Greetings, ladies and gentlemen, and welcome to the Campbell Soup Company First Quarter Fiscal 2024 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's now my pleasure to introduce your host, Rebecca Gardy, Chief Investor Relations Officer. Please go ahead.

Good morning, and welcome to Campbell's first quarter fiscal 2024 earnings conference call. I'm Rebecca Gardy, Chief Investor Relations Officer at Campbell. Joining me today are Mark Clouse, Chief Executive Officer; and Carrie Anderson, 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 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 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. Slide 4 outlines today's agenda. Mark will provide insights into our first quarter performance as well as in-market performance by division. Carrie will then discuss the financial results of the quarter in more detail and outline our guidance for the full fiscal year 2024, which we reaffirmed this morning. And with that, I'm pleased to turn the call over to Mark.

Thanks, Rebecca. Good morning, everyone, and thank you for joining our first quarter fiscal 2024 earnings call. From Campbell's management team, we hope you enjoyed a happy Thanksgiving with family, friends, and, of course, some Green Bean Casserole and Pepperidge Farm Stuffing. As you saw in our press release this morning, we reported first quarter results with top-line coming in consistent with our expectations, and adjusted EBIT and adjusted EPS coming in slightly ahead as we lapped one of our strongest quarters with 15% growth across all three key metrics in the prior year. I am pleased with these results as we continue to navigate an evolving and challenging consumer environment. We also made material progress advancing the key initiatives of our focused strategic plan and continue to build confidence in the next stage of Campbell's growth. I am encouraged by the consistency of our outstanding execution, including strong sustained performance across our supply chain, numerous successful innovations and marketing programs and, more recently, improving share trends. We achieved all this while maintaining our margin and earnings expectations. Going forward, we anticipate these areas of focus to fuel sequential improvement over the course of the year, generating momentum in terms of revenue, volumes, market share and profit margins, particularly as we head into the second half of fiscal '24. As a result, we remain confident and are affirming our full-year guidance. We believe this building momentum paired with the pending acquisition of Sovos Brands will set the stage for accelerated growth and solidify Campbell's position as one of the most dependable names in food. Turning to Slide 7. As expected, organic net sales decreased by 1% to $2.5 billion, following a 15% increase in the prior year, resulting in growth of approximately 7% on a two-year compound annual growth rate…

Thanks, Mark, and good morning, everyone. I'll begin with an overview of our first quarter results. As Mark indicated, our top-line finished as we anticipated, and adjusted EBIT and adjusted EPS came in slightly better, primarily due to the timing of adjusted marketing, selling, and administrative expenses. Our organic net sales decline of 1% reflects mid-single-digit expected volume declines, a lower contribution from pricing and disciplined levels of promotion activity. Lapping a 15% increase in organic net sales in the prior year, organic net sales grew approximately 7% on a two-year compounded annual growth rate. Adjusted EBIT decreased 9% to $407 million, reflecting lower adjusted gross profit, a commitment to continued marketing and selling investments, and lower benefits from pension and postretirement income, partially offset by lower adjusted administrative expenses. Adjusted EPS decreased 11% to $0.91, driven primarily by lower adjusted EBIT and slightly higher interest expense, partially offset by a reduction in the weighted average diluted shares outstanding. Slide 22 summarizes the drivers of our first quarter net sales performance. Excluding the impact of the Emerald nut business divestiture, organic net sales declined 1%. We generated 3 percentage points of growth from net price realization and volume and mix declined 5 percentage points in-line with expectations. As shown on Slide 23, our first quarter adjusted gross profit margin of 32.1% decreased a modest 10 basis points, with the year-over-year change in margin driven primarily by unfavorable volume and mix. As shown on the bridge, the combination of net price realization, productivity improvements and cost savings initiatives offset higher cost inflation and other supply chain costs. Turning to Slide 24. We continue to successfully mitigate inflationary headwinds with core inflation moderating to 2% in the first quarter, driven by attenuation in key inputs such as flour and oil. We expect…

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

Great. Thanks so much. Good morning, everybody.

Hi, Andrew.

