The operator welcomes participants to the Campbell Soup Company's Second Quarter Fiscal 2024 Earnings Conference Call and introduces the host, Rebecca Gardy. The call will begin with pre-recorded remarks from CEO Mark Clouse and CFO Carrie Anderson, followed by a live Q&A session. The slide deck and earnings press release are available on the company's website. Forward-looking statements will be made, and a list of risk factors is provided. Non-GAAP measures will be used, and a reconciliation to GAAP measures is provided. The agenda for the call is outlined on Slide 4.

Mark Clouse, CEO of Campbell Soup Company, begins the second paragraph of the earnings call by thanking everyone for joining. He highlights the company's successful delivery on commitments, with improved volume trends and operating margin expansion. He notes that while category trends have slowed, there are positive consumer indicators and the team is effectively managing controllables. The company is affirming its full-year outlook and anticipating the closing of the Sovos Brands acquisition, which will add growth to their portfolio. An upcoming Investor Day in June will showcase the company's vision for the future, driven by a focused and advantaged portfolio.

In the second quarter, the company's organic net sales decreased by 1%, in line with consumption. However, many of their brands exceeded their respective category growth rates and gained market share. During the holiday season, the company saw success in strategic categories such as condensed cooking and cookies. They were able to achieve these results while also balancing profitability, as shown by the operating margin expansion in both divisions. Looking ahead, the company's net sales expectations for the second half of the year reflect a range of timelines for category stabilization and consumer recovery.

The company's results in the second quarter were in line with their expectations and they anticipate a modest improvement in the second half of the fiscal year. They expect flat to low single digit organic net sales growth in the third quarter and continued improvement in the fourth quarter. The Meals & Beverages business saw a decline in organic net sales, but the company remains confident in its growth and margin trajectory due to consumer preference for value and quality. The soup portfolio, particularly the condensed cooking and broth categories, saw strong performance in the quarter.

The company's eating soup portfolio had dollar and volume share gains in the quarter, with improvements in Chunky and condensed eating soup. The long-term outlook for ready-to-serve soup remains strong, with the addition of the super-premium Rao's soup line. The company is excited to welcome the Sovos team and their successful brands, which have surpassed $1 billion in annual net sales. The combined portfolio will strengthen the division and contribute to approximately four points of organic top line growth.

The company is confident in the strength of their differentiated Snacks portfolio, which saw a 1% increase in organic net sales and 4% growth in power brands. Despite economic challenges, their power brands continue to perform well and represent two-thirds of total Snacks net sales. The company is also focused on optimizing their portfolio for the future, with a sustained resilience in their power brands and continued growth in their Goldfish business. Their latest innovation, Goldfish Crisps, has had a successful launch.

Goldfish has been a successful launch, exceeding initial expectations and reaching $1 billion in net sales. The company's strategy and innovation have contributed to its growth, and they see potential for even more growth in the future. The company has also made progress on their Snacks margin roadmap, with plans to reach a 15% operating margin by fiscal '24 and 17% by fiscal '26. They are also looking for potential efficiencies and savings to further invest in their brands or expand operating margins. The company is also working on a DSD transformation initiative to create a single Snacks network.

The company is working on optimizing their warehouse and depot network and upgrading technology in order to improve efficiency. They are also looking to combine their Pepperidge Farm snacks and Snyder's Lance routes in underscaled markets to improve economics and service for customers. This will be done through a pay-as-you-go model and is expected to convert about a fifth of the Snacks routes nationwide over a multi-year roadmap.

The paragraph discusses the varied location of routes for Pepperidge Farm bakery, the lack of plans to combine routes, the swift turnover of routes, and the increase in multi-route ownership. It also mentions the second quarter results, which included a decrease in organic net sales, an increase in adjusted EBIT, and adjusted EPS in line with the prior year. The drivers of the net sales performance are also outlined, with a 1% decrease in organic net sales excluding the impact of the divestiture of the Emerald nut business.

