Q1 2021 Campbell Soup Co Earnings Call

[music], ladies and gentlemen, thank you for standing by and welcome to.

The Campbell first quarter fiscal 2021 earnings presentation and.

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I would now like to hand, the conference over to your speaker today, Mr., Rebecca Gardy, Vice President Investor Relations Ma'am you may be.

Good morning, and welcome to Campbell's first quarter fiscal 2021 earnings presentation, I heard Becker Gardy, Vice President of Investor Relations. Following the completion of this call a copy of the presentation and a replay of the webcast will be available.

Investor Day Campbell Soup company Dot Com a transcript of this earnings conference call will be available within 24 hours at Investor Day Campbell Soup company Dotcom.

Turning to slide three 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 risks. Please refer to slide three or our SEC filings for a list of factors that could cause our actual results to vary materially from those anticipated in forward book.

Statements because we use non-GAAP measures. We have included in the appendix and this presentation. A reconciliation of these measures to the most directly comparable GAAP measures on slide four you will see our agenda with us on the call today are Mark Clouse, Campbell, President and CEO, and our Chief financial Officer make baking.

And then Mark will share his thoughts on our overall first quarter performance and end market performance by Division, Nick will discuss the financial results for the quarter in more detail and review our guidance for the second quarter, we will close the call with an analyst queuing day and with that I'll turn the call over to Mark Mark.

Thanks, Rebecca good morning, and welcome to our first quarter earnings call for fiscal year 2021.

First like to wish everyone. All the best as we head into the rest of the holiday season.

I know I am grateful to share for the entire Campbell organization, especially our colleagues and the manufacturing plants and our distribution teams, who have been producing and shipping to meet the higher demand. The pandemic is broad while prioritizing the safety of our people and following our heightened in plant protocols.

Turning to the results as you saw on our press release, we reported another strong quarter from both a sales and profitability perspective with growth across all our key metrics as we continue to execute and a volatile environment and against our strategic plan.

Our strong top line growth combined with gross margin expansion and value capture synergies. Despite the impact of ongoing COVID-19 related costs led to better than expected adjusted EBITDA.

18% and.

And a 31% increase and adjusted EPS, two and dollar true per share.

And also was a strong executional corridor, where we were able to strength can supply levels to allow retailers to improve inventory going into the crucial soup and holiday season.

In addition, we announced that our board approved a 6% increase and our quarterly dividend, reflecting the company's strong earnings performance cash flows and increasing confidence and our long term growth prospects as well as our continued commitment to shareholder returns.

Organic sales from the first quarter increased 8% led by 12% organic sales growth and meals and beverages, reflecting our continued investment in our brands to attract and retain new households, as retailers also rebuild inventory levels.

Turning to our snacks division, we drove solid growth with organic sales up 4%, reflecting sales increases across the majority of our nine power brands.

Portfolio of unique and differentiated snacks remained and high demand as in home consumption rapidly expand it.

We did make some selective strategic decisions to shift promotions from the first quarter to the balance of the year to help ease supply constraints, particularly in the meals and beverages division.

While these decisions degenerate mix share results as expected, we exited the first quarter in a much better position on retailer inventories and are seeing accelerating in market performance as programming is ramping up into our key holiday season.

We expect the debt pressure and elevated demand and supply will continue in the near term and we are building supply chain capacity and capabilities to help us better navigate this pressure and maximize availability, while protecting and growing share.

For the sixth consecutive quarter, our total income.

Performance grew in measured channels, increasing 7% with growth across almost the entire portfolio continuing the momentum from the back half of fiscal 2020 October was the ninth consecutive month, and which we grew household penetration versus prior year.

And our first quarter, we attracted millions of new households, with the most notable increase coming from younger consumers. We also continued to see elevated repeat rates with over 70% of household gains since the beginning of the pandemic purchasing our products again.

As we have said on previous calls we consider this to be and enduring change and behavior and given strengthening consumer trends like quick scratch cooking and at home eating and snacking, we remain confident that we will retain a meaningful number and these households beyond the pandemic.

Within the meals and beverages division soup net sales increased 21% with growth in all segments.

This reflects retailer inventory recovery in market gains and moderated promotional activity.

We grew our household penetration and overall soup by 1.3 points.

In addition, the gaining new buyers we are retaining these new buyers as reflected by higher repeat rates and.

And among millennials, we grew share for total U.S. soup by nearly one point, including significant growth of 2.7 points on condensed and over one point and ready to serve.

Demonstrating the sustained relevance of our core businesses with younger consumers.

Our condensed soups were the highlight of the quarter with double digit net sales growth gains and share led by cooking SK use and 4 million new households, purchasing this quarter versus prior year.

We continue to bring new ideas and recipes to consumers who are cooking more frequently at home as these first time cooks gain more confidence we believe they will likely continue to use these skills to prepare more meals at home well beyond the pandemic.

Recipe solutions continue to resonate with consumers as we saw a 20% increase and overall recipe related page views and the first quarter compared to the prior year.

Within ready to serve we saw solid consumption growth, but supply pressure and our decision to moderate promotions. As previously mentioned resulted in some short term share loss. However, as supply has improved we are seeing improved trends supported by our chunky NFL sponsorship activation are slow Ken.

Crunch innovation and our well, yes relaunch, we expect all of these factors to have a very positive impact and the second quarter.

Our Pacific Foods growth engine performed well as we continued to build scale with nearly 22% dollar consumption growth and soup and broth and the quarter per.

Pacific Soup and broth grew share for the fourth consecutive quarter, including strong gains with millennials Pacific has also increased points of distribution and grew household penetration as we launched our first ever national advertising campaign.

Overall, we continue to feel great about the progress we've made against our win in soup strategy as evidenced by our success expanding into millions of new households, attracting younger consumers and growing all of our core brands.

