The Operator welcomes participants to the Campbell Soup Company First Quarter Fiscal 2024 Earnings Conference Call and introduces the host, Rebecca Gardy. Gardy, along with CEO Mark Clouse and CFO Carrie Anderson, will discuss the company's performance and take questions from participants. The presentation and earnings press release have been posted on the company's website, and a replay and transcript will be available afterwards. The speakers will make forward-looking statements, and a list of risk factors is provided. Non-GAAP measures will be reconciled to GAAP measures. The agenda for the call is outlined on Slide 4.

In the second paragraph, Mark Clouse discusses the financial results of the first quarter and how they met expectations. He also mentions the progress made on the company's strategic plan and the confidence in future growth. He reaffirms the company's full-year guidance and believes that momentum will continue to build, especially with the upcoming acquisition of Sovos Brands.

The company's organic net sales decreased by 1% compared to the previous year, but still showed a 7% growth on a two-year basis. Adjusted EBIT and EPS also declined, but the company remains focused on meeting shifting consumer trends through strategies such as maintaining competitive prices, sustaining marketing and innovation plans, and disciplined spending. The company is confident in its ability to improve trends and meet financial commitments throughout the year.

The company's growth rates in the first half of fiscal '23 declined by approximately 10 points due to a slowing in incremental pricing. However, the company is expecting an improvement in top-line and volumes due to a robust pipeline of innovation and marketing programs. In the Meals & Beverages division, there was a low- to mid-single-digit decline in top-line and consumption, but on a two-year basis, organic net sales were up 6% and dollar consumption was up 1%. The company remains confident in the trajectory of the business as consumers rely on affordable and stretchable meal solutions. In the soup portfolio, there were overall decreases in dollar consumption, but pockets of strength were seen in the cooking portions of the portfolio, with a 1.5 share point increase in dollar share in the condensed cooking portfolio.

The company is seeing long-term potential in the younger household market, with an increase in penetration of total condensed cooking soups. The broth business is also performing well, with a 4% increase in total broth sales and a 16% increase in Pacific broth sales. However, the ready-to-serve and condensed eating businesses are facing pressure as more consumers opt for stretchable meals. With increased support and investment, the company has seen improvement in share and units in the important holiday season. In the Snacks business, organic net sales grew by 1%, with a 5% increase in power brands.

Despite some pressure from changing consumer dynamics, the company's eight power brands, including Goldfish and Lance, have shown strong growth in net sales. The strength of these brands was slightly affected by lower-margin partner brands and fresh bakery, but overall, they remain a consistent growth engine. Goldfish, in particular, has been named the most preferred snack brand by teens for five consecutive times and has seen share strength in the market. The brand's success can be attributed to its expansion to a broader audience, increased manufacturing capacity, and a steady stream of innovation, such as the limited-time Elf Maple Syrup Flavored Grahams in partnership with Warner Bros. Discovery.

The Snacks division of Goldfish is constantly innovating and introducing new products, such as Goldfish Crisps, to drive growth and increase margins. They are also implementing a DSD transformation initiative to streamline logistics, improve technology, and optimize routes. This will help enhance effectiveness and focus, improve retailer linkage, and provide better in-store insights.

In the first quarter, the company has made progress in improving geographies where routes are not operating at full scale. They are piloting potential solutions with positive early results and are excited about the impact this will have on their DSD platform. The acquisition of Sovos Brands is still pending, but they are working hard to complete the necessary requests and are optimistic about the deal closing in mid-2024. The first quarter met expectations and the company is confident and optimistic about the rest of the year. The team is thanked for their hard work and a happy holiday season is wished to all.

The company's top-line and adjusted EBIT and EPS were in line with expectations, with a 1% decline in organic net sales due to volume declines and lower pricing. Adjusted EBIT and EPS also decreased, primarily due to lower gross profit and higher expenses. The company successfully mitigated inflationary headwinds in the first quarter through productivity improvements and cost savings initiatives.

