Greetings, ladies and gentlemen, and welcome to the Campbell Soup Company Fourth Quarter Fiscal 2023 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. It's now my pleasure to introduce your host, Rebecca Gardy, Chief Investor Relations Officer. Please go ahead.

Good morning, and welcome to Campbell's fourth quarter fiscal 2023 earnings conference call. I'm Rebecca Gardy, Chief Investor Relations Officer at Campbell. Joining me today are Mark Clouse, President and Chief Executive Officer; and Carrie Anderson, Chief Financial Officer. Today's remarks have been prerecorded. Once we conclude the prepared remarks, we will transition to a live webcast Q&A session. For us to give as many participants as possible the opportunity to ask questions, we ask that you limit yourself to two questions. 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 side 3 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 the 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 our 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 in-market performance by division. Carrie will then discuss the financial results of the quarter in more detail and review our guidance for the full fiscal year 2024. And with that, I'm pleased to turn the call over to Mark.

Thanks, Rebecca. Good morning, everyone, and thank you for joining our fourth quarter fiscal 2023 earnings call. Speaking on behalf of Campbell's management, I would like to extend our recognition of the dedication and hard work demonstrated by our teams throughout this year. We delivered the fourth quarter consistent with our expectations. And for the full year, we delivered strong growth across all three key financial metrics, coming in well ahead of our initial expectations and advancing many of our strategic initiatives. Collectively, we continue to solidify the foundation that has delivered consistent and dependable results over the past several years. Furthermore, our progress has set the stage for increased momentum in fiscal 2024 that we believe will result in broad-based growth and deliver compelling shareholder value creation. Let me begin with the highlights of the fourth quarter. As expected, we delivered 5% organic net sales growth, led by inflation-driven net price realization and solid in-market performance enabled by an advantaged supply chain and effective marketing and selling investments. Fourth quarter consumption increased 3% versus the prior year and 25% versus four years ago. As expected, we did experience declines in adjusted EBIT and adjusted EPS in the quarter given our planned brand investments and the pension headwind, which we pointed out on prior earnings calls. For the full year, we delivered double-digit organic net sales growth of 10% and strong adjusted EBIT growth of 5%. Adjusted EPS of $3, representing 5% growth versus prior year, was at the top end of our guidance range. As a reminder, the pension headwind was approximately $0.11 to adjusted EPS and four points of growth for the year. Consumption for the full year increased 8% versus the prior year, and reflected share growth across many brands. These strong results reflect the ongoing effective…

Thanks Mark, and good morning everyone. I'll begin with an overview of our fourth quarter results, which came in largely as expected with a mid-single-digit organic net sales increase and an adjusted EBIT performance that reflected planned fourth quarter investments in sales and marketing, especially in our Snacks business and continued headwinds related to a non-operating item. Fourth quarter organic net sales increased 5% to nearly $2.1 billion, reflecting inflation-driven net price realization, partially offset by some unfavorable volume and mix. Adjusted EBIT of $242 million was a 10% decrease to prior year as higher adjusted gross profit was offset by planned investments in marketing and selling and higher adjusted other expenses related to lower pension and post-retirement benefit income. Adjusted EPS decreased 11% to $0.50, driven primarily by lower adjusted EBIT. The impact of lower pension and post-retirement benefit income reduced adjusted EBIT margin by 40 basis points and adjusted EPS by $0.02 in the quarter. We are pleased with our overall performance for the full year. Our fiscal year net sales results exceeded our initial guidance expectations provided a year ago, finishing the year with organic net sales growth of 10%, driven by higher net price realization. Adjusted EBIT grew 5% and adjusted earnings per share finished at $3, also up 5% and ahead of the top end of our initial expectation range despite a $0.02 greater adjusted EPS impact than originally planned from pension and post-retirement income. Overall, for the year, this non-operating item reduced full year adjusted EBIT by $44 million and adjusted EPS by $0.11. Slide 17 summarizes the drivers of our fourth quarter net sales growth. Excluding the impact of the sale of the Emerald nuts business, organic net sales grew 5% in the quarter. We generated 10 percentage points of growth from inflation-driven…

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

Good morning, everybody.