Turning now to the performance of our snacks power brands, which grew dollar consumption by 6% in the quarter.

The most notable being late July which grew consumption sales by 26% and share by nearly two points.

We continued to run the brand's first national AD campaign throughout the quarter.

And why is a great example of how our power brands are helping consumers make the most of their snacking moments, we take a mainstream segment like tortilla chips and offer products with higher quality, including organic product credentials highly relevant innovation and world class marketing to better engage consumers, allowing us.

And the trade up into a better snacking experience. We have successfully applied this model to other brands as well such as Kettle brand shifts and snack factory Pretzel, Chris which also had double digit dollar consumption growth in the quarter.

We also made significant progress on goldfish and the quarter with both supply and service levels improving.

We have also redirected marketing aim towards snacking options at home and restored promotional spending toward the end of the quarter. This is resulting in improved consumption and share and the most recent periods.

We feel very good about our snacks performance and the steady growth and delivers supported by a very healthy base business.

In addition, we continue to remain on plan to deliver the value capture synergies that we initially outlined as part of our acquisition of Snyder's Lance.

Our investment and capacity expansion and both goldfish and our chips demonstrate our conviction and the long term growth potential of our brands.

We're still working through some supply constraints, including a challenge and cookies, where the combination of demand and labor impacted by co bid 19 has had some negative impact on supply.

Despite these isolated challenges, we feel very confident and our ability to meet the long term demand driven by the expected sustained growth of consumer snacking behavior.

Given the rapid growth and the ecommerce channel across foods I want to touch on our enterprise performance in the quarter.

Our E commerce in market dollar consumption results were once again impressive growing 85% over prior year.

Consumers use of E commerce, and particularly click and collect for groceries has increased by a considerable amount these past several months and.

And we believe this trend will continue.

Accordingly, we are investing to strengthen our capabilities and and our support of key partnerships to serve the millions of consumers who are shopping online.

Given our overall financial results and the actions we've taken to start the year, we are well positioned across our entire portfolio heading into Q2, and the key soup and holiday season.

With that let me turn it over to Mick for a deep dive into our financial results.

Thanks, Mark good morning, everyone as.

As Mark just shared we had the strength start to fiscal 2021 with another quarter of strong sales growth driven by elevated consumer demand gross margin expansion. Despite the GAAP 19 cost headwinds and robust adjusted EBITDA and adjusted EPS growth ahead of expectations.

I will now review, our first quarter results in more detail and provide guidance for the second quarter.

For the first quarter reported net sales increased 7% to $2.3 billion organic net sales increased 8% in the quarter, which excludes the impact of the sales the European chips business, adjusted EBITDA increased 18% to $463 million and higher sales.

Volumes improved adjusted gross margin performance and lower selling expenses, partially offset by increased marketing and slightly higher adjusted administrative expenses adjusted EPS from continuing operations increased by 31% or 24 cents.

Two dollar and two cents per share, reflecting an increase in adjusted EBITDA as well as and lower net interest expense.

Breaking down our net sales performance for the quarter.

Organic net sales increased 8% from the prior year. This performance was driven by a six point gain and volume across the majority of our retail branch offset partially by declines and food shops lower.

Lower levels of promotional spending in both segments drove a two point game.

The divestiture and the European chips business negatively impacted net sales in the quarter by <unk> point and the impact from currency translation in the quarter was neutral.

All in our reported net sales were up 7% from the prior year.

Our adjusted gross margin increased by 100 basis points and a quarter to 34.8%.

Favorable product mix, which drove a 30 basis point improvement in our adjusted gross margin was largely driven by the increased contribution from us should products within our meals and beverages segment.

Separately, we are estimating a 60 basis point gross margin improvement from better operating leverage within our supply chain network as we significantly increased our overall production price.

And now the with and meals and beverages.

Net pricing drove 120 basis point improvement due to lower levels of promotional spending in the quarter.

Inflation and other factors and a negative impact of 270 basis points driven by cost inflation.

Overall input prices on a rate basis increased approximately 2% as.

As well and other operational costs and continued global banking related costs.

This was partially offset by ongoing supply chain productivity program, which contributed 150 basis point improvement and include among others initiatives within procurement and logistics optimization.

Our cost savings program, which is incremental to our ongoing supply chain productivity program and a 10 basis points to our gross margin expansion.

Moving on to other operating items marketing and selling expense increased 1% in the quarter to $208 million.

This increase was driven primarily by our planned increased investment in advertising and consumer promotion expense, which was up 17% from two years ago feed.

These investments primarily reflect higher levels of support behind soup to.

To continue to drive usage inspire meals solutions built Bryant awareness among younger households, and support innovation.

These investments were partially offset by the benefits of our cost savings initiatives, lower marketing overhead and lower selling expenses.

Adjusted administrative expenses increased $11 million or 9%, two and $37 million driven by higher benefit costs, and general and administrative costs, including incremental consulting charges related to supply chain optimization and.

Gross inflation.

Partially offset by the benefits from our cost savings initiatives.

Moving to the next slide we have continued to successfully deliver against our multi year end to price cost savings initiatives.

This quarter, we achieved $15 million and incremental year over year savings inclusive of Snyder's Lance synergies to date that brings our savings for the overall program to $740 million, we expect an additional $60 million to $70 million and the balance.

It's called 2021, and we remain on track to deliver our cumulative savings targets of $850 million by the end from fiscal 2022.

To help tie this all together we are providing an adjusted EBIT bridge to highlight the key drivers of performance this quarter as discussed adjusted EBITDA grew by 18%.

It's largely driven by the increase in demand for our products with sales gains contributing $53 million of EBITDA growth.

Overall, adjusted gross margin expansion of 100 basis points contributed $23 million of EBITDA growth Mitch.

