Q2 2023 Campbell Soup Co Earnings Call

Greetings, ladies and gentlemen, and welcome to the Campbell Soup Company second quarter fiscal 2023 earnings conference call at.

At this time all participants are in listen only mode. After today's presentation, there will be an opportunity to ask questions. If you'd like to ask a question. During this time simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question again press the star one.

As a reminder, this conference call is being recorded.

It is now my pleasure to introduce your host Rebecca Gardy, Chief Investor Relations Officer. Please.

Please go ahead.

Good morning, and welcome to Campbell's second quarter fiscal 2023 earnings Conference call I Am Rebecca Gardy, Chief Investor Relations Officer at Campbell Soup Company. Joining me today are Mark Clouse, President and Chief Executive Officer, Carrie Anderson, Chief Financial Officer, and Mick baked housing president meals and beverages.

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 has been posted to the Investor Relations section on our website Campbell soup company Dot com. Following the conclusion of the Q&A session. A replay of the webcast will be available at the.

Same location, followed by a transcript of the call within 24 hours on our call today, we will make forward looking statements, which reflect our current expectations. These statements rely on assumptions and estimates, which could be inaccurate and are subject to risk. Please refer to slide three of our presentation or our S. E C.

Filings for a list of factors that could cause our actual results to vary materially from those anticipated in 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 this presentation.

On slide four you will see today's agenda, Mark will share his overall thoughts on our second quarter performance as well as in market performance by Division, Nick will discuss the financial results of the quarter in more detail and Carrie will then review our guidance for the full year fiscal 'twenty, three and with that I'm pleased to turn the call over to Mark.

Mark.

Thanks, Rebecca good morning, everyone and thank you for joining our second quarter fiscal 2023 earnings call.

As you read in our press release. This morning, the momentum of our business continued as we delivered another strong quarter with double digit growth across all key metrics net sales adjusted EBIT and adjusted EPS compared to the prior year. These results.

Continue to reflect the strength of our strategic actions over the last few years and consistent top tier execution. Despite significant market volatility we have grown our portfolio of highly relevant iconic brands in key categories with a strengthened supply chain elevated marketing and investment.

New capabilities and impactful innovation.

We delivered broad based market share gains and positioned our business for sustained future growth. We have also successfully navigated the dynamic economic environment, using a variety of levers to mitigate inflation and.

Including targeted pricing cost savings initiatives and productivity improvements and we've managed well below historical levels of elasticity as volume mix declines remain modest.

This challenging but critical algorithm of balancing growth share margins and volume has been a key focus of ours over the last several quarters and the second quarter is another key proof point of our continued successful execution of this plan.

Our strong business fundamentals together with the strength of the first half performance and the continued health of our brands give us the confidence to raise our net sales guidance as well as raise the midpoint of the adjusted EBIT and adjusted EPS guidance. We previously communicated for the 2023 fiscal year.

This reflects continued momentum on top line with greater confidence in our profit and earnings. Despite some additional pressure from lower pension income.

Now lets cover some specifics from Q2 organic net sales increased 13% supported by favorable inflation, driven net price realization and strong consumer demand for our brands.

Total company dollar consumption grew 10% in the quarter versus the prior year and 20% versus three years ago as.

As we expected the gap between net sales and consumption was driven primarily by continued recovery in our foodservice business, albeit at a lower rate than in Q1.

Overall, we held dollar share versus the prior year and continued to make significant progress, particularly in the snacks business as we have successfully reinvesting in our brands and continuing to strengthen our supply chain.

This performance in snacks marks a significant step in our journey as we continue to emerge as a truly differentiated and best in class snacks portfolio.

In Q2, we had the strongest share growth in both cookie cracker and salty snacks among all major branded players even more impressive as we are among a very few who compete in both of these critical categories.

Although benefiting from pricing, we also drove favorable volume mix what additional important note is the snacks margin also improved while increasing investment by 19% on marketing and selling.

Turning to profit for the company adjusted EBIT increased 14% driven primarily by top line growth and modest gross profit expansion, despite increased marketing and selling expenses versus prior year.

Our teams continue to successfully navigate the inflationary environment, leveraging a number of different tools beyond pricing such as driving operational efficiencies and productivity improvements were confident that over time, we have compelling initiatives and roadmaps to drive margins and deliver our longer term goals.

Yeah.

Adjusted earnings per share was 80 cents up 16%, reflecting strong EBIT flow through.

We did experience some limited pockets of volume declines in the quarter, specifically in our meals and beverages division and particularly in the last four weeks of the second quarter.

These year over year declines were primarily due to lapping last year's significant omicron surge and favorable year ago winter storm impacts rather than increasing elasticities due to pricing.

In fact overall lasted cities remain as we expected and are favorable to historical norms. However, as we said several quarters ago, we do not expect all brands and categories to react exactly the same therefore, we remain highly vigilant of price gaps on key brands and are closely monitoring the last.

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In places, where we are experiencing higher impacts from competition or slower category trends like condensed soup broth, we're taking appropriate and pragmatic actions to continue to remain competitive and drive sustained profitable growth.

