Campbell Soup Company (CPB) — Q4 2018 Earnings Call Transcript

Thank you. Good morning, everyone. Welcome to the Campbell’s fourth quarter and full year fiscal 2018 earnings call. As usual, we have created slides to accompany our earnings presentation. You will find the slides posted on our website this morning at investor.campbellsoupcompany.com. This call is open to the media who will participate in a listen-only mode. 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 2 or our SEC filings for a list of factors that could cause our actual results to vary materially from those anticipated in forward-looking statements. Because we use non-GAAP measures, we have provided a reconciliation of these measures to the most directly comparable GAAP measure, which is included in our appendix. With that, I will turn the call over to Keith McLoughlin, Interim President and CEO. Keith?

Thanks, Ken, and good morning, everyone. Today, we will walk through our fourth quarter and full year results, cover the actions we are taking as a result of our comprehensive board-led strategy and portfolio review, and provide fiscal 2019 guidance and our updated long-term targets. Anthony will first handle the financial details of the quarter and the fiscal year, and then I will provide an in-depth review of the significant strategic actions we have planned. Before I turn it over to Anthony, let me share some high-level thoughts on what we announced on our press releases this morning. It was a tough end to a difficult year. In the three months since I assumed my role as Interim CEO and delved into operations with the new management team, it’s abundantly clear to me that the company needs greater focus and discipline. We have to run Campbell with a much tougher set of operating and financial standards. Despite our execution challenges, during the year we completed the acquisition of Snyder’s-Lance, the largest transaction in the company’s history, which expands and strengthens our position in the growing snacks category. We also added Pacific Foods, a leader in organic soups and broths through our company. Both acquisitions bring valuable and growing brands that align with and complement our core capabilities and create a more focused portfolio. On top of these transactions, we continue to deliver against our multiyear cost-saving programs. The results we delivered in fiscal 2018 along with our outlook for fiscal 2019 reinforce the rationale for why we undertook the strategy and portfolio review in the first place and the need for the significant actions we are taking to turn the company around. There are three critical action steps coming out of the review. First, Campbell must become a more focused company; second, to accelerate this focus, we need to divest certain non-core businesses and use the proceeds to significantly pay down debt and strengthen our balance sheet; and third, we must further reduce cost and increase our asset efficiency to reflect a leaner, more focused, and agile enterprise we are building. These actions are designed to return the company to long-term organic sales and earnings growth. I will cover all of this and more in greater detail shortly. I want to emphasize that the actions we announced today are the right moves at this time to create shareholder value. The board and management team are committed to de-leveraging the company, maintaining our investment grade credit rating, and rewarding our shareholders through dividends. The board also remains open and committed to evaluating all strategic options if they can demonstrably enhance value. With that, let me turn the call over to Anthony to cover our financial results.

Thanks, Keith. Before getting into the details, I will make a few comments on our performance. Our results for the quarter were in line with our recent guidance despite having to overcome the impact of the voluntary recall of flavor-blasted Goldfish, which we announced in July. In the fourth quarter, the recall had a negative impact of approximately $0.04 on adjusted EPS and is expected to have some continuing impact in the first quarter of fiscal 2019. We are pleased with the performance of Snyder’s-Lance, which exceeded our expectations and helped to offset the impact of the recall. As you will see, in this non-seasonal quarter, sales of U.S. soup declined by double digits. The decline reflects the continuing impact of our performance with our key customer, increased competitive activity, and reductions in promotional activity across the rest of the market. We are now in the process of implementing our pricing and promotional programs for the upcoming soup season, and as we resolve the issues from last year, we expect trends in this business to improve. We have continued our success in delivering against our cost savings target. In the quarter, we generated an incremental $30 million in savings on the base Campbell program, bringing the year-to-date total to $95 million and the program to-date total to $420 million. Keith will talk about our plans to expand this program going forward. Lastly, Keith will also share the results of our strategy and portfolio review and the actions we plan to