Primo Brands Corporation 2026 Q2 Earnings Call

Please go ahead. Thank you, operator, and hello, everyone.

With me on the call today are Eric Foss, Chairman and Chief Executive Officer, and David Hass, Chief Financial Officer. Our discussion today includes forward-looking statements within the meaning of U.S. federal securities laws, which are subject to risks and uncertainties that may cause actual results to differ materially. For more information, please refer to our forward-looking statements disclosure in our earnings release. In addition, the definitions of and applicable reconciliations for any non-U.S. GAAP financial measures are included in our earnings release and supplemental earnings slides, which were made available earlier today on the investor relations section of our website. With that, I'll pass it to you, Eric.

Thanks, Traci. Good morning and thank you for joining us. Today, I'll review our second quarter performance and how we're positioning the company to be fit to win by continuing to improve on the direct delivery customer experience, advancing our key growth priorities, and simplifying our leadership structure. David will cover our financial results and 2026 guidance. We're encouraged with the accelerating momentum across the business in the second quarter with strengthening fundamentals driven by ongoing improvements in the customer experience in direct delivery and strong dollar in volume share gains in the bottled water category within retail. Second quarter net sales were $1.8 billion, up 4.2% on a comparable basis versus prior year. Ahead of our expectations and marking a second consecutive quarter of year-over-year growth.

Growth was broad-based, reflecting continued strength across our brands in retail and a faster than expected return to growth in direct delivery. Adjusted EBITDA increased 5% to $385 million, with margin expansion driven by improving productivity, stronger operating leverage, and continued progress in direct delivery. With top-line growth again exceeding our expectations and momentum broadening across both retail and direct delivery, we're raising our 2026 comparable net sales growth guidance for a second consecutive quarter. We now expect growth of 2%-4%, up from the previously guide of 1%-3%. We are reaffirming our adjusted EBITDA guidance of $1.465 billion-$1.515 billion as we intend to continue to invest behind growth and as we manage the current dynamic macro cost environment. Our business fundamentals continue to improve, and we remain well-positioned in an attractive growing category.

Our differentiated portfolio of leading brands spanning the value spectrum and advantage route to market and disciplined execution gives us confidence we have the right foundation to drive long-term growth. Building on this, last month, we took an important step forward by simplifying our leadership structure. This included eliminating the Chief Operating Officer role, enhancing leadership capacity with the addition of a highly experienced beverage industry professional in the role of President of Customer Direct and Go-to-Market, and elevating certain critical roles like Chief Supply Chain Officer to report directly to me. These changes are designed to improve our ability to serve our customers and accelerate key growth priorities and support faster decision-making and to create a more agile and accountable operating model. We believe these actions further strengthen our position and enhance our ability to capitalize on the growth opportunities ahead.

Let's review our near-term priorities, which we have discussed in the last few quarters. First was to improve the customer experience in direct delivery, second was to return the company to balanced growth. We've now delivered on both of these priorities for a second consecutive quarter. Direct delivery returned to growth, up 0.4% in the quarter. This return to growth was one quarter ahead of our expectations and marks a significant milestone reflecting meaningful progress in stabilizing the business and improving the customer experience. At a high level, direct delivery growth is driven by several key levers: adding new customers, improving revenue retention, disciplined pricing, and tuck-in M&A. In the second quarter, performance improved across several of these areas. New customer additions remained strong, and with the reduction in the historical incentives, we're improving new customer quality and narrowing the average revenue gap to more tenured customers.

On a sequential quarterly basis, customer quits and the contact center call volumes also declined, with call volumes below pre-integration levels. We also saw improvement in key operational metrics. On time and full, or OTIF, improved month-over-month through June, reaching the mid-90s despite elevated peak season demand. We also continue to make the customer billing experience easier and more clear through simpler invoices, expanded payment options, stronger credit processes, and improving invoice timing for many residential customers. Our Solve by Sundown initiative has also been supporting faster resolution of customer concerns. We're encouraged with our progress, there is more work ahead as we continue to stabilize the business and lay the foundation for optimization to accelerate profitable growth.

