt by more than $950 million and structured payables by $170 million, for a total reduction in financial obligations of $1.1 billion in 2020. Due to our reduction in bank debt, growth in adjusted earnings and cash on hand, we improved our management leverage ratio by nearly a full turn to 3.6x in 2020. Since the merger closed in July 2018, we have reduced our management leverage ratio by an impressive 2.4 turns. As Bob discussed earlier, the KDP Board of Directors has approved a 25% increase in our annualized dividend rate from $0.60 per share to $0.75 per share beginning with the second quarter dividend, which is paid in the third quarter and subject to the Board's official declaration. This new rate will drive a 12.5% increase in dividends per share in 2021 and another 11.1% increase in 2022. Importantly, despite the sizable increase, our dividend payout ratio remains below 50% of free cash flow. The highly cash-generative nature of our business, as well as our strong profit growth, is expected to enable us to continue to delever to 3x or below by the end of 2021. Let me now move on to our outlook for 2021. We expect 2021 to be another good year for KDP, which, as Bob mentioned, will drive exceptional results on a 2-year stack basis. Before jumping into the full year outlook, let me provide some context for quarter 1. As indicated previously, we exited 2020 with a strong top line momentum, and we expect to benefit from that in the first quarter. On the cost side, you will recall that we will be comping a $42 million gain in the first quarter of 2020 on sale-leaseback transactions and another $20 million gain in the year ago quarter from unwinding interest rate swaps. We believe this context will be useful to you as you build your models for 2021. The specifics of our 2021 outlook include: on a constant currency basis, we expect net sales growth to be in the range of 3% to 4% for the year, which continues to be above our 3-year merger target of 2% to 3%. This strong growth is expected to be driven by higher year-over-year investments in innovation and marketing, the benefit of recent partnerships and ongoing in-market executional strength. Adjusted diluted EPS growth is expected to be in the range of 13% to 15%, representing $1.58 to $1.61 per diluted share. Importantly, over the 3-year period ending 2021, this performance will position us to achieve our merger target for average annual growth of 15% to 17%. We again expect merger synergies of approximately $200 million in 2021, delivering on our 3-year target of $600 million. Adjusted interest expense is expected to be in the range of $505 million to $515 million. Our adjusted effective tax rate is expected to be in the range of 23.5% to 24% for the year. We expect our management leverage ratio to be at or below 3x at the end of 2021. With that, I will hand it back over to the operator for your questions.

Your first question comes from the line of Bonnie Herzog with Goldman Sachs.

I had a couple of questions on your pod business this morning. First, wondering how we should think about attach rates this year and then into the future. When I look at your brewer household penetration and how much it increased in 2020, but then I compare that to the pod attach rates, they seem to lag a bit. So I'm just trying to understand if there's some type of timing effect we should be aware of. Or should we assume that attach rates will be slightly below historical levels going forward, especially at this higher base of brewers? And then could you please confirm if your new pod manufacturing facility is already up and running? Or if not, when it will be? And really how we should think about the potential margin lift on your pod business from this new facility?

Yes. Okay. I'm going to take the first one, and then I'm going to turn it over to Ozan to talk about Spartanburg. Coffee attachment rates have been very steady for years. And in the past, we've talked about the best proxy for household penetration growth is actually pod volume growth because of attachment rate being so stable. In the early part of the shelter-in-place, we saw an increase in attachment rates, as you would expect. Obviously, we got some benefit from that in the early part of this, but we've seen it normalize over time. And our expectations going forward is that it does normalize over time. So we did get a short-term benefit from that, but remember, that was offsetting a significant hit that we were getting to our office coffee business. So all of the guidance that we put out there for 2021 does anticipate a more normalized attachment rate. Ozan, you want to talk about Spartanburg.

Absolutely, absolutely. We already started our test runs at our Spartanburg facility. And obviously, it's a multiyear ramping up the production facility given the huge size and the volume that will come out. But all we can say at this point in time, we are 100% on track in terms of continuing month-in, month-out ramping up of our facility. And as we do, as you said, we do expect to further lower our cost of production in the pods. As we communicated previously, Spartanburg facility, as we go into the year, especially second half of '21 and beyond, will be one of the base productivity sources to improve our efficiency in our manufacturing facility with regards to the pods. But not only that, we also have several other programs that will continue to help us to deal with the management of our overall per pod cost going forward at the same time. So the things are on track.

