Absolutely.
Okay. Great. Good morning, everyone. I'm Dara Mohsenian, Morgan Stanley's household products and beverage analyst. Just before we begin, a quick disclosure. Please see the Morgan Stanley Research website at www.morganstanley.com for our research disclosures, and if you have any questions, you can reach out to your Morgan Stanley representative, so with that out of the way, I'm very pleased to welcome Tim Cofer, Keurig Dr Pepper's CEO, and Sudhanshu Priyadarshi, CFO and President of International. Thanks so much for being here today, guys.
Thanks, Dara.
Tim, we've just marked your first year at KDP. Maybe you could take a step back and just talk about what's gone better than expected so far, maybe what you're looking to make more progress on. And based on that progress in year one, where are you planning to sort of push incrementally from here to sustain momentum, or what are some of the areas that need more attention?
Sure. Yeah. I mean, overall, I think it's been a good first year. You'd probably be surprised to hear me say anything else. But I think it reaffirms all the reasons I joined this great company. I think KDP is in a unique position in this dynamic beverage industry. We're young still, a young company. We're hungry. We've got great talent, great capabilities, a lot of advantaged assets, including DSD, and we bring a challenger mindset to everything we do. So for me, in the first year, it was about really setting direction and a strategy for the next chapter of value creation at KDP, building on the legacy and the success we've had the first five or six years since merger, and we unveiled that back in March at our Investor Day.
And I think it really this year reaffirms a lot of proof points in terms of progress against that strategy. We talk about consumer-obsessed brand building. I think this year you've seen that manifest in the marketplace, the success of Dr Pepper again this year, success of a lot of innovation across CSDs and stills. We talk about amplifying our route-to-market advantage. You've seen investments this year in our DSD asset taking on more territories, making that a bigger strength of KDP. And we talk about shaping our portfolio. And this year were some big moves, capitalizing on year two of C4, year one of Electrolit, and obviously a recently announced deal with Ghost. So I feel good about this year, the progress we've made, the proof points up on the board. As we roll into 2025, it's really about plusing up on all those dimensions.
You're going to see a great slate of innovation impacting 2025 across beverage. You'll see us consolidate further DSD territory in 2025. You'll see that portfolio expand with the recent announcement of the Ghost acquisition. The other thing you're going to see is really an enhanced focus on productivity to generate that fuel for growth. Look, I mean, it's a tough environment out there. It's a challenged consumer still, perhaps getting a little bit better. You see differences in some categories. CSD is doing better than we thought. At-home coffee is still a little sluggish, but I think our job is to deliver consistently, predictably, and I feel good about our ability to continue to do that going into 2025.
Great. That's a great segue into Ghost and the most recent acquisition, which has been the biggest acquisition since your merger. You talked about the value of your distribution platform. Maybe take us through on that deal, why this is the right deal, why this is the right time for your company, and also pursuing it as an acquisition as opposed to just increasing your stake or a minority stake as we've seen at some of the other distribution deals you've done over time.
Absolutely. I'd start by talking about the category. We like energy. Energy is a great category in liquid refreshment beverage, about a $24 billion category, consistently the strongest, if not one of the strongest growers in total liquid refreshment beverage. And I think there's a lot of structural tailwinds that suggest that this category is going to continue to grow. It addresses a universal need around energy and alertness. It is still, I think, early in its development. Think about metrics like household penetration. Energy has not yet hit the high watermark of other categories like CSDs. Think about even the development of this category at its stage right now. It's not fully developed from a price pack architecture standpoint, channel diversity standpoint, consumer segmentation. So all of those things, I think, can still play out.
And that means that energy category is the attractive category for us to continue to grow our position. Then you talk about KDP. Two years ago, KDP basically had a zero share in energy. We were largely nonexistent there. Then enter the partnership with C4. That's been a great partnership over the last couple of years. We're terrific partners with Doss Cunningham, the founder of that business. We've done great things together, and we think there's continued runway for growth. But then on the other side of that, we said, in addition to continuing to grow C4, how else should we think about capitalizing on this high-growth energy category? And that's where we got to looking at other brands. And I think Ghost is a standout among the other brands that are still available out there. Why? I think it's a distinctive brand, unique brand. It's got a great positioning.