take starting in 2019. As we have stated before, 2019 will be a transition year and I will review our guidance in detail. From that new 2019 base, we will be well-positioned to deliver sustainable sales and earnings growth. I will now review our detailed results. For the fourth quarter, net sales on an as-reported basis increased 33% to $2.219 billion. Excluding a 36-point benefit from the acquisitions of Snyder’s-Lance and Pacific Foods, organic net sales declined 3%, reflecting declines in Americas Simple Meals and Beverages, and reflect about a one-point negative impact attributable to the Goldfish recall. Adjusted EBIT in the quarter was comparable to the prior year at $281 million. Excluding the impact of the Snyder’s-Lance and Pacific Foods acquisitions, adjusted EBIT declined 16%, also due to declines in the Americas Simple Meals and Beverages segment. Adjusted EPS decreased 52% or $0.27 to $0.25 per share reflecting the EBIT decline ex-acquisitions, and the negative timing impact on the tax rate which we discussed last quarter. Overall, our EPS results were in line with our expectations. For the full year as reported, net sales increased 10% and organic net sales declined by 2% compared to the prior year. Adjusted EBIT declined 6% to $1.408 billion. Excluding the impact of the recent acquisitions, adjusted EBIT decreased 10% and adjusted EPS of $2.87 was down 6%. Breaking down our sales performance for the quarter, organic net sales declined 3% driven by lower volume and increased sales allowances and promotional spending. The recall of Goldfish crackers had a one-point negative impact on organic sales in the quarter. Lower volumes were primarily the result of declines in our U.S. soup business. The increase in sales allowances negatively impacted total company sales by approximately one percentage point inclusive of costs associated with the voluntary recall of flavor-blasted Goldfish crackers. Overall, promotional spending rates increased in Americas Simple Meals and Beverages driven by U.S. soup and in Global Biscuits and Snacks reflecting increased spending behind Arnott’s biscuits in Australia. There was no impact on sales from currency translation this quarter. The recent additions of Snyder’s-Lance and Pacific Foods to the portfolio added 36 percentage points bringing our as-reported sales increase to 33%. Our adjusted gross margin percentage decreased 5.6 points in the quarter. Excluding the dilutive impact from the acquisitions of Snyder’s-Lance and Pacific Foods, our adjusted gross margin percentage declined 2.6 points. While the acquisitions are reducing our overall margins as we add them to the portfolio, we are confident that the margins on these businesses will increase significantly over time as we integrate them into Campbell and achieve targeted cost and synergy savings. Cost inflation and other factors had a negative impact of 270 basis points, a majority of which was cost inflation, which on a rate basis increased approximately 4%, reflecting higher prices on dairy, meat, steel cans and resins, as well as the continuing escalation of transportation and logistics costs. The balance of the decline was driven by losses on open commodity contracts compared to gains in the year-ago quarter and costs associated with the voluntary recall of flavor-blasted Goldfish crackers. These negative drivers were partly offset by benefits from our cost savings initiatives. Portfolio mix had a negative impact of 70 basis points. The higher promotional spending in Americas Simple Meals and Beverages and Global Biscuits and Snacks that I previously mentioned had a negative impact of 50 basis points. Pricing had a negative impact of 40 basis points reflecting higher customer returns and allowances due in part to the voluntary product recall. Lastly, our supply chain productivity program, which is incremental to our cost savings program, contributed 170 basis points of margin improvement. Overall, the recall on Goldfish had a 70 basis point negative impact on gross margin. All in all, our adjusted gross margin percentage decreased to 30.6%. Adjusted marketing and selling expenses increased 28% in the quarter due primarily to the impact of recent acquisitions. Adjusted administrative expenses increased 22% to $151 million also due primarily to the impact of recent acquisitions. Excluding the impact of acquisitions, adjusted administrative expenses were comparable to the prior year as consulting costs incurred in connection with the board-led strategic review and increased benefit costs were offset by lower incentive compensation expenses. For additional perspective on our performance, this chart breaks down our adjusted EPS change between our operating performance and below-the-line items. Adjusted EPS decreased $0.27 from $0.52 in the prior year quarter to $0.25 per share in the current quarter. Overall, adjusted EBIT had no impact on EPS as the addition of Snyder’s-Lance was offset by lower EBIT on the balance of the business. Adjusted net interest expense increased by $64 million, a $0.13 negative impact to EPS driven by an increase in the debt level to fund our recent acquisitions and reflecting the impact