The paragraph covers the introductory remarks of Campbell's Q1 Fiscal 2025 Earnings Conference Call. Rebecca Gardy, Chief Investor Relations Officer, introduces the meeting, noting that remarks are prerecorded, followed by a live Q&A. The slide deck, earnings release, and prepared remarks are available on Campbell's Investor Relations website, with a replay and transcript to follow. CEO Mark Clouse will discuss the company's first-quarter and division performance, while CFO Carrie Anderson will detail the financial results and fiscal year guidance. The presentation includes forward-looking statements subject to certain risks and assumptions, detailed in their SEC filings.

In the paragraph, Mark Clouse announces his plans to retire from Campbell’s and transition with the incoming CEO, Mick Beekhuizen, who has been appointed as the 15th CEO in Campbell’s history. Clouse expresses confidence in Campbell’s future, citing its strong leadership team and strategic direction. He reflects on his personal decision to pursue a lifelong dream of working in sports, specifically as the Team President of the Washington Commanders. Clouse is grateful for the opportunity and eager to support the team in building a championship-caliber organization.

The final six years of working with Campbell's have been highly rewarding and inspiring due to the dedicated team. The first quarter of fiscal '25 met expectations, with a 10% increase in net sales, driven by Sovos, although organic net sales were down 1% due to consumer dynamics and the timing of Thanksgiving. Adjusted EBIT grew 6%, and EPS was $0.89. While the later Thanksgiving led to mixed results in different sectors, the Leadership Brands showed growth. The company is effectively navigating challenges, achieving cost savings, and progressing with Sovos integration, reaffirming its fiscal '25 guidance with a pragmatic outlook.

In the upcoming second quarter, which includes the important holiday season, the company aims to make significant progress toward meeting its full-year commitments, expecting momentum in top-line and market share growth. Although Q1 saw a 1% decline in organic net sales, the integration of Sovos, particularly the successful Rao’s brand, offset this, keeping net sales flat with improved volume and mix. The food sector shows positive trends, like increased consumer confidence and stabilizing food volumes, with a recovery anticipated through 2025. With 75% of its portfolio in growing categories, Campbell is well-positioned. Their 16 Leadership Brands, comprising a significant portion of net sales and earnings, saw a 2% increase in dollar consumption and positive share growth, highlighting their strong market positions.

The paragraph discusses competitive pressures in the snack industry, particularly from new entrants and private labels, but expresses confidence in the strength of the company's Leadership Brands. In the Meals & Beverages division, organic net sales were flat due to timing issues related to the Thanksgiving holiday, but showed growth when accounting for the acquisition of Sovos brands. Specifically, the Soup portfolio saw dollar share growth for the third consecutive quarter, driven by broth and condensed cooking segments. Swanson broth benefited from increased category usage and challenges faced by private labels. Although private label competition is expected to intensify, the company believes the new consumer base gained during this period provides an opportunity for future retention.

The condensed soup segment has experienced growth for the fourth consecutive quarter, driven by the popularity of red and white cooking soups as consumers cook at home, with expectations for further improvement during colder weather. The Ready-to-Serve portfolio showed stabilization, with gains in products like Chunky, Rao’s, and Homestyle due to innovation and marketing efforts, despite a slight negative impact from removing Well Yes! from shelves. The Italian sauce portfolio, featuring Rao’s and Prego, demonstrated strong growth, with Rao's achieving 15% consumption growth and Prego 5%. This success is attributed to targeting different consumer segments and price tiers, enhancing market presence. Rao's growth is expected to exceed previous forecasts slightly, with long-term growth settling in at mid-single digits. The integration of Distinctive Brands is progressing well, providing significant expansion opportunities.

Rao's leads the Italian sauce market in dollar share despite reaching fewer households and offering fewer SKUs than competitors like Prego. The brand's popularity is growing, especially among millennials, suggesting strong long-term potential. Expansion into new segments such as Alfredo and premium sauces is expected to increase household penetration. Rao's competitive value and quality compared to mainstream Italian takeout allow it to access a larger market. In the Snacks business, there was a slight decline in organic net sales due to strategic portfolio reshaping, focusing on Leadership Brands for sustained growth. Despite this, there was progress in crackers, fresh bakery, and deli snacks, though the salty snacks and cookies segments faced more competition.

