Campbell Soup Company

Good morning and welcome to the Campbell's Company third 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 Third Quarter Fiscal 2025 Earnings Conference Call. I'm Rebecca Gardy, Campbell's Chief Industrial Relations Officer. Joining me today are Mick Bakehausen, 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 presentation, a transcript of management's prepared remarks, 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 two outlines today's agenda. Mick will provide insights into our third quarter performance as well as our in-market performance by division. Please recall that effective first quarter fiscal 25, we are using Sercana 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. 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's my pleasure to turn it over to Chief Executive Officer Mick Bakehausen. Mick?

Thanks, Rebecca, and good morning, everyone. Our third quarter earnings performance exceeded expectations, driven by solid contributions from our meals and beverages business due to strong in-market performance and a benefit from favorable shipment timing, which we expect to normalize in the fourth quarter. The performance of our snacks business was mixed this quarter, reflecting continued category softness and an increasingly competitive environment. That said, we have an attractive snacking portfolio with a clear right to win, and we have been refining our plans to improve our in-market performance. In the current dynamic macro environment, consumers are making thoughtful spending decisions which is materializing in our categories. Consumers continue to cook at home and focus their spending on products that help them stretch their food budgets, and they're increasingly intentional about their discretionary snack purchases. These behaviors supported growth in our meals and beverages categories and increased headwinds in our snacking categories. Collectively, our 16 leadership brands' in-market performance was in line with overall category consumption, with meals and beverages consumption ahead of categories and snacks behind, driven by heightened competitive pressures. Given our performance year to date, we are reaffirming our full year fiscal 2025 guidance ranges. That said, we now expect adjusted earnings to be at the low end of the guidance range due to the slower than anticipated recovery in the snacks business. Consistent with what we said during our last earnings call and given the fluid operating environment, This guidance excludes any impact from the imposition of import tariffs towards government and potential retaliatory actions taken by other countries, as the trade environment remains uncertain. We have separately estimated the fiscal 25 tariff impact, which Kerry will talk through in a few moments. We remain focused on near-term in-market execution and mitigating tariff impact while investing in our brands, leveraging our skill for growth, elevating senior leaders to key roles, and advancing critical capabilities for long-term value creation. Now let's turn to key highlights from our third quarter results on slide six. Organic net sales growth of 1% was driven by volume growth, marking five consecutive quarters of flat or positive volume across the enterprise. Organic net sales growth was ahead of in-market consumption driven by timing of shipments, which we expect to normalize in Q4. The organic net sales growth was led by our meals and beverages division, which more than outweighed the ongoing pressure in our snacks business. It's important to note that the Sovos acquisition moved into organic net sales in the middle of the third quarter. We delivered 4% net sales growth, reflecting the before-mentioned organic net sales growth, and contribution from rails during the first half of the third quarter. Adjusted EBIT increased 2% versus prior year, which resulted in a slight margin decrease as lower net pricing realization was only partially offset by spending reductions. Adjusted EPS was down 3% with a net positive EPS contribution from the service acquisition in the quarter. Turning to slide seven, the in-market contribution of our 16 leadership brands representing approximately 90% of total net sales, remained stable in the third quarter, with more than half holding or gaining share. As we mentioned last quarter, we started to see consumer sentiment softening in January. This continued throughout Q3, with consumers making more deliberate choices with their spending on food. A key outcome is a growing preference for home-cooked meals. leading to the highest levels of meals prepared at home since early 2020. Additionally, consumers are favoring ingredients that help stretch tighter food budgets. Both provided a tailwind for our meals and beverages business, especially for our condensed cooking soups, broth, and Italian sauces. As a result, our meals and beverages leadership brands continued to outpace category consumption and grew dollar share by 0.4 points. Six of our eight meals and beverages leadership brands grew or held share in the third quarter. In total, meals and beverages leadership brand consumption increased by 2% in the quarter. Conversely, the consumer environment was a continued headwind in the quarter for some of our more discretionary categories in snacks, such as crackers and chips. However, while value is important, consumers favor better-for-you segments and are willing to selectively splurge when the benefits are clearly worth it, as evident by the momentum of some of our recent innovation launches. In snacks, three of our eight leadership brands grew or held share, beverage, farm, bakery, and cookies brands held share, partially driven by our successful