Campbell Soup Company

Good morning. My name is April, and I will be your conference operator today. At this time, I would like to welcome everyone to the Campbell-Soup first quarter fiscal 2022 earnings conference call. Today's call is being recorded. All participants will be in a listen-only mode until the formal question and answer portion of the call. Thank you. With that, I would like to hand the conference over to your host, Ms. Rebecca Gardy. Ms. Gardy, you may begin your conference.

Good morning, and welcome to Campbell's first quarter fiscal 2022 earnings conference call. I am Rebecca Gardy, head of investor relations at Campbell's 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 prerecorded. 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. As stated in the release from this quarter onwards, adjusted net earnings will exclude unrealized mark-to-market gains and losses on outstanding undesignated commodity hedges until such time that the related exposure impacts operating results. Accordingly, fiscal 2021 adjusted results and guidance for adjusted EBIT and adjusted EPS growth rates reflect this change. Also beginning this fiscal year, The food service and Canadian business formerly included in the snack segment is now managed as part of the meals and beverages segment. Segment results have been adjusted retrospectively to reflect this change. For additional information on these updates, please refer to today's Form 8-K. On slide four, you'll see today's agenda. Mark will share his overall thoughts on our first quarter performance, as well as in-market performance by division, Nick will discuss the financial results of the quarter in more detail and then review 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 and welcome to our first quarter earnings call for fiscal year 2022. As you saw in our press release, we reported solid performance in the quarter. especially when compared to the significant growth in the prior year and considering the rapidly evolving macro environment in which we currently operate. Organic net sales were down 4% for the quarter, driven by the expected lapping of prior year retailer inventory replenishment, as well as constrained supply in the current quarter. We were, however, up 5% versus fiscal 2020, and consumption was up 2% versus prior year and up 9% versus two years ago, signaling strong, persistent consumer demand. This dynamic resulted in a six-point difference in net sales versus consumption in measured channels, a relationship we do not expect to continue through the remainder of the year. Like many of our competitors and customers, we face supply chain pressures, particularly around labor constraints and transportation capacity, and our net sales results reflect those pressures. I am very proud of how our teams navigated costs related to this volatility. Their strong execution, combined with effective pricing actions across both segments, led to adjusted EBIT and adjusted EPS results consistent with our expectations and in line or ahead of two years ago. On slide seven, with in-market demand remaining strong across both of our segments and the pricing actions we announced at the end of our prior fiscal year now reflected on shelf, we feel confident about the outlook for the full fiscal year. We recently announced additional inflation-justified pricing actions to offset continuing increases in ingredient and packaging costs, logistics, and labor. This second round of pricing should be effective in January and evident on shelf in the third quarter. This will result in some added pressure in Q2 as pricing catches up with more recent inflation, but moving into the second half, we expect margin progress and earnings recovery as we use all of our available mitigation tools. To address labor challenges in our network, we have taken specific actions and see early signs of improvement, such as increased onboarding, lower absenteeism, and improved retention. We've seen a recent uptick in the volume produced across the plants, and we expect to begin to rebuild our inventories in the second quarter, but not fully recover until the second half. Our ingredient and packaging spend, we are now over 85% covered. thereby reducing the variability in the upcoming quarters while we continue to deliver on our supply chain productivity improvements and our cost savings initiatives. In addition, we've made selective supply-related reductions in marketing and selling investments in the first quarter, which we expect to reverse and fully return to targeted levels as we move into the second half of the year. Labor and supply challenges are impacting certain brands to a greater extent than others, creating some short-term share and consumption pressure. We expect this to be evident particularly through the second quarter as we cycle through recovery on labor and supply. With the strength of our brands and the share gains that have been so consistent and broad in our business over the last two years, we remain very confident that share positions will improve once we return to full capacity and investment in the second half of the fiscal year. Turning to our meals and beverages division, I continue to be pleased by the underlying health of the portfolio and the performance of the brands. Organic net sales were down 6% versus prior year, lapping 11% growth in the prior year, and up 5% versus fiscal 2020. Consumption, though flat year over year, was up 9% versus two years ago, reflecting the strength of demand for our products. Turning to soup on slide 10, our win in soup strategy continues to show positive results. We retained households and held share in the quarter. More people are participating and remaining in the soup category than pre-pandemic levels. Household penetration on ready-to-serve, condensed eating, and Swanson broth are all ahead of the prior year. Additionally, compared to prior year, the dollars spent per buyer increased as our pricing actions took effect, while volume per buyer remained flat, reflecting the health, relevance, and sustained momentum of our brands. These compelling data points provide evidence that we are retaining our expanded consumer base despite consumer mobility increasing, returning competition, and our inflation-driven higher price points. U.S. soup consumption grew 2% over elevated levels in the prior year, bringing growth versus two years ago to 9%. Repeat rates and