Campbell Soup Company

Q3 2021 Earnings Conference Call


spk_0: good morning my name is my right now be a conference operator today at this time i would like to welcome only one the campbells soup a third quarter of fiscal two thousand twenty one earnings conference up to these call is being recorded all participants will be in a little only mode until the form of questioning answer question not the call at this time if you would like to ask a question cp from far followed by the number one and your college don't think that if you would like to direct question press the pound key think you with that i would now like the had a conference overeat your host mr becker body with gaudy he made begin your conference good morning and welcome to campbell third quarter fiscal twenty twenty one earnings presentation on rebecca gardy vice president of investor relations
spk_1: following the completion of this call a copy of this presentation and a replay of the webcast will be available at industry that campbell soup company dot com a transcript of this earnings conference call will be available within twenty four hours at investor that campbell soup company dot com on our call today we will make for looking statements which reflect our current expectations the segments or lion assumptions and estimates which could be inaccurate and are subject to risk please refer to side three or our se si filings for list of factors that could cause our actual results to very materially from those anticipated in for that the same it's because i use non got measures we have provided a reconciliation of each measure to the most directly comparable gas measure which is included in the appendix of this presentation on slide for he will see today it's agenda with us on the call today are more klaus camels president and ceo and chief financial officer make bake housing market share his overall thoughts on our third quarter performance and are in market performance by division make will discuss the financial results of the quarter in more detail and review our guide answer the full year fiscal twenty twenty one marco then make some closing remarks before moving to an analyst cuny and with that i'm pleased to turn the call over to march
spk_2: thanks rebecca good morning everyone and thank you for joining us today throughout the last year we rallied through the pandemic and made decisions focused on prioritizing the safety and wellbeing of our employees while meeting the needs of our customers and consumers this approach is served us well over the past fifteen months as we progressed our strategy and a volatile operating environment our team pulled together we executed with excellence and we delivered strong results as you saw in our press release this morning or results this quarter reflected the challenging comparisons to the prior year as we cycled the demand surge that accompanied the onset of the coven nineteen pandemic and navigated several current headwinds however you will also have seen the continued strength in market on mar could shares underpinned by healthy retention of new and younger households and the full recovery of distribution levels we did face a significant inflationary environment in the quarter as well as shorter term increases and supply chain costs we anticipated the vast majority of these drivers but in certain areas the pressures intensified especially around inflation and some of the transitional costs moving out of the covered nineteen environment we are confident that we can address these issues and we have plans and pricing already in place as we exit the fiscal year and enter fiscal twenty twenty two our confidence is further strengthened by our ca chen you'd in market momentum and the structural health of our business and brands i will first review our results and then share the context and actions we are taking to address these challenges and the improving trajectory we expect for the rest of the year as we head into fiscal twenty twenty two as we outline during our second quarter earnings call we expected this would be a challenging quarter and we recognize that there would be headwinds as we laugh the peak of coven nineteen demand manage the volatility of current market dynamics and continued to navigate our own transformation agenda we delivered sales of one point nine eight billion dollars in line with our expectations as we cycled a seventeen percent organic growth comparison to a year ago our sales results benefited from the continued momentum of our snacks power brands and are us retail products in our meals and beverage division as well as the early signs of recovery from our food service business importantly our brains remain strong with nearly three quarters of our portfolio gaining are holding share in the quarter in our core categories most of our brains grew at higher rates than pre pandemic levels and our brand consumption on a two year comparison grew nine percent these results were driven by our decision to invest in supply and service while preserving brands investments with advertising and consumer promotion expense as a percentage of their sales comparable to last year looking ahead we expect organic sales in the fourth quarter to decline vs last year as the coven nineteen lap continues we do expect a sequential improvement from the third quarter as a comparison to prior year it eases a bed and our food service business continues to recover from a margin perspective are decline vs prior year excluding the net benefit from mark to market adjustments on outstanding commodity hedges stemmed from certain headwinds which are grouped into three main buckets first external factors word larger than we had anticipated we'd like other's face pronounced inflation related primarily to steeply higher transportation costs some of which was an outcome from the strain of the texas winter storms on supply chain logistics and the closure of our paris texas facility for two weeks these factors partially offset by our productivity and prove mints reflect about a third of the gross margin erosion in the third quarter and will continue into fiscal two thousand and twenty two we currently expect the benefit from pricing items we have put in place across our portfolio and are strong productivity plans to mitigate disinflation pressure in fiscal twenty twenty two while we remain vigilant monitoring the ongoing dynamic nature of the current environment the second bucket i would characterize as transitional items that we're working our way through as we move out of the covert nineteen environment and fully recover on supply this includes areas like lower fixed costs leverage as we laughed the year ago elevated levels of demand sustain labour challenges and added in there osman in higher costco manufacturers to recover fully on supply we'd factor these pressures into our plans but in some cases they were more significant than anticipated as either the time to recover or the magnitude of the impact were greater than expected these transitional costs reflect about half of our gross margin erosion in the quarter and while we expect the impact of these costs to moderate into the fourth quarter they will continue to and pressure as we fully cycle the covered nineteen environment the third bucket his execution related to the high degree of transformation we have underway and are snacks division throughout my time and campbell we've taken significant steps to improve our execution as we have steadily