Campbell Soup Company (CPB) — Q4 2024 Earnings Call Transcript

Good morning, and welcome to Campbell's fourth quarter fiscal 2024 earnings conference call. I'm Rebecca Gardy, Chief Investor Relations Officer at Campbell's. And joining me today are Mark Clouse, 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 slide deck and today's earnings press release have been posted to the Investor Relations section on our website, campbellsoupcompany.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. 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 3 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. Slide 4 outlines today's agenda. Mark will provide insights into our fourth quarter and full year performance, as well as our in-market performance by division. Carrie will then discuss the financial results of the fourth quarter and full year fiscal '24 in more detail and outline our guidance for the full fiscal year 2025, which we provided this morning. As a reminder, we completed the acquisition of Sovos Brands on March 12th, and as such, the full fiscal year 2024 financial results include a partial year contribution from Sovos Brands. And with that, I'm pleased to turn the call over to Mark.

Thanks, Rebecca. Good morning, everyone, and thank you for joining our fourth quarter fiscal '24 earnings call. In Q4, we continued to successfully navigate the evolving consumer landscape and delivered solid results, including sequential volume improvement across both divisions, a second consecutive quarter of double-digit year-over-year adjusted EBIT growth and adjusted EPS growth, underpinned by sequentially improving margins on both businesses. It also marks the end of a dynamic year, during which we drove significant progress against our strategic plan. In addition, we continued to see momentum on the Sovos Brands business and advanced the integration of the best growth story in food into our Meals & Beverages business. In-market performance was still mixed, but improved for both divisions, with substantial volume-driven progress on Meals & Beverages and sequential improvement on Snacks. While the Snacks category recovery is unfolding at a somewhat slower pace than we'd like, it continues to progress in the right direction. Finally, we also introduced fiscal '25 guidance today, which reflects our expectation of steady progress and incorporates an appropriate level of pragmatism as we continue to navigate the recovery of Snacks in the first half of the year. Carrie will provide more details in a moment. While we remain vigilant as we head into fiscal '25, we have also never been more confident in the strength and long-term trajectory of our business. We remain steadfast in our view that consumer behavior will continue to normalize, and that we are uniquely positioned to deliver sustained and dependable growth with one of the best portfolios in all of food. We look forward to sharing more of this story at our Investor Day on September 10 in New York. Turning to Slide 7, organic net sales in the fourth quarter declined 1% compared to the prior year. As we expected, volume improved sequentially and both adjusted EBIT and adjusted EPS increased by double digits. The Sovos Brands acquisition was approximately neutral to adjusted EPS, which again exceeded our expectations. In-market consumption was essentially flat compared to the prior year, and the 1 point of difference in organic net sales versus consumption was primarily driven by headwinds from partner brands and some trade phasing, both of which were in our Snacks business. On a full year basis, we were down slightly on topline, while growing adjusted EBIT and adjusted EPS. I'd note that adjusted EPS at $3.08 for the full year put us roughly at the midpoint of our most recent guidance. As I mentioned, the trend of sequential volume and mix improvement we've experienced over the past two quarters continued in Q4. We were encouraged to see growth in Meals & Beverages of 2% and Snacks remained stable in the quarter. This trend continues to reflect the improving consumer dynamics, including total food's move this quarter into positive territory for both dollars and units. Strong consumer metrics support this continued progress, including roughly 70% of edible categories growing household penetration similar to Q3, and for the first time in a while, the recovery is beginning to extend to lower and middle-income households. The one negative indicator was a modest reversal in consumer confidence in the fourth quarter, signaling the somewhat fragile state of the consumer, and why being prudent on expectations still makes sense. However, overall, as we've said before, we continue to see the recovery of the consumer environment, not as a question of if, but rather a question of when. On Slide 9, I want to briefly expand upon the material benefit we're experiencing with the integration of Sovos. While our Q4 net sales declined 1% from the prior year on an organic basis, including the pro forma contribution from Sovos, total company growth would have increased 150 basis points. There is also a 110 basis point benefit to volume and mix, resulting in an approximately 2% pro forma growth rate on volume and mix for the total company. This growth continues to pace ahead of our initial estimates and reflects the strength and the resilience of the Sovos business' growth, especially the Rao's brand. Moving to our Meals & Beverage division on Slide 10, we achieved growth of 1% in organic net sales in the quarter compared to the prior year. More importantly, that growth was fueled by a 2% volume growth, offset by 1 point of planned net pricing investment. On a pro forma combined basis with the addition of Sovos brands, Meals & Beverages' net sales grew 4%, also fueled by volume/mix growth and consistent with in-market consumption. This is the second quarter of strong performance across our legacy Meals & Beverage businesses and Sovos Brands, both fueled by volume growth, an important indicator that's building confidence in the improving potential of our Meals & Beverages division going forward. Moving to more good news on Page 11, our soup business also strengthened in Q4, and is building even more momentum in the latest four weeks, with dollar consumption up 2% and 6%, respectively, as we head into soup season. Campbell's wet soup dollar consumption increased 2 points during the fourth quarter, surpassing the category average by approximately 1 point. Notably, we did experience robust share gains in our Swanson broth business, as a major private label supplier was experiencing supply constraints. It is important to note that although our share was helped by this dynamic, the category trends were also very healthy, up double digits, creating a great opportunity for Swanson to add new households. Underlying category growth continues to benefit from the consumers pulling back on eating meals away from home, in favor of home cooking. The one remaining area of focus on soup is ready-to-serve, where we're experiencing category pressure and some trading down. We expect both dynamics to improve as the weather changes and the role of ready-to-serve at lunch becomes more relevant. We're already seeing some stabilization and are confident about our robust pipeline of innovation and marketing across our Chunky, Pacific, and Rao's brands. Overall, this quarter we also answered a very important question about soup, can soup grow volume/mix after COVID and inflation? And it did, up nearly 2%. Turning to Italian Sauces, Slide 12 highlights our two market leading brands at the forefront of our $1 billion sauces portfolio, Rao's and Prego. I could not be happier with the continued strong growth of Rao's with in-market consumption in the