Greetings, ladies and gentlemen, and welcome to the Campbell Soup Company's Second Quarter Fiscal 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. After today's presentation, [Technical Difficulty] 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 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 Invest 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 second 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 second quarter fiscal ‘24 earnings call. As you saw in our press release this morning, we once again delivered on our commitments with sequential improvement in volume trends and year-over-year operating margin expansion in both divisions. While it is true that category trends have slowed over the last year, I'm encouraged by a variety of stabilizing consumer indicators, like consumer sentiment, household penetration, and average categories purchased. However, we are also continuing to see economic pressure impacting select categories and certain consumer demographics. While we expect these trends to improve over time, we're certainly not there yet. In the meantime, I continue to be very happy with our team's ability to control the controllables, including managing our supply chain and in-market execution. Looking ahead, we are affirming our full-year outlook as we anticipate continued sequential improvement in top line earnings and margin progress while sustaining our best-in-class navigation of this volatile environment. Carrie will elaborate on that a bit later. With that strong foundation in place on the base business, we are eagerly anticipating the closing of the Sovos Brands acquisition in the coming week, adding the best volume-driven growth story in food to our portfolio. At an upcoming Investor Day in late June, we look forward to sharing the vision for Campbell's next chapter, driven by what will be one of the most focused and advantaged portfolios in the industry. Turning to Slide 7, as expected, organic net sales in the second quarter decreased 1% to $2.5 billion, in line with consumption, with many of our brands exceeding their respective category growth rates and growing share. On a two-year compound annual growth rate basis, top [Technical Difficulty] grew 6%, adjusted EBIT increased 1%, and adjusted EPS was comparable…

Thanks, Mark, and good morning, everyone. I'll start by providing an overview of our second quarter results with a top line that came in as expected, operating margin expansion in both the Meals and Beverages, and Snacks divisions, and adjusted EPS ahead of our expectations. Second quarter organic net sales decreased 1%, lapping a 13% increase in the prior year for a two-year compounded annual growth rate of 6%. Adjusted EBIT increased 1% to $364 million, reflecting higher adjusted gross profit, partially offset by higher adjusted expenses including other expenses, R&D expenses and administrative expenses. Adjusted EPS of $0.80 in the quarter was in line with prior year and lapped double-digit growth last year. Slide 22 provides the drivers of our second quarter net sales performance. Excluding the impact of the divestiture of the Emerald nut business, organic net sales were lower by 1%. During the quarter, we generated 1 percentage point of growth from net price realizations, offset by volume and mix, which was unfavorable by 2 percentage points, in line with the sequential improvement from Q1 that we expected. As shown on Slide 23, second quarter adjusted gross profit margin was 31.4%. We were pleased with the 70 basis point margin expansion, which was driven by supply chain productivity improvements, net price realization, cost savings initiatives, and the favorable impact of volume and mix, which more than offset cost inflation and other supply chain costs. Core inflation in Q2 was low single digits, consistent with Q1, and significantly lower than the 14% in the prior year, driven by attenuation in inputs such as flour and oil. We continue to expect core inflation to stay within this low single-digit range for the remainder of fiscal '24, down from the double-digit range last year. Net pricing averaged 1% for the…

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

Good morning.

Hi, Andrew.

How are you doing? Mark, maybe to start off, you talked about sales tracking towards the lower end for the full year. I don't think that comes as a big surprise, just given the broader sort of industry challenges that a lot of the food companies are facing at the moment. But obviously, even at that lower end, it does require a pivot, right? The positive growth in the second half. And with no benefit expected from pricing, obviously volumes got to drive that. Maybe you can go through just a couple of the key points. You mentioned a few, but just what really drives your visibility and confidence to that outcome? And then as Carrie talked about, EPS a little more fourth quarter weighted, given the cadence of spending and some other things. But maybe you can also comment a little bit on that, what drives that specifically, so we have a better handle on that?

