Campbell Soup Company (CPB) — Q2 2025 Earnings Call Transcript

Good morning and welcome to Campbell's second quarter fiscal 2025 earnings conference call. I'm Rebecca Gardy, Campbell's Chief Investor Relations Officer. Joining me today are Mick Beekhuizen, 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, 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. Mick will provide insights into our second quarter performance as well as our in-market performance by division. Please recall that effective first quarter fiscal '25, 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. As we noted in this morning's press release, the company's guidance does not reflect any impact from the imposition of import tariffs by the US and potential retaliatory actions taken by other countries, as the tariff and trade environments are rapidly evolving at this time. 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. And now, it is my pleasure to turn it over to Mick Beekhuizen, our new Chief Executive Officer. Mick?

Thanks, Rebecca. Good morning, everyone. Before I review our Q2 results, I want to start by expressing how honored and energized I am to lead the Campbell's team as CEO and accelerate the strategy that has been fueling our performance. Having helped shape Campbell's strategy since joining the company in 2019, most recently as President in our Meals & Beverages division, I'm committed to building upon the strong foundation we have in place. That starts with our talented people who are engaged, accountable, and committed to winning. We have the best portfolio in the industry with category-leading brands in both divisions. These brands are important to our customers and highly relevant to our consumers. I am confident that we are well prepared to deliver top-tier performance. Similar to the first quarter, our Q2 earnings performance was in line with our expectations despite the dynamic operating environment. Unfortunately, the anticipated recovery of some of our snacks categories did not materialize during the quarter and as a result, our topline was slightly below expectations. We continued to invest behind our brands resulting in good overall in-market results with an aggregate stable market share. Ten out of our 16 leadership brands grew or held share in the quarter, which is a testament to the overall strength of our leadership brand portfolio. Going into the second half of the year, we're focused on maintaining the momentum within our Meals & Beverages division, while in our Snacks division we are focused on successful innovation, select brand support, and price-pack architecture to meet consumer needs. From an operational perspective, we continued to make substantial progress on the Sovos integration and advanced various cost savings initiatives throughout the organization. On the flip side, our Snacks margin fell short of our expectations, driven by unfavorable mix and some operational headwinds in our Fresh Bakery business during the important holiday period. We are actively addressing both areas and, combined with a normalization of our commercial support, we expect our Snacks margin to improve sequentially throughout the second half of the fiscal year. As reported in our press release this morning, we updated our full year guidance to reflect the slower than anticipated recovery of our snacking categories impacting the outlook for our second half. We are committed to investing in our brand portfolio while accelerating certain cost savings initiatives to manage through the current consumer environment. We expect organic net sales to be in the range of down 2% to flat, adjusted EBIT of minus 3% to minus 5%, and an adjusted EPS range of $2.95 to $3.05. Carrie will provide more details in a moment. This updated guidance does not reflect any impact on our business from tariffs or other regulatory changes. This is a fluid situation, and we are working through mitigation plans for a variety of scenarios. Overall, we have work to do, but I feel confident in our plans for the second half. We have a strong brand portfolio supported by great talent that's focused on delivering results by partnering with our customers and meeting consumer needs. Now, let's turn to key highlights from our second quarter results. Turning to Slide 6, we delivered 9% growth in net sales reflecting the contribution from Sovos. Organic net sales were down 2% driven by relatively consistent performance within Meals & Beverages and weaker than anticipated snacking categories amid a competitive environment. Importantly, volumes in the second quarter remained flat, marking the fourth consecutive quarter of flat or increasing volume for the total enterprise. Adjusted EBIT increased 2% versus prior year and adjusted EPS was $0.74. The Sovos acquisition was slightly accretive to adjusted EPS in the quarter. Turning to Slide 7, in Q2 we saw stable performance with total company Leadership Brands flat on consumption while the majority grew or held share. As a reminder, our Leadership Brands represent approximately 90% of our enterprise net sales. Our Meals & Beverages Leadership Brands continued to demonstrate their strength with dollar consumption up 1%. Seven out of eight leadership brands grew or held share in the second quarter, and although Swanson broth consumption continued to grow during the quarter, the modest share decline was driven by the anticipated private-label recovery. In Snacks, we made progress versus Q1 from a share perspective in a couple of key areas such as Pepperidge Farm cookies and although still down