Rebecca Gardy:

Good morning and welcome to Campbell's third quarter fiscal ‘24 earnings conference call. I'm Rebecca Gardy, Chief Investor Relations Officer at Campbell. Joining me today are Mark Clouse, Chief Executive Officer, and Carrie Anderson, Chief Financial Officer. Today's remarks have been prerecorded. Once we conclude the prepared remarks, we will transition to a live webcast Q&A session. The slide deck and today's earnings press release have been posted to the Investor Relations section on our website, campbellsoupcompany.com. Following the conclusion of the Q&A session, a replay of the webcast will be available at the same location, followed by a transcript of the call within 24 hours. On our call today, we will make forward-looking statements which reflect our current expectations. These statements rely on assumptions and estimates which could be inaccurate and are subject to risk. Please refer to Slide 3 of our presentation or our SEC filings for a list of factors that could cause our actual results to vary materially from those anticipated in the forward-looking statements. Because we use non-GAAP measures, we have provided a reconciliation of each of these measures to the most directly comparable GAAP measure in the appendix of our presentation. Slide 4 outlines today's agenda. Mark will provide insights into our third quarter performance as well as our in-market performance by division. Carrie will then discuss the financial results of the quarter in more detail and outline our guidance for the full fiscal year 2024, which we updated this morning. As a reminder, we completed the acquisition of Sovos Brands on March 12th, and as such, third quarter and third quarter year-to-date financial results include a partial quarter of contribution of Sovos Brands. And with that, I am pleased to turn the call over to Mark.

Carrie Anderson:

Thanks, Mark, and good morning, everyone. I'll start by sharing some highlights from our third quarter. We have a lot of positives including the better-than-expected contribution of the Sovos Brands business to our performance. Reported net sales were up 6% driven by the partial quarter of sales contribution from Sovos Brands. Organic net sales excluding the impact of acquisitions, divestitures, and currency, were comparable to the prior year and continued to show sequential volume improvement. On a two-year compounded annual growth rate basis, organic net sales grew 2%. Both adjusted EBIT and adjusted earnings per share increased double digits in the quarter with expansion in both adjusted gross margin and adjusted EBIT margin. Adjusted EBIT increased 13%, primarily driven by the contribution of Sovos Brands, as well as higher adjusted earnings in the base business. Adjusted EPS increased 10% to $0.75, with the impact of the acquisition approximately neutral in the quarter, exceeding our initial expectations. Slide 24 shows that organic net sales were stable with nominal impacts from net price realization and volume and mix. We experienced sequential improvement in the third quarter and expect these volume trends to modestly improve in Q4. And during the quarter, Sovos Brands added 7 percentage points to reported net sales growth, which exceeded our expectations. On Slide 25, third quarter adjusted gross profit margin expanded 30 basis points compared to the prior year to 31.2%. The drivers of margin expansion included supply chain productivity, cost savings initiatives, and favorable volume and mix. These contributors more than offset cost inflation and other supply chain costs and the impact of the Sovos acquisition, which has a lower margin profile than the base business. Core inflation in the quarter remains in the low single-digit range, consistent with rates we experienced in the first half, and much lower than the 8% reported in the prior year. We anticipate core inflation to remain in this range for the balance of fiscal ‘24, and we will stay focused in areas of our portfolio with increased input cost, such as tomatoes, olive oil, cocoa, and other areas of persistent inflation, such as labor costs and warehousing costs. Through the end of the third quarter, we achieved $940 million of our $1 billion multiyear cost savings program. Similar to Q3, we expect our productivity initiatives and cost savings programs to offset the impact of inflation in the fourth quarter. Turning to Slide 26, other operating items include adjusted marketing and selling expenses, which increased 2% to $198 million. The increase was primarily due to the impact of the recent acquisition, partially offset by lower costs in the base business, including lower advertising and consumer promotion expense, lower incentive compensation expense, and lower selling expense. Adjusted administrative expenses increased $2 million, or 1%, to $156 million, due primarily to the addition of the recent acquisition. Adjusted administrative expenses benefited from approximately $3 million in cost synergy realization from our acquisition integration plan that I will touch on a bit more when covering our next slide. As shown on Slide 27, third quarter adjusted EBIT increased 13%, and adjusted EBIT margin increased 90 basis points, primarily due to higher adjusted gross profit from the contribution of the acquisition and the base business. This was partially offset by higher adjusted expenses, including marketing and selling, administrative, research and development, and other expenses, primarily due to the addition of Sovos Brands expense in these P&L categories. As mentioned earlier, these higher adjusted admin expenses were partially offset by approximately $3 million in cost synergies related to our Sovos Brands integration plan. We expect to realize a total of $50 million in annualized cost synergies by the end of the second year post-close, of which about two-thirds are expected in the administrative expense area and the balance in cost of products sold. As Mark indicated, we are pleased with the pace of the integration and look forward to sharing more about the next phase of our cost savings initiatives at our Investor Day in mid-September, which will encompass Sovos synergy savings as well as incremental supply chain network savings. On Slide 28, adjusted EPS increased double-digit to $0.75, primarily reflecting higher adjusted EBIT and a lower adjusted effective tax rate, partially offset by higher adjusted net interest expense related to higher levels of debt to fund the acquisition. As we mentioned earlier, the acquisition was approximately neutral to adjusted EPS. In Meals & Beverages, third quarter reported net sales increased 15% due to the partial quarter contribution of the Sovos Brands acquisition. Pro forma third quarter net sales growth for the division, as if the acquisition had occurred at the beginning of the third quarter of fiscal ’23, was approximately 5%, driven by the respective pro forma Q3 growth of Sovos Brands of approximately 27%. This Q3 pro forma Sovos growth benefited from the timing of Rao’s sauce inventory builds and a shift in the timing of a promotion in non-measured channels. Organic net sales for Meals & Beverages, excluding the acquisition, were flat with the favorable impact of volume and mix offset by net price realization. In the quarter, gains in our foodservice business were offset by lower sales in US retail, where we saw declines in beverages, Campbell's pasta, and Swanson canned poultry, partially offset by gains in Prego pasta sauce and US soup. In US soup, sales increased 2%, an encouraging indicator in the business and supportive of the expected sequential improvement in the second half of fiscal ‘24. The 2% sales increase was primarily due to an increase in broth sales, partially offset by lower sales of ready-to-serve and condensed soups. In addition, we were pleased with the third quarter Meals & Beverages operating margin of 18%, which improved 160 basis points year-over-year, more than absorbing the impact of the recent acquisition, which as I mentioned earlier, has a lower margin profile than the base business. Third quarter organic net sales in Snacks were slightly lower by 1%, but we were encouraged by the continued sequential improvement of the year-over-year volume trends from the second quarter. The lower sales were primarily driven by declines in third-party partner brands, contract manufacturing, and bakery, partially offset by a 2% increase in our Snacks power brands. On a two-year compounded annual basis, Snacks organic net sales and power brands net sales increased 6% and 9% respectively. Net price realization was neutral in the quarter. Third quarter operating margin for Snacks was 15.2%. This was a lower margin compared to last year but came in as expected due to lapping a tougher comparison with last year's Q3 margin benefiting from the combination of pricing waves and the timing of fiscal ‘23 marketing and selling expenses. Year-to-date margins of 14.9% have improved 40 basis points from the prior year and are approaching our 15% goal for the full year fiscal 2024. We intend to share more details related to our longer-term roadmap for a Snacks margin of 17% during our Investor Day. Turning to Slide 31, we continued to generate strong cash flow from operations of nearly $900 million through the end of the third quarter. This result was slightly lower than prior year, primarily due to cost related to the acquisition. Year-to-date capital expenditures were $376 million, up from $257 million in the prior year, as we continue to prioritize key growth and capability building investments. We also remain committed to returning cash to our shareholders with $334 million of dividends paid and $46 million in anti-dilutive share repurchases year to date. With the closing of the Sovos Brands acquisition in the quarter, our net debt to adjusted EBITDA leverage at the end of the third quarter was 3.9 times as expected. We remain committed to investment grade ratings and our goal to return to our 3 times net leverage target by the end of year three, post-close. At the end of the third quarter, we had approximately $107 million in cash and cash equivalents and approximately $1.85 billion available under our revolving credit facility, which we renewed this quarter. We are updating our fiscal 2024 full-year guidance to reflect the expected performance of the base business and the impact of the recent acquisition. Full-year reported net sales are expected to increase approximately 3% to 4%, driven by the partial year of net sales contribution of Sovos Brands. Full-year organic net sales growth is currently pacing to the midpoint of our updated range of approximately flat to down 1%, reflecting the current pace of consumer recovery. At the midpoint, this represents about 0.5 point lower than what we indicated on our second quarter earnings call when we said we expected organic net sales to be at the low end of flat to 2%. As Mark mentioned, and like other companies in the food industry, we continue to be impacted by a dynamic macroeconomic environment and observing a discerning consumer that is particularly impacted at lower income levels. At the midpoint of our updated net sales guidance, implied fourth quarter organic net sales growth is expected to moderately increase sequentially from Q3, and we expect a low teens pro forma net sales contribution from Sovos Brands in Q4, reflecting the timing shifts from Q3 that I mentioned earlier. We feel really good about the performance of Sovos Brands, specifically Rao's, with sales growing faster than our expectations at the time of the deal announcement, thus enabling us to benefit from a higher level of adjusted EBIT contributions since closing. Moving forward, we still expect long-term Sovos Brands net sales growth to be in the mid-single-digit range. We'll provide more specifics on near-term fiscal ‘25 expectations on our fourth quarter earnings call. Full-year adjusted EBIT growth for the combined business is expected to be approximately 6.5% to 7%, reflecting the partial-year contribution of the acquisition, inclusive of integration savings, and base business performance, including lower adjusted marketing and selling expenses, and favorable net price realization, productivity, and cost savings more than offsetting inflation and other supply chain costs. This outlook implies fourth quarter double-digit adjusted EBIT growth driven by the contribution of the acquisition and the performance in the base business, including improving adjusted gross margin as well as lapping a 23% increase in A&C in the prior year. As a reminder, the adjusted EBIT contribution of Sovos in our results includes stock-based compensation expense and acquisition-related depreciation and amortization expense. Whereas historically, when Sovos was a standalone company, these costs were not included in their adjusted results. Annual transaction-related depreciation and amortization expense is expected to be in the range of $15 million to $20 million, in line with our original expectations. Full-year adjusted EPS for the combined business is expected to be up approximately 2% to 3% in a range of $3.07 to $3.10. This includes expected dilution from the Sovos acquisition between $0.01 to $0.02 per share for fiscal ‘24. This full year outlook also implies double-digit growth in Q4 adjusted EPS driven by expected higher adjusted EBIT, partially offset by higher net interest expense related to the acquisition. And then a few other guidance items that I'll update. Full-year cost savings towards our $1 billion enterprise-wide program are expected to be in the range of $55 million to $60 million. Full-year adjusted net interest expense is now expected to be approximately $245 million versus our prior forecast of $185 million to $190 million, reflecting incremental interest expense associated with the new acquisition-related debt. And full-year capital expenditures are expected to be approximately $500 million as we continue to invest in our business for the long run. All other underlying guidance assumptions remain unchanged. To wrap up, we were pleased with our third quarter results delivering double-digit growth in both adjusted EBIT and EPS and margin expansion, as well as better than expected acquisition performance. As we head into Q4, we remain encouraged by the continued expectation for improving volume trends in the business, another quarter of double-digit adjusted EBIT and earnings per share growth, and building on the great start to the integration of the Sovos Brands business. With that, let me turn it over to the operator to begin Q&A.

Andrew Lazar:

Great, thank you. Good morning, Mark and Carrie.

Andrew Lazar:

Hey there. Mark, maybe to start off, I guess, what gives you the confidence in a full recovery in your fiscal first half of ‘25, while kind of simultaneously taking down your ‘24 organic sales forecast by about 50 basis points? And I guess when you say full recovery, how do you sort of define that? Thank you.

Andrew Lazar:

Yeah, I appreciate the context. Thanks very much. I'll pass it on.

Jim Salera:

Hi guys, good morning. Thanks for taking our question.

Jim Salera:

Mark, I wanted to maybe size up the longer term opportunity for Rao's given the strength and the performance that the sauce is seeing. Can you just give us some thoughts around what you think the upside is on the sauce side and then maybe speak to some of the other growth avenues, like frozen pizza, frozen meals, ready-to-serve soup? And as we integrate Rao’s into our models, how we should think about that as a growth engine moving forward?

Jim Salera:

Yeah, that's great. Appreciate the color. I'll hop back in the queue.

David Palmer:

Thanks. Good morning. Interesting to hear your comments about the low income consumer and the pullback in snacks. It kind of reminds me of what's happening in fast food. In both segments, I would imagine that key players are keen not to lose the upcoming key summer selling season. You talked about that. I just wonder, I guess the question is, what should we expect from price mix from that segment over the next one or two quarters as you probably face that type of environment? Thanks.

David Palmer:

No, that's helpful. Thank you. And on Meals & Beverages, just a quick one there. I just -- the pricing down a percent, we were a little surprised to see that. Why did that happen and what's your outlook for pricing in that segment going forward?

David Palmer:

That's helpful. Thank you.

Peter Galbo:

Hey Mark, Carrie, good morning.

Peter Galbo:

Hey, maybe if I could just pick up on the last point you had there on the trajectory of gross margin. I think kind of the revised guidance implies a meaningful kind of ramp into the fourth quarter both sequentially and year-over-year, relative certainly to where the quarter came in. So maybe you can just unpack kind of what's driving the acceleration or reacceleration on the gross margin line as we get into 4Q and then start starting to think about ’25?

Carrie Anderson:

You did. You covered it perfectly. It is a lot like Q3 in terms of the drivers of that expected expansion.

Peter Galbo:

Got it. Okay. That's super helpful. And then, Mark, maybe just a quick one on Meals & Bevs, I think you called out in the press release, foodservice actually as a source of upside that you would seem to kind of buck the trend relative to what we're hearing from a lot of other folks. So maybe you can just touch on that a bit.

Peter Galbo:

Great. Thanks very much, guys.

Nik Modi:

Yeah, thank you. Good morning everyone.

Nik Modi:

Just two quick ones for me. Hey, Mark. Just on Snack, it was obviously been something that's been called out as potential tailwind as we kind of rolled through the years. So just wanted to get any perspective from your side on if you're seeing any benefits of that. But the broader question, I guess, is just kind of pricing has been a key theme for this Q&A. Mark, do you worry about price thresholds right now? I mean it seems like just given the amount of inflation, consumers are just feeling the burden. And I just wonder if like we've kind of gone too far. And I know rollbacks are not part of the historical strategy here for the entire CPG industry. But we seem to be in a very anomalous situation right now. So I just would love your thoughts around that.

Nik Modi:

Right. And then just on the Snack perspective?

Nik Modi:

Great, thanks. I’ll pass it on.

Rebecca Gardy:

Good morning and welcome to Campbell's second quarter fiscal 2024 earnings conference call. I'm Rebecca Gardy, Chief Investor Relations Officer at Campbell. Joining me today are Mark Clouse, Chief Executive Officer, and Carrie Anderson, Chief Financial Officer. Today's remarks have been pre-recorded. 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 Invest Relations section on our website, campbellsoupcompany.com. Following the conclusion of the Q&A session, a replay of the webcast will be available at the same location, followed by a transcript of the call within 24 hours. On our call today, we will make forward-looking statements which reflect our current expectations. These statements rely on assumptions and estimates, which could be inaccurate and are subject to risk. Please refer to Slide 3 of our presentation or our SEC filings for a list of factors that could cause our actual results to vary materially from those anticipated in the forward-looking statements. Because we use non-GAAP measures, we have provided a reconciliation of each of these measures to the most directly comparable GAAP measure in the appendix of our presentation. Slide 4 outlines today's agenda. Mark will provide insights into our second quarter performance as well as in-market performance by division. Carrie will then discuss the financial results of the quarter in more detail and outline our guidance for the full fiscal year 2024, which we reaffirmed this morning. And with that, I'm pleased to turn the call over to Mark.

Carrie Anderson:

Thanks, Mark, and good morning, everyone. I'll start by providing an overview of our second quarter results with a top line that came in as expected, operating margin expansion in both the Meals and Beverages, and Snacks divisions, and adjusted EPS ahead of our expectations. Second quarter organic net sales decreased 1%, lapping a 13% increase in the prior year for a two-year compounded annual growth rate of 6%. Adjusted EBIT increased 1% to $364 million, reflecting higher adjusted gross profit, partially offset by higher adjusted expenses including other expenses, R&D expenses and administrative expenses. Adjusted EPS of $0.80 in the quarter was in line with prior year and lapped double-digit growth last year. Slide 22 provides the drivers of our second quarter net sales performance. Excluding the impact of the divestiture of the Emerald nut business, organic net sales were lower by 1%. During the quarter, we generated 1 percentage point of growth from net price realizations, offset by volume and mix, which was unfavorable by 2 percentage points, in line with the sequential improvement from Q1 that we expected. As shown on Slide 23, second quarter adjusted gross profit margin was 31.4%. We were pleased with the 70 basis point margin expansion, which was driven by supply chain productivity improvements, net price realization, cost savings initiatives, and the favorable impact of volume and mix, which more than offset cost inflation and other supply chain costs. Core inflation in Q2 was low single digits, consistent with Q1, and significantly lower than the 14% in the prior year, driven by attenuation in inputs such as flour and oil. We continue to expect core inflation to stay within this low single-digit range for the remainder of fiscal '24, down from the double-digit range last year. Net pricing averaged 1% for the quarter, reflecting the remaining contribution from our Wave 4 pricing, our smallest and most focused pricing round. As a reminder, our Wave 4 pricing is now fully lapped. During the second half of the fiscal year, we do not expect net pricing to be a material driver of net sales growth, reflecting our continued balanced and disciplined promotional activity. We continue to deploy a range of other levers to mitigate remaining inflation, including supply chain productivity improvements and broader margin-enhancing initiatives. We expect these other levers to contribute to margin performance in the second half of the year as inflation remains moderate and volume trends continue to sequentially improve. Through the first half, we have achieved $915 million of total savings under our multi-year cost savings program, inclusive of Snyder's Lance synergies. We remain on track to deliver savings of $1 billion by the end of fiscal 2025. Moving on to other operating items, adjusted marketing and selling expenses were comparable to the prior year. Marketing and selling also remained approximately 9% of net sales, consistent with our targeted level. Adjusted administrative expenses increased by $2 million, primarily due to higher general and administrative costs, and inflation, mostly offset by the benefits of cost savings initiatives. As shown on Slide 25, adjusted EBIT for the second quarter increased 1%, primarily due to higher adjusted gross profit, partially offset by higher adjusted expenses, including other expenses, R&D expenses, and administrative expenses. Overall, our adjusted EBIT margin increased 20 basis points to 14.8% in the quarter, primarily driven by a higher adjusted gross profit margin. Turning to Slide 26, adjusted EPS of $0.80 was comparable to the prior year and was driven by a slight increase in adjusted EBIT and the benefit of lower weighted average diluted shares outstanding, partially offset by a higher adjusted effective tax rate. Turning to Meals and Beverages, second quarter organic net sales decreased 2%, driven by unfavorable volume and mix. Lapping an 11% increase in organic net sales in the prior-year quarter, Meals and Beverages organic net sales grew 4% on a two-year compounded annual growth rate. During the quarter, modest declines in US retail were partially offset by increases in Canada and food service. Sales of US soup decreased 3%, following a 7% increase in the prior year, primarily due to lower sales of ready-to-serve and condensed soups, partially offset by an increase in broth. We were encouraged by the sequential volume improvement trends we achieved in the quarter with Meals and Beverages volume only down 2% year-over-year compared to a 6% decline in Q1. On a first half basis, organic net sales decreased 3%, lapping a 13% increase in the prior year. We were also pleased with the progress we've made on Meals and Beverages operating margins. While segment operating earnings in the quarter for Meals and Beverages were down just slightly, operating margin increased 20 basis points to 17.9%. This was better than expected and we anticipate continued sequential improvement into the second half. Meals and Beverages operating margin for the first half was 19.2%. In Snacks, second quarter organic net sales increased 1%. On a two-year compounded annual basis, organic net sales increased 8%. For Q2, the increase reflects a net price realization of 3%, partially offset by unfavorable volume and mix of 2%. Similar to the comments I made when discussing Meals and Beverages results, we were also pleased with the sequential improvement in volume trends in our Snacks business, with Snacks volumes only down 2% year-over-year in the second quarter compared to a 4% decline in the first quarter. Sales of our eight power brands increased 4% in Q2 with volumes relatively flat, and for the first half, organic net sales increased 1%, lapping a 15% increase in the prior year. We delivered solid operating earnings and margin performance in Snacks with a 7% increase in segment operating earnings and a 110 basis point improvement in operating margins in the quarter. The higher operating earnings were driven by higher gross profit, partially offset by planned higher marketing and selling expenses. Gross profit margin increased due to the impact of net price realization, supply chain productivity improvements, the benefit from cost savings initiatives, and favorable volume and mix more than offsetting higher cost inflation and other supply chain costs. Snacks operating margin reached 15% in Q2, and for the first half, operating margin was 14.7%. As a reminder, the Snacks margin in the third quarter of fiscal '23 was 16%, up 330 basis points. This was driven by the benefit of last year's Wave 4 pricing net of inflation and the timing of marketing spend. So although we do expect negative pressure on Q3 margins given the lap from the prior year comp, we remain on track to approximately 15% margin for the year. As Mark mentioned earlier, we further expect Snacks margins to increase approximately 100 basis points per year over the next two years, reaching our stated goal of 17% by the end of fiscal '26. I'll now turn to cash flow on Slide 29. We generated $684 million in operating cash flow in the first half and deployed that cash consistent with our capital allocation priorities to maximize long-term shareholder value. Year-to-date capital expenditures were $263 million, $108 million higher than in the prior year, reflecting our commitment to invest for growth, particularly in capacity for our Snacks division as well as investments to drive productivity and enhance business capabilities. We also continued our commitment to return cash to our shareholders with $224 million of dividends paid and $29 million of anti-dilutive share repurchases in the first half. Our balance sheet continues to be stable with net debt of $4.4 billion and a net debt to adjusted EBITDA leverage ratio of 2.6 times. At the end of the second quarter, we had approximately $169 million in cash and cash equivalents and approximately $1.85 billion available under our revolving credit facility. All in, with the $2 billion delayed single draw term loan credit agreement, we are well positioned to close the pending Sovos Brands acquisition. As you'll see on Slide 30, given the consistent and improving performance in Q2, we are reaffirming our full-year guidance provided on August 31st. In the second half of fiscal '24, we continue to expect earnings growth and margin progress, particularly in Q4, benefiting from improving volume and mix trends, moderate inflation levels, and the flow-through of ongoing productivity improvements, as well as second half marketing and selling expenses at our stated targets, which will provide some year-over-year margin benefit in the second half. To provide a bit more clarity about the phasing of the second half, in Q3, we would expect adjusted EPS to be in the lower $0.70 range. As Mark mentioned earlier, top line guidance reflects a range of outcomes based on the speed of in-market category stabilization. We are encouraged by the sequential improvement in year-over-year sales with first half volumes coming in largely as anticipated, and we remain highly confident in the continued stabilization and ultimately returning to growth in the second half. We are currently pacing to the lower end of the net sales guidance range for the full year. However, we still have half of the year remaining with excellent plans and innovation to help accelerate the rate of sequential improvement moving forward. We will continue to invest in our brands with marketing and selling expenses as a percent of net sales expected at the low end of our targeted 9% to 10% range. From a phasing perspective, we expect to spend more in the third quarter relative to the fourth quarter. All other guidance assumptions remain unchanged. Additionally, the pending acquisition of Sovos Brands is currently expected to close the week of March 11th, 2024 and is not included in our current fiscal '24 outlook. After the transaction closes, we expect to update guidance for the combined business during our third quarter call. To wrap up, our second quarter tracked closely to our expectations, driven largely by the actions we undertook to position our business for second half momentum. We are confident in our plans for the rest of the fiscal year and our team remains focused on executing our strategy. Within both segments of our business, we expect to deliver margin momentum in the second half, paired with improvements in the trajectory of volume and mix. In addition, we are excited to be one step closer to completing the Sovos Brands acquisition and look forward to welcoming their team to Campbell's. With that, let me turn it over to the operator to begin Q&A.

Andrew Lazar:

Good morning.

Andrew Lazar:

How are you doing? Mark, maybe to start off, you talked about sales tracking towards the lower end for the full year. I don't think that comes as a big surprise, just given the broader sort of industry challenges that a lot of the food companies are facing at the moment. But obviously, even at that lower end, it does require a pivot, right? The positive growth in the second half. And with no benefit expected from pricing, obviously volumes got to drive that. Maybe you can go through just a couple of the key points. You mentioned a few, but just what really drives your visibility and confidence to that outcome? And then as Carrie talked about, EPS a little more fourth quarter weighted, given the cadence of spending and some other things. But maybe you can also comment a little bit on that, what drives that specifically, so we have a better handle on that?

Andrew Lazar:

Right. I’ll leave it there. Thank you so much.

Operator:

Your next question comes from the line of Ken Goldman from JPMorgan. Your line is open.

Mark Clouse:

Yeah. No, I think, Ken, what I would tell you, from a Campbell standpoint, our performance relative to the categories is very consistent in the sequence of improvement and the strength in different areas. Again, from what we've seen in the beginning of the year, through, I mean, continued strength on broth and all of our cooking businesses, as that stays highly relevant for consumers very, very strong, a little bit more softness on ready-to-eat soups but not different than what we would have expected. I think the -- let's call it a little bit of the hesitation has probably been more anchored in the speed at which the categories are recovering. And I would say, from a Meals and Beverage standpoint, pretty much in line with the trajectory, I mean, I think everybody is aware that January was obviously a very strong month and arguably a little bit better due to the weather. Although what I would tell you is, as we think about it and look at it, the good news is, that weather is more normal than what we've had the last couple of years. So always difficult to talk about weather. But I think January generally pretty strong, but the trend -- the underlying trend in the categories, pretty much where we expected. I would say Snacks is a little bit slower. If there's one where in the category dynamics, we're seeing a little bit more moderation. But I do continue to be reminded that when I look at these businesses and look at these categories on a two-year basis, you continue to see really strong results. I mean, in fact, our power brands which are two-thirds of our business on a two-year basis are up 12%. So there probably was a little bit maybe of overshooting relative to expectation on the speed of recovery in the Snacks ones. But I think relative to what we expected or what's giving us a little bit of, I would say, pragmatism, because again, I want to be really clear, we've got a lot of months left in the year to see us continue to shape the curve based on our own execution. But I would say those are the areas that are giving us a little bit more of this outlook that's moving a bit down. And remember, we guided in pretty tight ranges, too. So the difference between one and zero, not insignificant, but certainly, I think in a world where it's pretty variable right now, I think a little bit of pragmatism is probably appropriate.

Mark Clouse:

Yeah. So, no, I think what you're seeing is generally a pretty consistent with history. As funny as I -- a lot of the devil is in the detail of unpacking these categories. And it's interesting, as I talked about that two-year CAGR on power brands for us, as you pull back and look a little deeper at the salty categories, they are the strongest two-year growth rates that we have within the business. So arguably, salty is lapping the most challenging comps of -- given the strength of where it was a year ago. I do think, as I've said all along, this is salty snacks, right? So this is not a category where you're not going to have promotion, where you're not going to have competitiveness as you think about the players that are in this space. But I'm not seeing anything that indicates to me that people are becoming irrational or that they're trying to chase the cycling down. Again, I would say, whether it's -- we under-anticipated the strength that we were lapping or whether the category is a little more challenged than we expected in the near term, I am really not worried about this being structural. And even when I look at some of those early lead consumer indicators, like I mentioned before, you're seeing positive movement. I truly believe this is not a matter of if these categories respond, it's just a matter of when, and trying the time it, engage it, is what makes the current moment we're in a little bit more challenging. But structurally speaking, I'm not seeing anything that gives me any real pause, relative to what I think is going to be a very, very healthy longer-term trajectory for us, both in the salty side but also in the cookie and cracker side.

Operator:

Your next question comes from the line of Peter Galbo from Bank of America. Your line is open.

Mark Clouse:

So maybe I'll jump in first on the top line. So Canada and foodservice continue to be performing extremely well. Now as you might remember, Peter, we had the nice recovery of a year ago in foodservice, but it was still positive, low single digits. Canada had an especially strong quarter. It contributed about 1 point of growth. And so if you're doing the math between net sales and end-market consumption, one might ask the question of, all right, if you got a point of contribution from NAFS and Canada and Meals and Beverage, why were you a little bit lower? And that was a function of actually seeing a bit more depletion of inventory in the second quarter. And again, I think I wouldn't call that a big indicator of an upsized recovery in Q3, but I think a little bit of just normalizing as we ran through the holiday season, which is always a little bit of a guessing game relative to inventory. So I think we're finishing in a very good spot, but we got a little bit of help from NAFS and Canada that we're able to balance a bit, a little bit of inventory pressure on the base business, but you're talking in totality within about 1 point of movement on the meals and beverage side.

Mark Clouse:

Yeah. So needless to say, this is may be more exciting to us than the outside world, but this is a really important step in the journey because really, since I've been on the business, when you look at our business and you see the complexity of multiple DSD routes on snacking and you see the disparity geographically in scale, it does really beg the question of is there no way to put these businesses together? And I think what we did, which was smart was to kind of tread lightly and move in a very methodical and pragmatic way. But you now hear us kind of through what has been a couple of years of really working on what's possible and feeling really good about what we're learning on the combo routes. And so as you can imagine, one of the questions we had to answer is, okay, you have an independent distributor that's now going to two aisles in the store. And so what you -- what inherently you're going to have to have is enough scale that represents or that is still economically beneficial for that independent distributor to spend more time in a single store. So the math in this to get it to really work well to make it the win-win that we want it to be is this opportunity of maximizing in-store execution, while the economics of the drop size is being substantial enough that it really encourages or make these routes attractive, while also dealing with the fact that when you're underscaled on these routes, and this may not be as obvious to everybody, is, as you might imagine, if the economics are not good on routes for an independent distributor, it's a real challenge for them and the ability to invest in their business, the ability for them to dedicate the time and effort is a real challenge. And so the better we make the economics, the better it is for the IDP and the better the service and support is for our business and for the customer. And so I think what you hear us saying today is that we actually feel really good about it. And I just would say the other big question that we had was, okay, if we're buying back routes, how complicated or difficult, how long will we have to hold the routes before we get a buyer? And I would say what's been really exciting, although, again, I think you hear a level of, again, pragmatism in the rollout as we continue to validate this as we go, but the early signs is it's a fairly expedited process, right? We kind of line up the right buyers, we get them ready, we acquired the routes and then in many cases, these are people that are in our network already. They may be an owner of existing Pepperidge Farm route or a Snyder's-Lance route. And so the speed at which to convert on that has been very good. And so now this gives us kind of the final piece of the puzzle to being able to plot forward, to really a single snacks network, even though in much of the country, you'll still see a dedicated Pepperidge Farm and a dedicated Snyder's-Lance truck, it's all running through the same singular network. And in places where we didn't have the scale, you'll see these combo routes that are going to give us a great expansion of what I would call the same level of support we're getting in those scaled markets, we'll now be able to deliver in a much larger percent of the country, which is why we're so excited about it.

Michael Lavery:

Thank you, good morning. I just wanted to start following up a little bit more on that DSD color. And I would love to get a sense -- I know it sounds like it's a fifth or so of the total, so a smaller piece. But can you quantify what the savings might look like from this and how to think about the economics of how this progresses?

Michael Lavery:

Okay. That's really helpful. Thanks. And just a quick follow-up on some of the comments on the portfolio. You've touched on the attractive balance and the Investor Day slide, looks like you'll highlight how you're thinking about that. We've had questions in the past about would a split ever makes sense. It sounds like that's not on your radar. Is that how you're thinking about how you go forward and just how the two pieces of the business fit together?

Operator:

Our next question comes from the line of Jim Salera from Stephens. Your line is open.

Mark Clouse:

Hey, Jim.

Mark Clouse:

Yeah. So, it's a great question. Goldfish is, as we said, kind of foundational in many ways, has been this great example for us of how do we drive these iconic differentiated snack brands. And the magic in Goldfish has really been this combination, I would say, of good base business support while expanding into adjacent consumer targets initially, and now with Crisps really into adjacent occasions, so that we're now able to begin to source from other snacking categories that fit better, like think of chips or more of a munching occasion that Goldfish is now competing with and off to an extraordinary start. You pair that with the success of our limited time offerings and much of our innovation in the past has been successful as well. You might have heard a little bit too of kind of a subtle nod to geographic opportunity, as I mentioned, as a more North American mega brand, and there is significant runway on Goldfish as we think about Canada and even Latin America. As we continue to dig deeper there, we're seeing real opportunity for white space in those areas. And so when I think about Goldfish, and I think about what we've done now to prove the expandability of the brand, I think it is a great blueprint. Now I would argue that we've done a very good job in other brands like Late July or Kettle Brand, where we've been able to add different occasions like air fried on Kettle, flavor variety that really brings excitement, the limited time offering model. You see us expanding that to other parts of the business, even more recently to cookies. If you haven't tried the London Fog, Milano, excellent product. And so there's a lot of -- I think, a lot of great learning that's going to travel to brands that are highly relevant in doing that. And I think you put those elements together, not only do you feel good about the continued runway or Goldfish, but even more along the way. And look, I don't think it's exclusive to snacking. I think the ability for us to bring the Goldfish playbook to Meals and Beverage is equally relevant. And I would argue that although, yes, we're cycling through a little tougher time on ready-to-eat soup, if you look over the last several years, I mean, Chunky has just had a great, great run, again, driven by a very similar approach of great foundational based marketing and just some super innovation that we've been bringing to the table, including some limited time offerings that have been quite effective as well. So I think the company in general, has distilled down a pretty good playbook now that, yes, was probably born of Goldfish and Chunky, but that you see us applying now more broadly across the portfolio. And I'll just conclude by saying, I think we're going to inherit another great playbook in the Sovos team and what they've been doing on building the Rao's brand. So I'm excited to kind of get that on the table as well and continue to use that as kind of evidence or support for why I think these businesses in the future are going to really be best-in-class in contributing steady, predictable, sustainable growth.

