Campbell Soup Company (CPB) — Q2 2019 Earnings Call Transcript

Thank you. Good morning, everyone. Welcome to Campbell’s second quarter fiscal 2019 earnings call. As usual we’ve created slides to accompany our earnings presentation. You will find these slides posted on our website this morning at investor.campbellsoupcompany.com. This call is open to the media who participate in a listen-only mode. Turning to slide two, 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 risks. Please refer to slide two 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 the appendix of this presentation. On slide three you can see the agenda we will cover today. With us on the call today are Mark Clouse, Campbell’s President and CEO, and Anthony DiSilvestro, Chief Financial Officer. Mark will share his early impressions of Campbell and provide his perspective on our performance in the quarter. Then, Anthony will walk through the financial details of the quarter as well as our fiscal 2019 financial guidance, which we reaffirm today. One additional item before we open our discussion of the quarter, we would like to cordially invite analysts and institutional investors to our 2019 Investor Day at Campbell’s world headquarters in Camden. This year’s event will be held on the afternoon of Thursday, June the 13th. Please mark your calendars and I hope everyone can make it. With that, let me turn the call over to Mark.

Thanks, Ken. Good morning everyone, and thanks for dialing in today. I'm excited and honored to be here, and to be part of the Campbell team. I've long admired Campbell's portfolio of iconic brands, terrific teams and well-defined purpose. Throughout my career, I've had the privilege of working on big iconic brands, and leading teams to unlock the full potential of the business, by strengthening the consumer relevance of the brands, and driving operational excellence. I'm confident in our ability to do both here at Campbell. Since joining the company last month, I've been spending time with our team and our customers to gain a full understanding of the state of the business. I recognize that we are dealing with some immediate challenges, which we are addressing head-on. But, I'm also seeing clear opportunity to further improve our business, strengthen our execution, and create exciting potential for the future. We have a great deal of work to do to deliver this opportunity. But it starts with progress in each and every quarter. Moving to Slide six, so where are we today? First, we are doing what we said we would, and in many ways that is an essential first step in our journey. I'm pleased that we delivered results consistent with our expectations for the second consecutive quarter, and that we were able to reaffirm our fiscal 2019 guidance this morning. We continued to make solid progress against our key strategic priorities including stabilizing our in-market performance; integrating the Snyder's Lance business, delivering our cost savings agenda, and finally, focusing and optimizing our portfolio. Organic sales in the quarter were comparable to the prior year. This reflected strength in Global Biscuits and Snacks, driven by performance in Pepperidge Farm and Arnott's, with our meal and beverage business seeing some declines but more stable results overall. As expected, adjusted earnings per share declined compared to a year ago. Adjusted gross margin also declined, down 4.3 points in the quarter. The decline was driven by the negative mix impact of the Snyder's and Pacific acquisitions, cost inflation, transportation and warehousing costs, and finally the decision to make select investments in promotional programs against key businesses. Those headwinds were partially mitigated by continued strong execution on our base cost savings program and the value capture of the Snyder's Lance synergies. Both of these areas are progressing very well. In fact, the team delivered $50 million in savings in the quarter under our multi-year program, including Snyder's Lance synergies. That brings year-to-date savings to $95 million, which is slightly ahead of what we had planned. We now expect to over-deliver the $120 million in cost savings plan for fiscal 2019. This will help offset cost headwinds we're managing, while still delivering our commitments. Another area of stepped up focus is cash flow from operations, which increased to $846 million in the first half, reflecting improvements in working capital. This is another critical area where I was pleased to see progress and effective programs in place across the company. We must continue to drive this increased discipline and effectiveness to optimize our working capital, and capital spending going forward. Turning to a discussion of our segments on Slide eight. Let's start with our meals and beverage businesses, where our performance was mixed across our brands. Our results were essentially in line with our expectations for the quarter, but did decline overall. Organic sales were down 1% compared to declines of 4% a year ago, and 5% in the first quarter of fiscal 2019. We drove growth in V8 for the second consecutive quarter, behind consumption gains in V8 vegetable juice and V8 plus energy drinks. This was more than offset by declines in Plum, Canada and Prego. Declines in Plum were due to phasing in shipments with consumption up slightly. On the U.S. Soup business, excluding acquisitions, sales were comparable to a year ago. However, in market consumption remained down around 5%. This difference was driven by a return to more historical seasonal inventory levels in the quarter following last year's retail challenges, as well as favorable timing on new revenue recognition accounting. We are advancing our plan for 2019, which focuses on improving the value proposition of soup, by strengthening the fundamentals; including price and promotion while adding better marketing and smart innovation around convenience and better for you. These actions will help improve the foundation of the business and reflect a focus on controlling the control levels; however, we still have much to do to truly position this business for improved and sustainable results. I realize that you likely have a lot of questions about our U.S. soup business, including my early impressions of its performance this year and the long term plans for the business. Let me start by saying it's early days, but I do recognize