The paragraph highlights the strong market performance and strategic initiatives of Pepperidge Farm and its brands. Goldfish maintained its top position among teens, and Snack Factory, known for its Pumpkin Spice pretzels, expanded its market presence. Despite competitive pressures in the salty snacks category, the company has integrated plans for Q2 to stay competitive. In response to increased competition from private labels in cookies and pretzels, the company is focusing on pricing, advertising, and innovation, particularly for the holiday season. The summary concludes that while recovery varies across categories, an overall positive market environment is expected through fiscal 2025.

The first quarter results aligned with expectations, bolstered by the Sovos Brands acquisition, leading to a 10% increase in reported net sales. Although organic net sales decreased by 1% due to a challenging consumer environment and timing issues with the Thanksgiving holiday, Sovos Brands contributed significantly to the growth. Adjusted EBIT rose 6%, but adjusted EPS fell 2% to $0.89 due to higher debt-related interest expenses. The acquisition's impact on adjusted EPS was neutral. The company anticipates improved performance in Q2, supported by the integration progress and strength of the Rao’s brand.

In the first quarter, the adjusted gross profit margin declined by 70 basis points, with a significant impact from an acquisition. Excluding the acquisition, the margin was down by only 10 basis points, as productivity and cost savings initiatives mostly offset inflation and supply chain costs. A new $250 million cost savings program delivered $30 million in savings, including $9 million from Sovos integration. Marketing, selling, and administrative expenses rose due to the acquisition, but remained flat as a percentage of net sales. Advertising expenses increased by 13%, while adjusted administrative expenses rose by 9% due to integration, higher costs, and inflation, partially mitigated by savings initiatives. Adjusted EBIT increased by 6% due to higher gross profit, despite increased expenses. However, adjusted EPS fell to $0.89 due to higher interest expenses from the acquisition and bond refinancing. The acquisition was neutral to adjusted EPS for the quarter.

In the first quarter, the Meals & Beverages division reported a 22% increase in net sales due to an acquisition, with pro forma growth at 2% and organic sales flat. Positive factors included growth in Prego sauces and Canadian markets, while U.S. soup consumption increased by 1%. Operating earnings rose 17% due to the acquisition and reduced marketing expenses, though operating margins fell by 60 basis points to 19.8%. In the Snacks division, organic net sales decreased by 2% due to declines in several product lines, with operating earnings dropping 12% due to inflation and supply chain costs. Snacks' operating margin fell by 120 basis points to 13.3% due to reduced gross profit margins and increased marketing expenses.

In the second half of the year, the company anticipates stronger operating earnings growth and improved margins due to better volume trends, a neutral net pricing impact, and contributions from Leadership Brands. The first quarter saw a 29% increase in operating cash flow to $225 million, with significant capital reinvestment and commitment to shareholder returns through dividends and share repurchases. A 5% dividend increase was announced for January 2025. The company’s net debt to adjusted EBITDA leverage ratio was 3.7 times, influenced by the Sovos acquisition, with a long-term goal of reducing it to 3 times by fiscal 2027. With $808 million in cash and a $1.85 billion credit facility, they completed a $1.15 billion bond issuance to refinance debt. The company reaffirms its fiscal 2025 guidance, balancing progress with current economic conditions.

The paragraph discusses the company's strategies and financial outlook for fiscal 2025. It highlights a planned net price investment of less than 100 basis points to adapt to the dynamic consumer and macroeconomic environment, with a focus on the crucial holiday period in Q2. To support this investment, the company aims to accelerate cost savings to $90 million, up from $70 million, through a three-year, $250 million program. Additionally, it expects a $10 million improvement in adjusted net interest expense due to refinancing, and anticipates stronger-than-expected pro forma growth from Sovos Brands, specifically Rao’s, which should slightly exceed 10%. This acquisition is predicted to bolster adjusted EPS in the latter half and full fiscal year. Collectively, these efforts should maintain the guidance range and ensure competitive investment in the company’s brands. The second quarter will be crucial for assessing progress.