Which more than offset higher marketing and selling expenses of $2 million, reflecting our investments in a and C, partially offset by lower selling expenses.

Remaining impact of all the items consisting of adjusted administrative expenses R&D and adjusted other income in aggregate was nominal our adjusted EBIT margin increased year over year by 180 basis points to 19.8%.

And following chart breaks down our adjusted EPS growth.

Between our operating performance and below the line items adjusted EPS increased 24 cents from 78 cents and the prior year quarter to one dollar and two cents per share.

Adjusted EBITDA had a positive 18 cents impact on adjusted EPS net.

Interest expense declined year over year, and $25 million, delivering a six and positive impact to adjusted EPS.

And we have used proceeds from completed divestitures and our strong cash flow to reduce debt.

The impact from the adjusted tax rate was nominal.

Completing the bridge to a dollar and two cents per share.

And meals and beverages organic net sales increased 12% to $1.3 billion, reflecting double digit increases across most of our us retail product, including gains us troops inclusive of Pacific food soups.

And Brian Craig.

Oh pasta sauces, the age beverages cash.

And most pasta and pace Mexican sauces and.

Well these gains in Canada.

And the offset by declines and foodservice.

Finally, and most favorable use retail and Canada, driven by increased demand for food purchasers for at home consumption offset partially by the negative impact and food service as a result of shifts in consumer behavior and continue to cope with 19 related restrictions.

Net sales from fewer soup, including Pacific increased 21% compared to the prior year due to retain and rebuilding inventory for the upcoming soup season.

And Mark and games, and condensed soup and broth and moderating promotional spending.

Operating earnings for meals, and beverages increased 18% to $333 million.

The increase was primarily driven.

By sales volume growth and improved gross margin.

Offset partially by increased marketing investment.

The gross margin performance was impacted by the lower levels of promotional spending and favorable mix as productivity improvements and improved operating leverage were offset by other operational costs cost inflation and co, but 19 related costs.

Within snacks organic sales increased 4% driven primarily by lower levels of promotional spending as well as healthy velocity on the majority of the base business, we saw volume gains and fresh bakery products late July snacks pop secret popcorn Pepperidge farms cookies.

Snacks, Tacttthree pretzel, crisps as well as kettle brands, potato chips, which partially offset declines and Lance sandwich crackers sales and goldfish crackers.

Relatively flat in the quarter and increased demand from family size products were offset by reduced the away from home consumption.

Operating earnings were snacks increased 11% driven by lower selling expenses lower marketing overhead and sales volume gains partially offset by higher administrative expenses gross margin performance was consistent with prior year at lower levels of promotional spending were offset by higher.

Net supply chain cost as productivity improvements cost savings initiatives and improved operating leverage were more than offset by cost inflation and co, but 19 related costs.

I'll now turn to our cash flow and liquidity.

Cash flow from operations was $180 million comparable to the prior year as changes and working cap there were basically offset by higher cash earnings and lower other cash payments.

Cash from investing activities decreased by $341 million driven by lapping the net proceeds from our divested businesses and the prior year co.

Cash outlays for capital expenditures of $74 million $24 million nowhere and.

In the prior year driven by discontinued operations.

And in line with our previously communicated full year expectation.

Cash outflows from financing activities.

$245 million compared to $453 million, a year ago, and reduce cash out flow the flow.

Correct lowered debt repayments.

Dividends paid and the amount upon with an $8 million were comparable to the prior year, reflecting our current quarterly dividend of 35 cents per share.

We ended the quarter with cash and cash equivalents of $722 million.

I'll now turn to guidance as I've reviewed the company's strong first quarter fiscal 2021 results were impacted by increased demand stemming from the Coke and 19 pandemic the impact of the continuing depend on Mike on the Companys fiscal 2021 result is uncertain and.

Makes it difficult to provide a full year outlook from stock based.

Based on our expectation and continued elevated demand landscape and increased investment in our branch we are providing the following guidance for the second quarter, it's called 21.

We expect year over year growth and net sales <unk> five per cent, 7%.

Its growth more closely aligns with consumption, reflecting better inventory strong programming and improving share positions us well.

We expect adjusted EBITDA growth to be in line with year over year sales growth for the quarter as we invest to win this season and keep fueling the retention of new households behind key consumer trends.

We expect the combination of healthy EBITDA growth and the benefit of significantly reduced interest expense year over year to result in adjusted EPS growth of 12% to 15% or 81 to 83 cents per share.

Why did the remains very difficult to provide any more direction for the balance of the year as time has progressed our outlook does continued strength.

In closing our first quarter results were strong start to the year.

I am proud of the continued strong execution by our teams throughout the organization.

And with that operator, let's open it up for questions.

Thank you ladies and gentlemen, if you have a question at this time. Please press the star followed by the number one key on your Touchtone telephone. If your question has been answered or you wish or moving yourself from the queue. Please press the pound key once again to ask a question. Please press star and then one now.

And our first question comes from Andrew Bizarre from Barclays. Your line is open.

Morning, everybody, Hey, Andrew and there maybe to start with Mark you know in the vein of exiting and the pandemic and in a stronger position and the company entered and and you've talked about a number a compelling metrics such as household penetration and repeat and by rate and as well as habit changes right by consumers I'm curious really more what you're hearing from your key retail partners.

Around how they view you know relevance of key categories and not so much and today's crisis per se, but what they are telling you about once things normalize and how that compares to maybe a year or so ago and and I'm just kind of quick follow.

Yeah. Thanks, Andrea I think that you know if you look at and how we're viewing the indicators as we kind of come through the pandemic and why were you know continuing to see a growing level of confidence kind of with each month and with each quarter I think that's very consistent with what.