Rebecca Gardy:

Good morning, and welcome to Campbell's first quarter fiscal 2024 earnings conference call. I'm Rebecca Gardy, Chief Investor Relations Officer at Campbell. Joining me today are Mark Clouse, Chief Executive Officer; and Carrie Anderson, Chief Financial Officer. Today's remarks have been pre-recorded. Once we conclude the prepared remarks, we will transition to a live webcast Q&A session. The slide deck and today's earnings press release have been posted to the Investor Relations section on our website, campbellsoupcompany.com. Following the conclusion of the Q&A session, a replay of the webcast will be available at the same location, followed by a transcript of the call within 24 hours. On our call today, we will make forward-looking statements, which reflect our current expectations. These statements rely on assumptions and estimates, which could be inaccurate and are subject to risk. Please refer to Slide 3 of our presentation or our SEC filings for a list of factors that could cause our actual results to vary materially from those anticipated in the forward-looking statements. Because we use non-GAAP measures, we have provided a reconciliation of each of these measures to the most directly comparable GAAP measure in the appendix of our presentation. Slide 4 outlines today's agenda. Mark will provide insights into our first quarter performance as well as in-market performance by division. Carrie will then discuss the financial results of the quarter in more detail and outline our guidance for the full fiscal year 2024, which we reaffirmed this morning. And with that, I'm pleased to turn the call over to Mark.

Carrie Anderson:

Thanks, Mark, and good morning, everyone. I'll begin with an overview of our first quarter results. As Mark indicated, our top-line finished as we anticipated, and adjusted EBIT and adjusted EPS came in slightly better, primarily due to the timing of adjusted marketing, selling, and administrative expenses. Our organic net sales decline of 1% reflects mid-single-digit expected volume declines, a lower contribution from pricing and disciplined levels of promotion activity. Lapping a 15% increase in organic net sales in the prior year, organic net sales grew approximately 7% on a two-year compounded annual growth rate. Adjusted EBIT decreased 9% to $407 million, reflecting lower adjusted gross profit, a commitment to continued marketing and selling investments, and lower benefits from pension and postretirement income, partially offset by lower adjusted administrative expenses. Adjusted EPS decreased 11% to $0.91, driven primarily by lower adjusted EBIT and slightly higher interest expense, partially offset by a reduction in the weighted average diluted shares outstanding. Slide 22 summarizes the drivers of our first quarter net sales performance. Excluding the impact of the Emerald nut business divestiture, organic net sales declined 1%. We generated 3 percentage points of growth from net price realization and volume and mix declined 5 percentage points in-line with expectations. As shown on Slide 23, our first quarter adjusted gross profit margin of 32.1% decreased a modest 10 basis points, with the year-over-year change in margin driven primarily by unfavorable volume and mix. As shown on the bridge, the combination of net price realization, productivity improvements and cost savings initiatives offset higher cost inflation and other supply chain costs. Turning to Slide 24. We continue to successfully mitigate inflationary headwinds with core inflation moderating to 2% in the first quarter, driven by attenuation in key inputs such as flour and oil. We expect core inflation to stay within this low-single-digit range for the full year, down from the 12% we saw in fiscal '23. Net pricing averaged 3% for the quarter, reflecting the contribution from our wave four pricing, our smallest and most focused pricing round. As a reminder, our wave four pricing will be fully lapped at the end of Q2 fiscal '24. In addition to pricing, we continue to deploy a range of other levers to mitigate inflation, including supply chain productivity improvements and broader margin enhancing initiatives, including a focus on discretionary spending across the organization. These other levers will start to have a greater contribution to margin performance as inflation continues to moderate and volume normalizes, especially as we move into the second half of the fiscal year. We are pleased with the progress we have made on our cost savings initiatives. Through the first quarter, we have achieved $895 million of total savings under our multi-year cost savings program, inclusive of Snyder's-Lance synergies. We remain on track to deliver savings of $1 billion by the end of fiscal 2025. Moving on to other operating items. Adjusted marketing and selling expenses increased 9%, driven by higher selling expenses, higher advertising and consumer promotion expense, or A&C, which increased 6% compared to the prior year, and higher other marketing expenses. On both the reported and adjusted basis, marketing and selling expenses represented approximately 9% of net sales for the quarter. Adjusted administrative expenses decreased by $5 million due to lower general administrative costs, partially offset by inflation. We saw some timing favorability in adjusted marketing, selling and other administrative expenses in the quarter, but expect this to be rephased into Q2 to keep the first half in-line with expectations. As shown on Slide 26, adjusted EBIT for the first quarter decreased 9%, primarily due to lower adjusted gross profit, higher adjusted marketing and selling expenses, and lower benefits from pension and postretirement income, partially offset by lower adjusted administrative expenses. Overall, our adjusted EBIT margin decreased to 16.2% in the quarter, primarily driven by higher adjusted marketing and selling expenses and changes in pension and postretirement benefit income. Turning to Slide 27, adjusted EPS of $0.91 was down 11% or $0.11 per share compared to the prior year. This was primarily driven by the decrease in adjusted EBIT and slightly higher interest expense, partially offset by reduction in the weighted average diluted shares outstanding. Changes in pension and postretirement benefit income drove an approximate $0.01 impact to adjusted EPS in the quarter. Turning to the segments. In Meals & Beverage, first quarter organic net sales decreased 3%, driven by an approximate 6% volume and mix decline, partially offset by 2% net price realization. Lapping a 15% increase in organic net sales in the prior year, Meals & Beverage organic net sales grew approximately 6% on a two-year compounded annual growth rate. During the quarter, declines in U.S. retail products were partially offset by an increase in foodservice. Sales of U.S. soup decreased 5% following an 11% increase in the prior year, primarily due to declines in condensed and ready-to-serve soups, partially offset by an increase in broth. Segment operating earnings in the quarter for Meals & Beverages decreased 13% to $287 million, largely due to lower gross profit. As expected, first quarter operating margin declined 230 basis points to 20.4%, driven by the lower gross profit margin, which was largely driven by higher cost inflation and other supply chain cost, as well as the unfavorable volume and mix between retail and foodservice, partially offset by supply chain productivity improvements and net price realization. In Snacks, first quarter organic net sales increased 1%, and on a two-year compound annual basis, increased 8%. The organic net sales increase reflects net price realization of 5% and unfavorable volume and mix of 4%. Sales of our eight power brands increased 5% in the quarter. Segment operating earnings in the quarter increased 5% to $161 million, primarily due to higher gross profit, partially offset by higher marketing and selling expenses. Gross profit margin increased due to the impact of net price realization and supply chain productivity improvements, more than offsetting higher cost inflation and other supply chain costs. Overall, within our Snacks division, first quarter operating margins increased year-over-year by 80 basis points to 14.5%. I'll now turn to cash flow on Slide 30. We generated $174 million in operating cash flow in the first quarter and deployed that cash consistent with our capital allocation priorities to maximize long-term shareholder value. We see some great opportunities to reinvest back into the business to drive incremental growth, productivity and enhanced business capabilities. And as such, we stepped up our capital spend in fiscal '23 and this will now continue into fiscal '24 after a few years of lower spend levels through 2022. In Q1, capital expenditures were $143 million, $66 million higher than in the prior year, reflecting our commitment to invest for growth, particularly in capacity for our Snacks division. We also continued our commitment to return cash to our shareholders with $114 million of dividends paid and $28 million of anti-dilutive share repurchases in the quarter. Our balance sheet continues to be in a strong position with net debt of $4.6 billion, and a net debt to adjusted EBITDA leverage ratio of 2.8 times, below our target of 3 times. At the end of first quarter, the company had approximately $91 million in cash and cash equivalents, and approximately $1.85 billion available under its revolving credit facility. In addition, on October 10th, we entered into a $2 billion delayed single draw term loan credit agreement. The proceeds of the loans under this credit agreement can only be used in connection with the acquisition of Sovos Brands. This $2 billion credit facility, along with our current revolving credit facility, will provide ample liquidity and flexibility as we plan for the pending Sovos Brands acquisition. As you'll see on Slide 31, we are reaffirming our full-year fiscal 2024 guidance provided on August 31. Organic net sales outlook for the full year remains in an expected range of 0% to 2% and reflects volume declines in the first half of fiscal 2024 with positive volume trends in the second half. Specifically for Q2, we expect net sales to again follow in-market trends with likely modest sequential volume improvement from Q1. However, we still expect volume and mix to be negative compared to the prior year. Additionally, our net sales performance will reflect lower contribution from pricing as we move through the year and continue our disciplined levels of promotion. Our full-year guidance range for net sales is largely reflective of what we see as the potential variability and the speed of volume recovery for the balance of the year. Full-year adjusted EPS guidance remains in the range of $3.09 to $3.15, with an expectation of modest earnings growth and margin progress in fiscal 2024 weighted to the second half, benefiting from a moderating inflationary environment and ongoing productivity improvement benefits. As I mentioned earlier, the expense timing favorability we saw in our Q1 results will be rephased into Q2. As a reminder, the sale of our Emerald nuts business, which we divested in May of fiscal '23 is estimated to reduced net sales by approximately 0.5% and have a $0.01 per share dilutive impact in fiscal '24. Additionally, the acquisition of Sovos Brands is expected to close in calendar year '24, and therefore, is not included in our current fiscal '24 outlook. We will continue to commit to investing in our brands, with marketing and selling expense as a percent of net sales expected at the low-end of the targeted 9% to 10% range, with the second quarter having higher sequential spend than Q1. We are increasing our capital expenditure guidance to approximately 5% of net sales, as we make additional investments in the business and strategically increase capacity to fuel organic growth. With the timing shift of the Sovos Brands transaction, we are accelerating certain key growth and infrastructure projects from fiscal '25 into fiscal '24. All other guidance assumptions remain unchanged. Turning to Slide 32. We thought it would be helpful to provide some additional insight behind the adjusted gross margin and adjusted EBIT drivers we expect to come to fruition in the second half of fiscal '24. As shown on the slide and referenced in our guidance, our core inflation outlook for fiscal '24 is materially improved from the low double-digit levels we averaged in the prior year. With cost inflation expected to remain in the low single-digit range for the balance of the year, we expect to see a greater net contribution from productivity and cost savings to our bottom-line. Other factors that we expect will contribute to improving margin trends in the second half will be more favorable mix as volume stabilize, especially on profitable businesses like soup, normalizing year-over-year changes in marketing and selling cost, as well as lower pension and postretirement income headwinds. In closing, first quarter results were largely as expected, and our fundamentals are strong as we head into this important winter season. Our Snacks business continues to progress its margin journey while we continue to invest in the equity of our brands. Our Meals & Beverage business continues to attract consumers seeking stretchable meals, which is especially important for winning the holiday season given the current consumer environment. With a clearly defined strategy and a best-in-class supply chain, Campbell is well-positioned to deliver the rest of its fiscal year. From the management team at Campbell's, we want to thank all of our teams for their hard work and wish everyone a wonderful holiday season. And with that, let me turn it over to the operator for Q&A.

Andrew Lazar:

Great. Thanks so much. Good morning, everybody.

Andrew Lazar:

Hi there. Mark, you mentioned an encouraging start to the holiday season and, of course, we don't want to make too much of any given four-week period, but for Campbell, obviously, the recent data is pretty critical. I guess I was hoping you could dig in a bit more on this data, particularly how you see sort of category dollars progressing to help inform how fiscal 2Q is unfolding, and more important, how you see the rest of the year given the expectation that '24 is going to be a somewhat back-end loaded year?

Andrew Lazar:

All right. No, thanks for that. And then, just a quick follow-up, and it's related to this. Obviously, gross margins came in well above Street forecasts, and I think that helps suggest that there are -- or backs up your point around promotional tactics from Campbell maybe are playing out sort of as you'd expected in a somewhat more rational way. I guess maybe you can discuss what you're seeing there? And more importantly, what you're seeing in terms of lifts? Are the lifts around some of the promotional activities sort of consistent with what you've seen historically?

Operator:

Your next question comes from a line of Ken Goldman from JPMorgan. Your line is open.

Carrie Anderson:

Yeah. I would say a lot of that goes back to some of our enterprise-wide cost savings initiatives. So, we have a vast program that we look at opportunities to enhance business [capabilities] (ph), drive efficiencies in all parts of our organization that are part of our $1 billion cost savings initiative. So, I would say, it's really across the board, not only in our COGS areas and our manufacturing facilities, but also going into the SG&A areas as well. And that's where we're seeing it across the board, some of those cost savings opportunities coming through.

Ken Goldman:

Okay, thank you for that. And then, just a quick follow-up. It's great to see the improving share data within soup, and thank you for the explanation as to what's going on maybe behind the scenes there. I'm curious, do you believe your key customers are satisfied with overall category volumes with soup, right, sort of understanding that the comparison is challenging. You did talk about how maybe you expect shipments and consumption to kind of match in the next few months, and maybe that answers the question. But just trying to get any kind of sense of how those customers are looking at the category right now in the scheme of affordability and so forth?

Operator:

Your next question comes from a line of Robert Moskow from TD Cowen. Your line is open.

Mark Clouse:

Yeah. So, an interesting quarter on that front because you had, I would say, some real strength and some challenges in both of the two buckets. So, they were fairly consistent in the quarter. A little bit better, I would say, on shares. Broth recovered in the optimize, which was a good thing given its significance at the holiday. But the tactics, I think, for both -- and again, if I look at this over the last couple years, as I said in the fourth quarter, you do have a pretty dramatic difference where the growth businesses over the last couple of years CAGRs about 3% of upside and growing, and the optimized businesses are down about the same amount and even a little bit more. More importantly, in the growth areas over the last two years, you're seeing relatively strong shares across most of the key areas like Chunky and the icons on condensed and Pacific. I think in this particular quarter, what helped the optimize was some of the work and some of the benefit that we saw on broth kind of regaining its footing relative to private label. And I would say that was more of a function of just cycling private label than anything dramatic we did. I will say as we went into the key weeks, and if you remember what I said on broth, even as an optimize, what's important is that we win those key holiday weeks. And I think the good news is for a reasonable investment relative to what we expected, we saw that where broth for the quarter or for the four weeks was up 4% on dollars and up 1.2 share points in the latest four weeks, which is a great sign while private label was down pretty significantly. I think on the growth, Rob, what we're seeing, that's a headwind, right? I'd say condensed cooking icons, Pacific, all of those are doing extremely well. I will say the pressure on ready-to-serve has been a bit more pronounced in the last quarter. And this is really, we believe, a dynamic of consumers, especially our lower-income consumers that are under a lot of pressure that are migrating a bit more to what we would call stretchable meals from single serve. And so, one of the things that you'll see us doing on Chunky in particular is really positioning it more through the lens of the protein content and its ability to also stretch in meals to match a little bit where those consumers are going. But I do think in the quarter what dampened a little bit of the growth trajectory was that ready-to-serve. I'm not particularly concerned. I think we'll continue to see as we get into the season. A lot of activity on that business and all the other areas of growth are doing extremely well.

Operator:

Your next question comes from the line of Jason English from Goldman Sachs. Your line is open.

Mark Clouse:

Hey, Jason.

Mark Clouse:

Yeah. So, the other supply chain cost is a variety of variables, and maybe Carrie and I can tag team on this one a little bit together. But I'd say there's three things in there that are influencing that margin pressure that we're seeing now. The first is, I would describe some inflation, albeit not core inflation, cost of the supply chain, some of the intrinsic costs within our plant costs have been a headwind and have moved kind of in concert, I would say, with inflation. And so, although we don't categorize it as core inflation, I would say generally that's what's behind it. I think the second is, it's also there is a mix dynamic that is within that cost structure that's related more to SKU mix and even as we see some of the brand and category mix, even through to SKU, we've seen a bit of a headwind there. And then, the third area is and again not completely unexpected that's also where you see absorption and some of the fixed cost leverage that you would experience in a circumstance where volumes might be a little bit down from where they've been, and that's pressure that's there. So, as you can expect that normalization, whether it be from the mix standpoint, inflation standpoint, and/or even the volume standpoint, that's why we do not see those continuing forward. And you will begin to cycle if you were to go back and look at our Q3 and our Q4 from '23, you would see rather significant contributions from those buckets as well.

Jason English:

That's helpful. Thank you. And Mark, Carrie, another sort of higher-level question on the outlook for snack foods. The notion that snack foods are growth advantaged has come under some pressure recently, supported by the data. If you look at consumption data, there's been pretty sharp deceleration of volume trends across numerous snack food categories. Love to hear you opine on what you believe is driving that deceleration, whether or not you think we are sort of pivoting into a period where the growth advantages of snack foods are behind us. And if so, or if not, why? What drives that expectation?

Operator:

Your next question comes from a line of Jim Salera from Stephens. Your line is open.

Mark Clouse:

Yeah. There's a lot -- those are quite -- two quite interesting brands, because they do both highlight, I think, consumer dynamics that may feel a little bit of tension with one another, but are fueling the categories. We actually see this on Meals & Beverage and on Snacks. So, let me take Late July first. I would say Late July is a more premium added-value brand, and we are seeing our premium brands doing extremely well. And part of the factor that underpins this is a lot of the decline that we're experiencing actually a significant outsize of contribution is coming from low-income households, which index on snacking only at about 20%, but they represent a much bigger portion of our declines, whereas the premium brands that index higher to the mid- and higher-income levels have been very stable, if not growing at faster rates. And so, I think Late July is a well-positioned brand in that added-value and elevated space, and thus within those consumer segments, remains extremely relevant, and the growth rates continue to perform very well. Lance is interesting, because Lance is really a brand that in our snacking portfolio does really index high to value. And one of the things that we're seeing is demand for that sandwich cracker segment, and in particular, Lance, has been extremely high. And when you think about the price point, the value, even the content, right, protein delivery, the perception of value of food relative to spend, it is a very, very high-performing brand and one that is doing very well. So, you can imagine among the more challenged consumer base, that particular business is just right on target. And we've seen demand doing -- going up pretty dramatically across that whole portfolio. So, it is a really good example of two very different macro trends that we're experiencing within the businesses, both snacking and Meals & Beverages.

Mark Clouse:

Yeah. I would say consistent with what our ongoing strategy has been, which is broadening usage of Goldfish to the entire household. We have always been a powerhouse with kids, and not surprising, I think, to many of ourselves, as our own behavior may indicate, is that once it's in the household, more of the family tends to eat it. But we've not necessarily brought offerings that index a little bit more or specifically meet more of the expectations of either teens or even adults in the household. And that strategy over the last couple years, whether it was Frank's RedHot or Old Bay or Mega Bites, the innovation has been paramount into driving that. And one of the things that we mentioned in the call today, this is now going on two years of being the number one requested snack among teens. And that's everything, right? That's the brands you think of as being kind of these mega teen snacks and Goldfish has been number one. And so, when you think about a product like Crisps, where you really are intermingling kind of potato chip behavior with cracker behavior to get this kind of light munchable texture on Goldfish, it's a perfect fit for that. But we also want to make sure that kids target, we continue to meet their expectations as well. So, you love to see a maple-flavored elf product on Graham as well. So, I think the goal for us is to continue to be that number one choice for kids while enabling the entire household to be fans of it. So, I would say, I would expect that to manifest itself in both buy rate as you hope that a kid's household is buying a couple more packages of some of these other innovations or flankers, or that we hold on to households longer. So, as the kids age up, you're actually maintaining Goldfish in that repertoire, even if it may be through a Crisps or a Mega Bites as an extension into a longer and older set of kids or households.

Rebecca Gardy:

Good morning, and welcome to Campbell's fourth quarter fiscal 2023 earnings conference call. I'm Rebecca Gardy, Chief Investor Relations Officer at Campbell. Joining me today are Mark Clouse, President and 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. For us to give as many participants as possible the opportunity to ask questions, we ask that you limit yourself to two questions. The slide deck and today's earnings press release have been posted to the Investor Relations section on our website, campbellsoupcompany.com. Following the conclusion of the Q&A session, a replay of the webcast will be available at the same location followed by a transcript of the call within 24 hours. On our call today, we will make forward-looking statements, which reflect our current expectations. These statements rely on assumptions and estimates, which could be inaccurate and are subject to risk. Please refer to side 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. On Slide 4, you will see today's agenda. Mark will share his overall thoughts on our fourth quarter and full year performance as well as in-market performance by division. Carrie will then discuss the financial results of the quarter in more detail and review our guidance for the full fiscal year 2024. And with that, I'm pleased to turn the call over to Mark.

Carrie Anderson:

Thanks Mark, and good morning everyone. I'll begin with an overview of our fourth quarter results, which came in largely as expected with a mid-single-digit organic net sales increase and an adjusted EBIT performance that reflected planned fourth quarter investments in sales and marketing, especially in our Snacks business and continued headwinds related to a non-operating item. Fourth quarter organic net sales increased 5% to nearly $2.1 billion, reflecting inflation-driven net price realization, partially offset by some unfavorable volume and mix. Adjusted EBIT of $242 million was a 10% decrease to prior year as higher adjusted gross profit was offset by planned investments in marketing and selling and higher adjusted other expenses related to lower pension and post-retirement benefit income. Adjusted EPS decreased 11% to $0.50, driven primarily by lower adjusted EBIT. The impact of lower pension and post-retirement benefit income reduced adjusted EBIT margin by 40 basis points and adjusted EPS by $0.02 in the quarter. We are pleased with our overall performance for the full year. Our fiscal year net sales results exceeded our initial guidance expectations provided a year ago, finishing the year with organic net sales growth of 10%, driven by higher net price realization. Adjusted EBIT grew 5% and adjusted earnings per share finished at $3, also up 5% and ahead of the top end of our initial expectation range despite a $0.02 greater adjusted EPS impact than originally planned from pension and post-retirement income. Overall, for the year, this non-operating item reduced full year adjusted EBIT by $44 million and adjusted EPS by $0.11. Slide 17 summarizes the drivers of our fourth quarter net sales growth. Excluding the impact of the sale of the Emerald nuts business, organic net sales grew 5% in the quarter. We generated 10 percentage points of growth from inflation-driven net price realization. Volume and mix declined five percentage points across both divisions. Our fourth quarter adjusted gross profit margin of 30.6% was generally in line with Q3 with the year-over-year change in margin driven primarily by unfavorable volume and mix. As shown in the bridge, net price realization and productivity improvements more than offset cost inflation and other supply chain costs. Moving to Slide 19. Our teams continue to successfully mitigate inflationary headwinds that averaged 12% for the year. We saw steady moderation as we move through the quarters with Q4 core inflation finishing at 6% compared to a high of 18% in Q1. Fourth quarter's rate reflected improved trends in oils and flour as well as improvement in logistics and transportation. Net pricing averaged 13% for the full year, reflecting contributions from three waves of pricing aimed at offsetting double-digit inflation. We ended the year with a fourth quarter net pricing contribution of 10%, still benefiting from the impact of pricing waves three and four with price wave three fully wrapped as of July. In addition to pricing, we continue to deploy a range of other levers to mitigate inflation including supply chain productivity improvements and broader margin-enhancing initiatives, including a focus on discretionary spending across the organization. We are pleased with the progress we have made on our cost savings initiatives. Through the fourth quarter, we have achieved $890 million of total savings under our multiyear cost savings program, inclusive of Snyder's-Lance synergies. We remain on track to deliver savings of $1 billion by the end of fiscal 2025. Moving on to other operating items. Adjusted marketing and selling expenses increased 9%, driven by higher advertising and consumer promotion expense, or A&C, which increased 23% compared to the prior year, and higher selling expenses, partially offset by increased benefits from cost savings initiatives. The increase in A&C this quarter was primarily driven by the planned increases in our Snacks division. Overall, our adjusted marketing and selling expenses represented approximately 9% of net sales for the quarter and the full fiscal year. And adjusted administrative expenses increased by $11 million or 7% to $164 million due to higher general administrative costs and inflation, partially offset by increased benefits from cost-saving initiatives. As shown on Slide 21, adjusted EBIT for the fourth quarter decreased 10%, primarily due to higher adjusted marketing and selling expenses, higher adjusted administrative expenses and higher adjusted other expenses related to lower pension and postretirement benefit income this year, partially offset by higher adjusted gross profit. Lower pension and postretirement benefit income this year drove an approximate $7 million impact to adjusted EBIT. Overall, our adjusted EBIT margin decreased to 11.7% in the quarter, primarily driven by a lower adjusted gross profit margin, higher adjusted marketing and selling expenses and the impact of lower pension and postretirement benefit income. Turning to Slide 22, adjusted EPS of $0.50 was down 11% or $0.06 per share, compared to the prior year. This was primarily driven by the decrease in adjusted EBIT and slightly higher interest expense, partially offset by a lower adjusted effective tax rate and a reduction in the weighted average diluted shares outstanding. Turning to the segments in Meals & Beverage, fourth quarter organic net sales increased 1%, reflecting net price realization, partially offset by unfavorable volume and mix. Sales increases in foodservice and Prego pasta sauces, were partially offset by declines in beverages, U.S. soup and Canada. Sales of U.S. Soup decreased 2%, primarily due to declines in ready-to-serve soups, partially offset by strong increases in broth and modest increases in condensed. Segment operating earnings in the quarter for Meals & Beverages decreased 18% to $132 million, primarily due to lower gross profit. Fourth quarter operating margin declined to 14.1%, driven by lower gross profit margin, which was largely due to higher cost inflation and other supply chain costs, as well as unfavorable mix between retail and foodservice, partially offset by net price realization and supply chain productivity improvements. For the fiscal year, segment operating margin declined to 18.2%, compared to 19% in the comparable year ago period. In Snacks, fourth quarter organic net sales increased 9% driven by sales of Power Brands, which were up 13%, and reflected net price realization, partially offset by modest unfavorable volume and mix. Segment operating earnings in the quarter increased 12% to $158 million, primarily due to higher gross profit, partially offset by higher marketing and selling expenses as well as higher administrative expenses. Gross profit margin increased due to the impact of net price realization and supply chain productivity improvements, more than offsetting higher cost inflation and other supply chain costs and unfavorable volume and mix. Overall, within our Snacks division, fourth quarter operating margin increased year-over-year by 60 basis points to 14%. For the fiscal year, we were pleased with our margin progress posting a 130 basis point improvement to 14.4%, compared to 13.1% in the prior year. I'll now turn to our cash flow and liquidity. Fiscal 2023 cash flow from operations was $1.14 billion, compared to $1.18 billion in the prior year, primarily due to changes in working capital partially offset by higher cash earnings. In line with our commitment to return value to shareholders, we have returned nearly $590 million through dividends and share repurchases through this fiscal year. Cash outflows from investing activities reflected capital expenditures of $370 million, $128 million higher than in the prior year, as we invested in key growth areas, particularly in our Snacks division. Our year-to-date cash outflows from financing activities were $723 million, including $447 million of dividends paid and $142 million of share repurchases. At the end of the quarter, we had approximately $301 million remaining under the current $500 million strategic share repurchase program and approximately $104 million remaining under our $250 million anti-dilutive share repurchase program. Our balance sheet ended the fiscal year in a strong position, with net debt of $4.5 billion and with a net debt to adjusted EBITDA leverage ratio of 2.6 times, well below our targeted three times range. This puts us in great shape as we plan for the pending Sovos Brands acquisition. As of year-end, the company had approximately $189 million in cash and cash equivalents and approximately $1.85 billion available under its revolving credit facility, providing a significant excess liquidity and flexibility. Turning to Slide 26, let me walk you through our full year fiscal '24 guidance. As a reminder, the sale of our Emerald nuts business, which we divested in May of fiscal 2023, is estimated to reduce net sales by approximately 0.5 percentage point and have a $0.01 per share dilutive impact in fiscal 2024. Additionally, the acquisition of Sovos Brands is expected to close by the end of December 2023, and therefore, is not yet included in our current fiscal 2024 outlook. For revenue, we expect reported net sales growth to be in a range of down 0.5% to plus 1.5% and organic net sales growth of flat to 2% for the year. Our expectations reflect improving volume trends throughout the year with an expected lower contribution from pricing and disciplined levels of promotional activity. In terms of phasing, we do expect volume declines to continue in the first half of fiscal 2024 with sequential improvement leading to positive trends in the second half. This dynamic will be most pronounced in Q1, where we would expect top line to be very much in line with consumption. For earnings, we expect adjusted EBIT and adjusted EPS growth of 3% to 5% with an adjusted EPS range of $3.09 to $3.15. We also see the opportunity for modest margin progress. Having exited Q4 with core inflation of 6%, we expect sequential quarterly improvement throughout fiscal 2024 and expect full year core inflation in the low single-digit range. We also expect productivity improvements of approximately 3% and cost savings of approximately $35 million to $40 million towards our $1 billion savings program. As a result of improved second half volume trends and these cost dynamics, earnings growth and margin expansion are expected to be second half weighted. Additionally, in line with our continued commitment to brand investments, we expect marketing and selling expense as a percent of net sales to be at the low end of our targeted 9% to 10% range with a step-up in marketing and selling spend in the first quarter of fiscal 2024, both on a year-over-year basis and sequentially compared to the fourth quarter of fiscal 2023. Division operating margins are expected to improve overall for fiscal 2024 with Snacks operating margins expected to be above 15% and modest operating margin expansion in Meals & Beverage expected in the second half of the fiscal year. Our full year adjusted EBIT and EPS guidance also comprehends an estimated pension headwind of approximately $13 million to adjusted EBIT or $0.03 per share. This is significantly lower than the impact we saw in fiscal 2023 and represents approximately 1% of both adjusted EBIT and adjusted EPS growth compared to the 3% to 4% impact we saw in the prior year. This headwind will be most pronounced in the first quarter. Other key assumptions underlying our guidance included an expected net interest expense of approximately $185 million to $190 million and an adjusted effective tax rate of approximately 24%. As we think about the phasing for the year, we expect the first quarter adjusted earnings growth rate to be the lowest of the year due to the concentration of higher inflation, increased marketing and selling expenses, the highest quarter impact from lower pension income and some costs related to a nonmaterial cyber incident. As you know, we don't provide quarterly guidance. Given the unique dynamics in Q1, however, we expect first quarter adjusted EPS likely in the upper $0.80 range with momentum building as the year progresses. As I wrap up guidance, capital expenditures are expected to be approximately 4.7% of net sales. Our priorities for fiscal 2024 include select capacity expansion projects, including the recently announced Goldfish investment, our headquarter consolidation and other programs to support our Snacks margin improvement plan as well as important IT and productivity investments. We see great opportunity to reinvest back into the business in support of growth and improve profitability. This is fueling the modest step-up in investment compared to the last couple of years and remains very much aligned with our long-term algorithm and capital allocation priorities. We are also committed to maintaining a competitive dividend and a strong balance sheet. In closing, we are confident that the relevance of our brands, our strength and capabilities in marketing, innovation and supply chain execution provide a solid setup for accelerated growth in the second half of the year and into fiscal 2025. That concludes my prepared remarks, and I'll turn it over to the operator for Q&A.

Andrew Lazar:

Good morning, everybody.

Andrew Lazar:

Mark, thanks for some of your commentary at the outset on the sort of the current operating environment in the industry and how that sort of impacts your thinking for the year ahead. You talked about a number of impacts and then a bunch of sort of timing factors, right, to keep in mind as we think about the year. So I guess I was hoping maybe you could maybe give us a little bit more color on sort of how you see the phasing, particularly as it relates to sort of volume recovery as you go through the year? And for the -- I guess, for the full year, how you would think that organic growth target you've laid out sort of breaks out between, let's say, volume and pricing? And then I guess, secondly just would be, do you feel like the, given it's a back-end loaded year, and it's for reasons that I understand, do you feel like you're giving yourself enough room or flexibility to sort of hit those numbers, particularly in light of some of the very recent or near-term trends that you discussed in the industry? Thanks so much.

Andrew Lazar:

Great. Thanks for the detail. Have a good holiday.

Operator:

Your next question comes from the line of Ken Goldman from JPMorgan. Your line is open.

Mark Clouse:

Yes. So it's a good question, Ken. And there's clearly, I would say, very distinctly different parts of our portfolio as we kind of look at it today. I would certainly say one of the things that has been a standout for us has been our Snacks business. And as much as we talk a lot about the dynamics within Meals & Beverages, I would just say, for 50% of the business, we feel very, very good about how the brands have held up And although, we still see some pressure on pretzels, where you've got a very distinct driver and reason for that in the acceleration of that category through some new sub-segments, the most -- the majority of our brands and especially our power brands really are positioned well. And although, we'll cycle some pricing there as well, I feel very good about how we're competitively positioned as it relates to brands like Goldfish or even our Pepperidge Farm cookie business, which we see a great holiday ahead and really have some terrific innovation coming. Snack Factory has been very strong. Our Kettle potato chips is probably an area where we've seen a little bit more competition. But we know how to play that. We have a great value proposition as it relates to Kettle and Cape Cod and some super innovation there as well. So I would just say from a snack standpoint, and half of our business, we feel really good about how we're positioned. Then I think as you get into Meals & Beverages, I do think that's probably where we've experienced a little bit more pressure on share. But it is interesting as you kind of fully unpack it. One of the points that I made in my prepared remarks is, for example, on soup, if you were to remove broth as a segment, where we know we're getting a lot more pressure from private label, it's a more commoditized segment. If you took broth out of that, our share is flat in soup, which is really a testament to the core growth areas I talked about, which represents 70% of that portfolio and where I fully expect to continue to grow and drive positive share as we have over the last several years. You had brands like Chunky returning to share growth. Pacific continues to do well. Our condensed cooking business has really just been performing extremely well competitively. And even in those categories where private label exists, those differentiations that are within those brands have been quite effective. I think on broth and some of our flankers within soup, which is where arguably we felt some of the greatest pressure, I think those are areas where you will see us be very focused on ensuring that value is protected in particular during key seasons or key holidays. But we'll make sure that we stay competitive. I think on some of the flankers, the opportunity that I think we have there is really to determine that those value propositions, and I think in some cases, we'll have a good path forward. In others, you may see some rationalization in areas as we really tighten that portfolio for the future. But as I said, I think the thing that stands out to me is we talk a lot about the soup business, and is that a hindrance or a help. I think unpacking a little bit more of the segmentation helps a lot. When you contain 7% of our sales in the company that are in these more challenged areas and with opportunity to improve, I feel a lot better, and I hope the investors would as well that on the balance of that portfolio, we feel very good. Pace has been another standout, and we've seen positive share there and really expect that value proposition. It's used heavily in cooking in meals right now, which bodes quite well for Pace. And then Prego is an interesting one, right? We continue to grow as pasta sauce category performs very well. But we know there's this other segment in ultra-distinctive that has really been outsized growth and we can't compete there with Prego. That's not what that brand does. So although I don't love the share impact there, I kind of understand it. And of course, that's a big catalyst for the Sovos, the potential Sovos acquisition, which I think will be a great complement to our Prego business and give us a lot of conviction going forward. So I think I would start by just saying, I don't think the share performance of the business, when you look at the parts that are most critical, are in a dire position. I think the areas where we do need some work are fairly contained and focused, and I think there's a lot of reasons to believe that where we have strength, we'll continue to drive that going forward.

