Q3 2023 Campbell Soup Co Earnings Call
to ask questions. If you would like to ask a question during this time simply press star followed by the number 1 on your telephone keypad. As a reminder this conference call is being recorded. It is now my pleasure to introduce your host Rebecca Gardie, Chief Investor Relations
Good morning and welcome to Campbell's third quarter fiscal 2023 earnings conference call. I'm Rebecca Gardie, Chief Investor Relations Officer at Campbell and joining me today are Mark Klaus, President and Chief Executive Officer and Carrie Anderson, Chief Financial Officer. Today's remarks have been pre-recorded and reflect an effort to better accommodate more...
earnings press release have been posted to the investor relations section on our website Campbellsoupcompany.com. Following the conclusion of the Q&A session, a replay of the webcast will be available at the same location followed by a transcript of the call within 24 hours.
On our call today, we will make forward-looking statements which reflect our current expectations. These statements rely on assumptions and estimates which could be inaccurate and are subject to risk. Please refer to slide 3 of our presentation or our SEC filings.
for a list of factors that could cause our actual results to vary materially from those anticipated in forward-looking statements. Because we used 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'll see today's agenda. Mark will share his overall thoughts on our third quarter performance as well as in-market performance by division. Kerry will discuss the financial results of the quarter in more detail and review our guidance for the full year fiscal 2023. And with that, I'm pleased to turn the call over to Mark.
Thanks Rebecca. Good morning everyone and thank you for joining our third quarter fiscal 2023 earnings call.
As you read in our press release this morning, we delivered our third quarter very much in line with our expectations, with strong mid-single digit net sales growth led by favorable net price realization, partially mitigated by the comparison to year-ago retailer inventory rebuild.
We also experienced planned low single-digit declines in adjusted EBIT and adjusted EPS year-over-year, primarily due to higher non-operating items. Overall, it was another quarter of consistent strong results fueled by in-market performance, best-in-class service levels driven by our sustained supply chain recovery.
both growth and share and made a meaningful step change on margins. In meals and beverages, our brands continue to benefit from the strong value and convenience they provide consumers.
We did experience some expected volume mix pressure as we cycled prior year retailer inventory rebuild. It's worth noting that we are fully back to pre-COVID service levels in the mid to high 90s, which is currently best in class as we continue to turn our supply chain operations into a competitive advantage.
In addition, we don't expect further significant inventory-driven volatility as retailers have returned to targeted inventory levels, taking advantage of these improvements in our service levels.
As we look to close out another strong fiscal year, we are reaffirming our full-year fiscal 23 financial guidance ranges for net sales and adjusted EBIT, and we are currently tracking to the upper end of our adjusted EPS outlook range. Our guidance appropriately considers the current environment prior year comparisons, and the current year comparisons for the fiscal year.
normalized investment levels, and absorbs the divestiture of the Emerald Nuts business, which was announced on May 30th.
Now I'll turn to a quick discussion of our divisional results, starting with meals and beverages.
Organic net sales decreased 1% while in-market dollar consumption grew 2%, with the variance primarily driven by the cycling of significant retailer inventory rebuild in Q3 fiscal 2022, which was more pronounced in the meals and beverages division.
Our supply chain recovery has been best in class and our top-tier execution led to significantly improved customer service levels, up approximately 25 points in the third quarter versus prior year, enabling retailers to return to pre-pandemic inventory levels.
Volume in the quarter was impacted by this same inventory dynamic, as well as below historical norm price elasticity, and some increased competitive activity as others supply also improved.
Once we cycle the tough prior year comparisons, we expect volume trends to improve sequentially. We have made considerable progress in creating sustainable momentum and relevance across the meals and beverages business over the last several years and remain confident in the continued growth potential of our iconic brands.
Turning to our soup portfolio on slide 8, dollar consumption was essentially flat versus prior year, reflecting inflation-driven pricing mitigated by below historical normal elasticities and some increasing share pressure. As competitors improve supply, we are seeing some increased promotional activity.
On a net sales basis, soup was down 11%, primarily reflecting the disproportionate impact of cycling the inventory recovery from a year ago, which accounts for the majority of this decline.
