Good morning, my name is Ludy(ph) and I'll be your conference operator today. At this time I would like to welcome everyone to the Campbell Soup Fourth Quarter and full-year Fiscal 2021 Earnings Conference Call. Today's call is being recorded. [Operator Instruction] With that I would like to hand the conference over to your host Ms. Rebecca Gardy. Ms. Gardy, you may begin your conference.

Good morning. and welcome to Campbell's Fourth Quarter and full-year Fiscal 2021 Earnings Conference call. I am Rebecca Gardy, Head of Investor Relations at Campbell Soup Company. Joining me today are Mark Clouse, Campbell's President and Chief Executive Officer, and Mick Beekhuizen, Campbell's Chief Financial Officer. Today's remarks have been pre-recorded. Once we conclude the prepared remarks, we will transition to a live webcast Q&A session. The slide deck in today's earnings press release has been posted to the Investor Relations section on our website, campbellsoupCompany.com. Following the conclusion of the Q&A session, a replay of the webcast will be available at the same location, followed by a transcript of the call within 24 hours. On our call today, we will make forward-looking statements that reflect our current expectations. These statements rely on assumptions and estimates which could be inaccurate and are subject to risk. Please refer to Slide 3 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 each of these measures to the most directly comparable GAAP measure in the appendix of this presentation. On Slide 4, you will see today's agenda. Mark will share his overall thoughts on our fourth quarter and full-year performance as well as an in-market performance by division. Mick will discuss the financial results of the quarter and the year in more detail, and then provide our guidance for the full-year fiscal 2022. And with that, I'm pleased to turn the call over to Mark.

Thanks, Rebecca. Good morning, everyone. Thank you for joining us today. In fiscal 2021, the pandemic continued to present challenges across North America. But I am so proud of how our teams, particularly our frontline and supply chain teams, adapted and rallied to keep each other safe and meet the sustained demand for our products. On behalf of the entire Campbell's leadership team, I am deeply grateful for their dedication. And we continue to make their safety and well-being paramount as they work to meet the needs of our customers, consumers, and our communities. As difficult and complex as this time has been, it has also been an extraordinary period for Campbell. And we've made clear meaningful progress advancing our strategic plan. We've evolved into a different Company; one that is stronger, more agile, and with growing more relevant brands that are better positioned for the future. For the full year, I'm pleased to report that Campbell's organic net sales were comparable to fiscal 2020, and grew 3% on a 2-year compounded annual growth basis driven by both divisions, reflecting strong in-market performance. In fact, 3 quarters of our portfolio grew or held market share for the year, reflecting our continued momentum. Adjusted EBITDA lagged fiscal 2020 as we lapped dramatic scale and efficiency from a year ago, and navigated a much higher inflationary environment this year. However, on a two-year CAGR, adjusted EBITDA grew 5% and adjusted EPS grew 14% as we delivered and improved our balance sheet. Turning to slide 7, full-year organic net sales were comparable to the prior year, which included a positive fourth-quarter finish to fiscal 2021 in light of last year's remarkably strong performance. If you recall, our first half fiscal 2021 was driven by strong elevated in-market performance, as we continued to gain…

Thanks, Mark. Good morning, everyone. Turning to Slide 19 for the fourth quarter organic net sales, which excludes the impact from the additional week and the impact of the sale of the Plum Baby Food and Snacks business, declined 4% as we cycled both the elevated demand in food purchases for at-home consumption and a partial retailer inventory recovery in the prior year. Compared to the fourth quarter of fiscal 2019, which we view to be more meaningful given the COVID -19 impact to prior-year, organic net sales increased 4% on a 2-year CAGR. Adjusted EBIT decreased 13% compared to the prior year to $267 million driven by lower sales volume, including the impact of the additional week in the prior-year quarter, and the lower adjusted gross margin partially offset by lower adjusted marketing and selling expenses and lower adjusted administrative expenses. Our adjusted EBIT margin was 14.3% compared to 14.6% in the prior year. Adjusted EPS from continuing operations decreased $0.08 or 13% versus the prior year to $0.55 per share, partially driven by the estimated $0.04 contribution from the additional week in fiscal 2020. For the full-year organic net sales, which excludes the impact from the additional week. Divestitures and the impact of currency were comparable to the prior year and grew 3% compared to fiscal 2019 on a 2-year CAGR basis. Compared to the prior year, Meals & Beverages, organic net sales decreased 1% driven by declines in foodservice, partially offset by growth in VA beverages. In Snacks organic net sales were flat as gains in our salty snacks portfolio, including Late July Snacks and Snack Factory Pretzel Crisps. and in Goldfish Crackers, were offset by declines in [Indiscernible] Sandwich Crackers and in partner brands within the Snyder's-Lance portfolio. Full-year adjusted EBITDA decreased 3% versus the prior…

