Greetings, ladies and gentlemen, and welcome to the Campbell Soup Company Second Quarter Fiscal 2023 Earnings Conference Call. At this time, all participants are in listen-only mode. After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] As a reminder, this conference call is being recorded. It is now my pleasure to introduce your host, Rebecca Gardy, Chief Investor Relations Officer. Please, go ahead.

Good morning, and welcome to Campbell's second quarter fiscal 2023 earnings conference call. I am Rebecca Gardy, Chief Investor Relations Officer at Campbell Soup Company. Joining me today are Mark Clouse, President and Chief Executive Officer; Carrie Anderson, Chief Financial Officer; and Mick Beekhuizen, President, Meals and Beverages. Today's remarks have been prerecorded. Once we conclude the prepared remarks, we will transition to a live webcast Q&A session. The slide deck and today's earnings press release have 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, which reflect our current expectations. These statements rely on assumptions and estimates, which could be inaccurate and are subject to risk. Please refer to slide three of our presentation 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 four, you'll see today's agenda. Mark will share his overall thoughts on our second quarter performance, as well as in-market performance by division. Mick will discuss the financial results of the quarter in more detail, and Carrie will then review our guidance for the full year fiscal 2023. And with that, I am pleased to turn the call over to Mark.

Thanks, Rebecca. Good morning, everyone, and thank you for joining our second quarter fiscal 2023 earnings call. As you read in our press release this morning, the momentum of our business continued as we delivered another strong quarter with double-digit growth across all key metrics: net sales, adjusted EBIT and adjusted EPS compared to the prior year. These results continue to reflect the strength of our strategic actions over the last few years and consistent top-tier execution, despite significant market volatility. We have grown our portfolio of highly relevant iconic brands in key categories, with a strengthened supply chain, elevated marketing and investment, new capabilities and impactful innovation. We've delivered broad-based market share gains and positioned our business for sustained future growth. We have also successfully navigated the dynamic economic environment, using a variety of levers to mitigate inflation, including targeted pricing, cost savings initiatives and productivity improvements, and we've managed well below historical levels of elasticity as volume/mix declines remain modest. This challenging but critical algorithm of balancing growth, share, margins and volume has been a key focus of ours over the last several quarters and the second quarter is another key proof point of our continued successful execution of this plan. Our strong business fundamentals, together with the strength of the first half performance and the continued health of our brands, give us the confidence to raise our net sales guidance, as well as raise the midpoint of the adjusted EBIT and adjusted EPS guidance, we previously communicated for the 2023 fiscal year. This reflects continued momentum on top line, with greater confidence in our profit and earnings, despite some additional pressure from lower pension income. Now let's cover some specifics from Q2. Organic net sales increased 13%, supported by favorable inflation-driven net price realization and strong consumer…

Thanks, Mark, and good morning, everyone. We are pleased with our strong second quarter fiscal 2023 results, reflecting double-digit growth versus prior year across all three key metrics, net sales, adjusted EBIT and adjusted EPS. These results were consistent with our expectations and reflect inflation-driven pricing and supply chain productivity improvements to offset inflation pressures and increased marketing investments to support our brands. Second quarter organic net sales increased 13%. Top line growth this quarter was lifted by favorable net price realization, partially offset by a slight volume and mix headwind. Price elasticities remain well below historical levels, illustrating the underlying strength of our brands. Second quarter net sales outpaced 10% dollar consumption growth in measured channels, due in large part to the continued recovery of our foodservice business. Our ability to mitigate continued cost inflation through a combination of levers led to a slight increase of our adjusted gross profit margin. Simultaneously, we increased support of our brands. And despite higher adjusted other expenses as a percentage of net sales versus prior year, adjusted EBIT margin increased by 20 basis points to 14.6%. On a dollar basis, adjusted EBIT increased 14% versus prior year. Adjusted EPS increased by $0.11 or 16% versus prior year quarter. Our cash generation remains strong, with cash flow from operations of $732 million through the first half. In line with our commitment to return value to shareholders, year-to-date, we have returned over $290 million. Organic net sales increased 13%, driven by 14 points of favorable inflation-driven net price realization. This was partially offset by a 2-point volume and mix headwind, which reflects increased elasticities though, they remain well below historical levels. Turning to Slide 21. Our second quarter adjusted gross profit margin increased 30 basis points from 30.4% last year to 30.7% this year.…