year-over-year, Snyder's of Hanover pretzels. Similar to the first quarter, total Snacks consumption for our Leadership Brands was down about 1%. We have a strong differentiated portfolio of brands within our Snacks division, and while we need to continue to evolve with the consumer, they provide a strong foundation for long-term growth. As shown on the next page, consumers continued to turn to some of our key brands during the Holidays driven by strong in-market support, including our successful sides season cooking and holiday cookie campaigns. Although dollar consumption for our holiday-focused brands was flat during the period, dollar share increased by 30 basis points. Specifically, our Campbell’s condensed cooking products had a successful holiday season, growing both dollar and volume share as well as volume consumption. The broth category was a top three driver of food growth during the holiday period, and Swanson and Pacific broth grew consumption with share declines driven by the anticipated private label recovery. As planned, we made significant investments in our Snacks brands to drive loyalty and win this important period. While both the bakery and cookie categories were soft, Pepperidge Farm, one of our three billion-dollar brands, delivered strong holiday performance outperforming categories via innovation and best-in-class execution across both cookies and stuffing. Turning to our Meals & Beverages division on Slide 9, organic net sales declined 1% for the quarter, with continued volume and mix growth of 1%, which was consistent with the first quarter. On a pro-forma basis, with the addition of Sovos Brands, Meals & Beverages organic net sales were flat, with in-market dollar consumption increasing 1%. During the second quarter, we experienced a supplier disruption related to SpaghettiOs, which contributed a one-point decline to organic net sales. Turning to Slide 10, our soup portfolio continued to benefit from increased at-home cooking activity, leading to growth in both condensed cooking and broth. However, eating soup categories, both within Condensed Eating and Ready to Serve, were slightly weaker. That being said, we marked our fifth consecutive quarter of volume share growth in Campbell's total wet soup, including Rao's. Campbell's condensed segment maintained its positive trajectory, continuing to gain share driven by strong performance of our cooking portfolio used in meal prep, especially during the holiday season, and strong household penetration growth. We have a broad and strong RTS portfolio with Chunky, Pacific, and Rao's, all of which performed well in the quarter, gaining or holding share. This was offset by pressure in our RTS convenience portfolio and about a point of share headwind related to the de-listing of our Well Yes brand. In Broth, we benefited from continued category growth, particularly as private label has not yet fully recovered. We expect private label to continue to recover throughout the remainder of the year, resulting in slight share pressure in the second half. However, if category growth continues, and private label recovery remains slow, we are well-positioned to meet increasing consumer demand with the strength of our supply chain network. With the number one and number two category leaders, Campbell's total Italian sauce portfolio shown on Slide 11 outpaced the category in Q2 with dollar consumption of minus 5%, and a share gain of 1.4 points. With Prego and Rao's, we have two of the best positioned brands in Italian sauce, both of which are performing well against their roles in our portfolio. Starting with Prego, we saw steady growth both in dollars and volume consumption, and we grew dollar share by 20 basis points in the second quarter. Prego grew household penetration in the second quarter year-over-year with growth across all generational cohorts. Our ultra-distinctive Rao's sauce continued to outpace the Italian sauce category, resulting in 1.3 points of share gain in the quarter. The first quarter of fiscal '25 benefited from a shift in promotional timing, specifically in the club channel. On a first half basis, consumption increased by 11% and share was up 1.5 share points. This strong performance reinforces the strategic rationale for the acquisition and is a proof point of the successful integration of Sovos. Turning to slide 12, Rao's sauce delivered high-single-digit net sales growth in the second quarter and low teens growth for the first half. We continue to expect pro forma year-over-year growth in fiscal '25 to be slightly above 10%. Over the long-term, consistent with what we shared at Investor Day, we expect Rao's to grow in the mid-single to high-single-digit range. Rao's brand equity remains exceptionally strong in terms of key metrics: awareness, household penetration, repeat, and loyalty. What's particularly exciting is the substantial runway for expansion. Despite leading the ultra-distinctive Italian sauce category in dollar share, Rao's currently reaches only half as many households as our Prego brand and maintains just 60% of Prego's product assortment. We're accelerating Rao's brand awareness initiatives and expanding our innovation pipeline, having launched 10 new sauce products in the last year. You may have seen the latest activation that brings consumers along the Rao's Homemade journey to experience what makes each jar of Rao's so special and is a major point of difference from our competitors in the ultra-distinctive space. Millennial household adoption continued to surge at more than twice the category pace, reinforcing