Hi there. Mark, you mentioned an encouraging start to the holiday season and, of course, we don't want to make too much of any given four-week period, but for Campbell, obviously, the recent data is pretty critical. I guess I was hoping you could dig in a bit more on this data, particularly how you see sort of category dollars progressing to help inform how fiscal 2Q is unfolding, and more important, how you see the rest of the year given the expectation that '24 is going to be a somewhat back-end loaded year?

Yeah. So, yeah, great question, Andrew. And yeah, I think it's always important to see trends over longer periods of time. But of course, for us, Thanksgiving, I think from a barometer as far as the consumer -- kind of macro consumer trends, but also for the business, is quite important. And I guess, the headline I'd give you is that, the holidays, as we had hoped, or especially Thanksgiving, was very resilient. I think consumers for the most part is, as we had anticipated, were very present, and especially in those categories that are most relevant to Thanksgiving. And as you may be aware, we're -- outside of the protein, we're in the three biggest, with pretty strong positions in all three, which is broth, condensed soup, and stuffing. Those are your top three household penetration categories beyond protein for the holiday. And I would say in all three of those segments, we saw improvements and significant step-up in share. So, on condensed, we grew dollar share by 1.1; and broth, 1.2; and stuffing, 0.2. I will say one of the dynamics that we are also seeing is that the shopping dynamic has evolved a little bit as you might expect in a tough economic backdrop. And what I mean by that is one of the dynamics we saw was much later purchases. So, the key week of Thanksgiving was much bigger than the prior week. And historically speaking, those tend to be a bit more balanced. And as part of that, we did see a lot of consumers very actively seeking promotion. And so, I will say that on the dollar side of the categories, in some cases, although overall improvement in total Thanksgiving categories, if you cum them together, were positive, you still see some headwinds on…

All right. No, thanks for that. And then, just a quick follow-up, and it's related to this. Obviously, gross margins came in well above Street forecasts, and I think that helps suggest that there are -- or backs up your point around promotional tactics from Campbell maybe are playing out sort of as you'd expected in a somewhat more rational way. I guess maybe you can discuss what you're seeing there? And more importantly, what you're seeing in terms of lifts? Are the lifts around some of the promotional activities sort of consistent with what you've seen historically?

I'd say better. And I think part of this now again is I -- as I suggested, I do think we are getting a bit of a tailwind and you can see it, right, what you'll notice is a fairly substantial step down in private label in certain of these categories as you'll see that flip occur between us getting kind of key week. And for those that may not understand exactly what I mean, the retailers have a decision to make on who's in their ad, who's on the end cap for the key week. These are the things that are really important to enhance the return on investment for our promotion and the lifts that you're describing. And this year, opposed to last year, where I think private label might have been a little bit more new, and I think retailers felt like, "Well, let's just get to a low price. And maybe that's what's most important," I think what we continue to believe and what we saw again in this holiday is that when the chips are really down, the Campbell's brands matter, and that is evident in the performance that we saw. I do think you point out a very good proof point and that is how our margins progressing. And I think the reality is in the first quarter, you did not see any type of material change in investment relative to promotion or trade. Our margins came in very much consistent with where we expected. We continue to do a very, very good job on our productivity and some of our other levers in managing costs. I think as we go forward, you will see us being very judicious, right? This continued balancing act that we've been talking about for a while of making sure that we're affordable and that the price gaps are managed right when we most need them to be, along with ensuring that the margin and the volumes all kind of work together to give us this kind of optimal position, not easy to do. And in a dynamic environment, we've got to make sure that we're staying agile. But I would say so far, I see nothing on the horizon that suggests to me that there's any variation from what we would have planned or expected, even though in certain periods of the year, you may see a sharpened price point or make sure that we're strongest in a key week, but not outside of the precedence that we've set in the past or within the margin construct that we've laid out.

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

Hi, thanks so much. Carrie, you mentioned the opportunity to manage discretionary spending maybe a bit more as the year unfolds. I'm just curious, is it possible to provide, I guess, some examples of where the biggest opportunities might be within discretionary spending. And I suppose I'm also asking for a bit of help with how you define discretionary as well. Thank you.