Strategically, we continue to believe strongly in our ability to grow the soup business and are pleased with the progress we've made in leading the renewed relevance of the category over the last four years. For example, the improved relevance of condensed soup, especially cooking, where we have supported the growth of in-home meals. Importantly, this is attracted new, younger consumers to campus.
remain an area of opportunity. Next is the complete restage and growth of Chunky Soup. This brand has been fundamentally transformed from a product purchased primarily on deep discount promotion to a great everyday value with a compelling position that focuses on protein and quick in-home lunches.
This positioning has been particularly relevant with younger consumers, especially given the current economic climate and in contrast to higher price frozen food or away from home options. The impressive four-year growth in dollar consumption up 31% and share up two points has been fueled by great marketing.
effective inflation-driven pricing, and innovation like our SPICY line. We did experience a step up in some competitive pressure in Q3, but we're already seeing the return to share growth up one point in the latest four weeks. Finally, the performance of Pacific as a growth engine. This organic premium line has proven to be a fantastic acquisition.
growth premium platform to keep expanding the category and our suit business.
These three areas of strength paired with a robust pipeline for the future solidifies our confidence that soup will be a steady contributor as we cycle through some of the tough comparisons and return to a level playing field.
Turning the Slide 9 are Snacks Business Delivered its third consecutive quarter of double digit net sales growth Continuing the strong momentum of this business
Our 12% net sales growth was fueled by our 8 power brands, reflecting the benefit of net pricing and below historical normal astigities.
which resulted in a slight decline in volume and mix. In market dollar consumption in our total stacks business grew 15% over the prior year and 32% compared to four years ago, also driven by our power brands.
Although not as significant as in meals and beverages, we were also lapping some of the inventory recovery from a year ago. In fact, with our significant supply chain recovery, our customer service levels are now averaging 95%.
Drilling into our power brands on slide 10, dollar consumption increased 18% with strong dollar and volume share growth, which was driven by impactful marketing and a steady drum beat of innovation. On a four-year basis, dollar consumption was up 40% with all eight brands growing double digits in the quarter.
For six of our eight power brands, our dollar consumption growth is outpacing their respective categories. Highlighting the outsized consumer demand for our unique and differentiated snack portfolio that spans both cookie cracker and salty categories.
With increased service levels, contributions from new product and packaging innovations, and planned investments, the share trajectory of our power brands shows a significant improvement over the prior year, systematically rising for each of the last four consecutive quarters.
Our marketing efforts also continue to win, as we focus on engaging consumers where and when we can have the greatest impact. Goldfish, which is on pace to approach a billion dollar brand, is a great example. Being named teens, most preferred snack brand for the fourth time in a row, according to Piper Sandler's Spring 2023, taking stock with teen survey. Building on the success of our Goldfish Innovation Month.
fish playbook.
We're adding innovation on brands like late July that is also fully recovered now on supply.
As we continue to build momentum across the portfolio, we'll step up investment behind this innovation and brand building, which will continue in the fourth quarter.
Our snacks business has grown steadily these past two years, and we're now starting to see progress on our profit and margin roadmap.
Over this same period, we have seen operating earnings growth average 13% and even with the strength of our top line, we've also seen margins expand.
In fact, Q3 year to date, we are up 130 basis points versus two years ago, and pacing to an absolute operating margin for the year of over 14%. We remain confident that we'll continue to show steady improvement in fiscal 2024.
while also remaining on track for our longer term SNACs operating margin goal. In summary, although Q3 was a tougher comparison to cycle from a year ago, our results were in line with our expectations. We remain right on track for the full year and more importantly we're showing fantastic progress in many critical strategic areas.
such as momentum in every facet of our snacks business, including margins, strong sustained execution across our supply chain, and momentum and continued relevance of our meals and beverages business.
Overall, we continue to be pleased with the consistency and performance of the business leading to another strong year for Campbell.
With that, I'll turn it over to Carrie. Thanks, Mark, and good morning, everyone. I'll begin with an overview of our third quarter results, which came in as expected, reflecting the benefit of prior waves of pricing and ongoing supply chain momentum, as well as the in-market environment and retailer inventory dynamics, which Mark discussed earlier.
Third quarter organic net sales increased 5% versus prior year, reflecting favorable inflation-driven net price realization, partially offset by volume and mixed declines.
Adjusted EBIT decreased 2% primarily driven by higher adjusted other expenses related to lower pension and post-retirement benefit income this year. Higher adjusted gross profit, more than offset higher adjusted administrative expenses, and higher marketing and selling expenses.
Adjusted EBIT margin declined by 110 basis points versus prior year to 14%. Adjusted EPS decreased 3% to 68 cents, driven by lower adjusted EBIT and a higher adjusted effective tax rate.