of higher interest rates. Our adjusted EPS decline also reflects $0.13 from a higher adjusted effective tax rate. Our adjusted effective tax rate in the quarter increased by about 22 percentage points to 59% as the timing of tax expense on an adjusted basis was negatively impacted by the impairment charges taken in the prior quarter. Lastly, benefiting from share repurchases in prior periods, a lower share count added a $0.01 benefit to EPS completing the bridge to $0.25 per share. Although not shown on the chart, the Snyder’s-Lance and Pacific Foods acquisitions in aggregate had a negative EPS impact of approximately $0.04. As I mentioned earlier, the performance of Snyder’s-Lance exceeded our expectations in the quarter. Now, turning to our segment results, in Americas Simple Meals and Beverages, organic sales declined 6% driven primarily by declines in U.S. soup and in Canada. Excluding the benefit of the acquisition of Pacific Foods, sales of U.S. soup declined 14% reflecting declines in condensed, ready-to-serve and broth. The decline reflects the continuing impact of our performance with a key customer, increased competitive activity and reductions in promotional activity across the balance of the market. As I mentioned promotional programs for the upcoming soup season are currently being implemented, which we expect will improve our sales trends as we move through fiscal 2019. We are seeing improvement in our V8 Vegetable Juice business, which delivered sales comparable to last year with consumption gains in V8 Original and V8 Energy. Segment operating earnings declined 21% in the quarter to $155 million. The decline was primarily driven by a lower gross margin percentage. Segment gross margin performance continued to be impacted by escalating cost inflation including transportation and logistics costs, as well as from steel, meat, and vegetables. I want to mention that in connection with our annual testing of intangible assets, we have recorded an impairment charge on the carrying value of the Plum trademark of $0.14 per share in our as-reported EPS within corporate reflecting current performance which was below our expectations and a revised future outlook. Here is a look at U.S. wet soup category performance and our share results as measured by IRI. For the 52-week period ending July 29, 2018, the category continued to show growth increasing 40 basis points. However, our sales in measured channels including Pacific on a pro forma basis declined 3.5%. We had a 59% market share for the 52-week period, down 2.4 points from the year-ago period. Our consumption and share decline are attributable to our performance with a key customer, which we previously discussed. Private label grew share by 140 basis points primarily reflecting gains in broth finishing at 15.5%. All other branded players collectively had a share of 25.5%, increasing one point. In Global Biscuits and Snacks, sales were $1.202 billion in the quarter including $565 million from the acquisition of Snyder’s-Lance. Excluding the benefit of the acquisition, organic sales were comparable to the prior year and reflected a 2-point negative impact on segment sales from the voluntary product recall of flavor-blasted Goldfish crackers. Segment operating earnings increased 42% to $158 million, primarily driven by the addition of Snyder’s-Lance to the portfolio. Excluding the 45-point benefit from the acquisition, segment earnings declined slightly reflecting lower gross margin performance, partly offset by lower marketing and selling expenses and lower administrative expenses. Excluding the Goldfish recall, which had a 14-point negative impact, operating earnings ex-acquisition increased double digits. In the Campbell Fresh segment, organic sales increased 1% to $228 million driven by gains in Garden Fresh Gourmet and carrot ingredients. This segment had an operating loss of $7 million in the quarter compared to a loss of $8 million in the prior year. On a company-wide basis, cash from operations increased slightly to $1.305 billion compared to $1.291 billion in 2017 as reductions in working capital were partly offset by lower cash earnings. Capital expenditures were $407 million, $69 million higher than the prior year reflecting investments to support our cost savings initiatives as well as the addition of Snyder’s-Lance and Pacific Foods to the portfolio. We paid dividends totaling $426 million compared to $420 million in 2017. In aggregate, we repurchased $86 million of shares on a year-to-date basis, $75 million of which were under our strategic share repurchase program. The balance of repurchases were made to offset dilution from equity-based compensation. As previously announced, we suspended our share repurchases following the acquisition of Snyder’s-Lance. Net debt of $9.7 billion is up from $3.2 billion a year ago reflecting the impact of the $6.1 billion acquisition of Snyder’s-Lance and the $700 million acquisition of Pacific Foods, partly offset by positive cash flow from the base business. As we have stated, we plan to use the proceeds from the divestitures to pay down debt and reduce our leverage ratios. Now I will turn it back to Keith.

