Good day, ladies and gentlemen, and welcome to the Campbell Soup Second Quarter 2019 Earnings Call. [Operator Instructions] As a reminder, this conference call may be recorded. I would now like to introduce your host for today's conference, Mr. Ken Gosnell, Vice President, Finance Strategy and Investor Relations.

Thank you. Good morning, everyone. Welcome to Campbell’s second quarter fiscal 2019 earnings call. As usual we’ve created slides to accompany our earnings presentation. You will find these slides posted on our website this morning at investor.campbellsoupcompany.com. This call is open to the media who participate in a listen-only mode. Turning to slide two, today we will make forward-looking statements which reflect our current expectations. These statements rely on assumptions and estimates which could be inaccurate and are subject to risks. Please refer to slide two or our SEC filings for a list of factors that could cause our actual results to vary materially from those anticipated in forward-looking statements. Because we use non-GAAP measures, we have provided a reconciliation of these measures to the most directly comparable GAAP measure, which is included in the appendix of this presentation. On slide three you can see the agenda we will cover today. With us on the call today are Mark Clouse, Campbell’s President and CEO, and Anthony DiSilvestro, Chief Financial Officer. Mark will share his early impressions of Campbell and provide his perspective on our performance in the quarter. Then, Anthony will walk through the financial details of the quarter as well as our fiscal 2019 financial guidance, which we reaffirm today. One additional item before we open our discussion of the quarter, we would like to cordially invite analysts and institutional investors to our 2019 Investor Day at Campbell’s world headquarters in Camden. This year’s event will be held on the afternoon of Thursday, June the 13th. Please mark your calendars and I hope everyone can make it. With that, let me turn the call over to Mark.

Thanks, Ken. Good morning everyone, and thanks for dialing in today. I'm excited and honored to be here, and to be part of the Campbell team. I've long admired Campbell's portfolio of iconic brands, terrific teams and well-defined purpose. Throughout my career, I've had the privilege of working on big iconic brands, and leading teams to unlock the full potential of the business, by strengthening the consumer relevance of the brands, and driving operational excellence. I'm confident in our ability to do both here at Campbell. Since joining the company last month, I've been spending time with our team and our customers to gain a full understanding of the state of the business. I recognize that we are dealing with some immediate challenges, which we are addressing head on. But, I'm also seeing clear opportunity to further improve our business, strengthen our execution, and create exciting potential for the future. We have a great deal of work to do to deliver this opportunity. But it starts with progress in each and every quarter. Moving to Slide six, so where are we today? First, we are doing what we said we would, and in many ways that is an essential first step in our journey. I'm pleased that we delivered results consistent with our expectations for the second consecutive quarter, and that we were able to reaffirm our fiscal 2019 guidance this morning. We continued to make solid progress against our key strategic priorities including stabilizing our in-market performance; integrating the Snyder's Lance business, delivering our cost savings agenda, and finally, focusing and optimizing our portfolio. Organic sales in the quarter were comparable to the prior year. This reflected strength in Global Biscuits and Snacks, driven by performance in Pepperidge Farm in Arnott's, with our meal and beverage business seeing some…

Thanks Mark. Before getting into the details, I'll make a few comments on our performance for this quarter. As Mark mentioned, our overall results were in line with our expectations and we remain on track to achieve our fiscal year guidance. Clearly, we have seen pressure on our gross margin in the first half. The negative mix impact of the acquisitions and on the base business from a combination of cost inflation, warehousing and transportation challenges, which are mostly behind us, and higher trade investments. Looking ahead, we expect these trends to improve, as we wrap the acquisition of Snyder's Lance, the higher levels of cost inflation and the flavor blasted Goldfish recall, as well as execute pricing and promotional actions, and drive cost savings and productivity gains. We continue to achieve our cost savings goals against our program, which includes Snyder's Lance. We generated $50 million of incremental cost savings in the quarter, bringing the year-to-date total to $95 million and the program today total to $550 million. We are on track to over deliver our 2019 target of $120 million, which is helping to mitigate additional cost pressures, particularly on warehousing and transportation. We continue to target $945 million of cost in synergy savings by the end of 2022. Overall, we are pleased with the progress made in acquisitions as the integration of both Snyder’s Lance and Pacific Foods is on track and the financial performance is meeting our expectations. As expected, the acquisitions were slightly dilutive to our adjusted EPS results in the quarter. In connection with our plan announced August 30th, we are working to divest our International business and the Campbell Fresh business. The divestiture processes are well underway and we have seen significant buyer interest for both businesses. I'll now review our detailed results.…

Thanks, Anthony. After my first month, I'm excited about the potential of our great people, brands and the opportunities for the company. We have a lot of work ahead, but the team is already taking action and making progress. We will remain focused on disciplined execution and driving clear ownership of our financial commitments, while we also ensuring our plans for the future are robust and delivering improved sustainable results going forward. With that, I'll turn the call back over to Ken for Q&A.