Turning to our divisional results, our meals and beverages portfolio remains well positioned and growing categories and consumers continue to seek out our brands as they look for ways to stretch their food budgets and turned to value driven meals that tastes, great and are easy to prepare.

Organic net sales increased 11% driven by favorable net price realization, partially offset by modest unfavorable volume and mix in market dollar consumption and our meals and beverages business grew 6% over the prior year and 17% compared to three years ago, reflecting the.

Good health of our portfolio.

Our U S soup business, which represents more than half of the wet soup category grew dollar consumption by 4% in the second quarter, despite increasing promotional pressure from private label. Our dollar share did decline by 0.6 points versus prior year as the category overall grew by six.

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We continue to feel great about the long term health of the category and our ability to drive sustainable growth and share over time. In fact, we continue to grow share in key strategic areas of the portfolio in this quarter.

Hence the icons for example, tomato chicken noodle cream of mushroom and cream of chicken grew dollar share by one point versus prior year, driven by multi packs, which are resonating with consumers as they seek value also condensed cooking skus overall are growing share as the cooking behavior and gray.

Recipe marketing is driving increased relevance as consumers feel continued pressure economically a couple of great. Examples of this is our jacked up Mac and cheese recipe that features our cheddar cheese condensed cooking soup and our easy one pan beef roast with vegetables recipe, which features our French onion soup.

Both of which cost under $4 of serving.

<unk> also continued to perform well with share gains a 0.2 points. This marks the sixth consecutive quarter that chunky has grown dollar share and has held or grown volume share. This success has been further fueled by the expansion of our new spicy innovation platform spicy chunky chicken noodle.

To perform very well now we have three additional spicy S. Skus on the chunky roster.

All of which are resonating exceptionally well with consumers.

We also built significant buzz this winter with a limited time offering of chunky Ghost Pepper, which will be returning nationwide for soup season, this coming fall.

Pacific Foods also had a very strong quarter, gaining share and momentum, particularly with millennials.

Pacific is extremely well positioned across a variety of categories as a premium organic and healthy brand with offerings in broth ready to serve soups and beverages.

In the quarter consumption was up 17% and the brand held or grew share and its segments for a total share gain a 0.3 points.

In the quarter Pacific was the fastest growing branded wet soup product on a dollar basis and all of the measured channels in IRI.

And then Sue Pacific continues to hold the number one share position in the organic category.

We are never satisfied with any share loss on the business, but the share pressure, we have experienced within condensed soup and broth are both consistent with expectations and concentrated more in the tail of the condensed business versus on our strategic core.

The team continues to remain very vigilant and we continue to ensure we remain competitive without undermining long term profitability.

The Great News is we continue to see strength in the category and in the longer run given our decisive leadership position it bodes well for the future.

In Italian sauces dollar consumption grew 8% while share declined slightly by 0.8 points. The Italian sauce category remains very relevant and continues to benefit from consumers seeking value and meals that the entire family loves and can easily be prepared at home.

Frito, we gained dollar share a 0.3 points versus prior year as service and availability improved.

And finally, we saw the greatest incrementally in the last five years from our latest prego innovation, which included spicy marinara creamy tomato Basil and other elevated flavor varieties and.

And Mexican sauces paced performed well with dollar consumption up 12% in the quarter and share gains a 0.3 points, marking the fourth consecutive quarter of share growth volume share rose for the fourth consecutive quarter up <unk> four points enabled by service improvements of 20 points versus.

Prior year pace held or grew share across all segments of its portfolio and we're excited about our innovation launches with this brand, particularly our pace ghost Pepper habit arrow as we take advantage of the continued strength of Mexican meals prepared at home.

Turning to snacks the division had another excellent quarter as we continue to win versus the competition supported by substantial brand building and recovery across our supply chain.

Our strong top line growth of 15% was driven by favorable net price realization volume gains and continued growth of our power brands.

And market dollar consumption grew 20% in aggregate on all eight power brands and seven of eight of those brands grew dollar share all brands grew across dollars volume and units showing the power of our portfolio and the relevance of the consumer snacking behavior, even in this current.

Economic environment.

Our snacks brands also had a very strong holiday season, Pepperidge farm cookies gained seven points of dollar share driven by merchandising support new packaging designs limited time offers and the return of our fancy Santa Melano marketing activation.

Stack factory Pretzel Crisp gained 4.1 points of dollar share driven by the strength of the bites innovation and our seasonal sweet and salty drizzly.

Our snacks division is demonstrating outstanding momentum with the last two quarters growing double digits.

Campbell snacks is also significantly stepped up share growth among branded players in the cookie cracker and salty snack categories. As you can see on slide 14, we are number one in both the cookie cracker and salty snack categories in terms of share growth in the second quarter. This continues to highlight how <unk>.

Unique our snack brands are and why we see such a bright future for this portfolio.

One of those brands goldfish, which is climbing to our goal of $1 billion in annual sales continues to be the star of the snacks business as one of the company's primary growth engines. The brand continues to perform extremely well with 21% consumption growth and share gains of <unk> seven points.