Thank you, Mick, and good morning, everyone. I'm happy to be a part of the Campbell's team, and I look forward to contributing to our future success. As Mick mentioned, I will review our fiscal 2023 outlook. Turning to slide 30, we have updated our guidance, reflecting our confidence in our full year plan. Net sales growth for fiscal 2023 is now expected to be in a range of plus 8.5% to plus 10%, up from our prior guidance of 7% to 9%. We have also raised the midpoint of our adjusted EBIT and adjusted EPS guidance for the full year. We now expect adjusted EBIT growth of plus 4.5% to plus 6.5% and adjusted EPS growth of plus 3.5% to plus 5% compared to the prior year, resulting in fiscal 2023 adjusted EPS of $2.95 to $3. Our higher expectation for revenue reflects the strength of our brands with price elasticities remaining favorable to historical norms as well as stronger supply chain execution and sustained marketing investment to fuel demand and support innovation. As we think about the second half, our plans contemplate several evolving drivers from the first half. Specifically, we will begin to lap our most significant year-ago pricing. We have been successful in executing our Wave 4 pricing, but the net of this will result in lower overall growth rates than the first half. As it relates to profit and EPS, our revised guidance remains consistent with our prior plans. We will continue to navigate expected inflation with pricing, albeit lower incremental pricing levels in the second half as compared to the first half and with continued productivity. We will also continue to invest in our business to drive demand and profitably defend share. Additionally, in the second half, we'll see a headwind from lower pension…

[Operator Instructions] Your first question comes from the line of Andrew Lazar from Barclays. Your line is open.

Great. Thanks very much and welcome, Carrie. So Mark, momentum in the business is clearly quite strong. My question is, with the magnitude of the upside in the quarter, why only raise the low end of the full year EBIT and EPS guidance by less than that? I guess, if you could walk us through some of the key puts and takes and more specifically, you mentioned some stepped up investment behind a few of the key events. Just trying to get a sense of how we think about this incremental spend. Is it spending back some of the upside to continue to strengthen the brand equities, or are you seeing something in the market or with consumer behavior that is requiring more investment? Thanks so much.

Yeah. Great. Thanks, Andrew. Good morning too. So first, let me just start from the perspective of the full year. I don't know that we would see material difference in kind of how we view the full year. It is -- it continues to be an extremely strong year on the back of really the strength of the brands, which certainly continued through Q2 and the continued really strong execution, both whether that reflects the mitigating efforts of inflation and/or our supply chain, which really just continues to make great strides and really thrilled to see that. I also think that, as you think about the full year, though, we also now have some greater conviction to both the cost side. We have 93% of our cost basket essentially covered. And we now see the implementation of way for pricing. So that gives us a little bit more clarity or precision, if you will, in how we're managing or positioning the balance of the year. Arguably, there would have been some upside. I think we're giving a bit of that back in the incremental pension income headwind that Carrie just talked about. I do think if you just take a second and you look at that particular factor, that's now $45 million for the full year. It's about $0.12 of EPS and about 50bps of margin over the course of the year. So that's not insignificant for something that really has no relationship to the operational performance of the company. But nonetheless, that's providing a bit of that headwind or offset to where you might have expected to see some upside, but maybe easier to talk about it through the lens of Q2 in particular. So, when we look at Q2, thrilled with the performance, I will say, we came…

It does. Thanks so much.

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

Good morning. And Carrie, I look forward to working with you. Congratulations. Mark, you said you're taking actions to remain competitive in soup. Just quickly curious if it's as simple as promoting back more to combat private label if there's other relevance of that, too? And then my broader question, I do appreciate you had hopeful commentary about how condensed losses are largely overall. You're pleased with the performance. But I'm really curious for your broader point of view, given that you run a number of categories and see a lot of different things in the space. Can an argument be made in your opinion that this dynamic in which branded players deal back prices to narrow gaps, that, that's going to spread a little bit more across food at home ahead? I'm really just curious on whether you think this is kind of a canary in the coal mine or just a one-off in a single category that has an unusually strong store brand presence? Hope that makes sense.

Yes, I get it. So really, let me try to pull that apart into kind of the, I think, the two questions that you're really asking. So first, on soup, I would say, I think our approach has been probably more strategic than simply deal a few things back, or do you just try to manage price gaps. I think there's a more longer-term and strategic play on what we're doing with soup that might be helpful to kind of hear how we're thinking about it. But in essence, I think on soup right now, our strategy is really three things. The first one is to win -- kind of we describe it as winning the fights that matter most, right? So when you think about areas like our condensed icons, which I talked about, up a full share point, or winning on Chunky within the ready-to-serve soup area where Chunky was up 8% in the quarter, almost 0.5 a share point. Just as a sidebar, Chunky now has been up -- over the last three years is up 35% as a brand and has grown over 2.5 share points within the world of soup. And that is absolutely paramount to our strategy of really winning that lunchtime occasion with a superior product that Chunky is living into and doing it among younger consumers, which is, again, where Chunky has been incredibly successful. I think the third kind of strategic fight is on Pacific, right? We now have supply back in place. This, again, we see as a highly differentiated brand, a leader in organic in the soup category, and that business was up 17% and grew share by 0.3 point in the quarter. And so as I think of those three areas, those are really important competitive battles that…

Got it. Thank you.