Your next question comes from the line of Bryan Spillane with Bank of America.

I have a couple of quick questions. First, Ozan, could you provide more details about how we're assessing inflation for KDP this year, particularly in Packaged Beverages, considering the potential rise in fuel costs? Specifically, how do you plan to manage inflation in Packaged Beverages? Lastly, if my calculations are correct, it appears that Beverage Concentrates shipments fell short of consumption for the full year in 2020. As we prepare for 2021, is there a possibility that concentrate shipments might exceed consumption?

We anticipate that 2021 will experience higher inflationary pressures compared to 2020, and we've incorporated this into our guidance for the year. We're confident in our ability to manage this exposure. The main areas where we'll see inflation in 2021, as you mentioned, Bryan, will be in logistics and corn-related products. However, other areas, like coffee, which we contract for on an annual basis instead of monthly, will also help offset some of these costs. We're consistently focused on managing our commodity and input costs, and we hedge when opportunities arise to control our cost profile. Overall, we feel we have a good balance at this point. It is accurate that we are experiencing cost pressures increasing in 2021 compared to 2020 on several line items. Regarding your question about Beverage Concentrates, it is correct that over a month or two, we may see some delays in our concentrate shipments as well as finished product shipments from our bottlers or distributors. However, taking a medium to longer-term view, these shipments typically align over time, and we expect the same to happen in 2021.

Your next question comes from the line of Kevin Grundy with Jefferies.

Great job on a strong year, especially given the current environment. Regarding the guidance and outlook for both of you, aiming for 13% to 15% is impressive, but there are some uncertainties. The revenue forecast looks better, which is encouraging, particularly considering the improvement in the coffee business. You are benefiting from a 1 to 2 percentage point advantage thanks to a lower tax rate. The synergy efforts will be concluding this year, which is a significant factor. The management of the balance sheet's debt reduction is meeting expectations. In response to Bryan’s earlier question, it appears that commodities are placing more pressure on you than anticipated. Are advertising and marketing expenses increasing? Could you provide insight into other challenges that might be contributing to a year that falls short of the expected growth trajectory for earnings per share, especially given the strong outlook for revenue growth?

Yes. I mean a couple of things. I mean when we put our algorithm out there, we didn't say we were going to achieve 15% to 17% every year and the guidance we just put out there puts it nicely within that range, in that 15% to 17% despite what we all agree is a world that is very different than it was in 2018. The one comment I would put is we are restoring marketing in 2021. We've said all along that any opportunity to restore marketing to drive growth, we would do so. In fact, on our Q3 earnings call, I think we were really clear on our intentions. And when we provided our guidance, and we said that we would be in the 13% to 15% range for 2020, we also said any opportunity to over-deliver would be reinvested back in our business for growth, which is exactly what we did. We came in right at the high end of our guidance. We reinvested back into growth, and we achieved 6.6% revenue growth in the fourth quarter. So we look at our outlook for 2021 to be incredibly strong and, more importantly, well balanced. Because the results that we've delivered are not driven by anything that would hurt us in the long term by driving the short term. In fact, quite the opposite. We've invested in brand growth and innovation, in new plant capacity. We've invested in technology. And that's why we're able to do things like grow share on 90% of our portfolio and add an extra 1 million households into the Keurig system.

Your next question comes from the line of Lauren Lieberman with Barclays.

Great. I was curious about two things. First, the recent dividend increase is substantial and somewhat unexpected, which is positive. However, I would like to know how this ties into your overall thoughts on capital allocation and your plans for acquiring brands outright or making further investments in new brands. That was my first question. Secondly, you have gained significant market share throughout the year in the cold segment, as you've mentioned. With all the route-to-market changes implemented, I'm interested in what your expectations are from those changes. Are you aiming for accelerated growth or improved efficiency? Given that your share performance in your existing market was already strong, especially in 2020, I'm curious about your perspective on this.