advanced our agenda however this quarter the convergence of multiple transformation efforts including systems logistics and capacity all put additional execution of pressure on the business and a tough third quarter environment we have already taken the sites of actions to allocate more resources and better face projects to address these issues we do not expect these elements will have a material impact on the fourth quarter and more importantly they do not alter our long term expectations for the snacks margin expansion opportunity we highlighted last call order and will share in greater detail during our investor day later this year although all these head once put pressure on or near and performance they do not represent structural issues and we remain confident in our strategic plans as a result of the third quarter pressures on margin adjusted earnings per share came in lower than we expected and fifty seven cents as make will discuss in more depth the we're updating our guidance accordingly turning to our division performance let me begin with meals and beverages our net sales decline of fourteen percent and in market performance of minus twenty four percent in the third quarter reflect lapping that historically high consumption levels that we experienced during the onset of the pandemic last year on a two year basis we had net sales momentum and key categories was share games over pa prior year in condensed soup ready to serve soup swanson broth prego and pacific foods compared to the third quarter of fiscal twenty nineteen we delivered strong consumption growth of nine percent against organic net sales growth of three percent with the gap driven by our food service business which continued to recover as governments gradually ease the onside dining restrictions in some markets overall as we have invested in our service levels they are stabilizing and we are now in a better position on supply across a division we have restored the shelf in the majority of our categories and our share of total points of distribution is consistent with pre coven nineteen levels across us soup prego and v eight beverages in market consumption for super strong vs two years ago growing at nine percent and gaining dollar share we delivered record share growth and us you been nearly two points driven by condenser swanson broth chunky am pacific foods we also made significant progress on the retention of new households the onset of the pandemic soup game dollar share in all three categories with millennials driving strong growth and condensed cooking brought and ready to serve suit we're confident that the brand investments made are working as buyers and by rate remained elevated compared to pre coven nineteen levels we continue to be encouraged by the sustainment of like scratch cooking behaviors and in home eating occasions even is kobe nineteen restrictions are lifted in fact condensed delivered it's ninth consecutive quarter of dollar share gains growing share nearly three points notably would milenio consumers condensed grew shared by nearly four points within ready to serve chunky delivered double digit and market consumption growth on a two year basis pacific foods continue to be a powerful growth engine within our soup portfolio with in market consumption growth of nearly thirty percent on a to your bases and continued share games vs prior year marking it's sixth consecutive quarter of share improvement on swanson brought as we invested to restore distribution and service we increase share by nearly two points vs prior year on a two year basis we grew household penetration by more than a point and saw higher repeat rates on our brand prego delivered it's twenty fourth consecutive month with the number one share position and the italian sauce category and achieved it's strongest share gain and over three years compared to pre pandemic levels we are seeing straw repeat rates and by retention on this brand as well as strong resonance with millennial consumers overall the meals and beverage division delivered a strong in market quarter against difficult comparisons with share gains in key categories especially among younger consumers t p d gains and improve service levels continuing to support our confidence that it will emerge from the pandemic and a stronger position let's now turn to snacks where are our brains continued to fuel performance within market consumption growth of fourteen percent on a two year basis despite being down five percent year over year on a two year bases total snacks consumption grew ten percent against organic net sales growth of three percent with the gap driven by the decline in our partner brands and continued pressure and the convenience channels we grew share on many of our power brands over prior year and repeat rates on seven of nine power brands are ahead of pre covered nineteen levels we delivered our fifth consecutive quarter of share growth on late july snacks channel brand potato chips snack factory pretzel chris and land sandwich crackers on a two year comparison within the power brands are salty snacks brains grew in market consumption nearly twenty percent and increased household penetration across the majority of these brands or pepperidge farm farm house products also continued to deliver exceptional results within market consumption growth and nine percent on top of the prior year increase turning to goldfish we returned to share growth increasing by more than one point compared to prior year this was in part due to an improved performance on multi packs continued momentum on flavor blast and goldfish and new broaden digital activation we also excellent the quarter with early momentum from the launch a limited edition frank's red had goldfish would that let me turn it over to make to discuss our third quarter results in more detail and are guidance for the full year
spk_3: thanks mark good morning everyone turning to july twelve as more just shared a third quarter results were impacted by last year's the man charge related to the start of the copa nineteen pandemic as well as to gross margin impact due to pronounced inflation or transition out of the cob nineteen environment and some extra
spk_2: usual pressure as we continued to advance our transformation agenda primarily in our next division
spk_3: during the quarter organic net sales declined twelve percent and adjusted ebitda decreased twenty seven percent driven by lower sales volume and a lower adjusted gross margin partially offset by lower marketing and selling expenses
spk_2: adjusted a from continuing operations decrease thirty one percent to fifty seven cents per share primarily reflecting the decrease in adjusted eat it year to date organic net sales increased one percent driven by lower promotional spending in both divisions nielsen beverages increased one percent mainly driven by growth us soup and eight beverages partially offset by declines in food service and snacks organic that sales were flat and declines in lance sandwich crackers and in fucking a branch within the snide just lands portfolio were upset by gains in are salty
spk_3: next portfolio and are fresh bakery product
spk_2: yeah today to just to be bit of one point one four billion dollars was comparable to pry year and a lower adjusted gross margin and increased adjusted administrative expenses were offset by lower just a marketing and selling expenses higher adjusted other income and sales volume games