our conviction in Rao's long-term growth. The compelling value proposition of Rao's compared to mainstream Italian takeout continues to fuel incremental growth, allowing the brand to source volume from a significantly larger addressable market across a broad range of consumer income levels. With our strategic growth initiatives firmly in place, we remain confident in Rao's becoming our next $1 billion brand. Now let's turn to our Snacks portfolio. As previously mentioned, we delivered some encouraging in-market progress in key brands, particularly during the Holidays. However, the anticipated category recovery did not materialize, resulting in organic net sales decline of 3%. About half of that came from our planned reduction in partner and contract brands. A key driver for overall performance was the 1% decline in consumption of our leadership brands, which was consistent with our performance in Q1. Although Carrie will go through the details in a moment, I would like to talk about our Snacks margin for a minute. The margin for our Snacks business was down 370 basis points year-over-year. About half was driven by a planned increase in commercial investment to support incremental promotional activity and marketing during the holiday season. The remainder was from short-term operational supply chain headwinds, particularly in our fresh bakery network that resulted in increased manufacturing and logistics costs to maintain service levels during the holidays, and unfavorable mix. We are proactively addressing our Snacks margin and anticipate a recovery in Q3 with a gradual improvement throughout the second half of the fiscal year. In fact, we are starting to lap more normalized promotional and marketing activity and we are already seeing improvements from a supply chain perspective. Our Pepperidge Farm bakery business continued its in-market momentum from previous quarters as we maintained our overall share position. Additionally, we made sequential share progress on our Pepperidge Farm cookies business, driven by the holiday activation. Within the deli aisle, Snack Factory held share despite category headwinds. We continue to be excited about Snack Factory expanding into the snack aisle with Pop'ums and Bites. Our unique munchable and big flavor innovations that will now sit alongside Snyder’s Hanover distinct platforms. In salty snacks, our brands hold leading positions in attractive segments that are growing much faster than the total chips categories. Although new entrants and stepped-up promotions are putting pressure on shares, we have plans in place to continue to strengthen our position. In crackers, Lance continued to expand share and grow consumption. Within Goldfish, we experienced weaker category performance and increased competitive promotional activity. Going into the second half of this fiscal year, we have integrated plans in place to support our Goldfish brand, with a focus on innovation, marketing support, and price-pack architecture initiatives. Our snacking categories are attractive and resilient, and we are well-positioned with an advantaged portfolio of relevant leadership brands. We have confidence in the action plans we have in place to improve our in-market performance and build momentum in the second half of the year starting with a robust innovation pipeline to deliver against consumer macro trends, including Better-For-You choices with products like Kettle Brand chips made with avocado oil. We are driving innovation and differentiation with new Goldfish LTO's such as Harry Potter Butterbeer Grahams and other differentiated flavors. We are also strategically expanding accessibility and enhancing value across our Snacks portfolio by introducing new pack sizes and price points that provide consumers more choices for their favorite snacks from Pepperidge Farm Chessmen and Mini-Nantucket cookies in single-serve multi-packs to Goldfish in small size packs offering an attractive opening price point. Overall, I am excited about the opportunities within our Snacks portfolio. Before I turn it over to Carrie, I want to highlight our core focus areas as we move into the second half of fiscal '25. We plan to continue to invest to support the long-term growth of our 16 Leadership Brands through highly relevant, compelling innovation and marketing to drive excitement, awareness, and volume. In our Snacks division, we continue to stay focused on navigating consumer and competitive category dynamics. Specifically, in the second half, we are focused on select brand support, successful innovation launches, and some price-pack architecture to stabilize our topline by the fourth quarter while we sequentially improve our Snacks margin. In Meals & Beverages, we're focused on maintaining the at-home cooking momentum throughout our portfolio, which includes managing our broth business as we expect private label supply to continue to recover. Additionally, we are focused on sustaining Rao's growth by driving brand awareness and innovation while we complete the integration. Across the company, we are intensifying our efforts to improve efficiency and effectiveness to support topline growth and maintain a healthy margin profile. As mentioned, addressing margin performance in our Snacks division is a top priority. Finally, we remain steadfast in our disciplined capital allocation strategy, ensuring we balance growth investments with shareholder returns as we navigate the dynamic consumer environment. With that, let me turn it over to Carrie to go over the Q2 results and our updated guidance in more detail.

