Good morning, ladies and gentlemen, and thank you for standing by. Welcome to Keurig Dr. Pepper's earnings call for the first quarter of 2026. 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 Chathan Malella, Vice President of Investor Relations at Keurig Dr. Pepper. Please go ahead.

Thank you, and hello, everyone. One, earlier this morning, we issued a press release detailing our first quarter 2026 results, which we will discuss on today's call. An accompanying slide presentation is available and can be viewed in real time on the webcast. Before we get started, I'd like to remind you that our remarks will include forward-looking statements which reflect KDP's judgment, assumptions, and analysis only as of today. Our actual results may differ materially from current expectations based on a number of factors affecting KDP's business. Except as required by law, we do not undertake any obligation to update any forward-looking statements discussed today. For more information, please refer to our earnings release and the risk factors discussed in our most recent Form 10-K and our latest 10-Q, which will be filed with the SEC later today. Consistent with previous quarters, we will be discussing our Q1 performance on a non-GAAP adjusted basis, which reflects constant currency growth rates and excludes items affecting comparability. Definitions and reconciliations to the most directly comparable GAAP metrics are included in our earnings materials. Here with us today to discuss our results are Keurig Dr. Pepper's Chief Executive Officer Tim Cofer, and Chief Financial Officer Anthony DeSilvestro. I'll now turn it over to Tim.

