The Campbell Soup Company is hosting a Third Quarter Fiscal 2023 Earnings Conference Call. Rebecca Gardy, Chief Investor Relations Officer, is introducing the call, and Mark Clouse, President and Chief Executive Officer, and Carrie Anderson, Chief Financial Officer, are joining her. The slide deck and earnings press release are posted on the Campbell Soup Company website. The call will include pre-recorded remarks followed by a live webcast Q&A session. Participants are asked to limit themselves to two questions. A replay of the webcast and transcript of the call will be available within 24 hours. The presentation includes forward-looking statements and non-GAAP measures with reconciliations provided in the appendix. The agenda for the call is outlined on Slide 4.

In the third quarter of fiscal 2023, the company delivered strong mid-single digit net sales growth, partially offset by a comparison to year-ago retailer inventory rebuild. Mark Clouse reported that the performance was led by another tremendous quarter in Snacks, with strong value and convenience provided by Meals & Beverages. The company is back to pre-COVID service levels in the mid- to high-90s, and retailers have returned to targeted inventory levels.

In the third quarter of fiscal 2022, the Meals & Beverages division saw organic net sales decrease 1%, while in-market dollar consumption grew 2%. This variance was primarily due to a significant retailer inventory rebuild and below historical norm price elasticities. The soup portfolio saw dollar consumption remain essentially flat due to inflation-driven pricing and increased promotional activity from competitors. The company is confident in the growth potential of their iconic brands and expects volume trends to improve sequentially.

Campbell's Soup has seen a decrease in net sales due to cycling the inventory from a year ago, but they have seen success in their condensed soup, Chicken Noodle, and Tomato varieties. They are looking to improve their Healthy Request and Kids' flavors, and have seen success in their Chunky Soup line, which has been transformed into a great everyday value with a focus on protein and quick in-home lunches. They have also seen success with their Pacific organic premium line, which has driven incremental consumers to their portfolio.

Pacific's soup business has seen impressive results over the past four years, with a 56% increase in dollar consumption and 0.9 share points. The Snacks business has had three consecutive quarters of double digit net sales growth, driven by 8 power brands, resulting in a 15% increase in-market dollar consumption and a 40% increase over the past four years. Six of the 8 power brands have seen dollar consumption growth outpacing their respective categories.

The Snacks business has seen steady growth in both sales and profit over the past two years, with operating earnings growth averaging 13% and a 130 basis points improvement in operating margin. This is attributed to increased service levels, product and packaging innovations, and planned investments, as well as strong marketing efforts, such as Goldfish being named teens' most preferred snack brand for the fourth time in a row. Other brands such as Kettle Brand and Late July have also seen success with innovative products and limited time offers. Investment in innovation and brand building will continue in the fourth quarter, with the goal of continued growth and margin improvement in fiscal 2024.

Campbell reported a 5% increase in organic net sales for the third quarter, driven by favorable inflation-driven net price realization and partially offset by volume and mix declines. Adjusted EBIT decreased 2%, primarily due to higher adjusted other expenses related to lower pension and postretirement benefit income. Adjusted EBIT margin declined by 110 basis points and adjusted EPS decreased 3% to $0.68. Year-to-date, top-line and adjusted EPS were both up double digits compared to the period last year, and adjusted EBIT was up 9%.

In the third quarter of this fiscal year, there was a decrease in adjusted EBIT margin of 0.2% when compared to the same period last year. This was due to lower pension and postretirement benefit income. Dollar consumption growth was 8%, while net sales growth was 5%, with 12 percentage points of growth from inflation-driven net price realization and 7 percentage points of decline from volume and mix. Adjusted gross profit margin decreased by 0.6%, due to unfavorable volume and mix, although this was offset by favorable net price realization and productivity improvements.