This was the second consecutive quarter of goldfish being the largest driver of growth for the entire cracker category and our strategy to expand our consumer target has been even more successful than expected with growth versus prior year in both the buy rates and repeat rates among households.

Holds without children about equal to households, with children. We continued our track record of having top performing new items in each of the last six quarters, where gold fishes had limited time only launches.

The goldfish L. T O strategy that we put in place is working with consumers twice as likely to purchase L. T OS alongside other goldfish items.

We're also driving strong momentum on innovation for our snack brands, we recently announced the new Kettle brand Air Fried potato chips, where the first company to commercialize are frying as a manufacturing technique in snacking, enabling us to be first to market with an air fried chip.

We've developed a patent pending technology to curdle Cook and are finished potato chips to deliver a light and crispy texture with 30% less fat than the original version initial customer and consumer reaction has been extremely positive.

Overall I'm pleased with our performance this quarter with focused execution strong end market results and strengthened supply chain capabilities. We are well positioned for continued growth even in the dynamic consumer and economic environment of today as.

As we go forward and begin to cycle. Some of these unprecedented periods, we've experienced I've never been more confident in the strength and relevance of our brands our ability to deliver best in class execution, and the path for sustained compelling and differentiated value creation.

Before we review the financial results in more detail I want to quickly comment on the announcement, we made in January to consolidate our offices in Charlotte, North Carolina, and Norwalk, Connecticut into our Camden headquarters.

Closing these offices, although not an easy decision is the right thing to do for our business and culture.

Unifying the company in one headquarters will drive cost savings, while increasing our connectivity collaboration and career opportunities for our people leading to even stronger performance.

The cost savings will be reinvested in the business and are included in our plan to increase margins in the snacks Division.

I'm pleased to share that the snacks leadership team has committed to relocate to Camden we.

We hope that all our colleagues in Norwalk, and Charlotte will join us in Camden, but we recognize that some will not.

Finally, before turning it over to Mick who will review our second quarter results in more detail I want to introduce Carrie Anderson, our new Chief Financial Officer, who joins us on the call today, and we'll review our outlook for the second half of the fiscal year.

Carries a seasoned leader with a strong background in complex business models across a wide range of industries. She has experienced in multi division operating models and has extensive experience in manufacturing and supply chain driven industries, which are all very relevant to this role.

I'm confident carry will be a fantastic partner and will build upon the momentum we've established while continuing to drive our finance team to best in class capabilities and performance.

She has definitely hit the ground running.

I also want to thank Mick for his partnership and his role as CFO under his leadership, we've made significant progress in increasing the capabilities of the finance team and improving the company's financial performance as the president of our meals and beverages Division MC brings his strategic financial and high commercial.

Acumen to the role I'm confident he'll continue to advance our growth agenda.

With that I'll turn it over to Mick Thanks, Mark and good morning, everyone. We are pleased with our strong second quarter fiscal 'twenty three results, reflecting double digit growth for its prior year across all three key metrics net sales adjusted EBIT and adjusted EPS. These results were consistent with our expectations and reflect the inflow.

Asian, driven pricing and supply chain productivity improvements to offset inflation pressures and increased marketing investments to support our brands' second quarter organic net sales increased 13% topline growth. This quarter was lifted by favorable net price realization, partially offset by slight volume and mix headwinds price.

Elasticities remain well below historical levels illustrating the underlying strength of our brands.

Second quarter net sales outpaced, 10% dollar consumption growth in measured channels due in large part to the continued recovery of our foodservice business our ability to mitigate continued cost inflation through a combination of levers led to a slight increase of our adjusted gross profit margin.

Simultaneously, we increased support of our brands and despite higher adjusted other expenses as a percentage of net sales versus prior year. Adjusted EBIT margin increased by 20 basis points to 14, 6% on a dollar basis, adjusted EBIT increased 14% versus prior year.

Adjusted EPS increased by 11 cents or 16% versus prior year quarter.

Cash generation remains strong with cash flow from operations of $732 million through the first half.

In line with our commitment to return value to shareholders year to date, we have returned over $219 million.

Organic net sales increased 13% driven by 14 points of favorable inflation driven net price realization. This was partially offset by a two point volume and mix headwind, which reflects increased elasticity each do they remain well below historical levels.

Turning to slide 21, our second quarter adjusted gross profit margin increased 30 basis points from 34% last year to 37%. This year favorable net price realization drove a 1020 basis point benefit due to the impact of our pricing actions, which only partially offset.

The impact of inflation and other supply chain costs in the quarter.

Inflation and higher other supply chain costs had a negative impact of 11 140 basis points with much of the impact driven by continued cost inflation that set our supply chain productivity program drove a 280 basis point benefit to our adjusted gross profit margin partially offsetting these in.

Place scenario headwinds.

Unfavorable volume mix had a negative impact of 130 basis points in the current quarter.

