Good morning and welcome to the Campbell's Company Q1 Fiscal 2025 Earnings Conference Call. All participants are in a listen-only mode. After the speakers' remarks, we will conduct a question-and-answer session. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the call over to Rebecca Gardy, Chief Investor Relations Officer at Campbell's. Please go ahead.

Good morning, and welcome to The Campbell's Company first quarter fiscal ‘25 earnings conference call. I'm Rebecca Gardy, Campbell’s Chief Investor Relations Officer. And joining me today are Mark Clouse, 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. The prepared remarks, the slide deck and earnings press release have been posted to the Investor Relations section on our website, thecampbellscompany.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. Slide 2 outlines today's agenda. Mark will provide insights into our first quarter performance as well as our in-market performance by division. Please note effective first quarter fiscal ‘25 and going forward, we are using Circana MULO+ for in-market data. Carrie will then discuss the financial results of the quarter in more detail and review our guidance for the full fiscal year 25, which we reaffirmed last night. 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. Before I turn it over to Mark one last time, I wanted to personally thank you Mark for your extraordinary leadership and unwavering commitment to excellence. And now with that, Mark.

Before we review our results, I want to take a moment to address last night’s announcements of my plans to retire from Campbell’s and transition with the incoming CEO over the next two months. I'd like to congratulate Mick Beekhuizen on becoming the 15th CEO in Campbell’s 155-year history. The Board and I have full confidence in his readiness to lead this great team and company. As I prepare to step back, Campbell’s could not be better positioned for the future. I believe that Campbell’s has the top leadership team in the business. They are experienced, engaged and fully committed to setting the standard for performance. Together, we built the best portfolio in all of food and transformed the company. This enables me to make this decision with the utmost confidence in the company’s trajectory going forward. With our strategy firmly rooted and our team highly engaged and aligned, I am certain that Campbell’s future is bright. Leaving Campbell’s was not an easy choice. Since I was a boy, sports have played a very important part of my life, and the idea of working in the world of sports -- and in particular, the NFL has been a lifelong goal. It is truly a once in a lifetime moment to become the Team President of the Washington Commanders. I am incredibly grateful to Josh Harris and the Washington Commanders ownership group for the opportunity to lead this iconic franchise into a new chapter of growth. I look forward to supporting ownership, and the entire Commanders team in doing everything in our power to build a championship-caliber organization. These last six years have been an incredible privilege and honor, as well as the most rewarding professional experience in my nearly 30 years of working in the food industry. Without question what…

Thanks Mark, and good morning, everyone. Our first quarter results were generally in line with our expectations, with overperformance from Sovos Brands, and an earnings performance in line with expectations. Reported net sales were up 10% driven by the strong sales contribution from Sovos. Organic net sales, excluding the impact of acquisitions, divestitures, and currency, decreased 1%, reflecting a continued dynamic consumer environment and some impact due to the movements in retailer inventory levels influenced by the later timing of the Thanksgiving holiday this year. Adjusted EBIT grew 6% reflecting the strong contribution from the acquisition, while adjusted EPS decreased 2% to $0.89 due to higher interest expense stemming from higher levels of debt. The impact of the acquisition was approximately neutral to adjusted EPS in the quarter, which continued to exceed our expectations. Turning to slide 21, as mentioned earlier, organic net sales for the first quarter were down 1%. This was driven by flat volume and mix, offset by anticipated unfavorable net price of 1%. Sovos Brands added 12 percentage points to reported net sales growth. On slide 22, first quarter adjusted gross profit margin declined 70 basis points, primarily driven by a 60-basis point impact from the acquisition. Excluding the acquisition, our base business adjusted gross margin was down a modest 10 basis points with productivity improvements and cost savings initiatives largely offsetting inflation and other supply chain cost and planned unfavorable net price realization. For the full year, we expect our planned productivity and cost savings initiatives to be more than sufficient to offset the impact of low-single digit core inflation for the full year. In the first quarter, we delivered approximately $30 million of savings under the new $250 million cost savings program, of which approximately $9 million was Sovos integration savings. Turning to Slide…

[Operator Instructions] Our first question will come from Ken Goldman from JPMorgan. Please go ahead. Your line is open.

