Campbell Soup Company (CPB) — Q1 2025 Earnings Call Transcript

Good morning, and welcome to The Campbell's Company first quarter fiscal ‘25 earnings conference call. I'm Rebecca Gardy, Campbell’s Chief Investor Relations Officer. 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 prepared remarks, the slide deck and earnings press release have been posted to the Investor Relations section on our website, thecampbellscompany.com. Following the conclusion of the Q&A session, a replay of the webcast will be available at the same location, followed by a transcript of the call within 24 hours. Slide 2 outlines today's agenda. Mark will provide insights into our first-quarter performance as well as our in-market performance by division. Please note effective first quarter fiscal ‘25 and going forward, we are using Circana MULO+ for in-market data. Carrie will then discuss the financial results of the quarter in more detail and review our guidance for the full fiscal year 25, which we reaffirmed last night. 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. Before I turn it over to Mark one last time, I wanted to personally thank you, Mark, for your extraordinary leadership and unwavering commitment to excellence. And now with that, Mark.

Before we review our results, I want to take a moment to address last night’s announcements of my plans to retire from Campbell’s and transition with the incoming CEO over the next two months. I'd like to congratulate Mick Beekhuizen on becoming the 15th CEO in Campbell’s 155-year history. The Board and I have full confidence in his readiness to lead this great team and company. As I prepare to step back, Campbell’s could not be better positioned for the future. I believe that Campbell’s has the top leadership team in the business. They are experienced, engaged, and fully committed to setting the standard for performance. Together, we built the best portfolio in all of food and transformed the company. This enables me to make this decision with the utmost confidence in the company’s trajectory going forward. With our strategy firmly rooted and our team highly engaged and aligned, I am certain that Campbell’s future is bright. Leaving Campbell’s was not an easy choice. Since I was a boy, sports have played an important part of my life, and the idea of working in the world of sports, particularly in the NFL, has been a lifelong goal. It is truly a once-in-a-lifetime moment to become the Team President of the Washington Commanders. I am incredibly grateful to Josh Harris and the Washington Commanders ownership group for the opportunity to lead this iconic franchise into a new chapter of growth. I look forward to supporting ownership and the entire Commanders team in building a championship-caliber organization. These last six years have been an incredible privilege and honor, as well as the most rewarding professional experience in my nearly 30 years in the food industry. Without doubt, what made it so special is the entire Campbell’s team. Their passion and commitment day in and day out inspired me throughout this incredible journey. I’d also like to thank the Campbell’s Board of Directors and investors for their trust and support over these past six years. Now, let’s turn to Campbell’s first-quarter results. We began fiscal ‘25 with a first quarter generally in line with our expectations, with net sales up 10%, reflecting the momentum that Sovos added to our top-line performance. Organic net sales were down 1% due to a continued dynamic consumer environment and some impact from movements in retailer inventory levels influenced by the later timing of the Thanksgiving holiday this year. We delivered 6% year-over-year growth in adjusted EBIT and an adjusted EPS of $0.89. Excluding Sovos, in-market performance was flat, in line with expectations, with the difference between our organic net sales and in-market consumption explained by the later Thanksgiving holiday for Meals and Beverages and lower partner brands net sales in Snacks. Importantly, our 16 Leadership Brands showed growth in both dollar consumption and share in the quarter. Including Sovos on a pro forma basis, in-market dollar consumption was positive 2%. The team continues to do an excellent job navigating the complex environment, delivering strong productivity, cost savings, and remaining ahead of our plans for the integration of the Sovos business. We reaffirmed our fiscal ‘25 guidance, which reflects our expectation of steady progress and incorporates an appropriate level of pragmatism. The upcoming second quarter, including the critical holiday season, will serve as an important milestone for progress in delivering our full-year commitments. We expect sequential top-line and market share momentum in Q2, continuing into the second half of our fiscal year. Carrie will provide more details on guidance in a moment. On slide 6, I want to briefly expand on the material benefit we are experiencing with the integration of Sovos. While our Q1 organic net sales declined 1% from the prior year with flat volume and mix, when including the pro forma contribution from Sovos, total company net sales would have been flat to the prior year with positive volume and mix. The growth of Sovos, specifically the Rao’s brand, is exceeding our expectations and adding important momentum to our Meals & Beverages division and the company. The overall food sector continues to reflect improvement, with favorable trends across multiple fronts starting with improving consumer confidence. We are seeing further stabilization in food volumes as prices continue to normalize, and we anticipate ongoing recovery throughout fiscal year 2025. Although not every category is recovering at the same pace, we continue to be encouraged by this overall progress, and with 75% of our portfolio in growing categories, we remain in an advantaged position as the consumer recovery continues. As we discussed at our Investor Day, we have transformed Campbell’s portfolio and evolved how we promote our most important brands. We call these 16 brands our Leadership Brands, with eight in Meals and Beverages and eight in Snacks. In the first quarter, these brands represented the majority of total enterprise net sales and segment operating earnings and held dominant #1 or #2 positions in almost all of their respective categories. In Q1, Leadership Brands grew dollar consumption by nearly 2% with positive share growth. We continue to experience competitive pressure in certain Snack categories from new entrants and some continued trade-down to private label in salty snacks and cookies. However, we remain confident in the strength of our Leadership Brands and our plans throughout the year. Now let’s take a closer look at each division. Moving to our Meals & Beverages division on Slide 9, organic net sales were flat compared to the prior year with volume and mix growth of 1%. Net sales were impacted by movements in retailer inventory driven by the later timing of the Thanksgiving holiday. This is reflected in the higher 2%-dollar in-market consumption growth, resulting in a 200-basis point difference to organic net sales growth. On a pro forma basis, with the