The next page highlights the various initiatives, we have deployed to mitigate core inflation, which on a rate basis was approximately 14% in the second quarter versus 9% in the second quarter of fiscal 2022, our actions include targeted pricing and trade optimization for.

For the second quarter net pricing was 14% and reflected the impact of wave two and three pricing as we move into the second half only wave three and four will benefit our year over year comparisons with great for having a lesser impact than wave two wave.

Wait for pricing, which relative to prior rounds was much more selective in nature has been fully implemented and it wasn't in place at the beginning of the third quarter. In addition, we continue to deploy a range of other levers, including supply chain productivity improvements and cost savings initiatives as well as our continued focus.

On discretionary spending across the organization.

For the second half of the fiscal year, we have the vast majority of our raw materials carpet and continue to closely monitor the overall commodity markets.

Moving onto other operating items marketing and selling expenses increased $20 million or 10% in the quarter on a year over year basis. This increase was largely driven by higher advertising and consumer promotion expense or a N C, which increased by 17% versus the moderated levels in the <unk>.

A year and higher selling expenses, partially offset by increased benefits from cost saving initiatives.

Overall, our marketing and selling expenses represented approximately eight 7% of net sales adjusted administrative expenses increased by $13 million or 9% to $157 million due to higher general administrative costs and inflation higher benefit related call.

Costs and higher incentive compensation, partially offset by lower expenses related to the settlement of certain legal claims.

As a percentage of net sales adjusted administrative expenses were six 3%, a 20 basis point decrease compared to last year.

On slide 24, we are providing an adjusted EBIT bridge to summarize the key drivers of performance. This quarter adjusted EBIT increased 14% in a quarter, primarily driven by the 92 million dollar improvement in adjusted gross profit.

Despite marketing and selling expenses increased $20 million first to prior year. It was slightly lower as a percentage of net sales versus the prior year, and therefore had positive impact to our adjusted EBIT margin of 20 basis points.

Similarly, adjusted administrative and R&D expenses were $178 million, an increase of 8% over prior year and contributed 30 basis points to our adjusted EBIT margin.

Adjusted other expenses of $6 million compared to adjusted other income of $9 million in the prior year had a negative adjusted EBIT margin impact of 60 basis points. This $15 million headwind, it's largely due to a reduction in pension and postretirement benefit income compared to prior year.

Overall, our adjusted EBIT margin increased 20 basis points to 14, 6% in the quarter.

The following chart breaks down our 16% increase in adjusted EPS growth between operating performance and below the line items and 11% positive impact from higher adjusted EBIT was only slightly offset by a one cent impact of a higher adjusted effective tax rate as our net interest expense.

<unk> was relatively flat year over year, all in adjusted EPS of <unk> 80 cents was 16% or 11 cents per share higher than prior year.

Turning to the segments in meals and beverages, we delivered another strong quarter with reported net sales growth of 10%.

Organic net sales increased 11% versus prior year, primarily due to increase in U S retail products, including U S soup, prego, pasta sauces, and pace Mexican sauces, as well as gains in foodservice.

Favorable net price realization was partially offset by modest volume in Mexico <unk> sales.

Sales of U S soup increased 7%, primarily due to sales increases in ready to serve soups and condensed soup within our meals and beverages Division second quarter operating earnings increased 17%, primarily due to a higher gross profit, partially offset by higher marketing and selling expenses gross profit margin increase.

Slightly due to the impact of favorable net price realization and supply chain productivity improvements, partially offset by higher cost inflation and other supply chain costs and unfavorable volume and mix overall, our second quarter operating margin in our meals and beverages division increased by 100 basis points year over year.

Year to 17, 7%.

Within snacks net sales, both reported and organic increased 15% driven by sales of power brands, which were up 20% and reflected favorable net price realization and volume increase is lapping significant supply constraints in the prior year.

Segment sales growth was driven by increases in cookies, and crackers, primarily goldfish crackers and Pepperidge farm cookies and his salty snacks, primarily snyder's of Hanover, Pretzels snack factory, Pretzel, Crisps and Kettle brand potato chips.

Segment operating earnings in the quarter increased 24%, primarily due to a higher gross profit, partially offset by higher marketing and selling expenses.

Gross profit margin increased due to favorable net price realization and supply chain productivity improvements, partially offset higher cost inflation and other supply chain costs.

Overall within our snacks division second quarter operating margin increased year over year by 90 basis points to 13, 9%.

I'll now turn to our cash flow and liquidity fiscal 'twenty three cash flow from operations decreased from $700 million to $66 million in the prior year to $732 million, primarily due to changes in working capital, partially offset by higher cash earnings a year to date cash outflow from investing activities brief.

<unk> of the cash outlay for capital expenditures of $155 million, which was an increase from $129 million in the previous year. We continue to forecast full year capital expenditures of $325 million for fiscal 'twenty three our year to date cash.

From financing activities were $525 million, including $226 million of dividends paid and $66 million of share repurchases at the end of the second quarter, we had approximately $375 million remaining under the current $500 million strategic share repurchase.

Graham.