that to truly change the trajectory of the business will require a holistic approach to building consumer relevance through product, packaging, innovation and marketing, paired with optimizing the network, and business model. It is important that this plan addresses our entire soup portfolio, including our core condensed, broth and ready-to-serve businesses. We are the category leader. We have iconic brands and we possess the best knowledge of the soup business in the industry. We can, and will bring a comprehensive consumer driven and financially disciplined approach to how we optimize this very important business for the company and for our retail partners. I'm excited about building on the solid work the team has done to date, and I look forward to sharing more comprehensive plans with you at our June investor day. Turning to our global biscuit and snack segment, excluding the benefits of the acquisition of Snyder's Lance and the impact of currency, organic sales increased 3% driven by the performance of Pepperidge Farm Fresh Bakery Goldfish crackers and Arnott's biscuits. Nearly a year since we completed the acquisition of Snyder's Lance, the integration of our U.S. Snacks business is steadily progressing, as we build upon the core strengths of both Pepperidge Farm and Snyder's Lance. The combined business is delivering strong overall share performance across the portfolio. Pepperidge Farm continued its strong track record of consistent performance, with the team delivering its 17th consecutive quarter of sales growth. Our largest brand, Goldfish, continued to expand share with a strong quarter, including the launch of new epic crunch lime. The latest addition to the franchise leverages both organizations capabilities. It was invented by Pepperidge Farm R&D and made in a Snyder's Lance bakery. Additionally, the extension of Pepperidge Farm farmhouse brand across Cookie, Bread and Rolls collectively drove nearly 25% growth in the quarter. Consumers are responding favorably to the farmhouse brand positioning and quality, especially the steps we've taken to renovate our fresh bakery portfolio. Now let's look at the other half of our U.S. Snacks business. The Snyder's Lance portfolio; these brands across chips, pretzels, crackers and nuts are attractive high growth spaces and nearly all grew share in the quarter. Over the last six months, the snacks team has put in significant work to position these brands for long term success, including building foundational brand insights, unique product positioning, renovation and innovation, and smart new marketing campaigns. We have strong plans in place in the back half of fiscal 2019 and I'm looking forward to seeing these brands flourish behind accelerated innovation and increased marketing. The Snyder's Lance value capture plans are exactly where we expected it to be in the quarter, and slightly ahead of our expectations for the year. Thus far, synergies have come from the elimination of the duplication of public company infrastructure and tighter controls around SG&A. With these changes, the leadership team has created new ways of working and instilled greater discipline across the combined division. In the quarter, we consolidated our headquarters sales force and back office sales operations. Looking ahead, we expect to continue to deliver synergies in the second half, as we realize the savings from the changes in the sales organization and begin to leverage efficiencies and scale in procurement on packaging, commodities and seasonings. I'm very pleased with the progress we're making in U.S. Snacks. We're already seeing the synergistic benefits within our brand portfolio and we're tracking slightly ahead of our synergies target with a clear line of sight to achieving the full value capture. I'm frequently asked, what has surprised me since arriving at the company? And I can honestly say, the strength, progress and position of our snack business. It is a formidable portfolio and a fantastic team that creates a very exciting combination for our future. Like our plans on soup, I look forward to sharing how we will fuel the growth of our snack business when I see you in June. Next on slide 10, I want to provide a quick update on the divestitures. We continue to make steady progress with the proposed sales of Campbell's Fresh and Campbell International. As a reminder combined, these businesses represent approximately $2.1 billion in annual net sales in fiscal 2018. I met with both the International and Fresh leadership teams during my first few days in role, and I'm impressed with how they're driving the day-to-day businesses while managing the divestiture processes. Campbell Fresh is performing consistent with our plans, and we're driving improved operational effectiveness in the Bolthouse Farms business. Campbell International had a strong quarter, with solid sales and in-market performance on Arnott's biscuits, fueled by new product innovation. The divestiture processes are moving forward according to plan, with strong interest from strategic and financial buyers. As you may have seen, we've already announced three transactions, the sale of Garden Fresh Gourmet and the Everett Washington Refrigerated Soup Plants as part of the Sea Fresh divestiture process, as well as the sale of Habit. We continue to expect to announce buyers for the remainder of these businesses by the end of the fiscal year, but we'll remain disciplined to ensure that we achieve appropriate value for these attractive assets. We will use the proceeds from these transactions to significantly pay down debt. Combined with the company's strong free cash flow, we're confident that we will make progress on our goal of achieving meaningful debt reduction. Before I turn it over to Anthony, I'd like to take a moment to acknowledge and thank Keith McLoughlin for his leadership in serving as interim CEO. Keith stepped in at a pivotal moment for Campbell, and leveraged his expertise, knowledge of the company and leadership skills to provide much needed clarity and stability. As a result, Campbell is more focused and the entire company is mobilized around our key priorities. I've worked closely with Keith throughout the CEO transition process, and I look forward to his continued contributions as a member of the Campbell board. With that, let me turn it over to Anthony for a detailed discussion of our financial results.

