Campbell Soup Company

Good morning. My name is Ludi, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Composite Fourth Quarter and Full Year Fiscal 2021 Earnings Conference Call. Today's call is being recorded. All participants will be in the listen-only mode until the formal question and answer portion of the call. To ask a question during the Q&A session, you will need to press the star 1 on your telephone. Thank you. With that, I would like to hand the conference over to your host, Ms. Rebecca Gordy. Ms. Gordy, you may begin your conference.

Good morning and welcome to Campbell's fourth quarter and full year fiscal 2021 earnings conference call. I am Rebecca Gardy, head of investor relations at Campbell Soup Company. Joining me today are Mark Klaus, Campbell's president and chief executive officer, and Mick Bakehausen, Campbell's chief financial officer. Today's remarks have been pre-recorded. Once we conclude the prepared remarks, we will transition to a live webcast Q&A session. The slide deck and today's earnings press release have been posted to the investor relations section on our website, CampbellSoupCompany.com. Following the conclusion of the Q&A session, a replay of the webcast will be available at the same location, followed by a transcript of the call within 24 hours. 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 each of these measures to the most directly comparable GAAP measure in the appendix of this presentation. On slide four, you will see today's agenda. Mark will share his overall thoughts on our fourth quarter and full-year performance, as well as in-market performance by division. Mick will discuss the financial results of the quarter and the year in more detail, and then provide our guidance for the full-year fiscal 2022. And with that, I'm pleased to turn the call over to Mark.

