The paragraph is an introduction to Campbell's Second Quarter Fiscal 2025 Earnings Conference Call. The operator announces the recording of the conference and mentions that lines will be muted during the presentation with a Q&A session at the end. Rebecca Gardy, Chief Investor Relations Officer, introduces the call and mentions that Mick Beekhuizen, CEO, and Carrie Anderson, CFO, will also participate. The remarks have been prerecorded, followed by a live Q&A. The earnings press release and slide deck are available on Campbell's website. Mick will discuss the second quarter and in-market performance, while Carrie will detail the financial results and fiscal year guidance. Import tariffs and international trade risks are acknowledged, with a caution about forward-looking statements based on assumptions.

The paragraph discusses Campbell's new CEO, Mick Beekhuizen, expressing his enthusiasm for leading the company and building on its existing strategies. Mick highlights Campbell's strong portfolio of category-leading brands and the commitment of its workforce. He reports that the company's Q2 earnings were in line with expectations despite challenges but notes that the anticipated recovery in the snacks categories did not occur, leading to slightly lower-than-expected top-line results. However, investments in their brands led to stable market shares, with 10 out of 16 leadership brands maintaining or growing their share.

Heading into the year's second half, the company is focused on sustaining momentum in its Meals & Beverages division while aiming for innovation and strategic support in Snacks. Operationally, progress has been made with the Sovos integration and cost-saving initiatives. However, the Snacks division experienced a margin shortfall due to unfavorable mix and challenges in the Fresh Bakery sector. The company is addressing these issues and expects improved margins in the second half, though they have updated their full-year guidance to reflect slower than anticipated recovery in snacking categories. They foresee organic net sales declining 2% to flat, adjusted EBIT decreasing by 3% to 5%, and an adjusted EPS between $2.95 and $3.05. The guidance excludes potential impacts from tariffs or regulatory changes. Despite challenges, the company remains confident in its plans, supported by a strong brand portfolio and talent. In the second quarter, a 9% net sales growth was achieved, boosted by Sovos.

In the second quarter, the company saw a 2% decline in organic net sales due to consistent performance in Meals & Beverages and weaker-than-expected snacking categories in a competitive market. Volumes remained flat, achieving four consecutive quarters of flat or increased volume. Adjusted EBIT rose by 2%, and adjusted EPS was $0.74, slightly benefiting from the Sovos acquisition. The Leadership Brands, which account for about 90% of net sales, exhibited stable performance, with Meals & Beverages showing a 1% increase in dollar consumption. Most brands grew or maintained market share, although Swanson broth experienced a slight share decline due to a private-label recovery. In Snacks, improvements were seen in brands like Pepperidge Farm cookies and Snyder's of Hanover pretzels compared to Q1, despite overall consumption falling by about 1%. During the holiday season, strategic in-market support led to increased shopping for holiday-specific brands, with a 30 basis point increase in dollar share, despite flat dollar consumption.

During the holiday season, Campbell's condensed cooking products saw growth in both dollar and volume share, with broth being a significant driver. Swanson and Pacific broth consumption increased despite some share decline due to private label competition. The company invested in its Snacks brands for the holidays, with Pepperidge Farm performing well despite softness in bakery and cookie categories. In the Meals & Beverages division, organic net sales declined by 1% due to a supplier disruption with SpaghettiOs but showed volume and mix growth. The soup portfolio benefited from more at-home cooking, leading to growth in condensed cooking and broth, while eating soup categories were weaker. Campbell's maintained volume share growth in its total wet soup segment, driven by the strong performance of its cooking portfolio and a strong RTS portfolio, including Chunky, Pacific, and Rao's soups.

In the given paragraph, Campbell's discusses its performance and strategic positioning within the RTS convenience and Italian sauce markets. Campbell's Well Yes brand faced challenges, but the broth category benefited from slow recovery in private labels, allowing Campbell to capitalize on category growth. Despite some anticipated pressure from private label recovery, Campbell’s robust supply chain positions it to meet consumer demand. Notably, Campbell's Italian sauce portfolio, featuring leading brands Prego and Rao's, performed well in Q2, with increasing dollar and volume consumption and share gains. Prego's household penetration increased across all generations, and Rao's outpaced the category, showing high net sales growth. The successful integration of Sovos is credited for part of this success, and continued growth is projected for fiscal '25.