Thanks Mark. Before getting into the details, I'll make a few comments on our performance for this quarter. As Mark mentioned, our overall results were in line with our expectations and we remain on track to achieve our fiscal year guidance. Clearly, we have seen pressure on our gross margin in the first half. The negative mix impact of the acquisitions and on the base business from a combination of cost inflation, warehousing and transportation challenges, which are mostly behind us, and higher trade investments. Looking ahead, we expect these trends to improve, as we wrap the acquisition of Snyder's Lance, the higher levels of cost inflation and the Flavor Blasted Goldfish recall, as well as execute pricing and promotional actions, and drive cost savings and productivity gains. We continue to achieve our cost savings goals against our program, which includes Snyder's Lance. We generated $50 million of incremental cost savings in the quarter, bringing the year-to-date total to $95 million and the program today total to $550 million. We are on track to over-deliver our 2019 target of $120 million, which is helping to mitigate additional cost pressures, particularly on warehousing and transportation. We continue to target $945 million of cost in synergy savings by the end of 2022. Overall, we are pleased with the progress made in acquisitions as the integration of both Snyder’s Lance and Pacific Foods is on track and the financial performance is meeting our expectations. As expected, the acquisitions were slightly dilutive to our adjusted EPS results in the quarter. In connection with our plan announced August 30th, we are working to divest our International business and the Campbell Fresh business. The divestiture processes are well underway and we have seen significant buyer interest for both businesses. I'll now review our detailed results. For the second quarter, net sales on an as-reported basis increased 24% to approximately $2.7 billion reflecting the recent acquisitions of Snyder's Lance and Pacific Foods. Organic sales, which excludes the negative impact of currency translation and acquisitions were comparable to the prior year, as gains in Global Biscuits and Snacks, which had a strong quarter were offset by declines in Campbell Fresh and Meals and Beverages. As previously discussed, we adopted new rules for revenue recognition in the first quarter. In the second quarter, sales benefited by approximately 50 basis points as a result of the accounting change. The full year impact of revenue recognition is not expected to be material. Adjusted EBIT of $399 million declined 1% as a 13% decline on the base business was mostly offset by the incremental earnings from the recent acquisitions. Adjusted EPS declined by 23% or $0.23 to $0.77 per share, primarily due to adjusted EBIT declines in the base business, a higher adjusted tax rate and the dilutive impact of the acquisitions. In the quarter, the change in revenue recognition had a positive impact of $0.03 per share. For the first half, net sales on an as-reported basis increased 25% to $5.4 billion benefiting from acquisitions, while organic net sales declined 2% compared to the prior year, primarily due to declines in the Meals and Beverages segment. Adjusted EBITDA decreased 1% to $811 million and adjusted EPS of $1.57 was down 18%. Breaking down our net sales performance for the quarter, organic net sales for comparable to the prior year as higher promotional spending was offset by modest increases in pricing and volume. Promotional spending negatively impacted net sales by one point, reflecting investment in key businesses to remain competitive. Within promotional spending, the accounting change had a 50 basis point positive impact. There was a one point negative impact on net sales from currency translation in this quarter, and the recent additions of Snyder's Lance and Pacific Foods to the portfolio added 26 percentage points, bringing our as-reported net sales increase to 24%. Our adjusted gross margin percentages declined 4.3 percentage points in the quarter, excluding a two-point dilutive impact from the acquisitions of Snyder's Lance and Pacific Foods, our adjusted gross margin percentage declined 2.3 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 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 330 basis points, mostly from cost inflation, which on a rate basis increased approximately 4.5% reflecting higher prices on steel cans, vegetables, resins, aluminum, and freight. We experienced several one-time costs in the quarter, primarily warehousing and transportation costs associated with the startup of the Findlay Ohio distribution facility mentioned last quarter, and higher inter-plant freight to service our customer requirements early in the quarter. We believe, these higher costs from both Findlay and the inter-plant shipments are now behind us. Going the other way, our ongoing supply chain productivity program contributed 120 basis points in our cost savings