high-teens range. Rao's complements the steady performance of Prego, which was up 2% in-market. This combination of brands that address different occasions and price points gives us a fantastic ability to grow overall share by meeting multiple consumer needs. We'll provide more details on our expectations for Rao's at our Investor Day, but we remain very confident in our previously stated ongoing growth rate of mid-single digits, with a high-single digit growth expectation for fiscal '25. The team on Sovos has done an excellent job during the integration, not only maintaining the business, but advancing the growth and strategy across the portfolio. Slide 13 outlines a few reasons why we are confident in the continued growth of Rao's. Despite ranking as the number one Italian sauce brand in terms of dollar share, Rao's has about 50% of the household penetration and 60% of the SKU assortment of Prego. There is also a significant opportunity to continue to build brand awareness as the team readies new marketing and innovation for fiscal 2025. Additionally, the brand is growing share across all economic demographics and is thriving amongst millennial consumers. In fact, Rao's is growing with millennials at a rate 2.8 times faster than the category. We are thrilled to see younger consumers embrace this ultra-distinctive brand and believe this provides a strong foundation for us to build Rao's into a household staple in the future. Finally, on Slide 14, just to remind everyone that our Meals & Beverages division also includes brands like Pace, Pacific, and V8 Energy, all of which represent great opportunities for additional growth as leading brands in their respective, advantaged categories or segments. Turning to our Snacks business on Slide 15. Despite the 3% decline for the quarter, we saw many encouraging indicators. We were pleased to see continued improvement in volume/mix, as well as in-market results compared to Q3. We did see some competitive pressure in salty snacks that we're addressing with targeted plans in place in Q1. It's important to note, much of that share pressure is not a result of pricing or promotional activity, but rather new entrants into our elevated segments like Kettle potato chips, or organic/better-for-you tortilla chips. Although we continue to see some investment in promotion going forward, we expect levels to remain competitive and disciplined. It's important to remember that although managing price gaps is important, growing our elevated snacks brands will be more influenced by the impact of our innovation and marketing efforts. Those plans are particularly robust for fiscal 2025, giving us even more confidence. On Slide 16, I'd like to quickly provide some additional color on the bridge between the in-market 1% decline and our overall 3% decline in organic net sales. There were two key drivers. First, as we expected, there was approximately a 1% reduction, driven by partner and contract brands, which I'll explain a bit more about in a moment. Second, we cycled about 1 point of favorable trade phasing in Q4 of fiscal '23 that created some additional pressure on pricing in the quarter. This is a one-time dynamic that we do not expect to repeat in fiscal 2025. Let me go a bit deeper now on the partner and contract brands headwind. As you will likely recall, we've discussed the role of these partner and contract brands in the past. Partner brands are brands Campbell's does not own that we agree to sell through IDPs to improve the scale of their routes. Contract brands are products that Campbell's manufactures to support the scale of our manufacturing plants and are shipped to another company or customer. Although these businesses play an important role, on average, they have approximately 50% lower variable contribution margin than our power brands, and also, in many cases, support competitors' products. So, as we grow our power brands and optimize our DSD and manufacturing network, our reliance on these businesses has gone down. Although there is a topline headwind in the near term, it is clearly the right strategic decision to focus more on our own brands and improve the mix of our business. We expect this trend to continue in fiscal '25, but as you can see, we've been working this number down and reduced it by more than a half. We'll provide a bit more detail on our destination for these businesses during Investor Day. In addition to the right-sizing of partner and contract brands, and with a similar objective, we recently announced the sale of our Pop Secret business. Although a very strong brand in the microwave popcorn segment, we do not see the brand or the category as a core focus area for our snack business. While there will be a modest impact to net sales and EPS this year, we're confident that as we continue to refine our Snacks portfolio, the continued focus will be a further enabler to faster and more profitable growth. As I mentioned earlier, we did experience some competitive pressure on our power brands in Q4, resulting in dollar consumption that was flat compared to the prior year. On a two-year basis, our power brands did grow 9.5%. Moreover, we continued to see meaningful progress in the quarter on key brands like Goldfish, which continued to drive in-market growth. We believe strongly in the accelerated growth of these brands within our Snacks portfolio and are responding to the near-term pressure by delivering strong innovation, increasing our marketing efforts, and investing at sustainable and disciplined levels, as we continue to make strides towards our long-term goals for the category. Another important focus area for fiscal '24 was delivering Snacks margin improvement, and I'm pleased that despite the volatile environment, we were able to reach approximately 15% operating margin for the full year. This finish reflects 170 basis points of expansion over the last two years. We remain extremely confident in our savings and productivity roadmaps for Snacks, but we will always ensure that we are appropriately supporting our brands, given our priority of growth. As you will hear from Carrie in a moment, we're being measured in our fiscal '25 guidance for Snacks margin improvement until we fully cycle the consumer and category recoveries. To that end, although we do expect margin progress in fiscal '25 on Snacks, we're targeting approximately 50 basis points of year-over-year improvement. Again, all savings initiatives remain on track and this moderation from our originally planned 100 basis points increase simply reflects the acceleration of planned marketing investment into this year, reflecting the competitive environment and a near-term moderate margin headwind from the Pop Secret divestiture. We remain confident in our stated longer-term goal of 17% margins for Snacks, and we'll talk more about that path during Investor Day. In summary, our fourth quarter performance was a solid close to fiscal '24 with steady progress across the business and against our strategic plan. We saw stabilizing trends in growth and volumes, compelling earnings with margin improvement, and continued progress integrating Sovos Brands. I'd like to thank the entire Campbell's team for their hard work and commitment in finding ways to deliver in an ever-evolving consumer environment. I recognize that we're not fully through the consumer recovery yet, but I can clearly see the light at the end of the tunnel. This, paired with the tremendous progress we've made in transforming Campbell's business, is setting up what I believe will be a very exciting next chapter in our storied history. We look forward to laying out that chapter at our upcoming Investor Day on September 10th in New York. With that, let me turn it over to Carrie.