Thanks, Mick, and good morning, everyone. Our second quarter adjusted EPS was in line with our expectations, despite the dynamic operating environment Mick discussed earlier. And while the anticipated recovery of Snacks categories did not materialize to the extent we expected, and this translated into a softer top line with some added pressure on adjusted gross margin, our adjusted EBIT was in line with our expectations as well. Reported net sales increased 9% driven by the strong sales contribution from Sovos. Organic net sales, excluding the impact of the Sovos acquisition, the Pop Secret divestiture, and currency, decreased 2%. Adjusted EBIT increased 2% due to the contribution from the acquisition, while adjusted EPS declined 8% to $0.74 due to higher interest expense from higher debt levels. The impact of the acquisition was slightly accretive to adjusted EPS in the quarter, which continued to exceed our expectations. Turning to Slide 19: As mentioned early, organic net sales for the second quarter were down 2% due to planned net price investment of 2% in support of the holiday season, with flat volume and mix. Sovos contributed 13 percentage points to reported net sales growth. On slide 20, second quarter adjusted gross profit margin declined 100 basis points, with margin in the base business down 60 basis points and a 40 basis point impact related to the acquisition. Base business margins were impacted by cost inflation and other supply chain costs and unfavorable net price realization, partially mitigated by productivity improvements and cost savings initiatives. Through the second quarter, we have delivered approximately $65 million of total savings under the $250 million cost savings program announced at our Investor Day in September 2024. Turning to slide 21, the total combined dollar spend on adjusted marketing and selling expenses and admin expenses increased compared to the prior year, primarily reflecting the integration of Sovos. However, these combined expenses remained flat as a percentage of net sales to the prior year. Within adjusted marketing and selling expenses, advertising and consumer promotion expense increased 25%. Adjusted administrative expenses decreased 2%, driven by the benefits from cost savings initiatives, partially offset by the impact of the acquisition. As shown on slide 22, second quarter adjusted EBIT increased 2%, primarily due to higher adjusted gross profit, partially offset by an increase in adjusted marketing and selling expenses. On slide 23, adjusted EPS decreased 8% to $0.74, as adjusted EBIT growth was more than offset by higher interest expense, primarily related to the acquisition. Turning to slide 24, Meals & Beverages reported a 21% increase in net sales growth, due to the contribution of the acquisition. Organic net sales declined 1% compared to prior year, with a planned 2% investment in net realized price to support incremental promotional activity during the important holiday period, soup season, and innovation launches, and favorable volume and mix of 1%. Second quarter operating earnings in the division increased 18% primarily due to the benefits of the acquisition, partially offset by higher marketing and selling expenses in the base business. Q2 operating margin for Meals & Beverages decreased 60 basis points to 17.3%, driven primarily by the impact of the acquisition. Excluding the acquisition, operating margin in the base business was essentially flat year-over-year as increased marketing investment was largely offset by higher adjusted gross profit margin and lower adjusted administrative and R&D expenses. Second quarter organic net sales in Snacks decreased 3%, driven primarily by declines in third-party partner and contract brands, Goldfish crackers, and Snyder's of Hanover pretzels. Sales were impacted by lower net price realization of 1% and volume and mix declines of 2%. About half of the sales declines were the result of lower third-party partner and contract brands sales. Snacks operating earnings in the quarter declined 29% due to higher marketing and selling investments and lower gross profit, as the impact of inflation and other supply chain costs, unfavorable volume and mix, and lower net price realization were only partially offset by supply chain productivity and benefits from cost savings initiatives. Q2 operating margin for Snacks decreased 370 basis points to 11.3%. Roughly half of the margin decline compared to the prior year was driven by planned increased promotional and marketing investments to support our brands during the critical holiday season. The other half resulted from increased supply chain costs, which Mick mentioned earlier, primarily in our fresh bakery network, as well as unfavorable mix. Although we continued to advance our cost savings and productivity initiatives, these were not sufficient to offset these headwinds. We do anticipate Snacks margins to improve sequentially throughout Q3 and Q4 as compared to Q2. Supply chain costs have already shown improvement since the beginning of the calendar year, marketing spend as a percentage of sales is expected to decrease post the holiday period, and we will have easier net price comparisons and expect a more favorable mix, particularly in Q4. Additionally, we are focused on driving SG&A efficiencies to further support margin enhancement going forward. Turning to slide 26, we generated $737 million in operating cash flow in the second quarter year-to-date, an 8% increase from the prior year period. Capital expenditures were $211 million year-to-date, and reflect investments to support growth, asset sustainability, and initiatives to drive productivity, cost savings, and enhanced business capabilities. We also remain committed to returning cash to our shareholders, with $227 million of dividends paid and $56 million in anti-dilutive share repurchases year-to-date. Our net debt to adjusted EBITDA leverage ratio at the end of the second quarter was 3.7 times, reflecting the financing of the Sovos acquisition, which is similar to our ratio at the end of the first quarter. We remain committed to investment grade ratings and our goal is to return to our three times net leverage target in fiscal '27. At the end of the second quarter, the company had approximately $829 million in cash and cash equivalents and approximately $1.85 billion available under our revolving credit facility. Based on year-to-date performance and the slower than anticipated recovery in some snacking categories, we are updating our full year fiscal 2025 guidance. Our updated guidance also reflects the divestiture of noosa, which was completed on February 24th. As Mick mentioned earlier, our guidance does not incorporate any impact that may result from tariffs or other regulatory matters. We are now expecting full year reported net sales to increase approximately 6% to 8%, which includes a one-point impact from the noosa divestiture. Full year organic net sales is expected in a range of down 2% to flat, excluding the 53rd week. The lower organic net sales expectation is a result of a more muted volume-mix contribution in the second half following the weaker than anticipated recovery in snacking categories in the second quarter. As a reminder, Sovos moves into organic growth in mid-Q3, and our base Meals & Beverages business will be cycling the broth net sales benefit in fiscal 2024 resulting from private label supply constraints. We expect adjusted EBIT growth of 3% to 5%, inclusive of the impact of the divestiture of noosa. While the slower recovery in snacking categories has translated into lower top line for the full year, we are driving additional momentum in our enterprise cost savings initiatives to help mitigate some of this pressure on earnings and margin. As a result of our strong year-to-date performance, we are increasing our cost savings expectations for the full year from $90 million to $120 million. This includes savings from the integration of Sovos and several previously discussed network optimization projects across both divisions. Combined, our cost savings program and our planned 3% productivity initiatives are expected to more than offset inflation, which we anticipate to remain in the low-single-digit range. Additionally, we expect adjusted marketing and selling expense for the full year and the second half to be at the lower end of our targeted range of 9% to 10% of net sales. Adjusted earnings per share is now expected to be in a range of $2.95 to $3.05 inclusive of the one-cent dilutive impact of the divestiture of noosa. Full year net interest expense is expected to be between $325 million to $330 million, reflecting the benefit of the after-tax proceeds from the noosa divestiture, which will be used to reduce debt. At the midpoint of our guidance range, we expect second half organic net sales growth to sequentially improve from Q2, turning positive in the fourth quarter, and we would expect second half adjusted EPS to be more equally distributed, excluding the 53rd week. Finally, capital expenditures are expected to be approximately 4.7% of net sales, a slight change to reflect cash timing. To wrap up, we believe in the strength of our portfolio and our ability to continue to execute our strategic priorities. Looking ahead, we are focused on the elements within our control. We are committed to a balanced, disciplined approach to protect and expand our market-leading positions across both divisions while maintaining operational excellence and delivering continued cost savings. We have a flexible balance sheet, strong cash flow generation, and financial discipline. We have proven our resiliency to navigate challenging environments, and I am confident in our team's ability to deliver our second-half plans while executing our roadmap for long-term, sustainable value creation. Before turning it over to the operator, I'll close by thanking the entire Campbell's team for their hard work and contributions, particularly as we maneuver through this dynamic environment. That concludes our prepared remarks. And with that, operator, let's begin the Q&A.

