Campbell Soup Company

Ladies and gentlemen, thank you for standing by, and welcome to the Campbell-Soup Second Quarter Fiscal 2021 Earnings Conference Call. At this time, all participants' lines are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star and then one on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star and then zero. I would now like to hand the conference over to your speaker today, Ms. Rebecca Gardy, Vice President of Investor Relations. Ma'am, you may begin.

Good morning, and welcome to Campbell's second quarter fiscal 2021 earnings presentation. I'm Rebecca Gardy, Vice President of Investor Relations. Following the completion of this call, a copy of this presentation and a replay of the webcast will be available at investor.campbellsoupcompany.com. A transcript of this earnings conference call will be available within 24 hours at investor.campbellsoupcompany.com. 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 3 or our SEC filings for a list of factors that could cause our actual results to vary materially from those anticipated in forward-looking statements. Because we use non-GAAP measures, we have provided a reconciliation of these measures to the most directly comparable GAAP measure, which is included in the appendix of this presentation. On slide 4, you will see our agenda. With us on the call today are Mark Klaus, Campbell's President and CEO, and our Chief Financial Officer, Mick Bakehausen. Mark will share his overall thoughts on our second quarter performance and in-market performance by division. Mick will discuss the financial results of the quarter in more detail. and review our guidance for the full year fiscal 2021. Mark will come back to share his perspective on our outlook beyond the pandemic, and we will close the call with an analyst Q&A. With that, please let me turn the call over to Mark.