Thanks, Chathan, and good morning, everyone. We're pleased with our start to the year. We closed the J.D. Pete's acquisition and made steady progress on our transformation initiatives while continuing to drive our base business with first quarter results that tracked slightly ahead of our expectations. In a dynamic operating environment, our teams remain focused on balancing longer-term foundational work with near-term execution. Looking ahead, our top priorities for 2026 remain unchanged. Delivering our low double-digit EPS growth guidance in a high-quality way. seamlessly integrating JDEPs and beginning to unlock combination benefits, and achieving key milestones to set up a successful separation. While there's plenty of work ahead, our well-constructed plans and year-to-date progress reinforce our confidence in delivering on these commitments. Before discussing our quarterly results, let me briefly touch on our transformation work. On April 1st, we closed the acquisition of JDE Peets, welcoming over 20,000 new colleagues to KDP and bringing our complementary portfolios and capabilities together, united by a shared passion for great brands and exceptional coffee experiences. With the transaction now closed, we have begun to operationalize our integration plans, led by a dedicated transformation management office and guided by clear work streams and accountability. At the same time, we're also advancing our work to separate into two advantaged pure-play public companies, which will be well-positioned to create value through increased focus and organizational clarity with fit-for-purpose strategies and capital allocation policies. Beverage Co. will be a growth-oriented challenger in the large and attractive $300 billion North American refreshment beverages market. With iconic brands, differentiated go-to-market capabilities and a proven track record of white space expansion, the stand-alone beverage business should deliver compelling financial results while also possessing strategic optionality over time. Global Coffee Co. will be a scaled leader in the $400 billion global coffee market with an enhanced set of capabilities to meet consumer needs across formats, channels, and geographies. Supported by a portfolio of leading global and regional brands, deep expertise in sourcing, blending, and appliances, and strong synergy potential, the coffee business will also have a compelling value creation model. As we balance near-term performance with our transformation agenda, we have put in place an operating model designed to maintain enterprise focus while preparing each business unit to operate independently at separation. Under this structure, the centralized KDP leadership team is responsible for strategic oversight, total company commitments, and transaction execution, while our dedicated beverage and coffee operating units are accountable for delivering their 2026 business plans and shaping the strategic direction for each business. As CEO of KDP and the future CEO of Beverage Co., I am overseeing both the KDP leadership team and the Beverage Operating Unit. As we recently announced, J.D.E. Pete's CEO, Rafa Oliveira, has been selected by the board to lead the coffee operating unit and become the future CEO of Global Coffee Co. upon separation. Rafa has meaningful CPG experience, a track record of navigating complex global markets, and is the architect of J.D.E. Peet's brand-led strategy. He's the natural choice to lead our coffee business today and in the future, and I look forward to advancing our partnership as we prepare to stand up to winning companies. Overall, our transformation work is progressing well, and we continue to target operational readiness to separate by the end of 2026, with the official separation likely to occur in early 2027 subject to market conditions. Turning now to our first quarter results, net sales grew 8% with positive contributions from both net price realization and volume mix. Top line performance was led by continued strong momentum in U.S. refreshment beverages and international, partly offset by previously discussed temporary pressures in U.S. coffee. Our EPS of 39 cents declined from last year, reflecting the phasing of cost and tariff impacts and lapping a below-the-line gain in the year-ago period. Importantly, as Anthony will discuss, we have visibility to healthy EPS growth beginning in the second quarter with further acceleration in the back half. Let me now discuss our Q1 segment performance. I'll start with U.S. refreshment beverages, which delivered another robust growth quarter. Net sales and operating income each grew at a double-digit rate, driven by favorable trends in our core carbonated soft drink business and continued momentum in our portfolio's emerging growth areas. Within CSDs, the category remained healthy, with Q1 retail sales dollars growing at a mid-single-digit rate and accelerating from Q4. While Dr. Pepper faced a difficult innovation comparison versus the BlackBerry launch last year, our underlying trends were strong, with the brand's three primary lines, regular, diet, and Zero Sugar collectively gaining share during the quarter supported by demand generation activity and point-of-sale execution. CSD innovation will play an important role in our plans for the rest of the year. Canada Dry Fruit Splash Strawberry launched nationally in February and has driven healthy consumer trial, strong on-shelf velocities, and incrementality to the franchise, the launch contributed to Canada Dry's Q1 share gains and should provide a further tailwind in coming quarters. In addition, the fan-favorite Dr. Pepper Creamy Coconut limited-time offering relaunched earlier this