Thanks, Mark, and good morning, everyone. I'll begin with an overview of our fourth quarter, including continued strong performance from the Sovos Brands acquisition. Fourth quarter reported net sales were up 11%, driven by the contribution from Sovos. Organic net sales, excluding the impact of acquisitions, divestitures, and currency, decreased 1% compared to the prior year to $2 billion. Importantly, as Mark mentioned earlier, we continued to show sequential volume improvement, moving into positive territory. Similar to the third quarter, both adjusted EBIT and adjusted earnings per share increased double digits in Q4, with expansion in both adjusted gross margin and adjusted EBIT margin. Adjusted EBIT increased 36%, primarily due to higher adjusted gross profit from the contribution of Sovos and base business performance. Adjusted EPS increased 26% to $0.63, with the impact of the acquisition approximately neutral in the quarter, which, as Mark mentioned, continued to exceed our expectations. Turning to Slide 23, on a full year basis, net sales were up 3%, including 4.5 months of sales contribution from the Sovos acquisition. Organic net sales decreased 1% compared to the prior year, with unfavorable volume and mix partially offset by the benefit of net price realization. Our organic full year net sales result was in line with the low end of our guidance range, and we have now delivered two consecutive quarters of stable or growing year-over-year volume and mix. Full year adjusted EBIT increased 6%, driven by higher adjusted gross profit from the contribution of the acquisition and base business performance. Adjusted EBIT margin improved 50 basis points, driven primarily by an increase in adjusted gross margin. Full year adjusted EPS increased 3% to $3.08, with the impact of the acquisition approximately neutral during the fiscal year. Moving to Slide 24, organic net sales declined slightly in the quarter, as sequential improvement in volume and mix was more than offset by unfavorable net pricing. We did see volumes turn positive in the quarter within our Meals & Beverages division and neutral volumes in Snacks, and both divisions saw volume improvement in the quarter compared to Q3. Looking ahead, we expect volume trends to continue to modestly improve as we move through fiscal '25. During the quarter, Sovos Brands added 12 percentage points to reported net sales growth, which exceeded our expectations. On Slide 25, fourth quarter adjusted gross profit margin expanded 80 basis points to 31.4%, consistent with Q3 margins and in line with our expectations. Drivers of margin expansion included supply chain productivity, lower other supply chain costs, and favorable mix. These contributors more than offset unfavorable net price realization, moderate cost inflation, and the impact of the Sovos Brands acquisition, which has a lower margin profile than the base business. Core inflation in the quarter remained in the low-single digit range, consistent with rates we experienced throughout the year and much lower than the 12% we reported for the full year fiscal '23. We anticipate core inflation to remain in the low-single digit range for fiscal '25 and we remain focused in areas of the portfolio where we still see higher year-over-year input costs, including olive oil, cocoa, and packaging costs, and other areas of persistent inflation, such as labor costs and warehousing costs. In fiscal '24, we delivered $60 million of enterprise cost savings, reaching a cumulative $950 million of our $1 billion multi-year cost savings program. For the full year, our total productivity initiatives and cost savings programs more than offset the impact of inflation. Turning to Slide 26, Q4 other operating items included adjusted marketing and selling expenses, which decreased 4% to $187 million. The decrease was primarily driven by lower advertising and consumer expenses in the base business, as we lapped significant spending in the prior year. Reductions in advertising and customer expenses on the base business were partially offset by the impact of the Sovos Brands acquisition. Fourth quarter adjusted administrative expenses modestly increased 1%, to $165 million. The added adjusted administrative costs from the acquisition were partially mitigated by lower incentive compensation costs and approximately $7 million in cost synergy realization in the quarter from our Sovos integration plan. This brings our total Sovos integration synergy capture to $10 million for fiscal '24. As shown on Slide 27, fourth quarter adjusted EBIT increased 36% and adjusted EBIT margin increased 260 basis points to 14.3%. This was primarily due to higher adjusted gross profit from the contribution of the acquisition and base business performance. Lower adjusted marketing and selling expenses were offset by the modest increase in adjusted administrative and R&D costs and an increase in adjusted other expenses, which were driven by higher amortization of intangible assets related to the acquisition