It's more of a lifestyle brand, fantastic flavors, great packaging. We feel good about the leadership that we're going to partner with there. And we think Ghost and KDP can be a really powerful combination. We're now taking, and I said this on the Q3 earnings call, a portfolio approach to energy, branded portfolio. So you've got C4, performance energy, Ghost, lifestyle. We also announced a partnership deal with Bloom, a new strong growth brand out of the gate, female-forward, and then Black Rifle, a coffee brand that's extending into energy, more mainstream energy. Now you look at that lineup. Two years ago, zero share with C4, three share with Ghost on the other side of closing a six share. We can talk about a double-digit share type ambition. And then to the last part of your question on deal structure, is that a change in strategy from KDP?
I would argue no. We've taken a flexible approach to buy, build, or partner on any given opportunity, and I think what you see here, the structure that we've announced, the 60% acquisition upfront, the balance in three years is really the best of both in terms of partnership and acquisition. On the partnership standpoint, it gives us, provides, I'd say, capital efficiency, lower check size out of the gate, allows our balance sheet to stay resilient, and keeps the founders aligned and founder continuity. Whereas on the acquisition side, it obviously gives us full ownership, consolidation opportunity, and really the right to own the brand and capture those synergies, so overall, we're bullish on Ghost and on energy, and I think we've got exciting chapters ahead in 2025 and beyond.
Great. So staying on the concept of shaping your portfolio, how does that play into your long-term algorithm of mid-single-digit top-line growth and high single-digit earnings growth? Maybe give us a sense of the longer-term building blocks around that and, again, how portfolio shaping plays into that.
Yes. So Dara, as Tim laid out the KDP strategy, high level, what are those levers are? So we see KDP is geared to deliver MSD top-line and HSD EPS in constant currency. And this is driven by three things. One is we have a highly profitable base business that's growing. We have a portfolio that's continuously evolving towards this faster structural growth rate. Ghost is one example. And the productivity pipeline that we have that helps us fulfill the full growth agenda and also helps us deliver the bottom line. So that's the long-term building block here. If you look at by segment, we also have different segments that gives us diversity benefit. Sometimes some segment is doing better versus softer, but in the long run, it all balances out. So if you look at our three reporting segment, first is U.S. refreshment beverages. That's the largest segment.
We expect that to deliver in long-term mid-single-digit top-line growth. U.S. coffee, which is slightly sluggish right now, but in the long term, it will deliver LSD top-line, and international, which has been consistent high single-digit delivery, will continue to deliver a high single-digit top-line growth, and if you look at the last five years, these businesses have done that kind of growth, so we have seen the proof point. Now your question on portfolio shaping, this is a key part of our strategy. We are KDP. We are a challenger. We had a lot of white spaces to fill. Last couple of years, we did that with Electrolit, RTD, coffee, La Colombe, and energy, and we see ourselves as a preferred partner for this new and young brand who's looking to scale nationally, and our DSD investments for the last couple of years allowed us to do that.
And as these businesses, we have a strong pipeline, and we are very selective. We want to do it that's most beneficial for KDP. We have various deal structures Tim just talked about. So we are very flexible in terms of how and when and what structure we take. And as this high-growth brand becomes part of the portfolio, it also helps overall KDP to start driving faster growth rate.
Great. That's helpful. Maybe we can take a look specifically at 2025. With Q3 earnings, when you announced Ghost, you shared the preliminary view of algorithm-type growth for 2025. What are the moving pieces to that as you think about the outlook? What are some of the key building blocks specifically for 2025? And how much visibility do you think you have? What are the key unknowns at this point? Because it seems like externally, we have a lot more volatile environment. So just as you think about both top-line and an earnings perspective, give us some insight into 2025.