Retailers are experiencing as well if you look at kind of the macro you know trends that we point to they recognize like we do you know this kind of infusion of millions of new households that are now cooking at home.

Building confidence in that area of becoming more efficient and looking for meal solutions is becoming very very prevalent and so that's one example of a macro that we're trying now to work together to bring to life, whether its in the retail environment or the online environment, which we did a lot of work on around Thanksgiving I'm sure. We can talk about.

That a little later, but also you know the dynamics the other macro dynamics that we look at that or continuing like I said to build confidence is.

Almost regardless of the timing or the sequence of events relative to vaccines are or how the pandemic unfolds over the months ahead, we do expect and I think retailers would agree that us sustain view and in home eating whether that is because.

People just more slowly returning to normal life for the fact that more people are going to be working from home or this this dynamic of more in home socialization, which has been driving certain segments of snacking at a very aggressive rate all of these dynamics as we continue to go forward we expect.

To be maintained and I think the other element that is very relevant and the planning with customers right. Now is that we recognized the economic strain across the country and the impact that that has on people, making decisions relative to value, which has resulted in a much higher source.

Thing, obviously through the pandemic, but even projected ahead of people sourcing and meals from grocery stores, where you know we see a terrific opportunity to build upon the behaviors that have been created in the near term as we think about building momentum out of it. So I would say Andrew for Us and I think from most retailers and we do not see.

See this is a kind of episodic moment and I think as time has gone on a you see more and more and the numbers I talked about the repeat but one of the things that's most significant and our numbers is the dramatic nature of the return to our brands from younger households, and millennials, specifically they have the highest increase and.

By rates and the highest increase and repeat rates and.

Any of the consumer demographics, and we see and I think that again bodes very well for our ability to retain and meaningful number these households going forward.

Thanks for that and and just a quick one within the 5% to 7% sales growth forecast for fiscal Twoq and could you put a little bit of perspective or color around that and kind of how soup might might fit into that or what the expectation around soup is within that five to seven it sounded like you were now in a place where retailers and rebuilt inventories for the coming sort of few you know winter months and such.

I just want to get some perspective there. Thank you.

Yeah sure a true I think that as you look at Q2, you know and and as you look at inventory and particular I am very happy with the with where we have been able to get to as we go into Q2 and the honest answer is we've made and you know we made some thoughtful and I think appropriate decisions and.

Q1 that that May have had a little bit of a short term headwind on share in some cases as we moderated some promotions, but the goal in mind was that in the most critical part of our soup season, which is really a in the second quarter period, as well as going into the holiday period.

We were in a much better position and I think we achieved that now again I would say that you know we're continuing to watch the man's and as we project these numbers.

It is it is difficult to anticipate what demand is going to look like as it goes forward, but I think we continue to expect demand to be elevated and I think and Q2, we would expect at least on the meals and beverage side to have.

You know our sales are lower and net sales a little bit more in line with consumption as we did a lot of that heavy lift on inventory and a in the first quarter now I think on snacks. The story is a little bit different.

As we as we've said before we thought it would take us really through the entire us second quarter into the first half to get inventory fully back on some of those businesses. It's an interesting dynamic and snacking because you look at the total four per se or a 5% and market growth rate, which.

Which looks a little lower than relative food dynamics and the industry, but when you start to pull it apart. What you see is those those segments that have been more impacted by co bid like salty snacks were for the quarter, our business was up 11% and market more and more indulgent products like cookies.

Where we were up 8% and.

In Q1 offset of course, a little bit by those away from home snacks that have been a little bit more softer than than than impact and those that are more relevant in the moment. We've got some pressure on supply there that were rebuilding the good news is we've added capacity and many more so what he's done a good job navigating but I wouldn't.

Expect there to be some inventory.

Rebuilding continuing on snacking and as we go into the second quarter. So I think you know let's.

Let's call it five to seven a prudent view us.

You know a variety of different variables, but of course, you know the good news is I think we're in a much stronger us.

Supply position, so we can adjust to a higher and oh demand and we see it more ready for that and and I think again feel very good about some of the trade offs from meeting you want to get us to this positioning.

Great. Thanks, so much.

Thank you. Our next question comes from Ken Goldman from JP Morgan Your line is open.

Good morning, It's Tom Palmer on for Ken.

First just wanted to ask on and guidance you suggest.

Relatively.

Flat margin year over year, just given you've got EBIT growing comparably to sales.

Would have expected maybe a bit more of a flow through given mid single digit sales growth. So maybe give some color on what might limit margin expansion next quarter. For instance are we looking at a big step up and marketing and promos is cost inflation, becoming more of a headwind.

Yes, so thanks, Tom I'll start and then let me give you a little bit more of a the ticks and ties to the numbers, but I wouldn't say that although we made as I said in Q1, and some choices from a promotional standpoint to enable us to kind of be ready and for the key part of.

For years, we think and when promotion activity is very important so as we go into Q2 I would expect us.

So to be in a position where were where they fully loaded promotional calendar and that.

It is really designed to be competitive it's back to you know kind of fully supporting the brands and we need to so although and Q1 I think you see some uptick relative to in gross margin relative to the reduction and promotion I think that will go away a bit and in Q2, I think underlying all of our fundamental.

Sales on the business, though remain very strong and so on top of our cost savings initiatives I feel very good about our productivity our ability to to navigate and balanced Tobin costs were continuing to feel very much in control of that situation and so I'm really the headwind if you will on.

Margin is much more related to the investments we're gonna make yeah, yeah, and may maybe a little bit to add to that is on the on the one and as Mark also mentioned with regard to the promotional spending and and the second piece is also kind of sort of down into piano more with regard to the marketing and we will continue.