and lower pension and post-retirement benefit income. On Slide 28, adjusted EPS increased double digits to $0.63, primarily reflecting higher adjusted EBITDA, partially offset by higher net interest expense related to higher levels of debt to fund the acquisition. As we mentioned earlier, the acquisition was approximately neutral to adjusted EPS in Q4 and to the full year. In Meals & Beverages, fourth quarter net sales increased 28%, driven by the contribution of the Sovos Brands acquisition. Pro forma Q4 net sales growth for the division, as if we had owned Sovos for all of Q4 fiscal '23, would have been approximately 4%, driven by the respective pro forma Q4 growth of Sovos of 14%. Organic net sales increased 1%, driven by gains in U.S. soup, foodservice, and Prego pasta sauces, partially offset by declines in beverages. It was great to see year-over-year volume trends turn positive in the quarter for Meals & Beverages, with favorable volume and mix of 2%, partially offset by lower net price realization of 1%. In U.S. soup, net sales increased 2%, primarily due to an increase in broth, partially offset by decreases in ready-to-serve and condensed soups. Additionally, fourth quarter operating earnings increased 60%, primarily driven by the contribution of the Sovos Brands acquisition and higher gross profit in the base business. We were pleased with the Q4 Meals & Beverages operating margin of 17.6%, which improved 350 basis points as compared to the prior year, more than absorbing the impact of the recent acquisition, which, as I mentioned earlier, has a lower margin profile than the base business. For the full year, Meals & Beverages operating margins improved 30 basis points to 18.5%. Fourth quarter organic net sales in Snacks decreased 3%. Volume and mix trends sequentially improved to flat in the quarter, with roughly 1% growth in power brands and 1% reduction in partner brands. In addition, we saw slightly more than a 2% unfavorable net price realization, of which approximately half was a planned increase in net pricing investment, and the balance reflecting the lapping of favorable trade phasing in Q4 of fiscal '23. Fourth quarter operating margin for Snacks increased 50 basis points to 14.5% and full year margin improved 40 basis points to end the year at 14.8%, generally aligned with our goal of reaching approximately 15% margins for the year as we navigated the ongoing consumer recovery. We remain on track with our network and route-to-market initiatives as part of our margin roadmap, though, as we think about fiscal '25, we will be a bit more conservative with a margin expectation modestly above 15% as volume trends continue to normalize and we absorb the near-term impact of the Pop Secret divestiture. This will give us some flexibility to remain competitive, while supporting our brands and innovation launches this coming year, while staying focused on our long-term margin goal of 17%. Turning to Slide 31, we generated strong cash flow from operations of nearly $1.2 billion in fiscal year '24. This result represented a 4% increase compared to the prior year, despite incurring one-time cash costs associated with the acquisition. Fiscal '24 capital expenditures were $517 million as we continue to prioritize key growth and capability building investments, including capital requirements related to Sovos Brands. We also remain committed to returning cash to our shareholders, with $445 million of dividends paid and $67 million in anti-dilutive share repurchases during the fiscal year. Our net debt to adjusted EBITDA leverage at the end of the fourth quarter was 3.7 times, as expected. We remain committed to investment grade ratings and our goal to return to our 3 times net leverage target by the end of year three post close. At the end of the Q4, we had approximately $108 million in cash and cash equivalents and ample liquidity under our revolving credit facility. Turning to Slide 32. Our full year fiscal '25 guidance reflects a balance between sequential progress, while also reflecting a reasonable range as we continue to navigate the ongoing consumer recovery. As a reminder, we completed the sale of our Pop Secret business earlier this week. The divestiture is estimated to reduce net sales by approximately 1 percentage point and have a $0.04 earnings per share dilutive impact in fiscal '25, which is reflected in our full year guidance. Fiscal '25 comprises 53 weeks, one additional week compared to fiscal '24. The benefit of the 53rd week is included in our fiscal '25 guidance and is estimated to be worth approximately 2 points of net sales and adjusted EBIT growth, and approximately $0.06 of adjusted EPS. Full year reported net sales are expected to increase approximately 9% to 11%, which reflects a full 12 months of net sales contribution from Sovos Brands and the loss of 11 months of net sales from the divestiture of Pop Secret. As a reminder, Sovos moves into our organic growth calculation, starting March 12th, 2025. We expect Sovos