In the third quarter of fiscal '22, there was a one-time insurance benefit of 50 basis points related to a disruption in the Meals & Beverages supply chain operations caused by a Texas storm. The company has taken steps to mitigate core inflation, which was 8%, through targeted pricing and trade optimization, net pricing of 12%, and other levers such as supply chain productivity improvements and margin enhancing initiatives. Marketing and selling expenses increased 3%, driven by higher selling expenses, and advertising and consumer promotion was down 2%. The company expects marketing and selling expenses to be at the low end of their targeted range of 9%-10%.

Adjusted administrative expenses increased by $8 million in the third quarter, resulting in an adjusted EBIT margin decrease of 110 basis points to 14%. Adjusted EPS of $0.68 was down 3%, due to lower pension and postretirement benefit income and a higher adjusted effective tax rate. In Meals & Beverages, reported net sales decreased 2%, with organic net sales decreasing 1% due to inventory and elasticity-driven volume and mix declines, partially offset by gains in foodservice and net price realization. Operating earnings for Meals & Beverages decreased 17% due to lower gross profit.

The Snacks division saw an increase in net sales and operating earnings in the third quarter, driven by sales of power brands, favorable net price realization, and supply chain productivity improvements. Operating margin increased year-over-year by 330 basis points to 16%, and on the third quarter year-to-date basis, operating margin increased 150 basis points to 14.5%. Cash flow from operations was $918 million through the end of the third quarter, and the company has returned over $475 million through dividends and share repurchases.

Cash flow from operations was lower than the prior year, but higher cash earnings partially offset this. The company spent $257 million in capital expenditures, $535 million in financing activities, and $250 million in anti-dilutive share repurchases. At the end of the quarter, they had $223 million in cash and cash equivalents. The company is reaffirming their net sales, adjusted EBIT, and adjusted EPS outlook, and they anticipate that the divestiture of Emerald nuts will not have a material impact on their results. They are expecting full year capital expenditures of $360 million and investments in sales and marketing in the fourth quarter.

Campbell's third quarter results tracked their expectations, driven by strong price realization and operational execution. Volume and mix declined, however, which masked base volume trends. Despite this, Campbell's Snacks business grew and had steady margins. Campbell's capital allocation priorities are well defined and consistent.

Mark Clouse explains why the third quarter of 2021 may not be an indicator of what is to come for Campbell Soup Company. He states that the 5% net sales growth was due to a 7% negative vol/mix and the 5 points of inventory replenishment from a year ago. He also explains that the company's supply chain recovered at a faster pace than many, leading to best-in-class service levels that are essentially back to pre-COVID levels.

The supply chain gave the company a benefit that allowed them to have a 5% growth rate in the quarter. Despite this, the company experienced a 60 bps gross margin and 110 bps EBIT margin decrease due to pension income headwind, an insurance settlement related to a storm, and the mix dynamic of inventory cycling. Despite these decreases, the company is still on track to meet their expectations for the year.

Mark Clouse discussed the strong performance of the Snack business, citing broad-based growth, significant share improvement, and strong and improving vol/mix, with margins now above 14%. He expects to continue to make progress across all fronts, including margins and profit, and to sustain growth. He does not think the current quarter is a bellwether for the industry.

Mark Clouse is discussing the state of the soup industry and the potential for a price competition between Campbell's and its competitors. He states that the soup industry has been steadily growing at a 4% CAGR over the last four years and that Campbell's is focused on two areas to ensure the long-term health and sustainability of soup: relevance and condensed. He does not see a price competition dynamic occurring.

The condensed soup category has seen a 5 share point growth in the last quarter, which is attributed to the appeal of its core set of iconic flavors such as Chicken Noodle, Tomato, Cream of Mushroom, and Cream of Chicken. There has also been an increase in the relevance of condensed soup to cooking, with the younger generations being particularly attracted to the segment. Despite the pressure from private label, the company is being thoughtful about its long-term strategic game in condensed and is looking to provide value through benefits, rather than price. Ready-to-serve soup is also experiencing some pressure from private label.

