Campbell Soup Company

Greetings, ladies and gentlemen, and welcome to the Campbell Soup Company fourth quarter fiscal 2023 earnings conference call. At this time, all participants are in 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's now my pleasure to introduce your host, Rebecca Gardy, Chief Investor Relations Officer, please go ahead.

Good morning, and welcome to Campbell's fourth quarter fiscal 2023 earnings conference call. I'm Rebecca Gardy, Chief Investor Relations Officer at Campbell. Joining me today are Mark Klaus, President and Chief Executive Officer, and Carrie Anderson, 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. 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 three 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 the 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 our 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. Kerry will then discuss the financial results of the quarter in more detail and review our guidance for the full fiscal year 2024. And with that, I'm pleased to turn the call over to Mark.

Thanks, Rebecca. Good morning, everyone, and thank you for joining our fourth quarter fiscal 2023 earnings call. Speaking on behalf of Campbell's management, I would like to extend our recognition of the dedication and hard work demonstrated by our teams throughout this year. We delivered the fourth quarter consistent with our expectations, and for the full year, we delivered strong growth across all three key financial metrics, coming in well ahead of our initial expectations and advancing many of our strategic initiatives. Collectively, we continue to solidify the foundation that has delivered consistent and dependable results over the past several years. Furthermore, our progress has set the stage for increased momentum in fiscal 2024 that we believe will result in broad-based growth and deliver compelling shareholder value creation. Let me begin with the highlights of the fourth quarter. As expected, we delivered 5% organic net sales growth, led by inflation-driven net price realization and solid in-market performance enabled by an advantage supply chain and effective marketing and selling investments. Fourth quarter consumption increased 3% versus the prior year and 25% versus four years ago. As expected, we did experience declines in adjusted EBIT and adjusted EPS in the quarter, given our planned brand investments and the pension headwind, which we pointed out on prior earnings calls. For the full year, we delivered double-digit organic net sales growth of 10% and strong adjusted EBIT growth of 5%. Adjusted EPS of $3, representing 5% growth versus prior year, was at the top end of our guidance range. As a reminder, the pension headwind was approximately 11 cents to adjusted EPS and four points of growth for the year. Consumption for the full year increased 8% versus the prior year and reflected share growth across many brands. These strong results reflect the ongoing effective execution of our focus strategy along with the sustained consumer demand for our brands. We have strategically balanced the interplay between pricing and promotional frequency while enhancing the tremendous equity and differentiation of our brands. We also continued to invest in expanding capacity for the future and enhanced our capabilities in supply chain, marketing, sales, and innovation. Looking ahead to fiscal 2024, we're excited about the next stage of Campbell's growth. The snacks business will continue to deliver on the value proposition of the Snyder's Lance acquisition with top line and margin building momentum. Our meals and beverage business will be further strengthened and diversified with the planned strategic acquisition of Sovos Brands, which will extend our portfolio into the ultra-distinctive sausage segment and provide significant growth opportunities. This combination will make Campbell's one of the most dependable growth-oriented names in food. Carrie will provide full fiscal 2024 guidance later in the call. Before I review the division results, I'd like to provide some perspective on the current consumer landscape. We've spent a great deal of time analyzing the drivers and, importantly, the potential implications going forward. We see three factors currently putting some transitory pressure on category in-market results. These are primarily impacting our meals and beverage businesses and all influence Q4 to some extent. The first area is the residual effects of COVID surges from the summer of fiscal 2022. These surges notably benefited categories like soup in the prior year, particularly during the summer, a period which historically has lower sales. We expect this effect to continue into Q1 and greatly diminish as we approach the second quarter of fiscal 2024. Directionally, the impact of this factor contributed about 50% of the decline in soup in the fourth quarter. This dynamic likely helped mitigate price-driven elasticities in Q4 fiscal of 2022. The next factor is lapping of double-digit pricing actions from a year ago. This was a dynamic we expected and one that likely will continue to be a headwind throughout fiscal 2024, but sequentially lessening in the second half of the year. We do also expect sequential volume improvement to mitigate this pricing headwind as we move into Q2 in the second half. The third factor, and likely contributing to the limited volume recovery to date, is the consumer behavior in response to ongoing economic uncertainty and prolonged inflation. First, consumers began prioritizing categories based on more immediate needs and value, leading to fewer categories in the shopper basket. This pattern of behavior resulted in a real focus on seasonal priorities and has obviously created a headwind on categories like soup in the summer. We expect our categories like soup, which is a top ten category in the fall and winter, to increase in priority, and we're already seeing some early signs of improvement. The second behavior is a growing shift to more value-driven, stretchable meals, which has had a mixed effect on our business. It has undoubtedly been a positive driver on categories like pasta sauce and condensed cooking soups, as well as broth, while also adding pressure on categories