Q2 2024 Campbell Soup Co Earnings Call Q&A

Operator: Please wait. The conference will begin shortly. Greetings, ladies and gentlemen, and welcome to the Campbell Soup Company's second quarter fiscal 2024 earnings conference call. At this time, all participants are in a listen-only mode.

Please wait the conference will begin shortly.

[music].

Speaker Change: Greetings, ladies and gentlemen, and welcome to the Campbell Soup Company second quarter fiscal 2024 earnings conference call. At this time all participants are in a listen only mode. After today's presentation there.

Operator: After today's presentation... be at the Z to ask questions. If you would like to ask a question during this time, simply press the star followed by the number 1 on your telephone keypad. If you would like to withdraw your question, again press the star 1.

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Speaker Change: You would 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 prestige 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 go ahead.

Operator: 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 go ahead.

Rebecca Gardy: Good morning, and welcome to Campbell's second quarter fiscal 2024 earnings conference call. I'm Rebecca Gardy, Chief Investor Relations Officer at Campbell. Joining me today are Mark Clouse, Chief Executive Officer, and Carrie Anderson, Chief Financial Officer. Today's remarks have been prerecorded. Once we conclude the prepared remarks, we will transition to a live webcast Q&A session. The slide deck and today's earnings press release have been posted to the investor relations section of 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.

Speaker Change: Good morning, and welcome to Campbell's second quarter fiscal 2024 earnings Conference call I'm, Rebecca Gardy, Chief Investor Relations Officer Campbell, joining me today are Mark Clouse, Chief Executive Officer, and Carrie Anderson Chief Financial Officer.

Speaker Change: Today's remarks had been prerecorded once we conclude the prepared remarks, we will transition to a live webcast Q&A session. The slide deck in 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.

Speaker Change: A transcript of the call within 24 hours.

Rebecca Gardy: On our call today, we will make forward-looking statements, which reflect our current expectations. These statements rely on assumptions and estimates, which could be inaccurate and are subject to risk. Please refer to slide 3 of our presentation or our SEC filings for a list of factors that could cause our actual results to vary materially from those anticipated in the four forward-looking statements. Because we use non-GAAP measures, we have provided a reconciliation of each of these measures to the most directly comparable GAAP measure in the appendix of our presentation. Slide 4 outlines today's agenda. Mark will provide insights into our second quarter performance as well as in-market performance by division. Carrie will then discuss the financial results of the quarter in more detail and outline our guidance for the full fiscal year 2024, which we reaffirmed this morning. And with that, I'm pleased to turn the call over to Mark. Thanks, Rebecca.

Speaker Change: 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 SEC filings for a list of factors that could cause our actual results to vary materially from those anticipate.

Speaker Change: <unk> in the forward looking statements because we use non-GAAP measures. We have provided a reconciliation of each of these measures to the most directly comparable GAAP measure in the appendix of our presentation.

Speaker Change: Slide four outlines today's agenda, Mark will provide insights into our second quarter performance as well as in market performance by Division Carey will then discuss the financial results of the quarter in more detail and outline our guidance for the full fiscal year 2024, which we reaffirmed this morning and with that I'm pleased to turn the call over to Mark.

Mark A. Clouse: Thanks, Rebecca good morning, everyone and thank you for joining our second quarter fiscal 'twenty four earnings call as you saw in our press release. This morning, we once again delivered on our commitments with sequential improvement in volume trends and year over year operating margin expansion in both divisions. While it is true the category trends have slowed over the last.

Mark A. Clouse: Good morning, everyone, and thank you for joining our second-quarter Fiscal 24 earnings call. As you saw in our press release this morning, we once again delivered on our commitments with sequential improvement in volume trends and year-over-year operating margin expansion in both divisions. While it is true that category trends have slowed over the last year, I'm encouraged by a variety of stabilizing consumer indicators, like consumer sentiment, household penetration, and average categories purchased. However, we are also continuing to see economic pressure impacting select categories and certain consumer demographics. While we expect these trends to improve over time, we're certainly not there yet.

Mark A. Clouse: Year I'm encouraged by a variety of stabilizing consumer indicators like consumer sentiment household penetration and average categories purchased however, we are also continuing to see economic pressure impacting select categories and certain consumer demographics, while we expect these trends to improve over time.

Mark A. Clouse: We're certainly not there yet in the meantime, I continue to be very happy with our teams ability to control the controllable, including managing our supply chain and in market execution. Looking ahead, we are affirming our full year outlook as we anticipate continued sequential improvement in top line earnings and margin progress.

Mark A. Clouse: In the meantime, I continue to be very happy with our team's ability to control the controllables, including managing our supply chain and in-market execution. Looking ahead, we are affirming our full-year outlook as we anticipate continued sequential improvement in top line, earnings, and margin progress while sustaining our best-in-class navigation of this volatile environment. Carrie will elaborate on that a bit later.

Mark A. Clouse: While sustaining our best in class navigation of this volatile environment.

Mark A. Clouse: Kerry will elaborate on that a bit later with that strong foundation in place on the base business. We are eagerly anticipating the closing of the service brands acquisition in the coming week, adding the best volume driven growth story in food to our portfolio.

Mark A. Clouse: With that strong foundation in place on the base business, we are eagerly anticipating the closing of the Sovos Brands acquisition in the coming week, adding the best volume-driven gross story in food to our portfolio. At an upcoming Investor Day in late June, we look forward to sharing the vision for Campbell's next chapter, driven by what will be one of the most focused and advantaged portfolios in the industry. Turning to slide 7, as expected, organic net sales in the second quarter decreased 1% to $2.5 billion in line with consumption, with many of our brands exceeding their respective category growth rates and growing shares. On a two-year compound annual growth rate basis, top growth grew 6%, adjusted EBIT increased 1%, and adjusted EPS was comparable to the prior year, following double-digit increases in both key measures a year ago.

Mark A. Clouse: At an upcoming Investor day in late June we look forward to sharing the vision for Campbell's next chapter driven by what will be one of the most focused and advantage portfolios in the industry.

Mark A. Clouse: Turning to slide seven as expected organic net sales in the second quarter decreased 1% to $2.5 billion in line with consumption with many of our brands exceeding their respective category growth rates and growing share.

Mark A. Clouse: On a two year compound annual growth rate basis grew 6% adjusted EBIT increased 1% and adjusted EPS was comparable to the prior year following double digit increases in both key measures a year ago.

Mark A. Clouse: On slide 8, we've highlighted the success of both businesses during the holiday season, including in strategic categories such as condensed cooking in our Meals and Beverages Division and cookies in our Snacks Division. Our holiday-focused brands delivered a 4% increase in total volume compared to the prior year, driven by our strong brand support programs, terrific in-store execution, and robust consumer demand. Specifically, we had healthy volume and dollar share gains across key seasonal categories such as condensed cooking soup, broth, Pepperidge Farm cookies, and Pepperidge Farm stuffing. During the quarter, condensed cooking holiday volume share reached a five-year high, with volume share gains in each of the nine weeks during the holiday period.

Mark A. Clouse: On slide eight we've highlighted the success of both businesses during the holiday season, including in strategic categories, such as condensed cooking at our meals and beverages division and cookies and our snacks Division our holiday focused brands delivered a 4% increase in total volume compared to the prior year driven by our strong.

Mark A. Clouse: Brand support programs terrific in store execution and robust consumer demand spill.

Mark A. Clouse: Specifically, we had healthy volume and dollar share gains across key seasonal categories, such as condensed cooking soups broth Pepperidge farm cookies and Pepperidge farm stuffing during.

Mark A. Clouse: During the quarter condensed cooking holiday volume share reached a five year high with volume share gains in each of the nine weeks during the holiday period.

Mark A. Clouse: In addition, we saw momentum in our snack portfolio, with brands like Lance, Snack Factory, and Late July all reaching five-year highs in volume share. Importantly, we delivered these results while addressing an important question about our ability to achieve this while also balancing profitability. I believe we have demonstrated this, as evidenced by the operating margin expansion in both divisions. Turning to slide 9, I wanted to take a moment to discuss the top line expectations for the second half of the fiscal year, as this is both an important driver and a somewhat difficult area to forecast.

Mark A. Clouse: In addition, we saw momentum in our snacks portfolio with brands like land snack factory in late July all reaching five year highs in volume share in.

Mark A. Clouse: Importantly, we delivered these results while addressing an important question about our ability to achieve this while also balancing profitability I believe we demonstrated this evidenced by the operating margin expansion in both divisions.

Turning to slide nine I wanted to take a moment to discuss the top line expectations for the second half of the fiscal year. As this is both an important driver and a somewhat difficult area to forecast as we have consistently shared since providing initial guidance. Our net sales expectations reflect a range of timelines for the category stabilization.

Mark A. Clouse: As we have consistently shared since providing initial guidance, our net sales expectations reflect a range of timelines for the category stabilization and consumer recovery. Our results through Q2 have been aligned with our outlook. As we look at far easier comparisons ahead, we remain confident in modest sequential improvement throughout the remainder of fiscal 2024.