Thanks, Anthony. On our third quarter earnings call, we announced that Campbell would be undertaking a comprehensive board-led strategy and portfolio review to develop a path forward for the company that maximizes shareholder value. This morning, we announced the initial set of significant actions to help us improve Campbell’s performance and create economic value. Before discussing the details of the review in depth, let me first provide an overview of the process we undertook. The board engaged outside advisors to conduct a thorough and objective review of the company and provide a fresh and unbiased assessment of our strengths, weaknesses, strategy, and execution. One of the first steps we took was to examine the factors that led to our performance and execution challenges. It’s important for me to articulate these so that our shareholders can hear how we plan to correct them and improve our results going forward. Simply put, we lost focus. We lost focus strategically. We had too many initiatives that made the company unnecessarily complex. We are in the food business and the ag business. We had growth businesses and we had cash businesses. We were focused on startup businesses and venture capital investing. We aggressively pursued the important consumer mega-trend of health and well-being without having clarity on our source of uniqueness or whether we brought a competitive advantage to the space and we depended too much on M&A to shape our business strategy. We lost focus within our products and brands. We did not manage our portfolio in a differentiated manner. We pushed cash businesses for growth and we underfunded growth businesses. Our resource and capital allocation discipline was inadequate, and we didn’t properly align our resources with our core business franchises where we have strong market positions, unique capabilities, and the right to win. Lastly, we lost focus in process and execution. Our management processes lacked the necessary operating discipline. We created too many silos throughout the company, where decision rights were unclear. We lacked agility and we were slow to react to customer needs. And finally, we didn’t have a culture of accountability, which led to poor execution. To round out this picture, we also faced industry-wide headwinds such as shifting consumer trends, our dynamic and changing retail environment, and more recently, significant cost inflation, all of which weighed on our performance. In addition to understanding these challenges, the review also highlighted several of Campbell’s strengths which we will build upon going forward. These strengths are indeed enviable. We possess iconic brands with strong market positions. We have scale and market competencies within our core CPG categories, the majority of which are in growing segments. We have strong supply chain and manufacturing capabilities, where we have a heritage of making great-tasting, real food that is both affordable and convenient. We know how to reduce costs and have consistently delivered our cost-saving programs ahead of schedule. We have solid margins and cash flow generation. And Campbell has a deep keel. As a 150-year-old company, we have talent, capability, and commitment that is both broad and deep. With greater focus, clarity, and alignment, our people can and will execute on our new direction. Going into the review, we recognized that meaningful changes were necessary. As I stated back in May, everything is on the table. We entered the review process with a completely open mind. And as we committed, the board together with our advisors considered a full slate of options, including optimizing our portfolio and divesting assets, splitting the company in two, or selling the entire company. After considerable analysis and evaluation, the board concluded that at this time, the best path forward to maximize shareholder value is to optimize the portfolio and divest certain assets. We will focus our portfolio on two core distinct businesses within the North American market, Campbell Snacks and Campbell Meals and Beverages, where we would be able to leverage our iconic brands and leading market positions. To accelerate this focus, we are pursuing significant divestitures. In addition, we are increasing our cost savings by $150 million to reflect the leaner and more focused company that we need to become, and we are liberating an additional $350 million in cash through working capital efficiencies and more disciplined capital expenditures. Moving to the next slide, a major lever to drive our more focused portfolio is divesting non-core businesses. We are pursuing the sale of our Campbell international business, which includes Arnott’s and the Kelsen Group, and Campbell’s fresh business, which includes Bolthouse Farms, Garden Fresh Gourmet, and the refrigerated soup business. These proposed divestitures represent approximately $2.1 billion in net sales in fiscal year 2018. We have engaged top-tier financial advisors to run a disciplined process that will achieve maximum value. We intend to use the proceeds from these divestitures to significantly reduce debt and are targeting a pro forma EBITDA leverage ratio of 3.0x by fiscal year 2021. While these are great brands and solid businesses, they do not fit with our