program, which is incremental to our productivity initiative, added an additional 80 basis points of gross margin. Mix was slightly positive, adding 20 basis point. Net pricing was 30 basis points negative, as increased trade investments were partly offset by less pricing actions, primarily in Global Biscuits and Snacks. All in, our adjusted gross margin percentage declined to 30.9%. As I’ll describe later, we expect to achieve sequential improvements in our gross margin trends in the second half. Moving on to other operating items, adjusted marketing and selling expenses increased 15% in the quarter, due primarily to the impact of acquisitions. Excluding the recent acquisitions, marketing and selling expenses decreased, driven primarily by lower marketing overhead and selling expenses, including the benefits from our cost savings initiatives. Excluding acquisitions, spending on advertising and consumer promotion was comparable to the prior year. Adjusted administrative expenses increased 15% to $160 million, due primarily to the impact of recent acquisitions. 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 $0.23 from $1 in the prior year quarter to $0.77 per share in the current quarter. On a currency neutral basis, adjusted EBIT had no impact on EPS reflecting lower EBITDA on the base business, offset by the addition of Snyder's Lance and Pacific Foods. Net interest expense increased by $60 million, a $0.16 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 was impacted by a higher adjusted effective tax rate, decreasing EPS by $0.05. Our adjusted effective tax rate was 24.1% in the quarter, which increased by 5.2 percentage points as the prior year quarter benefited from a year-to-date impact related to U.S. tax reform. And lastly, there was a $0.01 negative impact on EPS from currency translation this quarter, completing the bridge to $0.77 per share. Although not shown on the chart, in aggregate, the acquisitions of Snyder's-Lance and Pacific Foods were slightly dilutive to adjusted EPS. Now turning to our segment results, in Meals and Beverages organic sales declined 1% reflecting mixed results, as gains in V8 beverages, behind consumption gains in V8 vegetable juice and V8 energy were more than offset by declines in Plum, Canada, and Prego pasta sauces. Excluding the benefit from the acquisition of Pacific Foods, sales of U.S. soup were comparable to the prior year, including a one point benefit related to revenue recognition as gains in ready-to-serve and broth were offset by declines in condensed soup. As Mark stated, we've returned to more historical, seasonal retailer inventory levels, which benefited U.S. soup sales in the quarter. Segment operating earnings declined 10% to $255 million. The decrease was driven primarily by the impact of significant cost inflation, higher warehousing and transportation costs, and investments and promotional spending, probably offset by lower marketing and selling expenses. Here's a look at U.S. wet soup category performance and our show results as measured by IRR. For the 52-week period ending January 27, 2019, the categories showed a decline decreasing 2.4%. Our sales in measured channels, including Pacific declined 5.4%. We had a 58.2% market share for the 52-week period, down 180 basis points from the year ago period. Private label grew share increasing 140 basis points, primarily reflecting gains in broth finishing at 16.3%. All other branded players collectively had a share of 25.5% increasing 50 basis points. In Global Biscuits and Snacks, sales were $1.243 billion in the quarter including $529 million from the acquisition of Snyder's-Lance, excluding the benefit from the acquisition and the negative impact of currency translation organic sales increased 3%. This performance reflects continued growth in Pepperidge Farm driven by solid consumption gains in Pepperidge Farm fresh bakery products and Goldfish crackers as well as growth in Arnott’s biscuits fueled by innovation. On Snyder's-Lance, it is important to note that the SKU rationalization and price realization initiatives are continuing to have a negative impact on sales particularly on the Snyder's of Hanover brand. While SKU rationalization is having a short-term impact, this action will result in a more streamlined and more profitable portfolio going forward. Overall, sales performance of the Snyder’s-Lance portfolio was in line with our expectations with solid consumption and market share gains for the first half of fiscal 2019. Segment operating earnings increased 35% to $185 million reflecting a 34-point benefit from the acquisition of Snyder’s-Lance. Excluding the impact of the acquisition, segment operating earnings increased slightly driven primarily by volume gains partly offset by higher levels of cost inflation. In the Campbell Fresh segment, overall performance was in line with our expectation. Organic sales declined 7% to $239 million mostly driven by declines in refrigerated soup. As we’ve previously discussed, two