spk_3: within marketing and selling expenses lower selling and other marketing costs were partially offset by three percent increase in advertising and consumer promotion expense or a and see year to date are adjusted ebitda margin what seventeen point two percent compared to seventeen point three percent in the price yeah
spk_2: adjusted dps from from t operations increased four percent to two dollars and forty three cents per share primarily reflecting lower adjusted net interest expense i'll review and the next couple of slides our third quarter results in more detail and provides resides guidance for the remainder of fiscal two thousand twenty one reflecting to results and our expectation for sustained inflationary pressures through the remainder of the year
spk_3: organic net sales decreased twelve percent during the quarter lapping to pry year organic net sales increase of seventeen percent when a demand for at home consumption searched at the onset of the covert nineteen pandemic compared to the third quarter of fiscal two thousand nine keen on ganic net sales grew three percent are adjusted gross margin decreased by two hundred and ninety base points in a third quarter from thirty four point seven percent to thirty one point eight percent on the slide you'll see to various items bridging the year over year change in our overall gross margin and letting tied back to mark cod a comments which excludes to two hundred and fifty basis points net benefit from mark to market adjustments on outstanding commodity hedges included in inflation another in the bridge first external factors lead to about one third of the of he a decrease in margin is external factors included approximately two hundred and ninety basis points of inflation and some temporary disruption from the texas storm back in february both reflected inflation and other in the bridge
spk_2: cost inflation was approximately four percent on a right face faces which was higher than anticipated largely driven by fredericks partially offsetting these headphones was our ongoing supply chain productivity program which contributed one hundred and fifty basis points to gross margin and included initiatives among others were in procurement and logistics optimization second headwinds related to i transition into the post scope and nineteen operating environment represented about half of the gross margin decline as we transitioned from last year's demand surge next and operating leverage each had an approximate hundred and ten basis point negative impact on gross margin in the third quarter net pricing drove a positive thirty basis point improvement the remain more incremental other supply chain costs with an inflation another such as increased costs associated with call manufacturing to support supply and distribution recovery
spk_3: third execution challenges which represented the remainder of the decline were mostly incremental other supply chain costs within inflation and other each costs were mainly related to the transformation of watch next division and were partially offset by a cost savings program
spk_2: which added sixty base points to are gross margin moving on to other operating outcomes marketing and having expenses decrease thirty seven million dollars or fifteen percent in the quarter is decrease with three them by lower a and see lower incentive condensation lower selling expenses and the benefits of cost savings initiatives overall a marketing of sending expenses rep presented and point two percent of net sales during the quarter compared to ten point seven percent last year as a percentage of net sales total agency was comparable to the prior quarter adjusted administrative expenses he treats two million dollars or one percent driven primarily by lower said compensation partially offset by higher benefit related costs adjusted administrative expenses represented seven point two percent of net sales during the quarter and eighty basis point increase compared to last year moving to the next like we have continued to successfully deliver against multi year and price cost savings initiatives this quarter we achieve twenty million dollars an incremental year over year savings resulting in year to date savings of fifty five million dollars we expect an additional twenty million dollars in the fourth after to deliver an aggregate seventy five million dollars of cost savings for the fiscal year with the majority of the savings from the snipes slants integration be remain on track to deliver are cumulative savings target of eight hundred fifty million dollars by the end of fiscal two thousand and twenty two
spk_3: on slide seventeen we are providing a total company adjusted even bridge to summarize the key drivers performance quarter as previously mentioned adjusted the events declined by twenty seven percent the previously mentioned net sales decline resulted in a eighty eight million dollar either had went lot of
spk_2: two hundred and ninety based point gross margin decline resulted in a fifty eight million dollar it had with both were partially offset by lower marketing and selling expenses overall are adjusted ebitda margin decreased year over year i two hundred and ninety basis points to fourteen point three percent the following chart breaks down are adjusted dps growth between our operating performance and below the line items adjusted be decrease twenty six cents from eighty three cents in the prior quarter two fifty seven cents per share your to the negative twenty six cents impact of a job did he that and slightly lower interest expense but offset by slightly higher adjusted texas in meals and beverages organic net sales decreased fifteen percent to one billion dollars primarily due to declines across us retail products including you a soup and pregnant pasta sauce us as well as declines in canada and food service
spk_3: sales of yosuke decrease twenty one percent due to bottom of the client and condensed soup ready to serve soaps and broth lapping a thirty five percent increase in the prior year quarter
spk_2: for meals and beverages volume decreased in us retail driven by laughing increased demand of food purchases for at home consumption and the onset of the covert nineteen pandemic in the prior quarter when organic net sales increased twenty one percent compared to the third quarter of fiscal two thousand ninety
spk_3: he organic net sales in deals and beverages to three percent operating earnings for meals and beverages decrease thirty five percent to one hundred and seventy nine million dollars decrease was primarily due to sales volume declines the clients and the lower gross margin partially offset by law marketing selling expenses the lower gross margin resulted from higher cost inflation including hi afraid costs other supply chain costs such it's external sourcing and the weather related disruption at the beginning of the corridor reduce operating much and unfavorable product mix partially offset by the benefits of supply chain productivity improvements
spk_2: overall within our meals and beverage division the operating margin decreased year over year by five hundred fifty base point to seventeen point two percent
spk_3: with and snacks organic net sales decreased eight percent driven by volume declines within our salty snacks portfolio including pop secret popcorn cape cod potato chips and snyder's a fan of a pretzels as well as inland sandwich crackers partner brands and fresh bakery volume declined to apply