Sure. Yeah, and maybe Carrie and I can kind of tag team together. So yeah, let's first talk about the top line. The first thing that I would just say is -- the good news is through the second quarter, we're essentially right where we expected to be on top line. And I think that sequential improvement that we saw from Q1 to Q2 is very important because that's -- that kind of supports, if you will, a little bit of the trajectory that we anticipated and planned for the back half. I think you hear a little bit more cautious tone relative to the ranges. And from the beginning, we've kind of said the guidance range kind of is predicated on a little bit of the sensitivity of the speed at which we see some of these categories responding, and I think what you're getting from us is just a little bit more probably not so much of a specific factor, but more of just a bit of caution and ensuring that we see the variables that we expect and whether that indicates low or high end of the range. So we're certainly not suggesting that we are for sure on the low end of the range. But from what we can see in variables today, I thought it was prudent to kind of position it that way. Now why do we see sequential improvement in the back half? Well, the first thing I just would point out, this is not some massive hockey stick, right? So we kind of down 2% in Q1, down 1%, as we said, kind of flat to 1% in Q3, sequentially better in Q4. So it's a pretty steady drumbeat of more modest improvement as we go through the back half of the…

Right. I’ll leave it there. Thank you so much.

Great.

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

Hi, thank you. Just to dig in a bit deeper on the wording of the back half, I guess, in really implied back half guidance. Mark, you said you're currently on pace for the lower end of annual guidance, and that's really in the name of pragmatism or prudence. But you also, I think, said that the first half’s top line came in broadly as expected. So I'm just curious if I can get a little more precise on -- are 3Q shipments maybe starting off a little more slowly than you might have anticipated? And within that, you mentioned that Chunky share trends are improving, but it's still a bit challenging. So I'm just trying to, I guess, get a little more focused on which parts of the business are the main reasons for the added prudence, kind of the right way to think about it. Thank you.

Yeah. No, I think, Ken, what I would tell you, from a Campbell standpoint, our performance relative to the categories is very consistent in the sequence of improvement and the strength in different areas. Again, from what we've seen in the beginning of the year, through, I mean, continued strength on broth and all of our cooking businesses, as that stays highly relevant for consumers very, very strong, a little bit more softness on ready-to-eat soups but not different than what we would have expected. I think the -- let's call it a little bit of the hesitation has probably been more anchored in the speed at which the categories are recovering. And I would say, from a Meals and Beverage standpoint, pretty much in line with the trajectory, I mean, I think everybody is aware that January was obviously a very strong month and arguably a little bit better due to the weather. Although what I would tell you is, as we think about it and look at it, the good news is, that weather is more normal than what we've had the last couple of years. So always difficult to talk about weather. But I think January generally pretty strong, but the trend -- the underlying trend in the categories, pretty much where we expected. I would say Snacks is a little bit slower. If there's one where in the category dynamics, we're seeing a little bit more moderation. But I do continue to be reminded that when I look at these businesses and look at these categories on a two-year basis, you continue to see really strong results. I mean, in fact, our power brands which are two-thirds of our business on a two-year basis are up 12%. So there probably was a little bit maybe of overshooting relative to expectation on the speed of recovery in the Snacks ones. But I think relative to what we expected or what's giving us a little bit of, I would say, pragmatism, because again, I want to be really clear, we've got a lot of months left in the year to see us continue to shape the curve based on our own execution. But I would say those are the areas that are giving us a little bit more of this outlook that's moving a bit down. And remember, we guided in pretty tight ranges, too. So the difference between one and zero, not insignificant, but certainly, I think in a world where it's pretty variable right now, I think a little bit of pragmatism is probably appropriate.

And then can I ask a very quick follow-up to that, and thank you for the color. When I speak with investors about, I guess, the bull and bear cases on your stock and other companies, one of the bearish cases I hear is that the salty snacks category in general is a little weaker than what people expected, and that maybe that will continue if some of the larger players get a little bit more nervous about their share, maybe invest a little more in price. Are you seeing any of these dynamics take place, whereby there's an irrational amount of maybe price investments? Just trying to get a little bit better sense of what you're seeing in salty snacks that's maybe not going quite as well, because it's been such a great category for so many years and decades.