Great. Thanks so much. Appreciate it. Mick, as we think about the fiscal second half, I guess, I'm trying to get a better sense of sort of what actions are specifically driving the lower profit outlook really with an eye towards understanding if the revised guidance is sort of giving the company enough room to get Snacks back on track in the context of a slower sort of category rebound and more competitive environment? And maybe as a second piece to this, last quarter, Campbell expected net price to be less than 100 basis point headwind to organic sales and I'm just wondering if that's changed with the new guidance. Thanks so much.

Great. Morning, Andrew. So let me take the first part and then, Carrie, if you can follow up on the second piece. And maybe what I'll do, Andrew, is let me step back for a minute and give you a little bit of context about the revised guidance and the different piece, which I think addresses what you're getting at. If you look at the Q1 call, we said that it's going to be important to see how the second quarter and the holiday season come together, and that's going to be a good indicator for us for the outlook for the second half of the year. Of course, first of all, when I look at Meals & Beverages and across the board, the business is performing in line with our original expectations and if anything, I'm actually encouraged by some of the momentum that we have there in the business. Now with regard to our Snacks business, obviously a believer in our business. However, unfortunately, the broader snacking categories didn't improve as we had originally anticipated and particularly that pertains to key categories such as cookies and crackers. They were softer. So as a result, we revised our outlook for the full year to reflect that broader operating environment. Now, that being said, at the same time, while we're making progress on cost savings productivity initiatives, you did see that our Snacks margin for the quarter was lower than what we had anticipated. And although I believe we're going to continue to make sequential progress on the Snacks margin, I don't think we'll achieve the margin level that we previously communicated for the year, which gets into a little bit back to your question. So if you then look at our midpoint of our EPS guidance range, excluding noosa, we're down about $0.16, which with a reduction in interest expense results in an EBIT reduction of about $80 million. I'll call $60 million of that driven by this top line reduction of give or take $200 million and that translates in if you take a 30% gross margin and about $60 million of EBIT. At the midpoint, we are assuming that the top line growth within our overall business is going to sequentially improve from Q2 and then turn positive in the fourth quarter. Now the other $20 million of the $80 million of EBIT reduction is a net effect of a reduction in our Snacks margin outlook for the full year and incremental cost savings initiatives. And regarding our Snacks margin, although we're still expecting to make sequential progress, I now expect that margins will be more in that 13.5% range for the full year. So stepping back and you look at the range of our EPS, at the mid-level, I described that we would have that sequential recovery on the organic sales, and if you look at the high end of the range, I basically expect that Snacks would more quickly recover on the lower end of the range, expecting basically that we have no top line recovery on our Snacks business throughout the remainder of the year, while we continue to focus on cost-saving initiatives to support our brands. So in that mid-range, if you look at particularly our Snacks business, we expect that stabilization on the top line by the fourth quarter.

