Campbell Soup Company

Good morning and welcome to the Campbell's Company Q1 fiscal 2025 earnings conference call. All participants are in a listen-only mode. After the speaker's remarks, we will conduct a question and answer session. To ask a question at this time, you'll need to press star followed by the number one on your telephone keypad. As a reminder, this conference call is being recorded. I would now like to turn the call over to Rebecca Gardy, Chief Investor Relations Officer at Campbell's. Please go ahead.

Good morning, and welcome to the Campbell's Company first quarter fiscal 25 earnings conference call. I'm Rebecca Gardy, Campbell's chief investor relations officer. And joining me today are Mark Klaus, 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. The prepared remarks, the slide deck, and earnings press release have been posted to the investor relations section of our website, thecampbellscompany.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. Slide 2 outlines today's agenda. MARC will provide insights into our first quarter performance as well as our in-market performance by division. Please note, effective first quarter fiscal 25 and going forward, we are using CERCANA MULO Plus for in-market data. Carrie will then discuss the financial results of the quarter in more detail and review our guidance for the full fiscal year 25, which we reaffirmed last night. 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. Before I turn it over to Mark one last time, I wanted to personally thank you, Mark, for your extraordinary leadership and unwavering commitment to excellence. And now, with that, Mark.

Before we review our results, I want to take a moment to address last night's announcements of my plans to retire from Campbell's and transition with the incoming CEO over the next two months. I'd like to congratulate Mick Bakehausen on becoming the 15th CEO in Campbell's 155-year history. The board and I have full confidence in his readiness to lead this great team and company. As I prepare to step back, Campbell's could not be better positioned for the future. I believe that Campbell's has the top leadership team in the business. They are experienced, engaged, and fully committed to setting the standard for performance. Together, we've built the best portfolio in all of food and transformed the company. This enables me to make this decision with the utmost confidence in the company's trajectory going forward. With our strategy firmly rooted and our team highly engaged and aligned, I'm certain that Campbell's future is bright. Leaving Campbell's was not an easy choice. Since I was a boy, sports have played a very important part of my life, and the idea of working in the world of sports, and in particular the NFL, has been a lifelong goal. It is truly a once-in-a-lifetime moment to become the team president of the Washington Commanders. I'm incredibly grateful to Josh Harris and the Washington Commanders Ownership Group for the opportunity to lead this iconic franchise into a new chapter of growth. I look forward to supporting ownership and the entire Commanders team and doing everything in our power to build a championship caliber organization. These last six years have been an incredible privilege and honor, as well as the most rewarding professional experience in my nearly 30 years of working in the food industry. Without question, what made it so special is the entire Campbell's team. Seeing their passion and commitment day in and day out was a great source of inspiration for me through what proved to be an incredible journey. I'd also like to thank the Campbell's Board of Directors and investors for their trust and support over these last six years. Now let's turn to Campbell's first quarter results. We began fiscal 25 with the first quarter generally in line with our expectations, with net sales up 10%, reflecting the momentum that Sovos added to our top-line performance. Organic net sales were down 1%, reflecting a continued dynamic consumer environment and some impact due to movements in retailer inventory levels influenced by the later timing of the Thanksgiving holiday this year. We delivered 6% year-over-year growth in adjusted EBIT and an adjusted EPS of 89 cents. Excluding Sovos, in-market performance was flat, in line with expectations, with the difference between our organic net sales and in-market consumption explained by the later Thanksgiving holiday that I mentioned earlier for meals and beverages and lower partner brands net sales and snacks. Importantly, our 16 leadership brands showed growth in both dollar consumption and share in the quarter. Including Sovos on a pro forma basis, in-market dollar consumption was positive 2%. The team continues to do an excellent job navigating the complex environment while delivering strong productivity, cost savings, and remaining ahead of our plans on the integration of the Sovos business. We reaffirmed our fiscal 25 guidance, which reflects our expectation of steady progress and incorporates an appropriate level of pragmatism. The upcoming second