Good day, ladies and gentlemen and welcome to the Campbell Soup Third Quarter 2014 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions). As a reminder, this conference call is being recorded. I'd now like to introduce to your host for today's conference, Jennifer Driscoll, Vice President Investor Relations. Please go ahead.

Thanks, Kate. Hello, everyone. Welcome to the third quarter fiscal 2014 earnings call and webcast for Campbell Soup Company. With me here in New Jersey today are Denise Morrison, President and CEO; Anthony DiSilvestro, our new Chief Financial Officer; and Anna Choi, Senior Manager of Investor Relations. I am going to comment first on items impacting comparability in the quarter. Denise will follow me with a high level perspective on our third quarter. Anthony will wrap it up with a more detailed look at the financial and segment results as well as our guidance. After that we will take your questions. As usual, we've created slides to accompany our earnings presentation. You will find the slides posted on our website this morning at investor.campbellsoupcompany.com and on our IR app which is available through Google or Apple. Please keep in mind that this call is open to members of the media who are participating in listen-only mode. Our presentation today includes forward-looking statements, which reflect the company's current expectations about future plans and performance. These forward-looking statements rely on a number of assumptions and estimates, which could be inaccurate and are subject to inherent risks. Please refer to slide three in the presentation or to the company's most recent Form 10-K and subsequent SEC filings for a list of the factors that could cause our actual results to vary materially from those anticipated in any forward-looking statements. Now for those items impacting comparability. Our discussion of the third quarter will exclude an $18 million pre-tax pension settlement charge associated with the U.S. pension plan. In fiscal 2014 we recorded pre-tax restructuring charges of $14 million to streamline business operations in China. In the first quarter we recorded pre-tax restructuring charges and related cost of $23 million to streamline our salaried workforce…

Thank you, Jennifer and welcome everyone. Thanks for joining Campbell’s earnings call. Our sales results for the quarter were mixed. Sales in U.S. Simple Meals grew 7%, powered by strong topline performance in our sauce business. Plum Organics added 4 points to our sales growth in Simple Meals. Bolthouse Farms delivered 6% top-line growth over the prior year. Biscuit sales in Asia-Pacific grew, driven by double-digit growth in Indonesia. However, we did not grow our U.S. Soup business and experienced sales declines in U.S. Beverages, Pepperidge Farm, and our business in Australia. Overall, organic net sales grew 1% which was 1% below our expectations, and I am disappointed that we failed to deliver the sales growth that we anticipated in the third quarter. We believe this is in part a reflection of the persistence of an exceptionally challenging consumer environment. As many others in the industry have noted, consumers are suffering from continuing underemployment, reductions in the SNAP program and rising home, fuel, and healthcare costs. In combination, these factors are significantly affecting purchasing behavior, pressuring the performance of a number of our key customers and constraining growth across the industry, particularly in center store categories. Our adjusted EBIT increased 12% in the third quarter, reflecting lower administrative expenses, including lower incentive compensation costs and our cost reduction efforts. This was more than sufficient to offset the impact of a reduced gross margin percentage and deliver positive EBIT performance. Following our strong results in the second quarter, we reaffirmed our external guidance for the fiscal year which called for sales growth of 4% to 5%; adjusted EBIT growth of 4% to 6%; and adjusted EPS growth of 2% to 4%. As we communicated at the time, achieving this level of performance was predicated on improving our marketplace performance relative to…

Good morning and thanks Denise. Before getting into the detail I wanted to give some perspective on our results and guidance. As you will see the shape of our P&L reflects a shift within our marketing programs. While total marketing which includes advertising, consumer and trade is up for both the quarter and the year we have redeployed funds from A&C to support increased trade promotions. This is reflected on the P&L as a lower gross margin percentage with a offset in lower A&C expense which we report in our marketing and selling line. The second item I want to highlight is the significant reduction in our administrative expenses. Because our fiscal 2014 results are below our expectations, we are accruing incentive compensation below targeted levels. Lower pension expense and the savings from our recent restructuring initiatives are also contributing to this decline in administrative cost. Lastly, we are reducing our guidance for sales growth. As Denise mentioned, in our U.S. Soup business, we increased our promotional activity; however, we did not realize the anticipated volume lift. Additionally in Pepperidge Farm, our volumes have been impacted by increased competitive activity in the snacks category and in response we have also increased our promotional spending. As a result of these two issues, we are lowering our expectations for full year sales growth to approximately 3%. Now, I will review our results. I will start with our third quarter results and segment highlights followed by a brief look at our year-to-date results and then wrap up with our full year guidance. As Jennifer mentioned, my discussion of result will exclude items impacting comparability. For the third quarter, we reported net sales from continuing operations of $1,970 million, comparable to the year ago quarter. As Denise mentioned, we were disappointed with our sales…

Thanks Anthony. At this time, Campbell will conduct a Q&A session. We’d like to request that our callers limit themselves to a single question so we can respond to more analysts. Operator?