addition of Sovos brands, Meals & Beverages net sales grew 2%, fueled by 3% volume and mix growth, with in-market dollar consumption increasing 5%. Turning to page 10, our Soup portfolio strengthened in Q1 as expected, with Campbell’s dollar consumption increasing modestly ahead of or in line with the category average. This marks the third consecutive quarter of dollar share growth, driven by broth and our condensed cooking segments, along with improving Ready-to-Serve trends as we head into soup season. In broth, Swanson continued to benefit from the combination of increased category usage and challenges faced by private label services. While private label is recovering, we expect modest share headwinds in the second quarter, which may increase in the second half of the fiscal year as private label fully recovers. As we’ve said before, although we expect share normalization over the next 12 months, the incremental household growth we achieved during this period gives us an excellent opportunity to retain more of those consumers going forward. Our condensed soup segment grew share for the fourth consecutive quarter, led by our red and white cooking soups that are outpacing private label, as consumers continue to cook at home with trusted quality brands. We expect condensed eating soup to improve with colder weather. Consequently, we observed stabilization in our Ready-to-Serve portfolio, gaining share led by robust performance in Chunky, Rao’s, and Homestyle due to our focus on innovation, marketing, and in-store execution across the entire Ready-to-Serve range. This growth also includes the planned de-listment of Well Yes! which represented just under a share point of headwind in the quarter. Looking at our Italian sauce portfolio on slide 11, the combination of Rao's and Prego continues to deliver exceptional momentum across this billion-dollar platform. The remarkable performance of Rao's stands out, with in-market consumption maintaining a robust 15% growth. This momentum pairs with Prego, which saw a 5% increase in market share. By positioning these powerhouse brands to serve distinct consumer segments and price tiers, we've created an impressive platform to expand our market presence and meet diverse consumer preferences. Our sauce portfolio exemplifies our ability to capture growth across multiple segments while maintaining strong brand equity in both premium and mainstream spaces. Rao's continues to perform better than expected, and we now anticipate pro forma growth in fiscal ‘25 to be slightly above 10% versus the previously guided high-single-digits. Over the long term, we expect Rao’s growth to settle in at a mid-single-digit growth range. Additionally, integration is progressing exceptionally well, as the Distinctive Brands team drives both operational excellence and strategic advancement across the portfolio. What excites us most is the substantial headroom for expansion. While Rao's leads the Italian sauce category in dollar share, it serves only half as many households as Prego and maintains just 60% of the SKU assortment of Prego. Our research shows particularly strong momentum, with millennial household adoption surging at more than twice the category's pace. This remarkable traction with younger demographics strengthens our conviction about Rao's long-term potential. We are also excited about expanding into promising segments like Alfredo varieties and even more premium offerings such as white truffle marinara, which we believe will further accelerate household penetration. One area continuing to fuel incremental growth is the strong value and quality comparison between Rao’s and mainstream Italian takeout. This position allows Rao’s to capture volume from a much larger addressable market and a broader range of consumer income levels. Turning to our Snacks business on slide 14, we achieved commendable progress in several key areas despite facing a 2% decline in organic net sales. Notably, organic net sales were impacted by approximately 1 percentage point due to our planned reduction in Partner brands, reflecting our strategic and deliberate portfolio reshaping efforts discussed at our recent Investor Day. This strategy enables us to concentrate resources on our differentiated Leadership Brands where we see the greatest potential for sustainable growth and margin enhancement. As shown on Slide 15, in Q1, we observed overall snacking categories beginning to recover, as expected, and we held or grew share in several areas, with solid performance in our crackers, fresh bakery, and deli snack segments while navigating a more competitive environment in salty snacks and cookies. Let me start with what worked well. Goldfish maintained its #1 position with teens during the important back-to-school season, and consumers responded enthusiastically to platforms like Goldfish Crisps, validating the extendibility of this $1 billion brand. Pepperidge Farm bakery continued its momentum from the fourth quarter, growing both in volume and share as innovation and in-market execution continue to fuel growth. In the deli segment, Snack Factory, including our seasonal Pumpkin Spice pretzels, delivered in-market growth and share gains. We are excited about Snack Factory's expansion into the pretzel aisle with Pop‘ums and Bites, unique munchable and flavorful additions alongside our Snyder’s of Hanover platforms. In salty snacks, although new entrants and heightened promotions are putting pressure on shares, the competitive environment has remained constructive. We have comprehensive plans for Q2 that include innovation, marketing, and targeted promotions to remain competitive and defend key core segments. In cookies and pretzels, we have experienced more pressure from private label. In these segments, we will maintain discipline on pricing while increasing advertising and innovation, especially ahead of the key holiday season. In the past weeks, our full line of Pepperidge Farm holiday cookies has been showcased, featuring our first-ever collectible holiday cookie jars; Fancy Santa returns to support the launch of White Chocolate Milano’s, and we aim to build Snyder’s Pretzel log homes, giving the Gingerbread people a break this holiday season. In summary, consumer trends and category recovery continue to progress. Although not every category is recovering at the same pace, we anticipate an improving environment through the remainder of fiscal ‘25. Our first-quarter results were generally aligned with expectations, driven by the Sovos Brands acquisition, strong performance from Leadership Brands, and continued exceptional execution. We are ensuring that we are well positioned in Q2 for the key holiday season and expect Q2 to demonstrate sequential improvement as we work towards delivering our full-year fiscal ‘25 guidance. We made significant progress with the Sovos Brands integration, and with the strength of the Rao’s brand, we now expect the acquisition to contribute positively to adjusted EPS in fiscal ‘25. Overall, with our continued confidence in the team, portfolio, and execution, we remain well-positioned to navigate the improving environment. With that, let me turn it over to Carrie.