spk_2: she's driven by laughing increased demand of food purchases for at home consumption and the onset of the call that nineteen pandemic in the prior year quarter when organic net sales increase twelve percent compared to the third quarter of fiscal two thousand nine team snacks organic net sales grew three percent operating earnings for snacks decrease twenty nine percent for the quad a driven by a lower gross margin and sales falling declines i see offset by lower marketing selling expenses and lower administrative expat
spk_3: ncis
spk_2: the lower gross margin resulted from a higher cost inflation and other supply chain costs reduced operating leverage and unfavorable product mix partially offset by the benefits of supply chain productivity improvements overall within our snacks division the operating margin decrease year over year by three hundred and fifty basis points to eleven point five percent well now turn to our cash flow and liquidity fiscal year today cash flow from operations decreased from one point one billion dollars in the prior year to eight hundred and eighty one million dollars primarily due to changes in working capital principally from lower crude liabilities and laughing significant benefits in a cancer a bomb the prior year
spk_3: a year today cash for investing activities for largely reflective of the cash outlay from capital expenditures of one hundred and ninety million dollars which was thirty million dollars lower than the prior year primarily driven by discontinued operations
spk_2: a year to date catch outflows for financing activities were one point four billion dollars reflecting cash outlays due to dividend paid of three hundred and twenty seven million dollars additionally we reduced our debt by one billion dollars we ended the quarter with guy cash and cash equivalents of two hundred to nine million dollars as you saw in a press release given to continue it's trunk cash for the generation and progress regarding reduction of our leverage in addition to the increase of a dividend announced in december the board of directors authorized a new anti that load of sherry part just program of up to two hundred and fifty million dollars to offset the impact of the aleutian from shares issued under our stock compensation programs the company's march two thousand and seventeen strategic sherry purchase program remain suspended turning to slide twenty two as competent a press release we are updating guidance to reflect a third quarter results and the impact of the sale of the plum baby food and snacks business which was completed on may third two thousand and twenty one in the fourth quarter we expect more pronounced inflationary pressures to negatively impact margins while pricing action stay cold in the beginning of fiscal two thousand twenty two
spk_3: in addition although we expect to make progress on the transition into the post at nineteen environment it will remain a headwind from a margin perspective while we expect gross margin headwinds to persist through the fourth quarter we expect a sequential improvement over even margin relative to pry year due to easier comparable so improved execution and normalizing marketing investments
spk_2: we expect net sales for fiscal two thousand twenty one to decline three and a half to three percent excluding the impact from the fifty third week in fiscal two thousand twenty and the impact of the european chefs and plum divestitures we expect organic net sales to decline one point
spk_3: two percent to mind as point seven percent to put our fiscal two thousand twenty one organic net sales guidance into perspective at the midpoint of our guidance range we expect fiscal two thousand twenty one to be six percent above fiscal two thousand nineteen we expect adjusted the event of minus five to minus four percent we expect net interest expense of two hundred and ten two hundred and fifteen million dollars and ten adjusted effective tax rate of approximately twenty four percent
spk_2: as a result we expect adjusted abs of two dollars and ninety cents to two dollar and ninety three cents per share representing a year of year decline of minus two percent to minus one percent to the prior prayer
spk_3: the abs impact of the country third week in fiscal two thousand and twenty was estimated to be four cents per share to put our fiscal two thousand twenty one mps kind of into perspective at the midpoint of our guidance range we expect fiscal two thousand and twenty one to be in line with fiscal two thousand and twenty
spk_2: considering the impact of the thirty third week and twenty seven percent above fiscal two thousand nine for the dps
spk_3: regarding capital expenditures we now expect to spend approximately three hundred million dollars for the full year which is below previous expectations driven by the impact from called the nineteen on the operating environment
spk_2: in closing i want to reiterate marks conviction in the long term performs of camel we are working diligently to deliver the results we know we are capable of delivering and i remain optimistic about our strategy our team and the underlying strength of our brands and with that them turn it back to mark thanks make in closing we expected this to be a challenging quarter for the company but it was made even tougher by several additional factors however we do not see these challenges a structural nor do they temper in any way our confidence in the transformation we are implementing a campbell we knew this would not be simple and we remain confident and how we are responding and the actions already underway finally and most importantly for the long term health of our business is the progress we're making on our categories and brands and the overwhelmingly positive indicators that we are seeing from consumers and customers
spk_0: we'll address the inflation and execution and as we continue to demonstrate sustainable growth we will unlock campbell's full potential would that will now turn it over to the operator to take your questions thank you thank you op is normal would like a minority one in order to that question by then the number one on your to bob
spk_2: no particular moment to come particular any laughter we have our first question comes from the idea of and you the guy from barkley he lies open seats down on my mark in nyc
spk_4: i as and
spk_2: there it's a start off thanks for gone through the detail on and summer jobs and a quarter given our fiscal freak you played out country get a sense of maybe like what gives you the confidence on that you know how i guess the appropriate visibility for fiscal for q and any more important a down but you have comfort that these issues are are addressable and and largely not structural and so it's not as a year early to to be talking with any specificity about his complaint new by somebody used as a new challenge or that you mentioned are likely to persist a bit and be margin headwinds next year so i'm trying to get a sense of your between the combination of pricing productivity some of the actions that you're you're taking your in the sec segment and such and do do do just that you'll have sort of an hour with the elevated sales potentially as well didn't expect you'll have the firepower so to speak to at least veto help address or mitigate some of us cause to sort of protect profitability and a better way and twenty two or are those thing that i mentioned maybe that this point not not expected to be enough given