The paragraph highlights the growth prospects and strategies for the Rao's brand. Despite strong brand equity and leading dollar share in the Italian sauce category, Rao's reaches fewer households and has a smaller product assortment than its Prego brand. To address this, the company is enhancing brand awareness and expanding its product offerings, launching 10 new sauces in the past year to capitalize on Rao's appeal, particularly among millennials. The focus is on transforming Rao's into a $1 billion brand through strategic growth initiatives. In contrast, the company's Snacks portfolio faced challenges, with a 3% organic net sales decline due to reduced partnerships and a small decline in consumption of key brands, reflecting consistent performance with Q1.

The Snacks business experienced a year-over-year margin decline of 370 basis points due to increased commercial investments for holiday promotions and short-term operational supply chain issues in the fresh bakery network, leading to higher manufacturing and logistics costs and an unfavorable mix. The company expects margin recovery beginning in Q3, supported by normalizing promotional activities and supply chain improvements. Pepperidge Farm bakery and cookies maintained or improved market share, while Snack Factory introduced new products like Pop'ums and Bites in the snack aisle. Despite competitive pressures, the company's salty snacks hold leading positions in growing segments, Lance crackers expanded their market share, and Goldfish faced weaker category performance and heightened competition.

In the second half of the fiscal year, the company will focus on supporting its Goldfish brand through innovation, marketing, and price strategies. The snacking categories are seen as attractive and resilient, and the company believes it has a strong portfolio of leading brands. The strategy includes introducing new products like Kettle Brand chips made with Avocado Oil, and limited-time Goldfish flavors such as Harry Potter Butterbeer Grahams. Additionally, they aim to increase accessibility by offering different pack sizes and price points for snacks, enhancing consumer choice. The company plans to continue investing in its 16 Leadership Brands to drive growth and navigate market dynamics, with a focus on brand support, innovation, and stabilizing margins and topline by the fourth quarter.

The company is focusing on sustaining at-home cooking trends across its portfolio and managing its broth business as private label supply recovers. They aim to maintain Rao's growth through brand awareness and innovation, while improving efficiency to support topline growth and margins. The Snacks division's margin performance is a priority, alongside a balanced capital allocation strategy. Carrie Anderson reports that their Q2 adjusted EPS met expectations despite a challenging environment. Although Snacks categories underperformed, Sovos acquisition drove a 9% increase in reported net sales. Organic net sales, excluding certain impacts, decreased by 2%, with adjusted EBIT up by 2% due to the acquisition. However, adjusted EPS fell by 8% due to higher interest expenses from increased debt, though the acquisition was slightly beneficial to EPS.

In the second quarter, organic net sales decreased by 2% due to a planned price investment, although Sovos contributed significantly to net sales growth. The adjusted gross profit margin declined due to cost inflation and the acquisition impact, partly offset by productivity improvements. The company has achieved $65 million in savings as part of a larger cost savings program. Marketing, selling, and administrative expenses rose due to Sovos integration but remained flat as a percentage of net sales. Advertising expenses increased significantly while admin expenses decreased due to cost-saving measures. Adjusted EBIT grew by 2% but was offset by higher interest expenses, leading to an 8% decrease in adjusted EPS. Meals & Beverages' net sales rose by 21% due to the acquisition.

In the second quarter, the company experienced a 1% decline in organic net sales, attributed to a 2% strategic pricing investment during the holiday period. Meals & Beverages saw an 18% rise in operating earnings due to an acquisition, despite increased marketing costs. Operating margins for this division fell by 60 basis points to 17.3%, primarily due to acquisition impacts. Excluding the acquisition, margins remained stable. Snacks saw a 3% drop in organic net sales due to declines in certain brands and a 1% decrease in net pricing. Operating earnings for Snacks fell by 29% due to higher marketing expenses, inflation impacts, and increased supply chain costs, leading to a 370 basis point reduction in operating margin to 11.3%. The decline was split between increased marketing efforts and supply chain cost pressures.

