Eric Serotta

Eric Serotta asked for clarification on the selling day impact for Q1 and Q4 on revenue and the profit cadence for the first half versus the second half. He also inquired about the bigger picture mix drivers going forward and what specifically enhanced the mix contribution exiting 2025.

Answer

CFO Ed Walker stated that Q1 has six extra selling days, impacting volume, but operating profit is expected to be fairly balanced between H1 and H2 due to other factors like the Suntory exit impact in H1. CEO Damian Gammell detailed mix drivers, including category mix (ARTD, energy, BODYARMOR), channel mix (away-from-home recovery), packaging (smaller formats like cans, half-liter, mini cans), strategic price promotion, and added value (e.g., EPL promo on half-liter PET in GB). He emphasized balancing value with excitement and innovation.

Eric Serotta asked about the impact of selling days in Q1 and Q4 on revenue and how this affects the profit cadence between the first and second halves of 2026. He also inquired about the key drivers of mix going forward and what specifically contributed to the enhanced mix contribution observed exiting 2025.

Answer

CFO Ed Walker stated that while extra selling days in H1 2026 will affect volume, operating profit is expected to be fairly balanced between H1 and H2, due to various puts and takes, including the Suntory exit in H1. CEO Damian Gammell identified several mix drivers: category mix (ARTD, energy, BODYARMOR), channel mix (away-from-home recovery), packaging mix (smaller formats like cans, mini cans), and price/promo strategy. He emphasized adding value through engaging promotions (e.g., EPL promo on half-liter PET in GB) to drive both revenue and mix.

Eric Serotta asked for an expansion on Europe's away-from-home trends, specifically how strong growth in this channel reconciles with weaker at-home trends and consumer pressures, inquiring about potential consumer bifurcation and the contribution of CCEP's execution and share gains.

Answer

CEO Damian Gammell explained that away-from-home growth benefited from easier comparisons, a healthy NARTD category, good customer wins, value deals, favorable weather, and increased cooler placements. He noted that GB was a standout performer, while Germany experienced a tougher consumer environment in away-from-home.

Eric Serotta sought clarification on the trends in Europe's away-from-home channel, particularly how strong away-from-home growth reconciles with weakening at-home trends and increasing consumer pressures. He also asked about potential consumer bifurcation and the extent to which CCEP's execution and share gains contribute to this performance.

Answer

CEO Damian Gammell explained that away-from-home growth benefited from easier prior-year comparisons and a healthy NARTD category. He cited good customer wins, value and menu deals, favorable weather in Northern Europe, and increased cooler placements as contributing factors. Gammell noted that while GB was a standout market for away-from-home, Germany did not show the same strength, indicating a varied performance across Europe.

Eric Serotta of Morgan Stanley asked about the drivers behind the acceleration in the away-from-home channel and its implications for consumer health, and also about initiatives to reinvigorate sparkling category growth in Europe.

Answer

CEO Damian Gammell attributed the away-from-home recovery to factors like better weather, more people returning to offices, and sustained investment in coolers and menus. For the sparkling category, he stated that while revenue growth has been consistent, the current priority is to drive more volume growth within that revenue mix, which they are beginning to see.

Eric Serotta of Morgan Stanley asked about the drivers of the acceleration in the away-from-home channel and for an update on initiatives to reinvigorate sparkling beverage growth in Europe.

Answer

CEO Damian Gammell attributed away-from-home growth to better weather, return-to-office trends, and sustained investments in coolers and execution. For sparkling beverages, he said the priority is to add more volume growth to the consistent revenue growth, driven by Zeros, Diet Coke, and flavor innovations.

Eric Serotta from Morgan Stanley asked for color on the slowdown in energy drink growth during 2024 and the company's expectations for the category in 2025.

Answer

CEO Damian Gammell acknowledged a slight slowdown but sees Energy as the standout growth category, expecting it to return to high single-digit growth. He highlighted expansion into new markets like Indonesia and the Philippines, a strong innovation pipeline from Monster, and increased competition as drivers of future category growth.

Eric Serotta questioned the slowdown in the Energy drink category's growth rate to the 6% range and asked about the outlook for 2025.