On the dividend side, we know that dividends are an important part of shareholder return in this space. And we saw an opportunity to provide more return to our shareholders by increasing the dividend 25%. We do that while simultaneously sticking to our deleveraging target and also investing heavily in the business. And all I would say on that one is it's reflective of the very strong confidence that we have and line of sight to continued strong earnings and strong free cash flow. And even with that substantial increase in dividend rate, our payout ratio is still below 50%, which is well below just about anyone else in this space. It doesn't change our outlook at all on our ability to participate in M&A. We've said all along that, even with our commitment to rapidly delever, we would be able to participate in the M&A space in a number of different ways. With CORE, for example, we used shares to make that acquisition, and that acquisition has been very value-accretive to us in terms of being able to drive growth both on the top line and earnings. We acquired Big Red with cash. We had a very unique transaction with the Honickman Companies to be able to secure our brands in the metro New York area. We've entered into other deals that are more partnership. And then I'm going to segue into your next question because it's related. If you take a look since 2019, we've done about a dozen transactions in the route-to-market space, and nearly all of those were paid for right out of our cash flow. So it just tells you that we have incredible cash flow visibility that allows us to do all of this activity while delevering, while increasing our dividend payment and also investing in plant infrastructure and technology. So it's just another opportunity to reward our shareholders. With regard to the route-to-market space, you asked what our goal is. It's all of the above. So we look at our business market by market and as we've joked with you sometimes, but it's not far off, ZIP code by ZIP code. Our situation is very different across the market. In aggregate, we control the distribution or we have DSD coverage that covers somewhere slightly north of 75% of the U.S. population. But for those of you that know the business intimately, you know that it's very different brand by brand. So it's a two pronged approach. We invest heavily in our brands through marketing and innovation and renovation. And then we need to make sure that market by market, we have the most competitive distribution system for those brands. And that has led to all of the transactions that I just talked about and the couple that you highlighted. And what does that do for us? It's a long-term play, not a short-term play. It gives us access to both growth through better execution and also gives us access to efficiency through consolidation of inefficient retail distribution.

Your next question comes from the line of Dara Mohsenian with Morgan Stanley.

So the 28% brewer growth in Q4 was very striking. It even came a few quarters into COVID when, theoretically, a lot of new households had already purchased brewers in response to COVID. So I was just hoping you could be a bit more specific on the key drivers behind the Q4 brewer strength. How sustainable that might be as we look forward into 2021? And then also, just taking a step back and looking more at the full year. Clearly, the 3 million household penetration increases above that typical 2 million pace. So just how do you think about that incremental 1 million households? Does a lot of that sort of come out in 2021? Or do you think that 2021 household increase could be similar to the historical range pre-COVID-driven 2020, in theory?

Those are great questions. Let me start with household penetration and then discuss brewer growth. As we've mentioned, brewer growth does not consistently predict household penetration. While there's a correlation between the two, it doesn't hold true every year. Regarding household penetration, our recent run rate has been about 2 million net new households annually, which increased to 3 million. We don't think this is a result of a pull forward from 2021 or that it significantly changes the bigger picture. The best way to evaluate this business is over a longer timeframe rather than just quarter-to-quarter or even year-to-year. Over the past five years, since Keurig became private and merged with KDP, we've increased households from 21 million to 33 million, which is about 9% annual growth, totaling 12 million new households. Back in 2015 and 2016, there was talk about household penetration flattening and market saturation, yet we have grown our household base by over 50% since then. Furthermore, from our 2018 Investor Day presentation, we noted that there are still 60 million households left to transition from brewing coffee by the pot to brewing by cup, and Keurig holds the majority in this market. Thus, we have a long runway ahead at our current growth rate. When considering the increase from 2 million to 3 million year-over-year, it appears significant. However, comparing the growth from 21 million to 33 million over five years with 60 million households remaining shows that a change of 1 million is minor in this context. Hence, we must be cautious about year-over-year comparisons. If we revert to our typical 2 million household growth, it may seem like a 6% increase in 2021. I'm not making projections—just illustrating. Critically, reports may claim a slowdown in household penetration, which can be misleading. Now, regarding brewer sales, these come from several factors: new households joining, upgrades to newer models with enhanced features, and the replacement of brewers that fail over time. Last year, we shipped a record 11 million brewers. Alongside robust household penetration growth, we saw many upgrades, as people invested in their work-from-home setups with our newly introduced brewers. While this doesn't significantly affect the current year, it reflects households committing to the Keurig system for the future. Going into this year, we don't expect to match last year's brewers shipped. We don't need 11 million brewers to sustain a growth of 2 million or 3 million households. The number of upgrades is unpredictable. A flat brewer growth this year would be exceptional, while a decline would be normal and still support strong household growth. However, be mindful of headlines suggesting brewer sales are down, which could raise concerns about the future of the Keurig system. Lastly, as we consider 2020 to 2021, it's essential to look at two-year stack numbers rather than just year-to-year comparisons. If we meet the midpoint of our revenue guidance for 2021, we're looking at an 8% revenue growth over two years and a 29% growth in EPS. This is the perspective we should adopt for 2021.