The impact of lower pension and post-retirement benefit income reduced adjusted EBIT margin by 50 basis points and EPS by $3.00 in the quarter. Turning to a year-to-date view, top-line and adjusted EPS were both up double digits compared to the period last year, and adjusted EBIT was up 9%.
The impact of lower pension and post-retirement benefit income reduced year-to-date adjusted EBIT by $37 million and adjusted EPS by $9.
Of note, our Q3 year-to-date adjusted EBIT margin was relatively stable at 15.4% when compared to 15.6% for the nine-month period last year. As reflected on slide 17, third quarter dollar consumption growth in measured channels of 8%
outpaced net sales growth of 5%. Driven largely by the expected lapping of retailer inventory rebuild in the prior year period when our service levels were recovering. This was partially offset by net sales growth in non-measure channels, which we estimate contributed approximately two percentage points in the bridge between dollar consumption growth.
and organic net sales growth in this quarter. Slide 18 summarizes the drivers of our net sales growth of 5% in the third quarter. We generated 12 percentage points of growth from inflation-driven net price realization.
Volume a mix declined 7 percentage points reflecting both the cycling of retailer inventory rebuild in Q3 a fiscal 22 as well as lower volume consumption due to higher elasticity.
Excluding the impact of the cycling of retailer inventory, the underlying volume and mixed decline was approximately mid-single digits consistent with the implied run rate we expect for the balance of fiscal 23. We expect volume trends to improve into fiscal 24 as we fully cycle pricing. Pricing letsticities remain below historical levels, illustrating the continued underlying strength of our brands. Our third quarter adjusted gross profit margin was generally as expect.
basis points in Q3 fiscal 22 related to a temporary disruption in our meals and beverages and supply chain operations caused by Texas storm in 2021.
The next page highlights the steps we have taken to mitigate core inflation, which was approximately 8% on a rate basis in the third quarter compared to 15% and the third quarter of fiscal 22. Our actions include targeted pricing and trade optimization. For the third quarter, net pricing was 12% and reflected the impact of pricing waves 3 and 4.
by chain productivity improvements and broader margin enhancing initiatives, including a focus on discretionary spending across the organization.
In terms of commodity exposure, all of our raw materials are essentially covered for the balance of the fiscal year, and we continue to closely monitor the overall commodity markets. Moving on to other operating items, marketing and selling expenses increase $6 million or 3% in the quarter on a year-over-year basis.
This increase was driven by higher selling expenses, partially offset by increased benefits from cost savings initiatives.
Overall, our marketing and selling expenses represented approximately 9% of net sales for the quarter, and we continue to expect marketing and selling expenses to be at the low end of our targeted range of 9 to 10% of net sales for the full fiscal year.
Within marketing and selling, advertising and consumer promotion or ANC was down 2% versus prior year, driven by a mix of investments to focus on prioritizing value-driven programs to match the current consumer landscape.
Adjusted administrative expenses increased by $8 million or 5% to $154 million due to higher general administrative cost and inflation, higher incentive compensation and higher benefit-related costs, partially offset by lower expenses related to the settlement of certain legal claims.
As a percentage of net sales, adjusted administrative expenses were 6.9% in line with prior year.
As shown on SIE 22, adjusted EBIT decreased 2% more than explained by the $12 million increase in adjusted other expenses related to lower pension and post-retirement benefit income this year. Higher adjusted gross profit more than offset the combination of higher adjusted administrative expenses and higher marketing and selling expenses.
Overall, our adjusted EBIT margin decreased 110 basis points to 14% in the quarter, primarily driven by a lower adjusted gross profit margin, and the expected 50 basis point impact of lower pension and post-retirement benefit income year over year.
The impact of higher marketing and selling expenses and higher adjusted administrative and R&D expenses was fairly neutral on margin in the quarter, as net sales growth was higher than expense growth.
Turning to side 23, adjusted EPS of 68 cents was down 3% or 2 cents per share compared to the prior year. This was driven by the lower pension and post-retirement benefit income we just discussed, which was a 3 cent impact to adjusted EPS, along with a slightly higher adjusted effective tax rate in the quarter.
Turning to the segments in meals and beverages, third quarter reported net sales decreased to 2%.
Organic net sales decreased 1% primarily due to inventory in elasticity-driven volume and mixed declines partially offset by gains in food service and net price realization.