Yeah. I would say a lot of that goes back to some of our enterprise-wide cost savings initiatives. So, we have a vast program that we look at opportunities to enhance business [capabilities] (ph), drive efficiencies in all parts of our organization that are part of our $1 billion cost savings initiative. So, I would say, it's really across the board, not only in our COGS areas and our manufacturing facilities, but also going into the SG&A areas as well. And that's where we're seeing it across the board, some of those cost savings opportunities coming through.

Yeah. A lot of that, Ken, I would say, it would be in two big buckets. One is what we would call the non-working bucket. So that's kind of think of it as production or materials or things that are not necessarily driving immediate impact in the marketplace. And then, secondarily, what I would call the non-people cost within our SG&A, where we're looking at everything. I mean, I think in a world where we want to make sure that every dollar is working as hard as it possibly can in this moment, especially, as I said before, as we kind of wrestle with this balancing act, we want to make sure that we've got every penny possible available to either invest in the right areas and/or help us deliver the earnings. So, I think those two buckets are where we have been, although always vigilant, I would say, at a whole different degree of rationalization as we really make sure that we're working as hard as we can to get those dollars to work hard.

Okay, thank you for that. And then, just a quick follow-up. It's great to see the improving share data within soup, and thank you for the explanation as to what's going on maybe behind the scenes there. I'm curious, do you believe your key customers are satisfied with overall category volumes with soup, right, sort of understanding that the comparison is challenging. You did talk about how maybe you expect shipments and consumption to kind of match in the next few months, and maybe that answers the question. But just trying to get any kind of sense of how those customers are looking at the category right now in the scheme of affordability and so forth?

Yeah. It's a great question. And I do think it's a conversation that we have frequently with our customers. And you've heard me talk about this before, and I'm always a little guarded, because it should come with the big caveat that we're not going to do anything to undermine the long-term profitability of these businesses and margins. But I will say, it is important for us to ensure that the volume on these businesses continues to be in an appropriate range relative to ensuring that the health of the category and really the health of our overall network continues to sustain. And so, I think one of the other things you will see, Ken, in the holiday period, not surprising with the little bit of the disparity I shared between the unit share and the dollar share being a greater expansion in units, you will see a better step-up in units from where we've been on soup. And I think again, it's coming with the right investment package behind it. But look, I think that's encouraging. And I think over a period of time where we are looking for this business, not just for the next month or the next event, but really for the balance of the year and going forward, I think it continues to support what we believe is true, which is that this category continues to be strong. And look, just as a context, right, I know we forget this sometimes, and there's a lot of reasons why we can go back in these last several years and point to maybe non-normal one-time elements that affected it. But if I would have told you that the four-year CAGR on the soup category was going to be around 3% to 4%, we would have all felt really good about that given that it's the greatest growth period the categories had. And so, even though we're experiencing some slowdown in this year, I continue to believe that the underpinnings of this category, especially in the areas that we've identified as the most important growth areas, continue to have a good solid runway ahead. And I think Thanksgiving just becomes maybe a little bit, as I said, not the complete victory, but another proof point in that story.

Your next question comes from a line of Robert Moskow from TD Cowen. Your line is open.

Hi, thanks. Mark, last quarter you did some work to segment out grow versus optimize soup brands, and I want to know if the grow brands performed any better than optimize in the quarter, or were there comparisons at play to kind of change it around? And also maybe a little bit into the tactics you used for grow compared to optimize, how were they different?