month, and we're confident it will build on its successful initial run during 2024 as it taps into ongoing consumer interest in dirty sodas. Our performance in 2026 will also benefit from our continued focus on aligning our CSD portfolio with consumer needs around both value and wellness. With consumers seeking affordability in the current environment, we have refined our promotional strategies to offer compelling price points in key channels while maintaining discipline to ensure net price realization continues to offset inflationary pressures. We're also leaning into the better few areas of our portfolio, with bloom pop, rebiotic CSDs expanding rapidly off a small base, and our zero-sugar CSD offerings growing at a double-digit rate in Q1. Beyond CSDs, we continue to build our presence in emerging growth areas. In energy, we once again expanded market share during the first quarter, led by Bloom and Ghost, which were two of the top three fastest growing major trademarks in the category. Our performance reflected strong innovation, incremental distribution wins, and high-quality DSD execution. We believe our portfolio approach to the category remains a clear advantage and continue to see meaningful growth potential across C4, Ghost, Bloom, and Black Rifle. Our sports hydration partnership with Electrolite is also delivering healthy results, with the brand gaining significant share in Q1 through distribution expansion and strong velocities. Overall, U.S. refreshment beverages continues to represent an outsized growth driver for KDP, and we expect this segment to remain a key contributor in 2026. Turning now to U.S. coffee. While both net sales and operating income declined, the quarter largely played out as we expected, and we have conviction in both the category and our business. I'd highlight a few key points. First, the coffee category is healthy, with continued growth and manageable elasticities. The Keurig-compatible subsegment grew retail sales at a nearly 4% rate, with our owned and licensed brands keeping pace. Our licensed Lavazza brand was a standout performer, growing K-Cup sales more than 50% in the quarter through brand strength, successful innovation, and increased distribution breadth and quality. Second, as expected, our reported results were impacted by some meaningful but temporary headwinds. Peak year-over-year cost pressures constrained Q1 segment profitability, reflecting the timing of higher-cost green coffee hedges and tariffs. And, as previewed last quarter, trade inventory adjustments pressured pod shipments, which declined 7% and lagged point-of-sale trends weighing on operating income. Importantly, these headwinds should ease slightly in Q2 and moderate more meaningfully in the back half, providing visibility to improved top and bottom line trends over the balance of the year. Third, despite the near-term profit pressure, we're thoughtfully investing in long-term growth initiatives. Let me provide a few examples. We're enhancing our premium owned and licensed segment through the well-supported Keurig Coffee Collective innovation launch, which is off to an encouraging start with strong retailer enthusiasm and early consumer trial. We are continuing to execute our coffee partnership strategy, as evidenced by the recent renewal and expansion of our K-Cup agreement with Nestle USA. This agreement deepens and extends a highly successful relationship and will enable us to expand distribution and innovation for the Starbucks brand in the Keurig ecosystem. And we continue to prepare the Keurig Alta system for its initial targeted direct-to-consumer launch planned for later this year. This disruptive next-generation coffee system will feature our Keurig brand, the newly acquired premium Peet's coffee brand, and over time, the likely participation of partner brands as well. Putting it all together, combining constructive category trends With our investments to support long-term growth initiatives, we remain confident in the prospects for our coffee business. In international, Q1 net sales grew at a high single-digit rate, driven by net price realization. While volume mix declined modestly due to some short-term impacts related to the Mexico beverage tax, we're encouraged by the resilience of underlying consumer demand and our share trends across key categories. Despite the top-line strength, operating income declined, reflecting cost pressures and higher investment spending in a seasonally smaller profit quarter. Looking ahead, Instead, we expect profitability trends to improve as inflationary pressures ease, volume mix strengthens, and we execute our commercial plans for the year, including summertime activations to drive engagement and celebrate soccer fandom. Overall, we continue to expect our international segment will remain a meaningful growth contributor over time, given our strong local share positions in attractive categories, as well as portfolio and distribution expansion opportunities in both Canada and Mexico. We will also be disciplined and opportunistic in targeting other geographies. For example, we recently evolved our Suntory partnership in Europe to a more collaborative, concentrate supply model that will provide access to incremental consumers through a capital-light, low-risk model. To close, we're starting the year on solid footing. We completed the JDE-PETS acquisition. We're making steady progress advancing our transformation agenda, and we remain on track to achieve our full-year outlook. As we look ahead to the rest of the year, we're focused on sustaining base business momentum, integrating JDE Peets with excellence, and laying the groundwork for two strong standalone companies.