Mark A. Clouse: And consumer recovery.

Our results through Q2 have been aligned with our outlook as we look at far easier comparisons ahead, we remain confident and modest sequential improvement throughout the remainder of fiscal 2024 more.

Mark A. Clouse: More specifically, we expect flat to low single-digit organic net sales growth in Q3, with continued sequential improvement in the fourth quarter. Although this trajectory suggests the lower end of our net sales guidance range, we have half the year remaining and a variety of compelling drivers to help accelerate the recovery. With our supply chain in full force, effective marketing and accelerating innovation, and strong but disciplined promotional activity, we look forward to monitoring the pace of consumer recovery closely, with in-market results serving as a clear indicator of that progress. Turning to our Meals and Beverages business, we experienced a low single-digit organic net sales decline in the second quarter, which, as expected, tracked closely to consumption. On a two-year compound annual growth rate basis, the top line grew 4% while consumption grew 2%.

Mark A. Clouse: More specifically, we expect flat to low single digit organic net sales growth in Q3 with continued sequential improvement in the fourth quarter. Although this trajectory suggest the lower end of our net sales guidance range, we have half the year remaining and a variety of compelling drivers to help accelerate the recovery.

Mark A. Clouse: With our supply chain in full force effective marketing and accelerating innovation and strong but disciplined promotional activity. We look forward to monitoring the pace of consumer recovery closely with in market results, serving as a clear indicator of that progress.

Mark A. Clouse: Turning to our meals and beverages business, we experienced a low single digit organic net sales decline in the second quarter, which as expected tracked closely to consumption on a two year compound annual growth rate basis top line grew 4% while consumption grew 2% for the balance of the year, we remain confident in the growth.

Mark A. Clouse: For the balance of the year, we remain confident in the growth and margin trajectory of this business as consumers continue to seek out our brands for value and quality in a dynamic environment, and year-ago comparisons have moderated significantly. Turning to slide 11, consumers continue to prioritize value as shown by their preference for home-cooked meals, purchasing food that helps them prepare stretchable meals, and smaller and less frequent shopping trips. Our soup portfolio is especially well-suited to meet these needs.

Mark A. Clouse: <unk> and margin trajectory of this business as consumers continue to seek out our brands for value and quality in a dynamic environment and year ago comparisons moderate significantly.

Mark A. Clouse: Turning to slide 11 consumers continue to prioritize value as shown by their preference for home cooked meals purchasing food that help them prepare stretching ball meals and smaller and less frequent shopping trips our soup portfolio is especially well suited to meet these needs are condensed cooking portfolio.

Mark A. Clouse: Our condensed cooking portfolio saw both dollar and volume share increase in the quarter, marking the sixth consecutive quarter we've held or grew both metrics. We also saw similar strength in our broth portfolio, with Swanson broth and stock growing above the category rate and dollar consumption up 13%. In addition, while growing consumption, this portion of our portfolio also had dollar and volume share gains in the quarter. While the eating soup landscape remains more challenging, we did see sequential improvement in the second quarter as it relates to dollar share on Chunky and our condensed eating portfolio. The longer-term outlook for ready-to-serve soup remains quite strong, supported by a combination of continued Chunky innovation and marketing, expansion of the successful launch of Pacific Ready-to-Eat Soup, and we're also excited about the impact of including the strength of the super-premium Rayo Soup line, adding approximately a full point of share growth to the portfolio. On slide 12, let's look more broadly at what the potential next As we announced last month, both companies have certified substantial compliance with the Federal Trade Commission's second request, and we're excited to be one step closer to completing the acquisition.

Mark A. Clouse: Saw both dollar and volume share increase in the quarter, marking the sixth consecutive quarter, we've held or grew both metrics. We also saw similar strength in our broth portfolio with Swanson broth and stock growing above the category rate and dollar consumption up 13%. In addition, while growing <unk>.

Mark A. Clouse: Consumption. This portion of our portfolio also had dollar and volume share gains in the quarter.

Mark A. Clouse: While the eating soup landscape remains more challenging we did see sequential improvement in the second quarter as it relates to dollar share on chunky and our condensed eating portfolio the longer term outlook for ready to serve soup remains quite strong supported by a combination of continued chunky innovation and marketing.

Mark A. Clouse: Fashion of the successful launch of Pacific ready to eat soup and we're also excited about the impact of including the strength of the superpremium Rayos soup line, adding approximately a full point of share growth to the portfolio.

Mark A. Clouse: On slide 12, let's look more broadly at what the potential next chapter of this great division could be as we prepare to welcome the talented <unk> team to Campbell's.

Mark A. Clouse: As we announced last month, both companies have certified substantial compliance with the Federal Trade Commission second request and we're excited to be one step closer to completing the acquisition.

Mark A. Clouse: Just last week, with its fourth quarter and full-year fiscal 23 earnings results, Sovos announced that it had surpassed $1 billion in annual net sales, a 16% increase versus the prior year, led by Raios, which continues to showcase its premium brand equity with consumers, with dollar consumption up nearly 32% in pasta sauce and 53% in the combined frozen meals and pizza segment, jarred soup, and dry pasta category. When paired with our meals and beverages iconic category-leading brands and our distinctive fast-growing Pacific Foods brand, the Sovos Brands portfolio will strengthen the division for years to come. In fact, although not an apples-to-apples comparison, if we were to simply overlay Sovos results in the last quarter with our meals and beverage results, we would have gained approximately four points of organic top-line growth.

Mark A. Clouse: Just last week with their fourth quarter and full year fiscal 'twenty three earnings results serve us announced that they had surpassed $1 billion in annual net sales of 16% increase versus prior year led by Rayos, which continues to showcase its premium brand equity with consumers with dollar consumption up nearly 32.

Mark A. Clouse: Percent and pasta sauce, and 53% in the combined frozen meals and pizza segment, jarred soup and dry pasta categories, when paired with our meals and beverages iconic category, leading brands and our distinctive fast growing Pacific Foods brand the silver S brands portfolio will strengthen the.

Mark A. Clouse: Division for years to come in fact, although not an apples to apples comparison, if we were to simply overlay service results in the last quarter with our meals and beverage results. We would've gained approximately four points of organic topline growth.

Mark A. Clouse: Imagine for a moment now the value of combining this with our differentiated snack portfolio, and you can appreciate our confidence in the strength of this portfolio headed into the future. So now let's turn to our differentiated snack business on slide 13. We delivered a second quarter organic net sales increase of 1%, a point ahead of consumption in measured channels. Our power brand's net sales grew 4% following a 20% increase in the prior year for 12% growth on a two-year compound annual rate basis.

Mark A. Clouse: Margin for a moment now the value of combining this with our differentiated snacks portfolio and you can appreciate our confidence in the strength of this portfolio headed into the future. So now, let's turn to our differentiated snacks business on slide 13, we delivered a second quarter organic net sales increase of one.

Percent's a point ahead of consumption in measured channels, our power brands net sales grew 4% following a 20% increase in the prior year for 12% growth on a two year compound annual rate basis.

Mark A. Clouse: We were pleased with the net sales performance on brands such as Goldfish, Lance, Kettle Brand, and Cape Cod, adding to the remarkable track record of our Power Brands portfolio, even as consumers continue to navigate a tough economic environment. During the quarter, we experienced anticipated pockets of pressure in some of our lower-margin businesses, specifically partner brands and fresh bakeries. We continue to balance short-term competitiveness and sustainable margins while taking steps to optimize this portfolio for the future. Partner brands were a one-point growth headwind for the portfolio. Although we expect this to continue going forward, it further strengthens the focus of our portfolio on our advantage power brands. On the next slide, we highlight the sustained resilience of our power brands.

Mark A. Clouse: We were pleased with the net sales performance on brands, such as Goldfish, Lance Kettle brand and Cape Cod, adding to the remarkable track record of our power brands portfolio, even as consumers continue to navigate a tough economic environment during.

Mark A. Clouse: During the quarter, we experienced anticipated pockets of pressure in some of our lower margin businesses, specifically partner brands and fresh bakery.

Mark A. Clouse: We continue to balance short term competitiveness and sustainable margins, while taking steps to optimize this portfolio for the future.

Mark A. Clouse: Partner brands were one point growth headwind to the portfolio. Although we expect this to continue going forward. It further strengthens the focus of our portfolio on our advantage power brands.

Mark A. Clouse: On the next slide we highlight the sustained resilience of our power brands as dollar consumption has grown 24% versus two years ago. We're encouraged by the continued appetite for our core portfolio, which now represents two thirds of total snacks net sales more importantly, we see continued progress on dollar share as power burn.