quarter, which includes the critical holiday season, will serve as an important milestone for progress in delivering our full year commitments. We expect sequential top line and market share momentum in Q2 with continuing progression into the second half of our fiscal year. Kerry will provide more details on guidance in a moment. On slide 6, I want to briefly expand upon the material benefit we are experiencing with the integration of Sovos. While our Q1 organic net sales declined 1% from the prior year with flat volume and mix, when including the pro forma contribution from Sovos, total company net sales would have been flat to the prior year with positive volume and mix. The growth of Sovos, and specifically the Reyes brand, is exceeding our expectation and adding important momentum to our meals and beverages division and the company. The overall food sector continues to reflect improvement with favorable trends across multiple fronts starting with improving consumer confidence. We're seeing further stabilization in food volumes as prices continue to normalize and we continue to anticipate ongoing recovery throughout fiscal year 25. Although not every category is recovering at the same pace, we continue to be encouraged by this overall progress. And with 75% of our portfolio in growing categories, we continue to be in an advantaged position as the consumer recovery continues. As we recently discussed at our Investor Day, we have transformed Campbell's portfolio and have evolved the way we talk about our most important brands. We call these 16 brands our leadership brands, with eight in meals and beverages and eight in snacks. In the first quarter, these brands represented the majority of total enterprise net sales and segment operating earnings and held advantage number one or number two positions in almost all of their respective categories. In Q1, leadership brands grew dollar consumption by nearly 2% with positive share growth. We continue to experience pockets of competitive pressure in certain snack categories from new entrants and some continued trade down to private label in salty snacks and cookies. However, we remain confident in the strength of our leadership brands and our plans throughout the balance of the year. Now let's take a closer look at each respective division. Moving to our meals and beverages division on slide nine, organic net sales were flat compared to the prior year with volume and mixed growth of 1%. Net sales were impacted by movements in retailer inventory driven by the later timing of the Thanksgiving holiday this year. This is evident in the higher 2% dollar in-market consumption growth, reflecting a 200 basis point difference to organic net sales growth. On a pro forma basis, with the addition of Sovos brands, meals and beverages net sales grew 2%, fueled by 3% volume and mix growth, with in-market dollar consumption increasing 5%. Turning to page 10, our soup portfolio strengthened in Q1 as expected. with Campbell's dollar consumption increasing modestly ahead of or in line with the category average. This is the third consecutive quarter of dollar share growth driven by broth in our condensed cooking segments, along with improving ready-to-serve trends as we head into soup season. In broth, Swanson continued to benefit from the combination of increased category usage and private label service challenges. Private label is recovering and we expect modest share headwinds in the second quarter, with that increasing in the second half of the fiscal year as private label fully recovers. As we have said previously, although we expect share to normalize over the next 12 months, the incremental growth in households we added to our brands during this period gives us an excellent opportunity to retain more of those consumers going forward. Our condensed soup segment grew share for the fourth consecutive quarter, led by our red and white cooking soups growing share and outpacing private label as consumers continue to cook at home with quality brands they trust. We expect condensed eating soup to improve with colder weather. And finally, as expected, we saw stabilization in our ready-to-serve portfolio. We gained share led by strong performance in Chunky, Rayos, and Homestyle, driven by our focus on innovation, marketing, and in-store execution across the entire ready-to-serve portfolio. This growth also includes the planned delistment of WellYes, representing just under a share point of Headwind in the quarter. Looking at our Italian sauce portfolio on slide 11, the combination of Reos and Prego continues to deliver exceptional momentum across this billion-dollar platform. The remarkable performance of Reos stands out, with in-market consumption maintaining a robust 15% growth. This momentum pairs beautifully with Prego, which delivered a 5% increase in market. By positioning these powerhouse brands to serve distinct consumer segments and price tiers, we've created an impressive platform to expand our market presence and fulfill diverse consumer preferences. Our SaaS portfolio exemplifies our ability to