Thank you. (Operator Instructions). Our first question comes from line of Chris Growe with Stifel. Your line is open.

Hi, good morning.

Good morning, Chris.

Hi, good morning. Let me just ask you first, I guess Denise, in relation to the reduction in revenue growth for the year, it sounds like it was driven by Soup and Pepperidge and therefore, what I am getting at is, is the rush in the guidance due to the base business, or is there any change in your contribution from acquisitions that’s occurring as well to bring that revenue guidance down?

Chris, to answer your question, there is no change in our expectations on the acquisitions. The reason why we lowered it was because two thirds of it came from the soup business and about one third from Pepperidge Farm.

Okay. And I guess related to that, in this quarter, you had an increase in promotion and you didn’t get the response that you expected. I am just curious, is that a comment about the category or a comment about the consumer in terms of them not --somewhat not responding to the increase in promotional spending, what do you think happened there I guess is my question?

It’s a great question, and I have actually looked at the performance of 36 Simple Meals now over the course of time. And if you look at the MULO, total refrigerated meals are up 3.3%, shelf-stable are up 0.7%, and frozen are down 0.6%. So what’s happening is the refrigerated simple meals are experiencing most of the growth, but within shelf-stable there are some categories like fresh bread and rolls, Italian and Mexican sauces, which are positive and soup is slightly declining. And so, if you look at it over the last year, the total Simple Meals category is sluggish, up 1.2%, that is still positive, so we feel like we are tracking right with the pack here, it’s just that the environment is tough.

Okay, thank you for the time.

Thank you, Chris. Next question please?

Our next question comes from line of Robert Moskow with Credit Suisse. Your line is open.

Hi, thank you. Denise, I guess we weren’t modeling very much growth in soup in the quarter merely because the comp was so hard. It was a 14% comp, but it look like your business plans really did depend on a lot of volume growth on top of what last year was, a lot of volume growth. So what made you think that in this consumer environment and then in a tight inventory environment at retail, were the plans that robust that that was possible, I guess?

We got off to a to a slow start in the first quarter and we deployed extra promotional activity into the third quarter beyond what we had last year. And in addition, we introduced eight new SKUs of soup in January, which was something we don’t usually do, but we felt that they were ready and we could use the sales volume to bring us out of the first quarter slump. Quite frankly, it was -- we were happy that we at least held our own versus the 14%, and over a two-year period, we were up high-single digit in soup except that it just wasn’t enough to meet the expectations that we needed to bring the quarter end and bring our full year in on our guidance. So, that's the best explanation. Anthony you want to add..?

Yes. I would just add one point that I think is important is on soup, we held our promotional price points, and what we did is we expanded to a broader customer base, so we went to customers this year that we didn't promote with in the third quarter last year, which gave us some confidence that we thought would get a volume lift.

So more customers got the deals, I got it. Any implications for pricing for next year, I know that some of your commodities are up, have you announced any pricing for soup?

No, we haven't announced any pricing for soup.

Okay. Thank you.

Next question please.

Our next question comes from the line of Eric Katzman with Deutsche Bank. Your line is open.

Hi, good morning everybody.

Hi Eric.

Good morning.

I guess, Denise I want to focus in on the Global Snacking and Baking area. I looked back and I had to go back to, I think 2009 to see a quarterly profit that was this week in between Arnott's and Pepperidge. I know that both of those businesses especially on the cracker side at Pepperidge and the core Arnott's business are very, very profitable. So, I'm really worried that those businesses are starting to roll over at the same time that you have continued to have challenges in other areas. I mean why should not we be particularly concerned of what do you see is the problem for Pepperidge, and how can we have faith that that business isn’t going to be drag versus competition, but maybe better or stronger competition in coming quarters?

