Campbell Soup Company

Good morning and welcome to the Campbell's second quarter fiscal 2025 earnings conference call. Today's conference is being recorded. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. If you would like to ask a question, please press star one on your telephone keypad. 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 Campbell's second quarter fiscal 25 earnings conference call. I'm Rebecca Gardy, Campbell's Chief Investor Relations Officer. Joining me today are Mick Bakehausen, 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, 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. MIIC will provide insights into our second quarter performance as well as our in-market performance by division. Please recall that effective first quarter fiscal 25, 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. As we noted in this morning's press release, the company's guidance does not reflect any impact from the imposition of import tariffs by the U.S. and potential retaliatory actions taken by other countries as the tariff and trade environments are rapidly evolving at this time. 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. And now it is my pleasure to turn it over to Mick Bakehausen, our new Chief Executive Officer. Mick?

Thanks, Rebecca. Good morning, everyone. Before I review our Q2 results, I want to start by expressing how honored and energized I am to lead the Campbell's team as CEO and accelerate the strategy that has been fueling our performance. Having helped shape Campbell's strategy, since joining the company in 2019, most recently as president in our Meals & Beverages division, I'm committed to building upon the strong foundation we have in place. That starts with our talented people who are engaged, accountable, and committed to winning. We have the best portfolio in the industry with category-leading brands in both divisions. These brands are important to our customers and highly relevant to our consumers. I am confident that we are well-prepared to deliver top-tier performance. Similar to the first quarter, our Q2 earnings performance was in line with our expectations despite the dynamic operating environment. Unfortunately, the anticipated recovery of some of our snacks categories did not materialize during the quarter, and as a result, our top line was slightly below expectations. We continued to invest behind our brands, resulting in good overall in-market results with an aggregate stable market share. Ten out of our 16 leadership brands grew or held share in the quarter, a testament of the overall strength of our leadership brand portfolio. Going into the second half of the year, we are focused on maintaining the momentum within our meals and beverages division, while in our snacks division, we are focused on successful innovation, select brand support, and price-back architecture to meet consumer needs. From an operational perspective, we continued to make substantial progress on the Sovel's integration and advanced various cost savings initiatives throughout the organization. On the flip side, our snacks margin fell short of our expectations, driven by unfavorable mix and some operational headwinds in our fresh bakery business during the important holiday period. We are actively addressing both areas and, combined with a normalization of our commercial support, we expect our snacks margin to improve sequentially throughout the second half of the fiscal year. As reported in our press release this morning, we updated our full-year guidance to reflect the slower-than-anticipated recovery of our snacking categories, impacting the outlook for our second half. We are committed to investing in our brand portfolio while accelerating certain cost savings initiatives to manage through the current consumer environment. We expect organic net sales to be in the range of down 2% to flat, adjusted EBIT of plus 3% to plus 5%, and an adjusted EPS range of 295 to 305. Kerry will provide more details in a moment. This updated guidance does not reflect any impact on our business from tariffs or other regulatory changes. This is a fluid situation, and we are working through mitigation plans for a variety of scenarios. Overall, we have work to do, but I feel confident in our plans for the second half. We have a strong brand portfolio supported by great talent that's focused on delivering results by partnering with our customers and meeting consumer needs. Now let's turn to key highlights from our second quarter results. Turning to slide six, we delivered 9% growth in net sales, reflecting the contribution from Sovos. Organic net sales were down 2%, driven by relatively consistent performance within meals and beverages, and weaker than anticipated snacking categories amid a competitive environment. Importantly, volumes in the second quarter remained flat. marking the fourth consecutive quarter of flat or increasing volume for the total enterprise. Adjusted EBIT increased 2% first prior year and adjusted EPS was 74 cents. The service acquisition was slightly accretive to adjusted EPS in the quarter. Turning to slide seven. In Q2, we saw stable performance with total company leadership brands flat on consumption while the majority grew or held share. As a reminder, our leadership brands represent approximately 90% of our enterprise net sales. Our meals and beverages leadership brands continue to demonstrate their strength, with dollar consumption up 1%. Seven of eight leadership brands grew or held share in the second quarter, and although Swanson's broad consumption continued to grow during the quarter, the modest share decline was driven by the anticipated