some of that some of the pressures a gun into into next year of yeah greg greg question as you wouldn't let me start with you for and then you know obviously will stop short and try to give it a lot of detail like twenty two but i'll give you a perspective on on kind of how we see that and and how we thought about the the variables that we talked about for this quarter affecting you know the business going forward but first on cue for i do you know yet i'm i'm always in the current environment where and certainly we we've got a couple tough to predict the couple of the of the variables we've seen but i do feel good that what we experienced and cute three and how that translates into cute for we've done a very good job of connecting those dogs and i do think you'll see sequential improvements for a variety of reasons first i think you know we're not going to have the winter storm and you don't just as a perspective closing the paris facility for two weeks in texas that ended up being right around the ten million dollars additional headwind and que three that would that we obviously had not anticipated is part of the reason that we were you know off our our expectation so clearly we're not going to have that circumstances we go on to queue for i think the second thing is the the comparable numbers and queue for are just an easier cop right so you got higher covert costs and to for a year ago i you also have the opportunity to serve as we've said all along in the back half that we'd moderate marketing spending to kind of equate to the percent of net sales and so that will give us a bit of a tailwind and as well in the fourth quarter and as i talked about some of the transformational candidate execution issues on snacks the needle and and again just as a little bit of a deeper perspective on that you know we should emerge in the third quarter it was really good i've been very proud of that team and and done an amazing job through the integration i'm from my perspective i do think in the third quarter the accumulation of initiatives we we cut over to as a p we closed or columbus georgia facility we had three major capacity expansion projects going on in the backstabbing a cold it and not in a way of an excuse but certainly think that puts them added pressure on an already top quarter forces of related the snacks but as we look forward with added the right resources with stage this right way what through some of that work and said we expect that execution all had one that we saw on the third quarter odds of to really you know kind of be behind us as we go through the fourth quarter so that's really the reason why we we see the sequential improvement and and eat it on operating leverage in some of the things that that were a bit bigger in nature and third quarter i think for that that carries over we got good estimates now so we we can kind of see how that operation works were now running all of the sk use that means simplified a year ago i think that was a little bit of a dynamic is we added those back introduced a little bit a new complexity back in the supply chain ah you know continuing to push hard through some of the law labour challenges that we've had so i think you'll see that mitigate but still be present than so i i think when you think about twenty two you know obviously the things i just described execution yet think will be behind us as far as inflation goes i we we feel very good about the progress we're making on pricing the the conversations that we're having with customers are very constructive i'm really grateful that we've had this time to really build equity i mean this is probably the healthiest the portfolios ever been going into that conversation so
spk_5: that's a a good thing
spk_2: i would be remiss not to say though that inflation is a little bit of a moving target right now and so although i i feel great about what we're doing i think you're kind of want to wait for the next quarter to see kind of where we're landing on a couple of the variables on the couple of the commodities are and then as it relates to kind of it's transitional you know head land you know i think it's a little bit of a mixed bag obviously we're going to be working hard to address those areas but we will cycle through the cold that environment at least been to the first half of next year self will give you a lot more granularity on it but i i think it's a very balanced position certainly you know i think que three very much as the is the outlier but i do think some of these variables will continue our but we got very good points against them so hopefully that helps put it into a little bit of context young image very quick follow just what i'm sure i understand what what we mean by sort of some these transitional costs are you know i guess is it just employee laughing
spk_6: some of the benefits are operating leverage and things of last year or are there other aspects involved in making his transition from a sort of be of coven surge environment to a more normal as environment as on a charm korean on that thank you yeah thought so the a levy levy naked levine break it down in is buried hopefully very simple
spk_2: answer i think there are three distinct things that were watching occur in that bucket the first is really just laughing right that is that kind of cycling have a network that's fully loaded and and that leverage from year to year the second piece i think that that we sol transitional a cute three and again i think these become more negated cos going forward but
spk_0: we we're really continued to see labor as a bigger challenge that i think we had expected it to be and of course that has a bit of a knock on effect that as that labour has not enabled us to kind of meet the fall
spk_7: targets on production we've had to go to some higher cost commands that we you know consciously invested in to make sure that supply in and inventory was where we needed it like but those three variables of kind of leverage labour and the external investment income manufacturers or what weren't describing as that transitional bucket and so i do think the laughing will continue but the other two were going to get better and and managed through that is we go into next year and that eldridge er doc thanks very much
spk_2: that never knock consultancy line and line for line from lot of america line and simple piece caramel
spk_7: a good morning everyone
spk_2: i'm and right so i get it's one of the follow up on ah on the inflation question and and it gets just gets too quick one one is as you're thinking about the sort of thing that could move around it for for for for human kind of the the outlook for fickle twenty two is it really like green and cooking oil the to think like with inflated most in the last earnings call have been more of the agricultural commodities you know like freight already been inflationary packaging with their degree it's going to make sure they will kind of thinking it worked fine a monitor what moving around it it a reality thoughts about mostly yeah commodity i think certainly that's where you've seen some of the rising costs more recently i would also point to some of the volatility though on things like steel where we've seen some ups and downs and again i i'm kind of you know clashes to to kind of like you know where we think that is obviously one of the other areas that has emerged i'm a little bit more recently as protein but but i would just say that you know as as we've all been watching this there have been ups and downs and so you know we continue to try to to calibrated and as we kind of went forward
