Campbell Soup Company

Greetings ladies and gentlemen and welcome to the Campbell Soup Company third quarter fiscal 2023 earnings conference call. At this time all participants are in a listen-only mode. After today's presentation there will be an opportunity to ask questions. If you would like to ask a question during this time simply press star followed by the number one on your telephone keypad. As a reminder this conference call is being recorded. It is now my pleasure to introduce your host, Rebecca Gardy, Chief Investor Relations Officer. Please go ahead.

Good morning, and welcome to Campbell's third quarter fiscal 2023 earnings conference call. I'm Rebecca Gardy, Chief Investor Relations Officer at Campbell, and joining me today are Mark Klaus, President and Chief Executive Officer, and Carrie Anderson, Chief Financial Officer. Today's remarks have been pre-recorded and reflect an effort to better accommodate more time for Q&A. Once we conclude the prepared remarks, we will transition to a live webcast Q&A session. For us to give as many participants as possible the opportunity to ask questions, we ask that you limit yourself to two questions. 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 of our presentation or our SEC filings for a list of factors that could cause our actual results to vary materially from those anticipated in 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'll see today's agenda. Mark will share his overall thoughts on our third quarter performance as well as in-market performance by division. Kerry will discuss the financial results of the quarter in more detail and review our guidance for the full year fiscal 2023. And with that, I'm pleased to turn the call over to Mark.