Regarding your question on price, in Q1, we had about 100 basis points of net price investment. In Q2, we mentioned increasing that to around 200 basis points. Looking at the second half, we anticipate that we'll start to overcome some of the increased promotion investment from the previous year. While we expect promotion to still be a challenge in the second half, it should be less significant. Our guidance provides enough room for the appropriate promotion investment to support the second half and our recovery. We will maintain competitive pricing gaps and support our innovation launches, and our guidance reflects that.

Great. Thanks so much.

Guys, good morning. Thanks for taking our questions. Mick, I actually wanted to follow up on some of your commentary there. So could you maybe walk us through what you're assuming for the consumer recovery in the back half of the year? And if I think about the mix of where potential outperformance, underperformance could come from in Snacks? Would it be that the category improves and you guys kind of improve alongside the category or there’s opportunity with some of the innovation that you have and maybe some of the promotional activity you have to gain share even if the category remains softer? And maybe as a second piece to that, on Slide 7, Goldfish was one of the brands that I believe did not grow or hold share and you spoke to some of that in the prepared remarks. But just thinking about some of the innovation there and I know you guys had some flavor extensions on Crisps and you mentioned Harry Potter LTOs. Just how should we think about that particularly contributing to either share gains or holding or losing share in the context of the broader category recovery?

Thank you for the question. It's a good one, so let me break it down. Regarding our Snacks business, we expect Q3 to show similar trends to Q2 in terms of top-line performance. For Q4, we anticipate stabilization in that area. In the second half of the year, we are closely monitoring both category performance and our own initiatives, especially for key brands like Goldfish. We have eight strong leadership brands in our Snacks portfolio, and it's essential that we focus on each one. Goldfish is particularly important to us, and despite current challenges, we are committed to driving growth for the brand. We recognize that Goldfish is not where we would like it to be, and we have solid plans in place to enhance its presence. Our strategy includes ensuring proper promotional support in the marketplace and effectively communicating the Goldfish message to resonate with consumers. We are also introducing innovative products to capture attention, and we're dedicating significant resources to their successful execution. Value is crucial in today's consumer environment, particularly in the discretionary snacking segment, so we need to ensure our price points are appropriate for the right purchasing occasions. This includes refining our price pack architecture and ensuring we have a strong entry point for Goldfish in the cracker category.

