The operator introduces the Campbell Soup Company's fourth quarter fiscal 2024 earnings conference call, with Rebecca Gardy, Chief Investor Relations Officer, as the host. The call will include remarks from CEO Mark Clouse and CFO Carrie Anderson, followed by a live Q&A session. The company will make forward-looking statements and provide a reconciliation of non-GAAP measures to GAAP measures. The agenda for the call includes discussion of fourth quarter and full year performance and guidance for fiscal year 2025.

The company had a successful fourth quarter, driven by improved performance in both divisions and the acquisition of Sovos Brands. They also made significant progress in their strategic plan and introduced fiscal '25 guidance. While the recovery of the Snacks category is slower than expected, the company remains confident in their long-term growth potential.

In the fourth quarter, organic net sales declined by 1%, but volume improved and adjusted EBIT and EPS increased. The acquisition of Sovos Brands had a neutral impact on adjusted EPS. In-market consumption was flat, with the difference in sales primarily due to headwinds in the Snacks business. For the full year, there was slight decline in topline, but growth in adjusted EBIT and EPS. Sequential volume and mix improvement continued in Q4, with growth in Meals & Beverages and stable Snacks. Consumer dynamics are improving, with total food sales in positive territory and growth in lower and middle-income households. However, consumer confidence showed a modest reversal in the fourth quarter, indicating the fragile state of the consumer. Overall, the company expects to see a recovery in the consumer environment, but remains cautious.

In this paragraph, the speaker discusses the material benefits of integrating Sovos into their business and how it has positively impacted their net sales. They also mention the strong performance of their Meals & Beverage division and the growth it has seen, fueled by volume and mix growth. They also highlight the growth of their soup business, with strong consumption and share gains in their Swanson broth business.

In this paragraph, the speaker discusses the overall health of the soup category and the growth opportunities for Swanson. They mention that ready-to-serve soup is facing some challenges, but they expect this to improve as the weather changes. They are also confident in their pipeline of innovation and marketing for their Chunky, Pacific, and Rao's brands. The speaker then moves on to discuss their Italian Sauces portfolio, highlighting the strong growth of Rao's and steady performance of Prego. They believe that having multiple brands that cater to different consumer needs will help them grow overall share. They also express confidence in the ongoing growth of Rao's and highlight the success of the Sovos integration.

Despite being the top Italian sauce brand in terms of sales, Rao's still has room to grow in terms of household penetration and SKU assortment. The brand is also gaining popularity among millennials and has potential for further growth in the future. The company's Meals & Beverages division, which includes brands like Pace, Pacific, and V8 Energy, also has opportunities for growth. In the Snacks business, there was a slight decline in sales but improvements in vol/mix and in-market results. The company is addressing competitive pressure with targeted plans and expects to see continued investment in promotion. However, the growth of their elevated snacks brands will be driven by innovation and marketing efforts, which are expected to be robust in fiscal 2025.

The speaker provides more information on the reasons for the 3% decline in organic net sales, including a 1% reduction due to partner and contract brands and a 1% impact from favorable trade phasing in the previous quarter. They explain that these businesses have lower margins and support competitors' products, so the company is focusing more on their own brands and reducing their reliance on these businesses. They also mention the recent sale of the Pop Secret business and promise to provide more details on their plans for these businesses during Investor Day.

The company does not consider microwave popcorn to be a core focus area for their snack business, but they are confident in their portfolio and are investing in innovation and marketing to drive growth. Despite competitive pressure, their power brands have grown over the past two years. They also saw margin improvement in the Snacks segment, but are being cautious in their fiscal '25 guidance due to the uncertain consumer and category recoveries. They are targeting a 50 basis point improvement in margin for fiscal '25.

The paragraph discusses the fourth quarter performance of Campbell's, highlighting an 11% increase in reported net sales due to the contribution from Sovos Brands. Organic net sales, excluding acquisitions, divestitures, and currency, decreased by 1%, but there was a sequential improvement in volume, moving into positive territory. The company remains on track with savings initiatives and is confident in its longer-term goal of 17% margins for Snacks. The CEO thanks the team for their hard work and commitment and looks forward to laying out the next chapter of the company's history at an upcoming Investor Day.

In the fourth quarter, both adjusted EBIT and adjusted earnings per share increased double digits, with growth in adjusted gross margin and adjusted EBIT margin. On a full year basis, net sales increased 3%, with organic net sales decreasing 1%. Adjusted EBIT increased 6%, and adjusted EPS increased 3%. In the quarter, organic net sales declined slightly, but volumes improved compared to the previous quarter. Sovos Brands contributed 12 percentage points to reported net sales growth, exceeding expectations.