new strategic direction, and we believe they will be of greater value to new owners who are focused on these categories and geographies. I want to stress that we will continue to identify additional actions to further optimize our portfolio going forward. Turning to the next slide, the direction we have chosen will focus our portfolio on categories and geographies, where we have a right to win because of our demonstrated capabilities, scale, and expertise. It will drive absolute clarity and alignment throughout the enterprise and will improve our operational discipline by implementing a rigorous management model. While we are making significant changes, we remain committed to our purpose: real food that matters for life’s moments. It is the reason why we do what we do. Consumers continue to seek out delicious and affordable foods that are responsibly crafted with real recognizable ingredients. People want to know what’s in their food and how it’s made. A vision for Campbell is to be a leading focused snacks and simple meals company with a portfolio of best-in-class products and brands in our core North American market that generates sustainable value for our shareholders, our customers, and our consumers. We based this strategy on the strengths I reviewed at the outset. One of the reasons we chose to build our portfolio around Campbell Snacks and Campbell’s Meals and Beverages is the distinct competitive advantages and leadership positions we enjoy in both of these businesses. We benefit from high brand equity with consumers, strong product attributes, and enviable market positions. In fact, more than 95% of all U.S. households have a Campbell product in them. Campbell remains deeply committed to our strong heritage of delivering great-tasting, high-quality real food to consumers and leveraging consumer insights and trends, including health and well-being, snacking, and convenience. Increased focus and discipline are key tenets of our renewed strategy and as such we will manage our portfolio of brands based on two differentiated operating strategies. The first strategy applies to brand franchises that will be managed to drive profitable growth. The second applies to brand franchises that will be managed to maximize margins and cash flow. To drive profitable growth, we will seek to grow these large and exciting brands faster than the categories in which they compete. This will apply to brands such as Cape Cod, Goldfish, Kettle, Lance, Late July, Pepperidge Farm, Milano and Farmhouse Cookies, Pace, Pacific, Prego, and Snyder’s of Hanover. Investments in innovation and consumer engagement will enable these brands to leverage evolving consumer trends, drive growth, and fulfill their role in the Campbell portfolio. In fiscal 2018, these brand franchises represented 44% of our net sales on a pro forma basis. To maximize margins and cash flow, we will seek to generate consistent profit and cash flow from these at-scale brand franchises, including Campbell Soup, Pepperidge Farm fresh bakery, SpaghettiOs, and V8. Disciplined management focus and aligned investments will support their strong market positions to optimize operating margins and cash flow and to fulfill their equally important roles in Campbell’s portfolio. In fiscal 2018, these brand franchises represented 56% of our net sales on a pro forma basis. By differentiating our approach, we will be better able to allocate capital and resources and truly differentiate how we manage our brands. On the next few slides, we have outlined in further detail how we are going to manage our businesses going forward starting with Campbell Snacks. Our snacks business benefits from leading positions within large and attractive categories as you can see in this chart. Snacking is an industry and category that Campbell knows well, and we have a management team in place that has consistently delivered solid results within Pepperidge Farm. Within this business, we are, of course, spending an extraordinary amount of time and resources focused on the integration and value capture of Snyder’s-Lance. Given our new direction, the economic and strategic importance of this work cannot be overemphasized. Our strategic review process has allowed the team another deep dive into Snyder’s-Lance, and we are even more convinced of the growth prospects and synergies in our Campbell Snacks business. Our team is applying the hard lessons we have learned from previous acquisitions. We have established a robust governance structure, rigorous targets, and a disciplined system for tracking synergy goals. It’s early, but based on what I am seeing, I am confident in the results and the team’s ability to deliver the synergies and drive growth. Moving to Slide 24, I want to showcase how we are fueling expansion within the snacks business through our six power brands: Goldfish, Pepperidge Farm cookies, Snyder’s, Kettle and Cape Cod chips, and Late July. These brands will drive approximately 70% of our growth. Our plan builds upon a proven model that we have successfully deployed within Pepperidge Farm focused on consumer insights, meaningful innovation, and strong marketing to drive share gains. We are taking targeted action around each brand such as increasing manufacturing capacity and investing in