Brands' fiscal '25 pro forma net sales growth, as if we had owned Sovos for all of fiscal '24, to be in the high-single digit range, following a year of double-digit growth. Rao's will lap its more significant distribution gains, beginning in January. Moving forward, we still expect long-term Sovos Brands net sales growth to be in the mid-single digit range. Full year organic net sales growth is expected in a range of approximately flat to up 2%, reflecting the variability in the pace of consumer recovery. Our organic net sales growth expectations reflect modest positive volume and mix for the year. In terms of phasing, we expect Q1 organic net sales growth to be relatively flat, a modest improvement from Q4, and for the balance of the year, we expect sequential improvement in the consumer environment. Importantly, for the second half, although we expect healthier category trends, we will be cycling the broth net sales benefit in fiscal '24 that was the result of private label supply constraints. We expect adjusted EBIT growth of 9% to 11%, including the operating income contribution of Sovos Brands and the impact of the divestiture of Pop Secret. As a reminder, the adjusted EBIT contribution of Sovos in our guidance includes stock-based compensation expense and acquisition-related depreciation and amortization expense, whereas, historically, when Sovos was a standalone company, these costs were not included in their adjusted results. Fiscal '25 transaction-related depreciation and amortization expense is expected to be approximately $18 million, in line with our original expectations. We expect full year core inflation in the low-single digit range, consistent with fiscal '24. We also expect productivity improvements of approximately 3% and enterprise cost savings of approximately $70 million, inclusive of $10 million in cost synergies related to the integration of Sovos. Of the $70 million, roughly one-third will benefit gross profit and two-thirds to be realized in the marketing, selling and general and administrative expense categories. Additionally, in line with our continued commitment to brand investments, we expect adjusted marketing and selling expense as a percent of net sales to return to our targeted range of 9% to 10%. For Q1, we expect an increase in marketing and selling spend as compared to Q1 fiscal '24 with the addition of Sovos Brands expenses, as well as other targeted brand investments in the base business. Total company adjusted EBIT margin is expected to be similar to fiscal '24, with a modest improvement in adjusted gross margin, offset with the impact of the acquisition as it moves into our base for a full 12 months, as well as the normalization of incentive compensation and higher levels of marketing and selling costs for the base business. As mentioned earlier, Snacks operating margin is expected to be modestly above fiscal '24. Meals & Beverages operating margin is expected to be modestly lower, reflecting the mix impact of Sovos, partially offset by a modest margin improvement in the base business. Adjusted earnings per share is expected to increase 1% to 4% and be in a range of $3.12 to $3.22, including the $0.04 impact of the divestiture of Pop Secret. We expect Sovos to be approximately neutral to adjusted EPS in fiscal '25. To provide a bit more clarity about the phasing of the year, in Q1, we would expect adjusted EPS to be in the mid-to-high $0.80 range, reflecting modest dilution impacts from the Sovos acquisition and Pop Secret divestiture, as well as brand investments within our targeted 9% to 10% range. Full year adjusted net interest expense is expected to be between $350 million and $355 million. Net interest expense is higher than fiscal '24, reflecting a full year of incremental debt related to the acquisition and higher expected interest expense associated with the refinancing of our March 2025 bond maturities, with expected debt issuance timing driven by market conditions. As I wrap up guidance, capital expenditures are expected to be approximately 5% of net sales. Our priorities for fiscal 2025 include key networking optimization initiatives across both divisions; capital related to the integration of Sovos, including IT investments; and completing our growth capacity investments in our Snacks division for Goldfish and Kettle brand chips. We see great opportunity to reinvest into the business in support of growth and improved profitability. This remains very much aligned with our long-term algorithm and capital allocation priorities that we'll talk more about at our upcoming Investor Day. To wrap up, we were pleased with our fourth quarter results, delivering double-digit growth in both adjusted EBIT and EPS, and margin expansion. As we head into fiscal '25, we remain encouraged by the continued expectation for improving volume trends in the business and sustaining the momentum following our first full quarter with Sovos Brands in our results. With that, let me turn it over to the operator to begin Q&A.