With that, I'll turn the call over to Anthony to discuss the financials in more detail thanks Tim and good morning everyone we delivered solid first quarter results that were modestly ahead of our expectations reflecting strong momentum particularly in cold beverages net sales increased 8.1 percent in the quarter led by strong gains in U.S. refreshment beverages and international probably offset by a decline in U.S. coffee, as expected. Net price realization was the primary top line driver, contributing 5.5 percentage points to growth, while volume mix added 2.6 points. Gross margin contracted 220 basis points, as elevated cost pressures were only partly offset by net price realization and productivity savings. We expect Q1 to represent the most significant year-over-year gross margin decline for our legacy KDP business, with trends improving as inflation and tariff impacts ease, particularly in the back half. SG&A was flat as a percent of sales, with transportation and warehousing efficiencies offsetting increased marketing spending across all three segments to support our key brand equities and compelling innovation slate. All in, Q1 operating income declined 1.9 percent, including the below-the-line impact of lapping During last year's $0.02 gain on the sale of Arvada Cocoa Steak, EPS decreased 7.1% to $0.39. Moving on to our segments, U.S. refreshment beverages net sales grew 11.9% with volume mix contributing 7.2 points. Net price realization added another 4.7 points, reflecting inflation-driven price increases taken early in the year. On the bottom line, segment operating income was strong, increasing 9.8%, with net sales growth and productivity savings more than offsetting inflation and higher marketing spending. Overall, U.S. refreshment beverages has strong momentum, led by healthy trends in carbonated soft drinks, energy, and sports hydration. We have robust innovation and commercial plans in place for the bounce of 2026 and expect another strong year for the segment. In U.S. coffee, our Q1 performance was largely as anticipated. it. Net sales declined 2.3%, with volume mix driving an 8.2 percentage point decline. Pod shipments declined 7%, reflecting trade inventory adjustments along with manageable price elasticities. Brewer shipments also declined at a high single-digit rate, primarily driven by elasticity. Net price realization added 5.9 points to net sales, driven primarily by carryover pricing in both pods and brewers. Turning to profit, segment operating income declined 21.3 percent. This was primarily driven by meaningful cost pressures as higher green coffee costs and tariffs flowed through our results in the quarter. Profitability was also impacted by the pod shipment decline and increased marketing spending. Collectively, these factors more than offset benefits from net price realization and productivity savings. Ultimately, our U.S. coffee segment is tracking with our plans. While we continue to expect subdued profit for the full year, we have visibility to progressive improvement, particularly in the second half when our costs improve and short-term trade inventory dynamics normalize. In our international segment, constant currency net sales increased 8.5 percent. Net price realization contributed 9.2 percentage points, driven by pricing actions taken in response to cost pressures in both Mexico and Canada. Volume mix provided a partial offset, declining 0.7 percentage points. International segment operating income declined 15.1% on a constant currency basis, primarily due to cost pressures, including the Mexico beverage tax and increased marketing spending. As we previewed last quarter, we plan for a softer start to the year in this segment, and we continue to expect profit trends to improve as 2026 progresses. Turning to the balance sheet and cash flow, During the first quarter, we closed the financing for the JDE PEAT acquisition with an optimized structure comprised of a $4.5 billion beverage company convertible preferred equity investment, a $4 billion coffee company pod manufacturing JV minority investment, approximately $6 billion in newly issued long-term senior debt, and additional term loan borrowings. Based on this financing mix, we continue to expect net leverage of approximately 4.5 times at mid-year. We remain committed to investment-grade ratings for KDP and our two future companies and will prioritize debt paydown in the near term. Our plan is for free cash flow generation to serve as the primary deleveraging source, though we will also continue to assess non-core asset divestitures. We generated $184 million of free cash flow in the first quarter and continue to expect legacy KDP will generate approximately $2 billion for the full year. Incorporating the net cash flow contribution from JDE PEATS this year, including the impact of incremental financing costs and one-time deal and transformation-related expenses, we expect approximately $2.5 billion of aggregate company free cash flow in 2026. Cash generation should increase beyond this year, enabling us to further optimize Beverage Co. and Global Coffee Co. capital structures, and over time, providing optionality for value-enhancing capital allocation. Let me now turn to guidance. We are reaffirming our 2026 outlook, which uses current FX rates and includes the anticipated contribution from JDE Peets as of the April 1 deal close date. We plan to report JDE Peets as a separate segment until separation. For the total company, we expect net sales in a range of $25.9 to $26.4 billion, reflecting 4 to 6 percent constant currency growth for legacy KDP and an $8.5 to $8.7 billion contribution from JDE Peets. On the bottom line, we expect low double-digit EPS growth in constant currency, which includes and anticipated six to seven percentage points contribution from the JDEP's acquisition and four to six percent growth for legacy KDP. Based on current rates, we anticipate that FX will represent an approximately one percentage point tailwind to total company net sales and EPS growth for the full year. Below the line, we are assuming the following, interest expense of approximately $1.13 to $1.16 billion, an effective tax rate of approximately 22%, and approximately $1.37 billion diluted weighted average shares outstanding. As a reminder, beginning with the second quarter, our P&L will also have two new impacts to reflect the pod manufacturing JV and the convertible preferred security. For the balance of 2026, we expect the following. Approximately $190 million in pre-tax coffee JV costs, which will flow through the non-controlling interest line, and convertible preferred costs that will flow through below net income to KDP and will be calculated each quarter as the greater of the roughly $53 million quarterly preferred dividend or the security's approximately 8% proportionate share of earnings. For 2026, we expect the calculation to default to the proportionate share of earnings. From a phasing perspective, we expect high single-digit EPS growth in Q2 with further acceleration in the back half as costs improve and synergies build. In closing, we delivered solid Q1 results. Our teams executed well in a highly dynamic environment and made important progress preparing the company for its next chapter. We remain on track to deliver our full-year commitments while also building the foundation for our two future standalone public companies. With that, I will turn the call back to Tim for closing remarks. Thanks, Anthony.

