On this call, Rebecca Gardy, Chief Investor Relations Officer, introduces Mark Clouse, President and Chief Executive Officer, and Carrie Anderson, Chief Financial Officer. She explains that the prepared remarks have been prerecorded and that there will be a live webcast Q&A session following. She also reminds participants that there are forward-looking statements that rely on assumptions and estimates and that non-GAAP measures have been provided with a reconciliation in the appendix. Lastly, she outlines the agenda for the call which includes Mark sharing his thoughts on the fourth quarter and full year performance.

Rebecca handed the call over to Mark Clouse, who discussed the strong financial results of the fourth quarter and full fiscal year 2024. Net sales grew 5% in the fourth quarter and 10% for the full year, while adjusted EBIT and adjusted EPS grew 5% for the full year. The pension headwind was approximately $0.11 to adjusted EPS and four points of growth for the year.

Campbell's full year consumption increased 8% in the prior year, thanks to their successful strategy of balancing pricing and promotional frequency, investments in capacity, and enhancing supply chain, marketing, sales, and innovation. They are also excited for the growth opportunities from the planned acquisition of Sovos Brands. There are currently three factors putting pressure on the Meals & Beverage businesses, which are the residual effects of COVID surges from the summer of fiscal 2022, expected to continue into Q1 and diminish in Q2.

The fourth quarter of 2022 saw a 50% decline in soup sales, which was partially due to lapping of double-digit pricing actions from the year before. Additionally, consumer behavior in response to economic uncertainty and inflation has had a mixed effect on soup sales, with consumers prioritizing categories based on immediate needs and value, as well as shifting to more value-driven stretchable meals. However, the Snacks division has been resilient, with consumers continuing to purchase across the differentiated portfolio.

The Meals & Beverages portfolio is well-positioned to take advantage of consumers looking to stretch their food dollars. In the fourth quarter, organic net sales growth was 1%, and compared to pre-COVID levels, dollar consumption for the division was up 17%. The company has identified areas of growth within their soup business, such as condensed icons, condensed cooking soups, Chunky, Home Style, and Pacific soup, which have been delivering strong growth and share results even when private label is present.

In the quarter, Campbell's soup business experienced flat shares, but have seen an increase of 1.2 share points and 27% consumption growth since four years ago. There is still room for improvement in the commoditized or value sensitive segments of the portfolio. Snacks had a strong quarter and year, with net sales growing 13% and operating earnings 24%, due to the success of the power brands which grew 10% in consumption.

Mark discussed the strong growth of the company's Snacks business, with net sales growing 7% CAGR and operating earnings growing 12% CAGR over a two-year period. He also discussed the expectation for accelerated growth and margin trajectory in the upcoming year, as well as the positive impact of the Sovos Brands acquisition. Carrie Anderson will then review the fourth quarter and full year results and present the fiscal 2024 outlook.

In the fourth quarter, organic net sales increased 5% to nearly $2.1 billion due to inflation-driven net price realization, partially offset by unfavorable volume and mix. Adjusted EBIT decreased 10% to $242 million, driven primarily by lower adjusted EBIT margin and adjusted EPS, which decreased 11% to $0.50. For the full year, organic net sales grew 10% due to higher net price realization and adjusted EBIT and adjusted EPS both grew 5%. The non-operating item reduced full year adjusted EBIT by $44 million and adjusted EPS by $0.11.

This paragraph discusses the company's fourth quarter adjusted gross profit margin of 30.6%, which was in line with the previous quarter. The change in margin was due to unfavorable volume and mix, but was offset by net price realization and productivity improvements. The company also successfully mitigated inflationary headwinds throughout the year, with core inflation finishing at 6% in the fourth quarter. Additionally, the company implemented pricing waves and other levers to mitigate inflation, and achieved $890 million of total savings under its multiyear cost savings program. Lastly, adjusted marketing and selling expenses increased 9%, driven by higher advertising and consumer promotion expenses.

In the fourth quarter, adjusted marketing and selling expenses represented 9% of net sales, and adjusted administrative expenses increased by $11 million. This caused adjusted EBIT to decrease 10%, resulting in an adjusted EBIT margin of 11.7%. Adjusted EPS decreased 11%, driven by decreases in adjusted EBIT and higher interest expense, partially offset by a lower adjusted effective tax rate and a reduction in the weighted average diluted shares outstanding. In Meals & Beverages, organic net sales increased 1%, driven by increases in foodservice and Prego pasta sauces, partially offset by declines in beverages, U.S. soup, and Canada. Segment operating earnings decreased 18%, primarily due to lower gross profit.

The fourth quarter operating margin for the company declined to 14.1%, due to higher cost inflation and other supply chain costs, as well as unfavorable mix between retail and foodservice. In the Snacks division, fourth quarter organic net sales increased 9% and segment operating earnings increased 12%, due to higher gross profit margin. For the fiscal year, the segment operating margin declined to 18.2%, but within the Snacks division, the operating margin increased by 60 basis points to 14%. In terms of cash flow, cash outflows from investing activities reflected capital expenditures of $370 million, which was $128 million higher than in the prior year. The company also returned nearly $590 million to shareholders through dividends and share repurchases.

At the end of the fiscal year, the company had a strong balance sheet with net debt of $4.5 billion and a net debt to adjusted EBITDA leverage ratio of 2.6 times. It had $189 million in cash and cash equivalents and $1.85 billion available under its revolving credit facility, providing significant excess liquidity and flexibility. For the full year fiscal 2024, revenue is expected to be in a range of down 0.5% to plus 1.5%, with organic net sales growth of flat to 2%. Volume declines are expected in the first half of fiscal 2024 with sequential improvement leading to positive trends in the second half, particularly in Q1.

