The Campbell's Company

Good morning and welcome to the Campbell's Company first quarter fiscal 2026 earnings conference call. Today's conference is being recorded. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. If you would like to ask a question, please press star one on your telephone keypad. I would now like to turn the call over to Rebecca Gardy, Chief Investor Relations Officer at Campbell's. Please go ahead.

Good morning, and welcome to the Campbell's Company First Quarter Fiscal 2026 Earnings Conference Call. I'm Rebecca Gardy, Campbell's Chief Investor Relations Officer. Joining me today are Mick Bakehausen, Chief Executive Officer, and our new Chief Financial Officer, Todd Comfer. Today's remarks have been pre-recorded. After the prepared remarks, we will transition to a live webcast Q&A. The presentation, a transcript of management's prepared remarks, and today's earnings press release are available on our website, at thecampbellscompany.com in the investor section. A replay of the webcast will be posted at the same location following the Q&A with a full call transcript, including the Q&A session, available within 24 hours. Slide two outlines today's agenda. Mick will provide insights into our first quarter performance as well as our in-market performance by division. Todd will then discuss the financial results of the quarter in more detail and review our guidance for the full fiscal year 2026. Please note that all references to the first quarter in market performance refer to the 13-week period ending November 2, 2025, compared to the 13-week period ending November 3, 2024. In addition, beginning in fiscal 26, we are reporting share of our Cape Cod and Kettle brand chips against the total potato chip category, replacing the prior comparison to the Kettle cooked potato chip category. Late July will be compared against the total tortilla chip category rather than the natural and organic tortilla chip segment. We believe these updates more accurately reflect our brand's in-market performance and underscore their strong positioning within the broader chips category. And finally, beginning in fiscal 2026, the snacking and meals and beverages retail business in Latin America is managed under our meals and beverages segment. Through the fourth quarter of fiscal 2025, The company's Latin America retail business was managed under the snack segment. Prior period results have been adjusted to reflect this change. On our call today, we will make forward-looking statements which reflect our current expectations. These statements rely on assumptions and estimates which could be inaccurate and are subject to risk. Please refer to slide three of our presentation or our SEC filings for a list of factors that could cause our actual results to vary materially from those anticipated in the forward-looking statements. Because we use non-GAAP measures, we have provided a reconciliation of each of these measures to the most directly comparable GAAP measure in the appendix of our presentation. And now, it is my pleasure to turn it over to our Chief Executive Officer, Mick Bakehausen. Mick? Thanks, Rebecca.

Good morning, everyone, and thank you for joining our first quarter fiscal 2026 earnings call. Before we review our results, I want to take a moment to welcome Todd Comfer, our new CFO. With more than two decades of food industry experience, Todd brings the expertise and perspective we need. Throughout his career, he has demonstrated a proven ability to drive change and deliver superior financial results. I'm confident he'll be a strong business partner and a tremendous asset to our company. Welcome, Todd. Now, let's review our first quarter results, which were in line with our expectations as we continued to navigate a dynamic operating environment. Organic net sales were down 1%, driven by a 2% decline in consumption, with the difference mainly due to retailers building inventory in snacks ahead of upcoming promotional activities. We have an attractive brand portfolio that meets the key attributes consumers are seeking, whether supporting at-home cooking, providing flavor-forward options, premium experiences, or health and wellness benefits. While our total in-market consumption was down 2%, our 16 leadership brands' consumption was down 1%. And collectively, they held share for the eighth consecutive quarter. Within meals and beverages, our leadership brands benefited from consumers' ongoing cooking at home behaviors and the growing demand for elevated meal experiences. However, our snacks business remained under pressure as consumers continued to be increasingly intentional with their purchases. Since the start of the fiscal year, we have made significant progress on our cost savings initiatives, improved overall productivity, and implemented selective in-market pricing increases. However, these actions were not sufficient to offset cost increases and top-line headwinds, resulting in a decrease in our adjusted EBIT margin and an 11% year-over-year adjusted EBIT decline. We continue to be laser-focused on mitigating cost pressures while maintaining marketing support for our brands. Finally, as outlined in our press release, we reiterated fiscal 2026 guidance, which continues to include the expected tariff impact and the related mitigating actions. Todd will provide more details on our guidance in a moment. As highlighted last quarter, we're strengthening our focus on consumers and their evolving needs. I want to remind you of the framework we shared last quarter and underscore the strategic lens we apply when shaping how our brands show up. Our brands are uniquely positioned to compete and excel in these growth areas. While we use this framework to guide consumer-led innovation, it also guides our brand activations. A great example is our rail sauces campaign, which focuses on the elevated rails experience, highlighting the origin of its high-quality ingredients, supporting the unique nature of the food we make. Additionally, we recognize that continued focus on providing an attractive value proposition is critical to be successful. An example of this during the past quarter is our multi-pack goldfish focus during the back-to-school period, where we've seen double-digit increases in consumption first prior year through strong retail execution and promotional support during an important consumer occasion, meeting the need for a wholesome, convenient snack at the right value. By concentrating our efforts and executing with clarity and discipline, our diverse