Mark Clouse:

Bye. Thanks, Ken.

Peter Galbo:

Hi. Good morning, Mark, Carrie. How are you guys?

Peter Galbo:

Mark, I just wanted to kind of hone in a little bit and not to make you do math on the call. But I think if you just kind of take the midpoint of the range you put into the outlook, it implies something like 100 basis points of gross margin expansion in '24 relative to '23. And understanding that's probably a back half-weighted number, I just wanted to maybe give you a chance what gives you the confidence between, I guess, cost savings and COGS productivity maybe moderating inflation just to get there that we should kind of have confidence that, that can come back in the second half of the year?

Carrie Anderson:

Talk a little bit about foodservice. That was a --

Carrie Anderson:

It will normalize, that growth normalized, which brings itself a little bit of unfavorable mix in fiscal 2023. We won't have.

Peter Galbo:

Got it. Very helpful. Thanks, Mark.

Operator:

Your next question comes from the line of Michael Lavery from Piper Sandler. Your line is open.

Mark Clouse:

Hi, Mike.

Mark Clouse:

Yes. So I think on the snack side, and Carrie will do this one together as well. But I would tell you that, I continue to feel very confident in our road map to 17%. I think as far as do we get all the way there in '25, it will depend a little bit, I think, on some of the environmental elements that have been creating a little bit of the challenge that we've seen over the last couple of years. But I feel very good now with what we put on the board in '23 and what the outlook is for '24. And so I think we're in the hunt. But I'm a little hesitant. I want to see a couple more variables as it relates to inflation and more environmental costs. One of the things we've talked a little bit about that we've had to try to work our way through is some of the fixed let's call it, fixed inflation like labor has been tougher, more challenging than we originally put into the model. The good news is we found other means in which to continue to drive further productivity. And so I think we're - although, I see the kind of line of sight, if you will, to '17, probably want to see a couple more of those variables come in to confirm for sure exactly that timing. And I know we owe that back to folks and we're working on that, and we'll provide that in the near future. I think on Meals & Beverages, it's a little bit of a function of kind of cycling out of some of the environmental elements that are there. I will say one of the things that on Meals & Beverage has been a little tougher in the more recent period is we've been very judicious on pricing relative to inflation, and that's probably put a little more pressure in Q4 as well as, to some degree, in the first part of the year. As inflation moderates through the year, we expect that dynamic to normalize and then we expect to be able to utilize the productivity more incrementally to drive that kind of moderate margin improvement that we're expecting on meals and beverage for the year. So it is a little bit of a dynamic of Meals & Beverage needing to be a little bit more balanced. I'm not talking about spending back on promo. I'm simply talking about as we talked previously, through our waves of pricing, how to make sure some of our categories like broth and condensed soup, where we know we're going to be a little bit more value-driven how to manage that. And although that's provided a little bit of short-term pressure, we expect that as that normalizes in '24 and productivity is more incremental to the business, you'll start to see that pivot back and start to see margin recovery there that I know we're expecting and I think will be very helpful for us as you think about the algorithm and the phasing of '24. Anything I missed?

Mark Clouse:

Yes. Okay. Great.

Jason English:

Hi. Good morning, folks. Thanks for fit me in.

Jason English:

Congrats on the margin progression on Snacks. It's good to see.

Jason English:

But sticking on margins and turning to the other side, Meals & Beverages. Obviously, some challenges there, particularly in the back half of the year. Based on normal seasonality, it suggests that it looks like you're probably going to enter the year with margins down a couple of 100 basis points in the first quarter and maybe down up to 100 basis points or so in the second quarter. To get to margins up for the full year, if I'm right on that, and please confirm or deny, it implies material margin expansion in the back half of the year. So is that cadence roughly in line with your expectations? And if so, what drives that ramp in the back half?

Jason English:

And that's super helpful. But I'm still a little bit confused. So maybe you can unpack that mix component for me a little bit more because my understanding, my thought was that this was more of a normalization, that foodservice was recovering and now we're back to more normal mix. You're saying it's abnormal. It's going to reverse. So, what is abnormally going to reverse?

Jason English:

Predicate on pretty meaningful volume growth in Soup in the back half of the year, am I understanding that correctly?

Operator:

Ladies and gentlemen, we have reached the end of our question-and-answer session. This concludes today's conference call. We thank you for your participation. And you may now disconnect.

Rebecca Gardy:

Good morning, and welcome to Campbell's third quarter fiscal 2023 earnings conference call. I'm Rebecca Gardy, Chief Investor Relations Officer at Campbell. And joining me today are Mark Clouse, President and Chief Executive Officer; and Carrie Anderson, Chief Financial Officer. Today's remarks have been pre-recorded and reflect an effort to better accommodate more time for Q&A. Once we conclude the prepared remarks, we will transition to a live webcast Q&A session. For us to give as many participants as possible the opportunity to ask questions, we ask that you limit yourself to two questions. The slide deck and today's earnings press release have been posted to the Investor Relations section on our website campbellsoupcompany.com. Following the conclusion of the Q&A session, a replay of the webcast will be available at the same location followed by a transcript of the call within 24 hours. On our call today, we will make forward-looking statements which reflect our current expectations. These statements rely on assumptions and estimates which could be inaccurate and are subject to risk. Please refer to Slide 3 of our presentation or our SEC filings for a list of factors that could cause our actual results to vary materially from those anticipated in 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 this presentation. On Slide 4, you'll see today's agenda. Mark will share his overall thoughts on our third quarter performance as well as in-market performance by division. Carrie will discuss the financial results of the quarter in more detail and review our guidance for the full year fiscal 2023. And with that, I'm pleased to turn the call over to Mark.

Carrie Anderson:

Thanks, Mark, and good morning, everyone. I'll begin with an overview of our third quarter results, which came in as expected, reflecting the benefit of prior waves of pricing and ongoing supply chain momentum, as well as the in-market environment and retailer inventory dynamics, which Mark discussed earlier. Third quarter organic net sales increased 5% versus prior year, reflecting favorable inflation-driven net price realization, partially offset by volume and mix declines. Adjusted EBIT decreased 2%, primarily driven by higher adjusted other expenses related to lower pension and postretirement benefit income this year. Higher adjusted gross profit more than offset higher adjusted administrative expenses and higher marketing and selling expenses. Adjusted EBIT margin declined by 110 basis points versus prior year to 14%. Adjusted EPS decreased 3% to $0.68, driven by lower adjusted EBIT and a higher adjusted effective tax rate. The impact of lower pension and postretirement benefit income reduced adjusted EBIT margin by 50 basis points and EPS by $0.03 in the quarter. Turning to a year-to-date view, top-line and adjusted EPS were both up double digits compared to the period last year, and adjusted EBIT was up 9%. The impact of lower pension and postretirement benefit income reduced year-to-date adjusted EBIT by $37 million and adjusted EPS by $0.09. Of note, our Q3 year-to-date adjusted EBIT margin was relatively stable at 15.4% when compared to 15.6% for the nine month period last year. As reflected on Slide 17, third quarter dollar consumption growth in measured channels of 8% outpaced net sales growth of 5%, driven largely by the expected lapping of retailer inventory rebuild in the prior year period when our service levels were recovering. This was partially offset by net sales growth in non-measured channels, which we estimate contributed approximately 2 percentage points in the bridge between dollar consumption growth and organic net sales growth in this quarter. Slide 18 summarizes the drivers of our net sales growth of 5% in the third quarter. We generated 12 percentage points of growth from inflation-driven net price realization. Volume and mix declined 7 percentage points, reflecting both the cycling of retailer inventory rebuild in Q3 of fiscal '22, as well as lower volume consumption due to higher elasticities. Excluding the impact of the cycling of retailer inventory, the underlying volume and mix decline was approximately mid-single digits, consistent with the implied run rate we expect for the balance of fiscal '23. We expect volume trends to improve into fiscal '24 as we fully cycle pricing. Price elasticities remain below historical levels, illustrating the continued underlying strength of our brands. Our third quarter adjusted gross profit margin was generally as expected, declining 60 basis points to 30.9% this year, from 31.5% last year, driven primarily by unfavorable volume and mix. As shown on the bridge, favorable net price realization and productivity improvements more than offset cost inflation and other supply chain costs. Within other supply chain costs, we are lapping a one-time insurance benefit of 50 basis points in Q3 fiscal '22 related to a temporary disruption in our Meals & Beverages supply chain operations caused by Texas storm in 2021. The next page highlights the steps we have taken to mitigate core inflation, which was approximately 8% on a rate basis in the third quarter compared to 15% in the third quarter of fiscal '22. Our actions include targeted pricing and trade optimization. For the third quarter, net pricing was 12% and reflected the impact of pricing waves three and four. As a reminder, wave three pricing went into effect at the start of July of 2022, and wave four pricing, which was more selective compared to other rounds was in place at the beginning of third quarter of fiscal '23. We continue to deploy a range of other levers to mitigate inflation, including supply chain productivity improvements and broader margin enhancing initiatives, including a focus on discretionary spending across the organization. In terms of commodity exposure, all of our raw materials are essentially covered for the balance of the fiscal year, and we continue to closely monitor the overall commodity markets. Moving on to other operating items. Marketing and selling expenses increased $6 million or 3% in the quarter on a year-over-year basis. This increase was driven by higher selling expenses, partially offset by increased benefits from cost savings initiatives. Overall, our marketing and selling expenses represented approximately 9% of net sales for the quarter and we continue to expect marketing and selling expenses to be at the low end of our targeted range of 9% to 10% of net sales for the full fiscal year. Within marketing and selling, advertising and consumer promotion, or A&C, was down 2% versus prior year, driven by a mix of investments to focus on prioritizing value-driven programs to match the current consumer landscape. Adjusted administrative expenses increased by $8 million or 5% to $154 million due to higher general administrative cost and inflation, higher incentive compensation, and higher benefit related costs, partially offset by lower expenses related to the settlement of certain legal claims. As a percentage of net sales, adjusted administrative expenses were 6.9%, in line with prior year. As shown on Slide 22, adjusted EBIT decreased 2% more than explained by the $12 million increase in adjusted other expenses related to lower pension and postretirement benefit income this year. Higher adjusted gross profit more than offset the combination of higher adjusted administrative expenses and higher marketing and selling expenses. Overall, our adjusted EBIT margin decreased 110 basis points to 14% in the quarter, primarily driven by a lower adjusted gross profit margin and the expected 50 basis point impact of lower pension and postretirement benefit income year-over-year. The impact of higher marketing and selling expenses and higher adjusted administrative and R&D expenses was fairly neutral on margin in the quarter as net sales growth was higher than expense growth. Turning to Slide 23, adjusted EPS of $0.68 was down 3% or $0.02 per share compared to the prior year. This was driven by the lower pension and postretirement benefit income we just discussed, which was a $0.03 impact to adjusted EPS along with a slightly higher adjusted effective tax rate in the quarter. Turning to the segments. In Meals & Beverages, third quarter reported net sales decreased 2%. Organic net sales decreased 1%, primarily due to inventory and elasticity-driven volume and mix declines, partially offset by gains in foodservice and net price realization. Third quarter operating earnings for Meals & Beverages decreased 17% due to lower gross profit, with nearly 30% of the decline due to lapping the insurance settlement in the prior year. Third quarter operating margin in the segment decreased to 16.4%, driven by lower gross profit margin, which was due in part to an unfavorable mix shift between foodservice and retail, and the 100 basis point impact of lapping the insurance settlement. Favorable net price realization and supply chain productivity improvements largely offset cost inflation and other supply chain costs. On a third quarter year-to-date basis, segment operating margin stayed relatively stable at 19.2%, compared to 19.4% in the comparable year-ago period. For Snacks, third quarter net sales, both reported and organic, increased 12%, driven by sales of power brands, which were up 16% and reflected favorable net price realization, which was partially offset by modest declines in volume and mix. This is the third consecutive quarter of double digit net sales growth for our Snacks business. Segment operating earnings in the quarter increased 41%, primarily due to higher gross profit, partially offset by slightly higher marketing and selling expenses. Gross profit margin increased due to favorable net price realization and supply chain productivity improvements, more than offsetting cost inflation and other supply chain costs. Overall, within our Snack division, third quarter operating margin increased year-over-year by 330 basis points to 16%. On the third quarter year-to-date basis, operating margin increased 150 basis points to 14.5% versus 13% in the comparable year-ago period. This year-to-date margin is more indicative of the Snack margin we expect for the full year as we continue to invest in the momentum of the business. I'll now turn to our cash flow and liquidity. Our cash generation remains strong with cash flow from operations of $918 million through the end of the third quarter. In line with our commitment to return value to shareholders, year-to-date, we have returned over $475 million through dividends and share repurchases. Cash flow from operations was lower than the prior year, primarily due to changes in working capital, partially offset by higher cash earnings. Our year-to-date cash outflows from investing activities were reflective of capital expenditures of $257 million, up from $179 million in the previous year. Our year-to-date cash outflows from financing activities were $535 million, including $336 million of dividends paid and $141 million of share repurchases. At the end of the quarter, we had approximately $301 million remaining under the current $500 million strategic share repurchase program and approximately $104 million remaining under our $250 million anti-dilutive share repurchase program. We ended the quarter with cash and cash equivalents of $223 million. Turning to Slide 27, we are reaffirming our net sales, adjusted EBIT and adjusted EPS outlook provided on our second quarter earnings call. Given our year-to-date performance, we are tracking to the upper end of our full year fiscal 2023 adjusted EPS guidance. And given the momentum of our core brands, we anticipate that the recent divestiture of the Emerald nuts business, which closed on May 30, will not have a material impact on our fiscal year adjusted 2023 results. And accordingly, our full year guidance is inclusive of the lost sales and profits of that business for the remaining two months of the fiscal year. Our reaffirmed adjusted EBIT and adjusted EPS guidance reflects planned fourth quarter investments in sales and marketing, especially in our Snacks business as we drive continued momentum and value for consumers into these important summer months. Additionally, we are now expecting full year capital expenditures of $360 million for fiscal '23, up from our previous guidance of $325 million, as we look to accelerate key manufacturing capacity investments in our Snacks business. Our full year guidance for all other items remain unchanged, including the full year pre-tax pension and postretirement benefit income, which is expected to be lower by approximately $45 million or $0.12 per share compared to the prior year. This represents approximately 3.5% of adjusted EBIT growth and approximately 4% of adjusted EPS growth. To wrap up, our third quarter tracked to our expectations, driven by strong price realization and operational execution, including in our supply chain. While we did see volume and mix decline in the quarter, it was largely a function of year-over-year comparisons, which masked base volume trends. We are meeting consumer needs for value, quality, and convenience while managing private label, and competitive activity, particularly in our Meals & Beverages business, while our Snacks business continues to demonstrate accelerated growth and steady year-to-date margin progression. Our capital allocation priorities are well defined and consistent, and we look forward to deploying our strong cash flow against the highest ROI opportunities. And with that, let me turn the call over to the operator to begin Q&A.

Andrew Lazar:

Great. Thank you so much. Good morning, everyone.

Andrew Lazar:

Mark, you mentioned that results were in line with your expectations. But we've seen some sizable upsides to results on both organic sales growth and gross margin for really a bunch of packaged food peers recently. And maybe it's not fair to compare, and some, I suppose, could be timing related. But I'm curious how we should think about that as it relates to Campbell's results this quarter. And then, maybe more important, as the group starts to approach a more normal operating environment, do you see Campbell as being able to manage through this sort of transition period in, let's say, a relatively even keeled way? Or should we expect some volatility as the benefit from pricing starts to wane and sort of volume needs to ultimately sort of pick up the slack? So, just sort of a two-part question. Thank you.

Andrew Lazar:

Okay. Thanks so much. Really appreciate that detail.

Ken Goldman:

Hi. Good morning.

Ken Goldman:

Hi. I wanted to ask about what you're seeing in the marketplace for soup. And you touched on some of this, but it looks like unit share losses for Campbell are decelerating in condensed, but maybe it's requiring a little bit of a heavier price investment. And then RTS, your primary competitor is investing a little more in price. So, I don't want to overstate what's in scanner. You're clearly getting a benefit from non-measured channels. But one of the questions that we're getting is, hey, is there a risk that soup is starting another race to the bottom, right? It's been a long time since we've seen that kind of dynamic in this category. It's been much more rational than it used to be. But those of us who are a little longer in the tooth kind of remember when those price competitions, for lack of a better phrase, were not really uncommon. So just curious on your thoughts about direction the category is heading.

Ken Goldman:

Great. Thank you so much.

Peter Galbo:

Hey, Mark and Carrie. Good morning.

Peter Galbo:

Mark, I know we spent a lot of time on soup. Maybe just to put a little bit finer point on maybe the marketing side. You talked a bit about ramping the marketing spend, I think, on Snacks in the fourth quarter. But just as we get into next year, as part of that strategy to get sharper value positions, again, maybe not wanting to get competitive on price, but is it more marketing in soup as you get into soup season in fiscal '24? Just kind of help us understand the lever to pull to eventually kind of drive the volume.

Peter Galbo:

Got it. Thanks for that, Mark. And then, Carrie, maybe just a real quick one. In the gross margin bridge, I think this quarter, the spread kind of between the core market inflation rate, whatever you want to call it, and kind of what came through the P&L was a bit wider than last quarter. And I think that's just hedging. But wondering if you can unpack that quickly and just when we might start to see that gap start to shrink between the two kind of numbers that you reported? Thanks very much.

Mark Clouse:

And remember, too, Peter, you had what, about 50 bps there that was the insurance that we were cycling that shows up in that bucket as well.

Michael Lavery:

Thank you. Good morning.

Michael Lavery:

You had mentioned that A&C was down a couple of percentage points in the quarter. And just to attribute that to some version of I'm trying to be mindful of the value consumer and -- just can you unpack some of those adjustments and how you think about it? And what the shifts look like? And if at a point in time where you're mindful of consumer switching, you would actually maybe spending down a little bit, that was a little bit of a surprise.

Michael Lavery:

Okay. That's helpful. And just shifting gears a little bit, going back to the Investor Day about a year-and-a-half ago, can you just update us on the $1 billion sauces plan? And maybe specifically, it looks like 15%-ish or so of that target was meant to come from premium brand extensions and M&A, a little bit of your kind of white space opportunities. Any progress there or anything we should be thinking about in terms of if those plans might have changed, or what's the latest?

Operator:

Your next question comes from the line of David Palmer from Evercore ISI. Your line is open.

Mark Clouse:

Yes. I would say for the Snacks margin, it was great to see this quarter. And it continues to kind of support what I would describe as the overall thesis of the Snyder's-Lance acquisition, where we imagined a world where we could take some really, really unique and differentiated brands, infuse our marketing and innovation muscle from Pepperidge Farm and drive those results. And in fact, if you look at those Snyder's-Lance brands from kind of four years ago pre-COVID to now Kettle and Cape are up 4 share points, [indiscernible] is up 3. Snack Factory, right, which is in the deli, our Pretzel Crisps business is up 5. Goldfish even on the Pepperidge side, up 1. And Lance sandwich crackers are up 6 points of share. So, an evidence of the thesis of what we can do with these brands, I really feel like we're demonstrating now exactly what that proposition was. I think, in fairness, what we've been waiting to see a little bit is the translation of all of the synergy that we've driven from the acquisition and the benefit of scale for Snyder's-Lance as the ability to step up our margins. And so, I think when you look at us year-to-date, where we're up about 150 basis points, that's probably a better indicator of how we're expecting the year to finish. And if you think about us being a little bit stuck at 13%, the last couple of years, although I'll just point out that, that was also in a period where there was a lot of external pressure at the same time. But to see us up over 14% on track for that for this year, I think is a great step forward. And again, I think as we look forward, we see that trajectory continuing and feel like in many ways, we're going to hit a run here where we're really able to live into that vision that we talked about at Investor Day and at the point of acquisition. So, I think a lot to believe in right now in Snacks and feeling quite good about the evidence, if you will, that we're putting on the board relative to what we believe was possible.

Mark Clouse:

Yes. It's a great question. In fairness, and I think we've been pretty open about this. If I turn back the clock two years, I would argue that probably our supply chain was probably average, if I was kind of being a bit optimistic in that view. I think the good news about that starting point was it did not give us the luxury of waiting through COVID in this kind of volatile environment to really attack the supply chain and making improvements. And so, we did that, had to do that really during that period. And I think what we found is that now, several years later, where it may have been a challenge or even a liability, it's now really emerged as a strength. Our service levels are operating at pre-COVID levels. And that is pretty unique in this environment right now and puts us really in a best-in-class position. And as you know all too well that when that supply chain is running efficiently, there's also additional opportunity as you think about driving productivity going forward. So, as we imagine the world in the future, we really do see supply chain as an opportunity to be a contributor and a proof point to why we think we can keep the momentum going. I would also just say that as you think about that in the world of Snacks in particular, I do see us as one of the unique businesses that has a truly credible self-help story on margin where we still have opportunity, I think, to create organically opportunity and outsized growth on the margin and earnings side to help fuel that momentum as we come out of this period and into the next chapter. Perhaps one of the reasons, to Andrew's first question today, why I feel very good about our ability to navigate through this environment. And why I think in many ways, albeit a lot to work through in the quarter, that the underlying elements that are in our business right now give us great conviction and confidence that we feel that we're advantaged and positioned well going into this next chapter.

Pamela Kaufman:

Hi, good morning. Mark, I just wanted to take a step back and see how you would characterize the current consumer and operating backdrop. How are you thinking about elasticities going forward? Do you think that we're at a point where we're likely to see accelerating trade down? And then from a retailer perspective, do you anticipate more leading into price and private label?

Operator:

Ladies and gentlemen, this concludes today's conference call. We thank you for your participation. You may now disconnect.

Rebecca Gardy:

Good morning, and welcome to Campbell's second quarter fiscal 2023 earnings conference call. I am Rebecca Gardy, Chief Investor Relations Officer at Campbell Soup Company. Joining me today are Mark Clouse, President and Chief Executive Officer; Carrie Anderson, Chief Financial Officer; and Mick Beekhuizen, President, Meals and Beverages. Today's remarks have been prerecorded. Once we conclude the prepared remarks, we will transition to a live webcast Q&A session. The slide deck and today's earnings press release have been posted to the Investor Relations section on our website, campbellsoupcompany.com. Following the conclusion of the Q&A session, a replay of the webcast will be available at the same location followed by a transcript of the call within 24 hours. On our call today, we will make forward-looking statements, which reflect our current expectations. These statements rely on assumptions and estimates, which could be inaccurate and are subject to risk. Please refer to slide three 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 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 this presentation. On slide four, you'll see today's agenda. Mark will share his overall thoughts on our second quarter performance, as well as in-market performance by division. Mick will discuss the financial results of the quarter in more detail, and Carrie will then review our guidance for the full year fiscal 2023. And with that, I am pleased to turn the call over to Mark.

Mick Beekhuizen:

Thanks, Mark, and good morning, everyone. We are pleased with our strong second quarter fiscal 2023 results, reflecting double-digit growth versus prior year across all three key metrics, net sales, adjusted EBIT and adjusted EPS. These results were consistent with our expectations and reflect inflation-driven pricing and supply chain productivity improvements to offset inflation pressures and increased marketing investments to support our brands. Second quarter organic net sales increased 13%. Top line growth this quarter was lifted by favorable net price realization, partially offset by a slight volume and mix headwind. Price elasticities remain well below historical levels, illustrating the underlying strength of our brands. Second quarter net sales outpaced 10% dollar consumption growth in measured channels, due in large part to the continued recovery of our foodservice business. Our ability to mitigate continued cost inflation through a combination of levers led to a slight increase of our adjusted gross profit margin. Simultaneously, we increased support of our brands. And despite higher adjusted other expenses as a percentage of net sales versus prior year, adjusted EBIT margin increased by 20 basis points to 14.6%. On a dollar basis, adjusted EBIT increased 14% versus prior year. Adjusted EPS increased by $0.11 or 16% versus prior year quarter. Our cash generation remains strong, with cash flow from operations of $732 million through the first half. In line with our commitment to return value to shareholders, year-to-date, we have returned over $290 million. Organic net sales increased 13%, driven by 14 points of favorable inflation-driven net price realization. This was partially offset by a 2-point volume and mix headwind, which reflects increased elasticities though, they remain well below historical levels. Turning to Slide 21. Our second quarter adjusted gross profit margin increased 30 basis points from 30.4% last year to 30.7% this year. Favorable net price realization drove 1,020 basis point benefit due to the impact of our pricing actions, which only partially offset the impact of inflation and other supply chain costs in the quarter. Inflation and higher other supply chain costs had a negative impact of 1,140 basis points with much of the impact driven by continued cost inflation. That said, our supply chain productivity program drove a 280 basis point benefit to our adjusted gross profit margin, partially offsetting these inflationary headwinds. Unfavorable volume mix had a negative impact of 130 basis points in the current quarter. The next page highlights the various initiatives we have deployed to mitigate core inflation, which on a rate basis, was approximately 14% in the second quarter versus 9% in the second quarter of fiscal 2022. Our actions include targeted pricing and trade optimization. For the second quarter, net pricing was 14% and reflected the impact of Wave 2 and 3 pricing. As we move into the second half, only Waves 3 and 4 will benefit our year-over-year comparisons with Wave 4 having a lesser impact than Wave 2. Wave 4 pricing, which relative to prior rounds was much more selective in nature, has been fully implemented and was in place beginning of the third quarter. In addition, we continue to deploy a range of other levers, including supply chain productivity improvements and cost savings initiatives as well as a continued focus on discretionary spending across the organization. For the second half of the fiscal year, we have the vast majority of our raw materials covered and continue to closely monitor the overall commodity markets. Moving on to other operating items. Marketing and selling expenses increased $20 million or 10% in the quarter on a year-over-year basis. This increase was largely driven by higher advertising and consumer promotion expense or A&C, which increased by 17% versus the moderated levels in the prior year, and higher selling expenses, partially offset by increased benefits from cost-saving initiatives. Overall, our marketing and selling expenses represented approximately 8.7% of net sales. Adjusted administrative expenses increased by $13 million or 9% to $157 million due to higher general administrative costs and inflation, higher benefit-related costs and higher incentive compensation, partially offset by lower expenses related to the settlement of certain legal claims. As a percentage of net sales, adjusted administrative expenses were 6.3%, a 20 basis point decrease compared to last year. On Slide 24, we are providing an adjusted EBIT bridge to summarize the key drivers of performance this quarter. Adjusted EBIT increased 14% in the quarter, primarily driven by the $92 million improvement in adjusted gross profit, despite marketing and selling expenses increasing $20 million versus the prior year. It was slightly lower as a percentage of net sales versus the prior year and therefore had positive impact to our adjusted EBIT margin of 20 basis points. Similarly, adjusted administrative and R&D expenses were $178 million, an increase of 8% over prior year and contributed 30 basis points to our adjusted EBIT margin. Adjusted other expenses of $6 million compared to adjusted other income of $9 million in the prior year had a negative adjusted EBIT margin impact of 60 basis points. This $15 million headwind is largely due to a reduction in pension and postretirement benefit income compared to prior year. Overall, our adjusted EBIT margin increased 20 basis points to 14.6% in the quarter. The following chart breaks down our 16% increase in adjusted EPS growth between operating performance and below-the-line items, an $0.11 positive impact from higher adjusted EBIT was only slightly offset by a $0.01 impact of a higher adjusted effective tax rate as our net interest expense was relatively flat year-over-year. All in, adjusted EPS of $0.80 was 16% or $0.11 per share higher than prior year. Turning to the segments. In Meals & Beverages, we delivered another strong quarter with reported net sales growth of 10%. Organic net sales increased 11% versus the prior year, primarily due to increase in US retail products, including US soup, Prego pasta sauces and Pace Mexican sauces as well as gains in foodservice. Favorable net price realization was partially offset by modest volume and mix declines. Sales of US soup increased 7%, primarily due to sales increases in ready-to-serve soups and condensed soups. Within our Meals & Beverages division, second quarter operating earnings increased 17%, primarily due to higher gross profit, partially offset by higher marketing and selling expenses. Gross profit margin increased slightly due to the impact of favorable net price realization and supply chain productivity improvements, partially offset by higher cost inflation and other supply chain costs and unfavorable volume and mix. Overall, our second quarter operating margin in our Meals & Beverages division increased by 100 basis points year-over-year to 17.7%. Within snacks, net sales, both reported and organic increased 15%, driven by sales of power brands, which were up 20% and reflected favorable net price realization and volume increases, lapping significant supply constraints in the prior year. Segment sales growth was driven by increases in cookies and crackers, primarily Goldfish crackers and Pepperidge Farm cookies; and in salty snacks, primarily Snyder’s of Hanover pretzels, Snack Factory Pretzel Crisps and Kettle brand potato chips. Segment operating earnings in the quarter increased 24%, primarily due to higher gross profit, partially offset by higher marketing and selling expenses. Gross profit margin increased due to favorable net price realization and supply chain productivity improvements, partially offset higher cost inflation and other supply chain costs. Overall, within our snacks division, second quarter operating margin increased year-over-year by 90 basis points to 13.9%. I'll now turn to our cash flow and liquidity. Fiscal 2023 cash flow from operations decreased from $766 million in the prior year to $732 million, primarily due to changes in working capital, partially offset by higher cash earnings. Our year-to-date cash outflows from investing activities were reflective of the cash outlay for capital expenditures of $155 million, which was an increase from $129 million in the previous year. We continue to forecast full year capital expenditures of $325 million for fiscal 2023. Our year-to-date cash outflows from financing activities were $525 million, including $226 million of dividends paid and $66 million of share repurchases. At the end of the second quarter, we had approximately $375 million remaining under the current $500 million strategic share repurchase program and approximately $106 million remaining under our $250 million anti-dilutive share repurchase program. We ended the quarter with cash and cash equivalents of $158 million. As we close out my last quarter as CFO, I would like to thank everyone for the support throughout my tenure as CFO at Campbell. I look forward to working closely with Carrie in my new role. And with that, I'll hand it over to Carrie to talk through our updated full year guidance.

Operator:

[Operator Instructions] Your first question comes from the line of Andrew Lazar from Barclays. Your line is open.

Mark Clouse:

Yeah. Great. Thanks, Andrew. Good morning too. So first, let me just start from the perspective of the full year. I don't know that we would see material difference in kind of how we view the full year. It is -- it continues to be an extremely strong year on the back of really the strength of the brands, which certainly continued through Q2 and the continued really strong execution, both whether that reflects the mitigating efforts of inflation and/or our supply chain, which really just continues to make great strides and really thrilled to see that. I also think that, as you think about the full year, though, we also now have some greater conviction to both the cost side. We have 93% of our cost basket essentially covered. And we now see the implementation of way for pricing. So that gives us a little bit more clarity or precision, if you will, in how we're managing or positioning the balance of the year. Arguably, there would have been some upside. I think we're giving a bit of that back in the incremental pension income headwind that Carrie just talked about. I do think if you just take a second and you look at that particular factor, that's now $45 million for the full year. It's about $0.12 of EPS and about 50bps of margin over the course of the year. So that's not insignificant for something that really has no relationship to the operational performance of the company. But nonetheless, that's providing a bit of that headwind or offset to where you might have expected to see some upside, but maybe easier to talk about it through the lens of Q2 in particular. So, when we look at Q2, thrilled with the performance, I will say, we came in about 100 basis points on margin better than we expected, and that was really delivered in three areas. The first was on productivity. We did more of what we would have expected for the full year savings we got in Q2, and that's great. I mean you're always happy to get the savings in the barn a little bit faster and supply chain, again, doing a great job, not ready yet to say for the year, I see upside on productivity, but certainly good to have that in the bank already. So I do expect that to be more of timing or phasing element. And then on investments, both from a promotion standpoint as well as marketing, we were a bit more efficient in the second quarter than we expected. And I guess, what I would say about that is, I'm not yet ready to say that, that is incremental opportunity for the year. I think with half the year to still play, having a little bit of flexibility as we think about the year is not a bad place to be. I feel great about where we are. I don't think there's anything that is radically different in the back half that we're adjusting spending to address. But I think in the current moment we're in, it's pragmatic to really try to manage this algorithm I talked about in my prepared remarks of making sure that the growth in demand is balanced with managing the margin. Again, let me be clear, this is not about chasing volume or chasing share in a non-profitable way, but it is about making sure that we're managing this business to remain healthy and sustain the performance going forward. And that means making sure that we get the right levels of investment in place. So nothing dramatically different, but arguably a little bit of favorability and timing in the second quarter that would move -- that would, in theory, move into the back half. Just a couple of maybe other qualifying elements on the first half, second half as I would imagine that could be a question as well. But if you remember, when we set this plan up, we always talked a bit about the dramatic difference first half to second half of the comps a year ago, where in the back half of last year, we had significant upside on EBIT growth, whereas in the first half, it was down versus a year ago. So that tougher comp is one element. Also less incremental pricing, although successful and getting Wave 4 in the net of all of that will be less incremental pricing, which will have an impact on the growth rates as we think about the second half and then, of course, overlay with it, the pension of 50 basis points and some of the incremental investment. And that's why you get a slightly different profile in the second half versus the first half. But the underlying fundamentals on the business and the structure of the business, very much in line with what we expected, arguably, a little better with a little more pension. But at the end of the day, we really feel terrific about where we are. This is kind of exactly where we would hope to be relative to how we're watching in market performance move. So I don't know if that's helpful, Andrew, but there is good lay of the land.