Overall, we're pleased with our start to the year. With clear priorities and well-crafted plans, we're striking a healthy balance between near-term fundamental delivery and our longer-term transformation initiatives. We will remain focused on disciplined execution to achieve our 2026 commitments and capitalize on the value creation opportunity we see ahead. With that, we're now happy to take your questions.

We will now begin the question and answer session. To ask a question, you may press star then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. We ask that you please limit yourself to one question. At this time, we will pause momentarily to assemble our roster. The first question today comes from Dara Mosinian with Morgan Stanley. Please go ahead.

Hey, good morning. So first, on U.S. refreshment, clearly strong sales growth on an underlying basis, even adjusting for incremental growth distribution, et cetera. Can you just give us a bit more detail under the hood on what's driving the momentum at segment and brand level and how sustainable you think those growth drivers are going forward and any thoughts on the impact from snap changes so far. And then if I can just slip one in on coffee, there's obviously a lot of dynamic factors impacting profitability at this point. You have the higher commodity pressure, particularly with the hedges and the inventory timing. But at the same time, obviously, green coffee prices have come off. The tariff situation improved. So just can you give us an update on a quarterly basis going forward, how you see profitability in that segment playing out given those factors, and also how pricing ties into the cost dynamics, both in terms of what you're seeing in the marketplace and your own potential actions? Thanks.

Good morning, Dara. Yeah, I'll tackle the first. You saw the print double-digit growth both on the top line and the bottom line. And in terms of your question on sustainability, we expect this segment will, as you think about the top line, we've got a great innovation slate lined up. You've already seen the impact on our second largest CSD brand, Canada Dry, with the fruit splash innovation and news there that drove share gains. literally in the last Dr. Pepper, Creamy Coconut. We expect that to be a big hit this year, capitalizing on dirty soda. Very good about our DSD route to market execution and the ability to continue to drive distribution gains for key brands, both own brands that are showing their lineup, and a lot of partner brands. Think Energy is marketing this year. We did it in the first whole year basis. It levels the quarter, as you mentioned, Dara, year over year. you know, on a comparison basis in the year organization and outsized contributor relative to our MSD net sales growth guide for legacy KDP, and I expect this top line growth momentum will also translate into continued operating income as well. You then referenced SNAP. I would tell you this, we're seeing healthy trends across our categories, you know, even with the pricing actions to offset inflation, the volume we're seeing in CSDs at a category level and broader LRB have been and I think this underscores the value that our categories provide to our consumers and what we're doing around affordable pack sizes and some of the work on price pack architecture and RGM. The innovation is still ringing true to consumers and providing the SNAP impacts to date have been manageable and largely consistent with our expectations and on the coffee phasing question let me start by saying on a full year basis for 2026 you know we do expect continuing to exceed

pricing in particular and you saw it in our in our first quarter you know our results will also reflect our decision to prioritize investment spending as we set up the business for you know separation you know despite the inflationary backdrop you know from a phasing perspective we would expect the q1 decline will be the most significant you know for the year as the inflation cost pressures peak on a year-over-year basis and you're seeing the green coffee cost inflation come through the you know that in the past it does lag you know giving our hedging programs and our inventory site top and bottom line from some adjustments and reductions in trade inventory levels, particularly in pot, and also, as I said, our higher marketing spend behind initiatives like Keurig Coffee Collective and the Keurig Anthem campaign. This pressure, you know, should begin to moderate a bit in Q2, but inflation will meaningfully ease in the second half, and our innovation and commercial program will kick in, and we should see some top-line improvements. And, look, based on current coffee prices, this could be a tailwind for us going into 2027.

The next question comes from Chris Carey with Wells Fargo. Please go ahead.

Hi. Good morning, everyone.

So I wanted to follow up on this line of thinking just to, number one, stress test confidence a bit more. You know, I look at consensus estimates for coffee margins specifically and see roughly 1,000 basis points of margin improvement into the back half of the year. Certainly, you're not talking about, you know, guiding the segment margins, but there's clearly some nice improvement in margins if you're going to see modest profit declines in the full year. There's also roughly high teens or 20% earnings growth in the back half if you're, you know, delivering high single digits in Q2. So I just wanted to maybe dig in a bit deeper on the cost front. You know, how much visibility do you have in your coffee costs at this point of the year? I assume high. You know, and secondly, you know, how much visibility do you have that, you know, your stronger consumption trends in coffee will, you know, be reflected in, you know, stronger shipment trends so as to avoid some of the volume mixed de-leverage into the back half of the year. And just one quick follow-up as well on U.S. refreshment. From the creamy coconut launch, are you expecting, you know, any uplift into Q2? Because I would imagine that would offset some of the drop-off in Ghost. Thank you.