Thanks, Mick. In closing, we feel good about how we landed fiscal 2021, amidst the difficult environment. We expect fiscal 2022 will be a complicated transitional year, but I'm confident that with our strong in-market momentum and the progress that we've made, we will successfully navigate through it. I look forward to sharing our view on how we intend to unlock the full growth and value potential of this fantastic Company going forward at our Investor Day on December 14th. With that, we'll now turn it over to the operator to take your questions. Thank you.

[Operator Instruction] One moment, please, for our first question. Your first question comes from the line of Andrew Lazar of Barclays. Your line is open.

Great. Thanks very much for the question. I was hoping we could get into maybe some of the key assumptions underpinning the full-year EPS range for fiscal '22, in terms of assumptions around retention of new households, gross margin, and SG&A, marketing spend in particular, really just a better assess the level of confidence and conservatism in the full-year forecast, particularly in light of the expected challenging 1Q and the higher inflation anticipated in the second half that could mute the second-half recovery. And I really ask this because I still get the feel from many investor conversations that the broader food group is maybe still not fully factoring in the full challenges ahead in guidance. So thank you.

Sure. Thanks, Andrew. That's a full question, so let me -- let me try to piece out a couple of different elements in there. First, why don't we talk a little bit about the kind of the basis of the assumptions for our guidance and how we're thinking about it. So first let's talk a little bit about the top-line. I think on part of the -- part of the composition of the year is going to be a little bit of a tale of two halves because I do foresee a first half that's going to feel a little bit more like what we've been experiencing in the fourth quarter while seeing sequential improvement as pricing comes into play, which is obviously a significant contributor as we go forward. And then in the back half, even though we do expect really driven on the back of the packaging inflation as it relates to steel in particular as our contract turns on the calendar year. But even with that in mind, we're expecting improvement in the back half and overall momentum as we exit the year. So, I think when you think about the top line next year, I do think that we see terrific momentum in our business today. We accelerated that momentum in Q4, we expect to continue to see positive in-market performance as we move forward. We are going to lap a pretty significant inventory replenishment that occurred primarily in the first quarter, but through into the second quarter. But I think the underlying health of the business, we expect to continue to be positive. And of course, sadly, with COVID resurgence, I think some of the consumer dynamics that supported demand are likely going to be with us for a while longer. I also continue to…

Yes. Very helpful overall perspective. I appreciate it, I guess really it's just more on marketing spend. That's certainly --

Oh, yes --

Where all questions this morning just to get a sense of playing out for the year.

Yes. So let me hit that would head on and maybe a good way to start with it is to give you a little bit of an explanation on Q4 because I know as you unpack with numbers. And again, I think we foreshadowed this, but it's important to remember that in the fourth quarter of '20. We were in a position where we had a significant opportunity to kind of double down and invest in a more significant way, which by the way, I'm very glad that we did because as I've said before, I think it did 2 things; gave us some momentum as we were solidifying relationships with a lot of new consumers, especially millennials. But it also gave us a great opportunity to learn and figure out what was working, what wasn't working, which helped us really dial into the most efficient through the highest returning spends. As you flip to the page to Q4 of '21, you see a significant drop in marketing and selling. But underpinning that, what you have is essentially advertising and marketing that are at about the same level as Q4 '19. And as you've seen our results behind it, and again, arguably always a little bit of a lag. But as you see our results relative to it, I think I feel great about the investment levels overall that we have. And as you think about going into next year, I do think you may see a little bit of movement between the quarters, but overall from marketing spend, I think we're at a good level. We may have a little bit of incremental investment in a couple of areas as we're adding innovation and working through the balance of the year, but it'll be a relatively stable investment year. We're not expecting marketing to be a source of opportunity to offset inflation at all, right? We feel good about the levels we're at and we want to make sure that we continue to refine the effectiveness of it, but we're committed to spending behind the businesses. I mean, I think the last thing in the world we'd want to do is slow down the momentum that we're seeing in-market, because it's certainly been, for us, a bit of an unprecedented period of really broad-based market share expansion and growth in key businesses. And so we want to -- we know long-term coming out of this thing, that's what's going to matter most. And so, we're going to be very guarded on it, even though I recognize on paper Q4 needs a little bit of context. But relative to how we're thinking about it going forward, we're expecting a very stable investment.