Thanks, Rebecca. Good morning, everyone, and thank you for joining us today. Before I turn to the results of the quarter, I want to take a moment to thank all of our teams again, especially our frontline colleagues. We have now passed the one year mark of working within this challenging COVID-19 environment, and I'm very proud of their continued performance and dedication. Campbell delivered strong second quarter results with growth in all three key financial metrics. Organic net sales increased 5% with continued demand across both divisions, fueled by accelerating in-market results, including positive share progress across most of the portfolio, and a strong holiday period. Net sales were tempered by continued food service weakness following a resurgence of COVID-19 cases in December, which led to greater away-from-home restrictions, as well as some supply constraints given these cases led to increased absenteeism rate in our plants during the month. The food service weakness and supply constraints each created about a point ahead wind in the quarter versus our expectations. The labor situation has since improved significantly, and we continue to make steady progress on supply going into the second half of the year. We reacted quickly to these headwinds, appropriately shifting spending to reflect this pressure. But where supply was available, we executed our planned increased investment in advertising and consumer promotion on our core brands. Taking everything into account, we had 8% adjusted EBIT growth and 17% adjusted EPS growth, leading to a very good quarter. By segment, meals and beverages posted 6% net sales growth, punctuated by a very successful soup season and the continued strong performance of brands like V8 and Prego. This was partially mitigated by declines in food service. The snacks business delivered another solid quarter, with sales growth of 4%, largely driven by our Prower brands and salty snacks, including Kettle brand potato chips, late July snacks and Cape Cod potato chips, as well as Pepperidge Farm farmhouse bakery products. Most notably, we achieved the primary objective we outlined in our Q1 earnings call, to return to share growth. Nearly 75% of our portfolio held or increased share in the second quarter versus the prior year. This included meaningful share improvement in key focus areas like ready-to-serve soup, Prego, and Snyder's of Hanover pretzels, with continued momentum on condensed soup, V8, our salty snacks portfolio, and goldfish. There were a few exceptions, such as Swanson Broth, where we knew we'd be challenged on supply. We feel very good about how we are addressing the challenges on broth by expanding overall capacity and growing Pacific Foods, which was the fastest growing broth brand in measured channels in the second quarter. E-commerce continued to be an important growth channel for us, with in-market dollar consumption increasing 89% over the prior year. With the click and collect fulfillment model representing slightly more than a third of our e-commerce retail sales, we are sharply focused on partnering with our customers to deliver value to our consumers, including bundling products for easy meal prep and inspiring creative snacking options. Turning to slide seven, within the meals and beverages division, we had another strong quarter with consumption growth of 9%, principally due to volume gains. We delivered on our objective of share growth and saw positive in-market consumption growth in almost all categories, led by condensed soups, Prego, V8 beverages, ready-to-serve soup, and Pacific Foods soups and broth. We continued to execute our plans and feel great about our progress against our win-in-soup strategy, led by a great start to soup season and a strong holiday period. In fact, U.S. soup sales grew 10% with strength across all categories. This was fueled by more than a third of the in-market consumption growth coming from new buyers. The number of retained soup buyers in this quarter is the highest since the pandemic started almost a year ago. Our condensed soups were once again the highlight of the quarter with double-digit net sales growth and continued share gains, especially among millennials. With a 0.7 share increase, condensed had its eighth consecutive quarter of share gains, an amazing run that started well before the pandemic. This performance was driven by our quality improvement, strong advertising, and the retention of new households. Additionally, during the important holiday season, the number of buyers of condensed cooking soups grew double digits, and we continued to grow household penetration this quarter versus prior year. Year to date, our condensed soups have the highest household retention rate within the entire meals and beverage division. Within ready-to-serve, share improved this quarter, driven by strong base velocity growth in Chunky and improved availability. Chunky had an exceptional quarter with double-digit net sales gains and in-market consumption growth, outpacing competition and increasing share nearly two points with growth among all cohorts, including millennials. Pacific Foods is now the fastest-growing wet soup brand on a dollar share basis, outperforming its competitors on many fronts by delivering on-trend innovation and impactful advertising. This important growth engine continues to perform above our expectations. In the second quarter, Pacific Soup and Broth outperformed the category, posting dollar consumption growth of 25%, the fifth consecutive quarter of share gains driven by brand strength. and a meaningful increase in household penetration. We are thrilled with the performance of Pacific Foods and are equally excited about our robust innovation pipeline that includes new canned offerings as well as additional plant-based products. As I mentioned earlier, Swanson Broth struggled on share as we expected. We continue to recover on supply throughout the quarter, and we are making steady progress through a combination of expanding internal capacity and bringing on additional co-manufacturing. In the most recent period, we are seeing both share and supply levels improve, a trend we expect to continue through the balance of the year. Beyond soup, a standout in the meals and beverages portfolio was Prego, which maintained its number one share position in the Italian sauce category for the 21st consecutive month and has widened the gap against competitors. Prego sales growth came primarily from the gain of an additional 4 million new households across all demographic cohorts. Our V8 beverages also performed very well this quarter, delivering its fourth straight quarter of both share and household gains. Notably in Q2, these gains were across all sub-brands of the business, and we saw new households coming into the V8 portfolio, driven by both V8 Original and V8 Plus Energy. Overall, Meals & Beverages delivered a strong quarter as it continued to drive relevance with its brands to a younger consumer base and delivered share gains in many of its key categories. Let's turn to the snack segment, which represents about half of our total annual revenue. Our performance was again fueled by our power brands, which grew dollar consumption by 8% over the previous year. Within the power brands, our salty snacks brands grew dollar consumption by double digits and realized share growth. This was in part due to the implementation of our capacity expansion projects, as well as increased ANC investments to support our media campaigns and innovation, including Snyder's of Hanover pretzel rounds and twisted sticks. On the Snyder's of Hanover brand, the combination of successful innovation, fundamental execution, and brand activation led to share growth, double-digit dollar consumption, and nearly 5 million new households, turning around what had been a challenging share period. Our Pepperidge Farm farmhouse products also delivered exceptional results across bakery and cookies, growing dollar consumption by 41% and household penetration by 1.5 points. On goldfish, we improved our performance according to the plan we outlined last quarter, returning to growth in net sales and improved dollar consumption. We adapted marketing content during the holidays, with digital partnerships focused on new ways for the consumer to enjoy goldfish, such as movie night snack mixes or classic lunch combinations with Campbell's tomato soup. all leading to positive engagement metrics and increased purchase intent. Additionally, we are launching new flavors within Flavor Blasted Goldfish, which continued to grow consumption by double digits. As you'll see on slide 9, this is only the beginning of what is arguably our strongest slate of innovation yet, which includes Twisted Pretzel Sticks and better-for-you options like Late July Veggie Tortilla Chips. We are very excited about the breadth of our snacks pipeline in the second half of the fiscal year, which will complement what we have on deck later this year for meals and beverages. Overall, we feel very good about our snacks performance and the steady growth it delivered as we provide consumers with elevated snacking experiences through our unique and differentiated portfolio of power brands. We also made significant steps on value capture, including the recent transition to SAP to streamline and improve capabilities. Looking ahead, we believe we have additional runway to improve SNAC's profitability with further network optimization opportunities, and we remain confident in our long-term strategy and our ability to deliver additional cost savings. With the strong results in the second quarter and our overall first half performance, we are confident in the outlook for the full year. With that, let me turn it over to Mick to discuss our second quarter and first half financial results.