Campbell Soup Company

Greetings ladies and gentlemen and welcome to the Campbell Soup Company first quarter fiscal 2024 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. If you would like to withdraw your question again press the star one. 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 first quarter fiscal 2024 earnings conference call. I'm Rebecca Gardy, Chief Investor Relations Officer at Campbell. Joining me today are Mark Klaus, Chief Executive Officer, and Carrie Anderson, 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 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 four 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. Slide 4 outlines today's agenda. Mark will provide insights into our first quarter performance, as well as in-market performance by division. Kerry will then discuss the financial results of the quarter in more detail and outline our guidance for the full fiscal year 2024, which we reaffirmed this morning. And with that, I'm pleased to turn the call over to Mark.

Thanks, Rebecca. Good morning, everyone, and thank you for joining our first quarter fiscal 2024 earnings call. From Campbell's management team, we hope you enjoyed a happy Thanksgiving with family, friends, and of course, some green bean casserole and Pepperidge Farm stuffing. As you saw in our press release this morning, we reported first quarter results with top line coming in consistent with our expectations and adjusted EBIT and adjusted EPS coming in slightly ahead as we lapped one of our strongest quarters with 15% growth across all three key metrics in the prior year. I am pleased with these results as we continue to navigate an evolving and challenging consumer environment. We also made material progress advancing the key initiatives of our focused strategic plan and continued to build confidence in the next stage of Campbell's growth. I am encouraged by the consistency of our outstanding execution, including strong sustained performance across our supply chain, numerous successful innovations and marketing programs, and more recently, improving share trends. We achieved all this while maintaining our margin and earnings expectations. Going forward, we anticipate these areas of focus to fuel sequential improvement over the course of the year, generating momentum in terms of revenue, volumes, market share, and profit margins, particularly as we head into the second half of fiscal 24. As a result, we remain confident and are affirming our full year guidance. We believe this building momentum paired with the pending acquisition of Sovos Brands will set the stage for accelerated growth and solidify Campbell's position as one of the most dependable names in food. Turning to slide seven, as expected, organic net sales decreased by 1% to $2.5 billion, following a 15% increase in the prior year resulting in growth of approximately 7% on a two-year compound annual growth rate basis. Adjusted EBIT and adjusted EPS declined 9% and 11% respectively, following a 15% increase in both key measures the prior year. Our dollar consumption was down 2%, but grew 8% versus two years ago. In line with expectations we communicated during our fourth quarter earnings call, the consumer landscape remains challenging. However, we have many opportunities within our portfolio to meet these shifting macro consumer trends and have optimized our strategies and plans, concentrating on three key areas. First, we're dedicated to ensuring the affordability of our products and maintaining competitive price gaps within our margin goals. This is particularly important, especially as consumers seek to maximize the value of their spending, stretching their budgets to cover the cost of family meals every day and during the important holiday season. Second, we are committed to sustaining our marketing and innovation plans. This is critical not only to reinforce the value and differentiation of our products, but also to continue to build the long-term equity of our brands, on which we've made significant progress in recent years. Finally, our approach to spending remains disciplined and balanced, focused on high ROI and impactful programs. We are driving productivity and making appropriate tradeoffs to fuel this investment, while we protect our margin and earnings objectives. Where support has been added, we believe it's both sustainable and profitable. We intend to maintain this focused approach throughout fiscal 24, and we are confident that we will build momentum as the year progresses and continue to deliver our financial commitments. We remain confident in this forecasted improvement in trends throughout the year for a number of reasons. It's important to recall that our growth rates in the first half of fiscal 23 averaged in the mid-teens and subsequently tapered down to mid-single-digit growth in the second half. this approximate 10-point decline in part reflected a slowing in incremental pricing. These more modest comparables post Q2 support our expectations for improving top line and volumes. In addition, we have a robust pipeline of innovation and marketing programs informed by the current consumer trends to also fuel the improving outlook. So although the consumer landscape remains dynamic, we are well positioned for improvement and will continue to plan contingencies and remain nimble as we navigate the balance of the year. Turning to our meals and beverages division, as planned, we experienced a low-to-mid single-digit decline in top line and consumption in the first quarter. On a two-year compound annual growth rate basis, organic net sales were up 6% and dollar consumption was up 1%. The difference in net sales and consumption growth rates reflect the strength in our food service business and unmeasured channels, as well as a year ago supply and inventory recovery. Within these results, we find many reasons to remain confident in the trajectory of the business, as consumers depend more and more on affordable, stretchable meal solutions, which is at the core of our meals and beverages division. Turning to our soup portfolio on slide 11, as anticipated, Throughout the summer, we experienced decreases in dollar consumption overall. However, within these results, there are pockets of strength. For example, as consumers sought to stretch their food budgets, they turned to the strong value and convenience of the cooking portions of our portfolio. In fact, in our condensed cooking portfolio, we gained dollar share for the fifth consecutive quarter, increasing 1.5 share points in the quarter. Even among younger households, We continued to see long-term potential as household penetration of total condensed cooking soups gained 0.4 points versus the prior year. In our broth business, we continued to drive relevance among consumers in this dynamic environment as total broth was up 4% behind the strength of our Pacific broth portfolio, which saw dollar consumption grow 16%, well above the category rate. The ready-to-serve and condensed eating businesses experienced more