Hi, Andrew.

Mark, thanks for some of your commentary at the outset on the sort of the current operating environment in the industry and how that sort of impacts your thinking for the year ahead. You talked about a number of impacts and then a bunch of sort of timing factors, right, to keep in mind as we think about the year. So I guess I was hoping maybe you could maybe give us a little bit more color on sort of how you see the phasing, particularly as it relates to sort of volume recovery as you go through the year? And for the -- I guess, for the full year, how you would think that organic growth target you've laid out sort of breaks out between, let's say, volume and pricing? And then I guess, secondly just would be, do you feel like the, given it's a back-end loaded year, and it's for reasons that I understand, do you feel like you're giving yourself enough room or flexibility to sort of hit those numbers, particularly in light of some of the very recent or near-term trends that you discussed in the industry? Thanks so much.

Yes, sure. It's a great question and one that I think, as you would imagine, we probably spent the greatest amount of time really trying to unpack it. And as you point out, as you rightfully point out, it really starts from getting a good understanding of what we're experiencing now. And I think we've had a couple of quarters where arguably, we've seen consistent across, pretty broad-based across the industry some slowdown and perhaps a little less volume recovery than what many of us might have originally expected. And so really digging into that to understand the drivers, I think, are important for getting the confidence or the conviction in the full year. As I laid out earlier, we kind of anchored on three things that we see influencing the numbers with kind of variable impact as it relates to timing or sequence through the year. So, the first one and the one perhaps that for many might not have been immediately on the radar screen is this kind of tail end of COVID impact. And I know that's perhaps something we didn't talk a lot about a year ago in fourth quarter. But as we really took time to kind of step back and compare baselines of our categories, especially some of our, let's call it, less prevalent in the summer categories like soup, you really do see a very tight linkage to where we saw a couple of the surges that occurred in the tail end of fiscal '22 for us and into the first quarter of '23. That is really the tail end of it. So although we see that as a fairly material impact on a couple of areas, I do think you're going, by the time you get really into the later part of…

Great. Thanks for the detail. Have a good holiday.

Yes. Thanks. See you next week.

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

Hi. Thanks so much. Mark, you discussed some of the reasons for volumes to improve in the second half. I certainly appreciate the reasons why. I'm also curious to hear a little bit more about the plan to maybe improve market share, especially in soup and broth. I'm just curious, how we should think about share trends that we can see in Nielsen. Should we expect them to remain, I don't know if the word challenged is right, but a little bit underwhelming until we can see some of the maybe bigger declines lapped. Or are there any changes you can make to pricing or other marketing efforts that maybe will help us see some of the scanner data in terms of market share reverse a little bit sooner?

Yes. So it's a good question, Ken. And there's clearly, I would say, very distinctly different parts of our portfolio as we kind of look at it today. I would certainly say one of the things that has been a standout for us has been our Snacks business. And as much as we talk a lot about the dynamics within Meals & Beverages, I would just say, for 50% of the business, we feel very, very good about how the brands have held up And although, we still see some pressure on pretzels, where you've got a very distinct driver and reason for that in the acceleration of that category through some new sub-segments, the most -- the majority of our brands and especially our power brands really are positioned well. And although, we'll cycle some pricing there as well, I feel very good about how we're competitively positioned as it relates to brands like Goldfish or even our Pepperidge Farm cookie business, which we see a great holiday ahead and really have some terrific innovation coming. Snack Factory has been very strong. Our Kettle potato chips is probably an area where we've seen a little bit more competition. But we know how to play that. We have a great value proposition as it relates to Kettle and Cape Cod and some super innovation there as well. So I would just say from a snack standpoint, and half of our business, we feel really good about how we're positioned. Then I think as you get into Meals & Beverages, I do think that's probably where we've experienced a little bit more pressure on share. But it is interesting as you kind of fully unpack it. One of the points that I made in my prepared remarks is, for example, on…

Very helpful. Thank you. Have a great weekend.