Hi, good morning. And Mark, a hearty congratulations to you. It's incredibly exciting to hear about this. Doesn't happen every day where you see one of our CEOs going to the NFL. So it's unique, and I'm happy for you.

Thank you Ken, thank you.

I wanted to ask about the gross margin and marketing. They came in both a little bit below consensus expectations. You provided a helpful breakdown of the gross margin drivers as usual. But just versus your own expectations, I know the quarter broadly came in-line with what you were looking for, you said. But as we think about the gross margin and marketing kind of those building blocks of the EBIT margin, how did they perform versus what you anticipated coming into the quarter?

Yes, it's a good question, Ken. I'll try to give you a little bit of insight on a couple of differences. And then have Carrie add some color to it. But I think the primary building blocks. So if you think about what we expected pricing to do, what we expected productivity to do and cost savings to do, all of those were very much in-line with what we expected. So no surprises really across the board. I think perhaps the piece that was a little bit difference was the mix of the business. So we had a, as you would have seen a very, very strong performance out of Rao's and Sovos. A little bit softer organic business really reflective of the later timing of Thanksgiving and the inventory shift that occurred primarily in meals and beverages. If you think about what those categories are, those are generally very favorable to our mix. And we would have seen a little bit of more pressure coming in through that combination. I mean as Carrie mentioned, if you take the Sovos mix impact out, you essentially were neutral, down slightly but neutral. But that was probably the biggest driver of maybe a little bit of the disconnect between what was expected and what came in, although I would say from a materiality standpoint, not a major swing. Carrie, anything to add to that?

Yes. I would just elaborate on that is that as you think about that mix of gross margin, you had higher Sovos and Rao's, which is at a lower margin profile. And then our legacy business, which has a higher margin profile, came in a little lower. So that created a mix issue there. In addition, in terms of the beat on the bottom-line, the other thing that interest expense came in a little bit better. And I think that's a good thing. I think we've been proactively managing interest expense. We accelerated a refinancing of our debt that's coming due later this year. So all of that was helpful as we continue to move Sovos to that accretive nature for the full year.

Yes. And maybe if we -- just to finish that that bridge all the way to walk down. I know in seeing some of the conversation over the evening and into this morning, the marketing and selling phasing that we've got for the year, if you would have seen in this quarter, we were on the base business obviously, we are up because of the addition of Rao's, but essentially flat on the organic business. And as we had talked about, we do expect to step that up. I think you will see that much more significantly in Q2 because obviously, that's where the holidays are, but that's also where a lot of our innovation is. So although I think that may have been a little bit of a disconnect, we were obviously in a very solid position on investment for Q1. But I think you should expect to see as we laid out kind of expectations for Q2 a little bit more of a step-up in investment there.

Okay. Thanks. And before my follow-up, I've already been messaged by two people saying I was overly effusive in my praise. So I guess I'll throw in a fly eagle fly to offset that. But the --.

[Base sale] (ph) is the right one, Ken. That's the new one that you need to learn.

I don't acknowledge that. So the bar for 2H remains, I guess, a bit higher, just to jump back to Campbell, than some investors might be comfortable with, I guess, is the right way to say it. Is there anything unusual in terms of timing benefits, tailwinds we should be considering as we model the back half of the year? Just things that may not be obvious to the observers of the company at first glance.

Yes, I think there are. And so Carrie, why don't you walk through a little bit of the -- what we would describe as the pathway?