Approximately $106 million remaining under our $250 million of anti dilutive share repurchase program, we ended the quarter with cash and cash equivalents of $158 million.

As we close out my last quarter as CFO I would like to thank everyone for their support throughout my tenure as CFO Campbell I look forward to working closely with carrier my new role and with that I'll hand, it over to Gary to talk through our updated full year guidance.

Thank you Mac and good morning, everyone and happy to be a part of the Campbell's team and I look forward to contributing to our future success.

As Mick mentioned I will review our fiscal 'twenty three outlook.

Turning to slide 30, we have updated our guidance, reflecting our confidence in our full year plan net sales growth for fiscal 'twenty. Three is now expected to be in a range of plus eight 5% to plus 10% up from our prior guidance of 7% to 9%.

We have also raised the midpoint of our adjusted EBIT and adjusted EPS guidance for the full year.

We now expect adjusted EBIT growth of plus four 5% to plus six 5% and adjusted EPS growth of plus three 5% to plus 5% compared to the prior year, resulting in fiscal 'twenty three adjusted EPS of $2 95 to $3.

A higher expectation for revenue reflects the strength of our brands with price elasticities remaining favorable to historical norms as well as stronger supply chain execution and sustained marketing investment to fuel demand and support innovation as we think about the second half our plans contemplate several evolving drivers from the first half.

Specifically, we will begin to lap our most significant year ago pricing, we have been successful in executing our way for pricing, but the net of this will result in lower overall growth rates than the first half.

As it relates to profit and EPS, our revised guidance remains consistent with our prior plans, we will continue to navigate expected inflation with pricing, albeit lower incremental pricing levels in the second half as compared to the first half and with continued productivity. We will also continue to invest in our business to dry.

Demand in profitably defend share. Additionally, in the second half, we'll see a headwind from lower pension income.

23 pension income is now expected to be lower by approximately $45 million or 12 cents per share compared to the prior year. This represents a headwind of approximately three 5% to adjusted EBIT ROIC and approximately 4% to adjusted EPS growth for the full year or an increase of 50 basis.

Points were $10 million from previous estimates as a result of interim remeasurement.

However, given the strength of our topline in the greater visibility and year to go cost we are confident in raising the midpoint of our adjusted EBIT and adjusted EPS guidance ranges.

As we covered earlier some of our inflation driven pricing actions in the second half of fiscal 'twenty. Two will now lap in the second half of fiscal 'twenty three with inflation still expected in the low teens for the full year. We are driving other margin enhancing initiatives. In addition to price we've already delivered $870 million of art.

Walter year cost savings program and remain on track to achieve $1 billion by the end of fiscal 2025 for fiscal 'twenty three the total benefits of our cost savings initiatives and productivity improvements remain unchanged with a slight update to the split of the two programs as you'll see on the slide.

As we look to the second half of the fiscal year with our brand momentum strengthened supply and continued competition. We will continue to invest in our brands such that for the full year, we expect marketing and selling expenses to be near the low end of our targeted 9% to 10% of net sales to summarize we feel good about the momentum we've.

Created thus far as well as our plans for the second half of the year, which translates into another raise in guidance for the full year.

All in our second quarter was aligned with our expectations and for the full year, we remain confident in our strategy a compelling portfolio of leading brands are strengthened supply chain capabilities and our team's focused execution I'd like to close by thanking our teams for a warm welcome and I'm excited to be part of Campbell's continued.

<unk> towards unlocking its full growth potential and with that let me turn it over to the operator to begin Q&A.

At this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad. Your first question comes from the line of Angela Zhao from Barclays. Your line is open.

Great. Thanks, very much and welcome Carrie.

So mark you know momentum in the business is clearly quite strong my question is with the magnitude of the upside in the quarter.

Why only raised the low end of our full year EBIT and EPS guidance.

By less than that I guess, if you could walk us through some of the key puts and takes and more specifically you mentioned some stepped up investment behind a few of the key brands I'm just trying to get a sense of how we think about this incremental spend is it is it spending back some of the upside to continue to strengthen the brand equities or are you seeing something in the market or with consumer behavior that is requiring more investment.

Thanks, so much.

Yeah, great Thanks, Andrew and good morning.

Two.

So first let me just start from the perspective of the of the full year.

I don't I don't know that.

That we would see material difference in kind of how we view the full year. It is it continues to be an extremely strong year on the back of really the strength of the brands, which certainly continued through Q2.

And the continued really strong execution, both whether that reflects the.

Mitigating efforts of inflation and or our supply chain, which really just continues to make great strides in and really thrilled thrilled to see that.

I also think that as you think about the full year, though we also now have some greater conviction. It's about the cost side, we have 93% of our cost basket essentially covered.

And we now see the implementation of wafer pricing, so that gives us a little bit more clarity or precision if you will and how we're managing or or positioning the balance of the year.

Arguably there would've been some upside I think we're giving a bit of that back in the incremental pension income headwind that they carry just talked about I do think if you just take a second and you look at that particular factor.

That's now $45 million for the full year.