Yeah. So, no, I think what you're seeing is generally a pretty consistent with history. As funny as I -- a lot of the devil is in the detail of unpacking these categories. And it's interesting, as I talked about that two-year CAGR on power brands for us, as you pull back and look a little deeper at the salty categories, they are the strongest two-year growth rates that we have within the business. So arguably, salty is lapping the most challenging comps of -- given the strength of where it was a year ago. I do think, as I've said all along, this is salty snacks, right? So this is not a category where you're not going to have promotion, where you're not going to have competitiveness as you think about the players that are in this space. But I'm not seeing anything that indicates to me that people are becoming irrational or that they're trying to chase the cycling down. Again, I would say, whether it's -- we under-anticipated the strength that we were lapping or whether the category is a little more challenged than we expected in the near term, I am really not worried about this being structural. And even when I look at some of those early lead consumer indicators, like I mentioned before, you're seeing positive movement. I truly believe this is not a matter of if these categories respond, it's just a matter of when, and trying the time it, engage it, is what makes the current moment we're in a little bit more challenging. But structurally speaking, I'm not seeing anything that gives me any real pause, relative to what I think is going to be a very, very healthy longer-term trajectory for us, both in the salty side but also in the cookie and cracker side.

Thank you.

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

Hey guys, good morning. Thanks for taking the question. Carrie, maybe just to start, can you just help us out, like the contribution from both foodservice in Canada to Meals and Beverages, I think you said was a positive offset in the quarter. Maybe just what that was and what's embedded kind of throughout the second half on those two pieces of Meals and Bev?

So maybe I'll jump in first on the top line. So Canada and foodservice continue to be performing extremely well. Now as you might remember, Peter, we had the nice recovery of a year ago in foodservice, but it was still positive, low single digits. Canada had an especially strong quarter. It contributed about 1 point of growth. And so if you're doing the math between net sales and end-market consumption, one might ask the question of, all right, if you got a point of contribution from NAFS and Canada and Meals and Beverage, why were you a little bit lower? And that was a function of actually seeing a bit more depletion of inventory in the second quarter. And again, I think I wouldn't call that a big indicator of an upsized recovery in Q3, but I think a little bit of just normalizing as we ran through the holiday season, which is always a little bit of a guessing game relative to inventory. So I think we're finishing in a very good spot, but we got a little bit of help from NAFS and Canada that we're able to balance a bit, a little bit of inventory pressure on the base business, but you're talking in totality within about 1 point of movement on the meals and beverage side.

Great. Thanks, Mark. That's helpful. And then maybe, Mark, just to switch over, you did spend some time talking about the combo strategy on the DSD routes. I know it's pretty early days, but maybe you can just give us a sense of that 20%? Are you less than 1% kind of converted at this point? And what have you kind of learned, I guess, both positive and maybe any challenges you brought into thus far? Thanks very much.

Yeah. So needless to say, this is may be more exciting to us than the outside world, but this is a really important step in the journey because really, since I've been on the business, when you look at our business and you see the complexity of multiple DSD routes on snacking and you see the disparity geographically in scale, it does really beg the question of is there no way to put these businesses together? And I think what we did, which was smart was to kind of tread lightly and move in a very methodical and pragmatic way. But you now hear us kind of through what has been a couple of years of really working on what's possible and feeling really good about what we're learning on the combo routes. And so as you can imagine, one of the questions we had to answer is, okay, you have an independent distributor that's now going to two aisles in the store. And so what you -- what inherently you're going to have to have is enough scale that represents or that is still economically beneficial for that independent distributor to spend more time in a single store. So the math in this to get it to really work well to make it the win-win that we want it to be is this opportunity of maximizing in-store execution, while the economics of the drop size is being substantial enough that it really encourages or make these routes attractive, while also dealing with the fact that when you're underscaled on these routes, and this may not be as obvious to everybody, is, as you might imagine, if the economics are not good on routes for an independent distributor, it's a real challenge for them and the ability to invest in…

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

Thank you, good morning. I just wanted to start following up a little bit more on that DSD color. And I would love to get a sense -- I know it sounds like it's a fifth or so of the total, so a smaller piece. But can you quantify what the savings might look like from this and how to think about the economics of how this progresses?