Answer

CEO Damian Gammell positioned Energy as a standout category despite the moderation, expecting it to return to high single-digit growth. He attributed this confidence to expansion into new markets like Indonesia and the Philippines, a strong innovation pipeline from Monster, and a competitive landscape that continues to drive overall category growth.

Asked for details on the performance of the energy drink category, noting a recent growth slowdown, and inquired about expectations for 2025.

Answer

The energy category remains a standout performer and is expected to return to high single-digit growth. This will be driven by expansion into new markets like Indonesia and the Philippines, a strong innovation pipeline from Monster, and CCEP's ability to compete effectively in an increasingly competitive market.

Asked for details on which markets have secured pricing for the year and inquired about the nature of retailer negotiations, specifically regarding any pushback or de-listings.

Answer

CCEP has taken a strategic, multi-year approach to pricing, aiming for affordability. Pricing is in place for 2024 in almost all markets, with GB and Germany to follow later. They are in a 'good place' with retailers due to the significant value growth they provide, which has helped them avoid the pushback and de-listings seen by some competitors.

Eric Serotta inquired about the 2026 guide for smoke-free volumes, specifically how IQOS HTU shipments and in-market sales (IMS) are expected to perform given Japan's excise headwinds and competitive environment. He also sought clarification on whether the U.S. launch of IQOS ILUMA is included in the 2026 guidance versus the 2027/2028 timeframe.

Answer

Jacek Olczak (Group CEO, Philip Morris International) noted that IQOS maintains a strong share in Japan despite increased competitive activity and is well-positioned for the challenging excise period. Emmanuel Babeau (CFO, Philip Morris International) highlighted IQOS's strong finish in 2025 with over 12% adjusted IMS growth, driven by reacceleration in markets like Italy, Germany, and Spain, and a successful launch in Taiwan. Regarding U.S. ILUMA, it's broadly fair that 2026 does not include a significant impact, but the 2027/2028 timeframe does, encompassing both investment and expected volume, though the overall algorithm is not heavily dependent on it.

Eric Serotta asked for a broad breakdown of the 2026 smoke-free volume guidance, specifically how IQOS HTU shipments and IMS are expected to perform given Japan's excise headwinds and the evolving competitive environment. He also sought clarification on whether IQOS ILUMA's U.S. launch is included in the 2026 guidance versus the 2027-2028 timeframe.

Answer

Group CEO Jacek Olczak and CFO Emmanuel Babeau stated that IQOS maintains a strong share in Japan despite increased competition, with its brand strength supporting performance. Globally, IQOS is expected to continue strong growth, with reacceleration in markets like Italy, Germany, Spain, and successful launches in new economies such as Taiwan. They confirmed that IQOS ILUMA's U.S. launch is broadly baked into the 2026-2028 algorithm, including initial investments, but the overall guidance is not heavily dependent on its precise 2026 timing.

Eric Serotta with Morgan Stanley inquired about ZYN's short-term growth strategy, specifically if the goal was to grow in line with the category in volume terms, and the impact of September's extraordinary promotions on October scanner data. He also asked for additional color on the mismatch between IQOS HTU shipments and in-market sales (IMS), especially given a tough prior-year comparison for IMS.

Answer

Emmanuel Babeau, CFO, clarified that ZYN, as the category leader, aims to grow the nicotine pouch category, benefiting from its 60%+ volume share. He explained the 'normalization' of promotional activity from an abnormally low 20% in H1 to a higher, but still premium, level, alongside a 'blast effect' from a one-off free can promotion in September, which cost approximately $100 million and successfully targeted smokers and vapers. He noted October off-take remained strong. For IQOS, he stated HTU shipment growth was north of 12% year-to-date versus IMS closer to 10%, expecting IMS acceleration in Q4 and alignment of shipments with IMS, potentially with shipments slightly below IMS for the full year.

Eric Serotta from Morgan Stanley inquired about ZYN's U.S. performance, seeking clarification on the goal to grow in line with the category's volume, the impact of weakening October scanner data, and current tracking. He also asked for additional color on the mismatch between IQOS HTU shipments and in-market sales, and the drivers behind the overshipment in the quarter.