Thanks Mark, and good morning, everyone. Our first quarter results were generally in line with our expectations, with overperformance from Sovos Brands, and an earnings performance in line with expectations. Reported net sales were up 10% driven by the strong sales contribution from Sovos. Organic net sales, excluding the impact of acquisitions, divestitures, and currency, decreased 1%, reflecting a continued dynamic consumer environment and some impact due to the movements in retailer inventory levels influenced by the later timing of the Thanksgiving holiday this year. Adjusted EBIT grew 6% reflecting the strong contribution from the acquisition, while adjusted EPS decreased 2% to $0.89 due to higher interest expense stemming from higher levels of debt. The impact of the acquisition was approximately neutral to adjusted EPS in the quarter, which continued to exceed our expectations. Turning to slide 21, as mentioned earlier, organic net sales for the first quarter were down 1%. This was driven by flat volume and mix, offset by anticipated unfavorable net price of 1%. Sovos Brands added 12 percentage points to reported net sales growth. On slide 22, first quarter adjusted gross profit margin declined 70 basis points, primarily driven by a 60-basis point impact from the acquisition. Excluding the acquisition, our base business adjusted gross margin was down a modest 10 basis points with productivity improvements and cost savings initiatives largely offsetting inflation and other supply chain cost and planned unfavorable net price realization. For the full year, we expect our planned productivity and cost savings initiatives to be more than sufficient to offset the impact of low-single digit core inflation for the full year. In the first quarter, we delivered approximately $30 million of savings under the new $250 million cost savings program, of which approximately $9 million was Sovos integration savings. Turning to Slide 23, marketing and selling expenses and admin expenses increased in total dollar spend from the prior year, reflecting the integration of Sovos Brands. However, both expense areas remained flat as a percentage of net sales. Within marketing and selling expenses, advertising and consumer promotion expenses rose by 13%, primarily driven by the impact of the acquisition. Adjusted administrative expenses increased 9%, again driven by the impact of the acquisition, as well as higher general administrative cost and inflation, partially offset by the benefits from cost savings initiatives. As shown on slide 24, first quarter adjusted EBIT increased 6% primarily due to adjusted gross profit partially offset by an increase in adjusted marketing and selling expenses and adjusted administrative and R&D expenses. On slide 25, adjusted EPS moved modestly lower to $0.89, primarily as EBIT growth was more than offset by higher interest expense, related to the acquisition and the refinancing of $1.15 billion of our outstanding bonds. As we mentioned earlier, the acquisition was approximately neutral to adjusted EPS in the quarter. Turning to slide 26, Meals & Beverages’ first quarter reported net sales increased 22%, due to the contribution of the acquisition. Pro forma Q1 net sales growth for the division, as if we had owned Sovos for all of Q1 fiscal 2024, would have been approximately 2%, driven by the respective pro forma Q1 growth of Sovos of 14%. Organic net sales were flat to prior year, driven by gains in Prego pasta sauces, Canada and foodservice, offset by later Thanksgiving timing-driven inventory declines. Positive volume and mix of 1% was offset by unfavorable net price realization. U.S. soup in-market consumption was positive 1% compared to a decline in U.S. soup organic net sales, with the difference driven in part from the impact on retailer inventory of the later Thanksgiving holiday this year. Additionally, first quarter operating earnings in the division increased 17% primarily due to the benefit of the acquisition and lower marketing and selling expenses in the base business. Q1 operating margin for Meals & Beverages decreased 60 basis points to 19.8%, driven by the impact of the acquisition, as expected. Excluding the acquisition, operating margin improved year-over-year. First quarter organic net sales in Snacks decreased 2%, driven by declines in partner and contract brands, Pepperidge Farm cookies, Goldfish crackers and Late July snacks. Sales were impacted by volume and mix declines of 1%, reflecting an approximate 100 basis point headwind from lower partner and contract brand sales, and lower net price realization of 1%. Snacks operating earnings in the quarter declined 12% due to lower gross profit, as the impact of inflation and other supply chain costs, and lower price realization were partially offset by supply chain productivity. Q1 operating margin for Snacks decreased 120 basis points to 13.3%. This was driven by lower gross profit margin and higher marketing and selling expenses as a percent of net sales. We expect stronger operating earnings growth and margin performance in the second half of the year reflecting improving volume trends, a more neutral second half net price impact compared to the prior year, favorable mix with stronger contribution from Leadership Brands, and a higher benefit of productivity and cost savings net of core inflation and other supply chain costs. Turning to slide 28, we generated $225 million in operating cash flow in the first quarter, a 29% increase from the prior year. We continue to prioritize reinvestment back into the business to drive incremental growth, productivity and enhanced business capabilities with Q1 capital expenditures of $110 million. We also remain committed to returning cash to our shareholders, with $116 million of dividends paid and $54 million in anti-dilutive share repurchases in the quarter. We