First let me address Pepperidge Farm. In Pepperidge Farm, we had positive profits and the profits are actually pretty robust. The two portions of the business that had sales decline were adult savory crackers and frozen, which are actually a small portion of the business. In addition, the Goldfish, we had a price increase on Goldfish last year and we've found that given the competitive environment we had to promote that product more in the third quarter. We did see with improving as the quarter went on. So we do believe that Pepperidge Farm still a great business and really good shape. When it comes to Arnott's, we've been dealing with a very tough retailer environment in Australia and we have had to invest in that business to stabilize it and return advertising to our core brands like Tim Tam, Shapes and real stock. So we have had cost that hits in Australia, we recognize that. And but we believe that getting that business back to stability is important, it’s an important business for us. These are great brands and they have great expansion possibilities as demonstrated by our double-digit growth in Indonesia. So I hope that answers your question.

Okay. Well I will pass it on. Thank you.

Next question please.

Our next question comes from the line of Matthew Grainger with Morgan Stanley. Your line is open.

Hi. Good morning, everyone.

Good morning.

Good morning.

Good morning. Denise or Anthony, you're in obviously in the midst of integrating a number of acquisitions rate now but given that the M&A environment seems to be heating up a bit. Just want to revisit where you see yourself in this process of portfolio transformation? How you’d assess the landscape right now and how you would balance that with addressing some of the base business issues, and to the base business trends having been below your expectations year-to-date reinforce the urgency of needing to evolve the portfolio faster?

Well, we’ve always held ourselves to a standard since the very beginning of strengthening our core business, while we expand into faster growing spaces. And we will continue to do both of those. We have been making plans and investments in our core business and these three acquisitions that we made have been very, very good for our portfolio and yes we will continue to look for other acquisitions with smart external development that make good strategic sense.

Okay. Thank you Denise.

Next question please.

Our next question comes from the line of David Driscoll with Citi. Your line is open.

Great, thank you. Good morning.

Good morning.

Good morning.

Anthony I just want to make sure I’ve heard something right, it’s a clarification, on the admin expense line I think you just quantified that incentive compensation for the full year was down about $0.08 or $40 million, first off did I get that right?

Yes. What I said is our incentive compensation relative to targeted levels is $0.08 favorable.

That’s what I meant but that was much better said, so thank you. And then the big question then is on 2015 you’re saying that got to get restored and so that something like a three percentage point headwind and then from the 53rd week itself there is another I think like two percentage point headwind. So kind of out of the gate with no other information there is sort of a 5 percentage point headwind against [F ‘15] numbers that we can state is there today, is that fair and accurate?

Well actually, it’s 1 point worse than you stated, it’s EBIT at 3 point for each of them.

Okay.

Because as I said, 53rd week is 2 points at sales and 3 points at EBIT. I mean going the other way, we’ve got a couple of things, so we are wrapping the Plum Organics to recall and we’re wrapping a very disruptive winter. We know we have some challenges next year. We’re working through our plans now in terms of operating plans for next year to see where we come at.

Okay, thank you for that. It seems the implications are clear on that issue. Thank you.

You are welcome. Next question please?

Our next question comes from the line of Ken Goldman with JP Morgan. Your line is open.

Hi, can you hear me?

Yes, hi Ken.

Okay. Hi guys. One really quick one, then my question, first how much does 4Q guidance incorporate an expectation of an inventory draw down? And then my longer question, can you update us on your expectations for the California drought for fiscal ‘15? I know you won’t give specific guidance there but any directional help or thoughts on the situation given how poor it is right might useful. Thank you.

I can take the first, inventory part of that. We did end the quarter about $25 million up versus a year ago on soup inventories. It’s hard to predict exactly what is going to come out as we launch into next year but our forecast for the fourth quarter does assume the majority of that inventory comes out.

Okay. And regarding the drought, we have held our own pretty much during this drought. Our Bolthouse Farms carrot business resides in fields with aquifers and they have been growing also in Northern California and some other regions to take some of the pressure off. So they have been doing well despite the situation. We are expecting some increases in tomato prices as a result of the drought but that is been incorporated in our planning.

Thank you.

Next question please?

Our next question comes from the line of David Palmer with RBC Capital Markets. Your line is open.

Good morning, guys.

Good morning.

If you were to separate your business drivers and controllables like your marketing and innovation, and the factors outside your control in fiscal ‘14 like the consumer environment, whether disruption, and even factors like the competition you are seeing in healthy snacking, do you see the net impact of the uncontrollables in fiscal ‘14 as perhaps unusual as a way -- in a way that creates easy or difficult comparison as we think about fiscal ‘15?