It's about 12 cents of EPS and about 50 bps of margin.

Over the course of the year. So that's that's not insignificant for something that really has no.

Relationship to the operational performance of the company, but nonetheless, that's providing a bit of that headwind or offset to where you might have expected to see some upside, but maybe easier to talk about it through the lens of Q2 in particular, so when we look at Q2 thrilled with the performance I will say we came in.

About 100 basis points on margin better than we expected and that was really delivered in three areas. The first was on productivity we did.

More of what we would've expected for the full year savings, we got in Q2 and Thats, great I mean, youre always happy to get the savings in the bar and a little bit faster than supply chain again doing a great job not ready yet to say for the year I see upside on productivity, but certainly.

Good to have that in the in the bank already so I do expect that to be more of a timing.

Phasing element and then on investments.

From a promotion standpoint, as well as marketing we were a bit more efficient in the second quarter than we expected and I guess, what I would say about that is.

I'm not yet ready to say that that is incremental opportunity for the year I think with half of the year to still play I'm, having a little bit of flexibility.

As we think about the year is not a bad place to be I feel great about where we are I don't think there's anything that is radically different in the back half that we're adjusting spending to address but I think in the current moment. We're in it's pragmatic to really try to manage this algorithm I talked about in my prepared.

Arcs of making sure that the growth in demand is balanced with managing the margin again, let me be clear. This is not about chasing volume or chasing share and a nonprofit bill way, but it is about making sure that we're managing this business to remain healthy and sustain the performance going forward.

And that means making sure that we get the right levels of investment in place so nothing dramatically different but arguably a little bit of favorability and timing in the second quarter that would move that would in theory move into the back half.

Just a couple maybe other qualifying elements on the first half second half is I would imagine that could be a question as well, but if you remember when we set this plan up we always talked a bit about the dramatic difference first half second half of the comps a year ago were in the back half of last year, we had significant upside on EBIT.

Growth, whereas in the first half.

It was down versus year ago, So that tougher comp is one element also less incremental pricing, although successful in getting wave four in the net of all of that will.

It will be less incremental pricing, which will have an impact on the on the growth rates as we think about the second half and then of course overlaying with it.

The pension the 50 basis points and some of the incremental investment and that's why you get a slightly different profile in the second half versus the first half, but the underlying <unk>.

The metals on the business and the structure of the business very much in line with what we expected.

Arguably a little better with a little more pension, but at the end of the day, we really feel terrific about where we are this is kind of exactly where we would hope to be relative.

So how we're watching in market performance move so I don't know if thats helpful. Andrew but that's always a good lay of the land.

It does thanks, so much.

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

Mark you said, you're taking actions to remain competitive and Sue just quickly curious if it's as simple as promoting back more to combat private label. If there's other elements of that too and then my broader question I do appreciate you had helpful commentary about how condensed losses are largely in the tail overall youre pleased with the performance there.

I'm really curious for your broader point of view given that you run a number of categories and see a lot of different things in the space.

The argument.

Can be made in European Union that this dynamic in which branded players deal back prices to narrow gaps, but thats going to spread a little bit more across food at home ahead, I'm really just curious on.

Whether you think this is kind of the Canary in the coal mine or just a one off in a single category. That's as an unusually strong store brand presence hope that makes sense.

Yes, yes, I get it that so really let me let me try to.

Pull that apart into kind of the I think the two questions that youre really asking so first.

On soup.

You know I would I would say I think our approach.

Has been probably more strategic and simply to get the deal a few things back or.

Or do you just try to manage price gaps I think theres more.

Longer term and strategic play on what we're doing with soup.

That that might be helpful to kind of hear how we're thinking about it but in essence I think on soup right now our strategy is really three things.

The first one is to win kind of we describe it as winning the fights that matter most right. So when you think about areas like our condensed icons, which I talked about up a full share point.

Or winning on chunky within the ready to serve soup area, where chunky was up.

8% in the quarter almost half a share point.

Just as a sidebar chunking now has been up over the last three years is up 35% as a brand and.

It has grown over two and a half share points.

Within the world of soup and that is absolutely.

Paramount to our strategy of really winning that lunchtime occasion, with a superior product that the chunkier living into and doing it among younger consumers, which is again.

Chunky has been incredibly successful I think the third kind of strategic fight is on Pacific right. We now have supplied back in place. This again, we see as a highly differentiated brand leader in organic in the soup category and that business was up 17%.

Grew share by three tenths of a point.

In the quarter and so as I think of those three areas those are really important competitive battles.

That we see critical to winning and so far we feel very good about how we're performing in those spaces. The second strategy is really around driving continuing to drive that long term relevance of the category.

And that's that's really reflected heavily in both the versatility and the value that's driven within soup and so cooking as a good proxy that we use for that and the trends on cooking at home just continue to be incredibly powerful over 80% of meals are being prepared and home that's.

400 basis points higher.

And then it was in a pre Covid world I will say whats different in Covid now, though is that the focus on those in home meals revolve around both value and time to prepare so the magic numbers on dinner or 20 minutes and the magic number on lunch is 10 minutes on speed and that's where our categories really.