pressure in the quarter as a result of more consumers shifting to more stretchable meals versus single-serve options. Turning to page 12, as we have begun ramping up plan support in anticipation of the important holiday season, trends have been improving, especially as it relates to share. In fact, over the latest four weeks, including Thanksgiving, we've seen improvement in all segments driving overall dollar and unit share gains, including a 0.2 improvement in dollar share as well as a 0.9 improvement in unit share for our very important total soup business. Importantly, we are doing this with modest incremental investment as we are seeing more retailers actively returning to Campbell's brands from private label a year ago. This is providing an outsized benefit while we continue to balance the critical interplay between growing share, volumes, and margins in line with our expectations. Although the category remains somewhat under pressure on dollars, it's very encouraging to see improvement in both share and units as we head deeper into our key season. Turning to our snacks business, we delivered first quarter organic net sales growth of 1%, consistent with the increase in dollar consumption. Our power brands grew net sales by a solid 5% following a 21% increase in the prior year for a 13% growth on a two-year compound annual rate basis. Even with some emerging broader category pressure due to the consumer dynamics that we discussed earlier, our eight power brands have shown remarkable resilience, with brands like Goldfish and Lance posting net sales growth of 5% and 15% respectively. The strength of our power brands was tempered in the quarter by lower margin partner brands and fresh bakery, as those businesses are somewhat more vulnerable to private label and consumer trade down. On the following slide, we highlighted the continued strength of each of our power brands. Dollar consumption grew 3% versus the prior year and 19% versus two years ago, while five of eight power brands held or gained share in the quarter. Our eight power brands, which now represent approximately two-thirds of division net sales, remain a powerful and consistent growth engine, even in the current consumer environment. Turning to slide 15, a prime example of our snacks power brand growth engine is Goldfish. For the fifth consecutive time, Goldfish has been named teens' most preferred snack brand, according to Piper Sandler's Taking Stock with Teens, most recently in the Fall 2023 survey. This recognition is the result of the remarkable work of our cross-functional teams in expanding the brand to a broader audience and adding manufacturing capacity to meet the incredible demand for this product. We continue to see share strength in the overall portfolio as Goldfish marked its fifth consecutive quarter of holding or gaining dollar share. One of the keys to our Goldfish success has been a steady drumbeat of innovations. On this front, we're excited to bring to consumers our latest limited-time offer for the holiday season, Goldfish Elf Maple Syrup Flavored Grahams in partnership with Warner Bros. Discovery, celebrating the 20th anniversary of its iconic movie, Elf. Is there anything better than maple syrup goldfish to spread holiday cheer? And it's perfect for stocking stuffers or snacking all season long. And there's even more exciting innovation in goldfish in store this year. Adding to the incredible success of innovations like Goldfish Megabytes and our run of limited-time offers, we are reinventing the category again in a way only Goldfish can with the introduction of Goldfish Crisps. Crisps are the way that Goldfish does chips. The best of Goldfish with the best of chips combined into an irresistible, light, airy, crispy, fish-shaped baked snack. Launching in three craveable flavors, Goldfish Crisp will be available at retailers nationwide in January. On slide 17, I want to highlight the margin momentum that the snacks division has demonstrated. On a two-year compound annual growth rate basis, we grew snacks organic net sales by 8% and operating earnings by 12%, with approximately 130 basis points of margin expansion. Consistent with our long-term margin roadmap of achieving 17%, we remain confident in fiscal 24 expectations to finish above 15%. And now we're adding even more fuel to our SNAC's growth and margin journey with our DSD transformation initiative. This includes three key elements you see on slide 18, two of which were already progressing. creating one snacking DSD logistics and warehouse network. This multi-year program will streamline our logistics and warehouse network, eliminate redundancy, simplify our network, and improve our technology and capabilities within our warehouses and depots. Second, modernizing and harmonizing tools and technology used by our critical independent distribution partners. This will enable new capabilities and help enhance effectiveness and focus. In addition, this will also allow better retailer linkage and alignment to orders while improving in-store insights. And third, we'll focus on DSD routes. The good news is the vast majority of geographies already have scaled routes. And in combination with the upgrades from the first two elements of our DSD transformation, these will be fully optimized going forward. To help improve geographies where routes are not operating at full scale, We're piloting a variety of potential solutions with encouraging early results. I'll share more about this third and very important element in our Q2 earnings call. We're excited to have made so much progress on such a unique and critical part of our business. And in the end, this will result in a strong and differentiated DSD platform to fuel both the growth and margins of the snacks business. Before I conclude, let me provide a brief update on the status of our pending acquisition of SoVus Brands. As we announced in October, we received a second request for information from the Federal Trade Commission as part of the agency's review of Campbell's proposed acquisition. We are working hard to complete those requests and are advancing our integration planning. I continue to be impressed with the strong results the Sovos team is delivering and could not be more excited about completing the acquisition and fueling our next chapter of growth. We expect to complete the deal in the next calendar year and will continue to engage with the FTC on their review with the objective of closing the transaction in mid-2024. In closing, the first quarter unfolded much as we anticipated. continuing our consistent track record of meeting our commitments. Looking ahead, I'm confident and optimistic about the balance of the year. We will remain vigilant and agile to meet the evolving demands of consumers while continuing to progress our strategic plans. With that, I'd like to wish all of you and my colleagues across the company a happy holiday season and thank the entire team at Campbell's for their ongoing incredible and impactful work. And now, I'll pass it to Kerry.