household penetration remained ahead of two years ago on Pacific foods, ready-to-serve, condensed and Swanson broth. Condensed dollar share was down slightly in the quarter. However, we continue to be encouraged by evidence that quick scratch cooking behavior continues. In our consumer tracking studies, more than a third of the people surveyed indicated that they cooked more compared to the prior month. Additionally, we are seeing the need for quicker meal preparation as consumers shift to hybrid work arrangements, leading to the need for quicker lunches while working from home and preparing dinners after returning from the workplace. This is driving an overall increase in our eating share, interestingly, with our strongest growth in condensed eating coming from millennials. As you may have noted, in more recent periods, we are seeing some recovery of private label in the condensed segment. This is not unexpected, given their recovery from an extended period of supply constraints. It's important to note our two-year share gains remain very strong, and we remain very confident in our overall competitive position versus private label as we move forward with continued strong support and programming. Ready to serve increased share in the quarter, including over three points of share gains among millennials. Within Ready to Serve, Chunky had a very strong quarter, increasing consumption 8% on top of 2% growth in the prior year quarter, and grew share by 0.6 points versus prior year. This is despite elevated promotional levels from competition. On Swanson Broth, we also grew share by 1.6 points, representing the third consecutive quarter of growth as supply recovery continued. Our Pacific Foods growth engine delivered its eighth consecutive quarter of holding or growing share driven by sustained momentum on broth, despite remaining supply challenges due to labor pressures paired with high demand. Turning to sauces, Prager remained the number one share leader for 30 straight months. However, short-term material availability is adding pressure on supply and creating more recent pressure on shares, which we expect to improve as we fully recover on inventory in the second half. Pace share began to improve in Q1 and grew households compared to prior year. We see Pace continuing to improve throughout the year. I want to conclude my comments on meals and beverage by highlighting an important underlying trend. Across the meals and beverage portfolio, we continue to show strong performance with younger households. The percentage of buyers under the age of 35 has increased versus the prior year quarter on nearly all key brands. Specifically on U.S. soup, the percentage of buyers under 35 increased almost two points this quarter, and the average age of Campbell's soup consumers are getting younger. The millennial cohort is the fastest growing segment in condensed eating, ready to serve, and broth. Importantly, as we look beyond the current short-term volatility and begin to assess the ability for meals and beverages to continue to contribute growth into the future, this dynamic is a very important indicator and supports our efforts to increase relevance with a new generation of consumers. Turning to snacks, organic net sales were down 1%, primarily due to labor-related supply constraints, but grew 4% compared to fiscal 2020. And market performance was strong, growing 5% over the prior year quarter and 9% on a two-year basis. This dynamic has resulted in low levels of retail inventory that we're working on and expect to recover through the second half of the fiscal year. Our power brands continue to fuel performance with in-market consumption growth of 6% this fiscal year and 13% on a two-year basis, driven by double-digit consumption growth across the majority of our brands. We are pleased to see repeat rates on all eight power brands ahead of the prior year and compared to fiscal 2020. Goldfish performed very well in the quarter. increasing share by half a point and growing consumption high single digits versus prior year, behind strong marketing activation, improved performance in multipacks, and continued successful limited edition flavor innovations, resulting in improved base velocities and increased household penetration. We are winning with consumers, gaining share and driving significant consumption increases. Innovation continued to be a key growth driver, with limited edition Goldfish Jalapeno Popper being the number one velocity new item launched in the cracker category in the quarter. Marking the second quarter in a row, we achieved this metric with our limited edition flavor innovations. We also continued to increase the relevance of this brand and broaden its appeal beyond our traditional kids' audience, with 60% of new buyers being households without kids. We continued to drive share growth on other brands as well, including Snack Factory Pretzel Crisp by 2.5 points, Kettle Brand Potato Chips by more than a point, and Cape Cod Potato Chips 2.6 points. However, as previously mentioned, labor availability on certain snack segments is putting pressure on share in several areas. In particular, Cookies, Lance Crackers, Late July, and Snyder's of Hanover Pretzels in the quarter. We are making good progress on recovering, but do expect some of these headwinds to persist into Q2, more broadly recovering in the second half. As I mentioned earlier, we continue to be pleased with the speed and progress we have made to address the executional pressures experienced last year. Although we will still laugh at challenging Q2 as we deal with the macro environment, we expect a very strong second half of the year with progress on margins and shares. Given our solid first quarter results and their consistency with our expectations, as well as our line of sight to the balance of the fiscal year, we are reaffirming our full year guidance. Nick will provide more details in a moment. As previously mentioned, while we expect to still have a difficult comparison in Q2 as we lap year-ago strength and begin to recover on labor and supply pressures, we remain very confident in our expectations of positive second-half performance and momentum exiting the year. We look forward to sharing our strategy to unlock our longer-term full growth potential next week at our Investor Day. With that, let me turn it over to Mick to discuss our first quarter results in more detail.