Mark A. Clouse: As dollar consumption has grown 24% versus two years ago, we're encouraged by the continued appetite for our core portfolio, which now represents two-thirds of total SNAX net sales. More importantly, we see continued progress on dollar share as power brands have held or gained share for seven straight quarters. Turning to slide 15, I want to highlight our Goldfish business, which has now held or grown dollar share for six consecutive quarters. Our exciting innovations, proven limited time only strategy, and strong marketing execution have fueled continued momentum for our portfolio. And our latest innovation, Goldfish Crisps, is off to an amazing start. Launched in January, we realized strong velocity, greater than other recent category launches, and it has exceeded our initial expectations as we begin to move Goldfish into adjacent occasions. The news on Goldfish gets even more exciting. Goldfish has now officially crossed $1 billion in net sales, making it the second billion dollar brand in our portfolio alongside Campbell's iconic red and white soup.

Mark A. Clouse: <unk> have held or gained share for seven straight quarters.

Mark A. Clouse: Turning to slide 15, I want to highlight our goldfish business, which is now held or grown dollar share for six consecutive quarters. Our exciting innovations proven limited time only strategy and strong marketing execution have fueled continued momentum for our portfolio.

Mark A. Clouse: And our latest innovation goldfish crisps are off to an amazing start launched in January we realized strong velocities greater than other recent category launches and it has exceeded our initial expectations as we begin to move goldfish into adjacent occasions.

Mark A. Clouse: The news on goldfish gets even more exciting goldfish is now officially crossed $1 billion in net sales, making it the second billion dollar brand in our portfolio alongside Campbell's iconic red and white soup, our strategy over the past few years and our continued innovation momentum has propelled goldfish too.

Mark A. Clouse: Our strategy over the past few years and our continued innovation momentum have propelled Goldfish to its next phase of growth. We remain excited about this brand's momentum and see an incredible road for growth ahead as we strive to make Goldfish a North American megabrand. On slide 17, I am also excited to share the continued progress we've made on our snacks margin roadmap. On a two-year compound annual growth rate basis, we grew organic net sales by 8% and operating earnings by 15% with approximately 200 basis points of margin expansion. We've made great progress this year and remain on track to finish Fiscal 24 at an operating margin of approximately 15%. And as we continue to solidify our margin roadmap, we are confident in our ability to add about 100 basis points per year for the next couple of years, thus reaching our target of 17% operating margin for the division by the end of Fiscal 26.

Mark A. Clouse: Its next phase of growth we remain excited about this brand's momentum and see an incredible road for growth ahead, as we strive to make goldfish, a north American Mega brands.

Mark A. Clouse: On slide 17, I'm also excited to share. The continued progress we've made on our snacks margin roadmap on a two year compound annual growth rate basis, we grew organic net sales by 8% and operating earnings by 15% with approximately 200 basis points of margin expansion.

Mark A. Clouse: We've made great progress this year and remain on track to finish fiscal 'twenty four at an operating margin of approximately 15% and as we continue to solidify our margin roadmap. We are confident in our ability to add about 100 basis points per year for the next couple of years, thus reaching our.

Mark A. Clouse: Target of 17% operating margin for the division by the end of fiscal 'twenty six even more exciting is the fact that as we further refine our route to market and direct store delivery or DSD model, we're identifying even more potential efficiencies and savings to fund further investment in the brands.

Mark A. Clouse: Even more exciting is the fact that as we further refine our route-to-market and direct-store delivery, or DSD, model, we are identifying even more potential efficiencies and savings to fund further investment in the brands or to further expand operating margins beyond 17% in the future. Turning to our DSD transformation initiative on slide 18, I wanted to provide an update on our route strategy, which adds another important element to our plans to create essentially a single SNACs network. As we discussed during our first quarter earnings call, we're already implementing the integration of our warehouse and depot network, as well as upgrading technology across our network and the independent distributor network with the goal of improving efficiency and effectiveness. This leaves Independent Distributor DSD routes as our next optimization area. Today, the majority of our routes are already operating efficiently, and the scale of the business supports separate routes for Pepperidge Farm Snacks and Snyder's Lance. We expect no change on these routes.

Mark A. Clouse: Or to further expand operating margins beyond 17% in the future.

Mark A. Clouse: Turning to our DSD transformation initiative on slide 18, I wanted to provide an update on our routes strategy, which adds another important element for our plans to create essentially a single snacks network as we discussed during our first quarter earnings call. We're already executing the integration of our warehouse and D.

Mark A. Clouse: Poe network as well as upgrading technology across our network and the independent distributor network with the goal of improving efficiency and effectiveness.

Mark A. Clouse: This leaves independent distributor DSD routes as our next optimization area today. The majority of our routes are already operating efficiently where the scale of the business supports separate routes for Pepperidge farm snacks and Snyder's Lance we expect no change in these routes however for <unk>.

Mark A. Clouse: However, for some of our routes, we do not have enough scale to help maximize the economics or efficiency of these routes if they remain separated. To solve this, we've been testing the combination of the entire snack portfolio on one truck. In these limited, underscaled markets, we purchase certain Pepperidge Farm snacks and Snyder's Lance routes, combine them, and sell the combined routes back to independent distributors. We're seeing that beyond the efficiency of this, independent distributors have an opportunity to provide better execution and improve service for our customers. When we pair this improved route with our already existing plans to combine the warehouse system into a single location, the net impact should create better scale and help unlock growth for our business, while also helping to benefit both the area-independent distributors and our customers with more compelling economics.

Mark A. Clouse: Some of our routes, we do not have enough scale to help maximize the economics or efficiency of these routes. If they remain separated to solve this we've been testing the combination of the entire snacks portfolio on one truck.

Mark A. Clouse: And these limited under scaled markets, we purchased certain Pepperidge farm snacks, and Snyder's Lance routes combine them and sell the combined routes back to independent distributors were seeing that beyond the efficiency of this independent distributors have an opportunity to provide better execution and improved service.

Mark A. Clouse: For our customers when we pair this improved route with our already existing plans to combine the warehouse system into a single location. The net impacts should create better scale and help unlock growth for our business. While also helping to benefit both the area independent distributors and our customers with more compelling.

Mark A. Clouse: <unk>, it's still early days, but the results we've seen thus far give us confidence to expand our pilots and execute a pay as you go model in creating these combo routes, we expect to convert about a fifth of the snacks routes nationwide in the combo routes over a multiyear roadmap. This plan will.

Mark A. Clouse: It's still early days, but the results we have seen thus far give us confidence to expand our pilots and execute a pay-as-you-go model in creating these combo routes. We expect to convert about a fifth of the SMAX routes nationwide into combo routes over a multi-year roadmap. This plan will not require significant upfront financial outlay, and as I mentioned earlier, we plan to manage it as a pay-as-you-go model. Let me share a little more detail about this strategy. First, these routes will vary in location, including urban, rural, and suburban areas.

Mark A. Clouse: That requires significant upfront financial outlay and as I mentioned earlier, we plan to manage it as a pay as you go model, let me share a little more detail behind this strategy first these routes will varian location, including urban rural and suburban areas.

Mark A. Clouse: Second, there are no plans to combine the Pepperidge Farm bakery routes, as the focus is on gaining scale and capturing growth across our snacks portfolio. Third, in markets where we've executed this strategy, the time between purchase and resale has been swift. And finally, given the financial attractiveness of these routes, we're seeing a meaningful increase in multi-route ownership by experienced independent distributors that are existing snack and bakery IDPs. So, wrapping up, the second quarter was another solid and consistent quarter while keeping us on track for the year. Looking ahead, there is so much to be excited about as we continue the transformation of Campbell's.

Mark A. Clouse: Second there are no plans to combine the pepperidge farm bakery routes as the focus is on gaining scale in capturing growth across our snacks portfolio.

Mark A. Clouse: Third in markets, where we've executed this strategy the time between purchase and resale has been Swift and finally, given the financial attractiveness of these routes were seeing a meaningful increase in multi route ownership by experienced independent distributors that are existing snacks and bakery I D piece.

Mark A. Clouse: So wrapping up the second quarter was another solid and consistent quarter, while keeping us on track for the year. Looking ahead. There is so much to be excited about as we continue the transformation of Campbell's and again, we look forward to providing these details this summer and a full investor day next up Kerry we'll take you through.

Mark A. Clouse: And again, we look forward to providing these details this summer at a full Investor Day. Next up, Carrie will take you through the second quarter and the second half outlook in a bit more detail. Thanks, Mark, and good morning, everyone.

Kerry: The second quarter and the second half outlook in a bit more detail. Thanks, Mark and good morning, everyone I'll start by providing an overview of our second quarter results with the top line that came in as expected operating margin expansion in both the meals and beverages and snacks divisions and adjusted EPS ahead of our expectations.

Carrie L. Anderson: I'll start by providing an overview of our second quarter results, with a top line that came in as expected, operating margin expansion in both the meals and beverages and snacks divisions, and adjusted EPS ahead of our expectations. Second quarter organic net sales decreased 1 percent, lapping a 13 percent increase in the prior year for a two-year compounded annual growth rate of 6 percent. Adjusted EBIT increased 1% to $364 million, reflecting higher adjusted gross profit, partially offset by higher adjusted expenses, including other expenses, R&D expenses, and administrative expenses. Adjusted EPS of 80 cents in the quarter was in line with prior year and last double-digit growth last year. Slide 22 provides the drivers of our second quarter net sales performance. Excluding the impact of the divestiture of the emerald nut business, organic net sales were lower by 1%.