also announced a 5% increase in our regular quarterly dividend for dividends payable on January 27th, 2025, reflecting confidence in our earnings, cash flow and long-term growth potential. Our net debt to adjusted EBITDA leverage ratio at the end of the first quarter was 3.7 times, reflecting the financing of the Sovos acquisition, and in-line with our ratio at the end of fiscal 2024. We remain committed to investment grade ratings and our goal is to return to our 3 times net leverage target in fiscal 2027. At the end of the first quarter, the company had approximately $808 million in cash and cash equivalents and approximately $1.85 billion available under our revolving credit facility. On October 2nd, we completed the issuance of $1.15 billion in bonds to refinance existing debt. Based on our Q1 performance, we are reaffirming our fiscal ‘25 full year guidance provided on our fourth quarter earnings call. Accordingly, guidance ranges reflect a balance between expected sequential progress and pragmatism as the company continues to navigate the current environment. The upper end of the range anticipates a quicker normalization of the consumer landscape while the lower end of the range assumes a slower, more conservative pace of recovery. As Mark mentioned, and like other companies in the food industry, we continue to operate in a dynamic macroeconomic and consumer environment. To continue to meet this near-term challenge, we have planned for less than 100 basis points of net price investment for fiscal 2025, with a step-up in Q2 to support the crucial holiday period. To balance this need, we have a robust pipeline of savings and performance opportunities to support this investment. These opportunities include the following. First, an acceleration in full year fiscal ‘25 cost savings pursuant to our new three-year, $250 million program. Savings for fiscal ‘25 are now expected to be in the range of $90 million, up from our prior expectation of $70 million. Second full year adjusted net interest expense is now expected to be in a range of approximately $340 million to $345 million, a $10 million improvement from our prior guidance, primarily driven by the lower coupons on the debt issued to refinance $1.15 billion of debt that matures later this fiscal year. And third, as was mentioned earlier, Sovos Brands, specifically Rao’s, continues to perform better than anticipated. Accordingly, Sovos’ pro forma growth for fiscal ‘25 is now expected to be slightly above 10%, an increase from our earlier expectation of high single-digit growth. The acquisition is now expected to be accretive to adjusted EPS in the second half and for the full fiscal year. Collectively, these three areas provide confidence to maintain our guidance range while also creating the necessary room to continue to invest behind our brands and stay competitive while navigating this dynamic environment. The second quarter will be an important indicator of progress in meeting our expectations. Should the consumer recovery be prolonged beyond the second quarter, the lower end of the company’s sales and adjusted EPS guidance would become more likely. Specifically, for Q2, we expect to see sequential improvement from the first quarter, with organic net sales growth to be relatively flat versus the prior year with positive volume and mix. Adjusted EPS is expected to be in the low $0.70 range, reflecting a sequential step-up in investment levels in both marketing and selling expenses as a percent of net sales and net price to support holiday and innovation launches and to maintain competitiveness. Looking at the second half of fiscal ‘25, we expect organic growth to modestly improve from the first half reflecting the contribution of Sovos Brands moving into organic growth, as of March 12, 2025, and improving trends on the base business, partially offset by lower expected net sales of our broth portfolio, as we cycle outsized growth in the second half of fiscal 2024 related to a competitor supply issue. In addition, we continue to expect adjusted EPS progress in the second half of fiscal ‘25 reflecting a more neutral net price and marketing expense impact compared to the prior year, higher net benefit of productivity and cost savings, including savings from the integration of Sovos, a lower year-over-year headwind from interest expense, and a $0.07 benefit from the 53rd week in Q4. Recall on November 12th, we announced the planned divestiture of noosa. Our full-year fiscal ‘25 guidance does not yet reflect the impact of the pending divestiture which is expected to close in the first quarter of calendar year 2025. We’ll plan to update our guidance on our next regularly scheduled earnings call following the closing of the transaction. Noosa’s trailing twelve-months of net sales through the end of October was $177 million, and the transaction is expected to be dilutive to earnings per share by approximately $0.01 in fiscal ‘25. All other underlying guidance assumptions remain unchanged. To wrap up, we were pleased with our Q1 performance, which was generally in-line with expectations with strong results from Sovos Brands. We remain focused on delivering value to our consumers in partnership with our customers, making progress on our productivity and cost savings initiatives, while continuing our capital discipline and consistent cash generation to reward our shareholders. For the full year, we are reaffirming our guidance, and are taking a measured, balanced approach to a more competitive environment by building out a pipeline of additional savings that enables us to continue to position our brands for the long-term. That concludes our prepared remarks. Before turning the call over to the operator, I want to congratulate Mark on his new opportunity, and I look forward to working with Mick in his new capacity as Campbell’s future CEO.