And to support obviously, our brands and you saw that in Q1 and Q1, you saw that we had a 1% increase and marketing and selling expenses that was really kind of on that lie and within that was 17% increases and advertising and consumer promo, but and with.

And that there were offsets from a cost savings perspective, if I look more at the Q2, I, probably expect a little bit more of an increase on the marketing and selling it and Tom just as a point of reference to that you know that's really already started and and I think the good news is that what should come along with that.

Is the improvement on the share position, which was a bit more mixed in Q1, but as we exited the quarter and even in some of the more laid us IRI data as you look at that November you see some pretty significant pivots like for example, one of the places that we made a lot of tough calls was on our ready to serve and in particular our channel.

And he business, where we did see some softness on share you know through the latest four weeks were up over a share point of growth on auto ready to serve even stronger on our chunky business, where we kind of got all all of the cylinders fire and now from a promotion marketing all of the above you see similar.

You know sustained momentum and Pacific on condensed and even on the snacks businesses as as we mentioned in our comments, we're seeing improving trends as it relates to goldfish, which obviously, it's been a little bit of a trickier one as the consumer dynamics have impacted that when a little differently than they have some of our other businesses that we've had.

Adjusted for but I think the good news is us great evidence that that's already driving the kind of impact that we won and market and you know I think that was the game plan. So so far so good.

Great. Thanks, Thanks for all the detail and and just a quick follow up actually day Andrew's question, So you're guiding to slightly lower organic sales growth in the second quarter UK.

You characterized it is prudent and maybe I can just ask this and explicitly to what extent does your guidance assume that underlying take away decelerates relative to last quarter versus less help from timing items like inventory build or Thanksgiving compares I think we expect Q2 and continued to be and elevate.

And and level of consumption.

I think what what you see us probably planning or or kind of adjusting a little bit is a more consistent run rate and.

On consumption going forward with a little less contributions and potentially from inventory, but I will tell you again, if you look at the more recent trends we're feeling very good about you know performance through Thanksgiving and you know, we'll continue to watch that unfold as we go and like I said the good news is and this quarter.

And second quarter, and I think we're going to be in a very good position to kind of adjust to higher demand levels, if necessary and again as you can appreciate and this moment you know it's a lot of uncharted waters. So we're trying to get the balance right, but I think the <unk>.

Via the and you should definitely take away from us that as we continue to progress through the year, we're growing and our level of confidence and and belief and and ability to continue our momentum going forward.

Thank you.

Thank you. Our next question comes from and so from an English from Goldman Sachs. Your line is open.

Hey, Jason.

Hey, good morning folks and thank you for slot Muni congrats on another strong quarter.

Just a couple of questions clarification, and kind of what sort of and said first of all make sure I heard you right on some of they called US and answers last question promotions no price benefit of promotions and 125 Bips to Gms. This quarter, you said that and it goes away next quarter James were up 100, Bips and so.

And my interpretation is you're effectively suggesting that gross margins will be flat to down modestly from going forward and did I hear that right.

Yeah, I'd say closer to more flat is kind of where we're we're expecting obviously, we don't guide directly to gross margin. There's a couple of variables and there that are tough to pay and I I do expect though that what I would say broadly is where we did make some of those decisions to moderate promotions and Q1, we will not.

Be making those decisions and Q2 as we're now you know more more kind of a you know and a stronger position for inventory. So I would expect to see a more historically robust level of promotions and Q2.

And building on that promotion calm and yeah.

Do you think we're at a point where you can operate.

Distantly with a lower level of promotion that you did pretty cold it or should we expect that promo line to slip to a deflationary headwinds and later this year and next year.

I don't think that we I think we'll continue to evaluate and and I think I talked about this and the yearend.

Period.

Period, where you know as we were exiting a 2020 and and certainly as we've navigated the first quarter of Q1, and you know what we've tried to do is be thoughtful and surgical as possible and balancing both the marketing expenses and the promotional lives and where we felt like there were opportunity.

These and perhaps drive and little bit more on the marketing side, a little less on the promotional side certainly in Q1, where we made a little bit more of a decision on a couple of businesses are and we need to get back to us strength going into a more important part of the year and of course doing all of this is very much in conjunction.

With our retail partners you know I think what you'll see is a total investment line for the company that remains very consistent and I think thats where were spending at a level.

But I believe we feel good about whether or not and you'll see some balancing between lines as.

As we continue to work through Okay, Where's the best our allies with us.

What's the dynamic in the marketplace competitively all of those elements I think will influence and but I would not expect you to see.

Radical changes and.

Net investment for us going forward other than the continued us.

And staying spend that you know, we we kind of put it into our base though.

Makes sense Jason.

Yeah, I mean, it's my years I heard that there's a likelihood that promotions come back from price goes negative and you coffee and tea to offset that and that's it.

Well I don't know, what that's going to and Im hearing yeah. I think there may be some bouncing on certain businesses, but I also think that are totally and C level as we look at it isn't it from a from a full year perspective is in a pretty good level. So I do say you know there may be some calibration, there, but I wouldn't expect it to be significant.

Understood got it thank you very much.

And you know our next question comes from Brian Lane from Bank of America. Your line is open.

Hey, Good morning, everyone. You know maybe just to follow up on Jasons question and that last point around around a and C and maybe just tie. This also went to E commerce just mark.

You've done a good job you know capturing millennials and incremental household penetration with millennials and how is the advertising mix how have you adjusted the advertising and what your how you're spending on advertising to affect that I guess, what I'm underneath the question its debt.

Is it less traditional TV more digital and more social media and if that's the case does that sort of imply that you don't necessarily need to spend a day and C and absolute levels that you did in the past and then maybe tied to that also in terms of E. Commerce. If this has become kind of a platform or I'm sorry, a level that's.