Operator:

Your next question comes from the line of Ken Goldman from JPMorgan. Your line is open.

Mark Clouse:

Yes, I get it. So really, let me try to pull that apart into kind of the, I think, the two questions that you're really asking. So first, on soup, I would say, I think our approach has been probably more strategic than simply deal a few things back, or do you just try to manage price gaps. I think there's a more longer-term and strategic play on what we're doing with soup that might be helpful to kind of hear how we're thinking about it. But in essence, I think on soup right now, our strategy is really three things. The first one is to win -- kind of we describe it as winning the fights that matter most, right? So when you think about areas like our condensed icons, which I talked about, up a full share point, or winning on Chunky within the ready-to-serve soup area where Chunky was up 8% in the quarter, almost 0.5 a share point. Just as a sidebar, Chunky now has been up -- over the last three years is up 35% as a brand and has grown over 2.5 share points within the world of soup. And that is absolutely paramount to our strategy of really winning that lunchtime occasion with a superior product that Chunky is living into and doing it among younger consumers, which is, again, where Chunky has been incredibly successful. I think the third kind of strategic fight is on Pacific, right? We now have supply back in place. This, again, we see as a highly differentiated brand, a leader in organic in the soup category, and that business was up 17% and grew share by 0.3 point in the quarter. And so as I think of those three areas, those are really important competitive battles that we see critical to winning. And so far, we feel very good about how we're performing in those spaces. The second strategy is really around driving -- continuing to drive that long-term relevance of the category. And that's really reflected heavily in both the versatility and the value that's driven within soup. And so, cooking is a good proxy that we use for that. And the trends on cooking in home just continue to be incredibly powerful. Over 80% of meals are being prepared in home, that's about 400 basis points higher than it was in a pre-COVID world. I will say what's different than COVID now though is that the focus on those in-home meals revolve around both value and time to prepare. So the magic numbers on dinner are 20 minutes and the magic number on lunch is 10 minutes on speed, and that's where our categories really land well, as well as being a great value. And so, when I look at our cooking condensed business, right, as a subset where we're growing share and outperforming the category, that's exactly what we want to see, along with, of course, the strength in Chunky at lunchtime that I already talked about. So remember, at the end of the day, we're over half of this category. So if the health of the category remains robust, we're going to win in the long run, and that's exactly what we're trying to do in that second strategic area. And then the third area is really kind of holding the line on the balance, right? So these are not unimportant parts of our portfolio, but they definitely play a supporting role. And arguably, where we've had to make some trade-offs, has been in this area. Now, I just will say, when you describe it as being pleased, I don't know that I would describe myself as pleased. Look, any time we're losing share in the category, I'm not happy about that. And so, I do think, as we think about the balance of the year, we want to make sure we continue to get that algorithm right on the balance of our portfolio, not overspending, but making sure that we stay competitive. That's things like in the condensed world, sub-brands like Healthy Request or our Kids line or broth, right, more broadly. And so again, we're going to really focus on value, continue to support those businesses appropriately to really kind of keep this algorithm in track with where we want to be. So that totally gives you a little better lay of the land of where we are in soup and why we feel good about the areas we're focused on, while still being very vigilant on the areas that may not be as robust. I think to your bigger question of -- so therefore, do we imagine the beginning of more substantial shifts in the support on the business. I honestly think that when I look -- and I can't speak, obviously, always been dangerous speaking on behalf of the industry. But from a Campbell standpoint, I think what we're doing is we're being very pragmatic and thoughtful, right? This is about understanding the balance between ensuring that we don't erode profitability in our businesses that we're going to regret in the long term, while also recognizing that it's paramount that we remain competitive and driving value. And so, although, I do think some categories may require a different level of support to achieve that goal, at the end of the day, when I look at our profile as a business, I think it's very healthy, right? I mean this -- I'll hope that I get a question on snacks. I'd love to talk about that with this quarter. But that's a business that is just literally firing on all cylinders. And yes, there's a component of reinvestment that's happening, but it's happening in support of really accelerating growth across the board. So no, I don't think this is some harbinger of bad things to come. I really think, as I've said all along, right, if you go back three quarters, I talked about the fact that the balancing act here or the winners in this moment are going to be the ones that get this balancing act right, where you don't overspend and erode profitability, while you don't get too greedy and not invest properly in your brands. And that's really what we're trying to balance right now. And I think Q2 is a great proof point of us I think doing that in a pretty compelling way.

Operator:

Your next question comes from the line of Peter Galbo from Bank of America. Your line is open.

Mark Clouse:

Yes. Carrie, why don't you take the inflation question and then I'll hit the snacks one.

Mark Clouse:

Yes. So let me take the -- thank you for asking about snacks. Look, I think there's -- you sensed it in our remarks and certainly in my desire to want to talk about it. I do think Q2, in many ways, is a somewhat of a pivotal moment in kind of the validation of the strategy on snacking for us as a company. And that's why I'm as happy or as positive with it as I am. It was a quarter where essentially, we delivered every element that you'd want to deliver, right? So top line was up 15%, in-market consumption up 17%, our power brands were growing at 20%. Those partner brands that have been flagging [ph] us are down to less than I think mid-single digits in the company are in the category from when their high was at 10%. And margin grew at the same time, really driven by productivity and cost savings as much as pricing did a fairly good job of covering inflation. And that profile then resulted in us being the fastest-growing share player in cookie cracker and in salty among major branded players. And that's exactly where I think this portfolio should be, right? Growing top line. We also grew units and unit share on those businesses, and it was broad-based, right? This wasn't just one brand. If you go through the last couple of years, as we kind of got the ship right, we had some brands up, some down. It was never a period where you could really look across the portfolio and go, gosh, what can this thing do when everything is firing? And this quarter was a great example. And even as you roll into the more recent Nielsen and IRI data, you see that momentum just continuing to go forward. And it really is a combination of great marketing support, the right innovation and then a supply chain that's stepping up to meet that growing and expanding demand. And that's exactly what we want working. And again, each of the brands have kind of a unique story, but Goldfish, up 22% in the quarter, up over 30% over the last three years, growing share, almost now a $1 billion brand and driven by a really smart strategy of expanding the appeal of the product between both families with kids and families with out of kids. Our innovation is working extremely well. The limited time offer flavors has grabbed all the buzz that you'd want it to. And I think it's also maintaining a great value, right? When you think about the snacking world and kind of better-for-you snacking as you asked, right, Goldfish really does live in this unique permissible space of being a bit premium but also a bit better. And that's really a good description of our whole portfolio. And that's why I love it so much is because the differentiated nature of these brands, whether you're in salty or whether you're in bakery, just position us for the long-term, I think, in a really great way. And again, Kettle, cookies, Lance, even Late July, both of which have been brands that have been a little bit under the gun because of supply chain were up 19% and 27%, respectively. Lance grew almost three share points and Late July grew over four share points. So these are businesses that now we've got the firepower behind it. Snack factory, another kind of sleeping giant in the portfolio sitting in the deli growing 19% and grew four share points this quarter. I mean these are extraordinary numbers, and I'm hopeful that what it will begin to do is really solidify what we've been talking about, which is when we think about the world of snacking, we believe we've got an advantaged portfolio, and we're going to be an extremely formidable competitor as we go forward.

Operator:

Your next question comes from the line of Robert Moskow from Credit Suisse. Your line is open.

Mark Clouse:

Hi, Rob.

Mark Clouse:

Yeah. Great question, Rob. Let me take the first one first. So you're right, foodservice had another very strong quarter. It now represents about 10% of our Meals & Beverages business, and it was up 34%. So when you think about the five-point delta of net sales being up 11% and consumption being up 6%, there's a good chunk -- actually, majority of that is coming from foodservice. Although, I will say, also in that number, is some very strong performance from Canada. Canada has been a business that in the world of supply chain was suffering a bit with foodservice as we were prioritizing different parts of the business. Now that we're back into full supply, you see a much healthier Canadian business. That team has done an extraordinary job navigating a difficult market, but really bringing back the brands and growing the business. In fact, Canada was up 16% in the quarter. And that's not insignificant either. That's probably just under -- between 7% or 8% of the Meals & Beverages business. So yet another contributor to that difference between 11% and 6%. So it is great. And look, those are trends, as we've said, we would expect to continue to be tailwinds probably or will not be at the magnitude that we've seen in the last couple of quarters but continuing to be a positive influence. Here's an interesting little tidbit on soup as well. As you might imagine, a big part of our foodservice business is soup. And it's interesting as we start to look at the entire world of soup. But if you look at our underlying growth on soup in the second quarter, it would have added two points of growth to the total franchise of soup based on the performance of foodservice. So those are all good I think, supporting elements within our Meals & Beverage business. And like I said, I think those are things that will continue to help us as we move forward. As far as the snacks trends, what I would tell you, Rob, is it's a bit of a mixed bag, right? So there -- you're absolutely right. There were places where we were struggling a year ago on certain parts of the business and market share primarily as it related to supply chain. So certainly, late July, Lance, there were a few other places, but we've come back at an equitable level of strength. I think what we'll do is I can give you the blow by blow by brand but we'll do that -- we can do that after the call. But I think the net of it is, if you take where we are holistically from where we started the journey, we feel really good about the share gains -- cumulative share gains that we've had over time. So although, yes, we would expect strong rebound. But I will say in snacking, part of what you always worry about is it's such a dynamic aisle. And with DSD, if you're not there, someone else is. And so when you come back into the section, I think we all hold our breath a little bit to make sure that the consumers immediately come back. And the great news is on those two brands in particular, they absolutely came back. And that just, again, I think, gives you a little confidence in it. So I think the net of all of it is, yes, certainly, a tailwind on supply chain. But overall, trends on the business and the strength of what we're seeing from a marketing and innovation side are giving us more confidence of this being more sustainable over time. I mean, I'm not telling you that we're going to see 15% growth in the perpetuity, but I do think that ability to grow above the category, which is really what we aspire to do, I continue to feel more confident than ever that we can do that.

Operator:

Your next question comes from the line…

Mark Clouse:

Yep. Thanks, everybody. We'll talk to many of you later. If you have questions, please follow-up. But thank you.

Operator:

This concludes today's conference call. Thank you for your participation. You may now disconnect.

Rebecca Gardy:

Good morning, and welcome to Campbell's first quarter fiscal year 2023 earnings conference call. I'm Rebecca Gardy, Chief Investor Relations Officer at Campbell Soup Company. I am joined today by Mark Clouse, Campbell's President and Chief Executive Officer; and Mick Beekhuizen, Campbell's Chief Financial Officer and President of Meals & Beverages. Today's remarks have been prerecorded. Once we conclude our 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 of our website, campbellsoupcompany.com. Following the conclusion of the Q&A session, a replay of the webcast will be available at the same location followed by a transcript of the call within 24 hours. On our call today, we will be making 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 or our SEC filings for a list of factors that could cause our actual results to vary materially from those anticipated in forward-looking statements. Because we use non-GAAP measures, we have provided a reconciliation of each of these measures to the most directly comparable GAAP measure in the appendix of this presentation. On Slide 4, you will see today's agenda. Mark will share his perspective on our first quarter results as well as in-market performance by division. Mick will discuss the financial results of the quarter in more detail and then review our guidance for the full year fiscal 2023. And with that, I am pleased to turn the call over to Mark.

Mick Beekhuizen:

Thanks, Mark, and good morning, everyone. We are pleased by the strong results we delivered in the first quarter with 15% growth across all three key metrics

Andrew Lazar:

To start off, I guess, last quarter, I think, Mark, you mentioned that you expected sequential improvement in gross margins as the year progressed. Given how much better gross margins came in, in 1Q, I'm trying to get a sense of if that's still the case; and if so, if that would mean your full year gross margins could be better than the flattish outlook that you gave last quarter? So, I'm basically trying to get a sense of just sort of the cadence over the next couple of quarters in terms of the margin profile? And then I've got a quick follow-up.

Operator:

Your next question comes from the line of Ken Goldman from JPMorgan. Your line is open.

Mark Clouse:

Yes. I would say, first off, just to kind of make sure I appropriately caveat this. Everything that we're doing as it relates to an investment side, especially on the promotional side, would be very responsive to the marketplace, very modest in the sense of it being quite normal and just kind of how supply has recovered. This is not a overly aggressive stance or one that we're trying necessarily to distort a position as it relates to share or market because we don't really need it. I think the -- the reality is that the combination of the marketing, innovation and what we're doing on the brands have been very effective. And again, with my druthers, I'd rather be supporting the equity side. But at the end of the day, it's important that we stay very vigilant on the price gaps. And so everything that we're doing is really about watching where those price gaps are and how we feel about the value proposition. I think what's been really impressive across our portfolio is that although we're watching and seeing consumers change behavior in how they're purchasing and which categories they're migrating into this has been very, very helpful in the sense of getting the relevancy of our brands continuing to remain quite high. And so I think as we look forward, I'm not seeing anything that would suggest that our pricing would be overly aggressive or necessarily conservative. And I think that's the way we want to be, and that's where we want to be balanced. I think you mentioned soup obviously, in places where we're seeing more private label pressure. We want to make sure that we're especially vigilant there in keeping those price gaps reasonable. And I think we're -- right now, we're exactly where we expected to be on the soup business, actually a little bit better as we continue to see just tremendous momentum on our ready-to-serve side with both Chunky and the introduction of Pacific Can ready-to-serve soup has done very, very well. So probably a little bit ahead there, but on the condensed and broth side, very much in line with our expectations.

Peter Galbo:

Mark, I was actually kind of hoping to circle back on the guidance a little bit. Are you largely caught up now on the shipment inventory replenishment? Should we kind of expect a shipment relative to consumption to be a lot closer, obviously, versus, I think, the 700 basis point spread that you saw in meals in the first quarter? And then I just have a quick follow-up.

Peter Galbo:

Got it. That's helpful. And then just back on Andrew's question around the gross margin. I think you said the implied math is that your margins are 20 basis points lower maybe than the flattish from before. A) I just want to make sure that, that was what you said and B) that was a gross margin comment, not an operating margin comment.

Mark Clouse:

Yes, not versus a year ago.

Mark Clouse:

These are significant numbers, but yes, some pressure.

Jason English:

A couple of quick questions. First, can you remind us how big foodservice is as a percentage of sales in your Meals & Beverages division and give us a little more color on how robust the growth was this quarter?

Mark Clouse:

And it was up about 40.

Mark Clouse:

Yes, 45%.

Mark Clouse:

Yes. I think one of the things to keep in mind on that number, Jason, is it was one of the harder hit when we were rationalizing supply a year ago. It was perhaps one of the places that felt that the most significantly. So although I would say we are seeing increase in demand. The biggest driver of that recovery is really the recovery of supply.

Mark Clouse:

Yes, I do think there'll be some delta there. But as it relates to retail in particular, I think those two things will be close. I do think your overall net sales will get a little bit of bump as foodservice and some of the other unmeasured channels recover. However, I don't think you'll see this kind of difference because we -- as we did start to stabilize supply you see kind of a steady recovery. So although I agree with you, some delta, not as significant as this quarter.

Mark Clouse:

Yes. Mick, why don't you cover that? Yes, three areas really.

Mark Clouse:

Yes. And I think the places where we saw deltas are really in the protein, resin areas and a little bit of this at times like, for example, in steel, we might have expected a little bit faster walked out in prices that may not have materialized at the same level. And so part of what we're reacting to is a little bit of the change in outlook for the cost relative to what we talked about for Wave 4 pricing. And again, it's a very targeted pricing action in particular to certain areas where you may have experienced some of that pressure.

Jason English:

All really helpful. Congrats on the good start to the year. I'll pass it on.

Operator:

Your next question comes from the line of Chris Growe from Stifel. Your line is open.

Mark Clouse:

Yes. So it is a much more targeted action probably low single digits overall. I would say that as we've navigated through this last couple of years of elevated inflation, the level of transparency and almost the mechanical nature of understanding the validity of pricing actions has become a muscle that has really been built well, I think, on both sides of the table. So, it's really much more about the dialogue of where our costs, what -- how do those reflect what we're suggesting on price. So, I do think we are in a moment now where this is more the tail end and thus then ensuring that everything that we're doing is really clear and transparent, rationalized by the costs that we're dealing with. But I think when that happens, it's relatively constructive and the conversations kind of move forward, I would say, in a very almost mechanical way. I do think that the sensitivity around ensuring that we're doing everything possible to support the brands and the categories we're in, maintaining affordability for consumers in this tough environment. It's certainly top of mind for both us and the retailer as we work together. And so, we're quite conscious of those dynamics and ensuring that we're making the right strategic choices for the business for the long term.

Mark Clouse:

Yes. So I think it will be closer in Q2. I do think you might see a little bit more promotional spend in Q2 than Q1, again, all within a very reasonable range. It's really then the back half where you start to see the significant impact of a year ago pricing. And incremental contribution from pricing would be significantly lower as we get into Q3 and Q4.

Michael Lavery:

It was -- just about a year ago, you set your 17% margin target for snacks by 2025. But obviously, with just the environment being a little bit more difficult than we might have imagined then and just the margin outlook for this year and what last year looked like. Can you just give us an update of how much that might be on track or what might be needed to get there?

Michael Lavery:

Okay. That's helpful. And maybe just on sauces, you also touched at the Investor Day on a potential new sauce brand either organically or M&A as part of the path to $1 billion. Is that still part of your thinking? And what -- can you give any latest on how that might unfold?

Operator:

And your final question comes from the line of Robert Moskow from Credit Suisse. Your line is open.

Mark Clouse:

I think, Rob, certainly, in Q1, I think the -- as I said, I think the execution and the growth certainly supported a lower rate than that. And I think as you look forward, I've not made a big adjustment to any out-quarter outlook. I think, again, as we navigate through this environment, we're trying to make sure we stay as pragmatic as we can. And as I think about it, what are the things that we're watching very closely, it does revolve around that consumer resilience and the continued overall value proposition. And so I haven't changed much of the outlook for the balance of the year, but I would acknowledge Q1 certainly was better than I might have originally expected.

Mark Clouse:

Well, I mean one, the top line was better, and that helps. I think there also as we as you go through, as you might remember, we were in the midst of executing a fairly significant Wave 3 pricing. And I think as you kind of go through that process, you've always got assumptions that as you execute, you may need a little less promotion in one area, maybe a little bit more effective in another area. Competition or price gaps may be a little different than what you anticipated. And so there's always a bit of agility that goes into this. And actually, this is a muscle that I would say historically may not have been as strong as it is today. And so kind of making some of those decisions in real time is very much an important part of the tool bag right now. And so I think that combination of elements really kind of led to what I would say is a better kind of on paper, if you will, lower bps of spending than what we might have anticipated.

Rebecca Gardy:

Good morning and welcome to Campbell’s fourth quarter and full fiscal year 2022 earnings conference call. I am Rebecca Gardy, Chief Investor Relations Officer at Campbell Soup Company. I am joined today by Mark Clouse, Campbell’s President and Chief Executive Officer; and Mick Beekhuizen, Campbell’s Chief Financial Officer. Today’s remarks have been prerecorded. Once we conclude our 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 of our website, campbellsoupcompany.com. Following the conclusion of the Q&A session, a replay of the webcast will be available at the same location, followed by a transcript of the call within 24 hours. On our call today, we will be making 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 or our SEC filings for a list of factors that could cause our actual results to vary materially from those anticipated in forward-looking statements. Because we use non-GAAP measures, we have provided a reconciliation of each of these measures to the most directly comparable GAAP measure in the appendix of this presentation. On Slide 4, you will see today’s agenda. Mark will share his perspective on our fourth quarter and full year performance as well as in-market performance by division. Mick will discuss the financial results of the quarter in more detail and then review our guidance for the full year fiscal 2023. And with that, I am pleased to turn the call over to Mark.

Mick Beekhuizen:

Thanks, Mark and good morning everyone. We are pleased by the strong results we delivered in the fourth quarter in a challenging operating environment. As Mark said earlier, we are proud to have delivered strong full year results, with adjusted EPS at the high-end of our original fiscal 2022 guidance range. This is a testament to the progress our team has made throughout the year in areas such as our supply chain, allowing us to support continued elevated demand levels. Additionally, we have made significant progress regarding inflation mitigation via effective revenue management, continued productivity improvements and cost savings initiatives. Our cash generation during fiscal 2022 remains strong as well, with cash flow from operations of $1.2 billion, a 14% increase over prior year. Of which, we returned over $600 million in fiscal 2022 to our shareholders through dividends and share repurchases. At the end of my remarks, I will review our fiscal 2023 guidance. But now, let’s first discuss our fourth quarter results in more detail. Turning to Slide 25. For the fourth quarter, organic net sales increased 6% as our inflation-driven pricing actions continued to gain traction. Fourth quarter consumption was slightly ahead of our organic net sales performance, driven in part by year-over-year net sales declines in our non-measured channels and due to shipment timing following our July pricing. We now expect inventory replenishment to extend more into Q1. Adjusted EBIT increased 5% compared to the prior year to $269 million, primarily due to higher adjusted gross margin, partially offset by higher adjusted administrative expenses and lower adjusted other income. Our adjusted EBIT margin decreased 20 basis points to 13.5% compared to 13.7% in the prior year. Adjusted EPS from continuing operations increased 8% to $0.56 per share driven primarily by the increase in adjusted EBIT and lower net interest expense. For the full year, organic net sales increased 2% and adjusted EBIT decreased 4% compared to the prior year, resulting in an adjusted EBIT margin decrease of 90 basis points to 15.1%. Our fiscal 2022 adjusted EPS was $2.85 per share compared to $2.86 per share in the prior year. On the next slide, I will break down our net sales performance for the fourth quarter. Net sales in the quarter both reported and organic increased 6%, driven by 14 points of inflation-driven pricing. This was partially offset by a 4 point volume and mix headwind and 3 points of increased promotional spending in the quarter, primarily within Snacks. Turning to Slide 27. Our fourth quarter adjusted gross margin percentage increased 40 basis points from 30.9% to 31.3%. Net price realization drove an 840 basis point improvement, reflecting the impact of our inflation-driven pricing actions, net of increased promotional spending in the quarter. In addition, our ongoing supply chain productivity program and our cost savings initiatives contributed 150 basis points and 30 basis points to the adjusted gross margin percentage, respectively. Inflation and other factors had a negative impact of 810 basis points, with the majority of the impact driven by cost inflation as overall input prices on a rate basis increased by approximately 15%, which was relatively consistent with the prior quarter. Lastly, unfavorable volume and mix had a negative impact of 170 basis points in the quarter. In the fourth quarter, we continued our efforts to mitigate inflation, highlighted on the next page, through a combination of targeted price increases and trade optimization, as well as productivity improvements, primarily in our supply chain, cost-saving initiatives and a continued focus on discretionary spending across the organization. Moving on to other operating items. Adjusted marketing and selling expenses increased $4 million or 2% and represented approximately 9% of net sales as planned or a 30 basis point decrease compared to last year. The increase in the quarter was driven by higher selling expenses, which were partially offset by lower advertising and consumer promotion expense or A&C. A&C declined by 3% in the quarter, driven by reductions in our V8 beverage business, where investments were moderated to reflect material availability constraints, offsetting increases in snacks, primarily on Goldfish. Adjusted administrative expenses increased $14 million or 10% to $153 million. The increase in adjusted administrative expenses was driven by higher incentive compensation costs, higher benefit-related costs and inflation. As a percentage of fourth quarter net sales, adjusted administrative expenses were 7.7%, a 30 basis point increase compared to last year. On Slide 30, we are providing an adjusted EBIT bridge to summarize the key drivers of performance this quarter. As previously mentioned, adjusted EBIT increased 5% in the quarter, primarily due to an 8% or $44 million improvement in adjusted gross margin, as volume declines were more than offset by the net rate improvement, resulting in a 40 basis point adjusted EBIT margin contribution. In addition, higher adjusted administrative and R&D expenses of $14 million and lower adjusted other income of $13 million had a negative adjusted EBIT margin impact of 30 basis points and 60 basis points, respectively. Despite adjusted marketing and selling expenses increasing $4 million versus the prior year, they were lower as a percentage of net sales, and therefore, had a positive impact on our adjusted EBIT margin of 30 basis points. Overall, our adjusted EBIT margin decreased year-over-year by 20 basis points to 13.5%. The following chart breaks down our adjusted EPS growth between operating performance and below the line items. A $0.03 impact of higher adjusted EBIT was further benefited by a $0.01 favorable impact from lower net interest expense. This resulted in adjusted EPS of $0.56, which was up $0.04 per share or 8% compared to the prior year. Turning to Slide 32. Our Meals & Beverage division had a strong quarter, with organic net sales increasing 7% versus prior year, driven by increases in U.S. soup and gains in Foodservice and Prego pasta sauces. Inflation-driven pricing and sales allowances were partially offset by volume declines and increased promotional spending. Sales of U.S. soup increased 6% due to gains in ready-to-serve soups and condensed soups, partially offset by declines in broth. Segment operating earnings in the quarter increased 18%. The increase was primarily due to a higher gross margin and lower marketing and selling expenses, partially offset by higher administrative expenses. Gross margin percentage improved, reflecting the mitigation of ongoing inflation with pricing actions and supply chain productivity improvements. Lower volume and unfavorable mix as well as higher level of promotional spending pressured gross margin percentage. Overall, within our Meals & Beverage division, the fourth quarter operating margin increased year-over-year by 160 basis points to 17.2%. On Slide 33, organic net sales in our Snacks division increased 6%, driven by sales of our power brands, which were up 9%. Snacks sales increased due to gains in salty snacks, primarily Kettle brand, and Cape Cod potato chips, as well as in cookies and crackers, primarily Goldfish crackers. Inflation-driven pricing and sales allowances were partially offset by increased promotional spending and volume declines. Segment operating earnings in the quarter increased 3%, primarily due to higher gross margin, partially offset by higher marketing and selling expenses and higher administrative expenses. Gross margin percentage was relatively flat, reflecting the mitigation of ongoing inflation with pricing actions, supply chain productivity improvements and cost savings initiatives, partially offset by higher levels of promotional spending, lower volume and unfavorable mix. Overall, the fourth quarter operating margin decreased year-over-year by 40 basis points to 13.4%. I’ll now turn to our cash flow and liquidity. Fiscal 2022 cash flow from operations increased 14% year-over-year to $1.2 billion, primarily due to changes in working capital, partially offset by lower cash earnings. Cash outflows from investing activities were reflective of the cash outlay for capital expenditures of $242 million, which was down from $275 million in the previous year. Cash outflows from financing activities were $910 million. The majority of which, or $618 million, represented the return of capital to our shareholders, including $451 million of dividends paid and $167 million of share repurchases. At the end of the fourth quarter, we had approximately $375 million remaining under the current $500 million strategic share repurchase program and approximately $172 million under our $250 million anti-dilutive share repurchase program. We ended the year with cash and cash equivalents of $109 million. Turning to Slide 35. As covered in our press release, we are providing financial guidance for the full year fiscal 2023. While we expect the current macro challenges to continue, our portfolio of brands is well positioned to meet consumer demand. Our previous pricing actions are now fully in place, with expected price elasticities in fiscal 2023 to be slightly above fiscal 2022 levels. We expect positive top line growth for the year in both divisions, partly driven by an increase in our brand investments, supported by an improved supply chain. Our productivity improvements of approximately 3% and cost savings of approximately $60 million in fiscal 2023 will continue to play an important role in mitigating inflation, which is expected to be in the low teens range for the year. Other assumptions incorporated in our full year guidance includes interest expense of approximately $190 million and an adjusted effective tax rate of approximately 24%. We expect pension income to decline year-over-year by approximately $35 million, representing a headwind of approximately 3% to adjusted EBIT and adjusted EPS growth in fiscal 2023. All in, we expect net sales, both organic and reported, to be plus 4% to plus 6%, adjusted EBIT of plus 1% to plus 5% and adjusted EPS of flat to plus 4% versus the fiscal 2022 results. We plan to invest in the business, with capital expenditures targeted at approximately $325 million for the year. Although the midpoint of our guidance reflects modest growth in adjusted EPS, it’s important to highlight that without this headwind from pension income, we expect a significant step-up in growth across all key metrics while still accelerating investments to continue to unlock our full potential. This significant step-up in growth is more indicative of the progress of the business. Overall, we had a strong finish to the year. And we are truly grateful for the continued dedication and commitment by our teams. And with that, let me turn it over to the operator to begin the Q&A portion of today’s earnings call.

Andy Lazar:

Great. Good morning, everybody.

Andy Lazar:

So – Good morning. I guess first off, Mark, you’re guiding to a 4% to 6% organic top line gain in fiscal ‘23. Maybe you can talk a bit about the key drivers to this in terms of expectations around pricing and promotional spend versus volume expectations. And then I’ve just got a follow-up.

Andy Lazar:

Got it. Got it. That’s helpful. Yes. And it’s a good segue into the second question, which is really just – I realize there are plenty of moving pieces here to guidance. And maybe a bit more color on expected phasing for the year and any discrete items that we need to keep in mind along these lines. You obviously mentioned the flip in shipments versus consumption expected as you go into Q1. But any other things around phasing that we should be aware of more, for modeling purposes and such?

Andy Lazar:

Thanks so much.

Ken Goldman:

Hi, good morning, everybody.

Ken Goldman:

Hi. Just to tie a bow, I guess, on the conversation about the one-time puts and takes in 1Q. Is there any way for us to sort of estimate or quantify the degree to which shipments are expected to exceed consumption? I understand these dynamics are hard to forecast, but I just kind of want to minimize surprises if we can.

Ken Goldman:

Great, thank you for that. And then a quick follow-up on promotional spending, can you maybe elaborate a bit on what drove that sort of sudden increase, I’d say, in the fourth quarter in promo spending and snacking, I guess how sure that trend would be? And kind of how you think about – I know you talked about a couple of 100 basis points in ‘23. But is there a breakdown by segment, just very roughly, Mark, that we can kind of model in?

Ken Goldman:

Great. Thank you.

Ken Goldman:

Okay.

Peter Galbo:

Hey guys. Good morning. Thanks for taking the question.

Peter Galbo:

Mark, I guess just the first question, going back – to circle back on Andrew’s question around gross margin and realizing that you have given a little bit of color there. I just – in the context of some of the guidance elements that Mick has given, it would kind of seem that gross margins would actually have to be up to make the EBIT math and the EPS math work versus kind of the flattish. And just wanted to make sure that your comment wasn’t that they would be flat, but could potentially be up on the year?

Mick Beekhuizen:

Yes. Maybe kind of to be a little bit more precise around the cost savings, think about it as about a third is going to cost of goods. The remainder is below the gross margin line.

Mark Clouse:

So, I think if you did that math, if you rolled that math together, I think it will allow for you to have a little bit of kind of offset to where you would see marketing and selling up and the pension recovery with cost savings relative to then a gross margin that I think will be healthy, but generally, probably pretty stable.

Mark Clouse:

No. And that’s what we would have expected, right. So, private label in our soup business really is prevalent in two places. It’s the condensed business and it’s the broth business. And those are the two places where we recognize where we have got to be very, very on top of price gaps and the overall value proposition. I think the one piece of context that I will just give to you that I do think is important, and I mentioned it in my comments, in a condensed world where we are 80% of the category, and the category is up double digits, that is a good thing for us overall. Although, again, I am never happy or satisfied with any share loss at all. I do think the overall strength of the segment has been very positive. I think further to that, we have tried to really carve out the parts of the condensed business that we want to make sure that we are defending in a more perhaps vigorous way. And that’s – we describe it as our icons, but that’s essentially chicken noodle, tomato, cream of mushroom, cream of chicken, these are the kind of juggernauts of condensed. And when we look at those head-to-head versus private label, we are actually winning on share expansion and growth. What is – where the decline is coming from is on a lot of the flankers, which tend to be a little bit higher priced. There are things like healthy requests and some of the longer tail on flavors. And so as we go into ‘23, what we are really going to be trying to do is maintain that focus on icons, but also providing a little bit more support behind the broader portfolio to try to continue to bring kind of a full solution to bear, if you will for condensed. And so although I expect that pressure to be there, especially in the first half until we kind of cycle where we were when pricing really kind of took hold in the back half, I do feel very good about where we are. And it’s very consistent to where we expected to be. And again, if the category can continue to maintain the momentum, I think it bodes well for us longer term as well. I think broth, as I have always said, it’s kind of the toughest because arguably, it is the most commoditized segment of the soup business. But I will say, I feel the best about our offerings that we have ever had as we roll into ‘23. We have got a quality improvement that now tests superior to private label. We have also got packaging constructs that are unique to us that will bring value and convenience. And so I think we put our best foot forward. And I think this holiday season will be a good initial test of that. And so we are geared up and ready to go there. But I think that category or segment continues perhaps to be one of our most challenging longer term, but I feel very confident that the condensed business, we are very well positioned on. And then just to round it out, I mean on ready-to-serve, I feel terrific about where we are there. Shares have been improving. Our Chunky business is really just doing fantastic. Well, yes, continues to plot its course of recovery. I mean Chunky is growing top line share and units. So, we have got everything going in the right direction. We have got a terrific pipeline of innovation. We have added Pacific in a material way to ready-to-serve now. And we have got a whole another new lineup of ready-to-serve organic Soups and Chilis with Pacific. So, I feel really good about that, and I think that’s evident in our results. So, when I take a step back on soup, I would just say, again, I am never going to be okay with share loss. But I don’t think it’s inconsistent with what we expected. I think we have got good action plans against the different pieces. And I do expect us to continue to show progress. And if at the end, the underlying dynamic is continued strong growth in the category, ultimately, that will be a very good thing for us.

Jason English:

Hey. Good morning folks. Thanks for letting me in.

Jason English:

Hi. I am surprised to hear you measure measured channels as a headwind in snacks. It’s been growth accretive for most companies. Can you shed some light on what’s going on there? Where are you seeing the weakness? And what’s driving it?

Jason English:

Understood. Thank you. And I am a little surprised by some of your comments on snacking, the characterization, salty snacks is exceptionally promotional or something to that effect. And your highlight on units over value, it very much sounds like you are pivoting to a volume over value strategy, which we as analysts here have been conditioned over the years to get very nervous about because it’s often led to a path to like value destruction, margin compression, race to the bottom. Maybe you can give us some context, like why we shouldn’t be concerned around some of the language you are using and where – what you are choosing to highlight as areas that we should focus on.