of our private label refrigerated soup customers intend to insource production in 2019. Sales of Bolthouse Farms refrigerated beverages and Garden Fresh Gourmet also declined which were partly offset by gains in carrots. Segment operating loss was $14 million compared to a loss of $11 million in the prior year. The decrease was primarily due to the decline in refrigerated soup volume partly offset by improved operational efficiencies on the Bolthouse Farms business. As disclosed in our non-GAAP reconciliation in corporate, we’ve recorded non-cash impairment charges on the Campbell Fresh segment as we advance the plan divestiture of the business. As part of the divestiture of the Campbell Fresh division, we recently announced the sale of the Garden Fresh Gourmet business and the refrigerated soup plant in Everett, Washington. On a companywide basis, cash from operations increased to $846 million compared to $660 million in 2018, reflecting significant improvements from the Company's working capital management efforts and as we wrapped payment last year on hedges associated with an anticipated debt issuance partly offset by lower cash earnings. The cash outlay for capital expenditures was $198 million, $66 million higher than the prior year, reflected the timing of cash payments, as well as investments to support our cost savings initiatives and the addition of Snyder’s-Lance and Pacific Foods to the portfolio. We continue to forecast CapEx of approximately $400 million for fiscal 2019. We pay dividends totaling $212 million compared to $216 million in 2018 reflecting our current quarterly dividend of $0.35 per share. Net debt of $9.3 billion is up $5.5 billion from a year ago, reflecting the impact of the $6.1 billion acquisition of Snyder’s-Lance partly offset by positive cash flow generated by the base business. Since the end of the first quarter, we have reduced our net debt level by almost $400 million. As part of our August 30, 2018 plan, we have initiated divestiture processes and as we’ve previously discussed, we will use the proceeds to reduce debt and improve our leverage ratio. Now, I’ll review our 2019 guidance, which remains unchanged since August 30th. We are providing guidance based on our current outlook and also on a pro forma basis assuming planned divestitures were completed as of the start of the fiscal year with proceeds used to reduce debt. I’ll start with the guidance reflecting our current outlook. We expect sales to increase to a range of $9.975 billion to $10.100 billion as a benefit from incremental impact of both the Snyder’s-Lance and Pacific Foods acquisitions, this topline guidance implies an organic sales are expected to decline slightly. We expect adjusted EBIT to be in the range of $1.370 billion to $1.410 billion as declines in our base business are mostly offset by the incremental acquisition impacts of Snyder's-Lance and Pacific Food. The EBIT decline of the base business reflects the anticipated decline in organic sales, the negative impact of 4% to 5% cost inflation on gross margins and the negative impact from higher incentive compensation which was significantly reduced in the second half of 2018. So, as we look to the back half we expect gross margin trends to improve most notably in the fourth quarter for several reasons. Wrapping the Snyder’s-Lance acquisition and the Goldfish Flavor Blasted recall in Q4. Pricing actions we’re currently implementing in the marketplace, phasing the productivity gains and some moderation of year-on-year cost inflation. While we anticipate a significant improvement in the second half versus our first half adjusted gross margin decline of 460 basis points, we will not be guiding to a specific target as we want to retain flexibility to manage all lines of the P&L. Also note, as you think about your models that in the third quarter in addition to the incentive compensation headwind, our plan reflects increased marketing support on the U.S. snacks business. 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. We expect interest expense in the range of $375 million to $390 million and an adjusted tax rate of approximately 25%. Against our cost and synergy targets we are tracking to over-deliver our $120 million target and this is helping to offset the impact of increased warehousing and transportation costs. We are also providing forecast for 2019 on a pro forma basis assuming the plan divestitures were completed as of the beginning of the fiscal year and based on the use of estimated proceeds to reduce debt. As you can see on the chart, our sales based declines 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 anticipated dilution from the divestitures is moderate given the current level of profitability of the Campbell Fresh division. As I stated the divestiture processes are underway for both Campbell International and Campbell Fresh and we have seen significant buyer interest for both businesses. That concludes my remarks. And now I’ll turn it back to Mark.