Yes, Dara. So normally, you don't talk about 2025 in October, but we talked about '25 because we wanted to provide some perspective on Ghost and how the Ghost deal will impact 2025. So we gave a prelim outlook that both top-line and bottom-line will be on the algorithm. And the building block for top-line is 70% of our business, U.S. refreshment beverages and international. We have a strong momentum. You're seeing it from first half to second half that we expect that to continue. We're planning very prudently for coffee. That's our planning stance. And with the pricing next year, the elasticity, we want to make sure that we plan prudently, and if we get surprised in a good way, all of us will be happy. Obviously, Ghost will be incremental growth for next year. That's roughly $500 million business, so that will be incremental growth.
And we are also doing. We talked during our call. We're raising the bar on the SKU rationalization because we have these fast-turning brands coming. And we want to make sure the DSD remains the most effective and we get the most out of it. So these are the building blocks for top-line. If we net these out, we feel very good that 2025 will have accelerated top-line growth versus what you have seen in 2024. Now, when you come to EPS, obviously, the top-line growth will flow through to the EPS. We also have a strong productivity agenda and overhead discipline. You see us this year. We have really raised the bar, and we will continue to do that. That also gives us some buffer with the inflation, like predominantly the green coffee. So we want to make sure that we drive the productivity agenda.
And net-net, if you flow through all of this, we expect that it's a balanced outlook. We still have a lot of work to do. You talked about consumer. We still need to see whether consumers are coming back or not. We have seen some improvement in Q4, but still, we want to make sure that the consumer backdrop gets better. But right now, we're planning for a balanced outlook here in terms of consumer. And we feel good as of now to be on the algorithm for next year. But we'll give you official guidance when we guide in February.
Great. That's helpful. Speaking of volatility, there's been a lot of market speculation around the potential changes in the health agenda under the new administration, whether that's SNAP eligibility, ingredients, and various aspects. Can you just review how you're thinking about KDP's positioning within that, how you strategically manage, how you might react to that depending on how things transpire, understanding there's some unknowns at this point?
Yeah, sure. Look, I want to start by saying consumers are our number one priority. And we are absolutely committed to providing delicious, great-tasting beverages that follow all regulatory standards, that are safe, and that are healthy. We're also committed to working with the new administration and any administration in the past, as we have, and regulatory bodies to make sure that the U.S. food and beverage supply chain is as safe and secure as any in the world. You referenced a couple of particular areas that have gotten some coverage, one around ingredients and one around SNAP. And I think when you think about ingredients, first of all, we stand behind the safety of our products, absolutely, and feel very good about that. I think if there were any sort of policy changes, obviously, that's going to take time. It's going to be studied.
And we're going to have a seat at the table, both as KDP and in the case of beverages, the American Beverage Association. I think if there's going to be policy changes, our advocacy is going to be, number one, that any changes are backed by science, number two, that they deliver real benefits to consumers, and number three, that it really empowers consumers to make the choices that they need for their lives and based on what they like. If there were to be changes, we can pivot very quickly. That's no problem. We have world-class R&D, supply chain capability, and I would be very confident that we can pivot very quickly without disruption. As it relates to SNAP, actually, the American beverage industry has been a real leader in calorie reduction over the last many years. In fact, today, here's a fun fact for you.
60% of all beverages sold in the United States are zero-calorie, and that number has increased each year. You look at the total calories consumed from beverages, which has been on the decline. Obesity rates are on the slight incline. There's not really a correlation there. We'll be working with our beverage colleagues with this administration to be sure that anything that's put in place is the right thing for the consumer. From a KDP standpoint, 60% of our portfolio is what we call positive hydration. That means it's either low sugar, low calorie, no sugar, no calorie, or great source of fruit with no sugar added, like our Mott's juice drink. Zero sugar for us has been a big focus. Actually, one of the biggest drivers of that Dr Pepper share growth we've talked about is our zero-sugar platform. Bottom line is we're agile.