You know higher than it would have been previously how does that factor and how you're thinking about how you spend promotional dollars going forward, meaning you know is it less and caps and you know more in support of the the click and collect yeah. That's a great question and the short answer is it's Brent it's been a pretty meaningful share.

Yes.

As we think about where and not just purely because of E. Commerce, but also because of just simply how millennials, a shop and and how they view the world and engagement with brands. So even if they're still shopping traditional retail.

Realty for us to be more effective with our spend and digital is significant so it take you want as an example from a year ago, we doubled our investment in digital spending and it now represents over 50 per cent of the total spend in a and C. So that's a pretty dramatic shift for us.

US from where we would have been historically and the great news is given a lot of the work that we've done and the last two quarters, we feel like our understanding of the ROI as and the impact that it's having is giving us great confidence that we can drive tremendous efficiency.

And within this line item and and as you point out you know one of the things that's always been great about digital as if you can.

Unlock the right content right placement, you contend that drive some impact or more impact on and investment level that maybe a little more modest and then what traditional TV campaigns cost and you know if you translate that to really how its working you know we've made pretty significant.

Testament to and a lot of partnerships, where our dollars go from there. So you might have seen over the holiday we had a great program with Instacart, which has been one of the faster growing third party shoppers, where we had you know their homepage was basically at Campbell's page on it you spent $25 on all us.

Mark try to holiday products and you got free delivery for the trip and you know those kinds of activities, where we're getting front and center for top of mind for consumers is really important and making it a effective and so as you point out you know what I. Just described it was a little bit more like.

Something you might as seen in us or more retail and it's now becoming a digital marketing platform. So the blending of dollars between shopper and traditional advertising and even trade and promotion and when you get into the digital world. It gives you a lot of options to be able to drive impact and like I said you know if you look across.

And our businesses, you know up 85% and a quarter, we grew share and both of our business is pretty significantly and in particular, we grew dramatic share and the areas, we were really targeting which was and the click and collect space as well as the retail delivered and third party areas all of those were.

Very significant growth engine for us and and where we spent a lot of time.

Investing behind and so we're we're feeling good and now the point now what we're doing is making sure. Our assortments online are right. We're getting the right team in place the right capabilities, but as we think going forward, we really do see E commerce and digital spend together and being a major influence and performance going forward and and I.

And say you know as we watch kind of the marketplace. We feel very good about the position that we're in and and I think really benefited from some of that spending and Q4. We were talking about last time is a great source of learning for us.

Thanks, Mark and if I could just slip one in mid from mix just the Capex I'm not I didn't I don't know if I missed it but did you give us an outlook on capital spending for the year.

I did and but we did that last time around and I am still and based on Q1 spending debt was pretty much in line with our original expectations. Okay.

Okay, great. Thanks, how does have a happy holiday everyone, yeah and keep our.

And kill.

Next question comes from Chris Growe from Stifel. Your line is open.

Hi, good morning.

Hi, Chris Hi, I just had two questions for you the first one and it's because it's a bit of a follow on from earlier questions was I think about this rebuilding of inventory that's occurred and retail.

That's obviously availability of product and you also been able to increase your SK use us those got pared back.

During the height of the pandemic are you back to what you'd call and normal sort of shelf set or weren't maybe where you want the shelf set to be sort of going forward I'd.

I'd say, we're probably 75% of the way back right. We have made up a lot of ground and in the first quarter, which is what we expected and again you know I think a lot of a lot of different metrics to measure you know, how we feel about Q1, but perhaps one of the ones. Most significant to me was our ability to execute.

And it a very complex environment at a very high level, where we were rebuilding inventory and bringing back us can't use that that we had proved or or put on hold during the heart of the pandemic and so although you still see a T.T. decline a head overhead you see that improving with kind of.

Each month and that is representative of us coming back with the skews as well as some innovation audits. This Ah you know kinda intermingled, there, but I'd say worse worse still there's probably about a quarter of items that we're working on but some of them really important ones for example on prego.

One of our most unique and differentiated products that were back fully and businesses are alfredo or white sauces and within Craig that makes a huge difference for us on share and you see that in the numbers as we've been able to come back but there is a variety of examples like that.

Where we've been able to improve supply and or create enough room that we can bring some of the meaningful complexity that as I've said before I do think there is a percentage of those tdps odd that we probably in the Ed will if were going to replace and we'd rather do it with a innovation so I'd say a bit.

Step forward, and Q1, but still and with a little bit of room to go.

Okay that was helpful. Thank you and then just a second question in the gross margin bridge you outlined us net pricing benefit 120 basis points does that quantify is that incorporate the benefit of lower promotional spending for example is that one of the factors other than that so because it was about a 2% benefit overall just trying to get a sense of like is this.

Is there an underlying net pricing increase in your business and then promotion and a separate it out of that makes sense.

Yeah, Yeah, no. It's it's a really good question I mean, the basically just think about that hundreds and 20 basis points net pricing increase as lower promotional spending.

No on the line from a price movement, Yeah, I mean, sometimes you see movement between promotion DLP and some places. So you see you know if you. If you look at any given moment on on pricing in the quarter you'd see some numbers that might define what we're describing but net net out and the total impact.

And to the business on the places, where we had backed off on and some promotional spend you see that and pricing numbers and that also force translated into the margin as well.

Okay. That's very helpful. Thank you and and happy holidays to you as well thanks.

Thank you.

Next question comes from Steve Powers from Deutsche Bank. Your line is open.

[noise] keep us.

Maybe just for US just to circle back on saving and second quarter guidance.

And the first quarter meals and beverages soup.

Boards of doing us.

And 1.3 billion plus and <unk>.

Revenue everything comes together.

As we look forward given the accelerating demand this winter.

Supply kitchens and build over the past nine loans or so I guess is.