Great. Good morning, everybody.

Hi, Andrew.

Hi, there. Mark, I'm sure there will be plenty of questions on Snacks. So maybe I'd like to focus a bit on Meals & Beverages to start.

Okay.

Organic sales rose 1%, right? 2% gain in volume. So, momentum clearly improving here even without Sovos being in the base. So I was hoping you could talk just a bit more about sort of the key drivers here and, I guess, more importantly, the sustainability, right, of these improved results, especially in the context of the industry supply in broth coming back later this calendar year.

Yes. I believe the first thing to mention is that the current consumer landscape is favorable for our categories. Meals and Beverages are well-positioned as consumers continue to eat more at home, leading to high numbers in cooking, value, affordability, and convenience. Our brands perfectly align with this trend, which supports our ongoing growth. However, many investors have questioned whether we can increase soup volume without sacrificing margins. This quarter showcased our ability to do just that. The latest four weeks leading into Q1 have shown strong momentum across all our segments, although we need to focus a bit more on ready-to-serve products. Consumer choices vary with seasonal priorities, so I expect ready-to-serve and Chunky to perform better in the first half of the year. Overall, these businesses are on solid ground. The growth in broth, particularly with private label, has been significant over the past couple of quarters. Interestingly, even though our prices are above private label, the category is still thriving, with Swanson benefiting from all this consumption. We're optimistic about the soup segment as we head into the season and the holidays. Our sauce business has also performed well, with both Rao's and Prego showing growth. Prego has maintained its strong performance, while Rao's continues to be a key driver. Rao's total brand growth in the fourth quarter was 25%, and we haven't fully tapped into marketing and innovation for that brand yet. We anticipate high-single-digit growth in '25 and mid-single-digit growth in the long term, helping to establish Meals & Beverages as a consistent growth area. Even with some normalization in the latter half of the year, we are confident in the positive contributions from this business, marking a new chapter for Meals & Beverages. While I appreciate Rao's continuous growth, I believe that the volume-driven recovery in soup is a more significant indicator of our division's future potential.

Got it. And then maybe just briefly, you've been consistent for a long time now about the broader industry recovering being more of a when rather than an if. It's obviously taken longer than most anticipated. I think many investors remain somewhat skeptical about this recovery because we haven't observed it in a noticeable way in the data, not just in relation to Campbell. Could you just briefly share the reasoning behind your belief in that?