Yes. As we think about the second half, we do expect organic growth to modestly improve from the second half -- for the first half sorry, reflecting Sovos moving into that organic growth in March. And then as you think about the underlying business, we do expect improving trends, partially offset by lower expected broth net sales, as we outsized that outsized growth from last year related to a competitor supply issue. So overall, again modest improvement, nothing that's significant in the second half as we think about organic growth trends. As we think about the P&L, this is where I think there is some items to call out. We would expect second half EPS progress and margin progress, reflecting a more neutral net price and marketing impact versus the prior year. We would have a higher net benefit of productivity and cost savings in the second half compared to the first half. And that includes savings from the integration of Sovos, as we talk about moving into accretive nature in the second half, lower headwind from interest expense. So we'll start to lap that from the acquisition that was mid-March last year. And so that will be a lower headwind than it was in the first half. And then the other thing to remember is that we have the 53rd week benefit in Q4. So that's a $0.07 benefit in Q4 that we'll be in other companies fourth quarter, right? That's unique to us in our fourth quarter in terms of the timing there. So I think -- as I think about those things, the areas that are doing better was around the interest expense coming in favorable cost savings being accelerated. So seeing some really strong out-of-the-gate performance on our cost savings and then overall Sovos. And the last thing I would leave with is the fact that, again, as we think about all of that, continue to have good confidence in our earnings and our cash flow. And I just want to also end on the fact that we did increase our dividend as well.

Yes, which is a good, I think, backstop of confidence in the business. I think just the only thing I would add is when you think about the -- what will end up being four months of contribution from a better than expected performing Rao's and the strength that we're seeing in the cost savings agenda, overall and a little bit of help from lower interest. And as Carrie said earlier, I do see that as a successful execution of managing our debt, which is an important variable in this year. That is giving us a little more confidence even in light of needing a bit more investment. Again, when we think -- when we talk about price, just to make sure I'm managing folks' expectations when we say we are adding a little bit more support in Q2, I think important to understand the drivers of Q2, but for the full year, we are still expecting something less than 100 basis points for the full year. And that I think, is not a material difference from really where we were when we started the year and gave guidance. So hopefully, that helps a little bit in bridging that back half expectation.

Thanks very much.

Our next question comes from Andrew Lazar from Barclays. Please go ahead, your line is open.

Thanks good morning. Let me add my congratulations to you as well, Mark, and also congratulations to Mick.

Thanks Andrew.

Sure. Maybe just following on with the prior question for a minute around the back half. Organic sales came in sort of down 1% in the quarter versus expectations for kind of a flattish result. And you now expect flat organic sales in fiscal 2Q, where the Street was looking for a sort of a modest year-over-year increase. And I guess we've seen many calendar year reporters in the food space recently discussed sort of their expectations for another below-algorithm year next calendar year, which would kind of correlate to Campbell's back half of your fiscal '25 when you expect results to continue to sort of improve. So I guess I'm just trying to get a sense of I know you went through some of the drivers just now around the back half. But I mean how much are you taking into account some of those factors right, that many industry players are already kind of saying, hey, next year is kind of not a lot of cause, but like not going to be kind of where we want it to be. I'm trying to like square those two things, I guess.

Right, right. And I think one of the things that's important in kind of landing expectations is that it is not as if we're anticipating a comprehensive hockey stick, if you will. I think, the way I'm thinking about the back half when I look at both what we're cycling. And I do think if you go back and look at our back half a year ago, we were starting to experience a little bit of tougher headwinds already, as we started to see the consumers behaving differently. And I think that as a backstop different than the first half, gives you a little bit of confidence in a step-up and then I overlay on top of that, the fact that we are going to add some organic help from Rao's into our organic numbers. You've got a very robust level of investment that's in our baseline already along with a very strong innovation program and platform on top of it. So although I don't necessarily disagree with the perspective of how we feel, and we always have said we did not expect '25 -- fiscal '25 to be an on-algorithm year as it was more of a transitory period, which is inclusive of that back half as well, albeit a step up from where we were in the first half. Again, all very consistent with what we have expected. And I think -- again, I think we want to see Q2 as the first quarter. We've done a nice job, I think, navigating a variety of different variables to land where we did. I think we've got a very robust plan in Q2. And I think to be completely transparent, I want to see that impacting share and driving the expectations we have, which will give us greater confidence and what the back half looks like. And again, what you can always count on us to do is give you kind of a real-time view of how that's going. But for what we see today, and as we look at what we are cycling, we feel like we are in a good position to see that modest improvement as we get to the back half.

Got it. That's really helpful. And then just with the modest increase, it seems like in full-year sort of marketing and promotional investment and such, most of that to fall in 2Q. Where would that sort of put you from a promotional perspective at the end of this year versus let's say, where you were a couple of years ago right, pre-pandemic and all of that. Would that still be relatively in line with where you were? Or does it take you beyond that? Just trying to get a sense of context there. Thanks.