and advantaged portfolio can build deeper consumer connections, meet their evolving needs, and unlock meaningful, sustainable growth. We remain committed to crafting high-quality food at the right value, as well as investing in omnichannel execution, brand activation, and innovation. Turning to slide seven, total company leadership brands saw stable share performance in Q1. with consumption down 1%. As a reminder, our leadership brands represent approximately 90% of our enterprise net sales. The first quarter marked the ninth consecutive quarter that our meals and beverages leadership brands have held or grown share. Consumers at home cooking behavior was once again a tailwind for several of our brands within the division, especially our condensed cooking soups, broth, and Italian sauces. Turning to snacks, Consumers are still snacking, but how people are snacking is evolving. We are maintaining our solid share position within snacking as consumers choose snacks that meet their needs within premiumization, flavor exploration, and health and wellness. In Q1, four of our eight snacks leadership brands grew or held share. We believe our powerful portfolio of snack brands remains distinctly advantaged in today's environment, and we are staying close to consumers' evolving needs through our brand activations, innovation, and strong omnichannel execution. Let's take a closer look at each division, beginning with meals and beverages on slide eight. Organic net sales decreased 2% for the quarter. Unfavorable volume and mix of 3% reflects the elasticity impact of tariff-related pricing actions, which was partially offset by favorable net price realization. Additionally, although the in-market consumption of our leadership brands was flat, our overall consumption within the division was down 1%. Turning to slide nine, our total soup portfolio slightly lagged the category on share as cooking varieties within our condensed soup portfolio and broths remained strong while eating soups remained under pressure. In the first quarter, broad consumption grew for the ninth straight quarter, driven by segment momentum that included increased households and buy rates, as well as distribution gains and healthy velocities. Younger generations continue to drive the majority of the momentum, with Swanson posting six consecutive quarters of millennial buy rate gains. Our Pacific brand also performed well, with dollar consumption growth up 25%, and volume consumption up 31%. Our condensed soup portfolio grew share for the eighth consecutive quarter. Dollar share gains in condensed were fueled by a focused strategy to drive more occasions for Campbell's cooking soups into the repertoire of consumers at home cooking behavior. Our condensed cooking momentum led to a continued household penetration gain within the overall condensed portfolio and added over 2 million new buyers, including 1.2 million millennial and Gen X households versus a year ago, pointing to the strength of our cooking soups across cohorts. In the ready-to-serve segment, the headwinds we experienced in the past quarters continued in Q1, with dollar share down in the quarter. On the positive side, Pacific and Rails were strong performers, gaining share on both a dollar and volume basis. However, select price increases put pressure on our mainstream RTS portfolio consumption, resulting in market share declines. In addition, our RTS results reflect the last quarter of impact from the discontinuation of WellYes. We believe that the pricing action is the right approach to be able to support this segment of our portfolio while we're experiencing disproportionate tariff-related inflation. However, we are conscious of the importance of providing appropriate value in the marketplace, particularly during the critical soup season. Turning to slide 10, from holiday classics like the green bean casserole to new and fresh recipes, side dishes made with Campbell's products were served at Thanksgiving tables across the country. Over half of our condensed soup portfolio is cooking soups. including soups like Campbell's Cheddar Cheese Soup, used to make America's fastest-growing side dish, preferred by Gen Z, mac and cheese. Uncle Ned's cooking soups grew dollar share and consumption for the past five quarters, and we believe there continues to be ample opportunity for growth, driven by recipes for the holidays and everyday occasions. Rails continued its growth in both consumption and overall share. During the quarter, Rails outpaced the Italian sauce category by delivering low single-digit dollar consumption growth with growth in both dollar and volume share and remained the number one brand in the category. We continue to be encouraged by the growth potential of this great brand, driven by sustained household penetration gains and high repeat rates as consumers continue to prioritize elevated experiences at home. Earlier this morning, we announced we entered into agreements to acquire a 49% interest in two La Regina entities, the privately held producer of Rao's tomato-based pasta sauces. Founded in 1972 with the philosophy of producing the highest quality Italian homemade premium and super premium tomato pasta sauces, La Regina has been a key partner of Rao's since 1993. What makes Rao's the best pasta sauce in the world is the ingredients, the recipe, and the care with how it's prepared. Rao's sauces are simmered slowly and made in small batches with only the finest ingredients, like Italian olive oil and naturally ripened tomatoes from southern Italy. Rao's sauces have no tomato blends, no paste, no water, no starch, no filler, no collards, and no avid sugar. The result is an authentic, nutritious, delicious tomato sauce consumers can rely on to serve as a restaurant-quality meal at home. With this transaction, we are solidifying our strategic partnership with the Romano family to continue to fuel Rayo's momentum. Over the years, La Regina has perfected its proprietary cooking process, invested in state-of-the-art capacity, and maintained a commitment to excellence, ensuring every jar of rail sauce delivers a premium and unique experience. Campbell's investment in La Regina secures access to unique, high-quality ingredients, expands our innovation capabilities, and reinforces our commitment to producing rail sauces with only the finest ingredients. Together with the Romano family, we look forward to continuing this journey. We could not be more excited about the momentum and growth trajectory of our Rails brand. Now let's turn to our