Your next question comes from the line of Nik Modi with RBC.

I was looking at some of this numerator data, and it's showing how more and more of the pods are being sold online, regardless of the brewers, bought online or in a brick-and-mortar environment. So I was just hoping you can share with us the implications of that from a P&L perspective margin-wise, consumer insight, visibility, right, because it's not as easy to track just from a retail consumption standpoint. So any clarity around that would be helpful.

Yes, that's a great insight. We are very proud of our developments in e-commerce. When we launched the company in 2018, we identified e-commerce as one of our seven market routes and believed we were the most advanced food and beverage company in that area. Back then, e-commerce in the beverage sector wasn't given much attention, but today, it is significant. Last year, we mentioned that over 10% of our total sales were generated through e-commerce, and this segment is growing rapidly. Specifically regarding coffee, we reach consumers through e-commerce in two ways: via retailer websites and Amazon, as well as through our own Keurig.com site. I understand that it might be challenging for you to gain visibility into these sales. We’ve noted that a growing portion of our pod sales isn’t captured by traditional data sources, but we effectively monitor our e-commerce performance. Additionally, we can often track purchases down to individual consumers, allowing us to implement more targeted marketing strategies. Concerning margins, there are no worries on that front. Shipping liquids does present challenges, and I believe the future of e-commerce in that area will lean towards click-and-collect or home delivery rather than traditional shipping methods. However, Keurig pods are high value, lightweight, have a long shelf life, and are durable, making them ideal for traditional e-commerce shipping. This is why they represent a significant growth opportunity for us. In 2021, we will introduce our first connected brewer aimed at broad consumer use, and we are excited about this development. We believe it will further enhance the appeal of e-commerce for our Keurig business moving forward.

Your next question comes from the line of Andrea Teixeira with JPMorgan.

So my question is on the competitive environment. And Bob, you mentioned the investments and also innovation that you're putting for both Packaged Beverages and coffee. So are you seeing the need to increase advertising and promotion (A&P) investments in light of what some of your competitors have announced, particularly in flavors? And the second part of this question, if you can also talk about pricing for Packaged Beverages and the coffee pods in the context of your outlook for 2021?

Our decision to restore marketing is driven by our aim to gradually increase marketing as a percentage of sales. We understand the impact of COVID on the market and are proud that, despite the need to cut back on marketing during a challenging advertising environment, we managed to maintain efficiency in our spending. The market share gains across our portfolio indicate our success in balancing brand growth and innovation investments with a limited marketing budget. Moving forward, we will continue to seize every opportunity to invest in marketing and innovation in 2021, which reflects our commitment to a strong pipeline of brand ideas rather than a reactive stance to competition. Regarding pricing, the beverage industry has been rational, and while we won't specify our pricing outlook for the year, we are mindful of inflation. The beverage sector has demonstrated its capability to offset inflation through productivity and pricing adjustments, and I anticipate this trend will persist.

Your next question comes from the line of Rob Ottenstein with Evercore.

Congratulations on an outstanding year despite the challenging circumstances. As you look ahead to 2021, many of the planned shelf changes that were postponed or didn't occur in 2020 may finally take place. What do the shelf sets look like for the spring reset? Do you feel that you are gaining shelf space? Also, could you provide an update on some of the new brand initiatives, such as Don't Quit, A Shoc, and Polar? Additionally, could you remind us about your investment in BODYARMOR and clarify what happens to KDP's proceeds if that investment is sold?