Your next question comes from the line of Peter Galbo from Bank of America. Your line is open.

Hi, good morning all. Thanks for taking the question. Mark, I guess maybe just two questions, one more appointed question on kind of the guidance and then I'll grant your wish on snacks. Just around the inflation guide for the year. I mean, I think you came in the first half at 16%. You're talking to low teens. So if you can just talk about, kind of how you see the cadence over the back half of the year on inflation? And then maybe just broader around snacks. You did spend a good portion of the prepared remarks talking about, both pricing and volume growth in the segment and particularly share gains in salty. Just if you can maybe speak to the sustainability of how you see that, particularly around salty snacks would be helpful. Thanks very much.

Yes. Carrie, why don't you take the inflation question and then I'll hit the snacks one.

Sure. We do expect core inflation to moderate through the year and consistent with my prepared remarks talking about low teens for the full year. So you're right, the first half was about 16%. We did see some improvement as we were from Q1 to Q2 in a few categories that attenuated like flour, resins and meat and steel and even some of the transportation costs. As I think about the second half of the year, I would anticipate that, that will move in that 10% to 11% range on inflation. So for the year, again, you're talking about low teens.

Yes. So let me take the -- thank you for asking about snacks. Look, I think there's -- you sensed it in our remarks and certainly in my desire to want to talk about it. I do think Q2, in many ways, is a somewhat of a pivotal moment in kind of the validation of the strategy on snacking for us as a company. And that's why I'm as happy or as positive with it as I am. It was a quarter where essentially, we delivered every element that you'd want to deliver, right? So top line was up 15%, in-market consumption up 17%, our power brands were growing at 20%. Those partner brands that have been flagging [ph] us are down to less than I think mid-single digits in the company are in the category from when their high was at 10%. And margin grew at the same time, really driven by productivity and cost savings as much as pricing did a fairly good job of covering inflation. And that profile then resulted in us being the fastest-growing share player in cookie cracker and in salty among major branded players. And that's exactly where I think this portfolio should be, right? Growing top line. We also grew units and unit share on those businesses, and it was broad-based, right? This wasn't just one brand. If you go through the last couple of years, as we kind of got the ship right, we had some brands up, some down. It was never a period where you could really look across the portfolio and go, gosh, what can this thing do when everything is firing? And this quarter was a great example. And even as you roll into the more recent Nielsen and IRI data, you see that momentum just continuing…

Great. Thanks, Mark.

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

Hi, thank you. I was hoping two things.

Hi, Rob.

Hi, there. Can you quantify how much foodservice helped the company in terms of the growth rate and also, specifically, the meals division? I used the Nielsen data here and your results today are much better than the Nielsen data, so good news there. And then secondly, on snacks, your slide that shows the market share gains versus year ago, last year, you had significant market share losses from supply chain issues. Can you give us -- can you quantify what your market share is in salty snacks, for example, on a two-year basis? Are you still below where you were two years ago? And maybe talk about what the upside there is and how you can chase after it?

Yeah. Great question, Rob. Let me take the first one first. So you're right, foodservice had another very strong quarter. It now represents about 10% of our Meals & Beverages business, and it was up 34%. So when you think about the five-point delta of net sales being up 11% and consumption being up 6%, there's a good chunk -- actually, majority of that is coming from foodservice. Although, I will say, also in that number, is some very strong performance from Canada. Canada has been a business that in the world of supply chain was suffering a bit with foodservice as we were prioritizing different parts of the business. Now that we're back into full supply, you see a much healthier Canadian business. That team has done an extraordinary job navigating a difficult market, but really bringing back the brands and growing the business. In fact, Canada was up 16% in the quarter. And that's not insignificant either. That's probably just under -- between 7% or 8% of the Meals & Beverages business. So yet another contributor to that difference between 11% and 6%. So it is great. And look, those are trends, as we've said, we would expect to continue to be tailwinds probably or will not be at the magnitude that we've seen in the last couple of quarters but continuing to be a positive influence. Here's an interesting little tidbit on soup as well. As you might imagine, a big part of our foodservice business is soup. And it's interesting as we start to look at the entire world of soup. But if you look at our underlying growth on soup in the second quarter, it would have added two points of growth to the total franchise of soup based on the performance of foodservice. So…

Thank you.

Your next question comes from the line…

Sorry. I think we're out of time right now, really appreciate everyone's questions and participation on the call.

Yep. Thanks, everybody. We'll talk to many of you later. If you have questions, please follow-up. But thank you.

Thank you so much.

This concludes today's conference call. Thank you for your participation. You may now disconnect.