In the ready-to-serve category, Chunky has seen a huge transformation from a low-cost promotion item to a convenient source of protein. Despite some share pressure, the brand has grown two points since COVID and Pacific has been the fastest-growing ready-to-serve brand in the quarter. Additionally, Home Style, a lower-priced but high-quality product, saw a 10% growth in the quarter. The company looks forward to benefiting from the resurgence of the category overall.

Mark Clouse is discussing the success of the acquisition of Pacific, which has grown by almost 60% since the beginning of COVID, as well as the strategy for soup going into fiscal '24. He states that the company plans to ramp up its marketing spend on snacks in the fourth quarter and will use marketing to sharpen their value positions without becoming competitive on price. He also says that they will continue to be consistent with their marketing strategy for soup going into the fiscal year.

The goal for the Meals & Beverages business is to use a balanced approach when it comes to pricing and promotion, while still driving differentiation. This includes utilizing existing products such as SpaghettiOs, Swanson Chicken, and Home Style ready-to-serve, which all saw a 10% increase in the third quarter. The goal is not to chase price down, but to strengthen the brand and equity.

Carrie Anderson explains that core inflation came in at 8% in the quarter, which is trending in the right direction. Price was still a healthy contributor for the quarter, and when looking at the bridge, net price realization, inflation and other factors are essentially their inflation coming through. However, there is some unfavorable volume and mix due to inventory cycling, as well as a 50 bps favorability last year from an insurance storm settlement that was not present this year. Despite these, the core inflation is still going in the right direction and is being offset by healthy price.

Mark Clouse discussed how the company adjusted their marketing and selling strategies to be mindful of the value consumer. This was seen in the decrease of A&C, mainly in the Meals & Beverage business. The company has been utilizing the meal solution platform in store to help people put together simple meals for a low price. This tactic has been working well for them, as they have seen an ever-growing desire from consumers to stretch their dollar. This has resulted in double digit growth for certain categories, such as soup, Prego, and Pace.

Mark Clouse discussed the company's goal of reaching a 9-10% range in marketing and selling and how they have been slowly creeping up. He then mentioned the $1 billion sauces plan that was discussed at the Investor Day about a year-and-a-half ago, and how sauces could be the second punch in the Meals & Beverage business. He highlighted the importance of focusing on cooking and quick meals in the center of the grocery store.

The Snyder's-Lance acquisition has been successful in boosting the Snacks segment margins, with the Kettle and Cape brands increasing their share points by 4 and [indiscernible] by 3. The success of the acquisition has been attributed to the marketing and innovation muscle from Pepperidge Farm. Mark Clouse has stated that their vision has not changed and that they are in a great spot, with brands such as Pacific and Late July playing a contributing role. They believe that the sauces area is a great complement to a rejuvenated and sustainable soup business.

Mark Clouse discusses the success of the brands in the Snack Factory deli, such as Pretzel Crisps and Goldfish, and how the acquisition of Snyder's-Lance has allowed them to increase their margins. He also mentions that the supply chain has changed leadership and is working to make that a competitive advantage in the future.

The speaker discusses how the supply chain has gone from an average state two years ago to a strength now, with service levels at pre-COVID levels. The speaker believes that this gives them an advantage going forward and that there is potential for organic growth and margin improvement. This gives the speaker confidence in their ability to navigate through the current environment.

Mark Clouse states that the consumer has been resilient, but is beginning to feel the pressure of the current economic situation. He believes that messaging around value is important, without having to chase pricing down. He suggests focusing on different brands, as well as comparing a meal cooked with condensed soup to something bought in the frozen section or ordered from away from home in order to create value.

The speaker believes that success in operating environment and customer relationships will depend on providing real solutions to customers that address their needs. This means executing marketing plans, bringing innovation, and timing and sequencing promotions correctly. They also believe that having a strong supply chain will be very important in order to outperform their competition.

This summary was generated with AI and may contain some inaccuracies.