Certainly. Let me begin with the changes on the shelf. Compared to 2020, 2021 has been a much more typical year where getting products on the shelf is concerned. We have made a strong start with Dr Pepper & Cream and Canada Dry Bold. As you may know, we introduce numerous innovations and renovations each year, so I won't list all of them. Overall, 2021 has shown improved access to the shelves, and we have a robust lineup of innovative products. We highlighted some in our prepared remarks, but there is more to come. We are well-positioned to get our innovations on the shelf promptly, and our speed to market has improved annually. We take pride in our distribution system, which combines our company-owned DSD with independent partners. Through strong ideas and better joint planning with our partners and customers, we've enhanced our shelf reach, and this progress will persist. You mentioned our seed investments in brands like Don't Quit and A Shoc. These are still in their early stages and very promising, although they are currently too small for us to report on. I anticipate that during our Investor Day midyear, we will provide a more detailed update on these startup investments. This is just one approach we utilize; we can launch products independently, partner for joint distribution as we have with brands like evian, make seed investments like we did with Don't Quit and A Shoc, or acquire brands outright as we did with CORE. Polar is performing excellently and is our entry into the flavored sparkling water market. We are currently ramping up our efforts there, and Polar's ACV has already increased by about 20 points nationally, demonstrating the strength of our partnership. It’s clear from my comments that we are very optimistic about establishing that brand as a national leader in the near future. Lastly, regarding BODYARMOR, we have a 12.5% ownership stake. If and when that business is sold, we would receive payment like any other investor. Currently, we don't have any further information beyond what has been publicly shared. I believe I addressed all your questions.

Your next question comes from the line of Sean King with UBS.

When we consider your three-year synergies concluding this year, have you found any savings opportunities during the pandemic, similar to your large U.S. peers, that could support the margin expansion narrative beyond the three-year guidance?

I’ll now hand it over to Ozan for further details. Our primary focus is to ensure we deliver the expected synergies since there were initial doubts about our capability to achieve them. We are confident that we can do this, but we recognize that synergies are typically a short-term benefit. We also intend to focus on long-term productivity improvements. Additionally, instead of solely boosting our bottom line, we've heavily reinvested in our business during this period. Ozan, would you like to elaborate on how we view productivity beyond these synergies?

Absolutely. So let me step back and look at it. As you said, three years ago, 2.5 years ago, to be precise, we said that we expect to deliver $600 million of deal synergies, starting 2019 through 2021, $200 million every year. And as we just spoke, during our script, we are very happy to share with everyone that, after two years, we have delivered successfully $400 million of synergies, and we expect to deliver another $200 million in 2021. That would complete the 3-year cycle of the merger synergies that we put out there. Now we also said and shared publicly that overall efficiencies, we look at it in 2 big buckets: One is the merger synergies that I just spoke. And the second one, as we define and call it, base productivity programs, which obviously, base productivity programs will continue, including 2021 and beyond. When we step back and look at it holistically, we have several programs and initiatives that actually either we are executing now or we will be starting to execute to continue to fuel the base productivity programs that we have. For example, when you look to what's happening in the Coffee Systems, we are building a state-of-the-art K-Cup facility in Spartanburg, South Carolina. As I said, I think, 10 minutes ago, we are at the early phase of having, let's say, test runs over there. And we expect to ramp up the facility for the remainder of the 2021 and beyond 2022. That will be a good source of base productivity programs for us. When we look to Packaged Beverages, for example, at this year, we are also building and will be put into service and Allentown, Pennsylvania and again, in a state-of-the-art aseptic systems lines, for example. That will continue to drive down our costs. On the Beverage Concentrates side, for example, we are building the second concentrate plant in Ireland. And besides the continuity of our business will be secured, given we only have one facility now in St. Louis, we'll also have some financial benefits at the same time. And these are, for example, the 3 big programs that we have. But on top of this, we always look for efficiencies, and we have several other programs that we are implementing as we speak. Therefore, we feel very confident that beyond 2021 that our overall efficiency programs will be intact and will help us to drive further profit growth and margin enhancement.

And that concludes the question-and-answer session. I would now like to turn the conference back to Tyson Seely.

Thank you, and thank you, everyone, for joining us this morning. I know it's a busy day for many of you. But as usual, the IR team, myself and Steve, are around for any follow-up calls, so please feel free to reach out to us. Stay well, and be safe. Thank you, everyone.

Thanks.

Thank you, presenters, and thank you, ladies and gentlemen, for joining Keurig Dr Pepper Fourth Quarter 2020 Earnings Conference Call. Have a wonderful day. You may now disconnect.