spk_3: you know with our pricing actions
spk_2: the in place or the first quarter as we start the first quarter of fiscal twenty two the anti i'm very good about how that was informed and kind of how we saw the environment but i think you know kind of the name of the game for twenty twos going to be to remain pretty agile and and nimble and and even as we're talking to customers you know we're having that conversation more things may go up or down we need to have that ability to have the dialogue as we go forward so i don't make if you got any other you know yeah jail i i i think it's a good question i think i look at it sequentially between two quarters as well between you tube you to read you continue to see to marks point a steady increase in ingredients and pack and those are the items that you also i lie it and of course you know some of it we expect to continue to case we start to look further out hansel to some of the dialogue that will happen around pricing one of the other aspects in inflation is actually crate costs and we've seen dad an increase kind of from a year we perspective continuing cute three we always he's already some of that and cute to and
spk_7: although we're anticipating you that we might see a little bit of relief there we continue to see afraid gonna be at an elevated level and and while that's going on as you would expect by when looking for a lot of other
spk_8: elements are levers that that we can utilize to manage a little bit of that volatility
spk_2: obviously for productivity but but also how we contingency plan and set up the year sell i feel very good about how that plan has come together like i said i also feel very good about how the conversations on pricing we're going never easy but i think you know generally understood that the that the of what the inflation looks like and well i certainly feel like we've been having very strategic and collaborative that conversations about it and to put it into specs navy to look at cute to utah inflation on a raid faces up three percent the you see inflation on the rate they to south and que treat four percent get and energy maybe just one create a quick thought on just how your modeling electricity you know what a neil it seems like most company now are are are you know anticipating or body for through price increases and i get especially median in in simple meals to just how your you know up protein modeling elected to the kids just given how much inflation consumers tennessee yeah and need alert were being very very thoughtful and strategic on how you know we're we're reflecting you know critical price thresholds we've got a very good plan that i think enables us to feel like what first and foremost that will remain competitive but also that in some of these categories where we are you know a a significant leader that we're also going to be able to sustain the momentum where we built and adding a lasting wanna do is shut down in a broken share that we've worked fairly are get the have in place or work more going to be a thoughtful about it but it it also enables us i think to you know model if you well
spk_9: you know based on historical
spk_0: alas alasdair city were able to model a pretty good understanding of where does keep thresholds are we understand kind of out a balance this you know what what do you do list price versus what are you doing trade obviously there's a full range of
spk_2: lovers that we're going to be using across revenue management to get that right but i i i think for right now we feel like given the historical significance given our ability to protect certain price points overall as far as the help of the business going into it we feel very good i thank you
spk_8: next question comes from the line and can go move from the more than your violence in movies though
spk_2: hi good morning i'm one for mark and one for make if i may on mark yeah i think in general list pricing in the secular takes eighty two three months to go into effect was last weekend actual on given that you have some other and is our your quiver besides just lists pricing why won't placing the a towel on until the first quarter i among expected some of the conversations you're having a customers to be honest he started a bit earlier and for net or yeah they've started off setting your cost bit sooner centers is trying to get a little and for which there yeah i think ken the the artist answers you will see it is a bit of a tail when didn't you for to help mitigate but the but the effective date right so relative to how we think about you know when when are we you know targeting pricing related fully be implies that is the essentially the first day of fiscal twenty two and so you know although i do think there are circumstances as we're going through this for people you know where we are making some those a little quicker the reality is that you nine i'd rather it you know kind of points when i think the concentration of that will occur but i do think is your login the queue for i you'll see some help from it but probably not to the point that it's able to mitigate it until we get into queue for in into que one okay that's helpful and then make can you give us a sense i didn't have you talked about this and i missed the boat had to think about the gross margin and for q i get a positive side you won't have the same headwind from the texas storm impact on i think it's fair to maybe it's will mark the market will be a tail and again but you'll have worse inflation you said you have a harder comparison so you're just any color on this line if it would be would be helpful that get know it it it's a very good question and then kind of maybe just stepping back if you look at the overall led by a point of ah q for guidance you see that were at about thirteen and a half percent he that that implies approximately one hundred than ten base points decline from and a that margin perspective you have a year that's obviously better than what we have expertise dispatched quoting if you kind of break that down to marks earlier comments on the one ensure the had been using a comparison person at twenty but it also at the same time we're all busy law and the significant marketing investment in last year so as a result we expected to normalize more a queue for crap twenty now going to your question what's happening with regard to gross margin we expect gross margin from a year from a sequential back
spk_10: to have to be launched a similar how lampard to your point we obviously we'll have a negative mark to market yeah and that's a little different than you said that you're a get there are a little bit and said subpoenaed reversal on the benefit that we saw in cute three flip a little bit queue for
spk_0: gazelle it'll be it'll be on the hundred a little bit of the internet
spk_11: can't even if you go to a year ago as a reminder in the fourth quarter last year we had a benefit so you're actually laughing a benefit as well as a little bit of a reversal of the cute three benefits of that adult that on that a moderate a little bit what you'll see but that that's consistent with like next numbers are and what is walking from silence yeah yeah