Thanks Mark. We’ll be happy to take your questions. Krystal [ph], let’s open the lines and take our first question.

Thank you. [Operator Instructions] And our first question comes from Andrew Lazar from Barclays. Your line is open.

Good morning everyone and congratulations, Mark on your new role.

Thanks Andrew. Good morning.

Good morning. So I guess it would seem that as no investor consensus is really now squarely in the camp that food companies can't really cost-cut their way to prosperity, particularly in light of events last week. And that it really has to be about a return to growth. So, I love your thoughts on this more broadly, but assuming you'd agree with this line of thinking. As you did your due diligence ahead of taking on this next challenge at Campbell, either when speaking with customer contacts or your industry contacts, and of course your own previous experience. I guess, what were the key factors that gave you the confidence that the requisite growth opportunities really exist at Campbell? And do you think the Company can accomplish this without more significant portfolio change than it has already been discussed? Thank you.

Yes. Great. Thanks, Andrew. So maybe a way into the answer is to start a little bit with -- what my take is, on what really a sustainable performance model looks like in our industry. I think there is really three ingredients. It's not that ultimately complicated on the whole lot more difficult to execute. But I think it starts with great brands and great ideas that are resourced appropriately, that enabled the Company to deliver sustainable profitable growth going forward. I think that's paired-in with great discipline around cost and cash flow, as an enabler to drive the fuel that you need for the brands and the investment while also creating more attractive financial returns. As much as I wish, that you could choose one or the other, I think what we've all learned in the industry over time is that, you really need the combination of both. I think the good news is, a lot of people tend to talk about these things somewhat as mutually exclusive items. And the fact of the matter is, a growing business actually has a lot more opportunity or flexibility to improve efficiencies and cost. So the idea that we're striking the right balance between what profitable growth we need, paired with the appropriate pipeline of cost savings and cash flow. To fuel that, I think it's critical, and I think the third component then is of high-powered team that's clear and focused on the priorities, that's delivering executional and operational excellence. And so I guess, when I took a look at Campbell and I started to spend more time with the team and an external perspective as well as getting to know the internal players as well. I would say that I see opportunity across all three of those variables. We…

Great. Thanks so much for going through that.

Yes.

Thank you. Our next question comes from Ken Goldman from JPMorgan. Your line is open.

Hi, good morning. One quick one from me and then a longer follow-up if I can. I know that you talked about the timing of shipments being ahead of consumption and you talked about some inventory. I think there is some speculation in the market that perhaps the timing of the early snap payment affected some of the companies that are reporting from January numbers right now. I know it's hard to tell, but to the best of your ability, can you determine whether it's the extra snap payment has helped you at all? And whether you expect any kind of reversal or whether in your opinion, it's just sort of a non-story?

Well, I think Ken, a little bit of the challenge for us in the quarter, is there is a variety of moving pieces in this. Part of it is what we're comparing to a year ago, as well as some of the dynamics that we're experiencing on where we're infusing investment and how we're thinking about the promotional schedule. I do think the phasing over time, it was to some degree, it was affected by it. But I think the bigger drivers for us related to the fact that a year ago in this period, as we were navigating some pretty tough retail conversations, we did not reach what I would call the historical level for the seasonal inventory build. I think as we look forward, I think that will normalize over the balance of the quarters. Of course, you'll have a little bit of noise around revenue recognition changes as well, but I think in general, we'll see a little bit of consumption likely outpacing our shipments a bit in Q3, as we normalize that inventory level. But for the year, I expect it to be pretty equal across the Board.

Okay, thank you for that. And then my follow-up is, you reiterated guidance today, obviously and in your slides you reiterating your fiscal 2022 saving targets as well. Is the message you're sending that you feel very good that these targets are reasonable and that you support them? Or is it really just too early for you to make any changes? And I guess the reason I'm asking is, there is still an expectation or a belief that maybe you'll do some sort of rebase ahead, and people are curious, is it just too soon for you and maybe as you get closer to the numbers you say, wait, we need to take a step back here. Where just really you saying, I’ve gone through these numbers and I feel very good about them, and there is not going to be any kind of rebase coming?