Yeah. So obviously -- so as we said, it's about 20 -- to do the -- all of the markets that we've sorted into kind of, let's call it, underscaled with the potential of combo, it's about a fifth or about 20% of the routes we have. As you may remember, we've talked about this part of the journey really being a component of several different elements that come together to really address route to market. So the combination of the warehouses, the combination of the depots, added technology and capability both for the IDPs as well within our warehouse network, and now this ability to convert into combo routes in a fifth of the country. The economics of this, relative to how we've managed the investment, is both an efficiency and an effectiveness play. So the good news is you're getting margin and efficiency, arguably a bit more through the warehouse consolidation and the depot consolidation, although I would say combo routes are going to give you some intrinsic savings as well. But then as you move to the idea of where the effectiveness comes from, I think the technology upgrades as well as the combo routes are going to give us a very healthy boost in some markets where arguably, we've been underperforming as we've been just lighter on scale and support. And so the economics of this are really the combination of both what we perceive to be the improvement in top line, which, of course, is still at the heart of what we want Snacks doing, but also contributing to the business. So what -- and we'll talk a little bit more about this in Investor Day, but what you're seeing, not inconsistent with what we talked about in the past is, it's probably 50 basis points of margin that I would say is more directly related to distribution. I think the -- and that's really through a time frame of '26. I do think as you look beyond it and the timeline for completing this will give us a little bit of dry powder, even beyond the 17% that will give us some optionality, either to spend back and invest in the business or potentially drive margin even further beyond the 17% that we talked a little bit about today in fiscal '26. But in the near term, probably relative speaking, about 50 bps of margin benefit from it is a good kind of approximation.

Okay. That's really helpful. Thanks. And just a quick follow-up on some of the comments on the portfolio. You've touched on the attractive balance and the Investor Day slide, looks like you'll highlight how you're thinking about that. We've had questions in the past about would a split ever makes sense. It sounds like that's not on your radar. Is that how you're thinking about how you go forward and just how the two pieces of the business fit together?

Yeah, look, I think -- yeah, no, good -- very good question. I think the short answer to that is we're going to let shareholder value kind of drive a little bit of that dialogue. I will say that I've been very consistent, I think, from the beginning, that even if for whatever the economic case is for a split of the company, I would want to do that from a position of strength. And so the moves that you see us making and what we've been doing to kind of transform, I would say, the portfolio and the business over the last several years, is going to set up what I think is going to be a best-in-class grocery business with Meals and Beverage and a best-in-class snacking business, that on the Meals and Beverage side, you're now adding these very compelling growth stories in what we're calling more of the distinctive or premium brands, while having a very solid foundation of mainstream brands and a more differentiated Snacks business that now has a simplified both route to market and manufacturing platform that really gives us now, I would say, both halves of the business in its strongest position. And so now with that, as we kind of live into that over the next year or so, I think we'll have a great understanding of what is the value potential and how should we judge it versus other options. But know that we'll always look and evaluate. But right now, I feel like all roads through -- lead through executing and delivering on this vision that we have for both of the divisions. And I think if we do that, we're going to have a very compelling story within food.

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

Hi, guys. Thanks for taking our question.

Hey, Jim.

Mark, I wanted to circle back to some of the commentary around the back half cadence for the top line. If I look at Goldfish in particular, I believe they gained dollar share in the second quarter, which is up from flat in the first quarter. Just any color around what's driving the success there, if that's something that can be kind of replicated across some of the other snacking brands? And if we think about a reacceleration or an acceleration in the back half, what components of the snacking portfolio, would you expect that to come from?

Yeah. So, it's a great question. Goldfish is, as we said, kind of foundational in many ways, has been this great example for us of how do we drive these iconic differentiated snack brands. And the magic in Goldfish has really been this combination, I would say, of good base business support while expanding into adjacent consumer targets initially, and now with Crisps really into adjacent occasions, so that we're now able to begin to source from other snacking categories that fit better, like think of chips or more of a munching occasion that Goldfish is now competing with and off to an extraordinary start. You pair that with the success of our limited time offerings and much of our innovation in the past has been successful as well. You might have heard a little bit too of kind of a subtle nod to geographic opportunity, as I mentioned, as a more North American mega brand, and there is significant runway on Goldfish as we think about Canada and even Latin America. As we continue to dig deeper there, we're seeing real opportunity for white space in those areas. And so when I think about Goldfish, and I think about what we've done now to prove the expandability of the brand, I think it is a great blueprint. Now I would argue that we've done a very good job in other brands like Late July or Kettle Brand, where we've been able to add different occasions like air fried on Kettle, flavor variety that really brings excitement, the limited time offering model. You see us expanding that to other parts of the business, even more recently to cookies. If you haven't tried the London Fog, Milano, excellent product. And so there's a lot of -- I think, a lot of…

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.