Thanks, Rebecca. Good morning, everyone, and thank you for joining our third quarter fiscal 2023 earnings call. As you read in our press release this morning, we delivered our third quarter very much in line with our expectations, with strong mid-single-digit net sales growth led by favorable net price realization, partially mitigated by the comparison to year-ago retailer inventory rebuild. We also experienced planned low single-digit declines in adjusted EBIT and adjusted EPS year over year, primarily due to higher non-operating items. Overall, it was another quarter of consistent strong results, fueled by in-market performance, best-in-class service levels driven by our sustained supply chain recovery, and favorable inflation-driven net price realization. All of these have and continue to be key areas of focus for our company. Our performance was led by another tremendous quarter in snacks, where we continued to build broad-based momentum on both growth and share and made a meaningful step change on margins. In meals and beverages, our brands continue to benefit from the strong value and convenience they provide consumers. We did experience some expected volume mix pressure as we cycled prior year retailer inventory rebuilds. It's worth noting that we are fully back to pre-COVID service levels in the mid to high 90s, which is currently best in class as we continue to turn our supply chain operations into a competitive advantage. In addition, we don't expect further significant inventory-driven volatility as retailers have returned to targeted inventory levels, taking advantage of these improvements in our service levels. As we look to close out another strong fiscal year, we are reaffirming our full-year fiscal 23 financial guidance ranges for net sales and adjusted EBIT, and we are currently tracking to the upper end of our adjusted EPS outlook range. Our guidance appropriately considers the current environment, prior year comparisons, normalized investment levels, and absorbs the divestiture of the Emerald Nuts business, which was announced on May 30th. Now I'll turn to a quick discussion of our divisional results, starting with meals and beverages. Organic net sales decreased 1%, while in-market dollar consumption grew 2%, with the variance primarily driven by the cycling of significant retailer inventory rebuild in Q3 fiscal 2022, which was more pronounced in the meals and beverages division. Our supply chain recovery has been best in class, and our top-tier execution led to significantly improved customer service levels, up approximately 25 points in the third quarter versus prior year, enabling retailers to return to pre-pandemic inventory levels. Volume in the quarter was impacted by this same inventory dynamic, as well as below historical norm price elasticities and some increased competitive activity as others' supply also improved. Once we cycle the tough prior year comparisons, we expect volume trends to improve sequentially. We have made considerable progress in creating sustainable momentum and relevance across the meals and beverages business over the last several years and remain confident in the continued growth potential of our iconic brands. Turning to our soup portfolio on slide 8, dollar consumption was essentially flat versus prior year. reflecting inflation-driven pricing mitigated by below historical norm elasticities and some increasing share pressure. As competitors improve supply, we are seeing some increased promotional activity. On a net sales basis, soup was down 11%, primarily reflecting the disproportionate impact of cycling the inventory recovery from a year ago, which accounts for the majority of this decline. Strategically, we continue to believe strongly in our ability to grow the soup business and are pleased with the progress we've made in leading the renewed relevance of the category over the last four years. For example, the improved relevance of condensed soup, especially cooking, where we have supported the growth of in-home meals. Importantly, this has attracted new, younger consumers to Campbell's. In addition to cooking, our condensed eating icons, including chicken noodle and tomato, are also up significantly from pre-COVID levels, providing a strong foundation for our business. However, some flankers like Healthy Request and Our Kids Flavors, which have been key drivers of recent share softness, remain an area of opportunity. Next is the complete restage and growth of Chunky Soup. This brand has been fundamentally transformed from a product purchase primarily on deep discount promotion to a great everyday value with a compelling position the focuses on protein and quick in home lunches this positioning has been particularly relevant with younger consumers especially given the current economic climate and in contrast to higher price frozen food or away from home options the impressive four-year growth in dollar consumption up 31 percent and share up two points has been fueled by great marketing effective inflation-driven pricing, and innovation like our spicy line. We did experience a step up in some competitive pressure in Q3, but we're already seeing the return to share growth up one point in the latest four weeks. Finally, the performance of Pacific as a growth engine. This organic premium line has proven to be a fantastic acquisition, driving incremental consumers to our portfolio. Its results over the last four years have been impressive. up 56% in dollar consumption and 0.9 share points. With offerings across broth and ready-to-serve soup, Pacific gives us a high-growth premium platform to keep expanding the category and our soup business. These three areas of strength, paired with a robust pipeline for the future, solidifies our confidence that soup will be a steady contributor as we cycle through some of the tough comparisons and return to a level playing field. Turning to slide 9, our snacks business delivered its third consecutive quarter of double-digit net sales growth, continuing the strong momentum of this business. Our 12% net sales growth was fueled by our eight power brands, reflecting the benefit of net pricing and below historical norm elasticities, which resulted in a slight decline in volume and mix. In-market dollar consumption in our total snacks business grew 15% over the prior year, and 32% compared to four years ago, also driven by our power brands. Although not as significant as in meals and beverages, we were also lapping some of the inventory recovery from a year ago. In fact, with our significant supply chain recovery, our customer service levels are now averaging 95%. Drilling into our power brands on slide 10, dollar consumption increased 18%, with strong dollar and volume share growth. which was driven by impactful marketing and a steady drumbeat of innovation. On a four-year basis, dollar consumption was up 40%, with all eight brands growing double digits in the quarter. For six of our eight power brands, our dollar consumption growth is outpacing their respective categories, highlighting the outsized consumer demand for our unique and differentiated snacks portfolio that spans both cookie-cracker and salty categories. With increased service levels, contributions from new product and packaging innovations, and planned investments, the shared trajectory of our power brands shows a significant improvement over the prior year, systematically rising for each of the last four consecutive quarters. Our marketing efforts also continue to win as we focus on engaging consumers where and when we can have the greatest impact. Goldfish, which is on pace to approach a billion-dollar brand, is a great example being named Teens' most preferred snack brand for the fourth time in a row, according to Piper Sandler's Spring 2023 Taking Stock with Teens survey. Building on the success of our Goldfish innovation model, with LTOs such as Frank's Red Hot and Old Bay Goldfish, we are now driving increased innovation on other brands in our snacking portfolio, such as the Kettle brand. Our new kettle cook and air finish potato chips have performed extremely well in market. We've also released two LTOs with strong results, taking a page out of the successful Goldfish playbook. We're adding innovation on brands like Late July that has also fully recovered now on supply. As we continue to build momentum across the portfolio, we'll step up investment behind this innovation and brand building, which will continue in the fourth quarter. Our snacks business has grown steadily these past two years, and we're now starting to see progress on our profit and margin roadmap. Over this same period, we have seen operating earnings growth average 13%, and even with the strength of our top line, we've also seen margins expand. In fact, Q3 year-to-date, we are up 130 basis points versus two years ago and pacing to an absolute operating margin for the year of over 14%. We remain confident that we'll continue to show steady improvement in fiscal 2024, while also remaining on track for our longer-term SNAICS operating margin goal. In summary, although Q3 was a tougher comparison to cycle from a year ago, our results were in line with our expectations. We remain right on track for the full year, and more importantly, we're showing fantastic progress in many critical strategic areas, such as momentum in every facet of our snacks business, including margins, strong sustained execution across our supply chain, and momentum and continued relevance of our meals and beverages business. Overall, we continue to be pleased with the consistency and performance of the business, leading to another strong year for Campbell. With that, I'll turn it over to Carrie.