Kerry: Second quarter organic net sales decreased 1% lapping a 13% increase in the prior year for a two year compounded annual growth rate of 6%.

Kerry: Adjusted EBIT increased 1% to $364 million, reflecting higher adjusted gross profit, partially offset by higher adjusted expenses, including other expenses R&D expenses and administrative expenses adjusted.

Kerry: EPS of <unk> 80 cents in the quarter was in line with prior year and lapped double digit growth last year.

Kerry: Slide 22 provides the drivers of our second quarter net sales performance.

Kerry: The impact of the divestiture of the Emerald nut business organic net sales were lower by 1% during the quarter. We generated one percentage point of growth from net price realization offset by volume and mix, which was unfavorable by two percentage points in line with the sequential improvement from Q1 that we expected.

Carrie L. Anderson: During the quarter, we generated 1 percentage point of growth from net price realization, offset by volume and mix, which was unfavorable by 2 percentage points, in line with the sequential improvement from Q1 that we expected. As shown on slide 23, our second quarter adjusted gross profit margin was 31.4%. We were pleased with the 70 basis point margin expansion, which was driven by supply chain productivity improvements, net price realization, cost savings initiatives, and the favorable impact of volume and mix, which more than offset cost inflation and other supply chain costs. Core inflation in Q2 was low single digits, consistent with Q1, and significantly lower than the 14% in the prior year, driven by attenuation in inputs such as flour and oil.

Kerry: As shown on slide 23 second quarter adjusted gross profit margin was 31.4%.

Kerry: We were pleased with the 70 basis point margin expansion, which was driven by supply chain productivity improvements net price realization cost savings initiatives and the favorable impact of volume and mix, which more than offset cost inflation and other supply chain costs.

Kerry: Core inflation in Q2 was low single digits, consistent with Q1 and significantly lower than the 14% in the prior year driven by attenuation and inputs such as flour in Atlanta, we continue.

Carrie L. Anderson: We continue to expect core inflation to stay within this low single-digit range for the remainder of fiscal 24, down from the double-digit range last year. Net pricing averaged 1% for the quarter, reflecting the remaining contribution from our Wave 4 pricing, our smallest and most focused pricing round. As a reminder, our Wave 4 pricing is now fully lapped.

Kerry: To expect core inflation to stay within this low single digit range for the remainder of fiscal 'twenty four down from the double digit range last year net.

Kerry: Net pricing averaged 1% for the quarter, reflecting the remaining contribution from our wave for pricing, our smallest and most focused pricing round as a reminder, our way for pricing is now fully lapped during.

Kerry: During the second half of the fiscal year, we do not expect net pricing to be a material driver of net sales growth, reflecting our continued balanced and disciplined promotional activity. We continue to deploy a range of other levers to mitigate remaining inflation, including supply chain productivity improvements and broader margin enhancing initiatives we.

Carrie L. Anderson: During the second half of the fiscal year, we do not expect net pricing to be a material driver of net sales growth, reflecting our continued balanced and disciplined promotional activity. Additionally, we continue to deploy a range of other levers to mitigate remaining inflation, including supply chain productivity improvements and broader margin-enhancing initiatives. We expect these other levers to contribute to margin performance in the second half of the year as inflation remains moderate and volume trends continue to sequentially improve. Through the first half, we have achieved $915 million of total savings under our multi-year cost savings program, inclusive of Snyder Lance Synergies. We remain on track to deliver savings of $1 billion by the end of fiscal 2025.

Kerry: These other levers to contribute to margin performance in the second half of the year as inflationary means moderate and volume trends continue to sequentially improve.

Kerry: Through the first half we have achieved $915 million of total savings under our multiyear cost savings program inclusive of Snyder's Lance synergies, we remain on track to deliver savings of $1 billion by the end of fiscal 2025.

Kerry: Moving onto other operating items, adjusted marketing and selling expenses were comparable to the prior year.

Kerry: Marketing and selling also remained approximately 9% of net sales consistent with our targeted level adjusted administrative expenses increased by $2 million, primarily due to higher general and administrative costs and inflation, mostly offset by the benefits of cost savings initiatives.

Carrie L. Anderson: Moving on to other operating items, adjusted marketing and selling expenses were comparable to the prior year. Marketing and selling also remained approximately 9% of net sales, consistent with our targeted level. Adjusted administrative expenses increased by $2 million, primarily due to higher general and administrative costs and inflation, mostly offset by the benefits of cost savings initiatives.

Kerry: As shown on slide 25, adjusted EBIT for the second quarter increased 1%, primarily due to higher adjusted gross profit, partially offset by higher adjusted expenses, including other expenses R&D expenses and administrative expenses overall, our adjusted EBIT margin increased 20 basis points to 40.

Carrie L. Anderson: As shown on slide 25, adjusted EBIT for the second quarter increased 1%, primarily due to higher adjusted gross profit, partially offset by higher adjusted expenses, including other expenses, R&D expenses, and administrative expenses. Overall, our adjusted EBIT margin increased 20 basis points to 14.8% in the quarter, primarily driven by a higher adjusted gross profit margin. Turning to slide 26, adjusted EPS of $0.80 was comparable to the prior year and was driven by a slight increase in adjusted EBIT and the benefit of lower weighted average diluted shares outstanding, partially offset by a higher adjusted effective tax rate. Turning to meals and beverages, second quarter organic net sales decreased 2%, driven by unfavorable volume and mix.

Kerry: 14, 8% in the quarter, primarily driven by a higher adjusted gross profit margin.

Kerry: Turning to slide 26, adjusted EPS of 80 cents was comparable to the prior year and was driven by a slight increase in adjusted EBIT and the benefit of lower weighted average diluted shares outstanding partially offset by a higher adjusted effective tax rate.

Kerry: Turning the meals and beverages second quarter organic net sales decreased 2% driven by unfavorable volume and mix lapping an 11% increase in organic net sales in the prior year quarter meals and beverages organic net sales grew 4% on a two year compounded annual growth rate during the quarter modest declines in.

Kerry: U S retail were partially offset by increases in Canada, and foodservice sales of U S soup decreased 3% following a 7% increase in the prior year, primarily due to lower sales of ready to serve and condensed soups, partially offset by an increase in broth.

Carrie L. Anderson: Lapping an 11% increase in organic net sales in the prior year quarter, meals and beverages organic net sales grew 4% on a two-year compounded annual growth rate. During the quarter, modest declines in U.S. retail were partially offset by increases in Canada and food service. Sales of U.S. soup decreased 3% following a 7% increase in the prior year, primarily due to lower sales of ready-to-serve and condensed soups, partially offset by an increase in broth.

Kerry: We were encouraged by the sequential volume improvement trends, we achieved in the quarter with meals and beverages volume only down 2% year over year compared to a 6% decline in Q1.

Kerry: On a first half basis organic net sales decreased 3% lapping a 13% increase in the prior year.

Kerry: We were also pleased with the progress we've made our meals and beverages operating margins while segment operating earnings in the quarter for meals and beverages were down just slightly operating margin increased 20 basis points to 17, 9%.

Carrie L. Anderson: We were encouraged by the sequential volume improvement trends we achieved in the quarter, with meals and beverages volume only down 2% year-over-year compared to a 6% decline in Q1. However, on a first-half basis, organic net sales decreased 3%, lapping a 13% increase in the prior year. We were also pleased with the progress we've made on meals and beverages operating margins. While segment operating earnings in the quarter for meals and beverages were down just slightly, operating margin increased 20 basis points to 17.9%. This was better than expected, and we anticipate continued sequential improvement into the second half. Meals and Beverages operating margin for the first half was 19.2 percent. In snacks, second quarter organic net sales increased one percent. On a two-year compounded annual basis, organic net sales increased 8%.

Kerry: This was better than expected and we anticipate continued sequential improvement into the second half.

Kerry: Meals and beverages operating margin for the first half was 19, 2% in.

Kerry: In snacks second quarter organic net sales increased 1% on a two year compounded annual basis organic net sales increased 8% for Q2. The increase reflects a net price realization of 3%, partially offset by unfavorable volume and mix of 2%.

Kerry: Similar to the comments I made when discussing meals and beverages results. We were also pleased with the sequential improvement in volume trends in our snacks business with snacks volumes only down 2% year over year in the second quarter compared to a 4% decline in the first quarter.

Kerry: Of our eight power brands increased 4% in Q2 with volumes relatively flat and for the first half organic net sales increased 1% lapping a 15% increase in the prior year.

Kerry: We delivered solid operating earnings and margin performance in snacks with a 7% increase in segment operating earnings and a 110 basis point improvement in operating margins in the quarter.