Third quarter operating earnings for meals and beverages decreased 17% due to lower gross profit with nearly 30% of the decline due to lapping the insurance settlement in the prior year.
Third quarter operating margin in the segment decreased to 16.4% driven by lower gross profit margin, which was due in part to an unfavorable makeshift between food service and retail, and the 100 basis point impact of lapping the insurance settlement.
Favorable net price realization and supply chain productivity improvements largely offset cost inflation and other supply chain costs.
On a third quarter year-to-date basis, segment operating margins stayed relatively stable at 19.2% compared to 19.4% in the comparable year-ago period.
For SNACs, third-quarter net sales, both reported and organic, increased 12%, driven by sales of power brands, which were up 16%, and reflected favorable net price realization, which was partially offset by modest declines in volume and mix. This is the third consecutive quarter of double-digit net sales growth for our SNACs business.
Segment operating earnings in the quarter increased 41%. Primarily due to higher gross profit, partially offset by slightly higher marketing and selling expenses.
Gross profit margin increased due to favorable net price realization and supply chain productivity improvements, more than offsetting cost inflation and other supply chain costs.
Overall, within our SNACS division, third quarter operating margin increased year over year by 330 basis points to 16%.
On the third quarter year-to-date basis, operating margin increased 150 basis points to 14.5% versus 13% in the comparable year-ago period. This year-to-date margin is more indicative of the SAC margin we expect for the full year as we continue to invest in the momentum of the business.
year-to-date basis, operating margin increased 150 basis points to 14.5% versus 13% in the comparable year-ago period. This year-to-date margin is more indicative of the SAC margin we expect for the full year as we continue to invest in a momentum of the business. I'll now turn to our cash flow and liquidity.
Our cash generation remains strong with cash flow from operations of $918 million through the end of the third quarter. In line with our commitment to return value to shareholders, year-to-date we have returned over $475 million through dividends and share repurchases.
Cash flow from operations was lower than the prior year primarily due to changes in working capital partially offset by higher cash earnings. Our year-to-date cash outflows from investing activities were reflective of capital expenditures of $257 million up from $179 million in the previous year.
Our year-to-date cash outflows from financing activities were $535 million, including $336 million of dividends paid and $141 million of share repurchases.
At the end of the quarter, we had approximately $301 million remaining under the current $500 million strategic share repurchase program and approximately $104 million remaining under our $250 million anti-delutive share repurchase program. We ended the quarter with cash and cash equivalents of $223 million.
Turning to slide 27, we are reaffirming our net sales, adjusted EBIT and adjusted EPS Outlook provided on our second quarter earnings call. Given our year-to-date performance, we are tracking to the upper end of our full year fiscal 2023 adjusted EPS guidance.
Given the momentum of our core brands, we anticipate that the recent divestiture of the Emerald Nuts business, which closed on May 30th, will not have a material impact on our fiscal year-adjusted 2023 results. Accordingly, our full year guidance is inclusive of the lost sales and profits of that business for the remaining two months of the fiscal year.
Our reaffirmed adjusted EBIT and adjusted EPS guidance reflects planned fourth quarter investments in sales and marketing, especially in our snacks business as we drive continued momentum and value for consumers into these important summer months. Additionally, we are now expecting full year capital expenditures of 360 million dollars for fiscal 23.
up from our previous guidance of $325 million as we look to accelerate key manufacturing capacity investments in our snacks business.
Our full year guidance for all other items remain unchanged, including the full year pre-tax pension and post-retirement benefit income, which is expected to be lower by approximately $45 million or 12 cents per share compared to the prior year. This represents approximately 3.5% of adjusted EBIT growth and approximately 4% of adjusted EPS growth. For more information, visit www.fema.gov
To wrap up, our third quarter tracked to our expectations driven by strong price realization and operational execution including in our supply chain.
While we did see volume and mixed decline in the quarter, it was largely a function of year-over-year comparisons, which masked base volume trends.
We are meeting consumer needs for value, quality and convenience while managing private label and competitive activity, particularly on our meals and beverage business.
While our SNACS business continues to demonstrate accelerated growth, instead of year-to-date margin progression. Our capital allocation priorities are well-defined and consistent, and we look forward to deploying our strong cash flow against the highest ROI opportunities.
And with that, let me turn the call 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. And your first question comes from the line of Andrew Lazar from Barclays. Your line is open.