Yes, it's a good question. I mean I feel like we very much are in line with where we have been historically. But I would say, that I feel like from a promotional standpoint, given the competitive nature of the landscape and again, none of that's a big, I would say, surprise to anyone. I think we have cycled to a level that is consistent with where we've been before. I do not see nor do I believe we will need any type a disproportionate reduction in the price points, right? I think that's important, especially in categories like cookies and pretzels. We know that at the end of the day, we've got to win those fights through the balance of equity driven by marketing and innovation, appropriate levels of promotion, but we do not intend to lose sight of the fact that we need to remain disciplined on price. And so that's the plan that we have. And the good news is on both of those categories again, early into the next quarter. But if I look at the latest four weeks where we're starting to see the beginning of holiday and a lot of our programming, especially on cookies, I see shares beginning to stabilize. And that is a really good indicator for us, as we go into the Q2 time frame. I think in the other areas of salty, where we're also experiencing a fair amount of competitive pressure. In those particular cases, it's actually all coming from new entrants right, whether it's salty or whether it's kettle, pretzels or even [tortilla] (ph) chips, really what we are fighting there is some new entrants. These are subsegments that are doing very well relative to the broader salty universe. And so we've got a little more competition. So again there, I think -- the fight is not being waged on price, it's really about ensuring that we are bringing the appropriate news and innovation along with a competitive promotional calendar. So as I look at snacks, where we're experiencing more of the competitive pressure, I don't see anything that's pushing us into unsustainable or unreasonable levels of promotion.

Great. Thank you so much.

Our next question comes from Peter Galbo from Bank of America. Please go ahead, your line is open.

Hi guys good morning. Congrats to Mark and to Mick. And Mark, I guess, we'll look forward to [Jame Daniel's](ph) being in the Campbell's Chunky commercials next year.

Two separate universes, Peter. Two separate universes.

Mark, maybe just one kind of nuance question that we are getting this morning just around the inventory timing shift related to Thanksgiving. A, just maybe you can unpack that a bit more, given your kind of an October quarter end with Thanksgiving later? And if you can just quantify at all kind of how much you think it moved?

Yes. So the easiest way to think about it is if you look at the meals and beverage profile for the quarter, you'll see about a 2-point -- roughly a 2-point delta between the in-market consumption and the net sales. I’d tell you that from a Canada and foodservice, we did just find in those. And so really, the majority of that difference is coming through some of that pressure in inventory. Now I do think it's fair to say that retailers in general have been very focused on managing inventory levels down in general. But I do think the later week of -- or the week later of Thanksgiving certainly had an impact, and I would say more than half of that would have been related to that swing. And again, I think the good news is, as we pivot into the month of November. Still too early to give kind of a full picture of Thanksgiving. But certainly, we saw some of that inventory build earlier in the month of November, which would have been a little bit later and moved out of the first quarter into the second.

Got it. Okay. No, thanks for that. And if I just go back to the slide you had on Rao's and some of the sourcing occasions that you mentioned, I'm just curious kind of what data you're looking at internally or what you're seeing that suggests that that's actually the case that you are seeing Rao's specifically kind of source share from some of the Italian concepts in the restaurant channel?

Yes. I think one of the -- a couple of things that. First more broadly speaking, I’d say you're still seeing from a broader consumer dynamic, you are still seeing migration from away from home into home for meal occasions. We are up in the low 80s. 83%, which is still up versus a year ago. And so that migration continues. I think what we're seeing in Rao's so encouraging is a fair amount of this growth that we are experiencing is coming from middle and lower middle income households. And as we explore with consumers the appeal and remember, these are also consumers that are buying Prego as well. And so in trying to understand and segment how to focus on the Prego business as well as the Rao's business, we really want to try to understand occasion. And one of the areas that we've consistently uncovered and the team actually has been focused on this even before the acquisition is this idea of significant value versus what you may get from a takeout or online order DoorDash and so forth. And that tracks very well with that income level where we are seeing a lot of growth from the Rao's business coming. And I think we want to continue to focus on that. And you would have seen a new advertising campaign for Rao's that really focuses on our point of difference in quality kind of our Italian routes and really what makes Rao's different and so much worth that that price point. And again, when you put it in the right context, I think it becomes very compelling as you would have seen in that. And I think that's something you are going to continue to hear us talk more about is really the power of Rao's being able to compete in different occasions across multiple income levels.