In the second quarter, the company saw a 1 percentage point growth from net price realizations, offset by a 2 percentage point unfavorable impact from volume and mix. However, adjusted gross profit margin increased by 70 basis points due to supply chain productivity improvements, net price realization, cost savings initiatives, and favorable volume and mix. Core inflation remained low at single digits and is expected to stay within this range for the rest of fiscal '24. Net pricing averaged 1% for the quarter, but is not expected to be a major driver of net sales growth in the second half of the year. The company is using other strategies such as supply chain productivity improvements and margin-enhancing initiatives to mitigate inflation. They are on track to achieve $1 billion in savings by the end of fiscal 2025.

The company's adjusted marketing and selling expenses remained consistent with the previous year, while administrative expenses increased due to higher costs and inflation. The adjusted EBIT margin increased due to a higher gross profit margin. Meals and Beverages organic net sales decreased by 2%, but showed a 4% growth over a two-year period. US soup sales decreased, but there was a sequential improvement in volume compared to the previous quarter. Overall, the company was pleased with the progress made in Meals and Beverages operating margins.

In the second quarter, the operating margin for Meals and Beverages increased by 20 basis points to 17.9%, and is expected to continue improving in the second half. Snacks saw a 1% increase in organic net sales, with a 3% net price realization offset by a 2% decrease in volume and mix. The volume decline in Snacks improved from 4% in the first quarter to only 2% in the second quarter. Sales of the eight power brands increased by 4% in the second quarter, and operating earnings and margin also improved with a 7% increase and a 110 basis point improvement, respectively. This was driven by higher gross profit, offset by planned higher marketing and selling expenses. Snacks operating margin for the first half was 14.7%, and in the third quarter of fiscal '23, it reached 16%.

The company expects negative pressure on Q3 margins but remains on track to reach a 15% margin for the year. They also expect Snacks margins to increase by 100 basis points per year over the next two years, reaching 17% by the end of fiscal '26. The company generated $684 million in operating cash flow in the first half and used it for capital expenditures, dividends, and share repurchases. Their balance sheet remains stable with a net debt of $4.4 billion and they have enough cash and credit available to close the pending Sovos Brands acquisition. The company is reaffirming their full-year guidance provided on August 31st.

In the second half of fiscal year 2024, the company expects earnings growth and margin progress due to various factors such as volume and mix trends, moderate inflation levels, and ongoing productivity improvements. The company also plans to invest in marketing and selling expenses at the low end of their targeted range. The pending acquisition of Sovos Brands is expected to close in March 2024 and guidance will be updated after the transaction. The second quarter met expectations due to strategic actions taken for future momentum.

The company is confident in their plans for the rest of the fiscal year and expects to see improvements in margin and volume in both segments of their business. They are also excited about the upcoming acquisition of Sovos Brands. However, they expect sales to be towards the lower end of their forecast due to industry challenges. The company will need to rely on volume growth to achieve this, as there will be no benefit from pricing. The CEO and CFO both provide more details on the factors driving their expectations for the top line and explain that EPS will be more heavily weighted towards the fourth quarter due to spending and other factors.

The company has seen sequential improvement from Q1 to Q2, which supports their anticipated trajectory for the back half of the year. They are being cautious with their guidance range due to the sensitivity of certain categories and variables. The back half of the year is expected to see modest improvement, with the biggest variable being the lapping of growth rates from the previous year. In the first half of 2023, they cycled a 1.5% volume mix decline.

The company expects to see sequential improvement in the back half of the year due to easier comps and strong execution, as well as a strong innovation pipeline and marketing efforts. Consumer sentiments are improving and there are signs of a turnaround, with household penetration and purchases increasing. Two-year comps are also strong.