Land, well as well as being a great value and so when I look at our cooking condensed business right as a subset, where we're growing share and outperforming.

The category, that's exactly we want to see along with of course, the strength in chunky at lunchtime that I already talked about so you know remember at the end of the day were over half of this category. So if the health of the category remains robust.

We're going to win in the long run and Thats exactly what were what.

What we're trying to do in that second strategic area and then the third area is really kind of holding the line on the balance right. So these are not.

Unimportant parts of our portfolio, but they definitely play a supporting role and arguably where we've had to make some trade offs.

It has been in this area now I just will say when you describe it as being pleased.

No that I would describe myself as please look anytime we're losing share in the category I'm not happy about that and so I do think as we think about the balance of the year, we want to make sure. We continue to get that algorithm right on the balance of our portfolio not overspending, but making sure that we stay competitive that is things like.

In the condensed world sub brands like healthy request or our kids line or broth right more broadly and so again, we're going to really focus on value continue to support those businesses appropriately. It's a really kind of keep this algorithm in track with where we want to be so that hopefully gives you a little better lay of the land of where.

We are on soup.

And why we feel good about the areas, we're focused on while still being very vigilant on the areas that may not be.

As robust I think to your bigger question of so therefore.

Do we imagine the beginning of more substantial shifts and the support on the business.

I honestly think that when I look I can't speak obviously always dangerous speaking on behalf of the industry.

But from a Campbell standpoint, I think what were doing is were being very pragmatic and thoughtful right. This is about you know.

Understanding the balance between ensuring that we don't erode profitability in our businesses that we're gonna regret in the long term, while also recognizing that it's paramount that we remain competitive and driving value and so although I do think some categories may require a different level of support to achieve.

That goal at the end of the day when I look at our profile as a business I think it's very healthy right I mean.

This.

I hope that I get a question on snacks that loves to talk about that with this quarter, but that's a business that has just literally firing on all cylinders and yes. There is a component of reinvestment that's happening, but it's happening in support of really accelerating growth across the board. So no I don't think this is a this is some.

Harbinger of bad things to come I really think as I've said, all along right. If you go back three quarters I talked about the fact that the balancing act here or the winners in this moment are going to be the ones that get this balancing act right, where you don't overspend that erode profitability, while you don't get too greedy and not invest properly.

And your brands and that's that's really what we're trying to balance right now and I think you know Q2's, a great a great proof point of US are I think doing that in a pretty compelling way.

Got it thank you.

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

Hi, Good morning, all thanks for taking the question.

Thanks Peter.

Mark I guess, maybe just two questions. One one more appointed question on kind of the guidance and then and then I'll Grant your wish on snacks.

Just.

Just around the inflation guide for the year I mean, I think you came in the first half that at 16% Youre talking to low teens. So if you can just talk about kind of how you see the cadence over the back half of the year and on.

On inflation.

And then maybe just broader around snacks, you did spend a good portion of the prepared remarks talking about.

Both pricing and volume growth in the segment and particularly share gains and in salty.

Just if you could maybe speak to the sustainability of how you see that particularly around the salty snacks would be helpful. Thanks very much.

Yes, Gerry why don't you take the inflation.

Inflation question, and then I'll hit the stacks one sure.

Do you expect core inflation to moderate.

Consistent with my prepared remarks talking about low teens for the full year. So you're right. The first half was about 16%.

We went from Q1 to Q2 and in a few categories attenuated.

Flower and resin.

Even some of the transportation cost as I think about the second half of the year I would anticipate that that will move in that 10% to 11% range on inflation for the year and then you're talking about low teens.

Yes, So let me let me take the thank you for asking about the about.

About snacks look I think there's you sense it in our remarks and certainly.

In my desire to want to talk about it I do think Q2.

In many ways is a is a somewhat of a pivotal moment in kind of the validation of the strategy on snacking for us as a company and Thats why.

I Miss is happier as positive with it as I am.

It was a quarter where.

There are essentially we delivered every element that you'd want to deliver right. So top line was up 15% in market consumption up 17% our power brands were growing at 20%.

Those.

<unk> brands that had been plaguing us are down to less than I think mid single digits in the company are in the category from when they're high was 10.

And margin grew at the same time really driven by productivity and cost savings as much as pricing did a fairly good job of covering.

Inflation and that that profile, then resulted in us being the fastest growing share player and cookie cracker and in salty among.

Major branded players and Thats exactly where I think this portfolio.

B right growing top line, we also grew units and unit share.

On those businesses and it was broad based rate. This wasn't just one brand.

If you go through the last couple of years as we kind of got the ship right. We had some brands up some down it was it was never a period, where you could really look across the portfolio and go gosh, what can this thing do when everything's firing.

And this quarter was a great example, and even as you roll in the more recent.

The Nielsen and IRI data you see that momentum just continuing to go forward and it really is a combination of great marketing support.

The right.

Innovation, and then our supply chain that stepping up to meet.