private label recovery. In snacks, we made progress versus Q1 from a share perspective in a couple of key areas, such as Pepperidge Farm cookies and, although still down year over year, Snyder's of Hanover pretzels. Similar to the first quarter, total snacks consumption for our leadership brands was down about 1%. We have a strong differentiated portfolio of brands within our snacks division, and while we need to continue to evolve with the consumer, they provide a strong foundation for long-term growth. As shown on the next page, consumers continue to turn to some of our key brands during the holidays, driven by strong in-market support, including our successful site season cooking and holiday cooking campaigns. Although dollar consumption for our holiday-focused brands was flat during the period, dollar share increased by 30 basis points. Specifically, our Campbell's condensed cooking products had a successful holiday season, growing both dollar and volume share, as well as volume consumption. The broth category was a top three driver of food growth during the holiday period, and Swanson and Pacific broth grew consumption with share declines driven by the anticipated private label recovery. As planned, we made significant investments in our snacks brands to drive loyalty and win this important period. While both the bakery and cookie categories were soft, Pepperidge Farm, one of our $3 billion brands, delivered strong holiday performance, outperforming categories via innovation and best-in-class execution across both cookies and stuffing. Turning to our meals and beverages division on slide nine, organic net sales declined 1% for the quarter, with continued volume and mixed growth of 1%, which was consistent with the first quarter. On a pro forma basis, With the addition of Sovos brands, meals and beverages organic net sales were flat, with in-market dollar consumption increasing 1%. During the second quarter, we experienced a supplier disruption related to SpaghettiOs, which contributed a one-point decline to organic net sales. Turning to slide 10, our soup portfolio continued to benefit from increased at-home cooking activity, leading to growth in both condensed cooking and broth. However, eating soup categories, both within condensed eating and ready-to-serve, were slightly weaker. That being said, we marked our fifth consecutive quarter of volume share growth in Campbell's total wet soup, including rails. Campbell's condensed segment maintained its positive trajectory, continuing to gain share driven by strong performance of our cooking portfolio used in meal prep, especially during the holiday season, and strong household penetration growth. We have a broad and strong RTS portfolio with Chunky, Pacific, and Rails, all of which performed well in the quarter, gaining or holding share. This was offset by pressure in our RTS convenience portfolio and about a point of share headwind related to the delisting of our Wellyash brand. In broad, we benefited from continued category growth, particularly as private label has not yet fully recovered. We expect private label to continue to recover throughout the remainder of the year, resulting in slight share pressure in the second half. However, if category growth continues and private label recovery remains slow, we are well positioned to meet increasing consumer demand with the strength of our supply chain network. With the number one and number two category leaders, Campbell's total Italian sauce portfolio, shown on slide 11, outpaced the category in Q2, with dollar consumption of plus 5% and a share gain of 1.4 points. With Prego and Rails, we have two of the best positioned brands in Italian sauce, both of which are performing well against their roles in our portfolio. Starting with Prego, we saw steady growth both in dollars and volume consumption, and we grew dollar share by 20 basis points in the second quarter. Prego grew household penetration in the second quarter year-over-year, with growth across all generational cohorts. Our Ultra-Distinctive Real Sauce continued to outpace the Italian Sauce category, resulting in 1.3 points of share gain in the quarter. The first quarter of fiscal 25 benefited from a shift in promotional timing. specifically in the club channel. On a first-half basis, consumption increased by 11% and share was up 1.5 share points. This strong performance reinforces the strategic rationale for the acquisition and is a proof point of the successful integration of Sovos. Turning to slide 12, RailSauce delivered high single-digit net sales growth in the second quarter and low teens growth for the first half. We continue to expect pro forma year over year growth in fiscal 25 to be slightly above 10%. Over the long term, consistent with what we shared at Invest Today, we expect Rails to grow in the mid single to high single digits range. Rails brand equity remains exceptionally strong in terms of key metrics, awareness, household penetration, repeat, and loyalty. What's particularly exciting is the substantial runway for expansion. Despite leading the ultra-distinctive Italian sauce category in dollar share, Rails currently reaches only half as many households as our Prego brand and maintains just 60% of Prego's product assortment. We're accelerating Rails brand awareness initiatives and expanding our innovation pipeline, having launched 10 new sauce products in the last year. You may have seen the latest activation which brings consumers along the RAOS homemade journey to experience what makes each jar of RAOS so special and is a major point of difference from our competitors in the ultra-distinctive space. Millennial