In the fourth quarter, the company's adjusted gross profit margin increased by 80 basis points to 31.4%, driven by supply chain productivity, lower costs, and favorable mix. This offset the impact of lower net price realization, moderate cost inflation, and the acquisition of Sovos Brands. Core inflation remained low and is expected to continue in the low-single digit range in fiscal '25. The company achieved $60 million in cost savings and a cumulative $950 million in their multi-year cost savings program. In Q4, adjusted marketing and selling expenses decreased by 4%, while adjusted administrative expenses increased by 1%. The increase was partially offset by lower incentive compensation costs and cost synergy realization from the Sovos integration plan.

In the fourth quarter, our adjusted EBIT increased by 36% and our adjusted EBIT margin increased by 260 basis points, mainly due to the contribution of the Sovos acquisition and strong performance in our base business. Our adjusted EPS also increased by double digits, primarily reflecting higher EBITDA. In the Meals & Beverages division, net sales increased by 28%, driven by the addition of Sovos. Organic net sales also increased by 1%, with positive volume trends in U.S. soup. Operating earnings for the division increased by 60%, primarily due to the Sovos acquisition and higher gross profit in the base business.

In the fourth quarter, the operating margin for Meals & Beverages improved by 350 basis points, even with the impact of a recent acquisition with a lower margin profile. Snacks saw a 3% decrease in organic net sales, but volume and mix trends improved to flat. The operating margin for Snacks increased by 50 basis points in the fourth quarter and 40 basis points for the full year, in line with the goal of reaching 15% margins. The company remains on track with their margin roadmap, but for fiscal year '25, they expect a margin slightly above 15% to account for normalizing volume trends and the impact of the Pop Secret divestiture. The company generated strong cash flow from operations of nearly $1.2 billion in fiscal year '24, a 4% increase from the previous year, despite incurring one-time cash costs from the acquisition.

Fiscal '24 capital expenditures were $517 million, with a focus on growth and capability building investments, including those related to Sovos Brands. The company also prioritizes returning cash to shareholders through dividends and share repurchases. The net debt to adjusted EBITDA leverage at the end of the fourth quarter was 3.7 times, with a goal to return to a 3 times net leverage target by the end of year three post close. The company has ample liquidity and has completed the sale of its Pop Secret business, which will have a slight negative impact on net sales and earnings per share in fiscal '25. The guidance for fiscal '25 includes an additional week and is expected to have a 9% to 11% increase in net sales, with Sovos Brands included in the organic growth calculation starting March 12th, 2025.

Sovos Brands expects fiscal '25 pro forma net sales growth to be in the high-single digit range, following a year of double-digit growth. Long-term net sales growth is expected to be in the mid-single digit range. Organic net sales growth for the year is expected to be approximately flat to up 2%, with modest positive volume and mix. Adjusted EBIT growth is expected to be 9% to 11%, including the impact of the divestiture of Pop Secret and the operating income contribution of Sovos Brands. Transaction-related depreciation and amortization expense is expected to be approximately $18 million. Core inflation and productivity improvements are expected to be consistent with fiscal '24, and enterprise cost savings of $70 million are expected, including cost synergies from the integration of Sovos.

The company expects to benefit from a $70 million increase in revenue, with one-third going towards gross profit and two-thirds towards marketing and administrative expenses. They plan to increase marketing and selling expenses to return to their targeted range. The company expects adjusted EBIT margin to remain similar to the previous year, with a modest improvement in gross margin offset by the impact of an acquisition and higher expenses. The Snacks division is expected to have a slightly higher operating margin, while the Meals & Beverages division will have a slightly lower margin. Adjusted earnings per share is expected to increase by 1% to 4%, with the divestiture of Pop Secret having a small impact. The company expects Sovos to have a neutral impact on adjusted EPS. In the first quarter, adjusted EPS is expected to be in the mid-to-high $0.80 range. Full year adjusted net interest expense is expected to be between $350 million and $355 million.

The company's net interest expense is expected to be higher in fiscal '24 due to increased debt related to an acquisition and refinancing of bonds. Capital expenditures are expected to be 5% of net sales, with a focus on networking optimization, integration of Sovos, and growth investments. The company saw double-digit growth in adjusted EBIT and EPS in the fourth quarter and expects improving volume trends in the business. The operator then opened up the call for Q&A, with the first question focusing on Meals & Beverages, which saw a 1% increase in organic sales and a 2% gain in volume.