And is there any reason to think that that absolute dollars dollar level of sales and segment won't be higher into Q versus first quarter and assuming there's not I guess the stuff and what kind of parallel question and for those years that implies only very modest growth and snacks and the second quarter, if any at all if my math its strength.

And your thoughts there because it sounded like you know your thoughts and such as an adjusted net loss assumptions, but it seems I'm, saying, what we saw in thinking about the second quarter numbers. So.

There would be great.

Yeah. So.

Hello.

The line, but I think I got it.

[noise] you know if you kind of piece.

Pieces of the business apart and look at kind of what's the underlying you know us.

Options are in Q2.

You know if you look at our overall enterprise and market consumption for the.

For the quarter, we've been you know we've been in that 7% to 8% range.

Range, you know I I think as we look forward and and again you know always the benefit of obscene time pass us from month to month, and you know depending on where the elevated level of demand stays and whether it's consistent with that obviously, we'd be at the higher end of our guidance range I think what we're suggesting is that.

You may see a little bit less of an incremental contribution from inventory rebuilding and joo, but Conversely, I think and snacks business.

We'll likely see.

Some very.

You know I think improving and strengthening numbers as well as fast and.

You'll have some inventory.

Hungry, that's going on and snacks business and Q2, a little more so and and the meals and beverage side. So if you take those two together and try to average from.

You know, there's depending on where you take that overall demand level you'd be more towards the higher end or anything else you know kind of what.

And so we were providing kind of a perspective and like I said I think we're certainly trying to be Craig Matt, but at the same time I do think there is that and.

From a pivot between the two divisions and okay, and just to reiterate what I said earlier on the snacking.

You know I think sometimes and the in the corporate World, where do you see kind of is consistent high single digit double digit numbers and you know snacking is a little different and as I said, it and within the segments you have some segments like salty snacks.

Snacks, which are moving that way, where we see double digit growth you know kinda quarter and quarter out are more indulgent products. Although we are facing a little bit of headwind on supplies and relates to cookies have performed and the high single digit ranges and then you know gold fish remember our partner brands from Dana point of a headwind as we can.

And you to moderate those out I think those are the things that are moderating the overall total number and snacks and little bit lower than what it might feel like as we kind of describe the performance, but I think the balancing act between that and.

Evolves around us underlying and market growth rate of and.

The higher single digit range and I think we'll watch that very closely as we go through the corner and I would imagine that pretty good proxy.

For investors to kind of anticipate where we are and it's as well.

[noise] used to that Keith hopefully you can hear me okay.

I guess the second question and was [laughter] as we look for a year from now we're we're all hopefully going to be operating in an environment with.

And relatively full vaccine distributions and just to go and group's social mobility and I'm curious whether you can expense on what you're doing now to ensure that when that they've obviously been able to roots and as much of the unexpected demand and gain to the Keith.

Q2, 2020 us.

And.

Are there specific issues and point to and I guess are you able to are you actually able to do everything you don't really want to just given the ongoing.

Ongoing supply constraints demand volatility and the other such and such.

Yeah, no yeah, I know that is a major question for a lot of a lot of investors and you know I would just tell you guys I.

As we've continued to move forward I, absolutely and building a higher degree of confidence and our ability to retain households, and I'll point to kind of three big areas. The first is you know these macro trends that whether it is cooking or quick scratch cooking as we call it and home heating system.

Imagine a number of businesses and how slow return may be too and office environment, regardless of the timing.

And the vaccine made here and the number of millions of incremental lunches and and home snacking occasions that we're going to be able to be very well positioned us to.

To me I think there will be pressure economically. However, you want to describe it is good and create a value proposition were shopping for your meals from the grocery store continues to be a very attractive and affordable way to eat I also think we can't underestimate.

Migration that has happened and back to traditional brands and the grocery so I I know, there's a lot of speculation on whether private label and.

<unk> ability is the bigger hindrance, but I can tell you that as we look at every metric of sediment with our core brands, where consumers have come back or new from consumers have come in sediment is quite positive. This does not in any way strikes me as a moment, where they're buying us because something else is not available.

And so I think it's then switching to the second Big reason to believe is all of the actions that we're taking right now you know our increase in marketing our shift to digital our understanding of what's working if you look at the soup season. It is the most robust marketing period that we've ever had and if you looked at the great work we did around.

Saved snow day or dinner insurance around Thanksgiving, our advertising, our new campaign or the us.

So buddies are new campaigns that we have on late July on Pacific. The fact that we're doing great work in partnership with our customers as well as our as well as some of the online a third party players all of this I think lines up to a world where are we.

And expect to have a much stronger footing with millennials are coming in we're growing share across all of our businesses with this important target and I think that and even as we think about innovation a lot of what we're launching whether its pacific condensed, which really targets those millennials and the cooking behavior or some of our in home meal.

No occasion moments like the crunch at and it's on slow kettle comps or even the work we're doing on chunky were heightening our protein content. Its a messaging and then delivering it through and bad and partnerships and RFL relationship I think all relates very well to our ability to us.

Connect with these and then the last point I would just make is that as a reminder, you know before we came into the pandemic right before pandemic ever influenced our results.

We cleaned up the balance sheet, our debt levels down our ability to use cash flow to help grow and support the business along with the fact that now 50% of our business is in a growing stack business that we're growing before that's been growing through and I expect to grow after and a meals and beverage business that a lot of questions.

Non relevancy and were there initially that I feel like now you've got a much stronger case, so I put those three things together and I feel very good about the idea that we're going to come out of this in a much stronger position than we went in and and I think it's giving us great confidence and our ability to sustain going forward.

A meaningful impact and and positive outlook.

So a little bit longer answer but.

<unk> co.

Clearly a a a conversation topic of the day for sure.

Thank you and.

