The operator welcomes listeners to the Campbell Soup Company Third Quarter Fiscal 2024 Earnings Conference Call and introduces the host, Chief Investor Relations Officer Rebecca Gardy. The call will begin with prepared remarks from CEO Mark Clouse and CFO Carrie Anderson, followed by a live Q&A session. The presentation and earnings press release are available on the company's website. The speakers will make forward-looking statements and provide a list of risk factors. Non-GAAP measures will be reconciled to GAAP measures in the appendix. The agenda for the call is outlined on Slide 4, with Mark discussing third quarter performance and in-market performance by division.

Mark Clouse, CEO of Campbell's, discusses the company's financial results for the third quarter of fiscal year 2024 and provides an update on the acquisition of Sovos Brands. He notes stable organic net sales, double digit growth in adjusted EBIT and EPS, and expanding margins. He also mentions the stabilizing performance of their Meals & Beverage business and moderate category pressure in Snacks, but remains confident in the strength of their portfolio. The company's fiscal '24 outlook has been updated to reflect the addition of Sovos Brands and the pace of the consumer recovery.

In the third quarter, both adjusted EBIT and adjusted EPS saw double-digit increases, with the recent acquisition having no significant impact on adjusted EPS. While in-market consumption was down 2%, it was up 6% compared to two years ago due to normalized pricing and volumes. The difference in organic net sales and consumption was mainly due to strong performance in unmeasured channels like foodservice and Canada. The addition of Sovos Brands has had a positive impact on the business, with a 200 basis point improvement in top line and volume and mix growth. As integration continues, further benefits are expected. The current consumer environment is showing signs of recovery, with consumer confidence improving and an increase in household penetration for the top 50 edible categories. However, the pace of recovery varies depending on the category and consumer income level, with the Snacks business facing some short-term pressure among lower and middle income consumers.

The snacking segment has shown some improvement in recent weeks and is expected to fully recover in the first half of fiscal 2025. The company is focusing on execution, innovation, and collaboration with retail partners to remain relevant and win in terms of quality and value. The Meals & Beverages division achieved comparable organic net sales and volume improvement from the second quarter, with strong growth in unmeasured channels. The addition of Sovos Brands has contributed to a 5% growth in net sales and 3% growth in dollar consumption. The soup portfolio has also seen improving trends and share gains in key segments, particularly in the cooking side, where the company has been able to meet the increased demand for broth due to industry-wide supply issues.

The paragraph discusses the positive growth indicators for Campbell's in terms of household penetration and market share gains, particularly with the addition of Rao's ready-to-serve soup business. The company has surpassed its goal of building a billion-dollar sauce business and is seeing momentum in household penetration for both Prego and Rao's. The acquisition of Sovos is also contributing to potential growth for Rao's. In the frozen category, there has been progress in the quarter.

The frozen meal business and noosa brand have shown strong performance, while the Snacks business saw a slight decline in organic net sales. However, the power brands within the Snacks division have remained resilient and continue to show growth. The company will provide more updates on their plans for the Meals & Beverages division during their upcoming Investor Day.

The company's power brands represent two-thirds of their Snacks business, providing a strong foundation for future growth. Despite declines in lower margin partner brands, contract manufacturing, and fresh bakery, the company remains optimistic about the snacking occasion. Over the past three years, Snacks categories have shown resilience and have experienced less slowdown compared to other edible categories. The company expects continued pressure in the short term but is confident in the long-term growth of snacking.

The third quarter saw strong performance from Late July and Pepperidge Farm cookies, driven by new product development and effective marketing. Late July showed a 26% increase in net sales, while Pepperidge Farm cookies continued to attract buyers across all generations. The Snacks business also saw growth and margin expansion, thanks to network optimization and disciplined spending. The company is on track to reach its operating margin goals and is making investments to improve its supply chain while cutting costs in less efficient areas.

In the third quarter, the company is investing $230 million in supply chain modernization, creating 210 new roles and reducing 415 roles. They will also be closing a plant and simplifying another. The company remains confident in their outlook and will provide more details at their upcoming Investor Day. The third quarter saw positive results, including a strong contribution from the Sovos Brands business.