Great. Thank you so much.

Your next question is from the line of Bryan Spillane from Bank of America. Your line is now open.

Good morning, everyone.

Hey, Brian.

I just wanted to ask for a follow-up on inflation. And I guess just 2 points to cover. One, the high single-digit, is that growth inflation or is that net of productivity? That's the first one.

That's gross, Bryan.

Okay, thanks. And then the second one, just in terms of trying to understand. Do we get a lot of questions about just how much of that high single-digit inflation expectation is, more or less locked-in? And how much is variable, right? Meaning could swing up or down, depending on conditions. And I guess one of the things that we've been hearing consistently through the month of August as we've touched base with companies is there's a lot of volatility and freight, even if you've got the contract. I mean, it's sometimes it's not even the truck doesn't even show up, let alone paying higher for the contract. So, it seems like there's just a lot of volatility there. And then anything resin-based, whether it's snack bags, bag liners, resin cups, and IDA probably complicates that a little bit gave what it's doing to the refining complex. Anyway, just any context there in terms of how much is fixed and how much could be variable, thanks.

I'll let Mick walk through kind of our coverage position and then I'll give you a little bit of qualitative view of it. I totally understand the question and there's a little bit of mix here, I would say, of certainty and pragmatic forecast positions as we look at the -- at anticipating some variables that aren't necessarily locked down, but that I think we have a good sense of where we'll likely be.

Yes. If you look at it from an ingredient-impact perspective, at this point in time in the year, we are covered to about 2/3s. So for the fiscal year next year, which is very typical, and probably a little bit more front-end loaded coverage. And then throughout the year, you have a little bit more exposure. But about, I would say 2/3 right now.

Yeah. And I'd say of that remaining 1/3, as you know, we do have a pretty significant piece of this which is relative to our cans as it relates to steel prices. And so what we're doing there is using a -- and that gets really locked in more at the turn of the calendar year. Although, I do think we have a much clearer picture of the kind of where we are, and our work through that as we sit here today. But we've got an economic forecast that I think is generally consistent with where prices are today. You are right, the resin is another area that we've seen some tick up in cost as well, but I think we've covered that. And again, as we navigate through the balance of the year, I think you should expect us to continue to use the full tool bag to cover that, whether it's some combination of promotion and trade spending, some price pack architecture that we've worked on, as well as the likelihood that there may be some places where we're coming back with a second wave of pricing designed to match very clearly in a very transparent way where we have some of these more explicit costs. I would say, I think that will be much more surgical and specific than the pricing that we already have in place. But I do think, as we look at the outlook, we see a mix of those variables in our plan to help us cover that.

Okay, great. Just on the 2/3, 1/3, would that include logistics in freight as well?

No, that's more related to the raw and packaging side of things. And then, we have a pretty decent chunk of our freight and logistics covered as well at this point in time with contracts that we put in place.

Yes. It's definitely been volatile, you're right. In particular, I think we've seen more variability in areas like ocean freight, which was -- had been a bit more stable. And I think that's adding some volatility. But I think as we've -- remember you're also beginning to -- as you go into '22, begin to lap some of the volatility we were experiencing in fiscal '21. And so your comparables do get a little bit easier as the year unfolds. But as we said, as we think about some of these transitional costs in the first half, that's partly why we see a little bit more of that headwind at the beginning of the year as we've tried to be prudent in making the appropriate estimate as it relates to where those costs are going to come in based on how we're seeing them today.

Okay. Great. Thanks, Mark. Thanks, Mick.

Your next question is from the line of Ken Goldman from JPMorgan. Your line is now open.

Thanks so much. Mark, last quarter when you were asked about pricing, you said a number of things, but one thing was that you were, I think being thoughtful, strategic about reflecting critical price thresholds, I think you said the last thing you want is to shut down growth and share. And I think some people came away from that with the idea that you want to have some pricing, but a little bit of a balanced approach. I'm just curious if your thoughts on that have evolved at all, right? Maybe you've seen elasticity a little bit lower than you expected across food at home, maybe a little bit more inflation. I'm just trying to get a sense; are you willing to be a little bit more aggressive on pricing just given some of the changes you've seen in the last few months, or do you still want to kind of take that balanced approach to things?