Jason English:

Helpful context. Thanks a lot.

Robert Moskow:

Hi. Thank you. I noticed in your CapEx guidance, I think it’s $325 million, it’s well below the 4% to 5% of sales that you have talked about at your Investor Day. And I want to know, are there any projects that are getting delayed? And is it correlated to your innovation plans, because 2% of sales this year contribution from innovation, it just sounds low in historical context. And I know at Investor Day, you talked about increasing that over time. So, can you talk about that?

Mick Beekhuizen:

No. I agree Mark. And basically, the way that I would think about, Rob, is that we had – we obviously spent this past year $242 million. This year, we are targeting $325 million. Obviously, quite a bit of an increase. But really to your earlier point, to make sure that we support the overall growth of our business while we obviously maintain our assets as well and we support all the innovations. So, we are not stepping back. If anything, I actually feel like we are doing step forward here, and we continue to make sure that we support the growth. And if you look at it from kind of as a percentage of revenues, of course, there is a little more kind of overall top line pricing reflected and all that. So, net-net, with 3.5% is – if you look at the mid-range of our net sales guidance and you take – put that $325 million in perspective, I actually feel pretty good where we are from an overall capital investment perspective.

Mark Clouse:

Yes. It actually did. It just happened much earlier in the quarter. And then in the – normally, what we do on pricing, right, just the way that the nature of executing these, it tends to be at the turn of quarters. And you end up getting a little bit of an inventory build as you kind of roll out of the quarter and then a little bit slower start as people work through their lower-priced inventory before they replenish. I think the desire to get pricing in place for ‘23 led us to push that a little bit more forward. And I am really glad we did, because in the end, we are in a great position headed into the year. We are at a much stronger and kind of Wave 3 pricing fully behind us is what we wanted. But I will say that where you would normally have perhaps a little more of incentive to build in the final month, you just didn’t see that quite as much. And anyhow, at the end of the day, I think the good news is, as I have said, very consistent with prior circumstances, in this month, we are seeing that bounce back as you would expect. And so I think the good news is that it kind of carries that opportunity a little bit into Q1. And I think that in many aspects will be beneficial.

Rebecca Gardy:

Good morning, and welcome to Campbell's third quarter fiscal 2022 earnings conference call. I am Rebecca Gardy, Head of Investor Relations at Campbell Soup Company. And joining me today are Mark Clouse, Campbell's President and Chief Executive Officer; and Mick Beekhuizen, Campbell's Chief Financial Officer. Today's remarks have been pre-recorded. Once we conclude the prepared remarks, we will transition to a live webcast Q&A session. The slide deck and today's earnings press release have been posted to the Investor Relations section on our website, campbellsoupcompany.com. Following the conclusion of the Q&A session, a replay of the webcast will be available at the same location followed by a transcript of the call within 24 hours. On our call today, we will be making 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 or our SEC filings for a list of factors that could cause our actual results to vary materially from those anticipated in forward-looking statements. Because we use non-GAAP measures, we have provided a reconciliation of each of these measures to the most directly comparable GAAP measure in the appendix of this presentation. On Slide 4, you will see today's agenda. Mark will share his overall thoughts on our third quarter performance, as well as in-market performance by division; Mick will discuss the financial results of the quarter in more detail and then review our guidance for the full year fiscal 2022. And with that, I'm pleased to turn the call over to Mark.

Mick Beekhuizen:

Thanks, Mark, and good morning, everyone. We delivered solid growth in the third quarter across net sales, adjusted EBIT and adjusted EPS amidst meaningful macro headwinds. As Mark reviewed, the sustained consumer demand for our portfolio of brands, improved supply chain execution combined with inflation-driven pricing and limited elasticities resulted in strong top line growth. Our productivity improvements and the benefit of continued cost savings initiatives helped mitigate a continued inflationary environment driving growth in both adjusted EBIT and adjusted EPS in the quarter. Q3 adjusted gross margin performance represents a gradual recovery of the year-to-date impact of significant inflation and select supply chain constraints. Also recall that we are lapping a favorable prior year comparison. Our cash generation remains strong with cash flow from operations of $1.1 billion through the first 9 months. Additionally, in line with our commitment to deliver value to shareholders, we have returned over $450 million year-to-date to shareholders through dividends and share repurchases. As I will review in more detail in a moment, we are raising net sales guidance based on our performance year-to-date as well as our expectations for continued strong consumer demand for our brands, limited price elasticities, continued supply recovery and improved service levels. Given the persistent inflationary environment, we are reaffirming our full year guidance on adjusted EBIT and adjusted EPS. Turning to the next slide. Organic net sales increased 9% in the quarter as consumer demand was strong and we experienced limited price elasticities. Third quarter organic net sales performance outpaced consumption in measured channels by 5 points, primarily driven by retailer inventory rebuild. Adjusted EBIT increased 23% compared to prior year quarter due to improved adjusted gross margin performance and lower marketing and selling expenses, partially offset by sales volume declines and lower adjusted other income. Adjusted EBIT margin increased by 190 basis points to 15.1% compared to 13.2% in the prior year. Adjusted EPS from continuing operations increased 37% to $0.70 per share, driven primarily by the increase in adjusted EBIT, lower adjusted net interest expense and the benefit of lower weighted average diluted shares outstanding. Year-to-date, organic net sales increased 1% and adjusted EBIT decreased 7% compared to the prior year. Adjusted EBIT margin decreased by 110 basis points to 15.6% compared to 16.7% in the prior year. Year-to-date, adjusted EPS decreased 2% versus the prior year. On the next slide, I'll break down our net sales performance for the third quarter. Inflation-driven pricing more than offset the impact of volume declines in the quarter as we experienced lower than historical price elasticities. Organic net sales increased 9% during the quarter, driven by 11 points of favorable pricing, reflecting inflation-driven price increases. This was partially offset by a 3-point volume/mix headwind, reflecting select supply constraints as well as price elasticities, partially offset by retailer inventory rebuild. The impact of the sale plum subtracted one point in the quarter. All in, our reported net sales increased 7% over the prior year. Turning to the next slide. Our third quarter adjusted gross margin increased 90 basis points to 31.5% from 30.6% last year. In addition to lapping a sizable decline in the prior year, this margin expansion represent a gradual recovery of the significant year-to-date impact of increased cost inflation and other macro issues, such as labor and materials availability. Net price realization drove an 800 basis points improvement due to the impact of our inflation-driven pricing actions, which only partially offset the inflationary headwinds experienced in the quarter. Our ongoing supply chain productivity program and our cost savings program contributed 110 basis points and 20 basis points to adjusted gross margin, respectively. Inflation/other had a negative impact of 790 basis points, with the majority of the impact driven by cost inflation as overall input prices on a rate basis increased by approximately 15%. Along with other industry participants, we experienced the impact of significantly increasing cost inflation and other macro issues, such as labor and materials availability. Other supply chain costs had a favorable impact as we lapped higher other supply chain-related costs in the prior year third quarter, including those related to last year's Texas storm, which caused a temporary disruption to the Meals & Beverage division supply chain operations. In addition, we received a onetime benefit in the current year for insurance claims related to the Texas storm. The benefit of these items improved our adjusted Q3 gross margin year-over-year by approximately 100 basis points. Lastly, volume/mix had a negative 50 basis point impact on gross margin, largely due to reduced operating leverage. The previously described initiatives to mitigate inflation, highlighted on the next page, includes price increases and trade optimization, supply chain productivity improvements and cost savings initiatives, and a continued focus on discretionary spending across the organization. We remain focused on the inflation mitigation as we expect core inflation for the year to be low double-digits, with a more pronounced impact in the second half of fiscal 2022. Our Wave 2 pricing was fully reflected throughout the third quarter. And as Mark noted in his opening remarks, we have already announced a third wave of select pricing to help mitigate the continued increase in inflation as we head into fiscal 2023. Moving on to other operating items. Marketing and selling expenses decreased $14 million or 7% in the quarter on a year-over-year basis. Advertising and consumer promotion expense, or A&C, declined by 16% in the quarter as investments were moderated, due in part to the pacing of supply recovery and some ongoing material availability issues. Overall, our marketing and selling expenses represented approximately 9% as a percent of net sales, which was in line with our expectations. Adjusted administrative expenses increased $4 million or 3% to $146 million. As a percentage of third quarter net sales, adjusted administrative expenses were 6.9%, a 30 basis point decrease compared to last year. On the next slide, we are providing an adjusted EBIT bridge to summarize the key drivers of performance this quarter. As previously mentioned, adjusted EBIT increased 23% in the quarter, primarily due to a 90 basis point or $87 million improvement in adjusted gross margin. Lower marketing and selling expenses contributed $40 million or 140 basis points to our adjusted EBIT margin. The continued headwind of sales volume declines, primarily from the impact of select supply constraints, as well as price elasticities, partially offset by retailer inventory rebuild, negatively impacted EBIT by $24 million. Lower adjusted other income had a negative impact of $13 million or 70 basis points. Despite adjusted administrative and R&D expenses increasing $4 million versus the prior year, it was lower as a percentage of net sales versus the prior year, and therefore had a positive impact to our adjusted EBIT margin of 40 basis points. Overall, our adjusted EBIT margin increased year-over-year by 190 basis points to 15.1%. The following chart breaks down our adjusted EPS change between our operating performance and below the line items. A $0.15 impact of higher adjusted EBIT was further benefited by a $0.02 favorable impact from lower adjusted net interest expense, a $0.01 impact of lower adjusted taxes and a $0.01 impact from the benefit of lower weighted average diluted shares outstanding. This resulted in adjusted EPS of $0.70, which was up $0.19 per share or 37% compared to prior year. Turning to the segments. In Meals & Beverages, organic net sales, which exclude the impact from the sale of the Plum baby food and snacks business, increased 9%, driven by increases in U.S. Soup, Foodservice and Prego Pasta Sauces, partially offset by declines in Canada. Inflation-driven pricing and sales allowances were partially offset by increased promotional spending. Volume decreased, primarily due to supply constraints, driven by labor and materials availability and price elasticities, partially offset by retailer inventory rebuild. Sales of U.S. Soup increased 15% due to increases in both Condensed and ready-to-serve soups, while broth was comparable to the prior year. Segment operating earnings in the quarter increased 18%. The increase was primarily driven by improved gross margin performance and relatively stable marketing and selling expenses, partially offset by sales volume declines. Gross margin performance reflected ongoing cost inflation, which was offset by pricing actions, lower other supply chain costs and supply chain productivity improvements. The lower other supply chain costs were positively impacted by the previously mentioned Texas storm impact. Unfavorable volume/mix also pressured gross margins, largely due to reduced operating leverage as well as higher levels of promotional spending. These results also reflect lower base operating earnings in the prior year third quarter. Overall, within our Meals & Beverages division, the third quarter operating margin increased year-over-year by 200 basis points to 19.5%. Within Snacks, organic net sales increased 8% while sales of our Power brands were up 13%. Snack sales increased due to increases in salty snacks, primarily Snyder's of Hanover pretzels and Kettle brand potato chips, as well as cookies and crackers, primarily Goldfish crackers. Overall, inflation-driven pricing, sales allowances and lower promotional spending were partially offset by volume declines. Despite some inventory rebuild, volume declined in the quarter, driven by supply constraints based on materials availability and price elasticities. Segment operating earnings in the quarter increased 25%, primarily driven by improved gross margin performance and lower marketing and selling expenses, partially offset by higher administrative expenses. Gross margin performance improved as higher inflation and increased other supply chain costs were more than offset by pricing, supply chain productivity improvements, execution improvements and cost savings initiatives. These results also reflect lower base operating earnings in the prior year quarter. Overall, within our Snacks division, the third quarter operating margin increased year-over-year by 160 basis points to 12.7%. I'll now turn to our cash flow and liquidity. Year-to-date fiscal 2022 cash flow from operations increased from $881 million in the prior year to $1.1 billion, primarily due to changes in working capital, partially offset by lower cash earnings. Our year-to-date cash outflows for investing activities were reflective of the cash outlay for capital expenditures of $179 million, which was down from $190 million in the previous year. Our year-to-date cash outflows from financing activities were $805 million. The majority of which, or $456 million, represented the return of capital to our shareholders, including $340 million of dividends paid and $116 million of share repurchases. At the end of the third quarter, we had approximately $425 million remaining under the current $500 million strategic share repurchase program and approximately $173 million under our $250 million anti-diluted share repurchase program. In the quarter, we settled the redemption of all $450 million of our senior notes due to mature in August 2022 with a combination of cash and short-term debt. We ended the third quarter with cash and cash equivalents of $196 million. Turning to the next slide. We are raising our full year fiscal 2022 net sales guidance to reflect year-to-date performance, expectations of continued strong demand for our portfolio of brands and limited price elasticities amidst a heightened inflationary environment as well as continued supply recovery and improved service levels. Although our third quarter adjusted EBIT margins improved relative to the prior year, we expect core inflation to exceed prior estimates for the balance of the year. We expect margin pressure for the full fiscal year despite ongoing mitigating actions, such as net price realization, productivity improvements and cost savings initiatives. Accordingly, adjusted EBIT and adjusted EPS performance are expected to be consistent with the guidance provided on March 9, 2022. For the full year, we expect organic net sales to be plus 1% to plus 2%. This is a change from minus 1% to plus 1% reported on March 9, 2022. We continue to expect adjusted EBIT of minus 4.5% to minus 1.5% and adjusted EPS of minus 4% to flat versus the adjusted fiscal 2021 results. The sale of Plum is estimated to have a negative impact of 1 percentage point on fiscal 2022 net sales. In closing, while the macro environment remains challenging and increased inflation is certain, we are confident in our outlook for the balance of the year, given the continued demand for our trusted brands and the focused execution of our teams. We are pleased with our third quarter financial results and overall business performance. And we continue to look forward to closing out the year on a strong foundation. We will now turn it over to the operator to take your questions. Thank you.

Andrew Lazar:

I guess, Mark, in light of recent industry chatter regarding consumer behavior shifts and retailer commentary, I thought it might make sense to start with having you address this sort of building investor notion that the pricing window has sort of, all of a sudden, effectively completely closed for the industry, which obviously is an important topic given expectations for more inflation to come in -- going forward in your fiscal '23. And I guess specific to Campbell, you mentioned the third wave of pricing was announced. Does that mean it's sort of locked in with key retail partners at this point? And does this pricing essentially cover what inflation you see in fiscal '23, at least as we stand here today, or might there need to be more still?

Operator:

Your next question comes from the line of Ken Goldman from JPMorgan.

Mark Clouse:

Yes. Thanks, Ken. Well, I think first off, I just would say that from a Q3 standpoint, just to give you a little bit of a frame of reference, essentially, the quarter came in very consistent where we expected to be as it related to EPS. I think the composition in the quarter, we were a little stronger on top line and maybe a little more pressure on inflation in the middle of the P&L, but generally came in, in a profile that delivered more or less our expectations. I think as you think about what we've put out there for the balance of the year, it kind of lives into that framework or that perspective. And that's how we're anticipating Q4 to play out. I think you raised a good point, which is, all right, there is a range here. What would be the variables that drive the difference? And a lot of this, we think, really will come down to the ability and the speed at which we're going to continue to replenish the inventories that are in market. Demand and elasticity, we're leaving ourselves a little bit of flexibility there. We also want some room to be able to invest in the business as we continue to move through the quarter. The goal in mind is to try to exit the year with good momentum going into fiscal '23. But I think a lot of the variability that you see in that range will depend on just how quickly we recover in a couple of these areas on that top line. I think this kind of mid-single-digit area for kind of that midpoint for top line is a good place to be.

Peter Galbo:

Maybe if I can just ask a follow-up to Ken's question. Kind of, Mark, similar to the bottom line, I think there's a pretty wide range of EPS outcomes as well. And I think you mentioned investment and leaving yourselves some room to invest in the business. But anything that would kind of drive the higher or lower end of that EPS range at the bottom? And then maybe, Mick, just thinking about the chart you have on core inflation, I guess as we think about it over the next few quarters, that's obviously going to have a pretty material step-up, it seems like in the fourth quarter. But then, does that rate of change going into the first half of next year kind of start to level off, wherever maybe, mid- high teens, low 20s? Just any color there would be helpful.

Mick Beekhuizen:

Yes. No. And I think with regard to inflation, you obviously saw the uptick with regard to inflation between the second quarter and the third quarter. And particularly, that's also related to the fact that you have some of our contracts that are reset on a calendar year basis. And we spoke about that obviously in the past. So you see that we expect -- when I look kind of throughout the quarterly progression of inflation, as Mark mentioned earlier, we follow that very closely. And as a result, as Mark also described, one of the decisions that we made is the announcement of the wave 3 pricing, so in order to make sure that we continue to track and help offset as one of the different tools in our toolbox the inflation that we see coming.

Operator:

Your next question comes from the line of David Palmer from Evercore.

Mark Clouse:

Yes. So a lot to unpack there, but a very important question. So what I would start with is just by saying to you that I think and I've said this consistently, and I'll give you a couple of real-time examples, is that our portfolio is very well positioned and resilient as it relates to challenging economic environments, however you might categorize that. And so a lot of times, what we -- the dynamic that we see is -- yes, let's take condensed soup as an example, where we are seeing and expected to see some pressure from private label, you also have significant migration of trading down into the category. So that the overall category growth rates are up pretty significantly. And volumes are holding up very well, even in the face of pricing that can be double digits so far that we've seen. I think what's been new about this or what's been a little bit more unique than maybe what we've seen in the past is where we're experiencing more of the trade down tends to be more in the baby boomer, a little bit older consumer that tends to be a bit more price sensitive. And we're picking up a lot of these new consumers as they are moving into the category. Another great example of that is Chunky. Chunky’s pricing is up mid-teens right now. And what we're learning is, although that seems like a lot of pricing, and it is, but for can of soup, it's still under $3 for a large part of the population trading down into the ready-to-serve soup category becomes a very economic move for them. And that's why on Chunky, we see right now, pricing mid-teens, consumption’s up 14 but units are still up 3%. And our volume was up 8% in the quarter. So you've got a very, very healthy dynamic that exists in several of our brands. And I'd say it's not far off for categories like Prego or Pasta sauce. And even on the snack side, it tends to be a little bit more in the -- I'd say, in the more indulgent spaces, like cookies and some of our salty snacks. But the elasticities have been very, very low. And historically speaking, those are categories that you tend to think of as discretionary, but tend to hold up very well. Remember, backstopping all of this discussion is an overarching migration from away from home into home and the idea that eating at home is one of the enablers to combat pressure as it relates to economic challenges. And so I think, look, it's complicated because every category and brand is a little different. And that's the way you've got to go at this. So it's not as simple as answering it in a broad stroke. But as we look at our portfolio, certainly, we feel very good about how we're positioned today as well as heading in to the environment ahead. And I think certainly, the evidence that we've seen so far is that there's probably even some more reasons to be encouraged than what we would have seen historically. And all of that is caveated with the appropriate amount of vigilance here to make sure that if we do find ourselves in a position where elasticities begin to really accelerate, that we've got the appropriate contingency plans and support plans to navigate through it. So again, there's not a really singular answer for it. But I do think as it relates to Campbell, we feel that we're positioned very well. But we'll, of course, continue to be highly aware of what's going on around us.

Nik Modi:

So I just had a quick clarification in terms of the shortage of materials. Can you just provide just more details around that? But my broader question is just on trapped costs. If you think about all the excess costs that you guys have incurred during COVID as a result of retailer penalties and just supply chain issues, can you just give us any context on the magnitude of those costs? And as kind of things normalize, I know this -- it might take some time for this to normalize. But as you think about these costs and the normalization, would that just drop to the bottom line? Or philosophically, would you say, look, we've got to build some capabilities to deal with future shocks like this, so maybe we should reinvest in relocalizing supply chains or diversifying our supplier base, what have you? Any thoughts on that would be helpful. .

Operator:

And your final question comes from the line of Jason English from Goldman Sachs.

Mark Clouse:

Yes. Good question, Jason. So let me first talk a little bit about where sit today. So as we think about the spending profile that we're at, so marketing and sales for the quarter was about 8.8%. And as you've heard me say before, I'm a lot more comfortable with that around 10% -- in the 9% to 10% range depending on a couple of variables relative to -- or innovation and other sources of investments. So there is no question that where we are today, we would want to move up from. I don't think it represents any kind of rebates like we would have experienced, because a lot of that was about repositioning, reframing a lot of categories that we were moving away from or shifting to. This is really about, in the broader scheme of things, the difference between that 8.8% and where we want to move to over time. I think what's important to note is the A&C retraction has really been singularly minded on where the supply is. This is not simply a tool to try to hit profitability. It was really designed to reflect where we just don't have -- didn't have the supply to support. And so shaping demand a bit through pulling back on some of that spending. As you think about or as we think about our future plans, we've contemplated that. And so as we see recovery in supply and supply chain, I would expect to see that number begin to move forward. And again, I don't think it has to be any type of big bang. But I think as we move from 8.8% up the ladder a bit, I think we can begin to do that. And you should expect to see that as part of the ongoing plan as we move forward. Of course, I think that will -- again, it will follow very closely as we recover fully in supply. We do have a robust innovation pipeline we talked about today. So we expect to fully support that. So I guess what I would say is, there's no question there's been a step back. I think really, again, related much more to supply than necessarily trying to target it for savings. But as we move forward, I think, in a very thoughtful and kind of pay-as-you-go mindset, we would expect to see that recovering over the next quarters and certainly into '23.

Rebecca Gardy:

Thank you so much for joining us today. I think as you saw in our press release earlier, we will be attending the Deutsche Bank conference next week. And if you have any questions, please feel free to reach out to me at Investor Relations. Thank you so much.

Rebecca Gardy:

Good morning, and welcome to Campbell's second quarter fiscal 2022 earnings conference call. I am Rebecca Gardy, Head of Investor Relations at Campbell Soup Company. Joining me today are Mark Clouse, Campbell's President and Chief Executive Officer; and Mick Beekhuizen, Campbell's Chief Financial Officer. Today's remarks have been prerecorded. Once we conclude the prepared remarks, we will transition to a live webcast Q&A session. The slide deck and today's earnings press release have been posted to the Investor Relations section on our website, campbellsoupcompany.com. Following the conclusion of the Q&A session, a replay of the webcast will be available at the same location, followed by a transcript of the call within 24 hours. On our call today, we will make forward-looking statements, which reflect our current expectations. These statements rely on assumptions and estimates which could be inaccurate and are subject to risk. Please refer to Slide 3 of our presentation or our SEC filings for a list of factors that could cause our actual results to vary materially from those anticipated in 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 this presentation. On Slide 4, you will see today's agenda. Mark will share his overall thoughts on our second quarter performance, as well as in-market performance by division; Mick will discuss the financial results of the quarter in more detail and then review our guidance for the full year fiscal 2022. And with that, I'm pleased to turn the call over to Mark.

Mick Beekhuizen:

Thanks, Mark, and good morning, everyone. Our second quarter fiscal 2022 results are generally consistent with our expectations, despite industry-wide inflation and supply constraints. As you heard Mark describe earlier, strong demand for our portfolio of brands continued in the second quarter. However, higher-than-expected supply chain volatility resulted in lower service levels. Additionally, as expected accelerating core inflation in the quarter pressured margins. We continue to feel good about our initiatives to mitigate inflation, which include price increases, trade optimization, supply chain productivity improvements and cost savings initiatives. Our cash generation remains strong, with cash flow from operations of $766 million through the first half. Additionally, in line with our commitment to return value to shareholders, year-to-date, we have returned nearly $300 million to shareholders through dividends and share repurchases. Our first half performance and improving second half outlook including inflation mitigation actions, and continued strong consumer demand despite a tight, but improving labor market, give us confidence in reaffirming our full year guidance. Turning to Slide 19, organic net sales declined 2% in the quarter, lapping 5% growth in the prior year. The year-over-year volume decline due to industry-wide labor and supply challenges more than offset the favorable impact of net pricing in the quarter. Consumer demand remained strong, with second quarter dollar consumption in measured channels, three points above our total organic net sales performance. Relative to the second quarter of 2020, organic net sales grew 3%. Adjusted EBIT decreased 17% compared to the prior year quarter, and was 12% lower on a two-year basis, due to significant levels of inflation on ingredients and packaging, transportation, and labor. Remember that, our Wave 2 pricing will not be fully reflected until the third quarter. Adjusted EBIT margin declined by 240 basis points to 14.4%, compared to 16.8% in the prior year. Adjusted EPS from continuing operations decreased $0.13 or 16% versus prior year quarter, and was 4% lower on a two-year basis to $0.69 per share. Year-to-date organic net sales declined 3% lapping 7% growth in the prior year period, resulting in 4% growth on a two-year basis. Adjusted EBIT decreased 16% compared to prior year, and was down 6% on a two-year basis, given significant inflation. Year-to-date, adjusted EPS decreased 13%, which grew 6% on the two-year basis as a result of deleveraging. On the next slide, I'll break down our net sales performance for the second quarter. As I mentioned, the industry-wide labor and supply challenges held back our ability to meet the continued strong demand. Organic net sales decreased 2% during the quarter, driven by an 8-points volume and mix headwind, which reflects the supply constraints. Favorable price and sales allowances drove a 5-point again in the quarter and lower promotional spending in the quarter drove a 1 point gain. The impact of the sale of Plum subtracted 1 point. All-in, our reported net sales declined 3% from the prior year. Turning to Slide 22. Our second quarter adjusted gross margin decreased by 340 basis points from 33.8% last year to 30.4% this year. Volume/mix had a negative impact of approximately 170 basis points on gross margin, largely due to reduced operating leverage. Net price realization drove a 480 basis point improvement due to the benefits of our pricing actions, as well as lower promotional spending due to supply constraints. Inflation and other factors had a negative impact of 820 basis points, with nearly 3/4 of the decline driven by core inflation, as overall input costs on a rate basis increased by approximately 9%. Along with other industry participants, we experienced significant inflation across all input cost categories, including ingredients and packaging, transportation and labor. The remaining decline was driven by increases in other operational costs, due in part to supply chain disruptions. That said, our ongoing supply chain productivity program, contributed a 140 basis points to gross margin, partially offsetting these inflationary headwinds. Our cost savings program, which is incremental to our ongoing supply chain productivity program, added 30 basis points to our gross margin. The previously described initiatives to mitigate inflation, highlighted on the next page, include price increases and trade optimization, supply chain productivity improvements and cost savings initiatives and a continued focus on discretionary spending across the organization. We remain focused on inflation mitigation, as we now expect core inflation for the year to be low double digit, up from previously expected high single digits, with a more pronounced impact in the second half of fiscal 2022. Wave two pricing was effective at the end of the second quarter and will be fully reflected in the third quarter. And although for the second half of the fiscal year, we have a large proportion of our raw materials covered, from a pricing perspective, as Mark previously mentioned, we continue to closely monitor any economic impact from the current crisis in Ukraine. Moving to the next slide, we have continued to successfully deliver against our multi-year enterprise cost savings initiative. This quarter, we achieved $50 million in incremental year-over-year savings, bringing program-to-date savings to $835 million, and we remain on track to deliver total savings of $1 billion by the end of fiscal 2025, as we shared during our Investor Day. Moving on to other operating items, marketing and selling expenses decreased $35 million or 15% in the quarter on a year-over-year basis. This decrease was largely driven by lower advertising and consumer promotion expense, or A&C. Although, A&C declined 27% as investment was moderated to reflect supply pressure, we expect it to normalize as supply strengthened throughout the year. Overall, our marketing and selling expenses represented 8.9% of net sales during the quarter, a 130 basis point decrease compared to last year. Adjusted administrative expenses decreased $8 million or 5% due to benefits from cost savings initiatives and lower benefits-related costs. Adjusted administrative expenses represented 6.5% of net sales during the quarter, a 20 basis point decrease compared to last year. On Slide 26, we are providing a total company adjusted EBIT bridge to summarize the key drivers of performance this quarter. As previously mentioned, adjusted EBIT declined 17% as the sales volume decline and the 340 basis point adjusted gross margin contraction resulted in a $70 million and $29 million EBIT headwind, respectively. Partially offsetting this was lower marketing and selling expenses, contributing 130 basis points to our adjusted EBIT margin. Lower adjusted administrative and higher R&D expenses had a neutral impact and lower adjusted other income had a 30 basis point negative impact. Overall, our adjusted EBIT margin decreased year-over-year by 240 basis points to 14.4%. The following chart breaks down our adjusted EPS change between our operating performance and below the line items, a $0.16 impact of lower adjusted EBIT was partially offset by a $0.02 favorable impact from lower interest expense, a $0.01 impact of lower adjusted taxes and $0.01 impact from the benefit of lower weighted average diluted shares outstanding. This resulted in adjusted EPS of $0.69, which was down $0.13 per share or 16% compared to the prior year. Turning to the segments, in meals and beverages, organic net sales which exclude the impact from the sale of plum baby food and snacks business declined 2%, driven by declines in US Retail, including US Soup and Campbell's Pasta, as well as in Canada, largely offset by gains in foodservice. Volume declined due to supply constraints driven by labor and materials availability. Price and sales allowances were favorable in the quarter, partially offset by increased promotional spending relative to moderated levels in the prior year quarter. Sales of US Soup decreased 1%, cycling a 10% increase in the prior year quarter due to declines in condensed soup, partially offset by gains in ready-to-serve soups and broth. Segment operating earnings in the quarter decreased 19%. The decrease was primarily due to sales volume declines and lower gross margin performance, partially largely offset by lower marketing and selling expenses. Gross margin performance was impacted by higher cost inflation and other supply chain costs, unfavorable volume/mix, which was largely due to reduced operating leverage as well as higher levels of promotional spending, partially offset by the benefits of pricing actions and supply chain productivity improvement. Overall, within our meals and beverages division, the second quarter operating margin decreased year-over-year by 320 basis points to 16.7%. Within Snacks, organic net sales decreased 3%, while sales of Power Brands were up 1%. Segment sales decreased due to declines in non-core businesses and in certain salty snacks, primarily Late July snacks, partially offset by gains in Goldfish crackers. Overall, favorable price and sales allowances and lower promotional spending were more than offset by volume declines, driven by significant supply constraints due to labor. Segment operating earnings in the quarter decreased 14%, driven by sales volume declines and increased administrative expenses, partially offset by lower marketing and selling expenses. Increased pricing and lower promotional activity, combined with the results of our productivity and cost savings initiatives largely offset core inflation, higher other supply chain costs and unfavorable volume/mix, which was largely due to reduced operating leverage. Overall, within our Snacks division, second quarter operating margin decreased year-over-year by 160 basis points to 13%. I'll now turn to our cash flow and liquidity. Fiscal 2022 cash flow from operations increased from $611 million in the prior year to $766 million, primarily due to changes in working capital, partially offset by lower cash earnings. Our year-to-date cash outflows for investing activities were reflective of the cash outlay for capital expenditures of $129 million, which was comparable to prior year. Given the challenging operating environment, we are now forecasting full year capital expenditures of approximately $275 million for fiscal 2022. Our year-to-date cash outflows for financing activities were $352 million, the vast majority of which are $293 million represented the return of capital to our shareholders, including $228 million of dividends and $65 million of share repurchases. At the end of the second quarter, we had approximately $475 million remaining under the current $500 million strategic share repurchase program. We also have a $250 million anti-dilutive share repurchase program, of which approximately $174 million was remaining. We ended the second quarter with cash and cash equivalents of $357 million. Turning to Slide 31. We continue to expect full year fiscal 2022 net sales, adjusted EBIT and adjusted EPS performance to be consistent with the guidance we provided during our first quarter earnings call. Our full year guidance reflects expected continued strong demand for the balance of the year with steady supply recovery and improved service levels, particularly in the fourth quarter as labor recovers. We have seen consistent improvements in labor attraction and retention driven through the recent recruiting actions and wage increases. However, core inflation is now expected to be low double digits for the full year. Wave 2 pricing will be fully reflected in the third quarter, and we expect to continue managing inflationary headwinds through pricing, supply chain productivity improvements and cost savings initiatives. We expect these actions and improved labor outlook and easier prior year comparisons to result in margin progress and earnings recovery in the second half. For the full year, we expect organic net sales to be minus 1% to plus 1%, adjusted EBIT of minus 4.5% to minus 1.5%, and adjusted EPS of minus 4% to flat versus the adjusted fiscal 2021 results. The sale of Plum is estimated to have an impact of one percentage point on fiscal 2022 net sales. This implies for the second half net sales growth of low to mid-single digits and double-digit growth in adjusted EBIT and adjusted EPS. Overall, our first half was generally aligned with our expectations, thanks to all the hard work by our teams. I'm truly grateful for their continued dedication and commitment. I will now turn it back to Mark for closing comments. Thank you.

Operator:

[Operator Instructions] And your first question is from Andrew Lazar with Barclays.

Mark Clouse:

Hi, Andrew.

Mark Clouse:

Yes. So the short answer is, Andrew, we actually see the back half where the opportunity really resides to be more in the gross margin space. And there's a couple of reasons why. First, I'll just say from a Q2 standpoint, although a little more pressure on the top line as we went through Omicron in January and saw labor even tougher than what we had expected. From a margin standpoint and profitability standpoint, we were generally in line with what our expectation was. And so as we look into the back half of the year, certainly, we're not expecting inflation to subside. But what we do believe is that with the combination of the full impact of the -- of the second wave of pricing, along with the fact that we're going to be lapping pretty significant declines from a year ago. In fact, they're in the 300 to 400 basis point range as a comparison. And then the recovery that we expect on the supply side, which drives a host of efficiencies, as well as our underlying productivity and cost savings initiatives, we feel like we're in a much better position with many of the variables pointed in the right direction, even though you'll still have inflation is a significant variable. And so underpinning those assumptions is a fairly consistent level of costs as it relates to SG&A in total and our marketing and selling in particular, where we have been a bit below or under a year ago over these last couple of quarters, we expect it to be more in line and more consistent with where ultimately we would want to get. I still think probably a bit of management of that through the third quarter and into the balance of the year. But generally, is a good rule of thumb. We want to be around 10% of net sales. We've been hovering around closer to 8% to 9%. I think you'll see us closer to 9% to 10% as we go through the back half of the year. So our ability to invest behind the recovery of supply, given the room that we -- that we believe will have relative to the pricing as well as the comps gives us a lot of confidence, and the ability to drive a positive back half and stay generally on track with where we're -- where we expected to be at the turn here and this moment that we expected to be in where we begin to transition from lapping a lot tougher comparables, a lot higher starting points to a period where we can return to positive momentum, which is really something that we're excited to get to. But also I think a good way to kind of build momentum is we exit the year.