Answer

Emmanuel Babeau, Chief Financial Officer at Philip Morris International, clarified that ZYN, as the market leader, aims to grow the nicotine pouch category, benefiting from its dynamism. He explained Q3 performance reflected a normalization of promotional activity and a 'blast effect' from a special free can promotion, noting the $100 million cost was a one-off. For IQOS, Babeau stated that while HTU shipments were ahead of IMS in Q3, Q4 is expected to align shipments with IMS, potentially with shipments slightly below IMS for the full year due to inventory management.

Eric Serotta of Morgan Stanley inquired about the expected timing for the U.S. FDA authorization of IQOS ILUMA, the key drivers behind the reacceleration in international IQOS in-market sales (IMS), and whether the Q2 combustible volume performance was better than anticipated.

Answer

CFO Emmanuel Babeau stated that while the company still hopes for an H2 2025 IQOS ILUMA approval, it could slip to 2026 due to the FDA's heavy workload. He attributed the IQOS IMS reacceleration to Europe's recovery from the flavor ban and strong growth in Japan and new markets. He noted that the Q2 combustible decline was in line with expectations and the company's long-term outlook.

Eric Serotta asked why the constant currency EPS guidance was not raised despite a strong Q1 and higher ZYN shipment volumes. He also inquired about the potential for unconstrained ZYN offtake growth and whether PMI sees different trends in non-tracked sales channels versus Nielsen data.

Answer

Chief Financial Officer Emmanuel Babeau responded that while Q1 was very strong, the company remains cautious given it is early in the year amidst a volatile macro environment. He stated the raised ZYN forecast was not significant enough to dramatically alter the full-year outlook. On unconstrained ZYN demand, Babeau admitted the full potential is unknown but expects an acceleration as supply normalizes and commercial activities resume. He acknowledged Nielsen data is one point and highlighted MSA data showing accelerating shipments to retailers, but did not provide other specific data.

Eric Serotta asked for an update on the Italian market's performance post-flavor ban, the expected timing of the ban's implementation in Poland, and clarification on the 2025 FX headwind guidance, which appeared lower than expected.

Answer

CEO Jacek Olczak addressed the market questions, noting Italy's recovery was slowed by some user shifts to cigarettes and vapes, and that Poland's ban is expected late in 2025. CFO Emmanuel Babeau explained the FX outlook, stating that while the Russian ruble is a headwind, the impact is mitigated by a natural hedge from euro-denominated debt and specific hedging positions on the Japanese yen and euro.

Eric Serotta asked for Altria's commentary on recent articles suggesting an increase in smoking incidence among younger, legal-aged nicotine users and whether Altria's data supports this trend. He also inquired about the pricing strategy for ON! PLUS, its positioning relative to ON! Classic, and its potential to command a premium after initial trial periods. Finally, he sought more color on the potential scope of the duty drawback, specifically if activities beyond the KT&G partnership are in place or ramping up.

Answer

CEO Billy Gifford referred to Altria's vision of moving consumers to smoke-free products and stated that internal trends do not support increased smoking incidence among younger cohorts, emphasizing the need for expedited FDA authorization for smoke-free products. For ON! PLUS, he confirmed it is a differentiated product designed to command a premium, directing to nicotine.com for current e-commerce price differentials and noting varying introductory retail promotions. Regarding the duty drawback, Billy Gifford explained the opportunity is capped by matching exports with imports and that Altria continues to seek opportunities to avoid competitive disadvantages, without detailing specific partners.

Eric Serotta inquired about any observed increase in smoking incidence among younger, legal-aged nicotine users, as reported in popular press. He also asked about the pricing strategy for on! PLUS, specifically its positioning and potential premium over on! Classic, and sought further details on the scope of Altria's duty drawback activities beyond the KT&G partnership.

Answer

CEO Billy Gifford referred to Altria's vision of transitioning consumers to smoke-free products and advocated for expedited FDA authorization. Regarding on! PLUS, he stated it is a differentiated product commanding a premium, directing to on-nicotine.com for current price differentials. For duty drawback, Billy Gifford explained the opportunity is capped by matching exports with imports and Altria continues to seek opportunities to avoid competitive disadvantages.