Thanks, Anthony. After my first month, I'm excited about the potential of our great people, brands and the opportunities for the company. We have a lot of work ahead, but the team is already taking action and making progress. We will remain focused on disciplined execution and driving clear ownership of our financial commitments, while we also ensuring our plans for the future are robust and delivering improved sustainable results going forward. With that, I'll turn the call back over to Ken for Q&A.

Thanks Mark. We’ll be happy to take your questions. Krystal, let’s open the lines and take our first question.

Good morning everyone and congratulations, Mark on your new role.

Thanks Andrew. Good morning.

Good morning. So I guess it would seem that as no investor consensus is really now squarely in the camp that food companies can't really cost-cut their way to prosperity, particularly in light of events last week. And that it really has to be about a return to growth. So, I love your thoughts on this more broadly, but assuming you'd agree with this line of thinking. As you did your due diligence ahead of taking on this next challenge at Campbell, either when speaking with customer contacts or your industry contacts, and of course your own previous experience. I guess, what were the key factors that gave you the confidence that the requisite growth opportunities really exist at Campbell? And do you think the Company can accomplish this without more significant portfolio change than it has already been discussed? Thank you.

Thank you, Andrew. To address the question, I believe a sustainable performance model in our industry consists of three key elements. First, we need strong brands and innovative ideas that are properly funded to foster ongoing profitable growth. Second, effective management of costs and cash flow is essential to support the brands and investments while also ensuring attractive financial returns. It’s clear that both elements are necessary rather than mutually exclusive. A growing business can leverage greater flexibility to enhance efficiency and lower costs. Achieving the right balance between profitable growth and the necessary cost-saving pipeline is crucial. The third component involves having a driven team that is focused on priorities and capable of delivering operational excellence. As I familiarize myself with Campbell and its team, I see potential for growth across all these areas. We have impressive brands that have been somewhat underfunded and ignored, including the snack division, which I believe has significant potential. Following the divestitures, this segment will account for nearly 50% of our revenue and is currently experiencing low single-digit growth, indicating room for expansion. In addition, while we are taking positive steps with our soup business in the short term, a more comprehensive strategy could optimize it further. I am optimistic about enhancing our growth strategy alongside our cost initiatives, which I view as a suitable rationalization approach that maintains our capabilities. Coupled with the value captures from Snyder's Lance and effective working capital strategies, we are positioned to strengthen our capital spending discipline and reduce debt, providing the necessary resources for growth. When entering an organization with a challenging recent history, I expected to see a team that might be discouraged, but instead, I found a group that displays passion and a strong sense of ownership of the brand. There is a genuine belief in our potential for better performance and a willingness to make necessary changes in our focus and accountability, which I believe will help us achieve the operational excellence I mentioned. While I don't want to suggest that this will be straightforward or quick, I'm confident in the opportunities for improvement. With a clear roadmap that Keith and the team will identify, I believe we are well-positioned to make consistent progress and create shareholder value in the future.

Great. Thanks so much for going through that.

Hi, good morning. One quick one from me and then a longer follow-up if I can. I know that you talked about the timing of shipments being ahead of consumption and you talked about some inventory. I think there is some speculation in the market that perhaps the timing of the early SNAP payment affected some of the companies that are reporting from January numbers right now. I know it's hard to tell, but to the best of your ability, can you determine whether it's the extra SNAP payment has helped you at all? And whether you expect any kind of reversal or whether in your opinion, it's just sort of a non-story?

Well, I think Ken, a little bit of the challenge for us in the quarter, is there is a variety of moving pieces in this. Part of it is what we're comparing to a year ago, as well as some of the dynamics that we're experiencing on where we're infusing investment and how we're thinking about the promotional schedule. I do think the phasing over time, to some degree, was affected by it. But I think the bigger drivers for us related to the fact that a year ago in this period, as we were navigating some pretty tough retail conversations, we did not reach what I would call the historical level for the seasonal inventory build. I think as we look forward, I think that will normalize over the balance of the quarters. Of course, you'll have a little bit of noise around revenue recognition changes as well, but I think in general, we'll see a little bit of consumption likely outpacing our shipments a bit in Q3, as we normalize that inventory level. But for the year, I expect it to be pretty equal across the Board.

Okay, thank you for that. And then my follow-up is, you reiterated guidance today, obviously and in your slides you reiterating your fiscal 2022 saving targets as well. Is the message you're sending that you feel very good that these targets are reasonable and that you support them? Or is it really just too early for you to make any changes? And I guess the reason I'm asking is, there is still an expectation or a belief that maybe you'll do some sort of rebase ahead, and people are curious, is it just too soon for you and maybe as you get closer to the numbers you say, wait, we need to take a step back here. Where just really you saying, I’ve gone through these numbers and I feel very good about them, and there is not going to be any kind of rebase coming?