In the third quarter, reported net sales increased by 6% due to the partial contribution from Sovos Brands. Organic net sales, excluding the impact of acquisitions, remained stable and showed a 2% growth on a two-year compounded annual basis. Adjusted EBIT and earnings per share both increased double digits, with expansion in gross margin and EBIT margin. The acquisition of Sovos Brands had a neutral impact in the quarter, exceeding expectations. Adjusted gross profit margin also expanded by 30 basis points, driven by supply chain productivity and cost savings initiatives. Core inflation remained low in the quarter.

The company expects core inflation to remain within a certain range for the rest of fiscal year 2024, and will focus on areas of increased input costs and persistent inflation. They have achieved a significant portion of their cost savings program and expect productivity initiatives to offset inflation in the fourth quarter. Other operating expenses increased due to the recent acquisition, but were partially offset by lower costs in the base business. Adjusted EBIT and EBIT margin increased due to higher gross profit, but were partially offset by higher expenses from the acquisition. Approximately $3 million in cost synergies were realized from the acquisition integration plan.

The company expects to save $50 million in annual costs by the second year after the acquisition, with most of the savings coming from administrative expenses. The integration is going well and more details will be shared at an upcoming Investor Day. Adjusted EPS increased due to higher earnings and a lower tax rate, but the acquisition had a neutral effect on EPS. The Meals & Beverages division saw a 15% increase in net sales due to the acquisition, with pro forma growth of 5% if the acquisition had occurred earlier. The division saw flat organic net sales, with gains in foodservice offset by declines in US retail. US soup sales increased, indicating a positive trend for the business.

In the third quarter, the company saw a 2% increase in sales, mainly due to an increase in broth sales. The operating margin for Meals & Beverages also improved, despite the recent acquisition having a lower margin profile. Snacks saw a slight decrease in sales, but there was a sequential improvement in volume trends from the previous quarter. The operating margin for Snacks was lower compared to last year, but in line with expectations. The company is aiming for a Snacks margin of 17% in the future. Cash flow from operations was strong, but slightly lower due to costs related to the acquisition. Capital expenditures have increased as the company focuses on key investments for growth and capability building.

The company remains committed to returning cash to shareholders through dividends and share repurchases. The recent acquisition of Sovos Brands has resulted in a net debt to adjusted EBITDA leverage of 3.9 times, but the company aims to return to its 3 times net leverage target by the end of year three. The company has a strong cash position and available credit, and has updated its fiscal 2024 guidance to reflect the impact of the acquisition. Full-year net sales are expected to increase by 3-4%, with organic net sales growing by approximately flat to down 1%. The company is facing challenges due to the current economic environment and consumer behavior, particularly among lower income levels. Fourth quarter organic net sales are expected to increase moderately from Q3, with a significant contribution from Sovos Brands.

Sovos Brands, specifically Rao's, has exceeded sales expectations since the deal announcement, leading to higher adjusted EBIT contributions. The company expects long-term net sales growth to be in the mid-single-digit range and adjusted EBIT growth of approximately 6.5% to 7% for the combined business. The outlook for the fourth quarter includes double-digit adjusted EBIT growth driven by the acquisition and base business performance. The adjusted EBIT contribution of Sovos includes stock-based compensation and acquisition-related depreciation and amortization expenses. The company expects annual transaction-related depreciation and amortization expenses to be in line with original expectations. Full-year adjusted EPS for the combined business is expected to be up 2% to 3%, including expected dilution from the Sovos acquisition.

The company expects double-digit growth in Q4 adjusted EPS, but also higher net interest expense due to an acquisition. They also updated their guidance for cost savings, adjusted net interest expense, and capital expenditures. The company is pleased with their Q3 results and expects continued improvement in volume trends and growth in Q4. They have confidence in a full recovery in their fiscal first half of ‘25, while slightly lowering their ‘24 organic sales forecast. They define a full recovery as returning to pre-pandemic levels.

The prediction of consumer recovery has been challenging due to the non-linear path it has followed. The impact has been staggered depending on income level and category. The Snacks business has been more resilient due to its role and emotional connection in tough times. However, there has been a catching up of consumer trade down and buying on promotion in the third quarter, similar to what was seen in Meals & Beverage categories a year ago. As a result, Meals & Beverage categories are starting to recover and return to a more historical run rate, with a 1% increase in dollars and units in the last four weeks. This impact was felt earlier in the Meals & Beverage categories, making the first half of the year a broad six-month window.

