Good morning and welcome to the Campbell's Second Quarter Fiscal 2025 Earnings Conference Call. Today's conference is being recorded. All lines will be muted during the presentation portion of the call with an opportunity for questions-and-answers at the end. [Operator Instructions] 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 Campbell's second quarter fiscal 2025 earnings conference call. I'm Rebecca Gardy, Campbell's Chief Investor Relations Officer. Joining me today are Mick Beekhuizen, 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 slide deck and today's 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. Mick will provide insights into our second quarter performance as well as our in-market performance by division. Please recall that effective first quarter fiscal '25, 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. As we noted in this morning's press release, the company's guidance does not reflect any impact from the imposition of import tariffs by the US and potential retaliatory actions taken by other countries, as the tariff and trade environments are rapidly evolving at this time. 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. And now, it is my pleasure to turn it over Mick Beekhuizen, our new Chief Executive Officer. Mick?

Thanks, Rebecca. Good morning, everyone. Before I review our Q2 results, I want to start by expressing how honored and energized I am to lead the Campbell's team as CEO and accelerate the strategy that has been fueling our performance. Having helped shape Campbell's strategy since joining the company in 2019, most recently as President in our Meals & Beverages division, I'm committed to building upon the strong foundation we have in place. That starts with our talented people who are engaged, accountable and committed to winning. We have the best portfolio in the industry with category-leading brands in both divisions. These brands are important to our customers and highly relevant to our consumers. I am confident that we are well prepared to deliver top-tier performance. Similar to the first quarter, our Q2 earnings performance was in line with our expectations despite the dynamic operating environment. Unfortunately, the anticipated recovery of some of our snacks categories did not materialize during the quarter and as a result, our topline was slightly below expectations. We continued to invest behind our brands resulting in good overall in-market results with an aggregate stable market share. Ten out of our 16 leadership brands grew or held share in the quarter, a testament of the overall strength of our leadership brand portfolio. Going into the second half of the year, we're focused on maintaining the momentum within our Meals & Beverages division, while in our Snacks division we are focused on successful innovation, select brand support and price-pack architecture to meet consumer needs. From an operational perspective, we continued to make substantial progress on the Sovos integration and advanced various cost savings initiatives throughout the organization. On the flip side, our Snacks margin fell short of our expectations, driven by unfavorable mix and some operational headwinds…

Thanks, Mick, and good morning, everyone. Our second quarter adjusted EPS was in line with our expectations, despite the dynamic operating environment Mick discussed earlier. And while the anticipated recovery of Snacks categories did not materialize to the extent we expected, and this translated into a softer top line with some added pressure on adjusted gross margin, our adjusted EBIT was in line with our expectations as well. Reported net sales increased 9% driven by the strong sales contribution from Sovos. Organic net sales, excluding the impact of the Sovos acquisition, the Pop Secret divestiture and currency, decreased 2%. Adjusted EBIT increased 2% due to the contribution from the acquisition, while adjusted EPS declined 8% to $0.74 due to higher interest expense from higher debt levels. The impact of the acquisition was slightly accretive to adjusted EPS in the quarter, which continued to exceed our expectations. Turning to Slide 19: As mentioned early, organic net sales for the second quarter were down 2% due to planned net price investment of 2% in support of the holiday season, with flat volume and mix. Sovos contributed 13 percentage points to reported net sales growth. On slide 20, second quarter adjusted gross profit margin declined 100 basis points, with margin in the base business down 60 basis points and a 40 basis point impact related to the acquisition. Base business margins were impacted by cost inflation and other supply chain costs and unfavorable net prize realization, partially mitigated by productivity improvements and cost savings initiatives. Through the second quarter, we have delivered approximately $65 million of total savings under the $250 million cost savings program announced at our Investor Day in September 2024. Turning to slide 21, the total combined dollar spend on adjusted marketing and selling expenses and admin expenses increased compared…

[Operator Instructions] Our first question comes from Andrew Lazar from Barclays. Please go ahead. Your line is open.

Great. Thanks so much. Appreciate it. Mick, as we think about the fiscal second half, I guess, I'm trying to get a better sense of sort of what actions are specifically driving the lower profit outlook really with an eye towards understanding if the revised guidance is sort of giving the company enough room to get Snacks back on track in the context of a slower sort of category rebound and more competitive environment? And maybe as a second piece to this, last quarter, Campbell expected net price to be less than 100 basis point headwind to organic sales and I'm just wondering if that's changed with the new guidance. Thanks so much.