It's a great question. I think the first thing I would say is, we definitely have been encouraged by what we're seeing early on as it relates to elasticity. And I think just the -- perhaps the broad-based nature of the inflation is supporting perhaps a little lower than historical levels as it relates to what the elasticities are. I also think that the strength of our brands right now and the momentum relative to businesses, a great example is our Swanson business, which as we've returned supply into the marketplace. As you might remember over the last year or so, we'd lost a lot of share to lower-cost players, which I think for me was going to be an important test for that brand as we came back in the supply. And we've done extremely well on recovering the share that we had surrendered. And so, I do think perhaps my view of where the boundaries are -- have expanded. However, I do think there still are some boundaries. And so, I think although, it's giving us perhaps permission to reflect and continue to do the best job we can in juggling the pressure relative to inflation with wanting to protect the franchises and the brand's long term. I think we've got more room. And I think that although there will be some places where I think we still want to make the right, smart trade-off for the long-term health, there's no question that I am feeling more confident in our ability to carry pricing that I might have initially as we were talking in the third quarter.

Okay. Great. I'll let it go there. Thank you.

Yup

Your next question is from the line of Michael Lavery from, Piper Sandler. Your line is now open.

I just want to drill into the third of the [Indiscernible] that's exposed. Specifically just to understand where steel costs fit in. I know you touched on that's not finalized yet, given just the calendar nature of that contract. Can you give any sense of what assumptions you've made around it, and I assume the timing of finalizing those terms is consistent with prior years, but I don't think the magnitude of increase in spot rates we're seeing is really similar. Just can you help us understand your planning position there?

Yes. We're doing a lot more what I would say, iterative collaboration with suppliers to understand more in real-time what they're seeing so that we can plan appropriately. And so that -- what that implies is that as we've seen the increase occur, our outlook or our reflection on cost for the year includes that. We're not assuming some big relief on steel prices as we go through the year. I do think what we're going to want to do is probably work with suppliers to make sure that we're able to accommodate variability that may be occurring throughout the year. But I think from a planning standpoint, we've taken what I think is probably balanced to conservative in our position. But of course, I think the volatility around, in particular, that cost has been quite significant, as you know. But I think no one's banking on a reversal of that in the current forecast that we've got.

Okay, that's helpful. And just a quick follow-up on that. So it sounds like maybe in a way that's a bit unprecedented, you may have a much more flexible or variable contract, and recognizing that sounds like it's still not finalized, would we be right to think that that could go up or down?

You know, it's a good -- so, I would just say we're having, as you would expect, pretty meaningful conversations on that right now. And I think, again, philosophically, my perspective on this is predictability is really the priority, and so I would want to be careful and balanced in our ability to have certainty versus banking on something going in a better direction. So generally speaking, I'm going to want to know what we're dealing with. But I also think you're right. It is certainly somewhat of an unprecedented window. And so how do you think about where there are floors and ceilings to certain things, maybe a conversation that we continue to have. Hopefully, that helps but a little bit of a work in progress. But I think, for now, assuming kind of not a major change, I think is probably a pretty prudent position.

Okay thanks so much.

Your next question is from the line of Robert Moskow from Credit Suisse. Your line is now open.

Hi, thanks.

You're up.

Mark and Mick -- Hi. Forgive me if I missed this, but have you said how much you think your pricing is going to be up in fiscal '22? And is it also going to be back half-loaded? I'm just trying to do back-of-the-envelope math, because it looks like your internal inflation could be up as much as 10% in the back half of your year, which would mean your pricing would need to be up 5 or 6?

Yeah.

Am I in the right ballpark?

So you're in the right ballpark. I'd say a little bit lower as it relates to the full year and back half inflation, and then on pricing, I think as you take all of the variables into account, as we've said before, we're probably somewhere in the middle, single digits in that area. Again, that obviously incorporates a variety of tools, but that's a pretty good assumption relative to where we are.

Okay. And for my follow-up is, that would imply a volume decline of the same amount. So how did you go about determining what that volume decline would look like? And how do you factor in the possibility anyway, that there will be declining food-at-home consumption as well?