household adoption continue to surge at more than twice the category pace, reinforcing our conviction in RAOS long-term growth. The compelling value proposition of RAOS compared to mainstream Italian takeout continues to fuel incremental growth, allowing the brand to source volume from a significantly larger addressable market across a broad range of consumer income levels. With our strategic growth initiatives firmly in place, we remain confident in Rails becoming our next $1 billion brand. Now let's turn to our Snacks portfolio. As previously mentioned, we delivered some encouraging in-market progress in key brands, particularly during the holidays. However, The anticipated category recovery did not materialize, resulting in organic net sales decline of 3%. About half of that came from our planned reduction in partner and contract brands. A key driver for overall performance was the 1% decline in consumption of our leadership brands, which was consistent with our performance in Q1. Although Kerry will go through the details in a moment, I would like to talk about our snacks margin for a minute. The margin for our snacks business was down 370 basis points year-over-year. About half was driven by a planned increase in commercial investment to support incremental promotional activity and marketing during the holiday season. The remainder was from short-term operational supply chain headwinds, particularly in our fresh bakery network that resulted in increased manufacturing and logistics costs to maintain service levels during the holidays, an unfavorable mix. We are proactively addressing our snacks margin and anticipate a recovery in Q3 with a gradual improvement throughout the second half of the fiscal year. In fact, we are starting to lap more normalized promotional and marketing activity, and we are already seeing improvements from a supply chain perspective. Our Pepperidge Farm bakery business continued its in-market momentum for previous quarters as we maintained our overall share position. Additionally, We made sequential share progress on our Pepperidge Farm Cookies business, driven by the holiday activation. Within the Deli aisle, Snack Factory held share despite category headwinds. We continue to be excited about Snack Factory expanding into the Snack aisle with Pop'ems and Bites, our unique munchable and big flavor innovations that will now sit alongside Snyder's of Hanover Distinct platforms. In salty snacks, our brands hold leading positions in attractive segments that are growing much faster than the total chips categories. Although new entrants and stepped-up promotions are putting pressure on shares, we have plans in place to continue to strengthen our position. In crackers, lends continue to expand share and grow consumption. Within Goldfish, we experience weaker category performance and increased competitive promotional activity. Going into the second half of this fiscal year, we have integrated plans in place to support our Goldfish brand with a focus on innovation, marketing support, and price-back architecture initiatives. Our snacking categories are attractive and resilient, and we are well positioned with an advantage portfolio of relevant leadership brands. We have confidence in the action plans we have in place to improve our in-market performance and build momentum in the second half of the year. starting with a robust innovation pipeline to deliver against consumer macro trends, including better-for-you choices with products like Kettle Brand chips made with avocado oil. We're driving innovation and differentiation with new Goldfish LTOs, such as Harry Potter Butterbeer Grahams and other differentiated flavors. We are also strategically expanding accessibility and enhanced value across our snacks portfolio by introducing new pack sizes and price points that provide consumers more choices for their favorite snacks, from Pepperidge Farm Jasmine and Mini Nantucket Cookies in single-serve multi-packs to Goldfish in small-size packs, offering an attractive opening price point. Overall, I'm excited about the opportunities within our snacks portfolio. Before I turn it over to Kerry, I want to highlight our core focus areas as we move into the second half of fiscal 25. We plan to continue to invest to support the long-term growth of our 16 leadership brands through highly relevant, compelling innovation and marketing to drive excitement, awareness, and volume. In our Snacks division, we continue to stay focused on navigating consumer and competitive category dynamics. Specifically, in the second half, we are focused on select brand support, successful innovation launches, and some price-backed architecture to stabilize our top line by the fourth quarter while we sequentially improve our snacks margin. In meals and beverages, we're focused on maintaining the at-home cooking momentum throughout our portfolio, which includes managing our broth business as we expect private label supply to continue to recover. Additionally, we are focused on sustaining rails growth by driving brand awareness and innovation while we complete the integration. Across the company, we are intensifying our efforts to improve efficiency and effectiveness to support top-line growth and maintain a healthy margin profile. As mentioned, addressing margin performance in our snacks division is a top priority. Finally, we remain steadfast in our disciplined capital allocation strategy, ensuring we balance growth investments with shareholder returns as we navigate the dynamic consumer environment. With that, let me turn it over to Kerry to go over the Q2 results and our updated guidance in more detail.