Carrie L. Anderson: For Q2, the increase reflects a net price realization of 3%, partially offset by unfavorable volume and mix of 2%. Similar to the comments I made when discussing meals and beverages results, we were also pleased with the sequential improvement in volume trends in our snacks business, with snack volumes only down 2% year over year in the second quarter compared to a 4% decline in the first quarter. Sales of our eight power brands increased 4% in Q2, with volumes relatively flat.

Kerry: The higher operating earnings were driven by higher gross profit, partially offset by planned higher marketing and selling expenses.

Kerry: Gross profit margin increased due to the impact of net price realization and supply chain productivity improvements the benefit from cost savings initiatives and favorable volume and mix more than offsetting higher cost inflation and other supply chain costs.

Kerry: Snacks operating margin reached 15% in Q2 and for the first half operating margin was 14, 7%.

Kerry: As a reminder, the snacks margin in the third quarter of fiscal 'twenty, three was 16% up 330 basis points.

Carrie L. Anderson: And for the first half, organic net sales increased 1 percent, lapping a 15 percent increase in the prior year. We delivered solid operating earnings and margin performance in SNAX with a 7% increase in segment operating earnings and a 110 basis point improvement in operating margins in the quarter. The higher operating earnings were driven by higher gross profit, partially offset by planned higher marketing and selling expenses.

Kerry: This was driven by the benefit of last year's wave for pricing net of inflation and the timing of marketing spend so although we do expect negative pressure on Q3 margins given the lag from the prior year comp we remain on track to approximately 15% margin for the year.

Kerry: As Mark mentioned earlier, we further expect snacks margins to increase approximately 100 basis points per year over the next two years, reaching our stated goal of 17% by the end of fiscal 'twenty six.

Carrie L. Anderson: Gross profit margin increased due to the impact of net price realization, supply chain productivity improvements, the benefit from cost savings initiatives, and favorable volume and mix more than offsetting higher cost inflation and other supply chain costs. SNAC's operating margin reached 15% in Q2, and for the first half, operating margin was 14.7%. As a reminder, the snack margin in the third quarter of fiscal 23 was 16%, up 330 basis points. This was driven by the benefit of last year's Wave 4 pricing, net of inflation, and the timing of marketing spend. So although we do expect negative pressure on Q3 margins given the lap from the prior year comp, we remain on track to approximately 15% margin for the year. As Mark mentioned earlier, we further expect SACS margins to increase approximately 100 basis points per year over the next two years, reaching our stated goal of 17% by the end of Fiscal 26.

Speaker Change: I'll now turn to cash flow on slide 29, we generated $684 million in operating cash flow in the first half and deployed that cash consistent with our capital allocation priorities to maximize long term shareholder value.

Speaker Change: Year to date capital expenditures were $263 million $108 million higher than in the prior year, reflecting our commitment to invest for growth, particularly in capacity for our snacks division as well as investments to drive productivity and enhanced business capabilities.

Speaker Change: We also continued our commitment to return cash to our shareholders with $224 million of dividends paid and $29 million of anti dilutive share repurchases in the first half our balance sheet continues to be stable with net debt of $4 $4 billion and a net debt to adjusted EBITDA leverage ratio.

Carrie L. Anderson: I'll now turn to cash flow on slide 29. We generated $684 million in operating cash flow in the first half and deployed that cash consistent with our capital allocation priorities to maximize long-term shareholder value. Year-to-date capital expenditures were $263 million, $108 million higher than in the prior year, reflecting our commitment to invest for growth, particularly in capacity for our snacks division, as well as investments to drive productivity and enhance business capability. We also continued our commitment to return cash to our shareholders, with $224 million of dividends paid and $29 million of anti-dilutive share repurchases in the first half. Our balance sheet continues to be stable with net debt of $4.4 billion and a net debt to adjusted EBITDA leverage ratio of 2.6 times. At the end of the second quarter, we had approximately $169 million in cash and cash equivalents and approximately $1.85 billion available under our revolving credit facility.

Speaker Change: Two six times.

Speaker Change: At the end of the second quarter, we had approximately $169 million in cash and cash equivalents and approximately $1.85 billion available under our revolving credit facility.

Speaker Change: All in with the 2 billion dollar delayed single draw term loan credit agreement, we are well positioned to close the pending <unk> brands acquisition.

Speaker Change: As you'll see on slide 30, given the consistent and improving performance in Q2, we are reaffirming our full year guidance provided on August 31st.

Speaker Change: In the second half of fiscal 'twenty four we continue to expect earnings growth and margin progress, particularly in Q4 benefiting from improving volume and mix trends moderate inflation levels and the flow through of ongoing productivity improvements as well as second half marketing and selling expenses at our stated targets.

Speaker Change: Which will provide some year over year margin benefit in the second half.

Speaker Change: To provide a bit more clarity about the phasing of the second half in Q3, we would expect adjusted EPS to be in the lower 70 cent range as.

Speaker Change: As Mark mentioned earlier top line guidance reflects a range of outcomes based on the speed of in market category stabilization. We are encouraged by the sequential improvement in year over year sales with first half volumes coming in largely as anticipated and we remain highly confident in the continued stabilization and ultimately returning.

Carrie L. Anderson: All in, with the $2 billion delayed single draw term loan credit agreement, we are well positioned to close the pending Sobos Brands acquisition. As you'll see on slide 30, given the consistent and improving performance in Q2, we are reaffirming our full year guidance provided on August 31st. In the second half of fiscal 24, we continue to expect earnings growth and margin progress, particularly in Q4, benefiting from improving volume and mixed trends, moderate inflation levels, and the flow-through of ongoing productivity improvements, as well as second-half marketing and selling expenses at our stated targets, which will provide some year-over-year margin benefit in the second half. To provide a bit more clarity about the phasing of the second half, in Q3, we would expect adjusted EPS to be in the lower $0.70 range.

Growth in the second half we.

Speaker Change: We are currently pacing to the lower end of the net sales guidance range for the full year.

Speaker Change: However, we still have half of the year remaining with excellent plans and innovation to help accelerate the rate of sequential improvement moving forward. We will continue to invest in our brands with marketing and selling expenses as a percent of net sales expected at the low end of our targeted 9% to 10% range from a phasing perspective, we expect to see.

Speaker Change: Spend more in the third quarter relative to the fourth quarter.

Speaker Change: All other guidance assumptions remain unchanged.

Speaker Change: Additionally, the pending acquisition of <unk> brands is currently expected to close the week of March 11, 2024 and is not included in our current fiscal 'twenty four outlook. After the transaction closes we expect to update guidance for the combined business during our third quarter call.

Carrie L. Anderson: As Mark mentioned earlier, top-line guidance reflects a range of outcomes based on the speed of in-market category stabilization. We are encouraged by the sequential improvement in year-over-year sales, with first-half volumes coming in largely as anticipated, and we remain highly confident in the continued stabilization and ultimately returning to growth in the second half. We are currently pacing to the lower end of the net sales guidance range for the full year.

Speaker Change: To wrap up our second quarter track closely to our expectations driven largely by the actions we undertook to position our business for second half momentum. We are confident in our plans for the rest of the fiscal year and our team remains focused on executing our strategy.

Carrie L. Anderson: However, we still have half of the year remaining with excellent plans and innovation to help accelerate the rate of sequential improvement moving forward. We will continue to invest in our brands, with marketing and selling expenses as a percent of net sales expected at the low end of our targeted 9 to 10 percent range. From a phasing perspective, we expect to spend more in the third quarter relative to the fourth quarter. However, all other guidance assumptions remain unchanged.

Speaker Change: Within both segments of our business, we expect to deliver margin momentum in the second half paired with improvements in the trajectory of volume and mix.

Speaker Change: In addition, we are excited to be one step closer to completing the salvos brands acquisition and look forward to welcoming their team to Campbell's with that let me turn it over to the operator to begin Q&A.

Speaker Change: 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 Andrew Lazar from Barclays. Your line is open.

Carrie L. Anderson: Additionally, the pending acquisition of Sobos Brands is currently expected to close the week of March 11, 2024, and is not included in our current fiscal 24 outlook. After the transaction closes, we expect to update guidance for the combined business during our third quarter call. To wrap up, our second quarter tracked closely to our expectations, driven largely by the actions we undertook to position our business for second-half momentum. We are confident in our plans for the rest of the fiscal year, and our team remains focused on executing our strategy.

Andrew Lazar: Good morning.

Andrew Lazar: Hi, Andrew.

Andrew Lazar: You're doing.

Andrew Lazar: Mark maybe to start off.

Andrew Lazar: You talked about sales tracking towards the lower end for the full year I don't I don't think that comes as a big surprise, just given the broader sort of industry challenges.

Andrew Lazar: But a lot of the food companies are facing at the moment.

Andrew Lazar: But obviously, even even at that lower and it does require a pivot to positive growth in the second half.