The speaker discusses the company's outlook for the back half of the year, stating that their numbers are in a similar two-year comp range and there is potential for improvement. However, they are being pragmatic with their outlook and hope to see acceleration in the next six months. The speaker then addresses a question about the wording of the back half, stating that they are currently on pace for the lower end of annual guidance, but the first half's top line came in as expected. They mention that Chunky share trends are improving, but it is still challenging. The speaker concludes by saying that the company's performance is consistent in the sequence of improvement and strength in different areas.

The first few months of the year have shown continued strength in broth and cooking businesses, while ready-to-eat soups have been slightly softer. The hesitation in the categories' recovery may be due to the speed at which they are recovering. January was a strong month, but the underlying trend in categories is in line with expectations. Snacks may be seeing a bit more moderation, but overall, the power brands are up 12% on a two-year basis. This has led to a more pragmatic outlook for the company, and their guidance for the year is within a tight range.

The speaker is discussing the difference between one and zero, saying that it is not insignificant but some pragmatism is needed in a variable world. The interviewer asks a follow-up question about the salty snacks category, mentioning a bearish case that it may be weaker than expected due to larger players investing more in price. The speaker responds by saying that the category is generally consistent with history and that they are seeing strong growth rates in their power brands. They acknowledge that there will always be competition and promotion in the salty snacks category, but they are not seeing any irrational behavior from competitors.

The speaker, Mark Clouse, addresses concerns about the underperformance of certain categories, stating that it is not a structural issue and that there are positive indicators for future growth. He also mentions that the contributions from foodservice and Canada were a positive offset in the quarter and that there was a depletion of inventory in the second quarter.

Mark Clouse, CEO of the company, discussed the upsized recovery in Q3 and mentioned that there was a little bit of help from NAFS and Canada in balancing inventory pressure. He also talked about the combo strategy on the DSD routes, which is still in its early stages. Clouse stated that this was an important step in the company's journey and that they have been working on it for a couple of years. They have been treading lightly and moving in a methodical and pragmatic way. The company is learning a lot from the combo routes and feeling good about the progress so far. One of the questions they had to answer was about independent distributors now going to two aisles in the store.

The key to making the independent distributor program successful is to ensure that the economics of the routes are attractive enough for the distributor to invest in their business and provide good service. The company is optimistic about the program and has found that the process of buying back routes and finding buyers is expedited, with many buyers already within the company's network.

The final piece of the puzzle in consolidating the snacks network is the ability to convert to combo routes in underscaled markets, which will allow for a larger percentage of the country to receive the same level of support as scaled markets. This is expected to result in significant savings and improved efficiency and effectiveness in route to market.

The company is seeing improvements in margin and efficiency through warehouse and depot consolidations, as well as combo routes. The technology upgrades and combo routes are expected to boost the business in markets where it has been underperforming. The company expects a 50 basis point margin benefit from the distribution changes, with potential for even further margin improvement beyond fiscal '26. The company will discuss its portfolio balance at the Investor Day, but splitting the business is not currently being considered.

The speaker, Mark Clouse, is discussing the potential for a split of the company and how shareholder value will drive that decision. He emphasizes the importance of doing so from a position of strength and highlights the recent transformation of the portfolio and business. He believes this will result in a best-in-class grocery business and a differentiated snacks business. Clouse also mentions the importance of executing and delivering on their vision before considering other options. The next question from Jim Salera is about the back half cadence for the top line.

The speaker discusses the success of Goldfish in the second quarter, which has gained dollar share and is expected to continue to do well in the snacking market. The success of Goldfish is attributed to a combination of base business support, expansion into new consumer targets and occasions, successful limited time offerings, and potential for growth in other regions. This success serves as a blueprint for other brands in the company's portfolio.

The speaker discusses the success of expanding the Goldfish playbook to other brands, such as cookies, and how it has led to strong growth. They also mention applying this playbook to other parts of the business, such as Meals and Beverage, and highlight the success of Chunky soup. They conclude by mentioning the potential for the Sovos team's playbook to contribute to steady growth in the future.

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