I'm not particularly concerned in this area, and we will continue to advocate for consumer choice and consumer education in any new policies.
Great. If we could turn to your product categories, U.S. refreshments, your largest business, maybe a, just give us a state of the union. We're almost through 2024 on how the business performed, what you're pleased with. But also, given this is your first year at the company, what are the big opportunities as you look at 2025? And also just in light of some of the consumer volatility and some of the dynamics around excess pricing in the industry the last couple of years, how you think about the pricing environment looking out to 2025? In theory, this is a category with a lot of pricing power, but we're also seeing a stretched consumer that's seen a lot of inflation across CPG. And how you think about volume growth relative to that pricing?
Sure. I feel very good about our performance in U.S. refreshment beverages here in 2024. If you look at it through the first three quarters, that business has grown 4.5%. And we've said it before, we expect that to accelerate going into Q4. When you look at the drivers of that, it's two components. It's the base business, and it's new partnerships. And I think your question's maybe tailored a little bit more towards base. So I'll start there. First, I started at a category level. I think what you're seeing at the categories is you've got a CSD category that's particularly resilient. If anything, that category has exceeded our expectations in 2024.
And I think it speaks to part of your question, Dara, and that is despite the fact that CSDs have experienced year after year of pricing, particularly post-COVID, that category remains resilient because it offers incredible value to consumers relative to any other beverage choices. On the flip side, within refreshment beverage, you see the stills category is under a little bit more pressure. And I think that, again, speaks to the macro backdrop. Stills tend to skew towards single consumption more than CSDs, also towards C-store. And that is the sector that's been a little bit under more pressure, particularly low and mid-income consumers in 2024. So that's kind of the broad category backdrop. Now, within that, our job is, irrespective of the categories, what are we doing to grow share with our brands? And that's one I feel good about, starting with CSDs.
I think what you've seen, Dr Pepper, this year, it will be our eighth consecutive year of market share growth. We have standout success with creamy coconut this year as our LTO, capitalizing on the dirty soda trend. I think you've seen strength in Canada Dry. In fact, the data through the most recent week would suggest that Canada Dry Fruit Splash is on track to be the number one innovation in CSDs industry in 2024. So that's been a good driver of Canada Dry. It being holiday season, I've got to do a shout-out to our little 7UP brand and this little LTO of Shirley Temple. I was actually looking outside, Dara, just before we're mic'd up. We've got it in the coolers out front. If you haven't tried Shirley Temple, there's my one ad of this session. Get in the festive spirit and try 7UP Shirley Temple.
But that's been a nice share gainer of late on a smaller but iconic brand. So we've done all the right things, I think, on CSDs this year. On stills, it's more of a mixed bag from a share position. You've got things I feel very good about, Mott's. We did a big back-to-school push this year, new marketing campaign, new in-store activation, some new news. That's returned very well in terms of share. And then we've got areas of the still portfolio that are still in construction, namely Snapple, where I think what you're going to see next year is more of a push. You're going to see some new news, some new packaging, and some new marketing activation around Snapple to revitalize that. So all in, I think 2024 has been a very good year for USRB on the base side. Feel very good about 2025.
Great new innovation slate, some great new marketing and in-store activation on the back of a strengthened DSD network, and then if you wish, we can talk partners, but I'll pause it there.
Right. Well, why don't we talk partnership brands and some of the distribution since we covered the base business? Obviously, a year of significant partnership expansion last year with C4 and Electrolit. Maybe give us a bit of a review on how those brands have done so far, what it's brought to your system, and also 2025, your ability to continue to drive volume from partnership brands, but also a longer-term lens of your ability to do that from a system standpoint and what opportunities are there for you.