Bye. Thanks, Ken.

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

Hi. Good morning, Mark, Carrie. How are you guys?

Hi, Peter.

Mark, I just wanted to kind of hone in a little bit and not to make you do math on the call. But I think if you just kind of take the midpoint of the range you put into the outlook, it implies something like 100 basis points of gross margin expansion in '24 relative to '23. And understanding that's probably a back half-weighted number, I just wanted to maybe give you a chance what gives you the confidence between, I guess, cost savings and COGS productivity maybe moderating inflation just to get there that we should kind of have confidence that, that can come back in the second half of the year?

Well, we did a pretty good job laying out the drivers right there, Peter. I mean I think, remember, you've got a wonderfully helpful tailwind in our Snacks business and the margin agenda that we're anticipating there. As we mentioned in the call, we feel terrific about the step change that we made in fiscal '23, getting up over 14% from our starting point back kind of pro forma around the 12% range. And as we look at '24, we've got a lot of confidence in the initiatives that are there that will keep driving that, and we expect that to be north of 15% as we get into the year. So another important step in our journey to our longer-term margin goals for snacking. But I think underlying kind of macro across the business, you do have a dynamic where you've got reducing inflation as you sequence through the year, especially as we come off a relatively high peak in '23, you're at low single digits today, our outlook is for low single digits as we go into the year. And arguably, that's front-loaded improving through the year is a big driver for that reason why. And then I do think with that kind of moderation, you are enabling your productivity and your cost savings to be more incremental and get back to driving margin expansion. And even on our Meals & Beverage business, where we're anticipating more of modest margin improvement, that will be a big factor for that business and why we believe we'll start that journey back to some stronger margins as we get into the, in particular, into the back half of the year. But I think as you imagine that landscape, that's how we're seeing this margin bridge or progression through the year. And although we are pointing to a tougher Q1, as many of the dynamics in Q4 still are around in Q1, we're not imagining a significant headwind on gross margins or margins that are going to really impact dramatically and then improve as we go. Carrie, did I miss anything in there?

Talk a little bit about foodservice. That was a --

That's a great point, yes.

It will normalize, that growth normalized, which brings itself a little bit of unfavorable mix in fiscal 2023. We won't have.

Yes. I mean that's a great point. I mean if you look at mix for this year, even in this quarter, if you look at especially Meals & beverage. And if you're wondering a little bit the drivers of that margin that we anticipated, but it's certainly significant, about a-third of that is coming from mix, which is really driven by the outsized contribution of foodservice. As we get into Q1, that actually goes away because the recovery of food service was really most pronounced starting right in the beginning of fiscal '23. So that mix benefit as you start to go through the balance of the year will be yet another absence, I would say, of a headwind that we had this year.

Got it. Very helpful. Thanks, Mark.

Okay. Thanks, Peter.

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

Thank you. Good morning.

Hi, Mike.

I wanted to drill into margins a little bit. And I guess just two parts of it. You gave the -- the outlook for 2024 is 15% plus in Snacks. Maybe just confirming, would you still feel like you're on track for 17% by fiscal '25? Or is that been pushed out a bit? And then on Meals & Beverage, certainly, going into some of the inflation headwinds and some things that are clear. But with the fading pricing, is it just stepped up of productivity that really drives a better improvement in the back half? Like maybe just unpack that a little bit better as well.