Yeah. So, an interesting quarter on that front because you had, I would say, some real strength and some challenges in both of the two buckets. So, they were fairly consistent in the quarter. A little bit better, I would say, on shares. Broth recovered in the optimize, which was a good thing given its significance at the holiday. But the tactics, I think, for both -- and again, if I look at this over the last couple years, as I said in the fourth quarter, you do have a pretty dramatic difference where the growth businesses over the last couple of years CAGRs about 3% of upside and growing, and the optimized businesses are down about the same amount and even a little bit more. More importantly, in the growth areas over the last two years, you're seeing relatively strong shares across most of the key areas like Chunky and the icons on condensed and Pacific. I think in this particular quarter, what helped the optimize was some of the work and some of the benefit that we saw on broth kind of regaining its footing relative to private label. And I would say that was more of a function of just cycling private label than anything dramatic we did. I will say as we went into the key weeks, and if you remember what I said on broth, even as an optimize, what's important is that we win those key holiday weeks. And I think the good news is for a reasonable investment relative to what we expected, we saw that where broth for the quarter or for the four weeks was up 4% on dollars and up 1.2 share points in the latest four weeks, which is a great sign while private label was down pretty significantly. I think on the growth, Rob, what we're seeing, that's a headwind, right? I'd say condensed cooking icons, Pacific, all of those are doing extremely well. I will say the pressure on ready-to-serve has been a bit more pronounced in the last quarter. And this is really, we believe, a dynamic of consumers, especially our lower-income consumers that are under a lot of pressure that are migrating a bit more to what we would call stretchable meals from single serve. And so, one of the things that you'll see us doing on Chunky in particular is really positioning it more through the lens of the protein content and its ability to also stretch in meals to match a little bit where those consumers are going. But I do think in the quarter what dampened a little bit of the growth trajectory was that ready-to-serve. I'm not particularly concerned. I think we'll continue to see as we get into the season. A lot of activity on that business and all the other areas of growth are doing extremely well.

Great. Thank you.

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

Hey, good morning folks. Thanks for slotting me in.

Hey, Jason.

Hey there. So, in terms of inflation as an enabler to gain the margin recovery in the back half, it sounds like you're looking for core commodity inflation to remain roughly stable where you were in the first quarter, the low single-digit rate. But when you show us the margin bridge, there's a big gap there. Like the 2% core inflation rate would suggest far less gross margin compression than the 460 basis points you show with the inflation in other bucket. So, what's going on with the other? And what should we expect going forward?

Yeah. So, the other supply chain cost is a variety of variables, and maybe Carrie and I can tag team on this one a little bit together. But I'd say there's three things in there that are influencing that margin pressure that we're seeing now. The first is, I would describe some inflation, albeit not core inflation, cost of the supply chain, some of the intrinsic costs within our plant costs have been a headwind and have moved kind of in concert, I would say, with inflation. And so, although we don't categorize it as core inflation, I would say generally that's what's behind it. I think the second is, it's also there is a mix dynamic that is within that cost structure that's related more to SKU mix and even as we see some of the brand and category mix, even through to SKU, we've seen a bit of a headwind there. And then, the third area is and again not completely unexpected that's also where you see absorption and some of the fixed cost leverage that you would experience in a circumstance where volumes might be a little bit down from where they've been, and that's pressure that's there. So, as you can expect that normalization, whether it be from the mix standpoint, inflation standpoint, and/or even the volume standpoint, that's why we do not see those continuing forward. And you will begin to cycle if you were to go back and look at our Q3 and our Q4 from '23, you would see rather significant contributions from those buckets as well.

Yeah. I would just add that, think about some of those elements that Mark just talked about, it's cost of manufacturing versus cost of sales, there is a timing element that ultimately moves from your balance sheet to your P&L, and it -- we're cycling some of those things as Mark talked about on absorption as he mentioned.

That's helpful. Thank you. And Mark, Carrie, another sort of higher-level question on the outlook for snack foods. The notion that snack foods are growth advantaged has come under some pressure recently, supported by the data. If you look at consumption data, there's been pretty sharp deceleration of volume trends across numerous snack food categories. Love to hear you opine on what you believe is driving that deceleration, whether or not you think we are sort of pivoting into a period where the growth advantages of snack foods are behind us. And if so, or if not, why? What drives that expectation?

Yeah, it's a good question, Jason. I think what you're starting to see is a little bit more bifurcation within snacking. So, I do think there are places where we are seeing greater pressure, especially where, I would say, segments are a bit more commoditized. What's interesting in the first quarter if you look at our results, you saw power brands, right, which are now about two-thirds of our business continuing, I would say, albeit at a slightly lower rate of growth than we may have had in the past, but still certainly a healthy delta versus what, I would say, the average for total food was, doing fairly well and continuing to perform well and even the underlying vol/mix trends on that business for the quarter, they were essentially flat for the -- I think, down just under 1% for the power brands. But what you are seeing is some of the -- a pretty healthy step down on a couple of areas, both the partner and the contract brands, that's a little bit more of our catalyst of managed continuing to optimize DSD. And I talked about that for the first time in more of a complete way. And I know a couple of questions there that I'll answer in Q2 and give everybody kind of a full picture of margin timing and a few other things that I know we owe to folks. But I think what I would say is we continue to work actively, although an important part of our business to manage that effectively. And then, some of our non-core snack businesses were weaker in the quarter. And they tended to be segments where you had a little bit more pressure from private label or competition in general. I would point to bread was…

Your next question comes from a line of Jim Salera from Stephens. Your line is open.