Great, thanks so much. Good morning, everyone. Hey, Andrew. Mark, you mentioned that results were re-inlined with your expectations. You know, but we've seen some sizeable upsides to results on both organic sales growth and gross margin for really a bunch of packaged food peers recently. And maybe it's not fair to compare and some I suppose.
and let's say are relatively even killed way, or should we expect some volatility as the benefit from pricing starts to wane, and sort of I need to ultimately sort of pick up this lack. So just sort of a two-part question. Thank you. Sure. Sure. Yeah, so thanks Andrew. I think it's always when we're cycling a quarter like we had in the third quarter last year, where we had such a dramatic...
step up in our supply chain that enabled us to catch up what had been essentially two years of kind of hand to mouth service levels and kind of hovering in the 70s and low 80s for quite a while. It's always a little tough to help people see through.
or harbinger of things to come, there are a few pieces that I think are quite unique. So if you look at the top line, we delivered 5% net sales growth with about a 7% negative on requires volume X.
We know that when we cycle the inventory replenishment from a year ago, it was worth about five points, right? Which is going to impact dramatically, or directly net sales, but also significantly on the ball mix side.
And so if you kind of, you know, back that out, and although look, I don't know where other players are and their returns to inventory levels with retail or how supply chains are recovered, but I would make the case that our supply chain for perhaps a lot of good reasons that we needed to do it.
recovered at a faster pace than many. And in fact, if you look at our service levels right now in the marketplace, they would absolutely be best in class. We're essentially fully back to pre-COVID levels of service. And so arguably our supply chain probably gave us a benefit a little bit faster than it might have in some other places. But nonetheless, if you kind of put that into context with the 5% growth rate,
for the quarter, especially given that you've got the underpinning consumption in market of 8%, you're feeling much better about what I would tell you is kind of the underlying, let's call it run rate. Although we do expect pricing to begin to come down and volumes to improve, that's important to kind of look at it through that lens.
What may not have been as immediately clear is then as you kind of ripple down into the margin. So we were off about 60 bps on gross margin and about 110 bps on EBIT margin. But there's three really important factors that you have to build into that. First, you know, is as frustrating as it is for me to...
Share this each quarter. There was about 60 bips of the pension income headwind that we've had all year. It will expect that to continue into Q4. There was also about 50 bips of the insurance settlement related to the storm and perhaps the less obvious one and you really see this on the meals and beverage business.
is the impact of the mixed dynamic of that inventory cycling. So a lot of the benefit a year ago was in soup. So what you see especially in meals and beverage is a lower soup number, better away from home number, and the mixed impact of that was well over 100 basis points.
When you kind of put those pieces together relative to where the EBIT margin and EBIT came in, you see a pretty different picture. And in fact, when we say it's in line with our expectations, that was how we were planning it. And if you think about why we're also saying, hey, we're kind of right on track for guidance for the year, those elements were contemplated as we laid out the year. Now, we're always going to want to make sure.
we look into a Q4 that we've got the room to invest and you know it is true that as others are recovering in supply competition I expect to continue to be you know stepping up a bit but but nothing that I see that's dysfunctional or out of line with historical levels so we're going to keep ourselves in a position to be able to invest but really from my standpoint
When you peel that back and you look at what's going on underlying in the business, and this is a little bit of a lead into your second part, I feel great about where we are. I mean, there's no question the snack business is really just on fire. I mean, it's hitting on all cylinders. We're seeing the broad-based growth, significant share improvement, strong and improving vol mix, and for the first time.
Really starting to see the traction on margin, as we're now above 14, about 150 basis points up for the year, which is kind of a run rate. This quarter might be a little better than what we'll see next quarter, but in essence, we're going to be delivering. I think a really meaningful step forward for the business and the...
in the year. And so as I look forward, you know, again, not notwithstanding a full outlook for guidance for 24, I feel very good. It is going to be a different dynamic as Price does come down and volume improves, but I see very strong potential.
to continue to make progress across all fronts and that's including margins and profit and being able to sustain growth. So I think although this quarter we have to unpack a few of those variables at the end very much in line with what we expected and I do not think this is a bell weather necessarily for us or the industry for that matter as far as the way the world will unfold over the quarters ahead.
Thanks so much, really appreciate that detail. And your next question comes from a line of Ken Goldman from JP Morgan. Your line is open. Hi, good morning.