The company expects core inflation to remain low for the full year, with pricing contributing to this. They are also using other strategies such as supply chain productivity and cost savings initiatives to mitigate inflation. Adjusted marketing and selling expenses increased, but administrative expenses decreased. There was some timing favorability in expenses in the first quarter, but it is expected to even out in the second quarter. The company remains on track to achieve $1 billion in savings by the end of fiscal 2025.

In the first quarter, the company's adjusted EBIT decreased by 9% due to lower adjusted gross profit, higher marketing and selling expenses, and lower benefits from pension and postretirement income. This resulted in a decrease in adjusted EPS of $0.11 per share compared to the prior year. In the Meals & Beverage segment, organic net sales decreased by 3%, driven by a decline in volume and mix, but partially offset by net price realization. Sales in the U.S. soup category decreased by 5% following a previous increase of 11%. As a result, segment operating earnings for Meals & Beverages decreased by 13% to $287 million.

In the first quarter, operating margin declined due to lower gross profit margin, driven by higher costs and unfavorable volume and mix. Snacks division saw a 1% increase in organic net sales and a 5% increase in sales of power brands. Operating earnings for the Snacks division increased by 5%. Operating cash flow for the quarter was $174 million, and the company plans to reinvest in the business and increase capital expenditures for growth.

In the first quarter, the company paid $114 million in dividends and repurchased $28 million in shares. Their balance sheet is strong with a net debt of $4.6 billion and a net debt to adjusted EBITDA leverage ratio of 2.8 times. They have $91 million in cash and cash equivalents and $1.85 billion available under their revolving credit facility. They also entered into a $2 billion credit agreement for the Sovos Brands acquisition. The company reaffirmed their full-year fiscal 2024 guidance, with organic net sales expected to be between 0% and 2%, reflecting volume declines in the first half and positive trends in the second half. Net sales in the second quarter are expected to follow in-market trends, with a slight improvement in volume compared to the first quarter, but still lower than the previous year. The company's full-year guidance range for net sales reflects potential variability and the speed of volume recovery for the rest of the year.

The company's full-year adjusted EPS guidance remains unchanged and they expect modest earnings growth and margin progress in fiscal 2024, with a focus on reducing inflationary costs and increasing productivity. They will see a shift in expenses from Q1 to Q2 and a dilutive impact from a recent divestment. The acquisition of Sovos Brands will not be included in their fiscal 2024 outlook. They will continue to invest in their brands and increase capital expenditures. The timing shift of the Sovos Brands transaction has led to the acceleration of certain key growth and infrastructure projects. The company expects improved adjusted gross margin and EBIT drivers in the second half of fiscal 2024 due to lower inflation and increased productivity and cost savings.

The company expects margin trends to improve in the second half due to factors such as stabilizing volume, favorable mix, and lower pension and postretirement income headwinds. The first quarter results were as expected and the company's fundamentals are strong. The Snacks business is progressing in its margin journey while the Meals & Beverage business continues to attract consumers. The company is well-positioned to deliver for the rest of the fiscal year. The management team thanks all teams for their hard work and wishes everyone a happy holiday season. During the Q&A session, a question was asked about the recent holiday season data and how it is informing the company's performance for fiscal 2Q and the rest of the year. The company believes it is important to look at trends over longer periods of time.

The speaker discusses the importance of Thanksgiving for their business and the resilience of consumer spending during the holiday. They mention their strong positions in key categories like broth, condensed soup, and stuffing, and how they saw improvements in share in these categories. They also mention changes in shopping dynamics, with consumers making later purchases and actively seeking promotions. While there were some headwinds in terms of dollars spent, the speaker believes they did a good job executing within the holiday.

In the fourth quarter, Campbell's products were back in the lead position for Thanksgiving after customers had chosen private label last year. This bodes well for the upcoming holiday season. Gross margins were above forecasts, indicating more rational promotional tactics from Campbell. The company is seeing better lifts from promotional activities, with a tailwind from a decrease in private label. Retailers have the decision of who to feature in their ads and on end caps for key weeks.