Well, I think first let me just start by saying, I think the rigor that went into defining the algorithm and the work that was behind it, especially the 2019 guidance, I think was very robust. And so what I would tell you, I think given that rigor and the reasonableness of the framework I feel very good about that direction and I'm very committed especially delivering on our 2019 commitments, but also pursuing what the longer-term algorithm looks like. I think, I also feel very good about the strategic framework that was put in place. I mean, our – as you look at it the idea of simplifying, focusing and optimizing our portfolio divesting some non-core businesses to reduce debt and improving our execution speed and efficiency are somewhat hard to argue with, and I think our great first steps to address what some of our immediate challenges are. I think as we go forward, we need to create the completeness of that plan and add more robust elements underneath each of those headers, as we really create what I think will be a clear roadmap for the future, that builds upon what those foundations are. I think in doing that, we've got to understand what the right balance is between the cost savings, we can generate as well as the investment we need. But I think living within the guidance that was given certainly is my objective. I do think in fairness to my time in the seat, I want to spend a little more time making sure that the investment models and the plans that are in place are all consistent with what those. What I believe we need to have in place to deliver on those objectives. Does that make sense, Ken to you?

It does. Thank so much Mark.

Thank you. Our next question comes from Bryan Spillane from Bank of America. Your line is open.

Hey. Good morning everyone.

Hi, Bryan.

Mark, I guess my question is really as we've sort of observed that the retailers response to some of the actions that Campbell has made over the years in the soup category specifically. It just seems like retailers have maybe been less enthusiastic about the category and maybe looking at it for ways to sort of harvest profits out of it or margins out of it. So I guess could you talk about, from your perspective so far, how you see the retailer’s attitudes around the category, and maybe what it would take to get them reengaged with it? Thanks.

Yes. Thanks, Bryan. Well, one of the things that was helpful was in the first week, I was on the job, we had [Indiscernible] in Florida. So I got to spend some good quality time with our retail partners in the first week. And I think in many ways, their response was pretty consistent which is -- we do expect you as the category leader of soup to help us understand the vision and really step-up and bring to bear a plan that can optimize the portfolio and with hope of being able to improve it going forward. And I think that call to action is a good one for us. When you think about the role that soup plays within the Company, I think it is undeniable that we have got to apply, as I said a bit in my comments, a better, a more holistic plan. Although I like and believe that the near-term actions we're taking are helping the cause. If you look at a couple of the places where we're supporting the business more directly, like cooking within condensed, you see flat shares on that portion of the business versus the decline overall on the franchise or chunky business that we've turned back on support, that we're actually growing share on that business for the first time in quite a while. And then continued growth on some of the health and wellness businesses has done well. Yes, in our broth business which has also done well. So, I feel good about those actions. But clearly, as you look at our end market results, we recognize that it's not enough. And so, I think what we've got to bring to bear here is a more holistic plan, and what I mean by that is clear definition of…

Thanks Mark.

Thank you. Our next question comes from David Driscoll from Citi. Your line is open.

Great. Thank you everybody. Good morning, Mark. Welcome to the company and appreciate you being on the call today.

Thanks David.

Can I ask -- I want to ask a follow-up to Ken's question. I really just wanted to understand about the big $945 million multi-year savings program. Can you -- I got to say this is -- this looks to me like it should be the number one item on your list. But I want to hear that from you, I know there is -- probably it feels like there should be a lot of Number one items, but you got to prioritize these items. Have you had enough time to really delve into the details of the program? And I know you partially answered the question a moment ago, but I can't underscore enough how much I think investors are sensitive to it. What we all want to know desperately is, is this program aggressive in your opinion? Is there -- are there parts of this? Because, you again, to Andrew's point earlier, I mean we just saw a spectacularly bad event last week. So then, what is it mean for these types of savings programs? In your initial assessment, would you characterize the savings program as aggressive? And then I have a follow-up, please.

Yes. So, let me let me hit the first part of that question head-on. Absolutely, it is imperative for us as a company, because regardless of what you may believe or know that we need to do relative to getting the balance right between supporting our brands and improving our top line trajectory, we need the opportunity that is created by the work around the cost agenda. As far as how I would categorize it, I think the good news is it's not one thing or silver bullet, its a variety of different initiatives that I think in each individual case is appropriately set. The reality is, as we have opportunity to improve our discipline and our rigor around a variety of different cost areas as well as what I think is a very well organized and put together value capture program for Snyder’s-Lance. I've been through a few of these and really what is important as you start to think about value capture agendas have you appropriately put ideas, programs and governance around each of the elements that are driving the savings, while also being realistic about where the investments may need to come out to support the business going forward. And I think we are -- we have done a very good job on lining up the elements that will fuel, the cost savings program. And again I think in some areas we’re more aggressive than others. But I would say in the areas that are related to our ability to perform or drive the business I think we take in an appropriate level of balance I think on the investment side, so post the 945 million of savings, how do we think about investment? I think we made a lot of progress on that. But this is where I want to spend a little bit more time with the team and make sure that I'm crystal clear on what our expectations are and what we really believe we need to have in place to support the businesses. But I think it begins as you say with really that focus and orientation on generating the cost savings without replicating perhaps some of the challenges that we've seen emerge in our industry where it’s about cutting at the expense of our capability or going beyond what we think is appropriate for what our objectives are on the broader business.