Absolutely. Sudhanshu said the phrase earlier, and I'll echo it here, and that is, I think we're continuing to build KDP as a preferred partner in liquid refreshment beverage. And that's based on a number of things. One is our track record with these partnerships. If you look since merger, the number of additions we've brought in and the mutual success and value we've created for both that partner brand and ourselves, I think the track record is strong. We have a very scarce asset in nationwide DSD, one of only three DSD systems in LRB that delivers coast-to-coast 80% of the population we cover. I think we have skills, capabilities, and really this challenger mindset that founders and entrepreneurs identify with and make us a good match.
That allows us to have, I think, a more disciplined and really we can be choosy as it relates to potential partners. That's what we've done, and that's what you'll continue to see us do. As it relates to some recent examples, you've referenced both C4 and Electrolit. Let me unpack both of those. C4, we're basically finishing our second year with C4. We feel great about that partnership, as does the C4 company and Doss. What have we done in those two years? We've effectively doubled the business. We have essentially doubled TDPs, total distribution points. We've tripled display activity. We've increased cold assets, which are critical in beverage, especially at C-store by orders of magnitude. And we've grown over a share point in that high-growth energy category.
So I think C4 is a great example of what the power of KDP DSD can bring to a new partner brand. And we see continued runway to your question on incrementality going forward, continued runway into 2025 and beyond with C4. Electrolit, this is year one. We just transitioned distribution this year on Electrolit, really kind of in that first into second quarter. So you'll see a continued ramp going into 2025. Electrolit is a $500 million brand at retail, about a five-share brand in sports hydration, significant upside. You would know, Dara, it's a leader in Mexico and has a huge following among Hispanic and Latino population. And we think we can build from there. We've got big plans for next year with Electrolit. I was actually in Guadalajara with Sudhanshu meeting with the family and Grupo PiSA that owns Electrolit. They have big ambitious plans for it.
They put an asset in the ground in Texas, you may have seen, in terms of expansion. So we're really bullish on what we can do together on Electrolit. You've got C4. You've got Electrolit. We had great success with La Colombe on the coffee RTD side. And then next year, you layer in Ghost, as we've already discussed.
Great. Why don't we switch over to coffee? Maybe I'll separate volume and pricing. So from a volume standpoint, you mentioned the recovery in the coffee category has been less than expected over the last year and a half. Just give us some high-level perspective there, looking backwards and how you see things looking forward, maybe in terms of overall coffee, even away from home versus at home, and how you think about the pod business within that. And second, also, maybe you can cover the brewer side of it and how that plays out in a recovery, looking out here over the next year or two, given you've had some exciting news and how that plays into it also?
Absolutely, Dara. So I'd start by saying, yes, we're constructively dissatisfied with the rate of recovery in at-home coffee. But I've managed a coffee business in my past life. I've seen peaks and valleys, and at-home coffee growth will return. If I could leave you with two thoughts as it relates to coffee and our business on coffee. First is we're playing the long game at Keurig. We believe in coffee and the long-term growth prospects of coffee, and we're doing all the right things, I think, to invest in the preeminent single-serve coffee system. We're investing in marketing. We're investing in innovation on both the pod and the brewer side. We're attracting more and more partners into this system.
And so we're doing the right thing for when that at-home coffee category gets back to good growth, we're going to be in a great position to really harvest those benefits. I think the other thing I'd leave you with is in the meantime, we're planning prudently, right? From a financial outlook standpoint, we aren't baking in any sort of dramatic recovery. And so I think that's a good position to be in. At-home coffee, let me just bring some numbers to at-home coffee. At-home coffee is actually on a slow and steady recovery. So I'll take you back to 2022. At-home coffee volumes declined 6%. 2023, at-home coffee volume declined 3%. And 2024, year to date, it's 1.5% to 2%. So slow and steady, we are seeing a recovery, and I would expect that that can continue. Within that, single serve is the clear winner of at-home coffee.