I wanted to ask about what you're seeing in the marketplace for soup. And you touched on some of this, but you know, it looks like unit share losses for Campbell are decelerating in condense, but maybe it's requiring a little bit of a heavier price investment and then RTS, you know, your primary primary competitors investing a little more in price.
I don't want to overstate what's in scanner. You're clearly getting a benefit from non-measured channels. But one of the questions that we're getting is, hey, is there a risk that soup is starting another race to the bottom? It's been a long time since we've seen that kind of dynamic in this category. It's been much more rational than it used to be. But those of us who are a little longer in the tooth, kind of remember when...
those price competitions for lack of a better phrase were not really uncommon. So just curious on your thoughts about direction the categories heading. Yeah, no, it's a good question because it is, you know, we tend to talk about soup in the macro and there are, as you begin to point out of a variety of different variables underneath it. I would tell you that what we do not see that dynamic that you're describing, I do think the fights,
are kind of by different segments. So if you think about what we've set up previously, for us as we look about long-term health and sustainability as soup, we're really focused in three big areas. The first is the relevance question around condensed, which arguably over the longer horizon.
As perhaps been the biggest question that certainly I've gotten over the years here, is are we able to continue to drive that relevancy that we saw, you know, picking up through COVID and, you know, really for the last four years, you know, soup has been growing at a K-GRA about 4% a year. I don't remember any time that in history, we may have seen it. A lot of factors why, but nonetheless.
a pretty steady performance can we sustain it? And I think that as condensed, we look at it, there are two areas that we're really dialed in on. The first is making sure that that core set of icons you know continues to be a solid foundation. And I get asked a lot, are you better off versus pre-COVID? How does it look?
Those icons have grown five share points in condensed. And that's a good thing for us because those are really where we have strong competitive differentiation, chicken noodle, tomato, cream of mushroom, cream of chicken, very, very compelling and strong. I think the most exciting part of condensed, which was the other big strategy.
was to drive the versatility of the category and see it more relevant with cooking. And if you look at the last quarter, we were up six tenths of a share point on condensed, even in a world where we were seeing some pressure overall from private label, but within the cooking area, we continue to grow. And that's a good thing.
to now, we're up about three share points in cooking as we've continued to see a little bit of distortion based on our focus and the versatility of that segment. Now, what that does imply is that some of our more higher priced flankers, we're gonna have to get a little bit sharper at that value proposition and make sure
Not on price but on benefit. So I do not see this as a race to the bottom at all Although we do experience some pressure on private label We're being very thoughtful about the longer-term strategic game and condensed So I think this is a different day Ken and I get it and I know that
People are going to want to really probe on that to understand it, but I really do see it in a very different space than it was in the past. On Ready to Serve, you're right. I think some people have come back into supply and we're seeing a little bit more competition but nothing dysfunctional. In fact,
You know, the game there is really chunky, which has just been an unbelievable transformation as I said in my comments. You know, repositioning it from this kind of low cost value on promotion item to something that's delivering value protein and convenience has really proven to be successful, especially when you pair it with some of the innovation.
Although we saw a little bit of share pressure in the quarter, overall in the last four weeks we're up a share point again. And if you go back in time, we've grown this business two points since COVID. And I just feel great about where it's at and where it's headed. I think perhaps a little bit of the sleeper in the ready to serve category has been our Pacific business.
You know, interestingly enough in this world of concern of trading down, our Pacific brand was the fastest growing ready to serve brand in the quarter. That's faster than some other jarred premium soups that are out there.
really kind of debunking this whole myth of whether cans are good food, people are going to buy it especially if it's a great value. And I think Pacific has done extremely well in setting that combination with Chunky. And perhaps something you don't see in the numbers is that some of our value elements within Ready to Serve like Home
well positioned.
you know, to benefit from this kind of resurgence in the category overall. And I feel like that, in contrast to some of the places where we're feeling pressure, is a great sign for things to come, even though in some of these flanker, more premium spaces.
within the categories. We've got to keep working there. I don't want to see any share loss. But generally speaking, we're right in line with where we expect it to be. I talked about Pacific. The third area, of course, is Pacific. More broadly to include broth. But that's just been a great acquisition for us. It's been up almost 60%.
since the beginning of COVID and as I said it's been growing share rapidly especially and ready to serve where we launched the new line of canned products. So probably a little bit longer on soup but I know that's a big question. I'm just not at all you know convinced that that there's a return to history. I really think this is a different day, different portfolio and certainly a different level of commitment.