spk_2: good i think i'll grant you know similar grows margin margarine however of course we had the benefits and cute three two marks point from a mark to market perspective however he had learned from the earlier comparison into boy that's helpful thanks so much trump i know on some on some line and spread from fall in line so far please come on the am i to question for you the first one is in relation to the pricing you announced so far as if we can talk about perspective pricing and against guess and give a general number or perhaps even a little by division what how much pricey do you have in place and it is to return a use for the to overcome inflation in fiscal twenty two some sure that's accurate yeah i think be a crystal what what we feel good about is one one out with our pricing action little it as you might imagine it's been a while ago as we kind of kick that off you know we felt very good about the combination of pricing our productivity some of the other actions are taking as well as benefit that will get especially as you get to the back half the next year in laughing the period we're in right now i'm in a week without very good about it i think what you sense for months is a little bit of caution because of the volatility that were watching on commodities and sell you know obviously as we move forward through the fourth quarter we start to set up our twenty two guidance and and get another couple months and filed coverage behind us as well as understanding you know where commodities are coming in one a better sense i know whatever he was trying to get at which is you don't do you feel like you can fully cover inflation next year with the tools you god i can tell yet we feel good but we're going to have to really watch what happens over these next got want monster trying to solidify our position is far as magnitude of pricing as you might imagine it's a little bit of a depending on which business it is where the commodities are impacting it more we've been very clear and that i'm transparent on on kind of the translation of inflation to where are that pricing resides obviously as i said before were also overlaying a very you know detailed kind of strategic lens to and to make sure that we're not doing anything that we're going to regret as far as the help of the business so it's a it's a pretty it's a pretty broad range i mean china mid single digits is probably a good you know assumption if you are trying to cost averaging across all of our businesses if that helps a little bit it does take you will just as an internal bleeding companies and public offerings and to the price increase earlier in the your of back again solid it's that kind of our on arm and i get it so yeah league the i just figure say chris and you know work we're kind of having conversations with our customers that say you know like we gotta you know probable compared the historical approaches to pricing where you kind of you know population then you know in kind of see in the in twelve months this is much more of of a collaborate asian and dialogue around what's inflation doing and again our pricing is yeah i think going to need to be a bit dynamic down course one of the variables we have that helps a lot without his trade spending and the ability for us to you know use that dead i as awaited to kind of manage a little bit of the ups and downs that but i'm not surprised to hear that so yes well and some of the cult followings is in relation to your a and she's funny in as of strongly in the prior year down on down no less so this year see your overall uninstall higher i just wanted to stand what you think you need to stand up routine all these households should you're spending overall i guess some to your base is still be up a lot to try to retain his households and easterners generally i you can bite sized that and fourth quarter still but yet retain the nice because of the consumers yeah well i think a couple things one is as christians your number in the fourth quarter last year we really invested you know into the opportunity that we had i given the elevated demand and ah and profitability that we were experiencing and we did that for a variety of reasons one of which was to the you have solidified know the equity of the businesses continue to really work on building equity
spk_12: would those household especially younger households we also learned a lot during that time so we used it as a bit of an opportunity to really fine tune where are the best our lives warren is a good example
spk_0: you would have seen in the third quarter
spk_13: our digital spend one up almost twenty points will now over sixty percent of our span eyes and digital watch much i love for a variety of different reasons but one of which is that it's it's a very high are line a very fission that spanned and sell although i do think there are some key thresholds
spk_2: the that we want to manage to and as we've said you know kind of them per percent of net sales is a good proxy when i look at bad relative to where we've been i feel like that's a good level and we've been able to kind of managed to that drew the last couple quarters in the this quarter and certainly i will get try to apply that the
spk_8: are you know that kind of standard of philosophy as we go into that
spk_2: if if you're going to twenty two
spk_8: can potentially resorts in there
spk_2: and next question comes from the line as a maverick moscow from kind of seats your line cell phone please come i ah thanks up questions one is mark i thought that i i heard you last quarter talk about kind of a broader or more extensive rollout of the transformation plan and snacks and and capturing more savings and more actions to do it had that regarding what happened in this quarter did that change at all what you're you're planning to do their and or do you need to rethink your how you go about it at all and and then secondly on steel costs maybe i'm i'm not familiar with how your your contract work with your suppliers but i i thought that they they tend to lock in a price pretty early like in mid year and then and you go forward with that price for the fiscal year for your fiscal year is it is it just that it's not possible to walk a price right now because the underlying commodities jumping around so much or something changed regarding the normal timing for for locking and yeah jewish lol you're you're you're right lab in the sense that you know we we will eventual a in a twenty two are price it's been a little bit moving around i would say from quarter to quarter so i as we as we can a lay that down for twenty choose a little bit of what we're reacting to so we know it's elevated right wing now we know what kind of the inflation's peg that's what it is a little bit of a of a pass through based on several times as you said so we're kind of you know walking through that right now as again i think when we get to the fourth quarter earnings and said that the twenty two guidance will be much better position to try to give you know out of a bit more comprehensive view of our coverage in where exactly we are
spk_13: okay and regarding snacks is is oh yeah so it's not about max out know that nothing changes i mean i think you know as i said before i have been bomb
spk_0: he really impressed with what we've been able to accomplish in the integration i continue to see tremendous potential as we look ahead we are big behind as you would expect expect given the head was i just described for cute three and queue for on an absolute basis of the under