Operator:

Your next question is from Ken Goldman with JPMorgan.

Mark Clouse:

Hey, Ken.

Mark Clouse:

Yeah, no, so there's a couple of things in there that are probably good to talk about. First, let me start with kind of the pre-Ukraine/Russia challenges. And I think what -- as you know, at this point in the year, we're fairly well covered. So we're roughly 95% of our costs, about 90% in particular on commodities. But that still does leave some variability as it relates to logistics and added pressure that we've seen relative to fuel that has been aggravated a bit more as we've gone into this latest conflict, and crisis in the Ukraine. So I think that, where we see those variables are generally contemplated in our numbers. As it relates particularly to Ukraine and Russia, first is, I'd be remiss not to just say again, our hearts go out to the folks that are dealing with this conflict, it's an unbelievable circumstance to be in. But I think from a business standpoint, what I would just say is that from a direct operation or impact, we have no sales, we have no direct sourcing, we have really no specific business. Of course, the question then becomes the macroeconomic impact of the conflict. And as we look at 2022, we've got about 90% of our commodities covered, which leaves us about $150 million in cost that we're still navigating through. And as we look at the variability as it relates to what of that is really residing within things like wheat that could be impacted or certain metals or packaging that could be part of that as you look a little more broadly at costs, and then, of course, on energy and oil, we believe that we've created a space within the plan to contemplate that. And then, of course, as we talk about going forward into 2023 there's a lot of variables there that will come into play, and we'll talk more about that in the future. But I think we have -- again, in the world that we live in today, I would never presume that we can see every variable possible as that certainly prove in the last couple of years to be tough to do. But I think relative to all the inputs we have today, I think we've got a fairly good contemplation of that. And even where we see some potential variability, we've tried to build that into the contingency planning and/or just within the range that we've got relative to the guidance. Mick, anything to add to that?

Ken Goldman:

Thank you for that. Can I ask you a quick follow-up, Mick? Historically, has Campbell generally bought ahead for the items of can, ingredients and packaging throughout the year, at somewhat consistent levels from quarter-to-quarter? Or, historically, has it tended to lock in a significant amount at the end of the fiscal year with less purchasing at other times? And, I guess, I'm talking everything other than cans, of course, which I think we have a good sense of.

Ken Goldman:

Thank you.

Operator:

Your next question is from Chris Growe with Stifel.

Mark Clouse:

Hi, Chris.

Mark Clouse:

Yes. I mean, it's -- so a couple of things that we're watching through and then I'll tell you what we've kind of planned for the balance of the year. But as you point out, early on and certainly through the first wave of pricing, we've not seen a lot in the way of elasticity. Although, I will say that as we have navigated some of these supply challenges, it's a little bit harder to gauge as we've been essentially shipping to what we've been making regardless. So I do think we want to continue to watch that very closely. But as we plan the balance of the year, what we've assumed is that elasticities do go up and that there is some incremental impact from what we would have seen in our first wave of pricing, in our second wave of pricing, although historical levels, we think we'll still be below, given the breadth of inflation that is being experienced across the industry. So, we're not taking necessarily the full level of elasticity, but we are assuming a step-up from what we've experienced. And I think, again, as I've said from the get-go on this, our goal here is obviously to manage appropriately the cost, but also to make sure that we're keeping price gaps and that as we return to full supply and support that we've got the right balancing act as it relates to shares and protecting our equities and our brands as we realize that we've spent a couple of solid years building that. The last thing we want to do is undermine that with unreasonable pricing. And so I think everything that we're doing up to this point generally is consistent and aligned with the marketplace, and we would expect that to elasticity as the year unfolds. And if we're wrong, and it's better than that, then I think that will just create opportunity for us as we go through the balance of the year. But I think a prudent position and one that generally is informed by just kind of, I'd say, at this point, where we are on absolute pricing, which is not insignificant on some of our categories.

Mark Clouse:

Yes. Well, I think the good news is I don't think we'll be waiting fully to fourth quarter to see some of that replenishment. As we pointed out, we were a little lighter in Q2 on topline than we expected. I actually think that we'll see some more recovery of that earlier on in the third quarter. And then really, I do think, though, the fourth quarter is a period where we would expect to be more fully back in business, if you broader range of the full portfolio. I think you'll see TDP levels coming back in the normal ranges. I think you'll see our support both from a marketing and trade standpoint, kind of at a sustainable ongoing level. That's the game plan. And so I think we'll probably be ahead, notwithstanding what exactly demand will look like in Q3. But I think relative to what we expect, probably a bit ahead in Q3 and probably a bit more in Q4.

Operator:

Your next question is from Nik Modi with RBC Capital Markets.

Mark Clouse:

Yes, I think as now kind of navigated this up and down period, where okay we're kind of into a new normal and then a surge comes back in January and this kind of up and down. As we project out, I think we've got a fairly good base of time now where we can see periods where there were less constraints and what does that mean relative to periods that are more COVID driven or influenced in. So I think our assumptions as we think about the back half of the year, and remember, the added factor of our ability to more fully supply, because our issues, if you will, relative to being able to fully meet demand were present in the back half of last year, especially on certain brands like Late July or a few of the other areas where we've struggled a bit more on labor and had real challenges, kind of, getting to that full capacity that we need. So the combination of those elements together, along with returning support level, we think we're going to hold very well on demand. And even if there is a return to this more balance between away-from-home and in-home, we think the combination of what we're doing, as well as what we expect that baseline to remain at, which although may come down a bit from what we would have experienced in January, we think not necessarily inconsistent with what we might have seen in the summer of last year and some other periods that looked a little bit more consistent to what we expect the back half to be. So I think you're going to have a little bit of normalization there, offset by improved supply and support. And that, I think, in general, is what's leading us to see a better overall top line. And remember too, not unlike the margin conversation, the first half of this year, we were still lapping significant elevated levels when we get to the -- from COVID the original, kind of, COVID period. When you get to the second half of this year, we begin to lap the declines or the reduction that already occurred in the back half of last year. So your comps on both margin and on top line are much better as we're in the back half of the year.

Mark Clouse:

Yeah. So it's a -- so let me answer the question in a little bit of a different way to start it, and then I'll specifically get into it. I think what's really important and what I would imagine that a lot of investors are going to be interested in seeing is what the recovery model looks like as we come back into full supply. And what I like about our Goldfish and our Kettle and Cape Cod on our Snacks business, as well as our Chunky business on our Meals & Beverage, those are all great examples of where we have invested in capacity. We're back fully into supply. And with that came the full level of support. We protected marketing on those businesses, we added innovation, whether it was Mega Bites on Goldfish or Family Size on Goldfish, which was some of the new price pack architecture that we were creating, whether it was some of the new pack sizes on Kettle and Cape Cod, or it was flavor innovation on spicy for Chunky with a full very, very robust marketing campaign. All three of those businesses are great examples of what we expect to see as we come back fully on other brands along the way. And I think that with that comes the opportunity to unlock innovation. And so as we think about the balance of the year, our innovation levels on our snacking business are going to be up significantly from a year ago and where it would have been, talk about it in terms of kind of three-year rolling contribution as a percent of revenue. So last year, we would have been in the 1% to 2% range. This year, we'll add about a full point of contribution from innovation in snacking; Meals & Beverage on a similar level with the combination of what we're doing on our Chunky business, but also some of the innovation that we have on the restage and relaunch of Well Yes!, which is another component of soup that's going very well. And I would encourage you to look at when you look at shares within soup, look at some of those core brands on how well they're doing because I think it is a little bit of us selecting where we're placing the bets right now as we navigate some of these supply challenges. But at the end of the day, I think the idea is that we should see momentum building on innovation. We've got a great start on the brands that are already back in the profile that we want, and we would expect the others to follow as we go through the balance of this year and then into 2023, of course, where we expect to be back kind of fully loaded across the portfolio.

Operator:

Your next question is from Peter Galbo, Bank of America.

Mark Clouse:

Hey, Peter.

Peter Galbo:

Mark, I guess I just want to go back to your comments around the puts and takes on some of the ag commodities beyond where you're hedged for this year. And I guess, as I read through kind of what you're saying, it's, hey, we're going to get material improvement or improvement in the gross margin line in the back half of this year, but once some of these ag commodities, hedges roll off or coverage rolls off, maybe you could see that back down in the front half of next year if we -- and some of these other, again, ags kind of stay up here. I wanted to see if I was kind of understanding that comment. And then with that, if that is the case, just your potential to take a third wave of pricing and how you're thinking about that? Thanks.

Peter Galbo:

Great. Thanks very much, Mark. That's really helpful. I’ll pass it on.

Operator:

And your next question is from David Palmer with Evercore.

Mark Clouse:

Yeah. So the overwhelming dominant improvement is in labor. If you remember back in the first quarter, we had anticipated a trajectory of recovery that was really through the second quarter into the back half and what occurred in December and January with Omicron just kind of delayed it. I think what's good news about what we've experienced is that, although that kind of came fast and furiously into the quarter, it also subsided a lot faster than we'd seen prior iterations of pressure. And so it allowed us to get back on track. And as I said a couple of times throughout the quarter, the fact that we had hired as many new folks as we had allowed us, I think, to weather the storm a little bit better and get us in a position in the back half. But just to put it in context, we were running -- if you combine absenteeism and vacancy rates, we were running low double-digit percent of GAAP relative to that. And if you look at where we are now, historically, we tend to be around 3% to 4%, and we're at about 4% right now. And so that has been the single biggest movement, if you will, in improving our production levels relative to meeting demand and meeting expectations. So that's first and foremost. I think the other thing is that, we are really working hard on continuing to add capacity. One of the things that's really interesting is if you look at the last 24 months, and I would say this has been a little slower than I would have liked. But if you look at the last 24 months, we've added almost 8% of capacity to our network. And in particular, you see that manifesting on brands like Goldfish, like our Kettle potato chip business, where you're seeing the benefit of that added capacity. So those two areas, right, and we have that coming as it relates to tortilla chips as it relates to cookies. These are areas that we're also experiencing sandwich crackers on Lance, which has another been a challenging area. So I think the combination of those two things together are what's really giving us the better confidence. And again, throughout this process, our overall execution has actually been very good relative to what we might have experienced a year ago or in prior levels. And I only expect that, get better as we continue to focus on that as a really core capability. We continue to add resources. This is a specific area of expertise for Dan Poland, who I mentioned earlier is joining the company, very, very good at driving standardization and operational excellence across the network. In particular, in our Snyder's-Lance facilities, that is a network that really we see the biggest opportunity in elevating that level of consistency and performance. And so, with that set of tools, along with kind of the structural improvement of labor and capacity, it's why we feel as good as we do about that recovery. So, hopefully, that helps give you a little bit of color, but it's a great question and one that we think is really paramount to the believability of the second half recovery and why we see it as a more likely outcome that it might look like on paper.

Mark Clouse:

Yes.

Mark Clouse:

Yes. No, I -- yes, I -- we're low, is what I would say. I mean, obviously, it depends a little bit on the category that you're speaking to, but I would tell you, versus our historical position, in particular, given the pressure that we experienced in January. And again, I will say that we are already seeing some recovery in that as we go forward. But the reality is, I think on many of our businesses, and you see it again like, I think, a great proxy for people to watch the development of our supply and availabilities is through TDPs, which almost to the item, if you will, or to the brand winds up with the share challenges and the percent loss in distribution. And conversely, where you see that beginning to recover is where you see the return to kind of more normal levels of share growth and performance. And so, I think, as you see that recover, come back into full inventory, the combination of those things together are going to be a nice tailwind for us to give you a little bit greater confidence that we're going to be in that positive territory. And I think, as I said before, I think it will take us likely through till Q4 until you're kind of more fully loaded, if you will, across the board. But I do think you're going to see recovery in Q3 and likely opportunity to shift perhaps ahead of consumption even as early as parts of Q3.

Operator:

We have now reached the allotted time for questions today. This will conclude today's conference call. Thank you for participating. You may now disconnect.

Rebecca Gardy:

Good morning. And welcome to Campbell's first quarter fiscal 2022 earnings conference call. I am Rebecca Gardy, Head of Investor Relations at Campbell Soup Company. Joining me today are Mark Clouse, Campbell's President and Chief Executive Officer; and Mick Beekhuizen, Campbell's Chief Financial Officer. Today's remarks have been pre-recorded. Once we conclude the prepared remarks, we will transition to a live webcast Q&A session. The slide deck and today's earnings press release have been posted to the Investor Relations section on our website, campbellsoupcompany.com. Following the conclusion of the Q&A session, a replay of the webcast will be available at the same location followed by a transcript of the call within 24 hours. On our call today, we will make forward-looking statements, which reflect our current expectations. These statements rely on assumptions and estimates, which could be inaccurate and are subject to risk. Please refer to slide three or our SEC filings for a list of factors that could cause our actual results to vary materially from those anticipated in forward-looking statements. Because we use non-GAAP measures, we have provided a reconciliation of each of these measures to the most directly comparable GAAP measure in the appendix of this presentation. As stated in the release from this quarter onwards, adjusted net earnings will exclude unrealized mark-to-market gains and losses on outstanding undesignated commodity hedges until such time that the related exposure impacts operating results. Accordingly, fiscal 2021 adjusted results and guidance for adjusted EBIT and adjusted EPS growth rates reflect this change. Also beginning this fiscal year, the foodservice and Canadian business formerly included in the snack segment is now managed as part of the Meals & Beverages segment. Segment results have been adjusted retrospectively to reflect this change. For additional information on these updates, please refer to today's Form 8-K. On slide four, you'll see today's agenda. Mark will share his overall thoughts on our first quarter performance as well as in-market performance by division. Mick will discuss the financial results of the quarter in more detail and then review our guidance for the full year fiscal 2022. And with that, I'm pleased to turn the call over to Mark.

Mick Beekhuizen:

Thanks, Mark. Good morning, everyone. Turning to slide 17. As Rebecca mentioned at the start of the call, from this quarter onwards, we will exclude from adjusted net earnings, unrealized mark-to-market gains and losses on outstanding undesignated commodity hedges until such time that the related exposure impacts operating results. Our adjusted financial results and guidance reflect this change. For the first quarter, as we left 8% growth in the prior year, organic net sales declined 4% due to the anticipated cycling of year ago retailer inventory recovery and supply pressures. The resulting year-over-year volume decline more than offset the favorable impact of net pricing in the quarter. As Mark highlighted earlier, consumer demand remained strong. In fact, in measured channels it was six points above our total net sales performance. All said, this past quarter, our organic net sales on a comparable basis were 5% higher compared to 2 years ago or the first fiscal quarter of 2020. Adjusted EBIT decreased 15% compared to prior year, which was 1% higher on a 2 year basis despite the significant levels of inflation on ingredients packaging, labor, warehousing and logistics. Our adjusted EBIT margin was 17.4% compared to 19.5% in the prior year and slightly down from fiscal 2020. Adjusted EPS from continuing operations decreased $0.12 or 12% versus prior year to $0.89 per share, which remains well ahead of fiscal 2020. On the next slide, I'll break down our net sales performance for the first quarter. As I mentioned, the impact of lapping the post-COVID search retailer inventory recovery and supply constraints, largely related to industry-wide labor challenges along with select material constraints, held back our ability to meet the continued elevated demand. The operations team continued to execute well in a challenging environment. Organic net sales decreased 4% during the quarter, driven by a six point volume headwind, which reflects lapping of the prior year retailer inventory recovery and the beforementioned supply constraints. Favorable price and sales allowances drove a four point gain in the quarter, which was partially offset by a two point headwind due to some spent back on promotional spending in the quarter closer to pre-pandemic levels. The impact of the sale plan subtracted one point. All in, our reported net sales declined 4% from the prior year. Turning to slide 19. Our first quarter adjusted gross margin decreased by 200 basis points from 34.5% last year to 32.5% this year. Mix had a negative impact of approximately 70 basis points on gross margin, as we cycled last year's retailer inventory recovery and favorable operating leverage. Net price realization drove a 190 basis point improvement due to the benefits of our recent pricing actions, partially offset by increased promotional spending. Inflation and other factors had a negative impact of 470 basis points, with the majority of the decline driven by cost inflation as overall input prices on a rate basis increased by approximately 6%. Along with other industry participants, we experienced significant inflation across all input costs categories, including ingredients, packaging, labor, warehousing and logistics. That said, our ongoing supply chain productivity program contributed 120 basis points to gross margin, partially offsetting these inflationary headwinds. Our cost savings program, which is incremental to our ongoing supply chain productivity program, added 30 basis points to our gross margin. The previously described initiatives to mitigate inflation highlighted on the next page include price increases and trade optimization, supply chain productivity improvements and cost saving initiatives and a continued focus on discretionary spending across the organization. We remain focused on inflation mitigation as we continue to expect core inflation for the year to be high single digits with a more pronounced impact in the second half of fiscal 2022. As you saw on the previous page, the progress we made in the first quarter to mitigate these inflationary pressures reduced the impact to 130 basis points on our adjusted gross margin. Moving to the next slide. We have continued to successfully deliver against our multiyear enterprise cost savings initiatives. This quarter, we achieved $15 million in incremental year-over-year savings and remain on track to deliver our cumulative savings target of $850 million by the end of fiscal year. We are working towards expanding our plan to $1 billion and we'll share more details next week at our Investor Day. Moving on to other operating items. Marketing and selling expenses decreased $38 million or 18% in the quarter on a year-over-year basis. This decrease was driven by lower advertising and consumer promotion expense or A&C and lower selling expenses. Although A&C declined 31% as investment was moderated to reflect supply pressure, we expect it to normalize as supply strengthens throughout the year. Overall, our marketing and selling expenses represented 7.6% of net sales during the quarter, a 130 basis point decrease compared to last year. Adjusted administrative expenses increased $17 million or 12%, largely due to expenses related to the settlement of certain legal claims as higher general administrative costs were largely offset by the benefits of cost savings initiatives. Adjusted administrative expenses represented 6.9% of net sales during the quarter, a 100 basis point increase compared to last year. On slide 23, we are providing a total company adjusted EBIT bridge to summarize the key drivers of performance this quarter. As previously mentioned, adjusted EBIT declined 15% as the net sales decline and the 200 basis point gross margin contraction resulted in a $36 million and $44 million EBIT headwinds, respectively. Partially offsetting this was lower marketing and selling expenses, contributing 130 basis points to our adjusted EBIT margin. This was a short term action targeted in areas where supply constraints were most significant and we expect to fully return to targeted investment levels as soon as labor is in place and supply recovers, higher adjusted administrative and R&D expenses had a negative impact of 110 basis points and lower adjusted other income had a 30 basis point impact. Overall, our adjusted EBIT margin decreased year-over-year by 210 basis points to 17.4%. The following chart breaks down our adjusted EPS change between our operating performance and below-the-line items. A $0.17 impact of lower adjusted EBIT was partially offset by a $0.02 favorable impact from lower interest expense and a $0.04 impact of lower adjusted taxes due to the favorable resolution of several tax matters in the quarter. This resulted in better than expected adjusted EPS of $0.89, which was down $0.12 per share compared to the prior year. Turning to the segments. In Meals & Beverages, organic net sales decreased 6% as favorable price and sales allowances in the quarter were more than offset by volume declines across US retail products, including V8 beverages, Prego pasta sauces in US soup as well as in Canada. Volume decreased primarily as a result of cycling the retailer inventory recovery in the prior year quarter and due to supply constraints. Increased promotional spending relative to moderated levels in the prior year, partially offset the impact of recent price increases. Sales of US Soup decreased 2% and cycling a 21% increase in the prior year quarter. Operating earnings for Meals & Beverages decreased 17% to $280 million. The decrease was primarily due to a lower gross margin and sales volume declines, partially offset by lower marketing and selling expenses. The lower gross margin resulted from higher cost inflation, higher levels of promotional spending, higher other supply chain costs and unfavorable product mix, partially offset by the benefits of recent pricing actions and supply chain productivity improvements. Overall, within our Meals and Beverage division, the first quarter operating margin decreased year-over-year by 260 basis points to 22.1%. Within Snacks, organic net sales decreased 1% to $1 billion as favorable price and sales allowances were more than offset by volume declines and increased promotional spending compared to moderated levels in the prior year quarter. Declines in partner brands Pop Secret popcorn driven by elevated prior year demand and late July snacks due to supply pressures were partially offset by gains in Goldfish crackers and Pepperidge Farm cookies. Sales of power brands increased 3%. Operating earnings for Snacks decreased 5% for the quarter, driven by increased administrative expenses due to the settlement of certain legal claims and a slightly lower gross margin, partially offset by lower marketing and selling expenses. The slight decline in gross margin resulted from higher cost inflation, unfavorable product mix and higher level of promotional spending, largely offset by the benefits of recent pricing actions, supply chain productivity improvements and cost savings initiatives and lower other supply chain costs. Overall, within our Snacks division, first quarter operating margin decreased year-over-year by 60 basis points to 13.2%. I'll now turn to cash flow and liquidity. We Fiscal 2022 cash flow from operations increased from $180 million in the prior year to $288 million, primarily due to lower working capital related outflows and mostly from accounts payable and accrued liabilities, partially offset by lower cash earnings. Our year-to-date cash outflows for investing activities were reflective of the cash outlay for capital expenditures of $69 million, which was comparable to prior year. In light of the current operating environment, we are reducing our planned full year capital expenditures from $330 million to approximately $300 million for fiscal 2022. Our year-to-date cash outflows from financing activities were $220 million, the vast majority of which or $179 million represented the return of capital to our shareholders, including $160 million of dividends paid and $63 million of share repurchases during the quarter. At the end of the first quarter, we had approximately $475 million remaining under the current $500 million strategic share repurchase program. We also have a $250 million anti-dilutive share repurchase program, of which approximately $176 million is remaining. We ended the first quarter with cash and cash equivalents of $69 million. Turning to slide 28. As covered earlier, adjusted net earnings now excludes unrealized mark-to-market gains and losses on outstanding undestinated commodity hedges and the guidance for adjusted EBIT and adjusted EPS growth rates reflect this change. We continue to expect full year fiscal 2022 [ph] net sales adjusted EBIT and adjusted EPS performance to be consistent with the guidance we provided during our fiscal year-end earnings call. Overall, we expect accelerating inflationary pressures and higher labor-related costs to be partially mitigated with sustained in-market momentum, well-executed pricing and planned productivity initiatives as well as our cost savings program. Although we will be lapping strong prior year results in the second quarter, we expect top-line performance to improve sequentially year-over-year as supply begins to recover. However, with respect to margin, we expect continued pressure driven by additional core inflation across commodities and higher labor-related costs without the benefit of our second wave of pricing, which will not be in place until the end of the second quarter. As we move into the second half of the year, we expect our inflation mitigation actions collectively along with the continued recovery of labor to result in margin progress and earnings recovery through the year. For the full year, we expect organic net sales to be minus 1% to plus 1%. And adjusted EBIT of minus 4.5% to minus 1.5% and adjusted EPS of minus 4% to flat. First, the adjusted fiscal 2021 results. The sale of Plum is estimated to have an impact of 1 percentage point on fiscal 2022 net sales. Overall, we had a positive start to the fiscal year, which was generally in line with our expectations, thanks to all the hard work by our teams. I'm truly grateful for their continued dedication and commitment and look forward to sharing our strategy to unlock our full growth potential at our Investor Day next week. We will now turn it over to the operator to take your questions. Thank you.

Andrew Lazar:

God morning, everybody.

Andrew Lazar:

Thanks for the question. I guess, I wanted to start off a little bit. The quarter came in a little bit differently than I think a bunch of people have modeled. It sounds to me like sales were more broadly in line with your expectations. And maybe consensus didn't sort of fleet take into account the severity of the year ago, the inventory replenishment and such. But it gross margin contraction was certainly less severe than we've modeled. So I'm trying to get a sense whether this was better than your sort of internal expectations? And if so, what drove that? And it sounds to me like your expectation is for year-over-year margin compression to be worse in 2Q than 1Q. I just want to make sure, I'm sort of hearing that correctly and perhaps what are the key drivers there? Thanks so much.

Andrew Lazar:

Thanks for that. And then just briefly, I guess, how do you feel like the company is positioned around heading into sort of the core, if you will, or the teeth [ph] of soup season with respect to retailers ability to supply what you think the demand will be the ability to be at your levels of expected levels of promotional activity in the market that you would normally hope to have the kind of pressure in the market at this time of year? Are you at a point where you feel like the soup season can be somewhat more normal in that regard with respect to like a retailer activity and not being at any sort of relative disadvantage, let's say, to competitors in the market for whatever reason?

Andrew Lazar:

Thanks so much. Looking forward to next week.

Operator:

Your next question is from Ken Goldman with JPMorgan.

Mark Clouse:

Hi, Ken.

Mark Clouse:

Yeah, it's interesting. We've talked about this a little bit before. But we are, I think, somewhat a unique portfolio in the sense that we have kind of this almost duality of benefit where economic factors more broadly and certainly snap I'd put into that bucket where we have puts and takes going kind of both ways. So you tend to see what I think a lot of people are referring to or talking about, which is pressure to perhaps trade down as those benefits move away or the just lower discretionary spend in general. Does that impact our Snacking business or some of the other segments we're in. And there is a little bit of that dynamic that I think we've modeled as we look at the balance of the year. But we also do well on the flip side where people have to be a little bit more pragmatic in decision making or they may be trading down from other categories into a category like soup, as an example. And traditionally speaking, one of the last things to always come off the list or some of the comfort items that we have in our snacking bundle. And so, I think although there will be some puts and takes, I feel pretty good about the balance of how our portfolio hold up in that kind of economic dynamic and profile. And as you rightfully said, it's a little bit given the duration of this period, it's a little bit of new territory that we're watching very, very closely and trying to make sure that those expectations are consistent with what we're seeing. But we've put a lot of thought into that and trying to reflect that in our outlook for the balance of the year. But I think, overall, I'd say a fairly balanced outlook.

Mark Clouse:

Yeah. I think I'll give you the Q1 kind of explanation first because I think that's important. And I'll let Mick kind of give you an outlook for the year. But as we navigated through Q1, we anticipated that we were going to have some supply challenges in select areas. And so although you see a decline in the first quarter, it's fairly surgical in nature. It really is against the places where we knew that we were going to be in a position where it was going to be a little bit harder to meet demand. At the same time, what we don't want to do is go below certain threshold levels that are going to put in any way, shape or form a jeopardy the progress that we've made in kind of the first kind of acquiring, but more importantly, the retention of a lot of these incremental households. And so even in Q1 on business, important businesses like Goldfish or Soup, Chunky in particular, if you haven't seen our Chunky ads, I'm not sure you've had any media on, but it's been really effective as you heard in our shares. And we want to make sure that we keep the pressure on there. I do think as supply comes back fully, and as we roll through the balance of the year, you'll see it more as a return to normality. And just to put that in perspective, our marketing and sales in the first quarter was right around 8% of net sales. We would prefer that from an ongoing basis to be in the 9% to 10% range. And I think that's closer to what you'll see as we go forward through the year. But Mick, maybe you can give a little bit of color on that outlook.

Ken Goldman:

Great. Thanks so much.

Bryan Spillane:

Hey. Good morning, everyone.

Bryan Spillane:

So first one for me, just quick on CapEx, bringing the capital spending expectation down for the year. Just what's underneath that, and is it - are we going to be shifting more of that, that CapEx, I guess, out to the out years?

Mick Beekhuizen:

So maybe I'll just comment quickly on that. So first of all, we're obviously still adjusting right to our - to the overall operating environment. And as Mark also described earlier, a big focus on making sure that we can fulfill demand and that we continue to focus on the supply. So as we refine kind of going into this year, our capital outlook, we thought it's more prudent to be closer to the $300 million. There is obviously also a continuous underlying focus of the organization on making sure that we get the right return on capital. And I think the organization has done a great job on continuing to make sure that that's the case. I do expect to your underlying question of shifting some of that shifting into the future. Listen, these are - a lot of these are projects that we believe that help us that help the overall business. So I do expect that some of this is then shifting into out 3 years.

Bryan Spillane:

Okay. And then thanks for that. And just maybe - just a quick follow-up on the commentary about price increases. In the last earnings call, in the Q&A, you talked about - or the discussion was around level of pricing in your fiscal second half would be in the ballpark of - or the neighborhood of 5% to 6%. And it sounds like now there's some incremental pricing, right? So additional pricing actions, I guess that you're planning now versus maybe what you were expecting back in last earnings call. So I just want to try to get a sense of magnitude, just what we're looking at in the back half of the year would be helpful.

Bryan Spillane:

Okay, great. Thank you.

Michael Lavery:

Good morning. Thank you.

Michael Lavery:

Just curious what your thinking is in your guidance relative to any potential impact from vaccine mandates. And they seem to be hitting some walls and so it's certainly not clear, it still come through. But obviously, you've called out labor pressure and costs. Just curious wherever that lands, from the mandate side, how it would compare to what your plans factor in?

Michael Lavery:

That's great. That's helpful. Thanks. And just - Ken stole my Snack question, but a follow-up on it for the EBT piece, of course, it's pretty well rolled off already and now sort of a couple of months into that. And it's interesting because it's specifically families with kids that would have been receiving that. And so just curious what, if anything, you feel like you're seeing already in terms of any response to that, and especially if it's maybe more kid-focused brand. Have you seen any impact on anything in the last few weeks that might be related to that?

Michael Lavery:

Really great color. Thanks for that and looking forward to hearing more next week.

Operator:

Your next question is from Robert Moskow with Credit Suisse.

Mick Beekhuizen:

Yeah, it's a great question. You're absolutely right. So we are projecting high single digit core inflation for the year. That's consistent with what we said previous quarters. So it's not a change compared to what our previous expectation was and is very much in line with what we've been looking at for fiscal 2022 all along. If you look at - to your point, the underlying drivers there, you see about 6% in Q1, high single digits for the full year. So you do have that accelerating pattern throughout the year. Why is that, that's largely driven by the fact that obviously our fiscal year breaks over two calendar years. And we have various contracts that reset in the second half of our fiscal year. So you see particularly in the January time frame, a lot of the ingredients and pack contracts that are being reset. And they obviously reset of a different commodity environment that they previously were [indiscernible] that. And that's what we are experiencing. So as a result, various of these contracts are obviously or at least, call it, a calendar year basis. So we are experiencing that I expect to do out the next calendar year. And maybe the other point to add to that is if you look at our overall coverage, is we're probably currently about 85% covered, which is a little bit higher than typically, but because of the volatility in the current environment, we thought that's prudent.

Robert Moskow:

Okay. Thank you.

Chris Growe:

Hi, good morning.

Chris Growe:

Hi. I just had a quick question to be kind of a follow-up on some of the earlier questions around pricing. In the second half of the year, if you think about pricing and other levers you have, the cost savings, can you offset inflation in that environment based on what you know today? Will the pricing be sufficient to help you achieve that?

Chris Growe:

Okay. That's helpful. Thank you. And a quick second question, which was can you - if you attempted to quantify how much some of the supply shortages hurt your sales in the quarter? And I guess I'd be curious, related to that, if there is, could you produce to demand in the second quarter? It sounds like you're going to be building inventory, and it sounds like there's a lot of different circumstances by brand. But overall, what's the condition of the supply chain? And are those supply shortages to what degree, they're hurting sales? Thank you.

Chris Growe:

Thank you.

Rebecca Gardy:

Good morning. and welcome to Campbell's Fourth Quarter and full-year Fiscal 2021 Earnings Conference call. I am Rebecca Gardy, Head of Investor Relations at Campbell Soup Company. Joining me today are Mark Clouse, Campbell's President and Chief Executive Officer, and Mick Beekhuizen, Campbell's Chief Financial Officer. Today's remarks have been pre-recorded. Once we conclude the prepared remarks, we will transition to a live webcast Q&A session. The slide deck in today's earnings press release has been posted to the Investor Relations section on our website, campbellsoupCompany.com. Following the conclusion of the Q&A session, a replay of the webcast will be available at the same location, followed by a transcript of the call within 24 hours. On our call today, we will make forward-looking statements that 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 or our SEC filings for a list of factors that could cause our actual results to vary materially from those anticipated in forward-looking statements. Because we use non-GAAP measures, we have provided a reconciliation of each of these measures to the most directly comparable GAAP measure in the appendix of this presentation. On Slide 4, you will see today's agenda. Mark will share his overall thoughts on our fourth quarter and full-year performance as well as an in-market performance by division. Mick will discuss the financial results of the quarter and the year in more detail, and then provide our guidance for the full-year fiscal 2022. And with that, I'm pleased to turn the call over to Mark.