Broadly, with talking about U.S. coffee and how we're seeing the various puts and takes on the year, and then, Anthony, maybe you can talk more specifically about the guide at the beginning of the year. The top and our bottom line performance a minute ago, we're also deliberately stepping up our investment behind long-term growth initiatives, even as we manage through these higher-cost peak inflationary environment in Q1 from a P&L standpoint. Anthony said it earlier, pods and really robust active innovation slate on both the pod and the brewer side, Curie Coffee Collective, new brewers, and then preparing for all. top and bottom line trend as the year progresses. Net sales, marketing, or commercial operating income will also benefit from the improving coffee cost envelope, particularly starting in the second half. Anthony, you want to talk a little more on coffee cost? Sure.

Let me step back a bit. You know, we are guiding, you know, and we have a high degree double digit EPS guide. And as Tim mentioned, that's going to, you know, accelerate as we go through the year here for a number of reasons one would be green once a year you know giving our current hedging program as well as our inventory cycle mostly hedged on other commodities including those that have been impacted by the recent uh conflicts in in the middle east bringing on board obviously jde petes and jde petes profile will follow one that's similar to our u.s coffee segment right as coffee prices improve their quarterly performance will improve as well and also again we have good JBEPs into the fold synergies you know throughout the year and that'll obviously have a building impact on our performance as we go through the quarters you know so sitting here today good visibility to the rest of the quarters and which gives us a high level of confidence in our guide Yeah, and then, Chris, your last question, back on Dr. Pepper and Creamy Coconut.

You know, as you think about Q1 on Dr. Pepper, it did reflect a bit of innovation timing shift. So Blackberry, a year ago, launched early in the year, and we lapped that, so we saw a little bit of pressure there. But as I mentioned in my prepared remarks, our three core Dr. Pepper lines, regular, Zero and diet Dr. Pepper. We've got a lot of confidence. Creamy coconut is going to be activity. I do think that'll be an important year to go for brand Dr. Pepper. We're going after some, our enhanced precision and a meaningful contributor to...

Question comes from Michael Lavery with Piper Sandler. Please go ahead.

Thank you. Good morning. You touched on each of the segments and just unpacked how some of the year unfolds, helpful color. But could you walk us through the JVEP piece of that and just considerations on what's left for the rest of the year and how to think about just moving parts in what's going on there?

The deal, obviously, back in a solid year.

Question comes from Andrea Teixeira with JPMorgan. Please go ahead.

Thank you. Good morning, everyone. I was hoping to see if you can talk about, like, as the green coffee prices improve, are you planning to roll back some of the pricing you had for coffee pods to just reignite volumes and improve operating leverage? And just as a clarification, as we decompose U.S. refreshment beverages' volume mix, and particularly because of Ghost, can you comment on how it behaves on a more organic basis?

Sure. I'll start on the coffee pricing question. So, you know, in coffee, our pricing in 2026 that you're seeing in the sales bridge is primarily the carryover from 2025 actions that we took to offset, you know, inflation. And as we talked about, the inflation is persisting in the first and second quarter of this year as we see it come through the, you know, the P&L. And as we move into the second half, that, you know, the current coffee price pullback should ease pressure. Active year over year price iteration. Speculate on future pricing actions, you know, we'll certainly environment. We are mindful of any price gaps and value, you know, to our consumers as we consider these longer-term pricing actions.

You asked a question related to GHOST, and I think I mentioned that in response to Dara's question. Q1 did benefit from some incremental year-over-year GHOST distribution benefits. And if I had to dimensionalize that, that's worth a couple of points, you know, in terms of that one-time impact as we lap that a couple of points to the USRB growth cycle, that kind of one-time benefit. And now we're just in a core KDP DSD. We'll continue to be outsized, right? Growth opportunities feature and display a robust innovation. But Q1 in particular benefited from a couple of months.

This question comes from Peter Galbo with Bank of America. Please go ahead.