The company believes that investing in promoting their brands is crucial for a successful return on investment. Private label products were more of a focus last year, but this holiday season proved that the Campbell's brands are still important. The company has been managing costs well and expects to continue doing so while balancing affordability and margins. There are no significant changes expected in terms of pricing and margins, and the company remains agile in a dynamic environment. The next question comes from Ken Goldman of JPMorgan.

Carrie Anderson and Mark Clouse discuss the opportunity to manage discretionary spending as the year unfolds. They mention their enterprise-wide cost savings initiative and how it will impact various areas of the organization, including COGS and SG&A. They also highlight two main buckets where they are focusing on cost savings: non-working expenses and non-people costs within SG&A. They emphasize the importance of maximizing every dollar in order to invest in the right areas and deliver earnings.

Mark Clouse discusses the improving share data within the soup category and mentions that they have had conversations with their key customers about the category's overall volumes and affordability. He also mentions that they are focused on ensuring the long-term profitability and health of the category and that there will be a better step-up in units during the holiday period with the right investment package. Overall, he believes that the category remains strong and will continue to be so in the future.

Mark Clouse discusses the growth and slowdown of the soup category, stating that the four-year CAGR is around 3-4%. He believes that the category still has a solid runway ahead, especially in important growth areas. In the last quarter, the "grow" and "optimize" brands had both strengths and challenges, with broth recovering in the optimize category. The tactics used for both categories have resulted in a 3% growth for "grow" and a decrease for "optimize" in the past couple of years.

In the past two years, the company has seen strong growth in key areas like Chunky and condensed soups. The recent success in broth can be attributed to cycling private label products. The company made a reasonable investment to win key holiday weeks, resulting in a 4% increase in broth sales and a decrease in private label sales. However, there has been pressure on ready-to-serve soups due to lower-income consumers migrating to more affordable options. The company plans to position Chunky soups as a protein-rich and versatile meal option to cater to these consumers. Overall, the company is not concerned about the dip in ready-to-serve sales and is seeing strong growth in other areas.

The speaker, Mark Clouse, responds to a question from Jason English about inflation and its impact on the company's margins. Clouse explains that while core commodity inflation is expected to remain stable, there are other factors contributing to margin pressure, including supply chain costs, mix dynamics, and fixed cost leverage. He also mentions that these pressures are not unexpected and are related to volume decreases.

The speaker discusses the normalization of costs in the snack food industry, which will affect future earnings. They also mention a potential decline in growth for snack foods due to increased competition and commoditization in certain segments.

In the first quarter, the company's power brands continued to perform well, although at a slightly lower rate of growth compared to previous years. The company is actively managing its non-core snack businesses, which were weaker due to competition from private label products. Overall, there may be some pressure on certain categories, but it is important to remember that these businesses were growing at a much higher rate last year. The company plans to provide more information on margin timing and optimization efforts in the second quarter.

The speaker discusses the growth and success of the company's in-market 3% growth and the strong double-digit growth over the last couple of years. They also mention the need to stay vigilant and adapt to consumer preferences. The speaker then talks about the success of two particular brands, Lance and Late July, and attributes their success to consumer dynamics and the stability of premium brands. They also mention that lower-income households contribute to the decline in sales, while mid- and higher-income households have been stable or growing.

The speaker discusses the success of the brand Late July in the added-value and elevated space, and its relevance in consumer segments. They also mention the high demand for the sandwich cracker segment, particularly the brand Lance, which is performing well among the more challenged consumer base. The speaker then talks about the innovation in Goldfish, which is aimed at broadening usage of the brand to the entire household, as it is currently popular among kids.

The company has been successful in creating new products that appeal to both teens and adults. Their recent innovations, such as Frank's RedHot, Old Bay, and Mega Bites, have helped make Goldfish the number one requested snack among teens for two years in a row. The new product, Crisps, is a perfect fit for teens as it combines the texture of potato chips and crackers. The company's goal is to continue to be the top choice for kids while also appealing to the entire household. This may result in increased sales and longer retention of Goldfish in households as kids grow up. The conference call has now ended.

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