Single serve, where Keurig is the preeminent leader in single serve, is about 27% of all at-home coffee on a volume basis. And that share position has grown each and every year. And that's through the innovation on the brewer side and the pod side. And then within single serve, KDP and Keurig is growing within owned and licensed. So our brands are growing share this year. And we're growing in terms of brewers, growing in share and growing in absolute brewers. And that's obviously a good leading indicator. This year, in 2024, we've talked about three key strategies to continue to drive at-home coffee in our business. One is around affordability.
That's things like price-pack architecture adjustments that we made that we feel good about, putting our at-home coffee and the convenience, the value in the coffee shop quality of Keurig in a broader frame of away-from-home coffee to really emphasize that relative value. We've talked about premium as the second key lever, attracting great new partners, Lavazza, La Colombe, etc., artisanal brands into our system. And then we've talked about cold. Cold, obviously, is a huge trend in coffee. You see the majority of coffee shop beverages are now so cold. How do we capture that at home with Keurig? That's through innovation and brewers. Think of our new Keurig K-Brew+Chill , as well as pods, iced coffee, cold brew, and refreshers, which has been a big hit. So I think overall, we acknowledge that the category recovery has been more sluggish.
It's on its way, and we're playing the long game. And I think the other thing to say is, as we roll into next year, we would expect from a dollar basis our performance to be better in 2025 than it was 2024.
Okay. And the other side of that is the pricing side of things. So A, the single-serve category does continue to look promotional in the short term in recent scanner data. So you've announced pricing for 2025. Some of your competitors have announced pricing. Just your level of confidence that that will stick, maybe some context versus what we've seen recently in the category from a pricing standpoint. And also it'd be great to understand how the cost situation plays in with that and how you think about pricing versus cost, given the run-up we've seen in coffee prices, as you mentioned, Sudhanshu.
Yeah. What I'd say is right now in coffee, we're in a transitional period. So the front half of 2024 in particular was a benign inflationary environment. And so the focus was on volume by us and our competitors. And you saw some promotional activity being used as a potential lever to get the category going again. I think as the dust settles on 2024, we'd probably all agree that maybe wasn't as effective as we'd like. I think what you're seeing right now, Q3 and really into Q4, more recent data that you referenced, Dara, is when you do price promotion programming with key retailers, the nature of that is that's often locked in for a period of time. And I think you're seeing that kind of run its course right now.
That's why I would expect Q4 to not look all that different than Q3 in terms of those category dynamics. When you roll forward into next year, we've certainly announced pricing effective January 1. To your point, Dara, most of our competitors have announced as well. I think when you look at the green coffee price, over $3 now, spiked up more than that over the last few weeks, now around $3 . This time a year ago, it was below $2. The right thing to do is to price. For us, it's about protecting our margins. It's about protecting our ability to invest in this great single-serve system. I think history would suggest most of the industry will do the same. So I think you're seeing that shift now as we go into Q1 from more of a volume focus into a dollar focus.
That's why I think as we roll into next year, you're going to see a better dollar revenue number from U.S. coffee in 2025 versus 2024.
Great. That's helpful. International is becoming a much more significant piece of your mix. It's nearly doubled since merger in terms of sales from that segment. Can it sustain an outsized growth rate? What are the main opportunities from here? And any short-term considerations to keep in mind just given broader volatility?
No, Dara, you're right. International is the fastest growth business in the last five years. It has delivered HSD top-line growth and HSD bottom-line too, and even year to date, if you Q3 year to date, it was close to double-digit in top-line, 9.5% to be exact, and double-digit in bottom-line, so it's a strong growth driver for this year too, and we expect that to continue in going forward. When I was giving you the building blocks for our long-term algorithm, international will be a key contributor driving HSD type of top-line growth. As of now, international is two businesses. You have Mexico and Canada, and Mexico is the growth driver in international business, and there we have company-owned DSD that is very important in markets like Mexico, where there's a prevalence of traditional trade. We're investing money in routes. We're investing money in cooler.