like ready to eat soup. We expect this behavior to subside as inflation continues to moderate. The positive news as it pertains to our snacks division is that our brands consistently maintain a strong presence in consumers top categories throughout all seasons of the year. Moreover, our snack power brands have displayed remarkable resilience as consumers, even while prioritizing value, continue to sustain their purchases across our differentiated portfolio. Broadly speaking, we see these dynamics as transitional in nature. While we do anticipate the persistence of these dynamics in the near term, we're confident in the equity and the value of our brands within this environment. In fiscal 2024, we'll maintain our support of our brands and remain vigilant on value to ensure we remain competitive. but do not see this as a catalyst for dramatic shifts in promotional or margin dilutive actions to chase volume or share. Turning to our division results, our meals and beverages portfolio remains well positioned as consumers employ multiple strategies to stretch their food dollars. In the fourth quarter, we delivered organic net sales growth of 1%. As a reminder, the fourth quarter is the lightest in terms of seasonality for this business, And we're also wrapping strong performance of 7% organic net sales growth in the prior year, primarily driven by inflation-driven pricing and some of the COVID surges I mentioned earlier. While in-market consumption was down in the fourth quarter by 4%, we saw strong performance by Prego up 5% and Pace up 7% and Pacific up 11%. Compared to pre-COVID levels, dollar consumption for the division was up 17% overall. Diving more specifically into our meals and beverages portfolio, I wanted to highlight the progress we've made within several areas of our soup business. This year, we've refined our soup portfolio to establish distinct areas for growth and identified areas where scale and optimization will be more of the focus. The great news is our growth-focused segments represent over two-thirds of our U.S. soup business and has consistently delivered strong growth and share results, even where private label is present. Brands like our condensed icons, our condensed cooking soups, Chunky, Homestyle, and Pacific Soup are compelling areas of consumer relevance, even among younger households, and continue to demonstrate long-term growth potential. They are also brands where our marketing and innovation efforts have been very effective. In the quarter, our shares in this portion of the business were essentially flat, and versus four years ago, we've gained 1.2 share points with consumption up 27%. We're confident in the trajectory of this business and are committed to continuing to fuel these segments going forward. The optimized portion of our soup portfolio, which represents less than a third of our U.S. soup business, has experienced recent share softness and thus remains an area of opportunity for us. These are areas where the segments are a bit more commoditized or value sensitive, like broth, so they have tended to be where private label or lower cost options have sourced some share. The team remains vigilant in this segment of the portfolio, continuing to ensure we remain competitive without undermining any long-term profitability. Interestingly, this portion of the business represents only 14% of meals and beverages and is approximately 7% of Campbell's total net sales and will become even smaller after the pending acquisition of the Sovos Brands business. Turning to snacks on slide 10, we finished the year strong with fourth quarter organic net sales up 9% driven by our eight power brands. We maintained strong in-market momentum, growing consumption by 8% and 31% compared to four years ago. Also driven by the strength of our power brands, which delivered double-digit dollar consumption for the fifth consecutive quarter. Overall, fiscal 2023 was another fantastic year for snacks. With net sales growing at 13% and operating earnings growth at 24%, These results provide compelling proof that our strategic focus on highly differentiated and relevant brands is working and can lead to sustainable, profitable growth. The next slide highlights the impressive performance and continued growth of our power brands, which grew consumption 10% versus the prior year. On a four-year basis, consumption was up 39% with all eight brands growing double digits in the quarter while holding volume share. This illustrates the strength of our core portfolio and reflects the continuation of heightened consumer demand for snacking. Turning to slide 12, our snacks business has delivered tremendous growth over the past two years. The business has grown net sales at a 7% CAGR, with operating earnings growth at a 12% CAGR over a two-year period. In the last fiscal year, we drove a step change in operating margin, growing from 13.1% in fiscal 2022 to 14.4% in fiscal 2023. This is consistent with our SNAC's margin roadmap and gives us increased confidence that we'll continue to deliver on our long-term goals and show steady improvement in fiscal 2024, where we expect to be north of 15%. I'm excited and very optimistic as we enter the new year with proven strategies and strong fundamentals an advantage-strong supply chain, and arguably one of the most focused portfolio stories in the industry. Within snacks, we continue to expect accelerated growth and to build on the margin trajectory from this year. And in meals and beverages, we expect to continue to strengthen the business with sequential and steady improvement throughout the year. This story will only be made stronger following the completion of the Sovos Brands acquisitions. adding the most compelling growth story in food to the Campbell's portfolio. It's an exciting combination. We understand and have planned for some short-term, broad-based category dynamics in the early part of the year, especially in Q1. However, we have strong plans in place and are well-positioned to gain momentum and deliver another strong year, adding further evidence of the transformation of the Campbell's business. With that, I'll pass it to Carrie, who will review our fourth quarter and full year results and present our fiscal 2024 outlook.