Mick Beekhuizen:

Thanks, Mark. Good morning, everyone. Turning to Slide 19 for the fourth quarter organic net sales, which excludes the impact from the additional week and the impact of the sale of the Plum Baby Food and Snacks business, declined 4% as we cycled both the elevated demand in food purchases for at-home consumption and a partial retailer inventory recovery in the prior year. Compared to the fourth quarter of fiscal 2019, which we view to be more meaningful given the COVID -19 impact to prior-year, organic net sales increased 4% on a 2-year CAGR. Adjusted EBIT decreased 13% compared to the prior year to $267 million driven by lower sales volume, including the impact of the additional week in the prior-year quarter, and the lower adjusted gross margin partially offset by lower adjusted marketing and selling expenses and lower adjusted administrative expenses. Our adjusted EBIT margin was 14.3% compared to 14.6% in the prior year. Adjusted EPS from continuing operations decreased $0.08 or 13% versus the prior year to $0.55 per share, partially driven by the estimated $0.04 contribution from the additional week in fiscal 2020. For the full-year organic net sales, which excludes the impact from the additional week. Divestitures and the impact of currency were comparable to the prior year and grew 3% compared to fiscal 2019 on a 2-year CAGR basis. Compared to the prior year, Meals & Beverages, organic net sales decreased 1% driven by declines in foodservice, partially offset by growth in VA beverages. In Snacks organic net sales were flat as gains in our salty snacks portfolio, including Late July Snacks and Snack Factory Pretzel Crisps. and in Goldfish Crackers, were offset by declines in [Indiscernible] Sandwich Crackers and in partner brands within the Snyder's-Lance portfolio. Full-year adjusted EBITDA decreased 3% versus the prior year to $1.4 billion. The decline reflected a lower adjusted gross margin and lower sales volume, including the impact of the prior year's additional week, partially offset by lower adjusted marketing and selling expenses and higher adjusted other income. Our marketing and selling expenses represented 9.6% of net sales compared to 10.9% last year. The full-year 2021 adjusted EBITDA margin was 16.6%, compared to 16.7% in the prior year. Full-year adjusted EPS from continuing operations increased 1% to $2.98 per share. On the next slide, I'll break down our net sales performance for the fourth quarter. Organic net sales decreased 4% during the quarter, lapping an increase of 12% in the prior-year quarter when the demand for at-home consumption remained elevated and retailers partially recovered on the inventory. The organic net sales decline was driven by a 5 point headwind due to volume declines partially offset by favorable price and sales allowances and lower promotional spending, which each drove a 1 point gain in the quarter. The impact of 1 last week in the quarter subtracted 7 points, and the recent sale of Plum subtracted 1 point. All in, our reported net sales declined 11% from the prior year, stronger than anticipated as in-market demand remained elevated. Turning to slide 22, our fourth quarter adjusted gross margin decreased by 420 basis points from 35.6% last year to 31.4% this year, which was generally consistent with our expectations. Mix and operating leverage had a negative impact of approximately 70 basis points and 40 basis points respectively, on gross margin. As we continue to transition from last year's elevated demand, net pricing drove 100 basis points improvement due to lower levels of promotional spending in the quarter, as well as favorable price and sales allowances which do not yet reflect the price increases effective first quarter of fiscal 2022. Inflation and other factors had a negative impact of 640 basis points, with slightly more than half of the decline driven by cost inflation. Its overall input prices on the rate basis increased by approximately 5%. The remaining impact was driven by higher other supply chain costs, largely due to last year's manufacturing cost efficiencies related to higher production levels to service the elevated demand as well as lower mark-to-market gain on outstanding commodity hedges, partially offset by lower COVID-19 related costs. related costs. Our ongoing supply chain productivity programs contributed a 150 basis point to gross margin, partially offsetting these inflationary headwinds. Our cost savings program which is incremental to our ongoing supply chain productivity program added 80 basis points to our growth margin. Moving onto other operating items, adjusted marketing and selling expenses decreased $91 million or 34% in the quarter on a year-over-year basis. This decrease was driven by lower advertising and consumer promotion expenses, lower selling expenses, and lower marketing overhead costs. A&C declined 52%, reflecting our elevated pandemic-driven level of investment in the prior year to attract and retain new households. However, A&C was comparable to the fourth quarter of fiscal 2019. Overall, our adjusted marketing and selling expenses represented 9.3% of net sales during the quarter, a 330 basis point decrease compared to last year. Adjusted administrative expenses decreased $30 million or 18%, with approximately 1/2 of the decrease driven by the estimated impact of the additional week in the prior-year quarter. The balance of the decrease reflected lower general administrative costs, higher charitable contributions in the prior year, and benefits associated with our cost savings initiatives, partially offset by higher IT costs. Adjusted administrative expenses represented 7.4% of net sales during the quarter. A 60 basis point decrease compared to last year. Moving to the next slide. We have continued to successfully deliver against our multiyear enterprise cost savings initiatives. This quarter we achieved $25 million in incremental year-over-year savings, which came in ahead of our expectations, resulting in full-year savings of $80 million with the majority of the savings from the Snyder's-Lance integration. We remain on track to deliver our cumulative savings target of $850 million by the end of fiscal 2022. On slide 25, we are providing a total Company-adjusted EBIT bridge to summarize the key drivers of performance this quarter. As previously mentioned, adjusted EBIT declined by 13% as the net sales declined, including the impact of the additional week in the prior-year quarter and the 420 basis points gross margin contraction resulted in an $84 million and $77 million EBIT headwind respectively. Partially offsetting this was lower adjusted marketing and selling expenses contributing 330 basis points to adjusted EBIT margin, and lower adjusted administrative and R&D expenses contributing 50 basis points. The estimated impact to EBIT from the additional week in fiscal 2020 was $22 million. Overall, our adjusted EBITDA margin decreased year-over-year by only 30 basis points to 14.3% The following chart breaks down our adjusted EPS change between our operating performance and below the line items, a $0.10 impact of lower adjusted EBIT, and a $0.01 impact of higher adjusted taxes partially offset by a $0.03 favorable impact from lower interest expense resulted in better than expected adjusted EPS of $0.55. down $0.08 from $0.63 per share in the prior year of which an estimated $0.04 was driven by the additional week in fiscal 2020. In Meals & Beverages declines across U.S. retail products, including U.S. Soups, Prego pasta sauces, and Pace Mexican sauces led to a 9% decrease in fourth-quarter organic net sales compared to the prior year. The decline was driven by volume decreases in U.S. retail due to last year's partial retail inventory recovery and increased demand of food purchases for at-home consumption in the prior year quarter. However, versus the comparable period in fiscal 2019, organic net sales increased 10%. In the fourth quarter of fiscal 2021, sales of U.S. Soups decreased 21%, 7 points of which were driven by the additional week in the prior year, while at the same time cycling a 52% increase in the prior-year quarter, operating earnings for Meals & Beverages decreased 30% to $129 million. The decrease was primarily due to sales volume declines, including the additional week and a lower gross margin partially offset by lower marketing and selling expenses, as well as lower administrative expenses. The lower gross margin resulted from higher other supply chain costs, net of lower COVID-19 related costs, higher cost inflation, including higher freight costs, and ingredients and packaging inflation, and unfavorable product mix, partially offset by the benefits of supply chain productivity improvements. Overall, within our Meals & Beverages division, the fourth-quarter operating margin decreased year-over-year by 290 basis points to 15.2%. Within Snacks, organic net sales increased 1% to $1 billion driven by volume gains in Goldfish Crackers and our salty snack s portfolio including Snack Factory PetroQuest's, Snyder's of Hanover pretzels, and Cape Cod potato chips, partially offset by declines in partner brands and fresh bakery. Favorable price and sales allowances and lower promotional spending also contributed to sales growth. Compared to the fourth quarter of fiscal 2019, Snacks organic net sales grew 7%. Operating earnings for Snacks increased 7% for the quarter, driven by lower marketing and selling expenses partially offset by sales volume declines, including the impact of the additional week and a lower gross margin. The lower gross margin resulted from higher cost inflation and other supply-chain costs net of lower COVID-19 related costs, partially offset by the benefit of cost savings initiatives, supply chain productivity improvement, favorable price, and sales allowances, and lower promotional spending. Overall, within our Snacks division, the fourth-quarter operating margin increased year-over-year by 170 basis points to 14.2%. I'll now turn to cash flow and liquidity. Fiscal 2021 cash flow from operations decreased from $1.4 billion in the prior year to $1 billion primarily due to change in working capital mostly from a significant increase in accounts payable in the prior year and lower accrued liabilities in the current year. Our year-to-date cash for investing activities was reflective of the cash outlay for capital expenditures of $275 million, which was slightly lower than the prior year, driven by discontinued operations and the net proceeds from the sale of Plum. Our year-to-date cash outflows for financing activities were $1.7 billion, reflecting cash outlays due to dividends paid of $439 million as we continue to focus on delivering a meaningful return of cash to our shareholders. Additionally, we reduced our debt by $1.2 billion. We ended the year with cash and cash equivalents of $69 million. In June, the Board authorized a $250 million anti-diluted share repurchase program, to offset the impact of dilution from shares issued under our stock compensation programs. As you saw in today's press release, we reinstituted our strategic share repurchase program with a $500 million program replacing the suspended $1.5 billion program which has been canceled. The Company expects to fund the repurchases out of its existing cash flow generation. Turning to Slide 30. As covered in our press release, we're providing guidance for full-year fiscal 2022. We expect continued uncertainty around the duration and effects of the pandemic on industry-wide supply chain networks, resulting in accelerating inflationary pressures and a constrained labor market. We expect to partially mitigate these headwinds with well-executed pricing and planned productivity initiatives, as well as our cost savings program. First-half margins, particularly in the first quarter, will continue to be impacted by transitional headwinds cycling prior year's elevated sales and scale efficiencies, with comparisons easing in the second half of the fiscal year. We expect organic net sales to be minus 1 to plus 1% adjusted EBIT of minus 8 to minus 5% and adjusted EPS of minus 8 to minus 4% versus the fiscal 2021 results. Fiscal 2021 results include a twelve cents benefit from market to market gains on outstanding commodity hedges, and an approximate $0.02 adjusted EPS contribution from Plum. For additional context on mark-to-market, please refer to today's Form 8-K. Importantly, when considering these items, the upper end of our fiscal 2022 adjusted EPS range is in line with fiscal 2021 performance. As you see on Slide 31, we expect core inflation for the year to be high single-digits with a more pronounced impact in the second half of fiscal 2022 which we plan to address with price increases and trade optimization, supply chain productivity improvements, and cost savings initiatives, and a continued focus on discretionary spending across the organization. Moving to additional assumptions, we expect ongoing supply chain productivity gains of approximately 2% to 3% for the year, excluding the benefit of our cost savings program. As previously mentioned, we expect to continue to progress on our cost savings program and expect to deliver an incremental $45 million in fiscal 2022, keeping us on track to deliver 850 million by the end of the fiscal year. Additionally, we expect a net interest expense of $190 million to $195 million and an adjusted effective tax rate of approximately 24%, which is largely in line with fiscal 2021. While cognizant of our current operating environment, we expect to continue to invest in the business, targeting capital expenditures of approximately $330 million which includes carryover projects from fiscal 2021. Additionally, we expect the net of adjusted administrative expenses and adjusted other income to increase as a percentage of net sales, reflecting the planned information technology investments and related costs, and the cycling of lower administrative items in the prior year. All-in, we expect year-over-year operating margin improvement in the second half of the year. Overall, as Mark said, we had a positive finish to the year. We are truly grateful to our teams, and for their continued dedication and commitment as we head into fiscal 2022. And with that, let me turn it over to Mark.

Operator:

[Operator Instruction] One moment, please, for our first question. Your first question comes from the line of Andrew Lazar of Barclays. Your line is open.

Mark Clouse:

Sure. Thanks, Andrew. That's a full question, so let me -- let me try to piece out a couple of different elements in there. First, why don't we talk a little bit about the kind of the basis of the assumptions for our guidance and how we're thinking about it. So first let's talk a little bit about the top-line. I think on part of the -- part of the composition of the year is going to be a little bit of a tale of two halves because I do foresee a first half that's going to feel a little bit more like what we've been experiencing in the fourth quarter while seeing sequential improvement as pricing comes into play, which is obviously a significant contributor as we go forward. And then in the back half, even though we do expect really driven on the back of the packaging inflation as it relates to steel in particular as our contract turns on the calendar year. But even with that in mind, we're expecting improvement in the back half and overall momentum as we exit the year. So, I think when you think about the top line next year, I do think that we see terrific momentum in our business today. We accelerated that momentum in Q4, we expect to continue to see positive in-market performance as we move forward. We are going to lap a pretty significant inventory replenishment that occurred primarily in the first quarter, but through into the second quarter. But I think the underlying health of the business, we expect to continue to be positive. And of course, sadly, with COVID resurgence, I think some of the consumer dynamics that supported demand are likely going to be with us for a while longer. I also continue to be very encouraged by the retention of households, and really the sustainment of repeat levels that are very broad-based across our portfolio. Obviously, Soup is one that we're watching very closely. And again, I don't think we've ever had, or at least not in recent history, a sustained period of progress so broadly across that part of our business. And with what we're bringing relative to innovation and other elements, we're feeling very good about that. I do think a governor a little bit on this and a recognition of a little bit of then we'll wire is your guide the way it is. because we also have to be mindful of what is a very significant pressure on labor that we're experiencing right now. And as I talked about that a little bit in the last quarter, I think we've seen that sustained through the fourth quarter and expect to still be wrestling with that. Although, I think we're taking some terrific actions and we're seeing some progress in some areas. Arguably, one of the toughest moments, certainly that I've seen as it relates to labor. We're running about 2 times our normal vacancy rates. and as a translation into what that means, think about it as around somewhere in the neighborhood of 6% of our positions that are open, either vacant or absent, and that is making it tougher to fully meet the demand. So I think you sense or feel a little bit of that balance in our topline projections for the year. And I'll say this a couple of times, but if you go top of the range to the bottom of the range, it kind of reflects how we do on that -- in that area. And so that's how we've thought about the topline. When you get to margin, it's more distinctively the first half, second half discussion, were really primarily in the first half, but really more so even in the first quarter, as we see pricing come into fruition. Of course, inflation now as we leave the covered positions of '21 into '22, we definitely are seeing higher inflation, but also feeling very good about the traction we're getting relative to the pricing actions that we put in place. We've got good, strong productivity that we think will certainly help mitigate that as well. But certainly, you're going to be in that transitional quarter of pricing coming in with higher inflation. And then as pricing's fully in place, we expect that to stabilize. As we did note, as steel prices have gone up significantly, we are expecting a tick up and inflation in the back half, not enough to offset the progress in the other areas and the comparable numbers that we're going to be lapping but generally a little bit more mitigation and that's although we've got good programs, I think we've got a good plan for it. That's a pretty significant driver as we look through the balance of the year and then what we've been calling transitional cost, which again in the fourth quarter we're fairly consistent with what we saw in the third quarter. We expect that to be consistent in the first quarter and then begin to mitigate as we move forward from there. So I do think as the year unfolds. I feel like we are assuming that as we both lap as well as see some relief in a couple of areas while we get pricing fully in place, I think we have a fairly balanced approach. And not unlike what I was talking about around top-line, I think the high end and the low end of the ranges of guidance are a little bit reflective of what variability could occur relative to where we are seeing inflation or coverage of that inflation to give you a sense of kind of how we've thought about the year and then of course, as you dropped the EPS, a little less difference between where EPS and EBITDA are relative to what we see the kind of happening below the line. So that -- I don't know, from a macro basis, that's kind of the way we are thinking about the pieces. Maybe worth just going back to you to see if you've got any specific element you want to dive into a little bit more. I know this is a big question for the day, though.

Mark Clouse:

Oh, yes --

Mark Clouse:

Yes. So let me hit that would head on and maybe a good way to start with it is to give you a little bit of an explanation on Q4 because I know as you unpack with numbers. And again, I think we foreshadowed this, but it's important to remember that in the fourth quarter of '20. We were in a position where we had a significant opportunity to kind of double down and invest in a more significant way, which by the way, I'm very glad that we did because as I've said before, I think it did 2 things; gave us some momentum as we were solidifying relationships with a lot of new consumers, especially millennials. But it also gave us a great opportunity to learn and figure out what was working, what wasn't working, which helped us really dial into the most efficient through the highest returning spends. As you flip to the page to Q4 of '21, you see a significant drop in marketing and selling. But underpinning that, what you have is essentially advertising and marketing that are at about the same level as Q4 '19. And as you've seen our results behind it, and again, arguably always a little bit of a lag. But as you see our results relative to it, I think I feel great about the investment levels overall that we have. And as you think about going into next year, I do think you may see a little bit of movement between the quarters, but overall from marketing spend, I think we're at a good level. We may have a little bit of incremental investment in a couple of areas as we're adding innovation and working through the balance of the year, but it'll be a relatively stable investment year. We're not expecting marketing to be a source of opportunity to offset inflation at all, right? We feel good about the levels we're at and we want to make sure that we continue to refine the effectiveness of it, but we're committed to spending behind the businesses. I mean, I think the last thing in the world we'd want to do is slow down the momentum that we're seeing in-market, because it's certainly been, for us, a bit of an unprecedented period of really broad-based market share expansion and growth in key businesses. And so we want to -- we know long-term coming out of this thing, that's what's going to matter most. And so, we're going to be very guarded on it, even though I recognize on paper Q4 needs a little bit of context. But relative to how we're thinking about it going forward, we're expecting a very stable investment.

Operator:

Your next question is from the line of Bryan Spillane from Bank of America. Your line is now open.

Mark Clouse:

Hey, Brian.

Mick Beekhuizen:

That's gross, Bryan.

Mark Clouse:

I'll let Mick walk through kind of our coverage position and then I'll give you a little bit of qualitative view of it. I totally understand the question and there's a little bit of mix here, I would say, of certainty and pragmatic forecast positions as we look at the -- at anticipating some variables that aren't necessarily locked down, but that I think we have a good sense of where we'll likely be.

Mark Clouse:

Yeah. And I'd say of that remaining 1/3, as you know, we do have a pretty significant piece of this which is relative to our cans as it relates to steel prices. And so what we're doing there is using a -- and that gets really locked in more at the turn of the calendar year. Although, I do think we have a much clearer picture of the kind of where we are, and our work through that as we sit here today. But we've got an economic forecast that I think is generally consistent with where prices are today. You are right, the resin is another area that we've seen some tick up in cost as well, but I think we've covered that. And again, as we navigate through the balance of the year, I think you should expect us to continue to use the full tool bag to cover that, whether it's some combination of promotion and trade spending, some price pack architecture that we've worked on, as well as the likelihood that there may be some places where we're coming back with a second wave of pricing designed to match very clearly in a very transparent way where we have some of these more explicit costs. I would say, I think that will be much more surgical and specific than the pricing that we already have in place. But I do think, as we look at the outlook, we see a mix of those variables in our plan to help us cover that.

Mick Beekhuizen:

No, that's more related to the raw and packaging side of things. And then, we have a pretty decent chunk of our freight and logistics covered as well at this point in time with contracts that we put in place.

Bryan Spillane:

Okay. Great. Thanks, Mark. Thanks, Mick.

Ken Goldman:

Thanks so much. Mark, last quarter when you were asked about pricing, you said a number of things, but one thing was that you were, I think being thoughtful, strategic about reflecting critical price thresholds, I think you said the last thing you want is to shut down growth and share. And I think some people came away from that with the idea that you want to have some pricing, but a little bit of a balanced approach. I'm just curious if your thoughts on that have evolved at all, right? Maybe you've seen elasticity a little bit lower than you expected across food at home, maybe a little bit more inflation. I'm just trying to get a sense; are you willing to be a little bit more aggressive on pricing just given some of the changes you've seen in the last few months, or do you still want to kind of take that balanced approach to things?

Ken Goldman:

Okay. Great. I'll let it go there. Thank you.

Operator:

Your next question is from the line of Michael Lavery from, Piper Sandler. Your line is now open.

Mark Clouse:

Yes. We're doing a lot more what I would say, iterative collaboration with suppliers to understand more in real-time what they're seeing so that we can plan appropriately. And so that -- what that implies is that as we've seen the increase occur, our outlook or our reflection on cost for the year includes that. We're not assuming some big relief on steel prices as we go through the year. I do think what we're going to want to do is probably work with suppliers to make sure that we're able to accommodate variability that may be occurring throughout the year. But I think from a planning standpoint, we've taken what I think is probably balanced to conservative in our position. But of course, I think the volatility around, in particular, that cost has been quite significant, as you know. But I think no one's banking on a reversal of that in the current forecast that we've got.

Mark Clouse:

You know, it's a good -- so, I would just say we're having, as you would expect, pretty meaningful conversations on that right now. And I think, again, philosophically, my perspective on this is predictability is really the priority, and so I would want to be careful and balanced in our ability to have certainty versus banking on something going in a better direction. So generally speaking, I'm going to want to know what we're dealing with. But I also think you're right. It is certainly somewhat of an unprecedented window. And so how do you think about where there are floors and ceilings to certain things, maybe a conversation that we continue to have. Hopefully, that helps but a little bit of a work in progress. But I think, for now, assuming kind of not a major change, I think is probably a pretty prudent position.

Operator:

Your next question is from the line of Robert Moskow from Credit Suisse. Your line is now open.

Mark Clouse:

You're up.

Mark Clouse:

Yeah.

Mark Clouse:

So you're in the right ballpark. I'd say a little bit lower as it relates to the full year and back half inflation, and then on pricing, I think as you take all of the variables into account, as we've said before, we're probably somewhere in the middle, single digits in that area. Again, that obviously incorporates a variety of tools, but that's a pretty good assumption relative to where we are.

Mark Clouse:

Yeah. I think we've looked at the -- it is a set of variables that are in there. Again, we talked a little bit earlier about elasticities and a little bit of growing confidence as it relates to our ability to navigate pricing perhaps without seeing some of the historical levels that would translate necessarily into the 5%. I think you're working a little bit of a couple of different puzzle pieces together. One, we continue to imagine that we'll be investing, we're adding innovation, we are, on the flip side lapping some inventory replenishment that we saw at the beginning of last year. But I think the net of it is, we do expect that to be -- to result in a relatively flat year for top-line, and that's kind of reflected in our ranges. And again, if we -- remember in the backdrop of all this too, Rob is a little bit of the labor situation and how we are going to be able to meet the level of demand and our ability to navigate that. I think we're a lot smarter, a lot more experienced in that now than we were perhaps a year and a half ago when the journey began. But at the same time, again, I would say, consistent with many of my peers, the labor challenges that we're seeing are certainly tougher than I ever remember. And I think the combination of those variables was how we're getting to the outlook. But I don't think we're leaning out on any of those assumptions. I think we've been fair like I said, pragmatic or balanced in our view. But I think there's going to be put and takes. And so although I think you may see pressure downward as it relates to pricing, I think there is likely going to continue to be a catalyst for growth and progress as well. And remember, some of our businesses, especially like our Snacks businesses, have been pretty steady contributors of growth, even though a little bit of the ups and downs as we've been navigating the pandemic. So, I think there's going to be a mix of variables, but I think where we've kind of pegged that's probably about right.

Mark Clouse:

Yes. Thanks, Rob.

David Palmer:

Just a follow-up to that question from Rob. Pricing net of inflation through the year, how should that trend? It sounds like the second half's higher in inflation. Is pricing going to track with that, or perhaps be accelerating more through the year as such, the relationship gets better for gross margins? And I have a quick follow-up.

David Palmer:

And then just a follow-up on Biscuits and Snacks. With the roughly 13.5% segment margin, it seems like there would be some reasons for that to get better over time that were independent of this cost absorption year. Lapping a supply chain for one, plus all the improvements that you've been making. Could you perhaps help us squint and look through the inflation cycle and think about what could be happening there from a segment perspective basis on margins? Thanks.

David Palmer:

That's great. Thank you.

Rebecca Gardy:

Great, thank you. The IR team is available for follow-up discussions. And thank you for your time and interest in Campbell Soup Company.

Rebecca Gardy:

Good morning and welcome to Campbell’s third quarter fiscal 2021 earnings presentation. I am Rebecca Gardy, Vice President of Investor Relations. Following the completion of this call, a copy of this presentation and a replay of the webcast will be available at investor.campbellsoupcompany.com. A transcript of this earnings conference call will be available within 24 hours at investor.campbellsoupcompany.com. 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 risks. Please refer to Slide 3 or our SEC filings for a list of factors that could cause our actual results to vary materially from those anticipated in forward-looking statements. Because we use non-GAAP measures, we have provided a reconciliation of each measure to the most directly comparable GAAP measure, which is included in the appendix of this presentation. On Slide 4, you will see today’s agenda. With us on the call today are Mark Clouse, Campbell’s President and CEO; and Chief Financial Officer, Mick Beekhuizen. Mark will share his overall thoughts on our third quarter performance and our in-market performance by division. Mick will discuss the financial results of the quarter in more detail and review our guidance for the full year fiscal 2021. Mark will then make some closing remarks before moving to an analyst Q&A. And with that, I am pleased to turn the call over to Mark.

Mick Beekhuizen:

Thanks Mark. Good morning, everyone. Turning to Slide 12, as Mark just shared, our third quarter results were impacted by last year’s demand surge related to the start of the COVID-19 pandemic as well as the gross margin impact due to pronounced inflation, our transition out of the COVID-19 environment and some executional pressure as we continued to advance our transformation agenda, primarily in our Snacks division. During the quarter, organic net sales declined 12% and adjusted EBIT decreased 27%, driven by lower sales volume and a lower adjusted gross margin partially offset by lower marketing and selling expenses. Adjusted EPS from continuing operations decreased 31% to $0.57 per share, primarily reflecting the decrease in adjusted EBIT. Year-to-date, our organic net sales increased 1%, driven by lower promotional spending in both divisions. Meals & Beverages increased 1%, mainly driven by growth in U.S. soup and V8 beverages, partially offset by declines in foodservice. In Snacks, organic net sales were flat as declines in Lance sandwich crackers and in partner brands within the Snyder’s-Lance portfolio were offset by gains in our salty snacks portfolio and our fresh bakery product. Year-to-date adjusted EBIT of $1.14 billion was comparable to prior year, as a lower adjusted gross margin and increased adjusted administrative expenses were offset by lower adjusted marketing and selling expenses, higher adjusted other income and sales volume gains. Within marketing and selling expenses, lower selling and other marketing costs were partially offset by a 3% increase in advertising and consumer promotion expense, or A&C. Year-to-date, our adjusted EBITDA margin was 17.2% compared to 17.3% in the prior year. Adjusted EPS from continuing operations increased 4% to $2.43 per share, primarily reflecting lower adjusted net interest expense. I will review in the next couple of slides our third quarter results in more detail and provide revised guidance for the remainder of fiscal 2021, reflecting these results and our expectation for sustained inflationary pressures through the remainder of the year. Our organic net sales decreased 12% during the quarter lapping the prior year organic net sales increase of 17% when the demand for at-home consumption surged at the onset of the COVID-19 pandemic. Compared to the third quarter of fiscal 2019, organic net sales grew 3%. Our adjusted gross margin decreased by 290 basis points in the third quarter from 34.7% to 31.8%. On the slides, you will see the various items bridging the year-over-year change in our overall gross margin. Now, let me tie it back to Mark’s earlier comments, which excludes the 250 basis points net benefit from mark-to-market adjustments on outstanding commodity hedges, included in inflation and other in the bridge. First, external factors led to about one-third of the year-over-year decrease in margin. These external factors included approximately 290 basis points of inflation and some temporary disruption from the Texas storm back in February. Both reflected inflation and other in the bridge. Cost inflation was approximately 4% on a rate basis, which was higher than anticipated, largely driven by freight rates. Partially offsetting these headwinds was our ongoing supply chain productivity program, which contributed 150 basis points to gross margin and included initiatives, among others, within procurement and logistics optimization. Second, headwinds related to our transition into the post COVID-19 operating environment represented about half of the gross margin decline as we transitioned from last year’s demand surge, mix and operating leverage, each had an approximate 110 basis point negative impact on gross margin in the third quarter. Net pricing drove a positive 30 basis point improvement. The remainder were incremental other supply chain costs within inflation and other such as increased costs associated with co-manufacturing to support supply and distribution recovery. Third, executional challenges, which represented the remainder of the decline were mostly incremental other supply chain costs within inflation and other. These costs were mainly related to the transformation of our Snacks division and were partially offset by our cost savings program, which added 60 basis points to our gross margin. Moving on to other operating items, marketing and selling expenses decreased $37 million or 15% in the quarter. This decrease was driven by lower A&C, lower incentive compensation, lower selling expenses and benefits of cost savings initiatives. Overall, our marketing and selling expenses represented 10.2% of net sales during the quarter compared to 10.7% last year. As a percentage of net sales, total A&C was comparable to the prior year quarter. Adjusted administrative expenses decreased $2 million or 1% driven primarily by lower incentive compensation partially offset by higher benefit related costs. Adjusted administrative expenses represented 7.2% of net sales during the quarter, an 80 basis point increased compared to last year. Moving to the next slide, we have continued to successfully deliver against our multi-year enterprise cost savings initiatives. This quarter, we achieved $20 million in incremental year-over-year savings resulting in year-to-date savings of $55 million. We expect an additional $20 million in the fourth quarter to deliver an aggregate $75 million of cost savings for the fiscal year with the majority of the savings from the Snyder’s-Lance integration. We remain on track to deliver our cumulative savings target of $850 million by the end of fiscal 2022. On Slide 17, we are providing a total company adjusted EBIT bridge to summarize the key drivers of performance this quarter. As previously mentioned, adjusted EBIT declined by 27%. The previously mentioned net sales decline resulted in a $88 million EBIT headwind, while the 290 basis point gross margin decline resulted in a $58 million EBIT headwind. Both were partially offset by lower marketing and selling expenses. Overall, our adjusted EBIT margin decreased year-over-year by 290 basis points to 14.3%. The following chart breaks down our adjusted EPS growth between our operating performance and below-the-line items. Adjusted EPS decreased $0.26 from $0.83 in the prior year quarter to $0.57 per share due to the negative $0.26 impact of adjusted EBIT as slightly lower interest expense was offset by slightly higher adjusted taxes. In Meals & Beverages, organic net sales decreased 15% to $1 billion, primarily due to declines across U.S. retail products, including U.S. soup and Prego pasta sauces, as well as declines in Canada and foodservice. Sales of U.S. soup decreased 21% due to volume declines in condensed soups, ready-to-serve soups and broth, lapping a 35% increase in the prior year quarter. For Meals & Beverages, volume decreased in U.S. retail, driven by lapping increased demand of food purchases for at-home consumption at the onset of the COVID-19 pandemic in the prior year quarter when organic net sales increased 21%. Compared to the third quarter of fiscal 2019, organic net sales in Meals & Beverages grew 3%. Operating earnings for Meals & Beverages decreased 35% to $179 million. The decrease was primarily due to sales volume declines and the lower gross margin partially offset by lower marketing and selling expenses. The lower gross margin resulted from higher cost inflation, including higher freight costs, other supply chain costs such as external sourcing and the weather-related disruption at the beginning of the quarter, reduced operating leverage and unfavorable product mix partially offset by the benefits of supply chain productivity improvements. Overall, within our Meals & Beverages division, the operating margin decreased year-over-year by 550 basis points to 17.2%. Within Snacks, organic net sales decreased 8%, driven by volume declines within our salty snacks portfolio, including Pop Secret popcorn, Cape Cod potato chips and Snyder’s of Hanover pretzels, as well as in Lance sandwich crackers, partner brands and fresh bakery. Volume declines were partially driven by lapping increased demand of food purchases for at-home consumption at the onset of the COVID-19 pandemic in the prior year quarter when organic net sales increased 12%. Compared to the third quarter of fiscal 2019, Snacks organic net sales grew 3%. Operating earnings for Snacks decreased 29% for the quarter, driven by a lower gross margin and sales volume declines, partially offset by lower marketing and selling expenses and lower administrative expenses. The lower gross margin resulted from higher cost inflation and other supply chain costs, reduced operating leverage and unfavorable product mix, partially offset by the benefits of supply chain productivity improvements. Overall, within our Snacks division, the operating margin decreased year-over-year by 350 basis points to 11.5%. I will now turn to our cash flow and liquidity. Fiscal year-to-date cash flow from operations decreased from $1.1 billion in the prior year to $881 million, primarily due to changes in working capital principally from lower accrued liabilities and lapping significant benefits in accounts payable in the prior year. Our year-to-date cash for investing activities were largely reflective of the cash outlay from capital expenditures of $190 million, which was $30 million lower than the prior year, primarily driven by discontinued operations. Our year-to-date cash outflows for financing activities were $1.4 billion, reflecting cash outlays due to dividends paid of $327 million. Additionally, we reduced our debt by $1 billion. We ended the quarter with cash and cash equivalents of $209 million. As you saw in our press release, given the continued strong cash flow generation and progress regarding the reduction of our leverage, in addition to the increase of our dividend announced in December, the Board of Directors authorized a new anti-dilutive share repurchase program of up to $250 million to offset the impact of dilution from shares issued under our stock compensation programs. The company’s March 2017 strategic share repurchase program remains suspended. Turning to Slide 22, as covered in our press release, we are updating guidance to reflect our third quarter results and the impact of the sale of the Plum Baby Food and Snacks business, which was completed on May 3, 2021. In the fourth quarter, we expect more pronounced inflationary pressures to negatively impact margins while pricing actions take hold in the beginning of fiscal 2022. In addition, although we expect to make progress on the transition into the post COVID-19 environment, it will remain a headwind from a margin perspective. While we expect gross margin headwinds to persist through the fourth quarter, we expect a sequential improvement of our EBIT margin relative to prior year, due to easier comparables, improved execution and normalizing marketing investments. We expect net sales for fiscal 2021 to decline 3.5% to 3% excluding the impact from the 53rd week in fiscal 2020 and the impact of the European Chips and Plum divestitures, we expect organic net sales to decline 1.2% and to minus 0.7%. To put our fiscal 2021 organic net sales guidance into perspective, at the midpoint of our guidance range, we expect fiscal 2021 to be 6% above fiscal 2019. We expect adjusted EBIT of minus 5% to minus 4%. We expect net interest expense of $210 million to $250 million and an adjusted effective tax rate of approximately 24%. As a result, we expect adjusted EPS of $2.90 to $2.93 per share, representing a year-over-year decline of minus 2% to minus 1% to the prior year. The EPS impact of the 53rd week in fiscal 2020 was estimated to be $0.04 per share. To put our fiscal 2021 EPS guidance into perspective, at the midpoint of our guidance range, we expect fiscal 2021 to be in line with fiscal 2020, considering the impact of the 53rd week and 27% above fiscal 2019 adjusted EPS. Regarding capital expenditures, we now expect to spend approximately $300 million for the full year, which is below previous expectations, driven by the impact from COVID-19 on the operating environment. In closing, I want to reiterate Mark’s conviction in the long-term performance of Campbell. We are working diligently to deliver the results we know we are capable of delivering. And I remain optimistic about our strategy, our team and the underlying strength of our brands. And with that, let me turn it back to Mark.

Operator:

Thank you. [Operator Instructions] We have our first question, comes from the line of Andrew Lazar from Barclays. Your line is open. Please go ahead.

Mark Clouse:

Hi, Andrew. Good morning.