Hi, good morning. And Mark, a hearty congratulations to you. It's incredibly exciting to hear about this. Doesn't happen every day where you see one of our CEOs going to the NFL. So it's unique, and I'm happy for you. I wanted to ask about the gross margin and marketing. They came in both a little bit below consensus expectations. You provided a helpful breakdown of the gross margin drivers as usual. But just versus your own expectations, I know the quarter broadly came in-line with what you were looking for, you said. But as we think about the gross margin and marketing kind of those building blocks of the EBIT margin, how did they perform versus what you anticipated coming into the quarter?

Yes, it's a good question, Ken. I'll try to give you a little bit of insight on a couple of differences. And then have Carrie add some color to it. But I think the primary building blocks. So if you think about what we expected pricing to do, what we expected productivity to do and cost savings to do, all of those were very much in-line with what we expected. So no surprises really across the board. I think perhaps the piece that was a little bit different was the mix of the business. So we had a, as you would have seen a very, very strong performance out of Rao's and Sovos. A little bit softer organic business really reflective of the later timing of Thanksgiving and the inventory shift that occurred primarily in meals and beverages. If you think about what those categories are, those are generally very favorable to our mix. And we would have seen a little bit of more pressure coming in through that combination. I mean as Carrie mentioned, if you take the Sovos mix impact out, you essentially were neutral, down slightly but neutral. But that was probably the biggest driver of maybe a little bit of the disconnect between what was expected and what came in, although I would say from a materiality standpoint, not a major swing. Carrie, anything to add to that?

Yes. I would just elaborate on that is that as you think about that mix of gross margin, you had higher Sovos and Rao's, which is at a lower margin profile. And then our legacy business, which has a higher margin profile, came in a little lower. So that created a mix issue there. In addition, in terms of the beat on the bottom-line, the other thing that interest expense came in a little bit better. And I think that's a good thing. I think we've been proactively managing interest expense. We accelerated a refinancing of our debt that's coming due later this year. So all of that was helpful as we continue to move Sovos to that accretive nature for the full year.

Yes. To conclude my thoughts, I've seen some of the discussions from last night and this morning regarding our marketing and sales strategy for the year. In this quarter, while our base business has seen growth due to the acquisition of Rao's, our organic business has remained essentially flat. As we mentioned earlier, we anticipate increasing our performance, particularly in Q2 when we expect a more substantial increase due to the holiday season and our innovation initiatives. Although there might have been some confusion, we are in a strong position regarding our Q1 investments. For Q2, as we previously outlined, you should expect a noticeable increase in our investment efforts.