Andrew Lazar: And with no real benefit expected from pricing, obviously volumes got to drive that maybe you can go through just a couple of the key points you mentioned a few but just what really drives your your visibility and confidence to that outcome and then as Gary talked about EPS, a little more fourth quarter weighted.

Operator: Within both segments of our business, we expect to deliver margin momentum in the second half paired with improvements in the trajectory of volume and mix. In addition, we are excited to be one step closer to completing the Sovos brand's acquisition and look forward to welcoming their team to Campbell. 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 1 on your telephone keypad.

Andrew Lazar: Given that the cadence of spending and some other things, but maybe you can also comment a little bit on that on what drives that specifically so we have a better handle on that.

Speaker Change: Sure, Yeah, and maybe carrying I can kind of tag team together.

Gary: So yeah, let's first talk about the top line. The first thing that I would just say is.

Speaker Change: The good news is through the second quarter.

Speaker Change: We're essentially right, where we expected to be on top line and I think that sequential improvement that we saw from Q1 to Q2 is very important.

Andrew Lazar: Your first question comes from the line of Andrew Lazar from Barclays. Your line is open. Good morning. Hi Andrew. How are you doing?

Speaker Change: Because.

Mark A. Clouse: Mark, maybe to start off, you talked about sales tracking towards the lower end for the full year. I don't think that comes as a big surprise, just given the broader sort of industry challenges that a lot of food companies are facing at the moment. But obviously, even at that lower end, it does require a pivot, right, to positive growth in the second half. And with no benefit expected from pricing, obviously, volume's got to drive that. Maybe you can go through just a couple of the key points.

Speaker Change: That kind of supports if you will a little bit of the trajectory that we anticipated and planned for the back half I think you hear a little bit more cautious tone realm.

Speaker Change: Relative to the ranges and it you know from the beginning we've kind of said the.

Speaker Change: The guidance range kind of is predicated on a little bit of the sensitivity of the speed at which we see some of these categories responding and I think what what you're getting from US. It's just a little bit more probably not so much of a specific factor, but more of just a bit of caution and in <unk>.

Mark A. Clouse: You mentioned a few, but just what really drives your visibility and confidence in that outcome. And then, as Carrie talked about, EPS is a little more fourth-quarter weighted, given the cadence of spending and some other things. But maybe you can also comment a little bit on that, on what drives that specifically, so we have a better handle on that. Sure, yeah. And maybe Carrie and I can kind of tag team together.

Speaker Change: During that we see the variables that we expect.

Speaker Change: And whether that indicates lower high end of the range. So we're certainly not suggesting that we are for sure on the low end of the range, but but from what we can see in variables today I thought it was prudent to kind of position. It that way now why do we see sequential improvement in the back half while the first.

The thing I just would point out this is not some massive hockey stick right. So we kind of down to in Q1 down one.

Mark A. Clouse: So yeah, let's first talk about the top line. The first thing that I would just say is, you know, the good news is through the second quarter, we're essentially right where we expected to be on top line. And I think that sequential improvement that we saw from Q1 to Q2 is very important because that's that, kind of supports, if you will, a little bit of the trajectory that we've anticipated and planned for the back half. I think you hear a little bit more cautious tone relative to the ranges, and, you know, from the beginning, we've kind of said the guidance range kind of is predicated on a little bit of the sensitivity of the speed at which we see some of these categories responding, and I think what you're getting from us is just a little bit more probably not so much of a specific factor, but more of just a bit of caution in ensuring that we see the variables that we expect and whether that indicates low or high end of the range.

Speaker Change: We said kind of flat to 1% in Q3 sequentially better in Q4, so it's a pretty steady drumbeat of more modest.

Speaker Change: Improvement as we go through the back half of the year and I think as we've said all along one of the biggest variables that gives us confidence and this is one of those areas that I think and.

Speaker Change: Looking at kind of pacing or benchmarking with other company.

Speaker Change: Companies in this moment of transition part of it is what youre lapping and when Youre lapping it.

Speaker Change: That sets up a little bit of the speed of recovery.

But you know.

Speaker Change: As you know we are lapping in the first half of the year of growth rates that were closer to 13%, 14% and.

Speaker Change: In the back half, we're going to be lapping, 5% on volume just to give you a little bit of that delta.

Speaker Change: In the first half of 'twenty, three we were cycling about a point and a half percent.

Speaker Change: Evolve mix decline, we move into the back half, we're going to be lapping about a 6% volume mix to clients. So both on the net sales in the vol mix the comps are going to get significantly easier. So in theory. If you. If you didn't expect any improvement in consumer.

Mark A. Clouse: So we're certainly not suggesting that we are for sure on the low end of the range, but from what we can see in variables today, I thought it was prudent to kind of position it that way. Now, why do we see sequential improvement in the back half? Well, the first thing I just would point out is this is not some massive hockey stick, right?

Speaker Change: Dynamics, you would essentially see some sequential improvement that kind of supports the glide path. We're on now what we're hoping for is that the combination of what we're doing which I think our execution to date has been a point of pride for the company, especially as you look at our performance through the holidays.

Mark A. Clouse: So we're kind of down two in Q1, down one, as we said, kind of flat to 1% in Q3, sequentially better in Q4. So it's a pretty steady drumbeat of more modest improvement as we go through the back half of the year. And I think, as we've said all along, one of the biggest variables that gives us confidence, and this is one of those areas that I think and are looking at kind of pacing or benchmarking with other companies in this moment of transition. Part of it is what you're lapping and when you're lapping it; that sets up a little bit of the speed of recovery.

Speaker Change: And we've got a lot of ammunition, we probably have one of the strongest back half innovation.

Speaker Change: We have on paper about a percent of growth contributed from our innovation very strong marketing you won't see the incremental step up in the back half.

Speaker Change: That you've been seeing as we've kind of settled in at that 9%.

Speaker Change: Net sales for marketing and selling as we go into the back half, but I would say very very focused.

Mark A. Clouse: But we're, you know, as you know, we are lapping in the first half of the year growth rates that were closer to 13, 14%, and in the back half, we're going to be lapping 5%. On volume, just to give you a little bit of that delta, in the first half of 23, we were cycling about a point and a half percent of volume mix decline. As we move into the back half, we're going to be lapping about a 6% vol mix decline. So both on net sales and the vol mix, the comps are going to get significantly easier.

Speaker Change: Highly relevant we've continued to learn a lot about what's working in this environment and will continue to drive it and then finally it is not as if we're not seeing some green shoots I always feel like I'm cheating a little bit reporting after cagny I get to hear everybody's point of view on the consumer.

Speaker Change: Good news is I think much of the of the dialogue would be quite consistent with what we're seeing.

Speaker Change: Consumer sentiments, improving household penetration and many of the categories have kind of turned the corner, we're seeing improvement, albeit still fewer trips to the supermarket.

Mark A. Clouse: So, in theory, if you didn't expect any improvement in consumer dynamics, you would essentially see some sequential improvement that kind of supports the glide path we're on. Now, what we're hoping for is that the combination of what we're doing, which, you know, I think our execution to date has been a point of pride for the company, especially as you look at our performance through the holidays. And We've got a lot of ammunition.

Speaker Change: Worse, we're seeing a little bit of a step back up in the number of categories purchased the number of servings purchased all of those to me provide.

Compelling evidence that we will see the turn it and just as a reminder.

Speaker Change: Our two year comps right are continuing to look very strong.

Speaker Change: Plus 6%.

Speaker Change: In the second quarter as an example, and even with the numbers that I was giving you relative to outlook for the back half you'd be in a similar two year comp range.

Mark A. Clouse: We probably have one of the strongest back half innovation funnels we have on paper. About a percent of growth contributed by our innovation. Very strong marketing. You won't see the incremental step up in the back half that you've been seeing as we've kind of settled in at that nine percent of net sales for marketing and selling as we go into the back half. But I would say very, very focused.

Speaker Change: And so it's not as if on a two year basis youre seeing some catastrophic structural change, but there is no doubt that the speed of recovery is what we're all trying to pay so those are all good signs for us and give us the potential of seeing improvement faster than what we may be projecting today, but that's that gives you a little bit on probably.

Speaker Change: Pretty broad real estate of exactly why we feel very good about the back half, although we may be a little bit more pragmatic with our outlook right now I'm still hopeful that theres a lot of variables in the last six months that we could see that accelerate.

Mark A. Clouse: We've continued to learn a lot about what's working in this environment, and we'll continue to improve it. And then, finally, it is not as if we're not seeing some green shoots. I always feel like I'm cheating a little bit.

Speaker Change: Alright, great ill leave it there. Thank you so much.

Speaker Change: Great.

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

Mark A. Clouse: Reporting after Cagney, I get to hear everybody's point of view on the consumer. The good news is I think much of the dialogue would be quite consistent with what we're seeing. Consumer sentiment is improving, and household penetration in many of the categories has kind of turned the corner. We're seeing improvement, albeit still fewer trips to the supermarket. We're seeing a little bit of a step back up in the number of categories purchased and the number of servings purchased. All of those, to me, provide pretty compelling evidence that we will see a turn. And just as a reminder, our two-year comps are continuing to look very strong. 6% in the second quarter is an example.