Great, thank you so much. Your next question comes from Alina Peter Galbo from Bank of America, Maryland. Your line is open.
Great, thank you so much. Your next question comes from Alina Peter Galbo from Bank of America, Maryland. Your line is open. Hey, Mark and Carrie, good morning.
Hi guys. Mark, I know we've spent a lot of time on soup. Maybe just to put a little bit finer point on maybe the marketing side. You talked a bit about ramping the marketing spend, I think, on snacks in the fourth quarter. But just as we get into next year, as part of that, we're going to be looking at the
strategy to get sharper value positions. Again, maybe not wanting to get competitive on price, but is it more marketing in soup as you get into soup season in fiscal 24? Just kind of help us understand that the lever to pull to eventually kind of drive the volume.
Yeah, well I think, you know, as we said, you know, been pretty consistent through the year. You know, as we start to cycle a little bit of this kind of return to supply, you know, let's call it a little more of a level or equalized playing field. You know, I think it's going to be, again, this balancing act or combination.
of ensuring that we've got the right price points, promotion frequency, but also that the equity has really been at the end of the day what's driven a significant amount of the benefit on the business. So the idea that we've been able to position that concentrate on angelsiki handnce of any kind and have that more of a public eye eye Im spirit
as a quick, great value tool for solving this dilemma, whether it's in the economic backdrop we're in right now, or just the dilemma of what I'm eating for dinner. That work will continue into next year. And again, you pair that with Chunky, some great innovation there, the Runway for Pacific. As I said, I do think you might see us.
Peter dial up a little bit of some of our flankers, you know one of the things that's interesting more broadly in meals and beverages some of the businesses that are not insignificant, but perhaps we don't talk as much about like Spaghetti O's or Swanson chicken or homestyle ready to serve. These are all Really well positioned. In fact in the third quarter all three of the businesses I just named were up 10% and growing share
So we've got quite a few tools in the bag if you will That can complement our core businesses the goal in mind here is not to chase price down, right? That's not what we need to do I think the good news for us is these four years of giving us an opportunity To really strengthen the brand and equity and so our goal here is going to be a balanced attack
Right, we got to get pricing right and promotion right, but we also want to really drive it on the basis of differentiation And I as I said, I think you know, although we can always point to well Why was it, you know, it's been four years But there's always a reason why it's better or good at the end of the day Our soup category growing at the rate that it's grown consistently over the four years
gives us a lot of conviction and confidence in the future. Got it. Thanks for that market. And then Carrie, maybe just a real quick one. You know, in the gross margin bridge, I think, um, this quarter, the spread kind of between the, the, the core market inflation rate, whatever you want to call it and kind of what came through the P and L.
was a bit wider than last quarter and I think that's just hedging but wondering if you can unpack that quickly and just when we might start to see that that gap start to shrink between the two kind of numbers that get reported. Thanks very much. Yeah, I think overall let's start with the fact that core inflation came in at 8% in the quarter which is trending in the right direction. Last quarter was 14% so
Definitely we're still in an inflationary environment, but it's going in the right direction. And certainly price was still a healthy contributor for us in the quarter as well. And so when you look at that bridge on a dollar basis, if you look at net price realization and inflation and other, we covered our essentially our inflation coming through the bridge there, and then you combine that.
about as well as the 50 bits of favorability we had last year in this insurance storm settlement that we didn't have this year. So those are the two items that I think make the bridge a little bit more challenging but the core inflation is going the right direction. We've got some still healthy price there that is offsetting those items.
Your line is open.
Thank you. Good morning.
Hey, Michael. You had mentioned that ANC was down a couple percentage points in the quarter and just had attributed that to some version of trying to be mindful of the value consumer. Can you unpack some of those adjustments and how you think about it?
what the shifts look like and if at a point in time where you're mindful of consumer switching, you would actually maybe have spending down a little bit that was a little bit of a surprise.