Eric Adam Serotta asked about the premium price point strategy for ON+ during its initial launch in three states, relative to ON and other competitors. He also inquired about the significant year-over-year increase in controllable costs within the smokeable segment, how these costs are managed going forward, and if they constrained the segment's OCI growth in the quarter.

Answer

CEO Billy Gifford confirmed ON+ is positioned as a premium-priced product due to its differentiation and consumer experience, noting introductory price promotions would be used. CFO Sal Mancuso advised against quarter-by-quarter analysis of controllable costs due to timing, emphasizing long-term cost management through programs like 'Optimize and Accelerate' and the effective use of data analytics and revenue growth management tools. He highlighted that smokeable OCI was up 2.5% year-to-date.

Eric Serotta from Morgan Stanley asked about the premium pricing strategy for on! PLUS in its initial launch states (Florida, North Carolina, and Texas), and its relative price point compared to the existing on! product and competitors. He also questioned CFO Sal Mancuso about the significant year-over-year increase in smokeable controllable costs, future cost management, and whether these costs or other factors constrained the muted smokeable OCI growth in the quarter.

Answer

CEO Billy Gifford confirmed on! PLUS is positioned as a premium product, expecting it to command a higher retail price due to its differentiation and consumer experience, with introductory promotions planned. CFO Sal Mancuso advised against quarter-by-quarter analysis of controllable costs due to timing and comparison issues, stressing a long-term perspective. He highlighted cost management as crucial for growth, the Optimize & Accelerate program for savings and reinvestment, and the effective use of data analytics for price realization. Mancuso noted smokeable OCI growth should be viewed year-to-date (up 2.5%), expressing satisfaction with Marlboro's performance.

Eric Serotta followed up on illicit vapes, asking if Altria has observed shortages of specific brands and how illicit players are adapting. He also questioned if Altria's stance on re-launching nJoy has changed, referencing a previously more cautious tone about not rushing back into a disorganized market.

Answer

CEO Billy Gifford noted it's early to see sustained trends but confirmed that shutting down one illicit brand often leads consumers to another, highlighting the need for consistent enforcement. He clarified that Altria's disciplined approach to re-launching nJoy has not changed, stating the company is excited to bring it back when appropriate, but acknowledged the e-vapor market remains dominated by illicit disposable products.

Eric Serotta of Morgan Stanley sought to quantify the pension income impact within the 2025 EPS guidance and asked for color on tobacco consumer spending trends, particularly in the convenience channel.

Answer

CFO Salvatore Mancuso and CEO William Gifford clarified that while pension income is lower, the guidance range accounts for various puts and takes, and the long-term EPS goal allows for year-to-year variability. Gifford emphasized that the primary headwind for consumers is the cumulative impact of inflation, which disproportionately affects their lower-income consumer base, and this is the key economic factor they are monitoring.

Eric Serotta asked about any sequential changes in Celsius inventories with PepsiCo and the going-forward growth rate for Alani Nu, specifically for the core brand and incremental contributions from limited-time offers (LTOs), given a scanner data slowdown.

Answer

CFO Jarrod Langhans declined to comment on sequential inventory changes. CEO John Fieldly expressed excitement for Alani Nu, acknowledging LTO timing causes lumpiness (Witches Brew was successful, Winter Wonderland is launching). He highlighted significant opportunities for ACV and TDP gains by leveraging PepsiCo's network, especially in food and mass, noting that LTOs are also growing core SKU velocity.

Eric Serotta asked about sequential changes in Celsius's inventory with PepsiCo and the future growth rate of Alani Nu, including the core brand and incremental LTO contributions, while also inquiring about strategies to avoid past inventory optimization issues during the Alani Nu transition.

Answer

Chairman and CEO John Fieldly highlighted Alani Nu's strong performance in convenience, significant ACV/TDP opportunities with the PepsiCo network, and the positive impact of LTOs like Witches Brew on core SKU velocity. CFO Jarrod Langhans stated that the inventory rollover was not perfect due to noise, pack size, mix, and promo changes. He also emphasized that management has learned from the 2022 Celsius transition, with tighter team connections and captaincy providing more control for an efficient Alani Nu flow.