We're lifting and shifting ideas from U.S. to Mexico. And we also have a lot of room to grow in terms of the regional distribution. So we're taking Dr Pepper from here. It's growing very well. And we're also investing money in a manufacturing plant in Mexico. So Mexico will continue to drive. Mexico and LRB will continue to be an outside growth driver in international. Canada, we have both coffee and beverage businesses. It's more like U.S. So coffee, the same strategy, is driving growth. And beverages, we also take the partnership like C4. So we're creating scale. When we sign a deal in U.S., we take it in Canada. And where we see today, we have a lot of room to grow in both markets. And we have other export businesses. We keep looking at different ideas, both organic, inorganic, where we can grow internationally.
It's a better valuation internationally, so we are very excited, and I feel very good about that it will continue to be an outsize growth driver. Regarding the short-term pressure, it's dollar strengthening, obviously. Reported sales will look different than constant currency, but constant currency, we feel very good about it, but even the dollar term, we are much more insulated compared to only $2 billion of $15 billion versus other global peers, so we feel good about that.
Great. You touched on productivity earlier. Maybe we can run through that in a bit more detail. What are some of the biggest opportunity areas on that front? And just talk about sort of the P&L flexibility as you think about 2025 and beyond with the productivity and also the balance between reinvestment versus flow-through of that productivity.
Yes. You've heard us talk about productivity for the last couple of years. We have really stepped up. The first five years was merger integration. But after that, we really stepped up the productivity. For any CPG company, you want to have that muscle that's driving continuous productivity savings. That's what we're building. Broadly speaking, there are three components of that. First is continuous productivity. And second is network optimization. And third is overhead discipline. And we made progress in all of those three options. We laid out the public target of 3% to 4% of gross productivity. And in 2024, we are much at the higher end of that. Network optimization, you saw we announced two plant closures in coffee, legacy plant closures as state-of-the-art manufacturing plants are coming online. So that will give us benefit for years to come. And overhead discipline.
So we are focusing more on BU-centric model and very lean corporate. So that's also giving us. You will see us getting operating leverage there. All of those things give us options of what to do with that money. Some we will invest, obviously, to continue to drive in the future. And some we will flow through for the true profit and bottom line. And it changes year over year. In the long run, you will see to invest money in the business and continue to serve our long-term algorithm. 2025, we're playing the same thing. We're seeing the coffee inflation. So when we guide you, you will see us that we're using some of the savings to fund the inflation or mitigate the inflation and rest to deliver our long-term algorithm in terms of EPS. Because your top line is MSD, EPS is HSD.
We need to flow through the savings to deliver the HSD algorithm.
Right. So I'll try to slip one last question in here before we run out of time. Capital allocation, maybe just update us on where buybacks fit in the capital allocation. We have had some external circumstances that have caused some stock price weakness sort of unexpectedly with potential policy changes. So just give us an update on how repurchases fit into your capital allocation.
So we saw one of the pillars in our strategy is we believe in dynamic capital allocation. So we're constantly looking at different priorities, and we make the decision which is the best thing to do that time. If you look at the last couple of years, we invested internally in the business. We bought more than $2 billion worth of shares. And we did two deals, big deals, C4, close to $1 billion, and now Ghost. And we also did La Colombe. So if you look at in balance, we are investing in all three areas, allocating capital in all three areas, internal investments, M&As, and shareholder return, direct shareholder return. After Ghost deal, we are slightly higher than our leverage target. We are close to 3.4 when we closed Ghost. Our leverage target is 2.5 times. So our first priority is to start deleveraging.
At the same time, we will be opportunistic in share buyback. We still have $1.8 billion of share buyback authorization left, but I would say focus will be deleveraging, but remain opportunistic, and we continue to generate strong cash flow. Our cash flow conversion this year is better than last year, and next year will be better than this year, so we will use we'll be disciplined, but at the same time, we will have flexibility to do multiple things in terms of capital allocation.
Great. Well, that's very helpful. We appreciate so much you gentlemen being here. Thanks again.
Thanks, Dara.
Thank you, Dara.