Well, I think first let me just start by saying, I think the rigor that went into defining the algorithm and the work that was behind it, especially the 2019 guidance, I think was very robust. And so what I would tell you, I think given that rigor and the reasonableness of the framework I feel very good about that direction and I'm very committed especially delivering on our 2019 commitments, but also pursuing what the longer-term algorithm looks like. I think, I also feel very good about the strategic framework that was put in place. I mean, as you look at it the idea of simplifying, focusing and optimizing our portfolio divesting some non-core businesses to reduce debt and improving our execution speed and efficiency are somewhat hard to argue with, and I think our great first steps to address what some of our immediate challenges are. I think as we go forward, we need to create the completeness of that plan and add more robust elements underneath each of those headers, as we really create what I think will be a clear roadmap for the future, that builds upon what those foundations are. I think in doing that, we've got to understand what the right balance is between the cost savings, we can generate as well as the investment we need. But I think living within the guidance that was given certainly is my objective. I do think in fairness to my time in the seat, I want to spend a little more time making sure that the investment models and the plans that are in place are all consistent with what those. What I believe we need to have in place to deliver on those objectives. Does that make sense, Ken to you?

It does. Thank so much Mark.

Hey. Good morning everyone.

Hi, Bryan.

Mark, I guess my question is really as we've sort of observed that the retailers response to some of the actions that Campbell has made over the years in the soup category specifically. It just seems like retailers have maybe been less enthusiastic about the category and maybe looking at it for ways to sort of harvest profits out of it or margins out of it. So I guess could you talk about, from your perspective so far, how you see the retailer’s attitudes around the category, and maybe what it would take to get them reengaged with it? Thanks.

Thank you, Bryan. One of the advantages I had during my first week was attending meetings in Florida, where I could engage meaningfully with our retail partners. Their feedback was quite consistent; they expect us, as the leaders in the soup category, to provide a clear vision and develop a plan to optimize our product portfolio, with the aim of making improvements in the future. This call to action is certainly a positive direction for us. In the context of our company, it is essential to implement a more comprehensive strategy for soup, as I've mentioned. I believe our immediate actions are making a difference. For example, in our condensed soup segment, we've maintained flat market shares despite an overall decline in the chunky soup segment, which we have started to support again, showing growth for the first time in quite a while. Additionally, our health and wellness segments are performing well, including our broth products. While I'm pleased with these initiatives, it’s clear that our end market results indicate we need more. We must develop a more integrated approach, clearly defining the roles of our various brands and ensuring they resonate with consumers. We need to focus on the basics like pricing, packaging, quality, and support, aiming for a disciplined strategy with strong return on investment. It’s important that we do not grow merely for growth's sake, but rather support our business sustainably. Furthermore, we must pursue innovation that opens up new opportunities or expands our presence in adjacent formats where soup could be more relevant than it is today. We also need to articulate a vision for our retailers, collaborating with them on how to innovate the consumer experience in stores, both in traditional settings and emerging channels. This should be backed by optimizing our supply chain and ensuring we maintain profitable margins moving forward. As I mentioned, we're in the early stages of this effort. We have accomplished substantial work in various areas, but we need to execute the full plan promptly. By embracing this rigorous approach, we can significantly enhance our growth trajectory and demonstrate our commitment to this category, which has considerable potential. While it won't be an instantaneous transformation, I believe we are on a steady journey ahead. We'll discuss these plans in more detail at the Investor Day in June.

Thanks Mark.

Great. Thank you everybody. Good morning, Mark. Welcome to the company and appreciate you being on the call today.

Thanks David.

Can I ask a follow-up to Ken's question? I really want to understand more about the $945 million multi-year savings program. I believe this should be the top priority for you. I’d like to hear that from you. I know there are many important items, but you need to prioritize them. Have you had enough time to explore the details of the program? I know you partially addressed this earlier, but I can't stress enough how sensitive investors are to this issue. What we desperately want to know is whether you consider this program aggressive. Are there aspects of it that warrant that characterization? As Andrew mentioned earlier, we recently experienced a significant adverse event. What does this mean for these types of savings programs? In your initial assessment, would you describe the savings program as aggressive? I have a follow-up question as well.