Yes. So I think on the snack side, and Carrie will do this one together as well. But I would tell you that, I continue to feel very confident in our road map to 17%. I think as far as do we get all the way there in '25, it will depend a little bit, I think, on some of the environmental elements that have been creating a little bit of the challenge that we've seen over the last couple of years. But I feel very good now with what we put on the board in '23 and what the outlook is for '24. And so I think we're in the hunt. But I'm a little hesitant. I want to see a couple more variables as it relates to inflation and more environmental costs. One of the things we've talked a little bit about that we've had to try to work our way through is some of the fixed let's call it, fixed inflation like labor has been tougher, more challenging than we originally put into the model. The good news is we found other means in which to continue to drive further productivity. And so I think we're - although, I see the kind of line of sight, if you will, to '17, probably want to see a couple more of those variables come in to confirm for sure exactly that timing. And I know we owe that back to folks and we're working on that, and we'll provide that in the near future. I think on Meals & Beverages, it's a little bit of a function of kind of cycling out of some of the environmental elements that are there. I will say one of the things that on Meals & Beverage has been a little tougher in…

Okay. Great. Thanks so much.

Yes. Okay. Great.

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

Hi. Good morning, folks. Thanks for fit me in.

Hi, Jason.

Congrats on the margin progression on Snacks. It's good to see.

Thank you.

But sticking on margins and turning to the other side, Meals & Beverages. Obviously, some challenges there, particularly in the back half of the year. Based on normal seasonality, it suggests that it looks like you're probably going to enter the year with margins down a couple of 100 basis points in the first quarter and maybe down up to 100 basis points or so in the second quarter. To get to margins up for the full year, if I'm right on that, and please confirm or deny, it implies material margin expansion in the back half of the year. So is that cadence roughly in line with your expectations? And if so, what drives that ramp in the back half?

Yes. I think a big part of it, Jason, is that we have definitely seen -- let's take Q4 as an example on Meals & Beverages, and we talked a little bit about this in Q3 as we kind of foreshadowed the fourth quarter. And although fairly consistent to expectations, you have about a third of the impact on Meals & Beverage that is a mix dynamic that we would expect to reverse in the second half. So, as you see a more dramatic contribution from foodservice and some other lower margin segments that are in the business as well as, as you look at where some of the pressure has been relative to the consumer dynamics I talked about, there's no question that's been a little bit more significant on our soup business, which as you know, has a very good margin architecture. So, mix is a big part of what that dynamic or that swing will be. The other contributor the other major contribution to the margin headwind has been this dynamic that we really do only expect to see in Q4 and Q1, where we knew that pricing was going to lag a little bit of the tail end of inflation as we made some choices relative to more pricing that we did not take in places like broth and a little bit to some degree in condensed soup. As the inflation numbers normalize throughout the balance of the year that is going to be a marked difference in margin impact. And then with the significance of a lot of productivity that we've been putting in place, recognizing some of the structural inflation and costs that I talked about will really be landing in the back half of the year. So, I do expect to see outsized margin recovery in the back half. And I think although you're phasing does illustrate that, I think it's fairly accurate to how we see the year unfolding. But I think the drivers that are inherent in that are able to we can pinpoint those. And for the most part, they're not necessarily executionally-driven or even dramatically related to kind of hope and prayers for the environment. They're pretty mechanical in nature and is why we felt confident in building a profile that has a little bit more of a back-weighted margin improvement as it relates to Meals & Beverage. So, hopefully, that helps give you at least the variables that we're looking at.

And that's super helpful. But I'm still a little bit confused. So maybe you can unpack that mix component for me a little bit more because my understanding, my thought was that this was more of a normalization, that foodservice was recovering and now we're back to more normal mix. You're saying it's abnormal. It's going to reverse. So, what is abnormally going to reverse?

Yes, I think you've got the dual impact of greater pressure on higher margin portions of your business while also having a much higher growth contribution from foodservice. I think both of those variables flip in the back half of the year. I think you'll see a stronger relative performance out of our Soup business and higher-margin portions of our business, while also having, as you point out, a more normalized contribution from foodservice. So, I do think it is a little outsized right now as it relates to what we're modeling for the back half of the year.

Predicate on pretty meaningful volume growth in Soup in the back half of the year, am I understanding that correctly?

I think returning to volume growth. Meaningful, I think, is always a little bit of a -- for Soup, yes, I think it will be meaningful growth.

Ladies and gentlemen, we have reached the end of our question-and-answer session. This concludes today's conference call. We thank you for your participation. And you may now disconnect.