Okay. Thanks. Before my follow-up, I've been told by two people that I was overly enthusiastic in my praise. So to balance that out, I'll add a "fly eagle fly." Mark Clouse: The base sale is the right one, Ken. That's the new one that you need to learn. I don't acknowledge that. So the bar for 2H remains, I guess, a bit higher, just to jump back to Campbell, than some investors might be comfortable with, I guess, is the right way to say it. Is there anything unusual in terms of timing benefits, tailwinds we should be considering as we model the back half of the year? Just things that may not be obvious to the observers of the company at first glance.

Yes, I think there are. Carrie, could you please go over what we would describe as the pathway?

Yes. As we look ahead to the second half, we anticipate a slight improvement in organic growth compared to the first half, influenced by Sovos entering organic growth in March. Additionally, when we analyze the core business, we expect better trends, though they may be somewhat hindered by lower anticipated broth net sales as we are comparing against last year’s exceptional growth tied to a competitor's supply challenge. Overall, we foresee modest improvement, but nothing significant in terms of organic growth trends for the second half. Regarding the P&L, there are a few key points to highlight. We expect progress in EPS and margin in the second half, driven by a more balanced net price and marketing impact relative to the prior year. We will also benefit from greater productivity and cost savings in the second half versus the first half, including savings from the integration of Sovos, as we expect it to become accretive in this period and we will experience reduced headwinds from interest expenses as we begin to lap the acquisition from mid-March of last year. Furthermore, keep in mind the advantage of the 53rd week in Q4, which will provide a $0.07 benefit that is specifically relevant to our fourth quarter. With these factors in mind, I see positive developments such as favorable interest expenses and accelerated cost savings as encouraging signs. Overall, our confidence in our earnings and cash flow remains strong, and I would also like to mention that we have increased our dividend.

Yes, I believe this adds a strong level of confidence in the business. I want to highlight that we are looking at four months of contributions from Rao's, which has performed better than we anticipated, alongside the positive impact of our cost-saving initiatives and slightly lower interest expenses. Additionally, as Carrie mentioned earlier, we are successfully managing our debt, which is a key factor this year. This gives us added confidence even as we consider further investments. When discussing pricing, it's important to set realistic expectations for Q2 while noting that for the full year, we still anticipate results to be under 100 basis points. Overall, this is not a significant change from the guidance we provided at the beginning of the year, and I hope this clarifies our outlook for the latter half of the year.

Thanks very much.

Thanks good morning. Let me add my congratulations to you as well, Mark, and also congratulations to Mick.

Thanks Andrew.

Sure. Maybe just following on with the prior question for a minute around the back half. Organic sales came in sort of down 1% in the quarter versus expectations for kind of a flattish result. And you now expect flat organic sales in fiscal 2Q, where the Street was looking for a sort of a modest year-over-year increase. And I guess we've seen many calendar year reporters in the food space recently discussed sort of their expectations for another below-algorithm year next calendar year, which would kind of correlate to Campbell's back half of your fiscal '25 when you expect results to continue to sort of improve. So I guess I'm just trying to get a sense of I know you went through some of the drivers just now around the back half. But I mean how much are you taking into account some of those factors right, that many industry players are already kind of saying, hey, next year is kind of not a lot of cause, but like not going to be kind of where we want it to be. I'm trying to like square those two things, I guess.

I believe it’s important to set expectations clearly. We are not predicting a significant increase. Looking at the second half, I see that a year ago we began facing some headwinds as consumer behavior started to change. This context provides some reassurance for a slight improvement compared to the first half. Additionally, we will see organic growth from Rao's contribute positively to our figures. We already have a solid investment base and a strong innovation program in place. While I understand the skepticism about fiscal '25 not being an ideal year due to transitional factors, I still expect to see some improvement in the second half compared to the first. We anticipate Q2 will be pivotal, and I think we have a strong strategy in place to drive results that will enhance our market share and expectations for the back half. As we monitor our progress, I feel optimistic about achieving modest improvements as we move forward.

Got it. That's really helpful. And then just with the modest increase, it seems like in full-year sort of marketing and promotional investment and such, most of that to fall in 2Q. Where would that sort of put you from a promotional perspective at the end of this year versus let's say, where you were a couple of years ago right, pre-pandemic and all of that. Would that still be relatively in line with where you were? Or does it take you beyond that? Just trying to get a sense of context there. Thanks.