And then, a quick one on your sales guidance. So I think you guys added a one point negative impact from foreign exchange, the dollar numbers don't change. So organic revenues are up, your end market performance negative five. I’m just getting a lot of questions, Anthony, and Mark if you want to answer. But how do you maintain the dollar guidance with soup down five and foreign exchange headwind coming in? Can you just help us bridge how the full year is going to pace and why does soup performance is okay, enable to allow you to reiterate the sales? Thank you.

So Anthony, why don't you take the guidance question and then I'll come back with how do we feel about soup.

Yes. I guess, there is obviously a couple of parts to the guidance. The organic performance, the incremental contribution from the acquisitions and currency. So when we came into the year, we thought currency would be about 50 basis points negative, is turning out to be more like a 100 basis points. So it's a little bit negative inside of that. With respect to the incremental impact from acquisitions, we are tracking spot-on, where we expect it to be in terms of the first half, second half contribution from both Snyder's-Lance and Pacific Foods. So that's on track. And lastly, in terms of our overall organic sales performance, we are tracking where we expect it to be. So although soup is down a little bit, we have other parts of the portfolio, they're up a bit. And as we look to the second half and we need to do better minus two organic to hit the middle of the range. And there is some flex plus or minus around that. So we feel pretty good about where we are and hitting the guidance by the end of the year.

Yes. I think one of the things in the back half that we’re excited about is the -- as we come through the integration of the Snyder’s-Lance business, the team has done a very good job, building a pretty robust agenda both on the marketing and innovation funnel as we look at the back half of the year, and I would expect to see some increased investment, but also strengthening performance on some of those businesses which I think will help kind of compensate for what I still would expect to be a somewhat weaker trend on soup that we're working hard to improve on, but I think that balances how you get to the -- to the math that that lines up with the guidance.

One other point is the end of March, we're going to wrap Snyder's Lance, so for four months we expect to see a positive contribution to our organic sales performance from that business.

Thank you very much. I'll pass it along.

Thank you. And in the interest of time, our final question will come from Robert Moskow from Credit Suisse. Your line is open.

Hi, thank you for getting me in the queue.

Hi Rob.

Nabisco running a DSD network, the margins on that business were a lot higher than Snyder's Lance's margins, which are still single digit. And I just want to know what do you think that the big difference is between the margin structure of these two companies? And how do you close the gap? Thanks.

Well, I'd say it's a great question, and it’s in fact, I think you know as we talked before about as we start to look closely at our cost agenda and we talk about value capture. You know it is one of the opportunities that I think should give us some confidence, is that disparity in margin architecture and the opportunity to bring it up. Even with the value capture, you know one of the things that I think we've used is a little bit of a gut check on it. It would still operate below where we are on Pepperidge Farm, which I think is a encouraging opportunity that even beyond what we see in the value capture we can improve. So, I think -- I think a lot of the power of margin architectures on DSD it revolves around scale, the efficiency of how you're running your network, and that you're fueling your innovation and you're spending in a way where you're taking full advantage of your presence in store. And I think as you look across those variables, I would, I would suggest we have some opportunities to improve in all of those areas. I think the combination although as we talked about today really the focus of the integration has been more on the sales operation and headquarters. I think the idea that we can use best practices and how we think about optimizing routes, how we think about optimizing impact in store, how we get the balance right between what is kind of our sweat equity, around merchandising, through our drivers and what we're truly investing in price, while creating a lot better scale and operational fits efficiencies in our supply chain, I think is going to be where the unlocks are. The Nabisco business is a very efficient business. And again, you know sets a fairly high bar, but I think the idea, that we can bring this closer to what our Pepperidge Farm margin architecture is, and get closer to that balance as a company as a goal I think bodes well for what the opportunity, both again from the integration, but also where our focus can be going forward to continue to drive opportunities. Is that good, Rob, does that give you a little bit of insight?

Yes, maybe one follow up. At the start of the year, one of the concerns about Snyder's Lance was that they had entered into some price contracts with customers that were unfavorable. Are those still in place and is their effort now to renegotiate them higher?

I think we're cycling through a variety of those initiatives and I think again you know part of the dynamic here is really going back in and making sure that we're crystal clear on what the right price value equations are, how we navigate price gaps. So, I think as far as if you would if you're wondering whether it's a drag on the business going forward, I would say we feel pretty good about where we are on that journey and how we're set up for the back half of the year.

Okay. Very good. Thank you.

Thank you. Ladies and gentlemen that does conclude today's conference. Thank you for your participation, and everyone have a great day.