The only thing that I can say is that we were -- the sales were below our expectation by about a percentage point. Some of that was controllable and that the promotions didn’t get the lift that we wanted. But then you could argue that one of the reasons why we didn’t get the lifts because of a harsher environment and a more cautious consumer. So I am not sure how to accurately piece that out.

Yes. I think there is a couple of things to point out; obviously one, we wrapping the Plum issue, so that obviously is a non-controllable that will go away; we expect improved performance in Pepperidge Farm. Denise mentioned, we got a two parts of that business that are hurting this year which are small portion that’s adult savory cracker business and the frozen business. And I think more fundamentally and we’ve talked about the need to improve our performance in U.S. Beverages and in Arnott’s which have been a drag on the portfolio of this year and we need to turn that around.

Thank you very much.

Next question?

Our next question comes from the line of Alexia Howard with Sanford Bernstein. Your line is open.

Good morning everyone.

Hi Alexia.

Hi. There was some data around [share trends] in U.S. soup suggesting that over the last year you have been losing out? Who is to losing share to, is it your chief competitor or is it other niche brand that’s clearly not private label? And what do you think you might need to do differently to address that? Thank you.

There has been, if you look at there has been some share gains by some of the niche brands. And I think if you look as to why that is, there are some pockets of growth within the category around things like organic, and health and wellness attributes. And obviously we're looking at those things. We've got a pretty robust plan for soup for next year and some exciting things going on. And we plan to share that more fully with you at our Investor Day in July.

When you look at share of Simple Meals, we definitely are holding our own against other peers in the [south] or at least -- so even though Simple Meals is only up slightly, we have maintained our share of that.

Great. Thank you very much. I'll pass it on.

Next question?

Our next question comes from the line of Erin Lash with Morningstar. Your line is open.

Thank you for taking my question.

You're welcome.

I wanted some additional detail, I’m hoping you could give some additional details regarding the new products that you’ve been bringing to market and how those are either resonating relative to plan and what potentially you can do differently if you can address that? I know this is something you are going to talk about at the Analyst Day, but any additional insight you might have would be helpful.

Okay. I think that we’ve had some really good performance from our new dinner sauce products. We started building a new platform, which was completely disruptive with our first execution of Skillet Sauces last year, we added new Slow Cooker Sauces to that and then next year, we're adding new Oven Sauces. And we've been successful in getting a destination set in the stores to give the consumer a specific place to shop for these sauces. I think one of the reasons why they're doing well is because obviously they're consumed with meat and fresh food and so refining a lot of home preparation these days. So those have done very well. Goldfish Puffs have done really well and are meeting our expectations. Not so well are the where the Pepperidge Farm Cracker Chips and Jingos, which is one of the things that we're cycling in that business this year, but we have reformulated the cracker chips and have better expectations for those going forward.

What about within soups specifically?

In soups, yes most of the innovation has been sustaining innovation; the new Plum inspired Chunky soups are doing really well, the broth is doing phenomenal where we've moved from just chicken, beef and vegetable into more flavor, flavorful broths with recipes to go along with that. So and then the new eight SKUs that we introduced in January or performing as expected.

Thank you. That's helpful.

You're welcome. Next question please.

Our next question comes from the line of Jason English with Goldman Sachs. Your line is open.

Hey. Good morning folks. Thanks for taking the question. Denise, a high level, you’re reallocating money into trade promo, auto marketing, you’re not alone; the entire industry has been moving this way over the last few years. And as we do this, we just see promotional efficacy continue to step lower and lower and lower. We’re not really dealing with expandable consumption categories here. So, at what point do we say enough is enough; quit trying to throw money at this? And is there a path on the horizon to actually get this money back out? It’s a lot easier to pour money into trade; it’s a lot harder to retract it once retailers have their hands on it.

Yes. We are continuing to work with all of the levers of drivers of demand which vary by business. And we are working as well with customers for more trade promotion effectiveness. And our business leaders need to be flexible to make course corrections along the way both to capitalize on opportunities or meet competition. And in several of these categories we’ve seen a ramp up of competition. What we’ve tried to do is increase our frequency, not go into deep discounting.

Okay. Going back on a couple more tactical themes, Arnott’s; it was my view coming to this year that this should be a year of profit recovery as you implement the automation and your manufacturing network in the market. Based on results, it looks like all those savings are -- in summer being ploughed back into the market. Is that indeed the case?