Yes, that's a good question. I believe we are aligned with our historical performance. However, I think that given the competitive landscape, we have adjusted to a level consistent with our past. I don't foresee any need for significant reductions in our pricing, particularly in categories like cookies and pretzels. It's crucial for us to balance equity through our marketing and innovation efforts, with appropriate promotional strategies, while remaining disciplined on pricing. Our plan is clear. The encouraging news is that for both categories, as we enter the next quarter, I've noticed that in the last four weeks, especially with the holiday programming for cookies, our market shares appear to be stabilizing, which is a positive sign as we approach the second quarter. In the salty snacks area, we are facing competitive pressure primarily from new entrants, whether in salty snacks, kettle pretzels, or tortilla chips. These new players are performing well compared to the overall salty market, which adds more competition. Again, the focus isn't solely on price; instead, we need to ensure we are delivering compelling news and innovation alongside a competitive promotional schedule. When considering the snacks category under more pressure, I do not see any factors pushing us towards unsustainable or unreasonable promotional levels.

Great. Thank you so much.

Hi guys, good morning. Congrats to Mark and Mick. Mark, we look forward to Jame Daniel being in the Campbell's Chunky commercials next year.

Two separate universes, Peter. Two separate universes.

Mark, maybe just one kind of nuance question that we are getting this morning just around the inventory timing shift related to Thanksgiving. A, just maybe you can unpack that a bit more, given your kind of an October quarter end with Thanksgiving later? And if you can just quantify at all kind of how much you think it moved?

Yes. The simplest way to understand this is by looking at the meals and beverage profile for the quarter, which shows about a 2-point difference between in-market consumption and net sales. From Canada and foodservice, we performed adequately in those areas. Most of that difference is due to pressure on inventory. It's fair to say that retailers have generally been very focused on reducing inventory levels. Additionally, the week after Thanksgiving had a significant impact, and I would estimate that more than half of that difference is related to that timing. The good news is that as we move into November, it's still early to provide a complete picture of Thanksgiving. However, we did observe some inventory buildup earlier in November, which shifted a bit later and carried over from the first quarter into the second.

Got it. Okay. No, thanks for that. And if I just go back to the slide you had on Rao's and some of the sourcing occasions that you mentioned, I'm just curious kind of what data you're looking at internally or what you're seeing that suggests that that's actually the case that you are seeing Rao's specifically kind of source share from some of the Italian concepts in the restaurant channel?

Yes. I think one of the key points is that we are observing a broader trend where consumers are shifting from dining out to eating at home for their meals. We are currently around 83%, which is higher than last year, indicating that this trend is ongoing. What’s particularly encouraging for Rao's is that much of the growth we are witnessing is coming from middle and lower-middle-income households. As we engage with consumers, we recognize that these are also the buyers of Prego. Our goal is to understand how to effectively target both the Prego and Rao's businesses by focusing on specific occasions. A consistent insight we have discovered, which the team prioritized even before the acquisition, is the significant value that Rao's offers compared to takeout or online orders from services like DoorDash. This aligns well with the income levels from which we are seeing considerable growth in the Rao's business. We intend to keep that focus. You may have noticed our new advertising campaign for Rao's, which emphasizes our unique quality and Italian roots, showcasing what sets Rao's apart and justifies its price point. When viewed in the right context, we believe it is quite compelling. Moving forward, you will hear us discuss more about Rao's ability to compete across various occasions and income levels.

Great. Thanks very much.

Hi, thank you for the question. And Mark, congratulations to you. Best wishes.

Thanks Rob.

One question on Snacks. The margins were around 13.5% in the quarter, which is significantly lower than I expected and likely lower than what Campbell expected as well. Given the current pricing pressures and supply chain inflation being higher than anticipated, can you still achieve your margin target for this year? I recall there was an expectation for about 50 basis points of margin expansion. Additionally, there are concerns about the salty snacks category having raised prices too high during the pandemic, suggesting that a value adjustment is needed moving forward. How does this situation impact your long-term margin goal of 17%? Thank you.

Yes, that's a great question, Rob. Let me start by discussing our long-term objectives. First, I want to emphasize that our roadmap concerning cost savings across various areas, including route-to-market, network optimization, and improving our product mix, remains solid. Our team, under Chris Foley’s leadership, has done an excellent job of staying proactive and recognizing the competitive landscape, actively seeking savings to provide a buffer against current marketplace pressures. Regarding the broader question of whether snack prices have risen too much or if a reset is necessary, it may seem like there’s a need for a reset because we managed to reduce promotional levels post-COVID without much elasticity. Looking back, I mentioned that this segment is highly competitive, and maintaining promotional levels to drive product display is vital for the snacks category. The positive aspect for Campbell's is that we primarily compete in elevated or added value segments, where we don't expect significant adjustments in value. However, we need to carefully monitor our base pretzel and cookie businesses in light of private label competition and pricing pressures. Ultimately, I believe we don't require drastic changes. Instead, we should continue planning effective promotions to stimulate impulse purchases, which are essential for snacking. Moving to the near-term, perhaps Carrie can provide more insights regarding this year, as I anticipate some discussion on that topic.