Supported by our simplified leadership structure, we're taking targeted actions to improve execution, productivity, and the customer experience, creating a flywheel that we believe will enhance operational performance and accelerate growth. Our second priority was returning the total business to growth, which we achieved for a second consecutive quarter. Our retail business delivered strong and broad-based growth. Our regional spring water net sales increased 4.1%, purified water increased 1.9%, and premium brands increased 30.5%. We also expanded our retail presence through new points of distribution. This performance drove continued value and volume share gains in the bottled water category. Going forward, we see multiple growth vectors: continuing to brand build and innovate, improving our in-store presence in a more strategic and holistic approach to revenue growth management. We also see meaningful opportunity in cold and immediate consumption, where we're under-penetrated in a high-growth, high-margin segment. Another growth vector is premium.

Saratoga and Mountain Valley continue to be among the strongest growth assets in the portfolio, again, growing dollar and volume share of category in the quarter, driven by expanded distribution. With strong brand equity, growing distribution, along with new capacity, we believe they are still early in their growth journey and see meaningful opportunities for both scale and mix, driving operating leverage and margin expansion over time. Our final growth priority is developing a more strategic and holistic revenue growth management approach across price points, packages, and channels. In the first half of the year, we took strategic and disciplined actions across select areas of our portfolio using our approach that begins and ends with the consumer while factoring in competitive dynamics, our cost structure, and the economics of our retail partners. We continue to believe we are well-positioned to manage through the current dynamic macro and geopolitical conditions.

Our portfolio serves consumers across price points, packages, channels, and occasions. We have a number of levers, including productivity and pricing, that we believe can help mitigate inflationary pressures while supporting long-term growth and margin expansion potential. In closing, we're encouraged by our first half progress, which reflects an enhanced customer experience, improving execution, and building momentum across the business. In short, we believe the business is fundamentally stronger than it was six months ago. As One Team Primo, our customer-first culture fuels our passion to serve our customers and consumers with excellence each and every day. Our near-term focus is to continue to execute with purpose and pace to drive sustainable, balanced growth. As that growth scales, we expect productivity and operating leverage to support margin expansion, increased cash flow generation, and long-term value creation. With that, let me turn the call over to David.

Thank you, Eric. For 2026, reported financials include Primo Brands results for both 2026 and 2025, as we're now past the anniversary of the merged companies. To enhance comparability of continuing operations, we focus on comparable results, which exclude the Eastern Canadian operations exited in the first quarter of 2025 and the office coffee services business exited during 2025. Reconciliations are available in our earnings presentation available on our website. Second quarter comparable net sales increased 4.2% versus the prior year, driven by a 4.3% contribution from price mix, modestly offset by a negative 0.1% contribution from volume. In retail, net sales growth was driven across all channels, led by mass, grocery, and away from home. Across pack sizes, driven by occasion and case packs, and brands, led by premium and regional spring waters.

In fact, in retail sales channels, our premium sales growth exceeded the overall 30.5% premium water increase, reflecting ongoing strength in retail channels while continuing to recover within the direct delivery channel. Direct delivery net sales growth was driven by price and mix benefits, despite lower volume resulting from a smaller customer base. On a comparable basis, direct delivery net sales increased 0.4%, slightly ahead of our breakeven expectations and a 340 basis point sequential improvement from the first quarter. This progress reinforces that our recovery efforts are driving tangible improvements in service levels, which is also reflected in continued increases in our NPS scores and Trustpilot ratings. Adjusted EBITDA increased $18.3 million to $385 million, with comparable adjusted EBITDA margin up 10 basis points to 21.4% versus the prior year.

On a quarterly sequential basis, comparable adjusted EBITDA margin improved 260 basis points, reflecting enhanced operating efficiency in a seasonally stronger quarter and productivity gains enabled by more stable operations. Within direct delivery, our continued investments in routes, service, and customer experience drove a more consistent net sales performance. At the enterprise level, adjusted EBITDA growth versus prior year was partially offset by higher transportation costs, primarily related to a tighter freight market and higher spot rates. We also continued to make strategic investments across the business to support long-term growth and productivity. Turning to our balance sheet and cash flows, we are encouraged by the improved health of our balance sheet and the quality of our cash flow.