The company is working on initiatives to improve cost savings and productivity, but these have not fully offset the challenges faced. They expect snack margins to improve in the latter half of the year and are focusing on supply chain cost improvements and marketing spend reduction. They see significant growth in operating cash flow and are investing in growth and productivity while returning cash to shareholders through dividends and share repurchases. The net debt to adjusted EBITDA leverage ratio is steady at 3.7 times due to a recent acquisition, and they aim to reduce this to three times by fiscal 2027. As of the second quarter, the company holds significant cash reserves and credit availability. Due to slower recovery in some snack categories and a recent divestiture, they have updated their fiscal 2025 guidance.

The paragraph outlines the company's updated financial guidance, highlighting that full-year reported net sales are expected to increase by 6% to 8%, factoring in a one-point impact from the noosa divestiture. However, organic net sales are projected to range from a 2% decrease to flat, due to a weaker-than-expected recovery in snacking categories. Adjusted EBIT growth is forecasted at 3% to 5%, inclusive of the noosa divestiture impact. The company is enhancing cost-saving measures, raising their full-year savings target from $90 million to $120 million to counteract earnings and margin pressures. This includes integrating Sovos and network optimization projects. The cost savings and productivity initiatives are expected to offset low-single-digit inflation. Adjusted marketing and selling expenses are anticipated at the lower end of the 9% to 10% target range of net sales, while adjusted earnings per share are projected between $2.95 and $3.05, considering the slight dilutive effect of the noosa divestiture.

The paragraph discusses financial expectations and strategic priorities of the company for the year. The net interest expense is projected to be between $325 million and $330 million, benefiting from the proceeds of a divestiture used to reduce debt. They expect second-half organic net sales to improve and turn positive by Q4, with adjusted EPS more equally distributed, excluding an extra week in the reporting period. Capital expenditures are anticipated to be about 4.7% of net sales. The company is committed to protecting and expanding market positions, maintaining operational excellence, and achieving cost savings. They emphasize having a strong balance sheet, cash flow, and financial discipline, and express confidence in navigating challenging environments to achieve long-term value creation. The speaker thanks the team for their efforts and opens the floor for questions from Andrew Lazar of Barclays.

In the paragraph, Mick Beekhuizen addresses questions about the company's revised guidance and the impact on its profit outlook, particularly regarding the Snacks division. He explains that while the Meals & Beverages segment is performing as expected, the Snacks business has not seen the anticipated improvements in key categories like cookies and crackers. This softer performance led to a revised full-year outlook. Despite progress in cost savings and productivity initiatives, the Snacks margin for the quarter was lower than anticipated. Carrie will address the specific question about the net price impact on organic sales.

The paragraph discusses the financial outlook and strategic adjustments for a company's Snacks business. The company anticipates continued sequential progress in Snacks margins but acknowledges that previously communicated margin targets for the year may not be met. There's a projected reduction in expected earnings per share (EPS) and earnings before interest and taxes (EBIT) due to reduced top-line revenue. Specifically, $60 million of the $80 million EBIT reduction is attributed to a decreased top-line outlook, while the remaining $20 million is due to lower Snacks margins and incremental cost savings. The company expects overall business top-line growth to improve sequentially, turning positive in the fourth quarter, with a mid-range scenario predicting stabilization in Snacks' top-line by then. Additionally, price investments are planned, with net price investments increasing from 100 basis points in Q1 to 200 basis points in Q2.

In this paragraph, the speaker discusses their approach to promotion investment and pricing strategies in the second half of the year. They expect promotion to be less of a hindrance but still a challenge, and their guidance allows for appropriate promotional spending to aid recovery. They emphasize maintaining competitive pricing and supporting innovation launches. Jim Salera then asks Mick Beekhuizen about expectations for consumer recovery and performance in the Snacks category, questioning whether growth would come from overall category improvement or specific innovations and promotions. Additionally, Salera asks about the Goldfish brand's performance and its potential for share gains, considering recent innovations and limited-time offers like Harry Potter-themed products. Mick acknowledges the question and plans to address it in detail.

The paragraph discusses the strategy for the Snacks business, specifically focusing on expectations for Q3 and Q4, with a goal of stabilizing top-line performance in the second half of the year. A significant focus is on the brand Goldfish, which is not currently performing as desired. The team aims to boost growth by strengthening promotional support and ensuring the brand message resonates with consumers, alongside efforts across the broader portfolio of eight leadership snack brands.