Great. Morning, Andrew. So let me take the first part and then, Carrie, if you can follow up on the second piece. And maybe what I'll do, Andrew, is let me step back for a minute and give you a little bit of context about the revised guidance and the different piece, which I think addresses what you're getting at. If you look at the Q1 call, we said that it's going to be important to see how the second quarter and the holiday season come together and that's going to be a good indicator for us for the outlook for the second half of the year. Of course, first of all, when I look at Meals & Beverages and across the board, the business is performing in line with our original expectations and if anything, I'm actually encouraged by some of the momentum that we have there in the business. Now with regard to our Snacks business, obviously a believer in our business. However, unfortunately, the broader snacking categories didn't improve as we had originally anticipated and particularly that pertains to key categories such as cookies and crackers. They were softer. So as a result, we revised our outlook for the full year to reflect that broader operating environment. Now, that being said, at the same time, while we're making progress on cost savings productivity initiatives, you did see that our Snacks margin for the quarter was lower than what we had anticipated. And although I believe we're going to continue to make sequential progress on the Snacks margin, I don't think we'll achieve the margin level that we previously communicated for the year, which gets a little bit back to your question. So if you then look at our midpoint of our EPS guidance range, excluding noosa, we're…

And then regarding your question on price, I'd say, certainly in Q1, we had about 100 basis points of net price investment. In Q2, we talked about stepping that up to about 200 basis points. And so as I think about the second half, we're going to start to lap some of that increased promotion investment from the prior year. So we would expect promotion to be less of a headwind in the second half, but still a headwind and I think our guidance that Mick just walked through sufficiently provides room for the right amount of promotion investment to support the second half and our recovery. And look we'll be -- when and where we'll always be in a -- we'll maintain competitive pricing gaps and support our innovation launches and our guidance certainly would support that.

Great. Thanks so much.

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

Guys, good morning. Thanks for taking our questions. Mick, I actually wanted to follow up on some of your commentary there. So could you maybe walk us through what you're assuming for the consumer recovery in the back half of the year? And if I think about the mix of where potential outperformance, underperformance could come from in Snacks? Would it be that the category improves and you guys kind of improve alongside the category or there's opportunity with some of the innovation that you have and maybe some of the promotional activity you have to gain share even if the category remains softer? And maybe as like a second piece to that, on Slide 7, Goldfish was one of the brands that I believe did not grow or hold share and you spoke to some of that in the prepared remarks. But just thinking about some of the innovation there and I know you guys had some flavor extensions on Crisps and you mentioned Harry Potter LTOs. Just how should we think about that particularly contributing to either share gains or holding or losing share in the context of the broader category recovery?

Yes. Okay, great. Thank you. Thank you for the question. I think it's a good question. And let me try to take it in different pieces. So first of all with regard to our Snacks business, as I mentioned, we are expecting from a top line perspective that Q3 will continue to be an environment which I expect to look relatively similar to what we are seeing in Q2. Then if you go into Q4, we're assuming the stabilization from a top line perspective. Now if I take the overall second half and with what we are -- on the one end, we're obviously focused on what the categories are doing. But on the other hand, we're obviously also very focused on what we are doing, which comes back a little bit to what you're describing with a brand or a core brand for us like Goldfish and this does go across a broader portfolio, right? We have eight amazing leadership brands within our Snacks portfolio and we need to make sure that we work on every single one of them within these different categories. That being said, there are certain ones like as you pointed out like Goldfish where we are particularly focused in making sure that we're making progress. Goldfish and you see it in some of the Scanner data and you also heard me talk about it in the context here is not where we currently want it to be. We're focused on bringing growth back to Goldfish. Goldfish is highly relevant and I think the team has great plans in place for the broader portfolio of snacking brands, but then also Goldfish specifically. And when I look at Goldfish, it's really coming back to, on the one hand, making sure that we have that proper support…

Great. I appreciate the detail. I'll hop back in the queue.

Our next question comes from Ken Goldman from JPMorgan. Please go ahead. Your line is open.

Hi. Thank you. On snacking, just in light of some of the top line challenges as well as your comment that the margin will be down this year, how confident are you that you can still achieve your target of 17% in fiscal '27? And maybe more importantly, how confident are you that 17% regardless of the timeline is still a reasonable goal as we look ahead into future years? Thank you.