Kenneth B. Goldman: Hi, Thank you just to dig in a bit deeper on the the wording.

Kenneth B. Goldman: Of of the back half I guess isn't really implied back half guidance. Mark you said you are currently on pace for the lower end of annual guidance and that's really in the name of pragmatism, where prudence, but you also I think said that the first half topline came in broadly as expected. So I'm just curious if I can get a little more precise on our three Qs shipments.

Kenneth B. Goldman: Maybe starting off a little more slowly than you might have anticipated and within that you mentioned that chunky share trends are improving but it's still a bit challenging. So I'm just trying to I guess get a little more focused on which parts of the business are the main reasons for the added prudence.

Mark A. Clouse: And even with the numbers that I was giving you relative to the outlook for the back half, you'd be in a similar two-year comp range. And so it's not as if, on a two-year basis, you're seeing some catastrophic structural change. But there is no doubt that the speed of recovery is what we're all trying to pace. So those are all good signs for us and give us the potential of seeing improvement faster than we may be projecting today. But that gives you a little bit of probably pretty broad real estate on exactly why we feel very good about the back half. Although we may be a little bit more pragmatic with our outlook right now, I'm still hopeful that there are a lot of variables in the last six months that we could see accelerate. Great. I'll leave it there. Thank you so much.

Kind of the right way to think about it. Thank you.

Speaker Change: Yeah, No I think.

Speaker Change: Ken what I would tell you from a campbells standpoint, our performance relative to the categories.

Speaker Change: Is very consistent and the sequence of improvement and the strengths in different areas.

Speaker Change: You know again from what we've seen in the beginning of the year.

Speaker Change: Through continued strength on broth and all of our cooking businesses.

Speaker Change: As that stays highly relevant for consumers is very very strong a little bit more softness on ready to eat soups, but not different than what we would've expected I think.

It's call it a little bit of hesitation has probably been more anchored in the speed at which the categories or recovery.

Speaker Change: And I would say from our meals and beverage standpoint.

Mark A. Clouse: Right. Your next question comes from a line of Ken Goldman from JPMorgan. Your line is open. Hi, thank you.

Speaker Change: Pretty much in line with the trajectory I mean, I think everybody's aware that January was obviously.

Kenneth B. Goldman: Just to dig in a bit deeper on the wording of the back half, I guess, and really implied back half guidance. Mark, you said you're currently on pace for the lower end of annual guidance, and that's really in the name of pragmatism or prudence. But you also, I think, said that the first half's top line came in broadly as...

Speaker Change: A very strong months and arguably a little bit better.

Speaker Change: Due to the weather, although what I would tell you is as we think about it and look at it. The good news is that weather is more normal than what we've had the last couple of years, so well always always difficult to talk about weather, but I think January generally pretty strong, but the trend the underlying trend in the categories pretty much where we expected I would say snacks is a.

Mark A. Clouse: So I'm just curious if I can get a little more precise on, you know, 3Q shipments maybe starting off a little more slowly than you might have anticipated? And within that, you mentioned that Chunky's share trends are improving, but it's still a bit challenging. So I'm just trying to, I guess, get a little more focused on which parts of the business are the main reasons for the added prudence. Kind of the right way to think about it.

Speaker Change: Little bit slower if theres, one where in the category dynamics, we're seeing a little bit more.

Speaker Change: Moderation, but I do continue to be reminded that when I look at these businesses and look at these categories on a two year basis.

Speaker Change: You continue to see really strong results I mean in fact, our power brands, which are two thirds of our business on a two year basis, we're up 12%. So there probably was a little bit maybe of overshooting relative to expectation on the speed of recovery in the snacks ones, but I think relative to what we expected or what's giving us a little bit.

Mark A. Clouse: Thank you. Yeah, no, I think, Ken, what I would tell you from a Campbell standpoint is that our performance relative to the categories is very consistent in the sequence of improvement and the strength in different areas. You know, again, from what we've seen in the beginning of the year through, I mean, continued strength on broth and all of our cooking businesses, as that stays highly relevant for consumers, very, very strong, a little bit more softness on ready-to- I think the, let's call it, a little bit of the hesitation has probably been more anchored in the speed at which the categories are growing, and I would say, from a meals and beverage standpoint, pretty much in line with the trajectory.

Speaker Change: Of.

Speaker Change: I would say pragmatism, because again I want to be really clear.

Speaker Change: We've got a lot of months left in the year to see us continue to shape the curve based on our own execution.

Speaker Change: But I would say those are the areas that are giving us a little bit more of this outlook, that's moving a bit down and remember you know we guide in pretty tight range, it's too so.

Speaker Change: The difference between one and zero not insignificant, but certainly I think in a world, where it's pretty variable right now I think a little bit of pragmatism is probably appropriate.

Speaker Change: And then can I ask a very quick follow up to that and thank you for the color.

Speaker Change: When I speak with investors about I guess, the bull and bear cases on your stock and other companies.

Mark A. Clouse: I mean, I think everybody's aware that January was obviously a very strong month and arguably a little bit better due to the weather. But what I would tell you is, think about it, and look at it. The good news is that the weather is more normal than what we've had the last couple years. So, you know, we're always, always difficult to talk about weather, but I think January generally is pretty strong, but the trend, the underlying trend in the category, is pretty much where we expect it. I would say snacks are a little bit slower.

Speaker Change: One of the bearish cases, I hear is that the salty snacks category in general.

Speaker Change: There's a little weaker than what people expected and that maybe that will continue if some of the larger players get a little bit more nervous about their share maybe invest a little more in price are you seeing any of these dynamics take place whereby there's an irrational amount of maybe price investments or just trying to get a little bit better sense of what youre seeing in salty snacks Thats, maybe not go.

<unk> quite as well because it's been such a great category for so many years and decades.

Speaker Change: So no.

Mark A. Clouse: If there's one where, in the category dynamics, we're seeing a little bit more moderation, but I do continue to be reminded that when I look at these businesses and look at these categories on a two-year basis, you continue to see really strong results. I mean, for example, our power brands, which are two-thirds of our business on a two-year basis, are up 12%. So, there probably was a little bit of overshooting relative to expectation on the speed of recovery and the snack ones, but I think relative to what we expected or what's giving us a little bit of, you know, I would say pragmatism because again, I want to be really clear, you know, we've got a lot of months left in the year to see us continue to shape the curve based on our own execution.

Speaker Change: What youre seeing is generally a pretty consistent with history.

Speaker Change: As funny as I a lot of the Devil is in the detail of unpacking.

Speaker Change: These categories and it's interesting.

Speaker Change: As I talked about that two year CAGR on.

Speaker Change: Power brands for Us as you pull back and look a little deeper at the salty categories. They are the strongest two year.

Speaker Change: Growth rates that we have within the business. So arguably salty is lapping the most challenging comps of given the strength of where it was a year ago I do think as I've said all along this is salty snacks right. So this is not a category, where you're not gonna have promotion, where youre not going to have.

Speaker Change: Competitiveness as you think about the players that are in this space, but I'm not seeing anything that indicates to me that people are becoming irrational or that theyre trying to chase.

Mark A. Clouse: But I would say those are the areas that are giving us a little bit more of this outlook that's moving a bit down. And remember, you know, we guide in pretty tight ranges too. So, the difference between one and zero is not insignificant, but certainly, I think in a world where things are pretty variable right now, I think a little bit of pragmatism is probably appropriate.

Speaker Change: This cycling down again I would say.

Speaker Change: Whether it's we under anticipated the strength that we were lapping or whether the category is a little more challenged than we expected in the near term I am really not worried about this being structural and even when I look at some of those early lead consumer indicators like I've mentioned before you see.

Mark A. Clouse: And then can I ask a very quick follow-up to that, and thank you for the color. When I speak with investors about, I guess, the bull and bear cases on your stock and other companies, one of the bearish cases I hear is that the salty snacks category in general is a little weaker than what people expected, and that maybe that will continue if some of the larger players get a little bit more nervous about their shares, maybe invest a Are you seeing any of these dynamics take place whereby there's an irrational amount of maybe price investments, or just trying to get a little bit better sense of what you're seeing in salty snacks that's maybe not doing quite as well because it's been such a great category for so many years and decades?

Speaker Change: <unk> positive movement I am I truly believe this is not a matter of if these categories respond. It's just a matter of when and trying to time. It engage it is what makes the current moment, we're in a little bit more challenging but structurally speaking.

Speaker Change: Not seeing anything that gives me any real pause relative to what I think is going to be a very very healthy longer term trajectory.

Speaker Change: Both in the salt side, but also in the in the Cookie and Cracker side.

Speaker Change: Thank you.

Speaker Change: Your next question comes from the line of Peter Galbo from Bank of America. Your line is open.

Peter Thomas Galbo: Hey, guys. Good morning, Thanks for taking the question.