Yes, I understand there's a lot of negativity out there, but I'm not seeing it reflected in the numbers. In fact, while we will discuss Snacks soon, the pressure I experienced in that segment was primarily due to share dynamics rather than the overall category. Currently, about 75% of the categories we're involved in are returning to growth. Is Snacks back to its previous historical growth rate? Not quite, but we did see Kettle potato chips increase by 7% this quarter, pretzels rise by 4%, and our organic and natural tortillas go up by 5%. Cookies saw a smaller increase but remained positive, and overall snacking, including total salty, was up by 1%. The metrics I monitor for future expectations continue to indicate a return to normalcy. I always remind us that in the Campbell's business and Campbell Snacks, we are still comparing against nearly double-digit growth, with total Snacks at 9% a year ago and power brands at 9.5%. I acknowledge that the recovery has taken longer than I anticipated, but I don't see any signals indicating otherwise from the data, aside from a small dip in consumer confidence. I don't wish to downplay the challenges many consumers are facing, yet I believe we've experienced enough of this cycle to start recognizing normalization. In fact, soup was up 6% in recent weeks, pasta sauce continues to grow, and salsa is also increasing, with most of our core businesses performing well. As I mentioned last quarter and still believe, the recovery experience varies by category. For some, it might seem that recovery is still far off, but I maintain that this recovery won't be linear. I'm pleased that a number of our categories are positioned towards the peak of that recovery curve. Even amid a sluggish recovery in snacking, our subsegments are faring well. While we still need to address some share loss and new competition in a few categories, I'm more inclined to tackle these challenges than be concerned about structural issues affecting category growth.

Thank you.

Hi, thank you. I wanted to ask about Snacks. Mark, I appreciate that it's not so much promo that's acting as a headwind as much as competition from new entrants.

Yes.

But I'm curious, isn't this also a bit of a worry? And the reason I'm asking is, you're attacking the problem with innovation and marketing, it's great to see. But this is a problem across a number of food categories that we're seeing, which is that challenger brands are taking share and intensifying. And yes, but I would rather have competition via innovation than discounting, sure. But I guess, maybe you could walk us through your confidence...

Yes, that's a great question, Ken. I definitely want to clarify that we are highly focused on this area as we move into 2025. When I consider where we are feeling the pressure, it is primarily in salty snacks. There are new competitors entering the pretzel, Kettle, and healthier tortilla markets, which is concerning. However, I believe we are well-equipped with our portfolio of brands. In the pretzel category, for instance, we have been established for some time with three brands: Snyder's of Hanover, Snack Factory, and Goldfish, which plays a significant role in pretzels. I can leverage these brands in our defense strategy and we will outline our comprehensive approach at Investor Day. It’s crucial for us to address this. That said, I believe we also need to increase our marketing support to back the innovations we are implementing, and you will see that reflected in our future guidance. Regarding Kettle, I view it as more of a me-too product, and I need to utilize both Kettle and Cape Cod more effectively as a portfolio to succeed in that space. For tortillas, we have a compelling narrative with Late July. I'm confident for three main reasons: our brands are well-positioned to defend themselves, our innovation and marketing have not reached their full potential during this competitive time, and we are prepared to respond effectively. We have the resources and pipeline ready for next year. I don’t perceive this challenge as purely a price competition, but maintaining a reasonable promotional frequency and price gaps is essential for us. We plan to keep our adjustments modest, under 100 basis points, with targeted investments to stay competitive. While I don't want to suggest we've completely resolved these challenges, I do feel we are in a strong position to tackle them. Additionally, being in a category growing at 9%, like Kettle, provides a solid environment for this competition. I’m pleased to see recovery in specific snacking segments and believe we can successfully navigate this playing field. I'm always ready to take on that challenge.

Thank you for your response. I have a quick follow-up; you mentioned that certain parts of your guidance, or guidance in general, is prudent. I won't elaborate on that, but I have a specific question: does your guidance assume a reversal in broth share next year? In other words, are you assuming that...

It does.

It does? Okay. Thank you.

Yes. In the second half of the year, we expect a normalization of share. That said, we will make every effort to retain all those households with Swanson. From a cautious perspective, we've seen some normalization in the past, and we are using that as a guideline for our plan. The team is also actively working to exceed those expectations.

Thanks, Mark.

Thanks, Ken.

Hi, guys, good morning.

Hi, Peter.

Mark, maybe if we can actually hone in a bit more on Snacks? I mean, your largest competitor has obviously talked about also just pressure that they're seeing, particularly in unseasoned or more plain potato chips, as well as tortilla chips. And just kind of the interaction you're seeing amongst late July kettle and Cape Cod? And then maybe as a part B to that question, those three brands in particular, at least when I think about them, tend to be a bigger presence maybe in club channels. And just, is there a store format difference that you're noticing between club and maybe...