Yes. Thank you, Ken. When I look at this next margin and particularly where we're currently at, of course, so maybe just first of all stating what might seem obvious is the Q2 level is not where we should be, will be and are going to be going forward and I think we laid that out pretty in a lot of detail in the prepared remarks. But when I look forward and with where we're at, focus on that sequential improvement going into the second half of various reasons to believe, I know the team is all over that. Of course, we're working through some of these operational challenges, but at the same, the team is also identifying continued savings. Obviously, ending the year at a lower level than we had originally where we wanted to be. That being said, as I step back and I look at the different building blocks that we had identified in the past and we stay focused on whether it is our broader network that we've been working on, including the DSD as well as some of the mix improvements, I still believe that these different building blocks are there in order to improve our overall Snacks margin, while we also continue to support our brands. So that's not a key reason for us that we're continuing to stay very focused on it. So putting all these different pieces together, I'm still confident that we're going to see a positive trajectory towards that 17%. I think to your point in and around timing, I do agree that with where we're currently at, it feels a little bit like you're pushing that a little bit back and I think we're going to learn a lot about the overall environment that we're operating in from a Snacks perspective in the next six months and that is going to be really important and it's going to inform us also going into fiscal '26 to make sure that we support our brand portfolio for long-term value creation.

Just to pick up on what Mick said, in terms of if you go back to some of our comments around Investor Day, we did outline a lot of those drivers in margin into mix point. Those building blocks are still there. A key one is around favorable mix that should lead to margin expansion around growth in the leadership brands and with a lower scale brand, so your partner contract brands will be coming down over the next few years relative to the growth in leadership brands, that will be a mixed driver along with what Mick talked about in terms of network optimization and our DSD optimization as it relates to both the warehousing logistics piece, but also as we talked about the route optimization pieces that we talked about last year. So all of those things are there. Obviously, we've got some short-term pressure that -- of top line pressure that's putting that pressure on the margin right now, but all of those levers are still there.

Can I ask a very quick follow up and thank you for that. Rao's.

Yes.

You kept your guidance. The data has been decelerating in both one and two year basis or on those basis. How comfortable are you with the rate of change in consumption? I mean, obviously, you seem to be pretty comfortable just given that you reiterated, but how should investors think about what we're seeing from some of the syndicated and alternative data out there for that brand?

Yes. Ken, thank you for asking the question because we are obviously also very focused on making sure that we continue to grow Rao's also because I'm a very big believer in the brand and you do see it in the broader results. However, to your point, a little bit of that deceleration looks like between in Q2 versus Q1. Now when you peel that on in a little bit further back, what you're going to find is that there's actually certain particular club activity that shifted between the two quarters and as a result, going into the second half, we feel pretty good where all the different pieces come together in order to expect that slightly above, call it, 10% is what we are working towards to for the full year.

Thank you.

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

Hey, good morning, Mick and Carrie.

Good morning.

Thank you for the question. I wanted to circle back on the EPS cadence for the back half of the year. I believe, Carrie, in your remarks, you mentioned that EPS delivery would be relatively even between 3Q and 4Q if we kind of ignore the 53rd week. And I just like very quickly going back through the history, that's just never been the case. 4Q has always been a much lower EPS delivery quarter relative to 3Q, maybe outside of one year over the past 20, but historically, it's been much, much lower seasonally. So just what gives you the confidence in delivering kind of on that even delivery in the back half of the year, given seasonality, given what we've seen historically, I think that's going to be just a big a big question from investors, but as they kind of contemplate the updated guidance?

Yes. I think as you think about the third quarter, a couple of things to think in mind is that as Mick talked about for Snacks top line, we wouldn't expect to see that stabilization until the fourth quarter. So you're still going to see some pressure there in the third quarter on the snacking margin as we move through the year. So I think our -- my comment on that equal split, excluding that 53rd week is reflecting the fact that you'll still have some pressure there on the snacking side in the P&L. And you also have, I think, the fact that in the fourth quarter, I think you're right, Peter, in terms of acknowledging that that maybe not be the seasonal trend, but you've also got some -- the benefit of lapping some higher promotional investment from last year that will help obviously the top line, but it will also help the bottom line as well. So it's a piece -- it's those two pieces that I would say are a big piece of how we think about the phasing for the third and the fourth quarter.

Got it. Thanks, Carrie, for that. That's helpful. And, Mick, just if I could, I think your tone is or that the company's tone has changed a bit in your prepared remarks as it relates to broth. It seemed like there was maybe a better delivery in the quarter, maybe even than you expected and potentially that there's been a slight change in how you're viewing the back half as you think about private label coming back online, not that that's not contemplated, but that at least maybe things are holding up a touch better. So just wanted to understand, anticipating the broth headwinds, kind of whether your expectations have changed at all in the back half from maybe more negative to maybe slightly less negative versus your initial expectations? Thanks very much.