Thanks, Rebecca. Good morning, everyone. Thank you for joining us today. In fiscal 2021, the pandemic continued to present challenges across North America. But I am so proud of how our teams, particularly our frontline and supply chain teams, adapted and rallied to keep each other safe and meet the sustained demand for our products. On behalf of the entire Campbell's leadership team, I am deeply grateful for their dedication, and we continue to make their safety and well-being paramount as they work to meet the needs of our customers, consumers, and our communities. As difficult and complex as this time has been, it has also been an extraordinary period for Campbell, and we've made clear, meaningful progress advancing our strategic plan. We've evolved into a different company, one that is stronger, more agile, and with growing more relevant brands that are better positioned for the future. For the full year, I'm pleased to report that Campbell's organic net sales were comparable to fiscal 2020 and grew 3% on a two-year compounded annual growth basis driven by both divisions reflecting strong in-market performance. In fact, three-quarters of our portfolio grew or held market share for the year, reflecting our continued momentum. Adjusted EBIT lagged fiscal 2020 as we lapped dramatic scale and efficiency from a year ago and navigated a much higher inflationary environment this year. However, on a two-year CAGR, adjusted EBIT grew 5% and adjusted EPS grew 14% as we delevered and improved our balance sheet. Turning to slide 7, full-year organic net sales were comparable to prior year, which included a positive fourth quarter finish to fiscal 2021 in light of last year's remarkably strong performance. If you recall, our first half fiscal 2021 was driven by strong elevated in-market performance as we continued to gain share and made steady progress on supply to restore the shelf. The third quarter reflected the challenging comparisons to the prior year as we cycled the demand surge that accompanied the onset of the COVID-19 pandemic and navigated several headwinds, including increased inflation and executional pressures in our snacks division. In the fourth quarter, we delivered solid results ahead of our expectations across all three key metrics, net sales, adjusted EBIT, and adjusted EPS. and address the executional pressures we experienced last quarter. Organic net sales declined 4% as we lapped 12% growth in the prior year and delivered 4% growth on a two-year CAGR basis. Our fourth quarter performance accelerated relative to third quarter, driven by strong in-market results, particularly in U.S. soup and goldfish, and the continued recovery of our food service business. In snacks, we delivered sequential operating margin improvement of 270 basis points versus the third quarter despite the continued industry-wide supply chain challenges. An important barometer of the health of our brand portfolio is our in-market performance. For the full year, 75% of our brands grew or held share versus the prior year, and the majority of our brands in our 13 core categories grew ahead of pre-COVID levels. To note, repeat rates on our brands in all core categories are ahead on a two-year basis. Total company in-market consumption was minus 1% compared to fiscal 2020 on a 52-week basis. Importantly, compared to the fiscal 2019 period, consumption grew 10%, driven equally by strength in both our meals and beverages and snacks divisions, as we continue to make material advances in attracting and retaining consumers, especially the critical millennial cohort. Turning to our division performance on slide 9, let me begin with meals and beverages. Our fourth quarter organic net sales decline of 9% and in-market performance of minus 2% reflects cycling the partial inventory recovery and elevated consumption levels in the prior year quarter. Compared to the fourth quarter of fiscal 2020, we continued to grow share in Swanson Broth, Condensed Soup, Prego, Ready to Serve Soup, and Pacific Foods. On a two-year basis, we delivered strong consumption growth of 13% against organic net sales growth of 10%, narrowing the gap as our food service business continued to stabilize. On U.S. soup, we delivered another quarter of record share growth of nearly two points, with gains in all segments. This included gains from Swanson broth, condensed soup, well, yes, and slow kettle, driven by the continued recovery in our total points of distribution, or TPDs. Our share of TPDs grew for the fourth consecutive quarter this year. U.S. soup two-year dollar sales growth of 16% in the fourth quarter exceeded the growth in total shelf-stable meals and was just slightly behind total edible growth in that same time period. Household penetration and repeat rates remain elevated compared to pre-COVID levels. Condensed soup increased dollar share for the 10th consecutive quarter, with the largest driver of share growth coming from condensed eating varieties as we nearly restored the full range of offerings to the shelf. As our ability to supply improved, we were also pleased to see household gains in ready-to-serve versus the prior year as a result of the shelf recovery. and favorable at-home consumption behaviors, particularly for lunch occasions. Ready-to-serve in-market consumption grew an impressive 21% on a two-year basis, led by chunky, slow kettle, and the successful relaunch of Well Yes. Pacific Foods continues to strengthen its position as the number one organic soup brand, with the fourth quarter marking seven straight quarters of share gains in measured channels. we expanded distribution and have recovered the majority of our supply while bringing in more millennials to the category than any other soup or broth brand. On Swanson Broth, we increased our share by 3.7 points, our highest quarter of share growth in over three years driven by our investment in supply recovery. This is important as it demonstrates the strength of the brand as we recovered lost share to lower priced players as our supply improved. Prego delivered its best year of dollar share gains in four years and maintained the number one share position for 27 consecutive months. The brand grew in market consumption on a two-year basis and delivered 5% growth over the prior year. Household penetration was elevated versus fiscal 2019 in every quarter and grew one point in the fourth quarter. Overall, the Meals and Beverages division delivered strong in-market performance against difficult comparisons to the prior year and achieved share gains in key categories, particularly with millennials. On slide 11, we are excited to share with you a glimpse into our Meals and Beverages innovation plans for fiscal 2022. Our new items focus on new occasions and relevant wellness trends. Expanding on the relaunch of our Better For You Well Yes brand is the launch of Well Yes Power Bowls, with five unique varieties for both lunch and snack occasions. We have also expanded our successful Slow Kettle Crunch innovation with four varieties of Campbell's Red and White Crunch, including our iconic classic tomato soup with goldfish toppings. On our Pacific Foods business, we are launching additional plant-based products, including creamy oat milk soups and creamy plant-based protein broths. Finally, if you haven't tried the new chunky spicy chicken noodle, it's fantastic and brings variety to the critical at-home lunch occasion. In addition to our relevant and consumer-driven innovation, another element of our win-in-soup strategy is a refresh of our Campbell's condensed soup. We are contemporizing the brand to better match our growing millennial consumer base, while improving the product and its shopability as we continue to support our positioning as a starting point for delicious meals. We also have continued our journey of simplifying our ingredient lines and improving quality. It's always tricky when looking to evolve such an iconic design and product. But our new graphics and improved ingredient lines strike the right balance and have been met with a very positive customer and consumer response. Let's now turn to snacks. This quarter was the second highest 13-week quarter of net sales for the snacks division since the Snyder's Lance acquisition. Organic net sales grew 1% over the prior year quarter and 7% on a two-year basis. In-market performance declined only 1% year-over-year, but grew 11% on a two-year basis. Turning to our snacks power brands, which continue to fuel performance with in-market consumption growth of 2% this fiscal year and 15% on a two-year basis, driven by double-digit consumption growth in the majority of our brands. Compared to the prior year, we grew share on many of our power brands, most notably Cape Cod potato chips, Snack Factory pretzel crisps, Goldfish crackers, and late July snacks. Compared to pre-COVID levels, household penetration remains elevated and repeat rates are higher on all power brands. Turning to Goldfish, we delivered sustained share growth, increasing for a second quarter in a row by more than one point compared to this time last year. On a one- and two-year basis, Goldfish delivered strong results, including double-digit consumption growth, increased household penetration, and higher repeat rates. This solid performance on Goldfish was due in part to the successful launch of limited-edition Goldfish Franks Red Hot Crackers. Additionally, the reinstatement of promotions, improved performance on multipacks, and an effective marketing campaign contributed to our strong results. We are excited to continue to introduce on-trend limited editions on Goldfish with the launch this week of Goldfish Jalapeno Popper and plans for additional innovation later this fiscal year. Entering the fourth quarter amid rising inflation, labor shortages, and some executional pressures, we better focused our agenda in the snacks division, driving operational excellence and allocating additional resources throughout the supply chain network. We are very pleased with the speed and progress we have made to address the executional pressures we experienced in the third quarter. We head into fiscal 2022 with a stronger foundation and confidence we can continue our significant transformation on this important business. On slide 17, we do expect a challenging environment in fiscal 2022 as COVID persists and inflation and labor availability remain highly volatile. However, we also anticipate our effective pricing actions, supply chain productivity programs, and cost savings initiatives to be significant offsets, resulting in an improvement in the second half of the fiscal year relative to the prior year and exiting fiscal 2022 with momentum as we continue to make progress on our strategic plan. Mick will provide more details on our fiscal 2022 outlook and assumptions in a moment. With that, let me turn it over to Mick to discuss our fourth quarter and full year results in more detail.