innovation, snack factory with a presence in both the deli and snack aisles now grew share by almost half a point, and our land sandwich crackers maintained momentum with a second consecutive quarter of share growth. Given the category trends and aggregate share headwinds, our overall snacks leadership brand consumption declined by 3% in the quarter. We remain confident in the strength and long-term growth potential of our snacks brands, and the plans we have to stabilize share while navigating the dynamic operating environment. Let's take a closer look at each division, beginning with meals and beverages on slide eight. Organic net sales increased 6% for the quarter, led by volume and mixed growth of 7%. Specifically, organic net sales increased year over year due to consumption growth of 2% and timing of customer shipments in our base business at the end of the quarter, as well as rails. in connection with the implementation of our existing SAP Enterprise Resource Planning System for Sovol's brands. Turning to slide nine, our soup portfolio continued its strong performance in Q3, benefiting from the increased at-home cooking trend I mentioned earlier. Campbell's Total Wet Soup grew dollar share by 0.4 points and saw the sixth consecutive quarter of volume share growth driven by household gains, particularly among younger cohorts as they increasingly cook at home. The broth category has grown since 2020, and more recently, further accelerated, fueled by the uptick in cooking behavior, making our broth business a continued bright spot within the portfolio. In Q3, we significantly outpaced category consumption and grew dollar share by nearly three points in the quarter. Swanson, saw strong consumption and volume growth and has now gained or held millennial households for seven consecutive quarters. Our strong performance in the broad category is further emphasized by Pacific's continued double-digit consumption growth. The pace of the private label recovery has been slower than we originally anticipated, though we expect it to continue to recover. Our supply chain team has done an outstanding job of meeting customer demand in the face of private label supply constraints, and we are confident in our ability to continue to do so. Our ready-to-serve in-market consumption declines were driven by increased competitive promotional intensity and our discontinuation of our WellYes brand. Our Chunky, Pacific, Rails, and Homestyle brands all gained share in the quarter. Finally, our condensed portfolio continued its strong performance during the quarter, with a sixth consecutive quarter of dollar share growth and increases in both dollar and volume consumption. Our brands outperformed the segment and grew share partially driven by the successful mac and cheese activation. In the current economic environment, we are constantly looking to provide consumers with exciting new options that let them use our products in more versatile ways to cook meals at home. A great example of that is our mac and cheese marketing activation. In the third quarter, we introduced a new, easy, and delicious way to make this household classic. This activation helped drive the 11th consecutive quarter of condensed cooking soup share growth and added approximately one million households to Campbell's condensed cooking portfolio, the highest household penetration gains for condensed in any quarter over the past four years. More than half of these new buyers were millennials, displaying the brand's growing popularity with this generation. This is a great example of our purpose at work, connecting people through food they love, and demonstrates the growth we can unlock by continuing to highlight the versatility of our condensed soups in making delicious, affordable, and stretchable meals. Year over year, the Italian sauce category grew roughly two points in Q3 and was relatively stable to Q2. Prego trailed dollar consumption for Q3, largely due to a shift in the timing of promotional activity. However, on the Q3 year-to-date basis, Prego consumption was more in line with the Italian sauce category and well ahead on share when excluding the ultra-distinctive segment. Rails' dollar consumption growth in Q3 was in line with the overall category, but underperformed our initial expectations. The main drivers of the lower-than-expected rail SaaS growth in Q3 can be attributed to a couple of points of headwind from certain prior year promotional events we decided not to repeat this quarter because they were below our premium price guardrails. combined with slightly increased consumer spending sensitivity and increased competitive promotional activity. That said, the Rails brand remains strong, and we still have significant opportunities to increase distribution, household penetration, and awareness of Rails when comparing it to Prego. While we have made considerable progress growing the brand since acquiring it last year, there is still a significant opportunity ahead. We have a history of category growth and leadership, and believe that the distinctive premium nature of Rao's sauces will allow us to continue that success. Rao's sauce is reaching a point of maturity on core distribution, so we're investing in other levers to sustain growth, including marketing focused on highlighting the Italian origin of Rao's ingredients, continued innovation, and sharpened sales execution. Now let's turn to our snacks business on slide 13. In the third quarter, the pressure on snacking categories increased sequentially, which combined with heightened competitive activity resulted in year-over-year 3% lower in market consumption. Organic net sales declined by 5%, driven by lower volume and mix. The bulk of the