Great. I appreciate the detail. I'll hop back in the queue.

Hi. Thank you. On snacking, just in light of some of the top line challenges as well as your comment that the margin will be down this year, how confident are you that you can still achieve your target of 17% in fiscal '27? And maybe more importantly, how confident are you that 17% regardless of the timeline is still a reasonable goal as we look ahead into future years? Thank you.

Yes. Thank you, Ken. When I look at this next margin and particularly where we're currently at, of course, so maybe just first of all stating what might seem obvious is the Q2 level is not where we should be, will be and are going to be going forward and I think we laid that out pretty in a lot of detail in the prepared remarks. But when I look forward and with where we're at, I focus on that sequential improvement going into the second half of various reasons to believe; I know the team is all over that. Of course, we're working through some of these operational challenges, but at the same time, the team is also identifying continued savings. Obviously, ending the year at a lower level than we had originally where we wanted to be. That being said, as I step back and I look at the different building blocks that we had identified in the past and we stay focused on whether it is our broader network that we've been working on, including the DSD as well as some of the mix improvements, I still believe that these different building blocks are there in order to improve our overall Snacks margin while we also continue to support our brands. So that's not a key reason for us that we're continuing to stay very focused on it. So putting all these different pieces together, I'm still confident that we're going to see a positive trajectory towards that 17%. I think to your point in and around timing, I do agree that with where we're currently at, it feels a little bit like you're pushing that a little bit back and I think we're going to learn a lot about the overall environment that we're operating in from a Snacks perspective in the next six months and that is going to be really important and it's going to inform us also going into fiscal '26 to make sure that we support our brand portfolio for long-term value creation.

Just to follow up on what Mick mentioned, regarding our comments from Investor Day, we highlighted several factors contributing to our margins. Those foundational elements remain intact. A significant factor is the favorable mix that should drive margin growth as we see an increase in our leading brands and a decrease in smaller partner brands over the next few years. This shift will act as a mix driver, in addition to the network and DSD optimization that Mick referred to, which pertains to both our warehousing logistics and route optimization efforts we discussed last year. All these components are still in play. However, we are currently experiencing some short-term pressure on our top line, which is impacting margins, but all those advantages remain available to us.

Can I ask a very quick follow-up and thank you for that. Rao's.

Yes.

You kept your guidance. The data has been decelerating in both one and two-year basis or on those basis. How comfortable are you with the rate of change in consumption? I mean, obviously, you seem to be pretty comfortable just given that you reiterated, but how should investors think about what we're seeing from some of the syndicated and alternative data out there for that brand?

Yes. Ken, thank you for asking the question because we are obviously also very focused on making sure that we continue to grow Rao's also because I'm a very big believer in the brand and you do see it in the broader results. However, to your point, a little bit of that deceleration looks like between in Q2 versus Q1. Now when you peel that on in a little bit further back, what you're going to find is that there's actually certain particular club activity that shifted between the two quarters, and as a result, going into the second half, we feel pretty good where all the different pieces come together in order to expect that slightly above, call it, 10% is what we are working towards for the full year.

Thank you.

Hey, good morning, Mick, and Carrie.

Good morning.

Thank you for the question. I wanted to circle back on the EPS cadence for the back half of the year. I believe, Carrie, in your remarks, you mentioned that EPS delivery would be relatively even between 3Q and 4Q if we kind of ignore the 53rd week. And I just like very quickly going back through the history, that's just never been the case. 4Q has always been a much lower EPS delivery quarter relative to 3Q, maybe outside of one year over the past 20, but historically, it's been much, much lower seasonally. So just what gives you the confidence in delivering kind of on that even delivery in the back half of the year, given seasonality, given what we've seen historically, I think that's going to be just a big question from investors, but as they kind of contemplate the updated guidance?

As you consider the third quarter, it's important to note that, as Mick mentioned regarding the Snacks top line, we don't anticipate stabilization until the fourth quarter. Therefore, there will still be some pressure on snacking margins during the third quarter as we continue through the year. My comment regarding the equal split, excluding the 53rd week, reflects the ongoing pressure in the snacking segment on the profit and loss statement. Additionally, while it may not align with the typical seasonal trend, the fourth quarter will benefit from the effect of lapping last year's higher promotional investment, which will positively impact both the top line and the bottom line. Those two factors are significant in our outlook for how the third and fourth quarters will unfold.