Eric Serotta inquired about the relationship between Alani Nu's robust shipment figures and its retail takeaway, and asked for expectations on the upcoming Witch's Brew LTO.

Answer

CEO John Fieldly stated that shipments and sell-through are tracking relatively closely and highlighted the launch of the Witch's Brew and new Pumpkin Spice flavors. CFO Jarrod Langhans provided supporting data, noting Alani's scanner data growth of 129% outpaced its revenue growth of 106%, indicating strong consumer pull-through and no excess inventory build at distributors.

Eric Serotta asked about the distribution agreement with Pepsi, specifically if Pepsi has a right of first refusal for acquired brands and who would be responsible for distributor buyout costs if Alani Nu's network were to change. He also asked for the financial impact of the change in Pepsi inventories during Q4.

Answer

CEO John Fieldly deferred on the hypothetical distribution questions, stating the current focus is on closing the transaction. CFO Jarrod Langhans quantified the Q4 inventory impact, stating it was between $8 million and $10 million.

Eric Serotta of Morgan Stanley asked how Celsius is evolving its execution playbook for 2025 as competitors increase their focus on the sugar-free segment. He also inquired about the company's pricing strategy, specifically if a price increase has been communicated to trade partners.

Answer

CEO John Fieldly positioned the increased competition in sugar-free as a positive trend that reinforces Celsius's core strength and will help expand the category. He reiterated the company's focus on its three primary growth drivers for 2025. On pricing, Fieldly confirmed a price increase was rolled out but stated the company is being conservative and does not expect a significant net benefit in 2025 due to the promotional environment.

Eric Serotta asked CEO Rahul Goyal about Molson Coors' overall level of investment in capabilities, his comfort with current levels, and if any areas require increased OpEx or CapEx beyond marketing, particularly since the 2019 revitalization plan.

Answer

CEO Rahul Goyal categorized capabilities into supply chain (CapEx for ROI, infrastructure, variety packing), commercial (market share vs. category captaincy, retailer partnerships), and technology (baseline, AI leverage). He stated that investments are viewed through a lens of productivity, efficiency, and enabling top-line growth with clear KPIs, and he does not anticipate a significant spike in investment solely to drive productivity.

Eric Serotta asked about the overall level of investment in capabilities, inquiring if there are areas needing increased OpEx or CapEx to further build out capabilities beyond marketing support.

Answer

CEO Rahul Goyal identified three key capability areas: supply chain (CapEx for ROI and infrastructure like variety packing), commercial (driving category captaincy with retailers), and technology (baseline needs and leveraging AI). He stated that investments will be viewed through a lens of productivity, efficiency, or enabling top-line growth, with more details on specific investment levels to come.

Eric Serotta from Morgan Stanley inquired about recent market share trends relative to competitors and any corresponding changes in marketing strategy. He also asked for clarification on the size of the incentive compensation reversal and details on the free cash flow bridge.

Answer

CEO Gavin Hattersley noted that overall U.S. share trends have improved sequentially since Q3 2024, with losses concentrated in flavors and seltzers. He outlined Q3 marketing plans for core brands. CFO Tracey Joubert confirmed a large portion of H1 incentive compensation was reversed due to the adjusted outlook and that cash tax benefits and working capital improvements are offsetting the profit decline to maintain the free cash flow guidance.

Eric Serotta asked for a medium-term perspective on beer category growth, considering the dynamics of various segments like slowing Mexican imports and the role of domestic premium and light beers.

Answer

CEO Gavin Hattersley focused his response on Molson Coors' portfolio, expressing confidence in the health of its core brands and the plans in place for its above-premium portfolio, including Peroni and Blue Moon. He reiterated the company's goal to have its above-premium segment reach one-third of net sales revenue. While not commenting on specific segments, he repeated his view that the soft Q1 for the industry was an anomaly and expects a normalization over time.

Eric Serotta of Morgan Stanley asked about expectations for U.S. shelf space in 2025 following significant gains and sought clarification on the accounting for the Fever-Tree partnership.