Great. Thanks very much.

Our next question comes from Robert Moskow from TD Cowen. Please go ahead. Your line is open.

Hi, thank you for the question. And Mark, congratulations to you. Best wishes.

Thanks Rob.

One question on Snacks. The margins were around 13.5% in the quarter. That's quite a bit lower than what I had expected. And I think what Campbell expected too. And I just wanted to know, with this environment for pricing being under pressure and cost you seem to have some supply chain inflation that's a little bit higher than what I would have thought. Can you still hit your margin target for this year? I think there was like a 50 basis point expectation for margin expansion. And maybe just longer-term, I think we are all kind of concerned that the salty snacks category took prices too high during the pandemic and that there is a value correction -- value equation correction that needs to be established going forward. So how does that inform the 17% margin goal longer-term? Thanks.

Yes, great question, Rob. So let me kind of flip the batting order if I could, and I'll talk a little bit about the longer-term objectives. I think the first thing I would say, is that the road map that we've put in place as it relates to cost savings and a variety of different areas from route-to-market, network optimization to improvement in mix, as we continue to work down the partner brands number, all remain very much intact. And if anything, I would say that the team under Chris' leadership, Chris Foley's leadership, has done a very nice job of continuing to not be satisfied and recognizing that we are in a competitive landscape, how do we continue to identify savings that can be utilized to ensure that we've got a bit of a buffer to manage the pressure that is in the marketplace today. I would tell you on that broader question, too, of hey, did snacks price too much or is it going to need to be a reset. I think perhaps the difference might, why it might feel a little bit that way is we were arguably able to walk back a lot of the promotional level during the COVID period and even in the period past that without a significant amount of elasticity. And I think that's a fact. I think as we've moved now and cycled several years past that, the reality is, and if you remember several years ago, I said this and it wasn't wonderfully received. But I think it's played out in a very similar fashion, which is this is a very competitive segment. And so having a level of promotion that drives display remains a very important component of the snacks category. I think the good news for Campbell's is where we primarily play, are in elevated or added value segments. And that's a place where we do not anticipate having significant recalibration and value. As I said before I do think we've got to be very mindful in watching our base pretzel and our base cookie business, as it relates to private label and some of the price pressure that is there. But at the end of the day, I don't feel like we need a material change or structural change backwards. But what I do think is we are going to continue to be appropriately plan to promote and to drive that impulse purchase so critical to snacking. As we get to the near-term, maybe, Carrie, you can cover that a little bit and talk about this year because I think there'll be a little bit of discussion as --.

Yes, there are certainly reasons to believe in a second half margin improvement for snacks. And I think it is outlined with what I had answered earlier that, that's applied for the total enterprise, but it also is applicable to the Snacks division as well. In the second half, our expectation would be improving year-over-year volume trends are going to help the Snacks division versus the first half. You're going to have improving snacks mix with a higher leadership brand mix and a lower impact of that partner and contract brands and a lower impact of the Pop divestiture, as well the pop secret divestiture. You’re going to have more neutral year-over-year net price and marketing impact in the second half and that step-up in productivity and cost savings initiatives. Remember, in our Snacks business, we've got some announced restructuring in our Jefferson manufacturing plant, and we've got our ongoing DSD warehouse and route optimization. All of those things will continue to help us continue to get a pathway to 15%.

And I think we'll be -- I think Q2 is going to be a very helpful quarter to understand. I am encouraged by some of the more recent trends on share, as it relates to snacking over the latest four weeks. And I think I want to see that continue to play out through the holiday season. And just remember, as important as the margin agenda is for us on snacking and very much committed to seeing that come to fruition. It's also about ensuring that the growth trajectory on snacks can be sustained as well. And that balancing act is one that we're going to continue to be very thoughtful about as we navigate through in the short-term. Longer-term, again, I continue to feel very good about how we're positioned and where snacks will be and where the margin trajectory can continue to grow to.