Yeah. I think we've looked at the -- it is a set of variables that are in there. Again, we talked a little bit earlier about elasticities and a little bit of growing confidence as it relates to our ability to navigate pricing perhaps without seeing some of the historical levels that would translate necessarily into the 5%. I think you're working a little bit of a couple of different puzzle pieces together. One, we continue to imagine that we'll be investing, we're adding innovation, we are, on the flip side lapping some inventory replenishment that we saw at the beginning of last year. But I think the net of it is, we do expect that to be -- to result in a relatively flat year for top-line, and that's kind of reflected in our ranges. And again, if we -- remember in the backdrop of all this too, Rob is a little bit of the labor situation and how we are going to be able to meet the level of demand and our ability to navigate that. I think we're a lot smarter, a lot more experienced in that now than we were perhaps a year and a half ago when the journey began. But at the same time, again, I would say, consistent with many of my peers, the labor challenges that we're seeing are certainly tougher than I ever remember. And I think the combination of those variables was how we're getting to the outlook. But I don't think we're leaning out on any of those assumptions. I think we've been fair like I said, pragmatic or balanced in our view. But I think there's going to be put and takes. And so although I think you may see pressure downward as it relates to pricing, I think there is likely going to continue to be a catalyst for growth and progress as well. And remember, some of our businesses, especially like our Snacks businesses, have been pretty steady contributors of growth, even though a little bit of the ups and downs as we've been navigating the pandemic. So, I think there's going to be a mix of variables, but I think where we've kind of pegged that's probably about right.

Okay. Thank you so much.

Yes. Thanks, Rob.

Your next question is from the line of David Palmer from Evercore. Your line is now open.

Just a follow-up to that question from Rob. Pricing net of inflation through the year, how should that trend? It sounds like the second half's higher in inflation. Is pricing going to track with that, or perhaps be accelerating more through the year as such, the relationship gets better for gross margins? And I have a quick follow-up.

Yes. The way I would think about plotting that course is gaining traction through Q1. Taking a little bit of time to get that fully reflected well in place as we go through Q2, I do think you'll see efforts for us to balance the step up if you will, in inflation as we get to the back half. But I do think you may see a little bit more pressure there. But remember, you've got several tailwinds as you're getting to the back half of the year. So I think the ability to still show that sequential progress in margins as we get to the back half of the year, even with those assumptions relative to inflation, I think still will be positive.

And then just a follow-up on Biscuits and Snacks. With the roughly 13.5% segment margin, it seems like there would be some reasons for that to get better over time that were independent of this cost absorption year. Lapping a supply chain for one, plus all the improvements that you've been making. Could you perhaps help us squint and look through the inflation cycle and think about what could be happening there from a segment perspective basis on margins? Thanks.

Yes. So that will be a prime topic of discussion. When I see you get -- when I see you guys in December, but here's what I can tell you. I continue to believe very strongly in the potential for us to improve margins on Snacks. And for us to continue to close or reduce the gap between where we are today, and where we see ourselves relative to kind of Snacks margin averages. I think as time goes on. we continue to get better clarity and a better understanding of the building blocks and the variables that will help us get there. And at the same time, I just would say that as you're looking at the here and now, if you think about where we started the journey to where we find ourselves, there's probably somewhere around 150 basis points of margin that I would call just transitional costs that are dampening some of the productivity and savings that we've been generating over the last several years. Part of it is as planned investments, a part of the -- of offsets to the productivity has been -- or the value capture has been planned investments in both the infrastructure and in marketing in some cases. But I think beyond that, we're probably looking at about 150 like I said, basis points that are dampening the baseline. And then as we project forward, I think what you're going to see is a combination of building blocks that will help us build off of that adjusted base. And hopefully, in December, I'll be able to give you greater confidence, and what those look like. I know we've been kind of dripping that out for several quarters now. But it'll be good to kind of get to the December period and I think I felt like it was important to kind of keep playing through a little bit of this short-term kind of transitional pressure as we get ready for that conversation. But hopefully, that gives you a little bit of a sense of how we're looking at it and then how we're thinking about the future.

That's great. Thank you.

And ladies and gentlemen, this concludes our question-and-answer session. I'd like to turn the conference back over to the management team for the final remarks.

Great, thank you. The IR team is available for follow-up discussions. And thank you for your time and interest in Campbell Soup Company.

And with that, this concludes today's conference call. Thank you for attending. You may now disconnect.