Answer

CEO Gavin Hattersley expressed confidence in holding onto the substantial shelf space gains achieved for core brands. CFO Tracey Joubert clarified the accounting: Molson Coors will recognize 100% of U.S. revenue, share certain costs like marketing, pay a royalty included in COGS, and report its investment in the Fever-Tree entity on a cost basis, marked-to-market, and excluded from underlying results.

Eric Serotta asked about plans to revitalize the Blue Moon brand, whether the Golden brewery expansion adds capacity for Coors Banquet, and for initial thoughts on the COGS per hectoliter outlook for the next year.

Answer

CEO Gavin Hattersley detailed revitalization efforts for Blue Moon, including new packaging and campaigns, which are leading to sequential dollar share improvement. He clarified the Golden expansion frees up capacity for Coors Banquet indirectly. CFO Tracey Joubert declined to give 2025 COGS guidance but highlighted positive drivers like brewery efficiencies and the Pabst contract exit.

Eric Serotta asked about competitor pricing actions following The Vita Coco Company's early August move, seeking insight into varied market strategies. He also inquired about Vita Coco Treats' repeat purchase rates and its growth outlook for next year, considering its launch this year.

Answer

CFO Corey Baker noted varied competitor pricing strategies, with some moving early, others incrementally, and some private label recently adjusting, while others haven't moved. CEO Martin Roper added that they are monitoring tariff uncertainty. Martin also explained that Treats provides a new consumer gateway with acceptable repeat rates, and the company plans for more investment and distribution gains (e.g., Walmart) next year, expecting it to be a positive contributor.

Eric Serotta of Morgan Stanley sought clarity on the drivers of higher finished goods costs, the variables within the 200-basis-point gross margin guidance range, and the timing and scale of planned price increases relative to tariffs.

Answer

CEO Martin Roper clarified that a price increase was already planned for Q2, with an additional increase likely in Q3 to offset tariffs. He attributed the wide gross margin guidance to uncertainty in ocean freight rates and explained that higher finished goods costs stem from start-up expenses for new factories and higher year-over-year freight costs flowing through inventory. CFO Corey Baker added that gross margin cadence should be relatively flat, with H2 pricing benefits offsetting tariff impacts.

Eric Serotta asked for an update on inventory levels throughout the distribution channel, questioning if further replenishment is expected. He also inquired about the magnitude and retailer reception of the planned U.S. price increase and whether the company would ship ahead of consumption in the first half of the year.

Answer

Executive Michael Kirban and CEO Martin Roper confirmed that inventory levels were healthy at year-end, with retail and distributor channels largely replenished. They noted that price increase letters are being sent to customers for a summer implementation, supported by a strong rationale of higher freight costs, with no significant pushback reported yet. While back to a normal shipping cadence, they aim to build additional inventory ahead of the summer season.

Eric Serotta requested more granular details on the strategic initiatives planned to maintain top-line momentum in 2025 and beyond. He also asked for the order of magnitude of the gross margin benefit from reduced promotional activity in the quarter.

Answer

CFO Corey Baker and CEO Martin Roper outlined a strategy focused on expanding households and occasions through multipacks, Vita Coco Treats, and the canned juice line, while also capitalizing on the success of the 1-liter format in convenience stores. Regarding promotions, they confirmed a major club store promotion was skipped due to inventory constraints, which provided a material benefit to gross margin that offset some ocean freight pressure, but declined to quantify the specific impact.

Eric Serotta asked for clarification on the slight deceleration in year-to-date depletions, questioned the sustainability of the company's increased internal production rates into the fourth quarter and early 2026, and inquired about the ongoing reconfiguration of third-party production relationships.

Answer

CFO Diego Reynoso clarified that the depletion change was minor rounding. He stated that the strong production numbers seen in Q3 are not projected to continue into the seasonally lower Q4, which is reflected in guidance. He also explained that third-party co-packers are maintained for volume needs, emergency backups, and geographical advantages, with relationships constantly under review.