Hey, good morning, Tim and Anthony. Thanks for the question. Anthony, I wanted to go back to a comment that you made around kind of being hedged on input costs that may be tied to the Middle East, at least for the remainder of this year. I think maybe it would just be helpful to sensitize or help us sensitize some of the exposures to things like aluminum and PET if we do get a prolonged kind of, you know, rally here in resins and aluminum costs that last into 27. So just any additional color you can help us with there as we start to contemplate maybe what the, you know, the margin implications could be going forward. Thanks very much.

Sure, sure. Look, you know, as with many, you know, CBG companies, we have, you know, both direct and indirect exposure to commodities that have been impacted by the Middle East conflict, and this includes a number of inputs tied to the packaging and energy areas. I would say that no single one of those inputs has an outsized impact on our cost structure, but they're all important, and as we've seen the recent inflationary move, comprehensive hedging to protect our markets.

The next question comes from Robert Moscow with TD Cowan. please go ahead.

Hi, thank you for the question. You may have mentioned it before, but you said in your prepared remarks that after the split, you'll have optionality for value enhancing capital actions. I want to know if you could give any more color on what those actions might entail, and would they have anything to do with the convertible you have and the minority investments.

Make that comment as it relates BEVCO, I think specifically, obviously both companies on the other side of this separation will have the independent optionality to make the best choices for their business and their shareholders. You know, as I think about BEVCO, let me start by saying that I love this portfolio, the leadership positions we have across the LRB categories, the advantage capabilities that we've built, and really this that runs through our, with these facilities, that works in what's best for us. We've got that optionality. And continuing to advantage geographies in the future of BEFCO and our ability to drive healthy top and bottom line growth in our current portfolio and with enhanced optionality.

The next question comes from Camille Gargiwala with Jeffries. Please go ahead.

Hey, everyone. Good morning. I guess one quick just clarification on the guidance for Q2. Is that total company guidance or is it, I guess, legacy KDP? And then sort of drafting off of Robert's question on the portfolio, maybe just to add to that what Anthony had mentioned on the potential sale of non-core assets, what types of things would, you know, would that be? And is the intention just to maybe have a tighter portfolio there, or is it more in the spirit of bringing down leverage?

Yeah, in answer to your first question, the high single digit is total company ability to generate significant free care of remarks. You know, we are expecting $2.5 billion of JDEP and all the related costs of the debt finance. We also said that free cash flow obviously will support our dividend and enable us to deleverage by about a half a term dated leverage targets at separation, which is 3.5 to 4 times for BEFCO, 3.75 to 4.25 for Global Coffee Co. But we also said we'll look for additional opportunities to accelerate de-leveraging. Not appropriate to getting any specific details, but there are a number of things that we're looking at across non-core assets and minority investments to help us along.

The last question today comes from Filippo Folorny with Citi. Please go ahead.

Good morning, everyone. I wanted to ask on your energy drink portfolio. Leo. We continue to see very solid growth for both Ghost and Bloom in track channel data. Can you comment a bit of the shelf space gains that you're realizing in the spring resets? Like how much room do you see in terms of further distribution for both brands? And then on the other side, C4 has been a little bit softer. Do you see any cannibalization from Ghost or what the plans to re-accelerate that brand. Thank you.

Thank you, Filippo. You've heard me say this as a category. It's $29 billion. It's growing mid-teams. And there are structural growth drivers in place that suggest this is a category that continues to have a long runway for growth. I think there's distribution expansion, particularly when you think about channels outside of C-Store, penetration upside. There's occasions to go after. There's cohorts, obviously experiencing tremendous growth right now, and we have one of those in our portfolio in bloom. So it's a great category, strong growth, and we see continued runway. We like the approach we've taken. We've taken a port for brands of scale that we go to market with, Ghost, a great lifestyle brand, see performance bloom good about that position and you saw continued market share to continue.

Our question and answer session. I would like to turn the conference back over to Chase and Nalala for any closing remarks.

Thanks, Betsy, and thanks everyone for joining us today and for your interest in KDP. The IR team is available if you have any follow-ups. Thanks so much and have a great day.

The conference has now concluded. Thank you for attending today's presentation.

You may now disconnect.