The paragraph discusses the company's financial outlook for fiscal '25, highlighting expectations for consumer recovery, sales, and adjusted EPS. It anticipates modest organic growth in the second half due to contributions from Sovos Brands and improved base business trends, though offset by lower broth sales. Adjusted EPS should benefit from productivity, cost savings, and a 53rd week, despite initial investment increases. The company also mentions an upcoming divestiture of noosa, which is not yet factored into fiscal '25 guidance and expects to close in early 2025, potentially slightly reducing EPS. Guidance will be updated after the transaction closes.

The paragraph wraps up the company's earlier statements, noting satisfaction with Q1 performance aligned with expectations, and strong results from Sovos Brands. The company continues to focus on consumer value, cost-saving initiatives, capital discipline, and cash generation. Their full-year guidance remains unchanged despite competition, with plans for additional savings to support long-term brand positioning. The statement concludes with congratulations to Mark on a new opportunity and anticipation for working with Mick as Campbell’s future CEO, followed by opening the floor to Q&A. Ken Goldman of JPMorgan asks about gross margin and marketing underperformance compared to consensus, seeking insights into their impact on EBIT margin expectations. Mark Clouse responds, offering to provide additional insights on the differences.

The paragraph discusses the company's financial performance, highlighting the in-line expectations for pricing, productivity, and cost savings. It notes a strong performance from Rao's and Sovos, while the organic business was softer due to timing with Thanksgiving and inventory shifts. This mix, particularly with Sovos, impacted the gross margin, as Sovos and Rao's have lower margin profiles compared to the higher-margin legacy business. Despite this mix issue, interest expenses were managed well, contributing positively to the bottom line. The company is also proactively managing its debt refinancing, which aids in making Sovos more accretive for the year.

The paragraph discusses the company's marketing and sales strategy for the year, emphasizing the impact of integrating Rao's and indicating a flat performance in the base organic business for the current quarter. However, a significant increase in investment and performance is expected in Q2 due to holiday sales and innovation. Ken Goldman comments humorously about his earlier praise, and Mark Clouse and Carrie Anderson explain that the expectations for the second half of the year remain high. They note that there are certain advantages, like Sovos contributing to organic growth starting in March, which should lead to modestly improved organic growth in the second half compared to the first half.

The paragraph discusses the company's financial outlook for the second half of the year, highlighting expected modest improvements in organic growth trends. There will be a focus on second-half EPS and margin progress due to a more neutral net price and marketing impact, higher productivity, and cost savings benefiting from the integration of Sovos. There is also a reduced headwind from interest expenses and a unique 53rd-week financial benefit in Q4. The company reports favorable interest expenses, accelerated cost savings, and strong performance from Sovos integration. Confidence is expressed in the company's earnings and cash flow, and the dividend has been increased as a sign of confidence in the business.

In this paragraph, company representatives are discussing the financial outlook and performance of Rao's, indicating a strong contribution despite needing more investment. They mention successful debt management and reduced interest costs, which boosts confidence for the year's performance, despite expecting less than 100 basis points change in pricing. Andrew Lazar from Barclays asks about the back half of the year, noting that organic sales slightly underperformed expectations, but are expected to be flat in fiscal Q2. He points out that many food companies have predicted another below-par year in the next calendar year, which correlates with Campbell's fiscal '25 expectations for improved results. Ken Goldman and Mark Clouse also exchange congratulations.

In the paragraph, Mark Clouse discusses managing expectations for the latter half of the fiscal year. He notes that while they aren't forecasting a dramatic improvement, they are optimistic due to various factors. These include the cycling of last year's tougher conditions, the integration of Rao's into their organic numbers, and a strong investment and innovation plan. Clouse acknowledges industry concerns and reiterates that fiscal 2025 is viewed as a transitional year rather than a growth year. He emphasizes their consistent strategy and the solid foundation laid out for Q2.

In the paragraph, Mark Clouse discusses the company's strategy for marketing and promotions, emphasizing a transparent approach to achieving a modest improvement in their position by the year's end. He confirms that their promotional efforts remain consistent with past levels, despite competitive pressures. Clouse stresses the importance of balancing marketing and innovation with disciplined pricing, particularly in categories like cookies and pretzels, to maintain competitiveness without reducing price points disproportionately.