Hi, guys. Good morning. Thanks for taking our question. Mark, I wanted to drill down a little bit on the snacking, particularly, Lance and Late July posted, I thought, very impressive share gains. Just offer some color on what's driving the strengths of those two brands in particular, compared to kind of the broader power brands portfolio?

Yeah. There's a lot -- those are quite -- two quite interesting brands, because they do both highlight, I think, consumer dynamics that may feel a little bit of tension with one another, but are fueling the categories. We actually see this on Meals & Beverage and on Snacks. So, let me take Late July first. I would say Late July is a more premium added-value brand, and we are seeing our premium brands doing extremely well. And part of the factor that underpins this is a lot of the decline that we're experiencing actually a significant outsize of contribution is coming from low-income households, which index on snacking only at about 20%, but they represent a much bigger portion of our declines, whereas the premium brands that index higher to the mid- and higher-income levels have been very stable, if not growing at faster rates. And so, I think Late July is a well-positioned brand in that added-value and elevated space, and thus within those consumer segments, remains extremely relevant, and the growth rates continue to perform very well. Lance is interesting, because Lance is really a brand that in our snacking portfolio does really index high to value. And one of the things that we're seeing is demand for that sandwich cracker segment, and in particular, Lance, has been extremely high. And when you think about the price point, the value, even the content, right, protein delivery, the perception of value of food relative to spend, it is a very, very high-performing brand and one that is doing very well. So, you can imagine among the more challenged consumer base, that particular business is just right on target. And we've seen demand doing -- going up pretty dramatically across that whole portfolio. So, it is a really good example of two very different macro trends that we're experiencing within the businesses, both snacking and Meals & Beverages.

Great. That's helpful. And then, maybe to wrap up on some of the innovation you guys have, if we think about, especially in Goldfish, are these innovations meant to bring new households to the brand? Obviously, Goldfish is a very well-known brand. Maybe just kind of expand the buy rate with core Goldfish consumers, or are you still kind of in search of adding incremental households that maybe don't buy the core products but would be enticed by an innovation?

Yeah. I would say consistent with what our ongoing strategy has been, which is broadening usage of Goldfish to the entire household. We have always been a powerhouse with kids, and not surprising, I think, to many of ourselves, as our own behavior may indicate, is that once it's in the household, more of the family tends to eat it. But we've not necessarily brought offerings that index a little bit more or specifically meet more of the expectations of either teens or even adults in the household. And that strategy over the last couple years, whether it was Frank's RedHot or Old Bay or Mega Bites, the innovation has been paramount into driving that. And one of the things that we mentioned in the call today, this is now going on two years of being the number one requested snack among teens. And that's everything, right? That's the brands you think of as being kind of these mega teen snacks and Goldfish has been number one. And so, when you think about a product like Crisps, where you really are intermingling kind of potato chip behavior with cracker behavior to get this kind of light munchable texture on Goldfish, it's a perfect fit for that. But we also want to make sure that kids target, we continue to meet their expectations as well. So, you love to see a maple-flavored elf product on Graham as well. So, I think the goal for us is to continue to be that number one choice for kids while enabling the entire household to be fans of it. So, I would say, I would expect that to manifest itself in both buy rate as you hope that a kid's household is buying a couple more packages of some of these other innovations or flankers, or that we hold on to households longer. So, as the kids age up, you're actually maintaining Goldfish in that repertoire, even if it may be through a Crisps or a Mega Bites as an extension into a longer and older set of kids or households.

Ladies and gentlemen, we have reached the end of our question-and-answer session. This does conclude today's conference call. Thank you for your participation. You may now disconnect.