Mark Clouse, CEO of a food company, discusses the drivers behind the improved results in their Meals & Beverages category, which has seen growth due to the current consumer landscape of increased at-home eating. He also addresses concerns about maintaining volume and margin in their soup business, stating that the latest quarter and upcoming first quarter show strong momentum. He also mentions the impact of private label broth on market share, but notes that the overall broth category is still healthy.

The consumption of soup is increasing with the Swanson brand, which is expected to continue during the holiday season. The sauce business, including Prego and Rao's, is also doing well and expected to continue growing. Rao's has seen a 25% increase in the fourth quarter and is expected to contribute to steady growth in the long term. The soup recovery and volume-driven growth is a positive sign for the division's future. The company remains confident in the industry's overall recovery, despite it taking longer than expected.

Mark Clouse, the CEO of Campbell Soup Company, believes that the current economic recovery is not reflected in the data, but he remains optimistic about the company's performance. He points to positive growth in many of their snack categories and believes that the underlying metrics point to normalization. Clouse acknowledges that consumer confidence has taken a hit, but overall he sees a return to normalcy in the company's core businesses.

The speaker acknowledges that there are certain categories that are still struggling to recover, but believes that the journey to recovery will not be linear. They are pleased that their company's categories are performing well, even in a depressed snacking market. They are facing competition from new entrants in the snack category, but they would rather have competition through innovation than discounting. The company is focused on addressing this challenge and is confident that their actions will be enough to offset the trend. The main areas of pressure are in the salty category, with new entrants in pretzels, Kettle chips, and better-for-you tortilla chips.

The speaker discusses the different brands in the company's portfolio, including pretzels, tortilla, and kettle chips. They believe that they have a strong lineup of brands that can be used to defend against competitors and drive innovation. They also mention the importance of marketing and maintaining competitive pricing in order to stay ahead in the market.

Peter Galbo asks Mark Clouse about the performance of Snacks at Campbell Soup Company and how it compares to the pressure their largest competitor is facing in unseasoned and plain potato chips and tortilla chips.

The speaker discusses the differences in sales and marketing strategies between mainstream and elevated segments of the snack industry, using examples such as potato chips and pretzels. They note that brands like Late July, Kettle, and Cape Cod, which tend to be more present in club channels, have seen faster recovery due to their focus on innovation and targeting higher-income households. In contrast, there is more competition and price pressure in the lower and mainstream segments, with private label products gaining traction.

The speaker discusses how Snyder's plays at a higher level, which helps their business. They clarify that the 53rd week is not included in organic sales guidance. There will not be a significant drop-off in Q2, and categories are expected to remain healthy in the second half of the year. However, the cycling of broth may have an impact on sales. The overall trajectory for the year is expected to be a gradual improvement.

Mark Clouse, the CEO of Campbell Soup Company, talks about the company's strategy to balance risks and opportunities in the current consumer landscape. They are not expecting a radical recovery, but rather a slow bounce-back in the snacking category and a more normalized trend in Meals & Beverage. They also anticipate some headwinds from broth and a modest recovery in Snacks in the second half of the year.

The speaker discusses how a potential worsening of the current economic environment would affect their company's growth. They believe it would not be as dramatic as previous cycles and that their diverse portfolio of products would help them weather the storm. However, they acknowledge that consumer confidence is a key factor and remains fragile.

The speaker clarifies that the underlying dynamics of the company's growth should not be overestimated. They also explain that the 53rd week is included in the fiscal '25 guidance for EBIT and EPS, but not for organic net sales growth. The next question asks about innovation in elevated segments and the speaker mentions that Rao's has seen growth across all income segments, possibly indicating consumer trade-down from food away from home.

Mark Clouse, CEO of Conagra Brands, believes that consumers are willing to pay more for quality products like Rao's, even if it means cutting back on spending in other areas. He compares the popularity of Rao's to the success of DiGiorno pizza, which was initially seen as expensive but became a better value compared to other options. This trend is also seen in the snacking category, where consumers are opting for higher-end, more premium options that are perceived as healthier and more enjoyable. This has led to the resilience of these elevated subsegments despite economic challenges.

Mark Clouse, CEO of the company, discusses the impact of the pandemic on the company's products and marketing strategies. He mentions that while the company has seen success in lower-income categories, they have also seen strong performance in mid- to high-income categories with products like Kettle potato chips and natural organic tortilla chips. He also notes that the company will continue to focus on value-driven messaging, but will also prioritize innovation and differentiation in their marketing efforts to maintain their brands' equity and competitiveness in the long run.

The speaker acknowledges that a new product in their category may cause some short-term pressure, but they believe that as they cycle through distribution, they will have a clearer understanding of how successful they have been in promoting their brand. The operator then ends the call, thanking participants for their participation.

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