Yes, there are certainly reasons to believe in a second half margin improvement for snacks. And I think it is outlined with what I had answered earlier that that's applied for the total enterprise, but it also is applicable to the Snacks division as well. In the second half, our expectation would be improving year-over-year volume trends are going to help the Snacks division versus the first half. You're going to have improving snacks mix with a higher leadership brand mix and a lower impact of that partner and contract brands and a lower impact of the Pop divestiture, as well the Pop Secret divestiture. You’re going to have more neutral year-over-year net price and marketing impact in the second half and that step-up in productivity and cost savings initiatives. Remember, in our Snacks business, we've got some announced restructuring in our Jefferson manufacturing plant, and we've got our ongoing DSD warehouse and route optimization. All of those things will continue to help us continue to get a pathway to 15%.

I believe Q2 will provide valuable insights. I'm encouraged by the recent trends in share related to snacking over the past four weeks, and I hope to see this momentum continue into the holiday season. While we are focused on improving margins in snacking, it's equally important to maintain a sustainable growth trajectory for our snacks. We will be thoughtful about balancing these objectives in the short term. Looking ahead, I remain optimistic about our positioning in the snacks category and the potential for margin growth.

Okay, thank you so much Mark. Take care.

Good morning guys. And Mark, just want to echo the congratulations. It's tough to find an industry that's more exciting than packaged food, but I think Pro Football categorized as one. I think I wanted to just maybe follow up on some of the comments on snacking. And correct me if I'm wrong here, but I believe that the level of volume sold on promo is still lower than pre-COVID. And given some of the industry category headwinds rather, is the industry just taking kind of, let's say, a more tactical approach on promo and just being less broad-based than in the past? And maybe if I can back on the second part to that question. If the consumer does normalize throughout the year, do some of these price gap distinctions just become less important, and that's kind of what the industry is looking to.

Yes, there are a few points to consider. I believe the promotional activities in snacking appear to be consistent with our expectations. There isn’t significant deep discounting or excessive promotion happening. Regarding the volume levels, we've been monitoring that closely. I agree it seems to be increasing, and I anticipate some stabilization as the year progresses. It's important to note that in the second half of our fiscal year, we will start to cycle through a period where we noticed a decline in snacking, leading to a normalization. In our third quarter, we will begin to reflect the impact of a more stable environment. While we haven’t returned to historical levels, we are seeing positive trends in the category. There’s a noticeable difference among various categories, and I understand why some may think our outlook appears more favorable compared to others. This perspective stems from the unique categories we operate in. For instance, while we are in the salty snacks segment, we are focused on natural organic options, Kettle chips, and deli products, which are performing relatively well. As we move into the latter part of the year, we will start to cycle this performance. I usually hesitate to attribute improvements solely to comparisons, but in this case, as we approach the third and fourth quarters, we will have a lower baseline to consider. Whether that brings us back to the desired growth rate of 3% to 4% in snacking isn't certain, but we do expect sequential improvement contributing to our outlook for the second half.

Great. If I could ask a broader question, you mentioned strong momentum with Rao's among millennial households in your remarks. This seems to contrast with the general view that it's a premium product, and millennials typically have less spending power than other demographics. Are there any insights from Rao’s that could be applied to other areas of your portfolio, where a premium or healthier clean label offering might attract consumer groups that usually don't spend on premium products?

Yes. And I don't want to sound flippant here with my response. But Rao's is an incredibly differentiated product. And the quality of the product and the experience of the product, it is just flat out better. And so I think the fact that you've got broad-based acceleration across different households, including those that may be feeling a little bit more economic pressure. I think that conversation we had a little earlier on framing the occasions is really a great lesson. And I do think there is some application of that to other premium brands where we have a distinct benefit in quality. And so as we talk about things like holiday entertaining or moments where it is important to bring the best-quality or the highest-quality to the table or to the occasion. I think framing that in a way that allows those points of difference to be most recognizable for consumers and in essence, making it worth perhaps the premium price with the broader or mainstream segments is a great lesson. But I think it all begins and must have those true quality points of difference. And I'm not sure that's always the case in every premium priced product. But certainly, in Rao's, we feel that we have that point of difference. And I think consumers as they try it, reinforce that. And so I think there are some lessons learned. But I think the biggest lesson learned is you got to make the experience worth it.