snacks business on slide 12. While snacking occasions are growing, consumer preferences continue to evolve to health and wellness and the desire for worth it experiences, many of which are aligned with the consumer growth pillars I discussed earlier. We believe our powerful portfolio of brands remains advantaged in today's environment, especially in terms of premiumization and flavor exploration. We are taking steps to further improve the health and wellness benefits of our snacks leadership brands, for example, by providing consumers with avocado oil in our chips portfolio, and we have an exciting innovation pipeline for both the short and long term. Organic net sales declined by 1%, driven by volume declines, which were partially offset by positive net price realization, reflecting pricing actions taken to address input cost inflation, primarily in cocoa and eggs. The headwind from partner and contract brands was about one point to net sales as expected. The difference between the year-over-year decline in net sales and consumption is driven by ship and timing of holiday-related activities. As shown on slide 13, We held our game share in about half of our portfolio with solid performance in Pepperidge Farm Cookies, Snack Factory, and Late July, and are focused on accelerating share recovery in pretzels and crackers. To support this momentum, we are prioritizing delivering clear consumer value, including leveraging price-back architecture while accelerating our innovation pipeline. We're also strengthening in-market omnichannel execution with targeted activation during key drive periods, such as the holidays and upcoming sport championships, where snacks play a big role in gatherings. Let's talk more about our Pepperidge Farm fresh bakery and cookies business, which held share and was relatively flat from a consumption perspective. I will start with a standout performance in cookies, where we outperformed the category and gained share in both dollars and volume through successful innovation launches. including the fall LTOs like Pepperidge Farm Milano Pumpkin Spice, Milano Chai Latte, and Soft-Baked Pumpkin Cheesecake. The double-digit consumption growth we are driving in Milano continues to contribute materially to overall category growth for the third consecutive quarter. Within our fresh bakery business, dollar and volume share were both relatively flat. However, the overall category remained under pressure as consumers are more selective in their purchases of fresh bread, favoring premium differentiated products. Our latest innovation in farmhouse, Thin Sliced, is outpacing sandwich segment trends, delivering strong repeat rates, reflecting consumer demand for healthy products without compromising on taste. Now let's talk about our salty portfolio. In chips, We held share with relatively flat consumption due largely to sequential improvement in our late July brand as we continue to be well positioned with consumers that are looking for better for you offerings. We're also benefiting this quarter from a club promotion that shifted into the first quarter from Q2 last year. Our cattle brand held market share while Cape Cod lost share against the broader potato chips category. In pretzels, we experienced overall share and consumption pressure as strong performance of our Snack Factory franchise was not sufficient to offset the softness in Snyder's of Hanover. Snack Factory saw share and volume gains for the quarter driven by the innovation of Poppins and Bites. Additionally, as consumers are increasingly seeking flavor experiences, our Pumpkin Spice LTO was a great driver of growth for Snack Factory in the quarter. And we are excited about the white peppermint LTO that's on the shelves now, in time for the holiday season. The softness in Snyder's of Hanover was driven by our intentional removal of less effective promotions as well as continued competitive pressure. However, with core expansion at club, impactful holiday messaging, and an upcoming new visual identity to drive shelf presence, we have a lot of conviction in both our pretzel brands. Now let's talk about Crackers. In Crackers, we are encouraged by Goldfish's successful back-to-school campaign, which beat key competitors in the 10-week back-to-school window. The success of the campaign helped Goldfish finish Q1 as the Cracker share leader over the last 13 weeks. Despite the great back-to-school campaign, consumption declined in the quarter, which shows we still have more work to do. I am confident that our strategy of incremental marketing support Exciting innovation and a strategic approach to value will return this flagship billion-dollar brand back to growth. As we enter the holiday season, our snacks portfolio will play an important role in driving moments of connection and celebration. Our Pepperidge Farm cookies, crackers, and bakery items remain a staple of holiday gatherings. Additionally, we are leaning into holiday activations like White Cream and Peppermint Snack Factory Pretzel Crisp, Snyder's of Hanover holiday cabin kits, and brown sugar vanilla tortilla chips from late July to capture heightened seasonal demand while maintaining a sharp focus on execution and in-store displays. Collectively, these actions will position our snacks business to deliver strong engagement throughout the season and support our broader commitment to consistent, profitable growth. Before turning it over to Todd, I would like to highlight again how we're delivering today while building for tomorrow. As the operating environment remains dynamic and consumer preferences continue to evolve, strong day-to-day execution is critical. Our portfolio is well-positioned. We remain confident in our leadership brands and our ability to serve delicious at-home cooking options better for your options and elevated experiences that delight and excite consumers. We are committed to crafting high-quality food at the right value with a continued focus on omnichannel execution, brand activation, and innovation. Specifically in meals and beverages, we remain focused on brands and offerings that will continue to shape at-home cooking momentum because we believe it's a trend that's here to stay. While we continue to enhance our snacks portfolio, reigniting Goldfish is a top priority. We continue to focus on productivity and cost savings initiatives across the organization to mitigate elevated inflation and invest in our brands, while we strengthen our overall foundation as we drive change to deliver sustainable, profitable growth.