capture growth across multiple segments while maintaining strong brand equity in both the premium and mainstream spaces. Rayos continues to perform better than expected, and now we expect pro forma growth in fiscal 25 to be slightly above 10% versus the previous guided hide single digits. Over the long term, we continue to expect Rayos growth to settle in at a mid-single digit growth range. Additionally, integration is progressing exceptionally well as the distinctive brands team drives both operational excellence and strategic advancement across the portfolio. What excites us most is a substantial headroom for expansion. While Reyes leads the Italian sauce category in dollar share, it achieves this despite reaching only half as many households as Prego and maintaining just 60% of the SKU assortment of Prego. Our research shows particularly strong momentum with millennial household adoption surging at more than twice the category's pace. This remarkable traction with younger demographics strengthens our conviction about Rayos' long-term potential. We are also excited about expanding into promising segments like Alfredo varieties and even more premium offerings such as White Truffle Marinara, which we believe will further accelerate household penetration. One area that continues to fuel incremental growth is the strong value and quality comparison between Rayos and mainstream Italian takeout. This position allows Rayos to source volume from a far bigger addressable market, and a broader range of consumer income levels. Turning to our snacks business on slide 14, we delivered encouraging progress in several key areas despite facing a 2% decline in organic net sales. Worth noting is that organic net sales were impacted by approximately one percentage point from our planned reduction in partner brands. reflecting our strategic and deliberate portfolio reshaping efforts discussed at our recent investor day. This strategy allows us to concentrate resources on our differentiated leadership brands where we see the greatest potential for sustainable growth and margin enhancement. As shown on slide 15, in Q1, we saw overall snacking categories beginning to recover as expected. We held or grew share in several areas with solid performance in our crackers, fresh bakery, and deli snack segments, while navigating a more competitive environment in the salty snack segment and cookies. Let me start with what's working well. Goldfish held its number one position with teens in the first quarter during the important back-to-school season, and consumers continued enthusiastic response to platforms like Goldfish Crisps, validating the extendability of this $1 billion brand. Pepperidge Farm Bakery continued its momentum from the fourth quarter. growing both in volume and share as both innovation and in-market execution continue to fuel momentum. And in Delhi, Snack Factory, including our seasonal pumpkin spice pretzels, delivered in-market growth and share gains. We are incredibly excited about Snack Factory expanding into the pretzel aisle with Pop'ems and Bites, unique, munchable, and big-flavor additions that will now sit alongside our Snyder's of Hanover unique platforms. In salty snacks, although new entrants and some stepped-up promotion are putting pressure on shares, the competitive environment has remained constructive. We have fully integrated plans in Q2 that include innovation, marketing, and some increases in appropriate promotion to remain competitive and defend in key core segments. In cookies and pretzels, we've experienced more pressure from private label, and these areas will remain disciplined on pricing, while ramping up advertising and innovation, especially as we head into the key holiday season. These past weeks, you would have seen our full line of Pepperidge Farm holiday cookies is on display with our first ever collectible holiday cookie jars. Fancy Santa returns to help support the launch of white chocolate Milanos and get ready to build Snyder's Pretzel log homes and give the gingerbread people a break this holiday season. In summary, consumer trends and category recovery continue to make progress. Although not every category is recovering at the same pace, we continue to expect an improving environment through the balance of our fiscal 25. Our first quarter results were generally aligned with our expectations propelled by the Sovos brand's acquisition, strong leadership brand performance, and continued best-in-class execution. We are ensuring that we are well positioned in Q2 for the key holiday season and expect Q2 to demonstrate sequential improvement as we maintain our pace toward delivering our full-year fiscal 25 guidance. We've made significant progress with the Sovos brand's integration, and behind the strength of the Reos brand, we now expect the acquisition to be accretive to adjusted EPS in fiscal 25. Overall, with our continued confidence in the team, portfolio, and execution, we remain well-positioned to continue to navigate the environment as it continues to improve. With that, let me turn it over to Carrie.