Our next question comes from David Palmer from Evercore ISI. Your line is open.

Thanks, and and great conversation, so far and that advertising and consumer promotion piece I just wanted to follow up on that and just big picture for Campbell. Your your agency spending will be probably highest levels and eight or nine years and if.

If we take it and we incurred ticked increases here in the first part of this fiscal year, it's a bit of or reversal for not just Campbell book for the food space overall and Mark you've seen this in several seats now where food companies were taking down advertising spending from most of that decade, 2014 and 2019.

And I guess to some degree that reflect a lack of confidence that advertising and consumer promotions were working and and you mentioned the shift to digital is it as simple as that channel or perhaps versus TV or could you speak to that and wide and are the ROI would be better today and why.

You have confidence and that and I have a quick follow up yeah. No. No. I mean look this is a this is I I. That's a great question and a at a fairly you know healthy conversation on its own but I will tell you that no. The answer is not just move the money to digital and therefore, it's going to work better or you're going to be success.

Small.

And what is so important and this is really understanding the intersection of contents placements and then how you're linking it with the shopping behavior. Those three things to me are the big insights on how you make the digital spend more efficient and improve and.

The ROI and and a lot of times I think you know people felt that it was as simple as well maybe I should just put my TV AD on Facebook Rush and just you know if I'm there where consumers are it's going to work and the answer is that does not work. It requires all three of those things to come together and to really have the impact that we're seeing.

Now and you know even for US I think as I've said, many times, where we may have been asked a couple of questions on why do you continue to spend.

AMC and to some supply issues part and the reason was that we really felt we needed to continue to be out there and making sure that we fine tune, what's working so that when we find ourselves and the position. We're in a day where supply is back in place. We are we are loaded and ready to go as it relates to.

Really understanding and and I think condensed soup is probably the single biggest example of that and the portfolio right now where you see dramatic sustain growth you see it and millennial targets, our ROI that our investments and the creativity of the activity that we have out there is just terrific. So I I'm you know.

Yeah, and you learn all the time and the one thing I'll say about digital to the minute and thank you got it all figured out you got to stay nimble and and moving and the agile and with where consumers are going but I think we're we're in a very good position and I feel good about the impact we're having.

And just a follow up I think and your question and answer with US Jason touched on this you know there's going to be there would probably be some be some room that you need to have on promotion spending coming out of this period on the backend on the bricks and mortar side of things at least.

You had you had some plants in terms and merchandising and organizing the shelf that probably were delayed to not only would you get back to us maybe a run rate that would be more pre co bid level in terms of bricks and mortar Merck and dicing, but you you had some bigger plans to could you give us a sense of that and how much room you have to create per promotions for that thanks.

Yeah, No I think the the answer is we will continue and are working very closely with with our our retail partners to really figure out shelf sets for the future and that's with the mindset.

That these categories are going to be quite important and highly relevant and so yes.

Yes, you're right there were a lot of things that we were in the midst of working on that.

We want to make sure that we incorporate the consumer learnings from from this period.

But yes, I would expect that as you see us come forward and the next year or so we're going to be working quite hard on ensuring that we are setting the shelf for the future and that we're creating enough room within both our portfolio and our promotional calendar to really address that and and the most consume.

We're focused way.

Thank you.

And Kim.

And our next question comes out we'll do what will yeah, I know were little over but we'll we'll take one more.

Thank you our last question comes from Rob Dickerson from Jefferies. Your line is open.

Hi, great. Thanks, so much good morning, Mark.

I just had to us kind of a larger and longer term strategic questions through and snacks business.

You know I know last quarter are you at.

Alluded to.

Improve learnings right in terms of efficiency and supply chain and past call. It 70 mugs.

And obviously you still have some cost savings coming through.

And next fiscal year.

And then at the same time I think last quarter. You had mentioned you know maybe some potential of visibility on further efficiencies within snacks I call. It distribution hubs what have you. So you kind of just.

Generally speaking.

I'm kind of given the margin profile of the snacks business, but the attraction so to speak of that business as well for consumers, maybe even as they shift from world on the go and volumes could improve but how do you view.

The incremental potential efficiency gains on that business to hopefully be able to margin up that business over time kind of be there'd be a lot of other snacks business that may be able to we're already are generating a higher profitability profile. Thanks.

Net.

Yeah no. Thanks for the question, Rob I mean, I think you know in its most simple us form if you think about the strategic runway for the company I think there there are a couple of big things that we believe.

Well, we'll be fuel and enable us to continue to deliver against our expectations and you know one of those we've talked a lot about today, which is our ability to retain households, really solidified the meals and beverage portion of our business as a a steady contributor within the portfolio, which we believe.

Very strongly that we can accomplish I think the other area of opportunity is for us to continue to sustain.

You know and and hopefully accelerate growth on our snacks business, while we continue to improve the margin. If you look at the margin of our snack business. Even after all of the I've said this from the very beginning when I got here and was asked how do you feel about the synergies.

My answer was I feel pretty good because even at the end of the synergies you've got a margin structure that that looks lower than what I would expect for snacks businesses and we know there's reasons why and there's some structural elements. There that that are that are not insignificant, but the idea that we can continue to accelerate growth.

From that business, while we also improve the margin is very much our focus going forward and I and I think there will be a variety of things that that will continue to look at and do but but we do feel good that there is drill sites and opportunities and and I think as time unfolds, we'll we'll talk more about that but I think for.

For right now I would agree with you we kind of see the same thing and as I think about the next chapter elements for the company I think those are the areas, where we're going to want to continue to focus.

All right great. Thanks, so much.

Thank you and that does conclude our question and answer session for todays conference.

Ladies and gentlemen. This concludes today's conference call. Thank you for your participation and you may now disconnect everyone have a wonderful day.

[music].