Yes. Good observation and you're right. If I look back at about, call it, even last quarter around the overall broth trajectory, I think it's probably twofolds. I think, on the one end, I think the category is holding up really well and it comes back to what I described in my prepared remarks as well in and around Meals & Beverages. We're definitely seeing that trend of continued cooking at home supporting a variety of the categories and a variety of the brands within our Meals & Beverage portfolio and broth with both Swanson as well specific being one of those and then so categories doing well. We got two great brands that continue to do well in the marketplace and at the same time, private label is recovering, however, a little bit slower than anticipated. Now if I look at the back end specifically to your question, yes, I still expect that to be a little bit of a headwind, however, a little bit less than what was previously anticipated. If either the category performs better than what we expect or private label is recovering slower, we will obviously try to do whatever we can with our supply chain who has done a -- they've done a phenomenal job in order to make sure that we can provide supply. We will continue to work with our customers to make sure that our product is on the shelf.

Yes. And I mentioned that in my prepared remarks that a reminder that Sovos moves into our organic growth mid Q3, but we will still have the broth year-over-year headwinds as we lap the benefit that we had last year in the second half. But to Mick's point, lower than what we initially expected. And again another shout out to our supply chain team that is really over-delivering as it relates to our -- satisfying that broth demand.

Thank you.

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

Hi. Thanks for the question. You mentioned on the call that competitive intensity in crackers has heightened now and for the past three quarters or so, I think we've been dealing with a competitive intensity being higher in salty snacks. So, Mick, do you view both of these as similar phenomenons? I can see it in the data, there's been price investments in crackers. Do you need to make similar investments for Goldfish to keep up with that? And should we be thinking about kind of a bit of a reset for the Goldfish margin as a result?

Yes. So thank you, Rob, for the question. So first of all, of course, with regard to salty, you're right, it is a competitive category. We have experienced that for a couple of quarters. That being said, we have a couple of highly differentiated brands that are leaning a little bit more towards the better-for-you proposition in that particular category and it's something that we are going to continue to build upon specifically with regards to some of the innovation and I mentioned that also in my prepared remarks. The categories that, call it, like subcategory within salty as a result that we are participating in is a category that has a little bit of tailwind. So I feel pretty good about it. Now that being said, back to what I said earlier around price pack architecture and making sure that we have proper -- attractive value proposition, that's probably the second thing that we think a lot about and making sure that we as a result provide the -- our product at the proper price points including entry price point for the consumer in salty. So salty, long story short, differentiated brands in combination with attractive innovation that plays right into some of those consumer needs and then we need to make sure that we focus on the price pack architecture aspects to provide that value to the consumer. If I then go to crackers, I think crackers is a little bit of a different dynamic. So first of all, we have actually two brands within crackers. We have obviously Lance. Lance is doing well and I think it is a brand that's obviously a little bit in the background, but it provides an attractive entry price point. It is great value for the consumer and on top of…

Okay. Can I ask a quick follow up. Have you started doing any math on what the tariff environment might mean for your steel can costs? I know it was an issue several years ago and these tariffs can be even more substantial than that. So would it pass through in terms of like price surcharges from your supplier if it excludes that.

Maybe, yes, Rob, of course, maybe I'll actually talk a little bit more broadly about tariffs because it sounds like you dealt with some of this with Campbell's in the past, but kind of if I look at this particular situation, it's obviously evolving and it's multifaceted. It's -- on the one end, we have the country tariffs with both Canada and Mexico specifically for us and then also some of the proposed steel and aluminum tariffs. When -- and then there might even be additional tariffs that we are obviously closely monitoring the situation and making sure we develop plans if they were to come to fruition. Now with regard to the mention of the fluid situation, as you might have heard yesterday, the Commerce Secretary actually hinted yesterday is that some of the country tariffs might actually be adjusted today. So again we'll see what it all means. We don't know all the specifics yet. But if it gets implemented as we currently -- as is currently announced, we are importing from Canada both thin plate steel, which is used in our cans as well as canola oil used for our chips. On the flip side, with some of the reference to the retaliatory tariffs, those mainly relate to Canadian exports. So we are producing our soup in the United States and we're importing it into Canada. And that would obviously have an impact on that business. Now, from a mitigation perspective, we're closely working with our suppliers to mitigate potential impact. At the same time, depending on how long these tariffs would be in place as well as the extent of the tariffs, we might need to take other actions and that could include, for instance, pricing for some of our products. Now that being said, I'm obviously going to be very focused to make sure that we provide a good value to our consumers.

We are out of time for questions today. This will conclude today's conference call. Thank you for your participation. You may now disconnect.