Eric Serotta asked for clarification on the year-to-date depletion trend, which showed a slight slowdown from 3% to 4%. He also inquired about the sustainability of higher internal production into the fourth quarter and next year, and the ongoing reconfiguration of third-party production. Additionally, he asked about the amortization of prepaid shortfall fees and its magnitude for the next year.

Answer

CFO Diego Reynoso clarified that the depletion change was minor, primarily due to rounding. He stated that the strong internal production levels are not projected to continue into the fourth quarter due to seasonality, with 2026 guidance to follow. He explained that third-party co-packers serve multiple purposes beyond volume, including emergency backup and geographical advantage, and relationships are continuously reviewed. He confirmed that the amortization of prepaid shortfall fees will cease, but regular shortfall fees will continue, with details available in the 10-Q.

Eric Serotta inquired about the sustainability of the company's high gross margins and the potential for future improvement, and also asked about the seemingly more tentative tone regarding Twisted Tea's growth potential.

Answer

CFO Diego Reynoso credited the operations and procurement teams for margin improvements but noted headwinds from tariffs and lower volumes, while highlighting the positive mix benefit from Sun Cruiser. Regarding Twisted Tea, Founder & Chairman C. James Koch explained the brand's health is strong at the single-serve level, but 12-packs have been impacted by aggressive pricing and a loss of retail display space to RTDs, issues he believes are correctable.

Eric Serotta of Morgan Stanley asked about the long-term growth runway for Twisted Tea, questioning if a return to low-double-digit growth is a reasonable expectation. He also inquired about the Truly brand, asking for an update on the product line rationalization and the extent to which de-emphasized SKUs are still a drag on performance.

Answer

CEO Michael Spillane explained that future Twisted Tea growth will be driven by innovation, particularly the expansion of under-distributed high-ABV and light versions. Regarding Truly, he stated that most of the flavor assortment editing is complete and that the brand's current challenges stem from both the category's decline and lost distribution space, which they aim to reclaim through heavy marketing investment with partners like Barstool Sports.

Eric Serotta asked about the expected deceleration of Twisted Tea's growth, whether the industry is doing enough to combat health and wellness pressures, and the interaction between spirits-based hard teas and Twisted Tea.

Answer

CEO Michael Spillane stated that planning for single-digit growth for Twisted Tea is prudent given its large base, but highlighted growth drivers like increased investment and new extensions. Founder and Chairman C. Koch addressed health concerns, affirming the industry is advocating strongly against new, stricter guidelines. On product interaction, management sees minimal cannibalization between spirits-based teas and Twisted Tea, viewing them as attracting different drinkers.

Eric Serotta of Morgan Stanley asked about 2025 shelf space expectations for Sun Cruiser, its potential source, and its interaction with the Twisted Tea brand. He also followed up on the cause of higher obsolescence costs in the quarter.

Answer

Founder and Chairman C. Koch positioned Sun Cruiser as a margin-accretive, incremental product to Twisted Tea, aimed at capturing share from other vodka-based canned beverages. On the follow-up, he clarified that the quarter's obsolescence cost was not brand-related but was due to a strategic rebalancing of the company's hops portfolio.

Eric Serotta of Morgan Stanley questioned the risks associated with upcoming technology transitions, given historical challenges in the CPG sector, and asked about the viability of the long-term $1 billion adjusted free cash flow target with a lower 2025 revenue base.

Answer

CEO Robbert Rietbroek detailed the migration to SAP and expressed confidence due to lessons learned and addressed challenges. CFO David Hass added that increased training will mitigate future risks. Regarding the free cash flow target, Hass affirmed it remains achievable, citing factors like working capital efficiencies, CapEx timing, and future opportunities in pricing and debt structure that have not yet been utilized.

Eric Serotta asked for clarification on the components of Zevia's tariff exposure and what the company is seeing in household penetration changes since the Walmart reset, and how that informs its view of the long-term total addressable market (TAM).

Answer

CFO Girish Satya clarified that tariff exposure is primarily from aluminum, with secondary impacts on stevia and cross-border transport. CEO Amy Taylor explained that Walmart's distribution has been additive to household penetration, helping grow the consumer base. She noted that with penetration still in the single digits, there is significant upside through further distribution and channel growth.