innovation, marketing, and e-commerce to drive growth. We will focus nearly 80% of our snacking marketing investment in these power brands to support our growth plans. Switching to Campbell’s Meals and Beverages on Slide 25, despite category headwinds and our recent challenges, we have some of the most storied brands, leading market share positions, and strong margins. In the division, we are working to stabilize U.S. soup, of course, as our top priority. Driving growth in sauces, including gaining share in Italian sauces and leveraging our new Snyder’s-Lance insights to increase the presence of Pace in the snack aisle, and strengthening our beverage business through continued focus on V8 Original, building on the success of the V8+ Energy line, and driving relevant innovations such as our recently launched V8+ Hydrate line. I want to dive deeper into stabilizing our U.S. soup business on Slide 26. First, we are thinking about this business differently than we have in the past. We will not place unrealistic expectations on it, and we will manage the brands within the portfolio in a disciplined way. We expect improved trends in the latter half of fiscal 2019, but we do not expect U.S. soup to grow this year. Given the importance of this business in the overall portfolio, I want to first give you the headline of what happened here and then go into more detail about the turnaround. Soup is a great business, and Campbell’s is an iconic brand. The business has been over-reliant on generating earnings and has been under-invested in. In recent years, we have pushed the business too hard on pricing and margin, and we did not do enough to keep our soup products and brands relevant with consumers. In fiscal 2019, we will rebase soup and strengthen our value proposition in the marketplace. Recently, Roberto Leopardi was named President of our Meals and Beverages business and has put a new divisional leadership team in place. They are examining all aspects of the business, which requires a back-to-basics approach to begin to stabilize it in fiscal 2019. It starts with increased emphasis on price realization, optimizing merchandising support with key customers, reducing manufacturing costs, making more selective consumer-driven innovation, and conducting more effective marketing focused on the Campbell’s Master brand. We will focus on four key brands: Campbell’s, Swanson, Chunky, and Pacific. Each will be managed according to a specific profile and portfolio role. We will manage Pacific to drive strong profitable growth, while our Campbell’s, Swanson, and Chunky brands will be managed to maximize margins and cash flow. Within each, we are taking targeted actions in line with these portfolio roles. To drive growth in Pacific, we are targeting higher income, older millennials, driving increased distribution in our core mass and grocery channels, and applying our supply chain expertise to reduce manufacturing costs and leveraging Pacific’s strong brand position in the natural channel to launch new innovative products. To maximize margins and cash flow with Campbell’s, Swanson, and Chunky brands, we are increasing and optimizing marketing to drive purchase intent, focusing our messaging on convenient affordable delicious meal solutions, and utilizing price pack architecture to differentiate and sustain margins. Ultimately, improving performance in U.S. soup begins and ends with dramatically improved execution from our new leadership team and from a new base. I am confident that we are doing all the right things, but it’s going to take some time to stabilize the business. With a leaner, more focused company, we see further opportunity to drive additional cost savings. As I mentioned at the outset, this is one of Campbell’s demonstrated capabilities. In fact, we have delivered successful multiyear cost cutting targets ahead of schedule. We have identified an additional $150 million in cost savings. These savings will be driven by streamlining our organization, expanding our zero-based budgeting efforts, and continuing to optimize our manufacturing network. This is in addition to the previously announced $500 million in cost savings and the $295 million in target synergies and run-rate cost savings from our acquisition of Snyder’s-Lance. Combined, these programs will bring our total cost savings target to just under $1 billion by fiscal 2022. Additionally, we are driving asset efficiency and working capital and capital expenditures to generate an additional $350 million of free cash flow in the same timeframe. As you can see, we are taking significant actions to stabilize the company. While we have made specific choices to better focus Campbell, there is more to do both in terms of operationalizing these plans and streamlining their portfolio. We are working with urgency to improve our execution, speed, and efficiency throughout the organization with the goal of driving margin expansion and free cash flow. Fiscal 2019 will be a transition year as we take these steps to restructure the portfolio, reduce leverage, and emphasize better execution, all of which will establish the foundation for sustainable performance and profitable growth. With that, I will turn the call back over to Anthony to outline our fiscal 2019 guidance and new long-term targets.