Yeah, I think a little bit of, so if you look at marketing and selling overall, we were up. It was a little bit of a relatively very small number in the reduction. What I would say is most of our investment, and we're trying to get this balance right between what we would call traditional A and C and then in market.
marketing and support. One of the things that we did, and that difference by the way, was primarily in our meals and beverage business. And one of the tactics that is working extremely well for us right now, it's going to sound a little bit like a throwback to days gone by, but the whole meal solution.
platform in store is a really effective tool where we're helping people through the lens of value. How do you put together a simple meal for a low price? I think what we're seeing with consumers is this ever-growing desire to really stretch their dollar as you would expect. And so, you know, trying to gear.
our marketing, especially on categories like soup or prego, where we could even pace for that matter, which had a really good quarter up double digits and up on share. You know, these are very effective in that context. So it's a little bit of the mix of the spending.
it might make the ANC a little bit more stable. I do think as we go into Q4, you're gonna see us continuing to invest. Remember
We've talked about this before that the goal in mind for marketing and selling is to get to kind of that nine to ten percent range for the company in this quarter we were at about 8.7% so just under 9 if you go back to the first quarter. We were just under 8 so we have been
creeping that up, I think in Q4 we're going to try to do better. I'd like to see us getting pretty close to 10 in Q4. Really with the thought in mind of fueling the momentum on snacks and continuing to provide that good underpinning value equity message.
on our meals and beverage business. And so although it shows a little bit on A&C down, it really wasn't a big number and where we did focus a little bit more than where we would have been a year ago was more in store.
Okay, that's helpful. And just shifting gears a little bit, going back to the investor day about a year and a half ago, can you just update us on the billion-dollar SOSSES plan, and maybe specifically it looks like 15-ish or so percent of that target was meant to come from premium brand extensions and M&A.
meals and beverage business, right? When you think about what the consumer dynamic is right now and where the muscle really is in center of store of the grocery, we feel this area around cooking and quick meals is really the sweet spot that we want to be in where we think there's truly momentum.
high consumer relevance and an opportunity to win. I love the brands we have and I think that between Prego and Pace we've got a great mainstream foundation that gives us a lot of runway but it is fair to say that there's also a lot of growth.
that's happening in the more premium segments of some of these spaces. And so I think, you know, in some combination of the brands that we already have in the portfolio while continuing to think about M&A, our balance sheet's in a great position. I mean, nothing, you know, no swing for the fence there, I'd say more tuckered and strategically aligned.
M&A makes sense for us in our endeavor to continue to drive. So I think our vision has not changed at all and I feel like we're in a great spot. I mean, remember we've got brands like Pacific and brands like Late July even on our Snax business that we think also could play a contributing role. So, you know, I think it's very consistent to what we said in Investor Day. We really see that sauces area as a great complement.
to a rejuvenated and sustainable soup business. Your next question comes from a line of David Palmer from Evercore ISI. Your line is open. Thanks. First a question on snacks. That segment margin already at 16% this quarter was a strong step up. I wonder how you're thinking about that. Is that
sustainable. You just mentioned that ANC that stepped down was more on the meals and beverage side. So I'm wondering if, if you're sort of ahead of that journey on segment margin.
Yeah, I would say for the Snax margin it was great to see this quarter and you know it continues to kind of support what I would describe as the overall thesis of the of the Snyder's lance acquisition where
We imagined a world where we could take some really, really unique and differentiated brands, infuse our marketing and innovation muscle from Pepperidge Farm, and drive those results. And in fact, if you look at those Snyder's Lance brands from kind of four years ago, or pre-COVID to now.
Kettle and Cape are up four share points, Lay's up three. Snack Factory, right, which is in the deli, our Pretzel Crisp business is up five. Goldfish even on the peppered side up one. And Lance, Sandwich Crackers are up six points of share. So, in evidence of the thesis of what we can do with these brands, I really feel like we're demonstrating now exactly what that proposition was. I think.
the year to finish. And, you know, if you think about us being a little bit stuck at 13 the last couple years, although I'll just point out that, you know, that was also in a period where there was a lot of external pressure at the same time, but to see us up over 14 on track for that for this year, I think is a great step forward.
And again, I think as we look forward, we see that trajectory continuing and feel like in many ways we're going to hit a run here where we're really able to live into that vision that we talked about at Investor Day and at the point of acquisition. So I think a lot to believe in right now on snacks and feeling quite good about the evidence, if you will, that we're putting on the board relative to what we believed was possible.
Thank you, that's helpful. You mentioned in your prepared remarks about supply chain trying to make that a competitive advantage. I know you've had some change in leadership there. Could you just talk about what that journey has been like, what that ultimately will mean for results heading into fiscal 24? And thanks. Yeah, it's a great question. You know, in fairness, and I think we've been pretty open about this, if I turn back the clock two years,