The speaker believes that the decline in snack sales due to changes in consumer behavior will be fully cycled by the first half of next year. They also mention that their company's execution, promotional landscape, and innovation will play a role in this. The speaker is encouraged by recent data showing that snack categories are close to being neutral, with some categories even performing well. However, the recovery is not linear and may be felt more by lower income individuals.

The speaker discusses the success of the Rao's integration and how it has exceeded expectations. They mention that there will be more details on the growth potential of Rao's at the upcoming Investor Day in September. The speaker also mentions that the company's diligence and patience in the acquisition has validated their assumptions and potentially identified additional upside.

The speaker discusses the positive financial and business growth of the company since the acquisition of Rao's. He praises the team for their hard work and mentions the success of the noosa business. The role of frozen products in the growth is also mentioned, but the speaker states that they did not heavily rely on it in their growth model.

The speaker discusses their company's willingness to change and their plans for achieving synergy. They also mention the impact of the low-income consumer market on snack sales and their strategy for maintaining competitiveness in the market. They emphasize the importance of the upcoming summer selling season and their approach to pricing and promotions.

The company is discussing their strategy for dealing with the tough market for cookies, where there is a lot of competition and consumers are trading down to private label brands. They are focusing on providing added value and innovation for their premium cookie business. In the salty category, they plan to balance promotions and marketing investments to stay competitive. In Meals & Beverages, they have decreased pricing by 1%, which was unexpected.

Mark Clouse, CEO of a major food company, explains that the recent trend of consumers trading down to lower-priced options has been more prevalent in the Meals & Beverages category compared to Snacks, which experienced this trend a year ago. The company has been working on finding the right balance between price gaps and supporting innovation and marketing in order to maintain its share in the market. In the third quarter, the company was able to stabilize its share in the soup business, but the category was still down. However, in the latest four weeks, there has been an acceleration in the soup business, with positive top line growth and improved share and unit numbers, while private label options have seen a decline. This may be due to the company's decision to not significantly lower prices, as evidenced by the company's strong gross margin.

Mark Clouse and Carrie discussed the company's lower-than-expected gross margin in the consensus for the quarter, attributing it to the dilution caused by the addition of Sovos. However, Clouse expressed confidence in the profit trajectory for Meals & Beverage and noted that the playbook for improving gross margin is well-refined. He also mentioned that the fourth quarter of last year was tough due to the impact of pricing and supply chain costs, but this will be easier to cycle this year.

The company expects a significant increase in EBIT and margin in the fourth quarter due to improved productivity, recovery in soup sales, and a strong Snacks roadmap. However, the acquisition of Sovos will result in a slight dip in margin expansion. Overall, the company anticipates strong growth in EBIT and EPS, and a methodical recovery in the total business. Snacks are expected to return to growth in the fourth quarter.

Mark Clouse, CEO of Campbell Soup Company, discusses the company's strong performance in the foodservice industry, which has been a source of upside for the company compared to other peers in the industry. This is due to the company's progress in their supply chain, which has enabled their foodservice division to sell with confidence. Additionally, the company has seen an increase in demand for their frozen soup products in foodservice, which has been a pleasant surprise. Analysts on the call also ask about the potential for Snack business to be a tailwind for the company in the future.

The speaker discusses the topic of pricing in the CPG industry and whether there are concerns about overpricing. They mention that while there has been some slowdown in the salty category, it is not significant and there is no evidence of overpricing at this time. They suggest that there may be a need to adjust price gaps and frequency, but not necessarily a drastic decrease in pricing.

The speaker believes that the next few months will be crucial for determining the right price and promotion strategy for their meals and beverages. They do not see a need to lower prices at this time, but anticipate a strong promotional push in the fourth quarter. They also believe that the demand for snacks is still strong, despite some economic challenges, and that their portfolio is well-positioned for success in the future.

The speaker discusses the role of private label in the Snacks industry and notes that their company is positioned above this level. They also mention a recent recovery in certain segments and believe that the future growth in snacking will come from added value segments. This is positive for their portfolio compared to competitors. The call then ends.

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