The paragraph discusses how the company is observing market dynamics in the snack category, notably as the holiday season begins. They note that their market shares for cookies are stabilizing, which is a positive sign moving into the second quarter. However, in the salty snack sector, they are facing significant competition from new entrants across various subsegments like kettle chips, pretzels, and tortilla chips. This competition is not driven by price but by innovations and promotional strategies. Despite the competitive pressure, they do not feel compelled to resort to unsustainable promotions. The paragraph also includes a brief exchange where Peter Galbo from Bank of America congratulates Mark and Mick, and asks Mark Clouse about the impact of an inventory timing shift due to Thanksgiving's later date this year, seeking quantification of this shift's effect.

The paragraph discusses the differences between in-market consumption and net sales, attributing inventory management and the later timing of Thanksgiving as contributing factors. Retailers have been focused on reducing inventory levels, and some inventory was built up in early November, impacting quarterly results. Peter Galbo inquires about Rao's performance, and Mark Clouse explains that they are observing a continued shift from dining out to home meal preparation, with Rao's growth being notably strong among middle and lower-middle-income households, contributing to its success.

The paragraph discusses the strategic focus of Rao's and Prego brands in appealing to consumers by emphasizing the value and quality of Rao's products compared to takeout or online orders. The emphasis is on targeting various income levels and occasions for growth, supported by a new advertising campaign highlighting Rao's unique Italian heritage and quality. Additionally, there's an exchange with Robert Moskow from TD Cowen, who questions Mark Clouse about the unexpectedly low snack margins of 13.5% and the impact of supply chain inflation on margin targets for the year.

The paragraph discusses concerns about the pricing of salty snacks being too high during the pandemic, leading to the need for a value correction moving forward. Mark Clouse addresses the company's longer-term goals, emphasizing a focus on cost savings and operational improvements to maintain competitiveness. He acknowledges that during the pandemic, snacks were less affected by price elasticity due to reduced promotions, but anticipates that promotional strategies will remain vital in the competitive snacks market.

The paragraph discusses Campbell's strategy and outlook for its snacks division. The company is optimistic about operating in premium segments and doesn't foresee a need for major structural changes despite price pressure in base pretzel and cookie lines. They plan to focus on promoting impulse purchases. Carrie Anderson anticipates a margin improvement in the second half of the year due to better volume trends, an improved snacks mix focusing on leadership brands, and less impact from partner brands and a recent divestiture. The company is also implementing cost-saving measures, including restructuring their Jefferson plant and optimizing their distribution system, to achieve a 15% pathway. Mark Clouse adds that the second quarter will be crucial for understanding these developments.

The paragraph is part of a conversation about trends in the snacking industry. Mark expresses optimism about recent positive trends in snack sales and emphasizes the importance of balancing growth and margin goals. Jim Salera from Stephens asks about promotional strategies in the industry, noting that the volume of sales on promotion is still lower than pre-COVID levels. He inquires if the industry is adopting a more tactical approach to promotions, suggesting that price differences may become less significant if consumer behavior normalizes. Mark responds that current promotional activities in the snacking sector appear consistent with expectations and not characterized by excessive discounting or unprecedented promotional levels.

The paragraph discusses the trends and expectations for Campbell's snack category performance. The speaker acknowledges an increase in volume and anticipates further stabilization throughout the fiscal year. In the second half of the year, the company's financials will reflect a return to normalized snacking levels compared to the previous year's downturn. Although they haven't returned to historical performance levels, their category trends are positive, with certain snack categories performing better than others due to their focus on different segments like natural, organic, and deli snacks. As the year progresses, Campbell expects gradual improvement due to favorable comparisons from a lower base in prior quarters, though not necessarily reaching the 3-4% growth they desire. The speaker emphasizes that the company operates in advantaged categories, which contributes to its positive outlook.

In the paragraph, Mark Clouse discusses the success of Rao's, a premium product, among millennial households despite their generally lower spending power. He attributes this success to the high quality and differentiation of Rao's, which appeals to a broad range of consumers, even those under economic pressure. Clouse suggests that other premium brands could benefit from highlighting their unique quality attributes, especially during occasions that demand the best, like holiday entertaining. He emphasizes the importance of having genuine quality differences to justify premium pricing and believes that Rao's success exemplifies this principle, offering valuable lessons for other products in the portfolio.

The biggest takeaway is that making the experience worthwhile is crucial. The conference call then concludes and participants are thanked before disconnecting.

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