That growing and expanding demand and thats exactly what we werent working and again each of the brands have kind of a unique story, but you know goldfish up 22% in the quarter.

Up over 30% over the last three years growing share almost now a billion dollar brand.

And driven by a really smart strategy of expanding the appeal of the product between.

Both families with kids and families without a kids our innovation is working extremely well the limited time offer flavors as you know GAAP grabbed all the buzz that you'd wanted to and I think it's also maintain the great value right. When you think about the snacking world and kind of better for you snacking as you.

<unk> right Goldfish really does live in this unique permissible space are being a bit premium, but also a bit better and thats really a good description of our whole portfolio and that's why I love. It. So much is because the differentiated nature of these brands, whether you're in salt to your whether you're in bakery.

Just position us for the long term I think in a really great way and again curdle cookies Lance even late July both of which had been brands that had been a little bit under the gun because of supply chain were up 19% and 27% respectively.

Lance grew almost three share points in late July grew over four share points. So these are businesses that now we've got the firepower behind it snack factory.

Other kind of sleeping giant in the portfolio sitting in the deli growing 19% and grew four share points. This quarter. I mean, these are extraordinary numbers and I'm hopeful that it was what it will begin to do is really solidify what we've been talking about which is when we think about the world of stacking we.

Believe we've got an advantaged portfolio and we're gonna be in extremely formidable competitor as we go forward.

Great. Thanks, Mark.

Your next question comes from the line of Robert Moskow from Credit Suisse. Your line is open.

Hi, Thank you.

Hey, Rob two things.

Hi, there.

Can you quantify how much foodservice helped the company in terms of the growth rate and also specifically the meals division.

I use the Nielsen data herein.

Your results today are much better than the Nielsen data. So the good news there and then secondly on snacks.

<unk> that shows the market share gains versus year ago.

You know last year, you had significant market share losses from supply chain issues can you give us can you quantify what your market share is in salty snacks for example on a two year basis.

Are you still below where you were two years ago, and and maybe talk about what the what the upside there is and how you can chase after it.

Yeah, great Great Great Great question, Rob Let me take the first one first so you are right.

Service had another very strong quarter.

It now rep.

It represents about 10% of our meals and beverage business.

And it was up 34%. So when you think about the five point Delta.

Net sales being up 11% and consumption being up 6%.

There's a good chunk actually majority of that is coming from foodservice. Although I will say also in that number is some very strong performance from Canada.

Canada has been a business that in the world of supply chain.

Was suffering a bit with foodservice as we were prioritizing.

Parts of the business now that we're back into full supply you see a much healthier Canadian business that team has done an extraordinary job.

Navigating a difficult market, but but really bringing back the brands in and growing the business. In fact, Canada was up 16% in the quarter and that's not insignificant either that's probably just under between 7% or 8% of the meals and beverage business. So yet another.

Peter.

So that difference between 11%.

6%. So it is great and look those are trends as we've said, we would expect to continue to be tail winds problem.

Probably or will not be at the magnitude that we've seen the last couple of quarters, but continuing to be a positive influence here's an interesting.

Little tidbit on soup as well as you might imagine a big part of our foodservice businesses soup and it's interesting as we start to look at the entire world of soup, but if you look at our underlying growth on soup in the in the second quarter. It would have added two points of growth.

Of the total franchise of Sue.

Based on the performance of foodservice. So those are all good I think supporting elements within our meals and beverage business and like I said I think those are things that will continue to help us as we as we move forward.

As far as the snacks trends, what I would tell you.

Rob is it's a bit of a mixed bag right. So you're absolutely right. There were places where we were struggling a year ago on certain parts of the business and market share primarily as it related to supply chain. So certainly late July Lance there were a few other places, but we've come back at an X.

<unk> level of strength I think what we'll do is I can give you the kind of blow by blow by brand.

But we'll do that we can do that after the call, but I think the net of it is.

If you take kind of where we are holistically from where we started the journey, we feel really good about the share gains accumulative share gains that we've had over time. So although yes, we would expect strong rebound.

I will say in snacking.

Part of what you always worry about is it's such a dynamic I'll end with DSD, if youre not there someone else's and so when you come back into the section I think we all hold our breath, a little bit to make sure that the consumers immediately come back and the great News is on those two brands in particular.

Absolutely came back and that just again I think gives you a little confidence in it. So I think the net of all of it is yes, certainly a tailwind on supply chain, but overall trends on the business and the strength of what we're seeing from a marketing and innovation side are giving us more confidence of this being a more sustainable over time.

I'm not I'm not telling you that.

We're going to see 15% growth.

Into perpetuity, but I do think that.

That ability to grow above the category, which is really what we aspire to do.

Continue to feel more confident than ever that we can do that.

Thank you.

Your next question comes from the line.

Alright, I think we're at that time right now.

Really appreciate everyone's questions and participation on the call.

Yep. Thanks, everybody, we'll talk to many of you later, if you have questions. Please follow up but thank you.

This concludes today's conference call. Thank you for your participation you may now disconnect.

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