That’s primarily the case but one point I would add, we experienced some delays in achieving those savings, so we didn’t get the full amount of savings in the year so that should help us going into next year.

And I think the other thing I would add is we’ve completely changed the team in Australia and they have a new plan that they’re implementing which has caused calling for investment particularly in the power brands and we believe that’s the right thing to do for that business right now.

Makes sense and last one and I will pass it on. Encouraging to see North America food service volume return to growth I know you brought on some new capacity, new technology for you late last year, is much of that been deployed yet?

I would say some of it’s been deployed, the major driver of the improvement in North America Food Service is actually been our traditional up and down the street food service business.

Got it, okay thanks a lot guys, I will pass it on.

Okay, next question please.

Our next question comes from the line of Diane Geissler with CLSA. Your line is open.

Good morning.

Good morning, Diane.

Hey I wanted to sort of follow on Eric’s question earlier about the baking, just more broadly could you talk a little bit about your viewpoint on snacking? It seems like Pepperidge Farm is one of those brands where you would think it was strong enough to sort of carry a volume lift and yet you continue to see sort of a move away from sort of grain based products due to shifts in your consumer diet, so could a little bit more broadly about snacking and sort of carbs versus protein and what you are seeing with the consumer base please? Thank you.

I mean there is no question that within snacking we have seen and I am talking about macro snacking, we have seen brands in the [better for you] space gaining traction, one of the reasons why we introduced Goldfish puffs in addition to attracting teens and twins into the Goldfish franchise was that we were able to make that product free. So, we are participating in that macro snacking at this point. I do believe though that our cookie business and our Pepperidge Farm cracker business particularly Goldfish do have a nice loyal consumer base and we will continue to innovate in that space as well. So, our model is to give consumers choices depending upon what they are seeking to buy.

Okay, all right, thank you.

And our last question will be from Akshay I think.

Yes, thanks for taking my question. Can you hear me?

Yes.

Perfect. So one quick one on the financials, just can you update us on your gross margin expectation now? I know you have come in below what you were projecting at the beginning of the year. Can you help us with the drivers of that? It seems like promotional costs and volumes have come in sort of lower than expected, but maybe give us a sense of where the commodity outlook is and if it has changed. And then more importantly just on Bolthouse, you did see 6% growth but my expectation there is that longer term that’s 8% to 10% top line grower and margins should be expanding. So, can you help us just understand the performance this quarter, especially at the margin level on Bolthouse that came in, well below what I was expecting? Thanks.

So I’ll make a couple of comments on your gross margin more about where we have been then the outlook for next year. But in terms of this year, we expect cost inflation, the rate to go up about 3% to 4%; inside of that ingredients, packaging and energy inflation running about 2% to 3% and then you need to add a point for the supply chain issues that I’ve mentioned earlier. If you step back and look at the base business, our gross margin declined. As I said in my comments 60 basis points of that is the impact of the acquisitions and 1 point, 2 points is the base business. You are right, promotional variance is a significant factor in that in addition to the inflation that I talked about. We've increased our promotional spending in our Baking and Snacking business and in U.S. Soup. And we've also increased trade promotion in Bolthouse Farms, which is one of the reasons you are seeing a lower gross margin or a lower margin in Bolthouse because in addition to the advertising spend to build the brand awareness, the competitiveness in that category has intensified of late and then we have increased our trade spending in response. We don't expect it to be an ongoing issue, but it did impact the third quarter, both the top-line and the bottom-line for Bolthouse.

And Bolthouse year-to-date is up about 7% and the beverages and salad dressings are up double digits, both in sales and also in consumption and the carrots are low single digits.

Perfect. Thank you

You're welcome. Thanks everybody for participating in our third quarter earnings call and webcast. If you missed any of the call, the replay will be available about 2 hours after our call concludes. You may call 703-925-2533 for that country code +1. The replay access code is 1635565. You have until June 2, 2014 at midnight, at which point, we will move our earnings call to the website, investor.campbellsoupcompany.com, under News & Events. Just click on Recent Webcasts & Presentations. If you are a reporter and have questions, please call Carla Burigatto, Director of External Communications, at 856-342-3737. Investors and analysts should call me, Jennifer Driscoll, at 856-342-6081. This concludes today's program. We hope to see you at our Investor Day in July. You may now disconnect.