General Mills expects adjusted EBIT and adjusted EPS growth of 3-5% with an adjusted EPS range of $3.09-$3.15, modest margin progress, core inflation in the low single-digit range, productivity improvements of 3%, cost savings of $35-$40 million, increased marketing and selling spend in the first quarter of fiscal 2024, division operating margins improvement overall, a pension headwind of $13 million to adjusted EBIT, net interest expense of $185-$190 million, and an adjusted effective tax rate of 24%.

Mark Clouse expects first quarter adjusted earnings growth rate to be the lowest of the year due to a variety of factors. He anticipates first quarter adjusted earnings per share to be in the upper $0.80 range. Capital expenditures are expected to be 4.7% of net sales and will be used for capacity expansion projects, headquarter consolidation, and other programs to support the Snacks margin improvement plan and IT and productivity investments. The company is also committed to maintaining a competitive dividend and a strong balance sheet, and is confident that the relevance of their brands and capabilities will lead to accelerated growth in the second half of the year and into fiscal 2025.

Andrew Lazar asked Mark Clouse to give more detail on how the organic growth target for the year will be broken down between volume and pricing, and to discuss whether they are giving themselves enough room to hit the numbers given recent trends in the industry. Mark Clouse responded by explaining that they have spent time trying to understand the drivers of the slowdown they have seen in the past couple of quarters, and that their projections are based on three variables that will have variable impacts on the timing of the year.

COVID-19 has had a material impact on certain categories, such as soup, in the fourth quarter of fiscal 2022 and the first quarter of fiscal 2023. However, this impact is expected to be less significant by the later part of Q1 and throughout Q2. Additionally, pricing is expected to have an impact of 16% in Q1, but this will moderate throughout the year and become less significant.

Consumers' market baskets have been shrinking, leading to a bifurcation between seasonal categories. Consumers are prioritizing categories more relevant to the season, such as snacking, which is a top priority in every season. Recent trends have shown some improvement in the prioritization of categories, and this gives insight into the potential recovery of the market.

In the current macroeconomic environment, consumers are making trade-offs in order to stretch their dollars, such as buying products that will feed more people. This has caused some single-serve products to be impacted, but as inflation moderates, this pressure should lessen. As a result, the company doesn't believe they need to rely on promotions and discounts to manage the situation, leading to their confidence in the year's outlook.

Mark Clouse discusses the reasons for volumes to improve in the second half of the year, as well as the plan to improve market share, particularly in soup and broth. He explains that there are different parts to their portfolio and that they are making changes to pricing and other marketing efforts to help improve market share.

The Snacks business of the company has been a standout, with the majority of the brands, such as Goldfish and Pepperidge Farm, being competitively positioned and having great innovation. Kettle potato chips has seen some more competition, but the company has a great value proposition. In Meals & Beverages, there has been more pressure on share, but if broth is removed from the equation, the share is flat in soup. Brands like Chunky and Pacific have been returning to share growth.

The company has been performing well in competitive markets, particularly in broth and soup, where they will focus on protecting value. Pace has been a standout, and Prego is performing well in the pasta sauce category, but it cannot compete in the ultra-distinctive segment. The company is confident in the performance of the majority of their portfolio.

Mark Clouse and Carrie discussed the potential acquisition of Sovos and how the share performance of the business is not in a dire position, and is focused on areas of strength. Peter Galbo from Bank of America asked Mark Clouse about the confidence in the second half of the year in regards to cost savings, COGS productivity, and inflation. Mark Clouse stated that the Snacks business has a helpful tailwind and that they had made a step change in fiscal '23, getting up over 14% from their starting point.

Mark Clouse and Carrie Anderson discussed how macroeconomic factors such as reducing inflation and moderating productivity and cost savings will help drive margin expansion in the snacking business. They also mentioned that foodservice growth normalizing will bring some unfavorable mix in fiscal 2023.

Mark Clouse and Carrie confirm that they are still on track to reach 17% margins in Snacks by fiscal year 2025. They anticipate that their progress could be hindered by environmental elements, but they are confident in their roadmap for the next two years. In terms of Meals & Beverage, they plan to offset some of the fading pricing with increased productivity.

The speaker is discussing the need to take into account inflation and environmental costs when predicting future performance. They have found ways to increase productivity to compensate for these factors, but they are still monitoring the situation. Additionally, they have been cautious with pricing in regards to inflation, which has put pressure on Meals & Beverages in the fourth quarter and the beginning of the year. To compensate, they are managing pricing waves and focusing on value-driven categories.

Mark Clouse explains that the margin pressures on Meals & Beverages in the fourth quarter of the year were expected and that about a third of the impact was due to a mix dynamic that should reverse in the second half of the year. This implies a material margin expansion in the back half of the year.

The margin headwinds in the soup business are due to consumer dynamics and lagging pricing in broth and condensed soup. However, there will be a marked difference in margin impact as inflation normalizes and productivity increases in the back half of the year. This should result in outsized margin recovery in the back half, which is why the company is confident in its back-weighted margin improvement profile.

Mark Clouse explains that the mix of the business is currently abnormal, with greater pressure on higher margin portions of the business and higher growth contribution from foodservice. He predicts that this will reverse in the back half of the year, with a stronger relative performance from the Soup business and higher-margin portions of the business, and a more normalized contribution from foodservice. Jason English then asks if this prediction is dependent on meaningful volume growth in Soup in the back half of the year, to which Mark Clouse responds that it will be meaningful growth.

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