The paragraph discusses the team's focus on innovation and value in the marketplace, particularly in the snacking segment of Campbell's portfolio. Emphasis is placed on ensuring the right price points for different purchasing occasions and the importance of price architecture, especially within the Goldfish brand. Jim Salera, the speaker, appreciates this detail before passing the conversation to Ken Goldman from JPMorgan, who questions the confidence in achieving a 17% margin target by fiscal 2027, given current challenges. Mick Beekhuizen responds by acknowledging the current margin is not adequate and assures that the situation will improve, as mentioned in earlier remarks.

The paragraph discusses the challenges and strategies for improving the Snacks segment's margins. Despite operational challenges and ending the year below initial expectations, the team is focused on sequential improvements and identifying savings. By leveraging building blocks such as network adjustments and product mix improvements, they remain confident in achieving a positive trajectory towards a 17% margin. The insights gained over the next six months will be crucial for informing future strategies to ensure long-term value creation for their brand portfolio. Carrie Anderson reiterates that the foundational drivers for margin improvements, outlined on Investor Day, remain in place.

The paragraph discusses the company's strategy for margin expansion through a favorable product mix, focusing on growth in leadership brands while reducing reliance on lower-scale partner contract brands. This plan involves network and DSD optimization, despite current top-line pressures. The conversation then shifts to Rao's brand, with Mick Beekhuizen expressing confidence in its growth despite some data indicating deceleration between Q1 and Q2. He attributes this to shifting club activity and maintains optimism for an annual growth target of slightly above 10%. Ken Goldman appreciates the response.

In the Q&A session, Peter Galbo from Bank of America questions the even distribution of EPS (earnings per share) between the third and fourth quarters, given historical trends where the fourth quarter typically has lower EPS. Carrie Anderson responds, saying that while the third quarter will experience pressure on snacking margins, stabilization is expected by the fourth quarter. Additionally, she mentions that the fourth quarter will benefit from comparing against last year's higher promotional investments, which should aid both the top and bottom lines, contributing to a more balanced EPS between the two quarters.

In the paragraph, Mick Beekhuizen acknowledges that the trajectory for broth in the company's Meals & Beverages category is better than initially expected. The category is benefiting from the continued trend of cooking at home, which supports various brands, including Swanson. Although private label competition is returning, it's doing so more slowly than anticipated, resulting in less of a negative impact on broth sales than previously projected. Consequently, the broth headwinds in the latter half of the year are expected to be slightly less challenging than originally anticipated.

The paragraph discusses a company's response to changing market conditions and competitive pressures. Carrie Anderson highlights that Sovos is contributing to organic growth in mid-Q3, but there are year-over-year challenges due to previous benefits in the second half. Mick Beekhuizen mentions the company's supply chain team is doing a great job meeting broth demand. Robert Moskow from TD Cowen inquires about competitive intensity in the crackers and salty snacks markets. He asks Mick if similar price investments are needed for the Goldfish brand to remain competitive, and whether this might impact Goldfish's margins. Mick acknowledges the competitive nature of the salty snacks category and mentions they've been dealing with it for several quarters.

The paragraph discusses the strategy for differentiated brands in the salty snack category and emphasizes the importance of innovation and pricing strategies to offer value to consumers. The company is optimistic about the potential in this category due to favorable market conditions. In contrast, the crackers category has a different dynamic, with two main brands: Lance and Goldfish. Lance offers good value with a focus on portable protein, showing stable market share and growth in consumption. Goldfish is highlighted as a core brand with significant focus and efforts dedicated to enhancing its position in the market.

The paragraph discusses the importance of revitalizing the Goldfish brand and ensuring its growth by reinforcing its core proposition and managing competitive challenges. This involves maintaining effective promotional strategies and appropriate pricing. Additionally, the conversation shifts to concerns about the impact of tariffs on steel can costs, with a recognition that these tariffs could be significant and may affect pricing. The situation is complex, involving tariffs with Canada and Mexico, as well as proposed steel and aluminum tariffs.

The paragraph discusses the potential impact of possible new tariffs being monitored by a company that imports thin plate steel and canola oil from Canada for its products. The Commerce Secretary suggested that some tariffs might change soon. Retaliatory tariffs could affect Canadian exports, such as soup produced in the U.S. and sold in Canada. The company is working with suppliers to mitigate impacts and considering pricing adjustments if tariffs are extended. They emphasize maintaining good value for consumers despite potential price changes. The conference call concludes with a note that time for questions has ended.

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