Okay, thank so much Mark. Take care.

Our next question comes from Jim Salera from Stephens. Please go ahead, your line is open.

Good morning guys. And Mark, just want to echo the congratulations. It's tough to find an industry that's more exciting than packaged food, but I think Pro Football categorized as one. I think I wanted to just maybe follow up on some of the comments on snacking. And correct me if I'm wrong here, but I believe that the level of volume sold on promo is still lower than pre-COVID. And given some of the industry category headwinds rather, is the industry just taking kind of, let's say, a more tactical approach on promo and just being less broad-based than in the past? And maybe if I can back on the second part to that question. If the consumer does normalize throughout the year, do some of these price gap distinctions just become less important, and that's kind of what the industry is looking to.

Yes. I think there's a couple of things in there. I do -- again, I think the nature of promotion in snacking, I am not seeing anything that I feel is out of line or inconsistent with what we would expect. I'm not seeing deep discounting. I'm not seeing unreasonable or unprecedented levels of promotion either. I think your point on the level of volume. We've been watching that closely. And although I agree, I think it is moving up. And as I expect, through the year, we'll see some stabilization there. I think what's important to remember about the second half of our fiscal year is you're going to begin to cycle where we really started to see the step back on snacking or the normalization of snacking occurring. And so you're -- in Q3, our Q3, you are going to begin to compound the impact of what we saw as a more normalized level. And again, I think it is important to note, although we are not back to historical levels. We are back into positive territory, as it relates to category trends. I mean you see certainly a bifurcation between certain categories. And I think, again when I look at our business, and I get why people may say well, Campbell seems to see a little bit rosier outlook than some other businesses. But the reality of that is because we are in essence, playing in some different categories. Although we are in salty, we're really in natural organic tortilla, we're in Kettle chips, we're in the deli. We're in maybe a little bit more balanced and a little bit more mainstream in pretzel. But we're playing in some categories that I think inherently are advantaged and doing a bit better. And like I said, as we get to the back half, we're going to begin to cycle that. So I think -- again, I always hate to use comps is the reason why something may be going to get better. But I think in this particular case, as we get to Q3 and Q4, you are just going to simply have a lower base that you are beginning to cycle. Now whether that gets us all the way back to that 3% to 4%, we would love to all see in snacking is not necessarily what we are expecting or what we're modeling. But certainly, sequential improvement is part of what's underpinning our expectations as we go into the back half.

Great. And then if I could maybe sneak in a higher level question. In your prepared remarks, you talked about really strong momentum with rails with among millennial households. And that doesn't quite fit with maybe some of the broader narrative on -- it's a very premium product and millennials tend to have a little bit less spending power than other groups. And so are there any learnings that you can take from Rao’s to apply to other parts of the portfolio where maybe you could have a premium or better-for-you clean label value proposition that would drive consumer groups that would typically not spend on premium products to engage with different brands?

Yes. And I don't want to sound flippant here with my response. But Rao's is incredibly differentiated product. And the quality of the product and the experience of the product, it is just flat out better. And so I think the fact that you've got broad-based acceleration across different households, including those that may be feeling a little bit more economic pressure. I think that conversation we had a little earlier on framing the occasions is really a great lesson. And I do think there is some application of that to other premium brands where we have a distinct benefit in quality. And so as we talk about things like holiday entertaining or moments where it is important to bring the best-quality or the highest-quality to the table or to the occasion. I think framing that in a way that allows those points of difference to be most recognizable for consumers and in essence, making it worth perhaps the premium price with the broader or mainstream segments is a great lesson. But I think it all begins and must have those true quality points of difference. And I'm not sure that's always the case in every premium priced product. But certainly, in Rao's, we feel that we have that point of difference. And I think consumers as they try it, reinforce that. And so I think there are some lessons learned. But I think the biggest lesson learned is you got to make the experience worth it.

And we're all out of time for questions today. This will conclude today's conference call. Thank you for your participation. You may now disconnect.