Mark Clouse:

Yes. Great question, Andrew. Let me start with Q4. And then, obviously, we will stop short to kind of giving a lot of detail on ‘22. But I’ll give you a perspective on kind of how we see that and how we thought about the variables that we talked about for this quarter affecting the business going forward. But first on Q4, I do – again, I’m always – in the current environment we’re in, certainly, we have had a couple – tough to predict a couple of the variables we’ve seen, but I do feel good that what we experienced in Q3 and how that translates into Q4, we’ve done a very good job of connecting those dots. And I do think you’ll see sequential improvement for a variety of reasons. First, I think we’re not going to have the winter storm. And just as a perspective, closing the Paris facility for 2 weeks in Texas, that ended up being right around a $10 million additional headwind in Q3 that we obviously have not anticipated is part of the reason that we were off our expectations. So clearly, we’re not going to have that circumstance as we go into Q4. I think the second thing is the comparable numbers in Q4 are just an easier comp, right? So you’ve got higher COVID costs in Q4 a year ago, you also have the opportunity to, as we’ve said all along in the back half, that we’d moderate marketing spending to kind of equate to the percent of net sales. And so that will give us a bit of a tailwind as well in the fourth quarter. And as I talked about some of the transformational kind of execution issues on snacks, and again, just as a little bit of deeper perspective on that, in the third quarter, it was really – I’ve been very proud of that team and done an amazing job through the integration from my perspective. I do think in the third quarter, the accumulation of initiatives, we cut over to SAP, we closed our Columbus, Georgia facility, we had three major capacity expansion projects going on in the backstop of COVID and not in a way of an excuse, but certainly I think that put some added pressure on an already tough quarter for us as it related to Snacks. But as we look forward, we have added the right resources, we’ve staged this the right way. We’re through some of that work. And so we expect that executional headwind that we saw in the third quarter to really kind of be behind us as we go through the fourth quarter. So that’s really the reason why we see the sequential improvement. And even on operating leverage and some of the things that were a bit bigger in nature in third quarter, I think, for that that carries over, we’ve got good estimates now. So we can kind of see how that operation works. We’re now running all of the SKUs that we had simplified a year ago. I think that was a little bit of the dynamic as we added those back, introduced a little bit of new complexity back into the supply chain, continuing to push hard through some of the labor challenges that we’ve had. So I think you’ll see that mitigate, but still be present. And so I think when you think about ‘22, obviously, the things I just described executionally, I think, will be behind us. As far as inflation goes, we feel very good about the progress we’re making on pricing. The conversations that we’re having with customers are very constructive. I’m really grateful that we’ve had this time to really build equity. I mean, this is probably the healthiest the portfolio has ever been going into that conversation. So that’s a good thing. I would be remiss not to say though, that inflation is a little bit of a moving target right now. And so although I feel great about what we’re doing, I think I kind of want to wait for the next quarter to see kind of where we’re landing on a couple of the variables and a couple of the commodities. And then as it relates to kind of this transitional headwind, I think it’s a little bit of a mixed bag. Obviously, we’re going to be working hard to address those areas, but we will cycle through the COVID environment at least into the first half of next year. So we will give you a lot more granularity on it, but I think it’s a very balanced position. Certainly, I think Q3 very much is the outlier, but I do think some of these variables will continue, but we’ve got very good plans against them. So hopefully, that helps to put it into a little bit of context.

Mark Clouse:

Yes. So yes, let me make it – let me break it down in as very – hopefully, a very simple answer. I think there are three distinct things that we’re watching occur in that bucket. The first, it is really just lapping, right? That is the kind of cycling of a network that’s fully loaded and that leverage from year-to-year. The second piece, I think, that we saw transitionally in Q3. And again, I think these become more mitigated cost going forward. But we have really continued to see labor as a bigger challenge than I think we had expected it to be. And of course, that has a bit of a knock-on effect that as that labor has not enabled us to kind of meet the full targets on production, we’ve had to go to some higher-cost co-mans that we consciously invested in to make sure that supply and inventory was where we needed it. But those three variables of kind of leverage, labor and the external investment in co-manufacturers, is what we’re describing as that transitional bucket. And so I do think the lapping will continue. But the other two, we’re going to get better and manage through that as we go into next year. Does that help, Andrew?

Operator:

We have our next question comes from the line of Bryan Spillane from Bank of America. Your line is open. Please go ahead.

Mark Clouse:

Hey, Bryan.

Mark Clouse:

I think certainly, that’s where you’ve seen some of the rising costs more recently. I would also point to some of the volatility, though, on things like steel where we’ve seen some ups and downs. And again, I’m kind of cautious to kind of lock in on where we think that is. Obviously, one of the other areas that has emerged a little bit more recently is protein. But I would just say that as we’ve all been watching this, there have been ups and downs. And so, we continue to try to calibrate it and as we kind of went forward with our pricing actions that will be in place the first quarter, as we start the first quarter of fiscal ‘22, I feel very good about how that was informed and kind of how we saw the environment. But I think kind of the name of the game for ‘22 is going to be to remain pretty agile and nimble. And even as we’re talking to customers, we’re having that conversation where things may go up or down, we need to have that ability to have the dialogue as we go forward. So I don’t know, Mick, if you’ve got any other detail.

Mark Clouse:

Yes. And while that’s going on, as you would expect, Bryan, we’re looking for a lot of other elements or levers that we can utilize to manage a little bit of that volatility. Obviously, through productivity, but also how we contingency plan and set up the year. So I feel very good about how that plan has come together, like I said, I also feel very good about how the on pricing are going. Never easy, but I think generally understood that – what the inflation looks like. And I certainly feel like we’ve been having very strategic and collaborative conversations about it.

Bryan Spillane:

Okay. And then just maybe just one a quick thought on just how you’re modeling elasticities. It seems like most companies now are anticipating or have already put through price increases. And I guess, especially maybe in simple meals, just how you’re approaching modeling elasticities, just given how much inflation the consumer is going to see? Thanks.

Bryan Spillane:

Alright. Thank you.

Ken Goldman:

Hi, good morning. One for Mark and one for Mick if I may. Mark, I think in general, list pricing in the sector takes maybe 2 to 3 months to go into effect once announced. If this is accurate and given that you have some other, I guess, arrows in your quiver besides just list pricing, why won’t pricing be a tailwind until the first quarter? I might have expected some of the conversations you’re having with customers, to be honest, you started a bit earlier. And for net price, you have started offsetting your cost a bit sooner. So I’m just trying to get a little into the weeds there?

Ken Goldman:

Okay. That’s helpful. And then can you give us a sense – I didn’t – maybe you talked about this and I missed it, but how to think about the gross margin in 4Q? I guess on the positive side, you won’t have the same headwind from the Texas storm impact. I think it’s also fair to maybe assume mark-to-market will be a tailwind again, but you’ll have worse inflation, you said, you have a harder comparison. So just any color on this line, I think, would be helpful.

Mark Clouse:

Yes. And that’s a little different than you said. You are going to get a little bit anticipated reversal of the benefit that we saw in Q3 flip a little bit in Q4. So, it will be a bit of a headwind. Yes. And even if you go to a year ago, as a reminder, in the fourth quarter last year, we had a benefit. So, you are actually lapping a benefit as well as a little bit of a reversal of the Q3 benefit. So, that will moderate a little bit what you will see. But that’s consistent with what mix numbers are and what he is walking through…

Ken Goldman:

That’s helpful. Thanks so much.

Operator:

Our next question comes from the line of Chris Growe from Stifel. Your line is open. Please go ahead.

Mark Clouse:

Yes. I think, Chris, what we feel good about is when we went out with our pricing action, as you might imagine, has been a while ago as we kind of kicked that off. We felt very good about the combination of pricing, our productivity, some of the other actions we are taking as well as the benefit that we will get, especially as you get to the back half of next year in lapping the period we are in right now. We felt very good about it. I think what you sense from us is a little bit of caution because of the volatility that we are watching on commodities. And so obviously, as we move forward through the fourth quarter, we start to set up ‘22 guidance and give another couple of months of coverage behind us as well as understanding where our commodities are coming in, we will have a better sense. I know what everyone is trying to get at, which is, do you feel like you can fully cover inflation next year with the tools you have got. I can tell you, we feel good, but we are going to have to really watch what happens over these next couple of months to kind of solidify our position. As far as magnitude of pricing, as you might imagine, it’s a little bit of a – depending on which business it is, where the commodities are impacting it more. We have been very clear and transparent on kind of the translation of inflation to where that pricing resides. Obviously, as I said before, we are also overlaying a very detailed kind of strategic lens to it to make sure that we are not doing anything that we are going to regret as far as the health of the business. So, it’s a pretty broad range. I mean, kind of mid-single digits is probably a good assumption if you were trying to cost average it across all of our businesses, if that helps a little bit.

Mark Clouse:

Yes. I just was going to say, Chris, and you know we are kind of having conversations with our customers that say, you know what, we have got to probably compare to historical approaches to pricing where you kind of publish and then kind of see in 12 months. This is much more of a collaboration and dialogue around what’s inflation doing. And again, our pricing is, I think, going to need to be a bit dynamic. Now of course, one of the variables we have that helps a lot with that is trade spending and the ability for us to use that a bit as a way to kind of manage a little bit of the ups and downs. But I am not surprised to hear that, so.

Mark Clouse:

Yes. Well, I think a couple of things. One is, as Chris, as you will remember, in the fourth quarter last year, we really invested into the opportunity that we had given the elevated demand and profitability that we were experiencing. And we did that for a variety of reasons. One of which was to solidify the equity of the businesses, continue to really work on building equity with those households, especially younger households. We also learned a lot during that time. So, we used it as a bit of an opportunity to really fine-tune where the best ROIs were. And as an example, you would have seen in the third quarter, our digital spend went up almost 20 points. We are now over 60% of our spend is in digital, which I love for a variety of different reasons, but one of which is that it’s a very high ROI and a very efficient spend. And so, although I do think there are some key thresholds that we want to manage too, and as we have said, kind of the percent of net sales is a good proxy. When I look at that relative to where we have been, I feel like that’s a good level. And we have been able to kind of manage to that through the last couple of quarters into this quarter. And certainly, we are going to try to apply that kind of standard of philosophy as we go into ‘22.

Operator:

Our next question comes from the line of Robert Moskow from Credit Suisse. Your line is open. Please go ahead.

Mark Clouse:

Yes. No, you are right, Rob, in the sense that we will eventually lock in a ‘22 price. It’s been a little bit moving around, I would say, from quarter-to-quarter. So as we kind of lay that down for ‘22, it’s a little bit of what we’re reacting to. So we know it’s elevated, right. We know what kind of the inflations peg that, but it is a little bit of a pass-through based on a certain time, as you said. So, we are kind of working through that right now. And as again, I think when we get to the fourth quarter earnings and set the ‘22 guidance, we will be in a much better position to kind of give a bit more comprehensive view of our coverage and where exactly we are.

Mark Clouse:

Yes. So, let’s talk about Snacks. So no, nothing changes. I mean I think, as I said before, I have been really impressed with what we have been able to accomplish in the integration. I continue to see tremendous potential as we look ahead. We are a bit behind, as you would expect, given the headwinds I just described for Q3 and Q4 on an absolute basis. But the underlying initiatives, the value capture, all of the foundational work that although may have created some strain on us in the quarter as far as execution and cost overall. As we normalize that over the – really the months ahead, I expect us to be back on that trajectory. And again, I think as we said before, we will kind of lay that out with a lot more granularity in Investor Day. But it doesn’t change in any way structurally what I think we should be capable of doing. I think we are – the ambition for the quarter in executing all of those initiatives at the same time, probably in hindsight, staging them a little differently, would have been a better idea. But we have kind of played through that now and are feeling very good about how that looks going forward.

Operator:

Our next question comes from the line of David Palmer from Evercore ISI. Your line is open. Please go ahead.

Mark Clouse:

Yes. I think we are not – I mean, some of these are – I would describe them very much as – well, at least to my knowledge, some of them are Campbell specific. I think you are right about labor and logistics. But the need for us to kind of invest in the supplement of co-manufacturers to kind of recover on supply, honestly, that feels like kind of a unique item to us that was very much of a kind of headwind that we will navigate through. I expect that to be better in Q4 and obviously, much better as we go forward. I think on the operating leverage, a little bit of it was us needing to understand exactly how much benefit we had gained a year ago when we were at our peak, how much the value of the simplicity of the portfolio versus adding those TDPs back in place we are going to take. And so I think what I would tell you is we have now calibrated that. I do think it will remain throughout the cycle of COVID-19, but some of these other elements, ones that are capable of being priced and the others that are more kind of unique to us. I think we will work through those. We have got good plans in place and I do see those as we describe them transitional in nature. And I think on balance, we will be able to address a great deal of those and just kind of be dealing with the leverage lap as we go into ‘22. Mick, anything?

Mark Clouse:

I will say that that we have been – and again, I don’t know how this was affecting other companies, but I will say labor has been a challenge. And I think – I feel very good about what we have done to address it. But even as you are kind of replacing labor, getting to kind of full efficiency, training new individuals and kind of getting back squarely at the levels we were earlier in the year. It’s taking a little bit of time and so I think that like I said although I see the steady progress I think we are being pragmatic as we make assumptions so that we don’t underestimate what that transition or time looks like.

Mark Clouse:

Yes. No, it’s a great question. And I do think I think there is a couple of different important variables within that dialogue that we will spend time talking about when we are in our Investor Day. Obviously, one of those pieces was kind of bridging for folks the Snacks margin that we already talked about, how did the value capture work, where were the investments versus the upside, how are you – how did headwinds we are experiencing on inflation affect that. But maybe this is a way to kind of give you a little bit of context. And Mick had mentioned this earlier, but I think it’s a really important aspect. And obviously, we are disappointed with the quarter. I mean, our standard is that we do what we say and in this particular quarter, we didn’t do that. But I continue to see the challenges that were in the quarter as being very transitional in nature. And the underpinning of the great in-market results and being ahead of expectations as it relates to share and the retention of these households all bode well for us for the future. And maybe to give a little context to your question, specifically, if you take the midpoint of our ‘21 guidance and again, I am going to repeat a little bit of what Mick said. But I think it’s important. At the midpoint of our guidance, it represents versus that 2019 base, a top line growth of 6%, so a CAGR of about 3%. Obviously, we know that there is some foodservice in there and a little bit of partner brands, but in general, a 6% versus ‘19. Our EBIT during that same period with the midpoint of the range, so even with the adjustment in our guidance, is up 9% versus 2019 or at about a 5% CAGR for the 2 years. And as Mick had said earlier, EPS is up 27% since ‘19 with consumption up 9% during the same period. So, if you look at that, all of those – and again, I think people would expect this, but all of those are well above or well within our strategic plan targets. And I think that as we navigate into ‘22, we would expect to see, yes, some challenges as we continue to lap a few of these areas. I do want to kind of nail down a good number for inflation next year. But I feel very good about where we are on the journey. Don’t love the quarter, but I love the progress that we are making and, in particular, what I think will be the longest lasting, which is the strength of the brands and the businesses. So, I don’t know if that helps with perspective. I know what you are looking for, for ‘22, and we will do a good job of providing you that bridge when we get together at the end of the year. But I think not a bad perspective to kind of close out a little bit of the discussion with.

Operator:

It looks like that’s all the questions that we have at this time. I would like to turn the call back over to Ms. Gardy.

Operator:

This concludes today’s conference call. You may now disconnect.

Rebecca Gardy :

Good morning, and welcome to Campbell's second quarter fiscal 2021 earnings presentation. I'm Rebecca Gardy, Vice President of Investor Relations. Following the completion of this call, a copy of this presentation and a replay of the webcast will be available at investor.campbellsoupcompany.com. A transcript of this earnings conference call will be available within 24 hours at investor.campbellsoupcompany.com. 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 or our SEC filings for a list of factors that could cause our actual results to vary materially from those anticipated in forward-looking statements. Because we use non-GAAP measures, we have provided a reconciliation of these measures to the most directly comparable GAAP measure, which is included in the appendix of this presentation. On Slide 4, you will see our agenda. With us on the call today are Mark Clouse, Campbell's President and CEO; and our Chief Financial Officer, Mick Beekhuizen. Mark will share his overall thoughts on our second quarter performance and in-market performance by division. Mick will discuss the financial results of the quarter in more detail and review our guidance for the full year fiscal 2021. Mark will come back to share his perspective on our outlook beyond the pandemic, and we will close the call with an analyst Q&A. With that, please let me turn the call over to Mark.

Mick Beekhuizen :

Thanks Mark. Good morning everyone. Turning to Slide 11, as Mark just shared, we once again delivered strong results, with another quarter of sales growth driven by continued elevated consumer demand, as well as growth in adjusted EBIT and adjusted EPS. Our topline growth of 5% reflected healthy in-market consumption of approximately 8% in the quarter, tempered by declines in foodservice and some COVID-19-related supply challenges that Mark discussed. Adjusted EBIT increased 8% as higher sales volumes were only partially offset by higher adjusted administrative expenses. Adjusted EPS from continuing operations increased by 17% to $0.84 per share, reflecting an increase in adjusted EBIT as well as lower adjusted net interest expense. Year-to-date, our organic net sales, which exclude the impact from the sale of the European chips business, increased 7% driven by strong in-market consumption growth in both Meals & Beverages and Snacks. Adjusted EBIT increased 13% reflecting higher sales volume, improved adjusted gross margin performance and higher adjusted other income, offset partially by increased adjusted administrative expenses. Year-to-date our adjusted EBIT margin increased year-over-year by 110 basis points to 18.5%. Adjusted EPS from continuing operations increased 23% to $1.86 per share, reflecting the increase in adjusted EBIT and lower adjusted net interest expense. I’ll review in the next couple of slides our second quarter results in more detail and provide guidance for the full fiscal year 2021. Breaking down our net sales performance for the quarter, reported and organic net sales increased 5% from the prior year. This performance was largely driven by a 4-point gain in volume across the majority of our retail brands, partially offset by declines in foodservice and in partner brands within the Snyder’s-Lance portfolio. Additionally, we took a strategic approach to dialing back promotional spending in both segments where we faced supply constraints and those actions, net of price and sales allowances, contributed 1-point to net sales growth. Our adjusted gross margin decreased by 10-basis points in the quarter to 34.3%. While product mix was slightly negative in the quarter, we are estimating a 50-basis point gross margin improvement from better operating leverage within our supply chain network as we increased our overall production. Net pricing drove a 90-basis point improvement, due to lower levels of promotional spending in the quarter. Inflation and other factors had a negative impact of 330-basis points. A little over half of the increase was driven by cost inflation, as overall input prices on a rate basis increased approximately 3%, which we expect to continue to be a headwind for the rest of the fiscal year. The remainder was driven by increases in other operational costs and continued COVID-19 related costs. Inflation in the quarter was partially offset by our ongoing supply chain productivity program, which contributed a 140-basis point improvement, and included initiatives, among others, within procurement and logistics optimization. Our cost savings program, which is incremental to our ongoing supply chain productivity program, added 50-basis points to our gross margin. Moving on to other operating items. Adjusted marketing and selling expenses decreased $3 million or 1% in the quarter. This decrease was driven primarily by the benefits of cost savings initiatives and lower marketing overhead costs, largely offset by an 8% increased investment in A&C. These investments primarily reflect higher levels of media spend to support our salty snack brands including new product launches, as well as our soup business, as we continue to drive usage through new recipes, inspire meal solutions, and support our innovation. Adjusted administrative expenses increased $17 million or 13%, driven primarily by higher benefit related costs and higher general administrative costs, partially offset by the benefits from our cost savings initiatives. Overall, our adjusted marketing and selling expenses represented 10.2% of net sales during the quarter, a 70-basis point decrease compared to last year. Adjusted administrative expenses represented 6.7% of net sales during the quarter, a 50-basis point increase compared to last year. Moving to the next slide, we have continued to successfully deliver against our multi-year enterprise cost savings initiatives. This quarter, we achieved just over $20 million in incremental year-over-year savings. We expect an additional $40 million to $50 million evenly spread over the balance of fiscal 2021 on-track to deliver $75 million to $85 million of cost savings for the fiscal year with the majority of the savings from the Snyder’s-Lance integration. We remain on-track to deliver our cumulative savings target of $850 million by the end of fiscal 2022. To help tie this all together, we are providing an adjusted EBIT bridge on slide 16 to highlight the key drivers of performance this quarter. As discussed, adjusted EBIT grew by 8%. This was driven by the increase in demand for our products with sales gains contributing $40 million of EBIT growth, which was partially offset by the previously described adjusted gross margin decline. In addition, the increase in adjusted administrative expenses was only partially offset by lower adjusted marketing and selling expenses, lower adjusted R&D expenses and higher adjusted other income. Our adjusted EBIT margin increased year-over-year by 40 basis points to 17.2%. The following chart breaks down our adjusted EPS growth between our operating performance and below the line items. Adjusted EPS increased $0.12 from $0.72 in the prior-year quarter to $0.84 per share. Adjusted EBIT had a positive $0.07 impact on adjusted EPS. Adjusted net interest expense declined year-over-year by $17 million delivering a $0.04 positive impact to adjusted EPS, as we have used proceeds from completed divestitures in fiscal 2020 and our strong cash flow to reduce debt. The impact from the adjusted tax rate was nominal, completing the bridge to $0.84 per share. In Meals & Beverages, net sales increased 6% to $1.3 billion, primarily reflecting strong volume growth driven by in-market consumption for many of our U.S. retail products, including gains in U.S. soups, V8 beverages, Prego pasta sauces, and Campbell’s pasta, partially offset by declines in foodservice driven by COVID-19 related restrictions. Net sales of U.S. soup, including Pacific Foods, increased 10% compared to the prior year primarily due to volume gains in condensed soups and ready-to-serve soups. Across the division, we moderated promotional activity in part due to supply constraints, particularly on broth. Operating earnings for Meals & Beverages increased 7% to $258 million. The increase was primarily driven by sales volume growth, offset partially by a lower gross margin and higher administrative expenses. Within Snacks, net sales increased 4% driven by volume gains fueled by the majority of our power brands and lower levels of promotional spending on supply constrained brands. The sales gains were driven by our salty snacks brands within the power brand portfolio namely Kettle Brand potato chips, Late July snacks, Cape Cod potato chips, and Pop Secret popcorn, as well as our fresh bakery products, including Pepperidge Farm Farmhouse products. Partly offsetting sales gains were declines in partner brands within the Snyder’s-Lance portfolio, as well as declines in Lance sandwich crackers resulting from supply constraints in the quarter. Operating earnings for Snacks increased 6% driven by sales volume gains and lower selling expenses, partly offset by higher marketing investment, administrative expenses and a lower gross margin. I’ll now turn to our cash flow and liquidity. Fiscal year to-date cash flow from operations decreased from $663 million in the prior year to $611 million, as changes in working capital were only partially offset by higher cash earnings. Although we continue to make progress on working capital, we are lapping significant benefits in accounts payable in the prior year. Our year-to-date cash for investing activities was largely reflective of the cash outlay for capital expenditures of $132 million, which was $35 million lower than the prior year, primarily driven by discontinued operations. Our year-to-date cash outflows for financing activities were $405 million reflecting cash outlays due to dividends paid of $215 million, which were comparable to the prior year, reflecting our quarterly dividend of $0.35 per share. In December, we announced an increase in the quarterly dividend to $0.37 per share or an increase of 6%, which from a cash flow perspective, will be reflected in the third quarter. Additionally, we reduced our debt by $176 million. We ended the quarter with cash and cash equivalents of $946 million. We expect to utilize the majority of this cash during the second half of the fiscal year for repayment of upcoming debt maturities of $721 million and $200 million in March and May, respectively. As covered in our press release, based on our strong first-half performance we are providing guidance for the full year fiscal 2021. We expect net sales for Fiscal 2021 to decline 3.5% to 2.5%. Excluding the impact from the 53rd week in fiscal 2020 and the impact of the European chips divestiture, we expect organic net sales to decline 1.5% to 0.5%. We expect adjusted EBIT of minus 1% to plus 1%, as we will lap the initial COVID-19 demand surge in the second half of our fiscal year combined with headwinds from increased promotional activity, partially offset by lower year-over-year COVID-19 related expenses and last year’s one-time marketing investments. We continue to expect net interest expense of $215 million to $220 million, and an adjusted effective tax rate of approximately 24%. As a result, we expect adjusted EPS of $3.03 to $3.11 per share representing year-over-year growth of 3% to 5%. The EPS impact of the 53rd week in fiscal 2020 was estimated to be $0.04 per share. With respect to our guidance, let me add that we expect the third quarter to be somewhat more challenged from a net sales and EBIT perspective than Q4, as the before-mentioned COVID-19 related demand surge was more pronounced in the third quarter of fiscal 2020 while the benefit from COVID-19 related costs and one-time marketing investments will disproportionately benefit our fourth quarter comparison. Additionally, we expect our third quarter to be impacted by some isolated supply challenges as we navigate the recent winter storms. In particular, we experienced about two weeks of disruption at our Paris, Texas plant, which produces Pace and Prego. We expect improving momentum as we go forward. Regarding capital expenditures, in light of the current operating environment with limited access to our factories, we now expect to spend 10% below the $350 million we had previously indicated for the full year largely driven by the impact from COVID-19 on the operating environment. Before I turn it back to Mark for some additional commentary, let me close by expressing how proud I am of the continued strong execution by our teams throughout the company. We delivered another strong quarter, with a return to positive share growth in the majority of our portfolio, and growth in all three key financial metrics, despite all the challenges of COVID-19. Mark?

Operator:

[Operator Instructions]. And our first question comes from Andrew Lazar from Barclays.

Mark Clouse :

Yes. So a couple of thoughts. First, again, I think as we said in our comments, a bit frustrating, of course, to see the top-line when the underlying fundamentals are as strong as they are. In-market consumption was up 8%. And a really important step forward for us was the shift in share performance, where we had 75% of the portfolio growing share, including some businesses that were really important for us to get back on our front foot, like ready-to-serve soup, for example, and Snyder's of Hanover pretzels. Both of which had been a bit challenged on share, and we wanted to make sure we turned them around. I guess the other good news about the timing and sequence of some of the pressure we experienced, we had all of the inventory in place for the holiday and kind of the key drive period, which is why we did so well during that timeframe in-market. Where it hurt us was a bit in the replenishment of that as we were exiting the quarter, and as you said, driven really by 2 things. The significant step back up in COVID cases was the root cause, but it impacted both our foodservice business, as well as absenteeism specifically in our plants. We were -- in the month of December, we crossed the double-digit line on absenteeism, which was really the highest we had seen, which really did reduce a little bit of our firepower as we had expected to be able to get in front of consumption and ship a bit ahead of it. The good news is, both of them I would describe generally as episodic in nature, and that as we finish the quarter and went into Q3, both of those we're seeing normalize and improve. And remember, in Q3, one of the things that we're going to have as a dynamic is that we shipped about 12 points behind consumption a year ago in Q3. And so as you think about that overall shipment to consumption comparison, despite the fact that -- in the spirit of a lot of volatility in our world today, despite the fact we're going to have to navigate a little bit of this pressure out of Paris, Texas, where our plant was closed for a couple of weeks, that plant makes primarily Pace and Prego, just as a reference point. But we expect the overall elements to be positive as it relates to shipments versus consumption, but with a little bit of choppiness as we go into Q3. As we roll through the back half, we're feeling very comfortable that we'll be back in a strong position. I think also of note, we've talked a bit about the recovery of the SKUs that we had swapped out for base business during the pandemic. All of those are back up and running. That we're going to return is -- if you look at our numbers today, you'll see about a 6% decline in TDPs. We expect that to be about 3% ongoing. The reason you're not seeing all of it is some of those items are still in pipeline. But as the quarter unfolds, we expect that all to be back in place as we manage through the back of the year. So a little bit of a longer answer, but I know a very important element to get your hands around. So I think there's reasons to believe that we'll see that room to catch up a little bit and kind of get back on our feet as it relates to inventory.

Mark Clouse :

Yes. It's a little bit too early. But what I can tell you we've done is we've created essentially a bit of a map of the country in evaluating the specificity of different data points in conjunction with reopening. And so us like you are looking for those proof points to validate what is a lot of the hypothesis that we have. And so I would say it's too early to give you any conclusions, but we're set up well to read that as quickly as possible, make any adjustments we need and really begin to put some facts, specific facts behind some of those assumptions we've talked about.

Ken Goldman :

So I wanted to pick up a little bit where Andrew just left off. It sounds like most of the work you've done on the stickiness side is still theoretical. And I appreciate that you're doing some really good work in terms of surveying consumers and so forth. But we're in such unique times that I just wonder how much rate we really should put on things like surveys at this point just given that I don't think consumers necessarily know what they're going to do coming out of this. And -- but I would love for -- you ought to be right, all my CEOs to be right, it will be much more fun to cover a space where things are growing and sales are good in the opposite. But is there any -- I guess what I'm getting with this, is there any particular data point that you have that gives you the amount of confidence that you might need to make the kind of confident statements that you're making today about stickiness? And I'm not trying to suspect. I really just want to understand it, Mark.

KenGoldman :

No. I think that's very fair on a qualitative level. I would just hope that as you think about guiding ahead and so forth, maybe it would behoove a lot of companies to not assume as much stickiness as they think will happen and then maybe surprise to the upside. But I will leave it there.

Operator:

Our next question comes from Bryan Spillane from Bank of America.

Mark Clouse :

Yes. Okay. So let me start a little bit with the Snacks question. And again, I really do expect us in the next few months, again, not to put a particular date, but I do imagine as we go into the fall, we're going to be in a good position to have a more robust dialogue with you about kind of this next chapter of the company's strategy, which will include, in my mind, a lot more granularity around some of the things that we're talking about now. But I will say this, on the margins on Snacks, if you look at kind of where we are in our journey right now, we're about 80% of the way through value capture. We're now up and running on SAP, which is a really important step, as many of you know, in these integrations and transitions. And so it's allowing us to continue to build our insights as we look forward. And where that value capture has put us, if you think about the beginning of the journey to where we are now, the gap between our margin and kind of the snacking averages, we've closed about 1/3 of that gap. So there's still about 2/3 of that remaining. And if you look at the reasons why, and you kind of start from manufacturing, all the way to the store, you see a fair amount of inefficiencies even after we complete the value capture, that gives us a lot of confidence that we're going to find opportunities. For example, we've got 1,300 locations holding inventory right now in our supply chain. And yes. No matter how you cut the pie, that is not our most efficient foot forward. And so our ability to go after each of those elements with kind of a next wave of plans gives me a lot of confidence that we can reduce that gap further. And again, quantifying that and giving you a little more clarity on the building blocks, we will do that, but not today. So we're working on it and more to come. But I think there's a lot of reasons to believe. And if you pair that with what the growth rate of this company is and what we continue to see as improved opportunities, as we move from integration orientation really to growth and focus on innovation, we feel very good about it. And so if you think about some of that work, there may be some investment opportunities that are there. So as we think about capital priorities, kind of pivoting now to your second question. First of all, our capital priorities as a company remain the same. We invest in the company. We pay our dividend. We continue. At this point, we've really done a good job of managing down debt. So we're quite happy with that progress. And then we're looking in a very disciplined way. I mean you mentioned some prior historical places that I've been that I think have had very good decision matrix, very good discipline. Our focus continues to be things that we believe are highly aligned or nearing adjacencies to our core strengths. And I think there is a role that M&A can play. But it's in conjunction with also evaluating where we can invest in the company and generate high returns. I think the important thing to note is that we will apply that discipline, but we're going to be applying it to an availability of capital that, as you say, I think, is going to be a very, very important indicator of value. And especially as you think competitively across places to go, I'm feeling very good about our flexibility and capability to generate a significant amount of value in that space. Does that make sense, Bryan?

Operator:

Our next question comes from Jason English from Goldman Sachs.

Mark Clouse :

Yes. I mean, I think it's really, Jason, is if you look at the redundancy and the inefficiencies that exist in a network that was built independently and really not through the lens of efficiency. I think the -- as you described, the complexity of our portfolio, there is no question that what is a little unique about us is the opportunity, I'd say, both the scale and strength of operating within 2 aisles of the store. But our portfolio is really not as complex as you may think. The partner brands is something we've been working hard on over the last 2 years. And we've got a little bit of work still ahead of us to make sure that we've got the right partnership model that enables us to eliminate a lot of that complexity while still generating the benefits. So still more work to do there. But I think if you really kind of go from our manufacturing footprint, to our distribution and warehousing footprint, all the way to our route to market, you're going to see opportunities across all 3 of those buckets where we're going to be able to drive greater levels of efficiency than what's there today. And again, the good news here is, it doesn't necessarily require us to get to a Frito-Lay to the highest end of the Snacks margins. But even as we move into closing that gap, there's significant value to be created. And as you think about kind of our historical growth rate of 3%, with a headwind of about 1%, as we've navigated kind of the managing down of the partner brands, I think you could expect that growth rate to at least continue, if not improve, as we go forward. And so you put those pieces together, and I think the contribution of what represents 50% of our company becomes a significant benefit and a tailwind for us that I think can continue to contribute going forward. Now in fairness, Jason, I think you like others are going to want to see a little bit more of that blueprint, and I get that. And that's what we're working on now and certainly would anticipate sharing more granularity with you as we go forward. I kind of raised it now though because I think a lot of the conversation, rightfully so, is about what's coming next, where our company is focused in the future coming out of the pandemic. And I point to this, it's just an area that's not related, kind of to Ken's question earlier, on stickiness of households. This is really about our ability to execute into and to identify those areas within our own existing business model.

Robert Moskow :

I have a different kind of question about Meals & Beverage. There's been capacity constraints for about a year, for understandable reasons. You say a lot of it has to do with labor absenteeism, but also just overall capacity. So I was curious. As you entered this year, in retrospect, is there more that the company could have done to either hire more or take on more co-packing capacity to meet this surge in demand? And did you choose not to? Did you say, we're going to choose not to do that? Maybe it's not the sustainable thing to do. And then the second part of this is, as you get more data on the stickiness, what happens next? Do you then have to take those steps? Do you have to expand soup? Do you have to expand sauce's capacity? There's a lot talking -- a lot of talk here about Snacks. But are the things that you're going to have to do in Meals & Beverage to cope with a higher demand plateau?