spk_2: lying initiatives the value capture all of the foundational work that although may and created some strain on us by in the quarter as far as execution and and costs overall as we normalize that over the really the months ahead i expect us to be back on that trajectory and again i think he knows we've and he said before will try to lay that with a lot more granularity and investor day on but it doesn't change in any way structurally what i think we should be capable of doing a nice i think we are the ambition for the quarter and executing all of those initiatives at the same time you know probably in hindsight staging them a little differently able to get a better idea but ah yeah we can have played through that now and in an hour or feeling of been a very good about how that loves going for them cause heart attacks i next question comes into line of the comments from catholic i'm fine line and something the scandal thanks and ah thanks to the discussion on gross margin saw earlier in the presentation on the input inflation park he said maybe that might be one hundred basis points based on the third comment and then the transitional items may be somewhat more than that i guess my question is about those transitional items clearly you matched up pricing against the input side by how much of those transitional items are really fair game for pricing offset happy now the near side of that is how much is campbell specific i would imagine labor and logistics is fair game for that and how much do you think these transitional items can be offset by pricing india fiscal twenty two yeah i think the i think we're not having some of these are i would i would describe them very much as as a lot at least to my knowledge some of them are capable are specific i you know i think you're right about labor and logistics by you know the need for us to kind of invest i'm in the you know in as supplement khamenei factors to kind of recover on supply honestly that feels like as you know kind of unique item to us armed that that was very much of you know planet hadn't when that that will navigate through i expect that to be better in queue for and obviously much better as we go forward i think on the operating leverage a little bit of it was you know last meeting to understand exactly how much benefit we had gained a year ago when we were at our peak how much the value of the simplicity of the portfolio of vs adding as pdps back in
spk_14: in place
spk_2: we're going to take and so i think when i would tell years we've now calibrated that are you think it will remain throughout the cycle of covert nineteen but some of these other elements ones that are capable of being price than the others that are more you know kind of unique the us like i think will will allow work through that would get good plans in place and i do see those and as as as we described them transitional in nature
spk_8: tom and i think you know on balance will be able to address a great deal of the of those and just kind of be dealing with the leverage lap as we go on trying to make and yeah now that that's exactly how i would describe into a sweetie the laughing think of the leverage for you saw last year you know some of the benefits around fee
spk_2: operating the average a huge he kind of that some of that common that's right now and i mean as net is relatively neutral that i will say that that need him been and and i do not get i don't know how this is affecting other
spk_15: companies but i will say labor
spk_2: tom has been a challenge and i think you know i feel very good about what we've done to address it but even as your you know kind of replacing labour you know getting to kind of full efficiency are training in a new individuals and and kind of getting back you know squarely at the at the levels we work earlier in the year you know it's taking a little bit of time and sell i i think that's like i said although i see the steady progress i think we're we're being pragmatic as we make assumptions are so that you know we don't underestimate what that transition or time looks like and i i just wanted to and disappeared more of a heavy topic and maybe one for the analysts day and i made one for just later in general but we're going to be getting past cove it here and there was a prequel with year fiscal nineteen you've you by the end of twenty two him you might have two hundred fifty million of productivity the streets modeling you get sort of a made one hundred sixty nine or so of course pro off it grows from nineteen to twenty two and i know a what your kind of noting here is that twenty two are part of it feels like also have a sort of the exit transition period out of coded that might hurt pamper profitability by big picture we would think that you should be breaching too much significantly higher growth prop for dollars versus pre covered particularly with the this the multi you're stacked organic revenue growth that you will have had from trial and repeat coming out of coke it so i'm good i i i do wonder about some of the offset that you're thinking about internally of the investments that you've made in other section cause that would offset those theoretical step ups oh yeah i got to get a great question and and i do think you know you know i think it a couple different important variables within that dialogue that that we will spend time talking about when were i in our investor day obviously you know one of those pieces and kind of bridging for folks the the snacks margin that we already talked about how to devalue capture work where with the investments versus the upside you know how yeah how did the wounds were experiencing on inflation effect that but but maybe this the way to to china give you a little bit of context and naked mention this earlier but i think it's a really important aspect and you know obviously we're disappointed with the quarter i mean we are standard is that we do what we say in in this particular quarter we didn't do that but i i continue to see the the challenges that were in the quarter as being very transitional and nature and the underpinning of the of the great in market results and you know being ahead of the expectations as of the late to share and with the retention of these house
spk_16: hold on bode well for us for the future and and maybe to get a little context to your question specifically if you take the midpoint of march twenty one that guidance and again i'm gonna repeat a little bit of would make said that i think it's important at the midpoint of our guidance it represents vs that twenty nineteen base or top why
spk_0: growth of six percent so a keg or of about three percent obviously we know that there's some food service been there and a little bit a partner brands but in general it's six percent versus nineteen aren't even during that same period with the midpoint in the rain so even with the adjustment in our guidance is up nine percent versus twenty nineteen or and about a five percent keg or for that on two years and it's and as making said earlier e p as is up twenty seven percent since nineteen with consumption of nine percent during same period periods or you look at that all of those are in and get i think people would expect this and all of those are well and are more well within our our strategic plan targets and i think that as we navigate into twenty two you know we we would expect to see yes some challenges as we continue to laugh a few these areas i i do wanna you know kind of nail down to a good

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