two-point variance to consumption was driven by partners slash contract brands as we continue to reshape our portfolio to focus more on our differentiated leadership brands. Turning to slide 14, you can see how our snacks portfolio performed relative to each respective snacking category and key brand specific action plans to navigate the current landscape. In bakery and cookies, we outperformed. category consumption through sustained momentum in Pepperidge Farm fresh bakery and cookies, resulting in stable in-market consumption. Coming off a successful winter holiday, we elevated innovation and unlocked growth by giving consumers the indulgences they are looking for. In pretzels, consumption grew in the quarter in the salty aisle, although at lower levels than the broader category. We are meeting consumer needs through two distinct brands, Snyder's of Hanover for pretzel traditionalists and Snack Factory, which reimagines pretzels. On Snyder's of Hanover, we continue to proactively manage our assortment to higher performing items and invest in expanding convenient portion controlled packs. But this was not enough to offset the category competitive pressures. With Snack Factory, we are pleased with the results of its expansion into the salty snack aisle, including the successful launch of Pop-Ums and Bites, which have garnered strong repeat purchases. We expect this momentum to fuel consumption for our pretzels portfolio. In crackers, reduced overall consumer sentiment has put pressure on the category. The outsized consumption decline for our business was partially driven by lapping the significantly supported Goldfish crisps launch in the prior year, which peaked in Q3. While there were bright spots within Goldfish, especially related to the Harry Potter Butterbeer limited time offering, we have more work to do to reinvigorate this brand and get it back on its historical growth trajectory. We plan to focus on core relevancy through marketing support, strategic promotional activity, and the critical back-to-school season. Finally, our CHIPS portfolio is well positioned but continues to face strong competitive pressures. We have seen positive consumer and customer response to our product innovation and have increased household penetration, through some of our better-for-you offerings, such as Kettle brand avocado oil and air-fried options. And while in-market consumption fell short of our expectations compared to the narrower KettleCook chip segment, it was in line with the broader chip category. We have specific plans to drive incremental volume growth through optimized distribution, promotion, and continued limited-edition innovation ahead of the all-important summer chip season. Moving to slide 15, we are pleased to share the latest results in our efforts to reignite Pepperidge Farm, one of our billion-dollar brands. In Q3, our Pepperidge Farm bakery business delivered the highest volume in dollar share growth in nine quarters, driven by the Farmhouse Brioche platform. This platform now includes delicious items in sandwich bread, buns and rolls, and swirl breakfast bread. Growth in our Pepperidge Farm cookies business is coming from Milano cookies, which had the strongest household penetration gains in nine quarters in Q3, driven by the Milano white chocolate platform launch. This has helped fuel the core Milano brand, attract a younger demographic, maintain its trajectory coming out of the winter holiday, and resulted in strong dollar and volume growth. Other Milano innovation included the on-trend limited edition, Caramel Cafe au Lait and the return of the popular London Fog variety. We are excited about the recent results and additional upcoming opportunities to innovate and provide consumers with the touch of premium indulgence that they seek from our bakery and cookies portfolio. Before I turn it over to Kerry, I want to thank the entire Campbell's team for their focus on delivering solid Q3 results in such a dynamic operating environment. Our meals and beverage division had strong in-market performance fueled by growing consumer demand for home cooking. Our snacks results were mixed as consumers are being more intentional with discretionary dollars and the categories are increasingly competitive. We recognize that we need to continue to sharpen our execution to win in the marketplace and drive future growth. As we look to the fourth quarter, we will continue to navigate the current environment and stay focused on near-term in-market execution while we actively work to mitigate as much of the potential direct impact of tariffs as possible. These dynamics are also pushing us to focus on what matters most to our customers and consumers and invest in the capabilities that will position us for long-term growth. We are building a stronger foundation for the future by improving our efficiency and effectiveness across the organization to facilitate growth. With the creation of the Growth Office supporting both divisions, we are taking advantage of our skill while we elevate the focus on growth across the organization. The growth office will elevate capabilities within consumer insights, brand activation, innovation, and revenue growth management. Additionally, we have hired a chief digital and technology officer to accelerate digital tools and capabilities to improve our efficiency and effectiveness. Finally, we remain focused on identifying incremental productivity and cost savings opportunities to create more fuel to invest in our brands. All told, our focus remains firmly on disciplined, short-term execution as we lay the groundwork for consistent, sustainable growth. Let me turn it over to Carrie to go over the Q3 results in more detail.