Absolutely, it is essential for our company. We need to find the right balance between supporting our brands and enhancing our revenue growth, and the cost management initiatives provide us with that opportunity. The positive aspect is that it isn't just one solution; rather, it involves a range of initiatives, each tailored appropriately. We have the chance to enhance our discipline in various cost areas, alongside a well-structured value capture program for Snyder’s-Lance. From my experience, it's crucial to effectively manage ideas, programs, and governance around the elements that facilitate savings, while also being realistic about necessary investments to support our business moving forward. I believe we've done an excellent job aligning the components that will drive our cost savings program. In certain areas, we are more aggressive than others, but concerning our operational performance, we maintain a suitable level of balance. Regarding investment following the $945 million in savings, we've made significant strides. I want to ensure clarity on our expectations and what we believe must be established to support the businesses. It starts with a strong focus on achieving cost savings without compromising our capabilities or exceeding what is suitable for our broader business objectives.

And then, a quick one on your sales guidance. So I think you guys added a one-point negative impact from foreign exchange, the dollar numbers don't change. So organic revenues are up, your end market performance negative five. I’m just getting a lot of questions, Anthony, and Mark if you want to answer. But how do you maintain the dollar guidance with soup down five and foreign exchange headwind coming in? Can you just help us bridge how the full year is going to pace and why does soup performance is okay, enable to allow you to reiterate the sales? Thank you.

So Anthony, why don't you take the guidance question and then I'll come back with how do we feel about soup.

Yes. I guess, there is obviously a couple of parts to the guidance. The organic performance, the incremental contribution from the acquisitions and currency. So when we came into the year, we thought currency would be about 50 basis points negative, is turning out to be more like a 100 basis points. So it's a little bit negative inside of that. With respect to the incremental impact from acquisitions, we are tracking spot-on, where we expect it to be in terms of the first half, second half contribution from both Snyder's-Lance and Pacific Foods. So that's on track. And lastly, in terms of our overall organic sales performance, we are tracking where we expect it to be. So although soup is down a little bit, we have other parts of the portfolio, they're up a bit. And as we look to the second half and we need to do better than minus two organic to hit the middle of the range. And there is some flex plus or minus around that. So we feel pretty good about where we are and hitting the guidance by the end of the year.

I think one of the things we’re excited about in the second half is the integration of the Snyder’s-Lance business. The team has done a great job creating a solid agenda for both marketing and innovation as we look ahead. I expect to see increased investment and improved performance in some of those businesses, which should help offset what I anticipate will be a slightly weaker trend on soup that we're working to improve. I believe this balances how we can achieve the guidance.

One other point is at the end of March, we're going to wrap Snyder's Lance, so for four months we expect to see a positive contribution to our organic sales performance from that business.

Thank you very much. I'll pass it along.

Hi, thank you for getting me in the queue.

Hi Rob.

Nabisco running a DSD network, the margins on that business were a lot higher than Snyder's Lance's margins, which are still single digit. And I just want to know what do you think that the big difference is between the margin structure of these two companies? And how do you close the gap? Thanks.

That's a great question. As we've discussed before, focusing on our cost agenda and value capture presents an opportunity for us to boost our margins. There's a noticeable difference in margin architecture that we can work to enhance. Even when considering value capture, we would still operate below our performance on Pepperidge Farm, which is a promising opportunity showing that we can improve even further. Much of the efficiency in our DSD network hinges on scale, effective network operations, and how we support innovation while maximizing our in-store presence. I see areas for improvement across these elements. While today we've primarily concentrated on sales operations and headquarters during the integration, we have the chance to apply best practices in route optimization, in-store impact, and balancing our investments in merchandising against pricing. This will enhance our scale and operational efficiencies in the supply chain, which I believe will unlock potential growth. The Nabisco business is quite efficient and sets a high standard, but we aim to bring our operations closer to Pepperidge Farm's margin architecture. Achieving this balance is crucial for realizing integration opportunities and guiding our future efforts for growth. Does that provide you with some insight, Rob?

Yes, maybe one follow up. At the start of the year, one of the concerns about Snyder's Lance was that they had entered into some price contracts with customers that were unfavorable. Are those still in place and is their effort now to renegotiate them higher?

I think we're cycling through a variety of those initiatives and I think again you know part of the dynamic here is really going back in and making sure that we're crystal clear on what the right price value equations are, how we navigate price gaps. So, I think as far as if you would if you're wondering whether it's a drag on the business going forward, I would say we feel pretty good about where we are on that journey and how we're set up for the back half of the year.