Got it. Thanks, Carrie, for that. That's helpful. And, Mick, just if I could, I think your tone is or that the company's tone has changed a bit in your prepared remarks as it relates to broth. It seemed like there was maybe a better delivery in the quarter, maybe even than you expected and potentially that there's been a slight change in how you're viewing the back half as you think about private label coming back online, not that that's not contemplated, but that at least maybe things are holding up a touch better. So just wanted to understand, anticipating the broth headwinds, kind of whether your expectations have changed at all in the back half from maybe more negative to maybe slightly less negative versus your initial expectations? Thanks very much.

Yes, that's a good point. Looking back at last quarter's overall broth trends, I see a couple of factors at play. Firstly, the category remains strong, particularly in Meals & Beverages, where we are witnessing a continued trend of cooking at home that supports various categories and brands, including our Swanson broth. We have two strong brands that continue to perform well in the market while private label is recovering, albeit a bit slower than expected. Regarding your question about the latter half of the year, I do anticipate some headwinds, but they may be less severe than previously thought. If the category exceeds our expectations or private label recovers more slowly, we will work diligently with our supply chain, which has been outstanding, to ensure we can provide our products. We will keep collaborating with our customers to ensure our products remain available on the shelves.

Yes, I noted in my prepared remarks that Sovos will contribute to our organic growth starting in mid Q3, but we will still face year-over-year challenges as we compare against the benefits we experienced last year in the second half. However, as Mick pointed out, these challenges are lower than we initially expected. I also want to recognize our supply chain team for their exceptional efforts in meeting the broth demand.

Thank you.

Hi. Thanks for the question. You mentioned on the call that competitive intensity in crackers has heightened now and for the past three quarters or so. I think we've been dealing with competitive intensity being higher in salty snacks. So, Mick, do you view both of these as similar phenomena? I can see it in the data, there's been price investments in crackers. Do you need to make similar investments for Goldfish to keep up with that? And should we be thinking about kind of a bit of a reset for the Goldfish margin as a result?

Thank you, Rob, for the question. Regarding the salty snacks category, you are correct that it is highly competitive, and we have seen that for a few quarters. However, we have some unique brands focused on healthier options within this category, which we plan to further develop through innovation. The specific segment of salty snacks we are involved in shows some positive trends, so I feel optimistic about it. Additionally, we are focused on our pricing strategy to ensure we present an appealing value to consumers, including attractive entry price points. In summary, we aim to leverage our differentiated brands and innovation to meet consumer needs while optimizing our pricing. Moving on to crackers, I see this as a slightly different situation. Within crackers, we have two brands, including Lance. Lance is performing well, offering a strong entry price point and good value while also meeting consumer demand for portable protein. Although we have seen stable market share, the team is dedicated to increasing consumption of Lance. On the other hand, Goldfish is crucial for us, and we need to prioritize its growth. We need to consistently promote the Goldfish value proposition, which is strong and appeals to our core consumers. We are managing the impact of last year's Crisps launch, which was successful, but we must ensure Goldfish remains appealing. Addressing the competitive pressure is also important, and the team is working on our promotional strategy and entry price points, as mentioned earlier. There are many elements at play, but I trust that the team is focused on ensuring the success of Goldfish as a key brand for us.

Okay. Can I ask a quick follow-up? Have you started doing any math on what the tariff environment might mean for your steel can costs? I know it was an issue several years ago and these tariffs can be even more substantial than that. So would it pass through in terms of like price surcharges from your supplier if it excludes that.

Certainly, Rob. I'll expand a bit more on tariffs since you previously faced some of these issues with Campbell's. The current situation is both dynamic and complex. On one hand, we are dealing with tariffs from Canada and Mexico and also with proposed tariffs on steel and aluminum. We are attentively monitoring the situation, especially since additional tariffs could emerge. Recently, the Commerce Secretary suggested that adjustments to some country tariffs might be announced soon, but we still lack detailed specifics. If these tariffs go into effect as currently outlined, we will be importing thin plate steel for our cans and canola oil for our chips from Canada. At the same time, the retaliatory tariffs largely affect Canadian exports, which would impact our soup production in the U.S. and its import into Canada. To address potential impacts, we are collaborating closely with our suppliers. Depending on the duration and level of these tariffs, we might have to consider alternative actions, including potential price adjustments for some products. Nonetheless, I will ensure that we remain focused on delivering good value to our consumers.