Yes, there is a noticeable division between mainstream segments and more premium segments. For instance, in Q4, potato chips as a whole increased by around 3%, which isn't too bad, but still shows signs of trade-down pressure and increased promotional activity. We have Jay Cod, which we refer to as our Allied brands, particularly Jays potato chips. This trend is evident in a very small part of our business. However, our main power brands are performing in a more premium space, recovering faster as they cater to middle to upper-middle and higher-income households, which have proven to be more resilient. In this context, innovation and effective marketing are key drivers, with promotions also playing a significant role. That said, the competitive landscape in premium segments differs significantly from that in lower and mainstream segments, where price competition is more pronounced and private label options are gaining traction. In the pretzel category, for example, our base pretzel line faces more pressure, but Snyder's operates at a higher level, which positively influences our overall business.

Okay. No, that's helpful. And maybe just as a follow-up to Ken's question, just to clarify on the organic sales guidance for the year, the first quarter being flat, I'm assuming then we should kind of see a step-down potentially in org sales kind of through the middle parts of the year, and then again maybe that ramp-up just as you hit the 53rd week in 4Q, which I think you're including in the organic sales guidance. So, maybe if you could just clarify that? Thanks very much.

Yes. So, 53rd week is not in organic sales.

Reported, but not in the organic.

Right. And maybe, Carrie, talk a little bit about the phasing of the year, but we do not see like a Q2 significant drop-off.

No. As we consider the second quarter, you benefit from the holiday season and many of our innovations launch during that time. It's important to keep that in mind. Moving into the second half, I believe the categories will remain strong, so you should expect sequential improvement in those categories. However, as Mark mentioned regarding M&B, you need to consider the cycling of the broth, as our market share normalizes in that area. Make sure to account for that in your model.

Yes, I think one of the ways to think about this is at the time that you're cycling a little bit of a broth headwind, I'm also expecting the Snacks business to be returning a bit more to normality as far as categories. So, I would plot your course for the year as a little bit more of a gradual improvement as we get into the second quarter and beyond, and then perhaps a little bit of a swap of who's kind of leading the drive, but in essence, kind of getting both businesses into what I would call a more normal trajectory.

Thank you.

Thank you. Good morning.

Hi, Mike.

I want to revisit consumer sentiment and understand how you've managed various risks. There's an ongoing discussion about the possibility of a soft landing versus a recession among some macroeconomic teams, and I'll leave that analysis to them. However, it appears there's more focus on potential risks than on chances for improvement. You've mentioned that you're analyzing the data, but it can sometimes reflect past conditions more than it indicates future trends. I'm interested in your perspective on how you would position yourself in the event of a recession. If one were to occur, it's uncertain what the situation would be like, but do you anticipate benefiting from a shift towards more at-home food consumption? With the addition of Sovos, you now have premium and appealing value options in your portfolio for consumers. How do you think this will balance out, and how have you prepared for these scenarios?

Yes. The first thing I want to mention is that while you may perceive a more optimistic outlook on the consumer landscape compared to others, we are planning for the year without expecting a significant and rapid recovery. Instead, we anticipate a gradual rebound in snacking, a more stable performance in Meals & Beverage, and some shifts in the latter half of the year, where we might face challenges in broth and see a more normalized status in the Meals & Beverage category along with a modest recovery in Snacks. We're looking at a growth range of 0% to 2%. If the situation worsens, I have two considerations that help shape our plan. First, this wouldn’t indicate the same level of extraordinary growth we experienced while adjusting prices and benefiting from other growth factors, since our baseline is relatively subdued. If this situation persists longer than anticipated, the changes won’t be as dramatic as the drop-off we experienced after years of exceptional growth. The second point is that now is a favorable time to have a diverse portfolio like ours, which includes various categories that have been performing well in the last year, such as soup and broth due to increased at-home dining. Pasta sauce has remained stable in various economic conditions, and Snacks have historically shown resilience during downturns despite our current normalization efforts. Our brand's role in our portfolio positions us positively, even in challenging times. However, our plan does not anticipate a pronounced recovery. Consumer confidence is an essential metric for me, and it declined in Q4. My view of the consumer is somewhat positive but remains delicate, so I don't want to overestimate the underlying conditions and their implications.

That's great information. To clarify, I want to revisit the 53rd week. I thought I understood it, but your previous answer has confused me. In the release, you mention that the benefit of the 53rd week is reflected in the fiscal '25 guidance and is estimated to contribute approximately 2 points of growth to both reported and organic net sales, as well as adjusted EBIT, along with $0.06 to EPS. Where do we see the 53rd week in the EPS and organic growth figures? Are there additional details?

Yes. Just to clarify, in the organic growth, the benefit of the 53rd week has been removed.

But in the EBIT and in the EPS…

It is in there.

Right. It's just that in the organic net sales growth, Michael, it's been that is…

Okay. Thanks so much.