Thanks, Keith. Now, I will review our 2019 outlook. Given uncertainty regarding the timing of divestitures, we are providing guidance based on our existing portfolio of businesses and also on a pro forma basis assuming divestitures were completed and proceeds deployed at the beginning of the 2019 fiscal year, representing the new base from which we plan to grow. I will start with the guidance pre-divestitures. We expect sales to increase to a range of $9.975 billion to $10.100 billion as we benefit from the incremental impact of both the Snyder’s-Lance and Pacific Foods acquisitions. This top-line guidance implies that organic sales are expected to decline slightly. While we expect trends in U.S. soup to improve as we implement our promotional programs, we anticipate that soup sales will decline in 2019. With our new leadership, we are in the process of developing a long-term strategy for the U.S. soup business, which including focused innovation efforts, reinvigorating the Campbell brand, and maximizing the opportunity with Pacific, is expected to stabilize longer-term performance. In addition, sales in Campbell Fresh will be negatively impacted by the expiration of two major private label refrigerated soup contracts. We expect adjusted EBIT to be in the range of $1.370 billion to $1.410 billion as declines on our base business are mostly offset by the incremental acquisition impacts of Snyder’s-Lance and Pacific Foods. The EBIT decline on the base business is primarily driven by three factors: the anticipated decline in organic sales, the negative impact of cost inflation on gross margin, and the negative impact from higher incentive compensation, which had been significantly reduced in 2018. We expect adjusted EPS to be in the range of $2.45 to $2.53 per share. The delta between EBIT and EPS performance is primarily driven by the interest expense associated with the acquisition of Snyder’s-Lance and Pacific Foods. As mentioned, we are also providing a forecast for 2019 on a pro forma basis assuming that planned divestitures are completed as of the beginning of the fiscal year and based on the use of estimated sales proceeds to reduce debt. As you can see on the chart, our sales base declined to about $8 billion, adjusted EBIT to a range of $1.230 billion to $1.270 billion, and adjusted EPS to a range of $2.40 to $2.50. The overall dilution from divestitures is modest, given the current level of profitability of the Campbell Fresh division. While we do not provide quarterly guidance, we do expect our first quarter performance to be negatively impacted by several factors. First, we are adopting the new accounting rules for revenue recognition. Given the seasonality of our business, adoption will have a negative impact on Q1 of approximately $0.04 per share with no significant impact on the full year. Second, we expect the recall of flavor-blasted Goldfish will have a negative impact on Q1. Lastly, we expect some continued pressure on U.S. soup as we implement our promotional programs and resolve the major customer issue in the first quarter. Now I will provide some additional detail on the assumptions impacting our pre-divestiture guidance. As we have mentioned previously, we are seeing significantly higher cost inflation which we estimate to be in the range of 4% to 5%. The key drivers are steel cans reflecting the impact of tariffs, transportation and logistics that continue to rise, and on wheat, resins and corrugated. We continued to drive meaningful productivity savings in our supply chain which are incremental to our cost savings program. For 2019, we are targeting 3% of the cost of products sold. We are targeting significant benefits from cost-saving approximating $120 million from a combination of Snyder’s-Lance cost and synergy savings and the ongoing Campbell program. Our recent decision to discontinue manufacturing in our Canadian plant and transfer most of the production to the U.S. will generate meaningful savings. Overall, we expect our gross margin percentage will decline approximately two percentage points with about one point of the decline attributable to the negative mix impact of adding Snyder’s-Lance to the portfolio or a full year compared to four months in 2018. The balance of the decline is primarily due to the impact of cost inflation in excess of productivity. With a full year of acquisition financing on the Snyder’s-Lance acquisition and the expectation of slightly higher interest rates, interest expense is forecast to be in the range of $375 million to $390 million in fiscal 2019. With a full-year benefit of U.S. tax reform, the effective tax rate is expected to decline to a rate of about 25%. Lastly, capital expenditures including spending on Snyder’s-Lance and reflecting an overall decline as a percent of sales is expected to be approximately $400 million. We are revising our long-term targets for annual sales and earnings growth. Based on the actions we are taking in 2019, including plant divestitures, we are confident that from our 2019 post-divestiture pro forma we have a solid base from which to grow. Nearly half of our portfolio will be positioned in the faster-growing snacking categories and we will also benefit from incremental revenue opportunities from combining Snyder’s-Lance and Pepperidge Farm. Driven by growth in our snacking business and stable performance from soup and simple meals, we are targeting organic sales growth of 1% to 2%. Our adjusted EBIT target is to grow 4% to 6% reflecting the benefits of the increased cost savings target Keith described and from achieving the Snyder’s-Lance cost and synergy savings, both of which we are very confident we can deliver. As of the end of fiscal 2018, we have delivered $420 million of savings on the base Campbell program and $35 million on Snyder’s-Lance for a combined total of $455 million. And as announced this morning, our combined savings target is now $945 million by 2022. We are targeting EPS growth of 7% to 9% leveraging EBIT growth, using free cash flow to repay debt in the short term, and improved asset turnover as we aggressively manage our balance sheet by reducing CapEx as a percent of sales and generating positive cash flow from working capital reductions. The combination of improving margins driven by cost savings and improved asset utilization as measured by rapid turnover will meaningfully improve returns on invested capital generating economic value for shareholders. With the de-leveraging from divestitures and the continued use of free cash flow to reduce debt, leverage as measured by net debt to EBITDA is targeted to reach 3x by the end of fiscal 2021. With that, I will turn it back over to Keith for some closing remarks.

Thanks, Anthony. Before we turn to Q&A, I want to provide an update on our leadership team starting with our CEO search. The board is conducting a robust search process examining both internal and external candidates who possess a track record of proven results and achievement. The board has been working with leading candidate assessment and executive search firms to assist in this process, and we look forward to updating you when the board is ready to name our new CEO. It’s important to note that we have made several changes in our management team to improve performance, including meaningful changes within the Campbell leadership team over the last six months. In addition to the CEO change, we appointed Luca Mignini to the newly created role of Chief Operating Officer. We also have new Presidents in two of our three operating divisions who replaced a significant portion of the Meals and Beverages leadership team, including recruiting two senior executives from outside the company, Roberto as President and a new CMO, Diego Palmieri, and we have a strong management team in place at Campbell Snacks under Carlos Abrams-Rivera with a combination of Pepperidge Farm and Snyder’s-Lance leadership. Today, Campbell’s has a strong and aligned leadership team in place to drive the company forward and execute the plans we outlined today. In closing, we have a clear and executable strategic path forward to turnaround the business, improve operating discipline, and return the company to sustainable profitable growth, all with the goal of returning capital to shareholders and maximizing long-term value. I want to be clear this is not the end of our work, but it is an essential beginning. It will be an ongoing dynamic process as we focus our portfolio, pay down debt, manage costs, and increase our asset turnover while continuing to invest and drive innovation around our franchise businesses. Now, let me turn back to Ken to call for your questions. Ken?

Thanks, Keith. Before we open it up for questions, a quick note. Given the significant changes we will be implementing over the next several months, we have decided to reschedule our Investor Day from October to the spring. This will enable us to provide a more robust update on our progress at that time. Okay. Shannon, let’s open up the lines and take our first question.