Speaker Change:

Peter Thomas Galbo: Gary maybe just to start can you just help us out with the contribution from both foodservice and Canada, the meals and beverages that I think you said it was a positive offset in the quarter.

Mark A. Clouse: Yeah. So, no. I think what you're seeing is generally pretty consistent with history. You know, it's funny, as a lot of the devil is in the detail of unpacking these categories. And, you know, it's interesting, you know, as I talked about that two-year kegger on power brands for us, as you pull back and look a little deeper at the salty categories, they are the strongest two-year growth rates that we have within the business. So, arguably, Salty is lapping the most challenging comps given the strength of where it was a year ago.

Peter Thomas Galbo: Maybe just what that was and what's embedded kind of throughout the second half on on those two pieces of that.

Peter Thomas Galbo: Beth.

Peter Thomas Galbo: Okay.

Beth: So so maybe I'll jump in first on the topline so Canada and food service continue to be performing extremely well now as you might remember Peter we had a nice recovery of a year ago in foodservice, but it was still positive low single digits, Canada had a especially strong.

Mark A. Clouse: I do think, as I've said all along, you know, this is salty snacks, right? So this is not a category where you're not going to have promotion, where you're not going to have competitiveness as you think about the players that are in this space. But I'm not seeing anything that indicates to me that people are becoming irrational or that they're trying to chase this cycle down. Again, I would say, you know, whether it's we under-anticipated the strength that we were lapping or whether the category is a little more challenged than we expected in the near term, I am really not worried about this being structural. And even when I look at some of those early lead consumer indicators, like I mentioned before, you're seeing positive movement. I truly believe this is not a matter of if these categories will respond.

Beth: <unk> and it contributed about a point of growth and so if youre doing the math between net sales and end market consumption. One might ask the question of alright, if you've got a point of contribution from.

Beth: That's in Canada in meals and beverage why were you a little bit lower.

Beth: And that was a function of actually seeing a bit more.

Beth: Depletion of inventory in the second quarter and again I think you know I wouldn't I wouldn't call that a big indicator of Upsized recovery in Q3.

Beth: But I think a little bit of just normalizing as we ran through the holiday season, which is always.

Beth: A little bit of a guessing game relative to inventory. So I think we are finishing in a very good spot, but we got a little bit of help from NAFTA.

Mark A. Clouse: It's just a matter of when and trying to, you know, time it, engage it is what makes the current moment we're in a little bit more challenging. But structurally speaking, I'm not seeing anything that gives me any real pause relative to what I think is going to be a very, very healthy longer-term trajectory for us both on the salty side and also on the cookie and crack. Your next question comes from the line of Peter Galbo from Bank of America. Your line is open.

Beth: Canada that we're able to balance a bit a little bit of inventory pressure on the base business, but you are talking in totality within about a point of movement on the on the meals and beverage side.

Speaker Change: Great. Thanks, Thanks, Mark that's helpful. And then maybe Mark just a switchover you did spend some time talking about the.

Speaker Change: The combo strategy on the on the DSD routes I know, it's pretty early days.

Peter Thomas Galbo: Hey guys, good morning. Thanks for taking the question. Carrie, maybe just to start, can you just help us out with the contribution from both the Food Service in Canada to Meals and Beverages? A positive offset.

Mark A. Clouse: But maybe you can just give us a sense of that 20%.

unknown: Are you less than 1% kind of converted at this point and what have you kind of learned I guess, both positive and maybe any challenges you brought into thus far and thanks very much.

Mark A. Clouse: Maybe just what that was and what's embedded kind of throughout the second half. So, so maybe I'll jump in first on the top line. So Canada and food service continue to be performing extremely well. Now, as you might remember, Peter, we had the nice recovery of a year ago in food service, but it was still positive, low single digits. Canada had an especially strong quarter, and it contributed about a point of growth.

Speaker Change: Yes so.

Speaker Change: Needless to say this is maybe more exciting to us and the <unk>.

Speaker Change: Outside world, but this is a really important step in the journey because.

Really since I've been on the business.

When you look at our business and you see the complexity.

Speaker Change: Multiple DSD routes on snacking and you see the disparity.

Speaker Change: Geographically in scale.

Mark A. Clouse: And so if you're doing the math between net sales and in-market consumption, one might ask the question of, all right, if you got a point of contribution from NAFSA and Canada and meals and beverages, why were you a little bit lower? And that was a function of actually seeing a bit more depletion of inventory in the second quarter. And again, I think, you know, I wouldn't call that a big indicator of an oversized recovery in Q3. But I think a little bit of just normalizing as we went through the holiday season, which is always, you know, a little bit of a guessing game relative to inventory. So I think we're finishing in a very good spot, but we got a little bit of help from NAFSA and Canada that were able to balance a bit, a little bit of inventory pressure on the base business. But you're talking in totality about a point of movement on the, on the meals and beverage side. Great. No, thanks.

Speaker Change: It does really begged the question of.

Speaker Change: Is there no way to put these businesses together and I think what we did which was smart was to kind of tread lightly and move in a very methodical and pragmatic way, but you know here is kind of through what has been a couple of years of really working on what's possible.

Speaker Change: And feeling really good about what we're learning on the combo routes and so as you can imagine one of the questions. We had the answer is.

Speaker Change: It's okay, you have a an independent distributor that's now going to two aisles in the store and so what you what inherently youre going to have to have is enough scale that represents or that is still economically beneficial for that independent distributor to spend more time in a single store. So the math in this to get it to really work well.

Speaker Change: To make it the win win that we want it to be is this opportunity of maximizing in store execution, while the economics of the drop size as being substantial enough that it really encourages or make these routes.

Mark A. Clouse: Thanks, Mark. That's helpful. And then maybe, Mark, just to switch over, you did spend some time talking about, you know, the combo strategy on the DSD routes. I know it's pretty early days, but maybe you can just give us a sense of that 20%. You know, are you less than 1% kind of converted at this point?

Speaker Change: Attractive while also dealing with the fact that when you are under scaled on these routes and this may not be as obvious to everybody is as you might imagine if the economics are not good on routes for an independent distributor, it's a real challenge for them and.

Mark A. Clouse: And what have you kind of learned, I guess, both positive and maybe any challenges you've run into thus far? Thanks. Yeah, so needless to say, may be more exciting to us than the outside world. But this is a really important step in the journey because, really, since I've been in the business. You know, when you look at our business and you see the complexity of multiple DSD routes for snacking and you see the disparity geographically in scale, it does really beg the question of, you know, is there no way to put these businesses together? And I think what we did, which was smart, was to kind of tread lightly and move in a very methodical and pragmatic way.

And the ability to invest in their business the ability for them to dedicate the time and effort is a real challenge and so the better we make the economics the better it is for the IDP and the better the service and support is for our business and for the customer and so.

Speaker Change: I think what you hear us saying today is that we actually feel really good about it and I just would say the other big question that we had was okay.

Speaker Change: We're buying back routes, how complicated or difficult how.

Speaker Change: How long will we have to hold the routes before we get a buyer and I would say what's been really.

Speaker Change: Citing although again I think you hear a level of again pragmatism in the rollout as we continue to validate this as we go.

Mark A. Clouse: But you now hear us kind of through what has been a couple of years of really working on what's possible, feeling really good about what we're learning on the combo routes. And so, you know, as you can imagine, one of the questions we had to answer: It's okay; you have an independent distributor that's now going to two aisles in the store.

Speaker Change: The early signs is it's a fairly expedited process right, we kind of line up the right buyers, we get them ready we acquired the routes and then in.

Speaker Change: In many cases. These are people that are in our network already there may be an owner of our existing Pepperidge farm router.

Mark A. Clouse: And so what inherently you're going to have to have is enough scale that represents or that is still economically beneficial for that independent distributor to spend more time in a single store. So the math in this to get it to really work well, to make it the win-win that we want it to be, is this opportunity of maximizing in-store execution while the economics of the drop size. Substantial enough that it really encourages or make these routes attractive while also dealing with the fact that when you're Underscaled on these routes and this may not be as obvious to everybody is as you might imagine If the economics are not good on routes for an independent distributor It's a real challenge for them and the ability to invest in their Business the ability for them to dedicate the time and effort is a real challenge and so the better we make the economics the better it is for the IDP and the better the service and support is for Our business and for the customer and so I think what you hear us saying today Is that we actually feel really good about it, and I just would say the other big question that we had was okay, If we're buying back routes, how complicated or difficult, how long will we have to hold the routes before we get a buyer?

Speaker Change: Ciders Lance route and so the speed at which the converted on that's been very good and so now this gives us kind of the final piece of the puzzle.

Speaker Change: Being able to plot forward to really a single snacks network, even though.

Speaker Change: Much of the country, you will still see a dedicated pepperidge farm and a dedicated.

Speaker Change: Snyder's Lance truck, it's all running through the same singular network. It in places where we didn't have the scale youll see these combo routes that are going to give us a great.

Speaker Change: Expansion of what I would call the same level of support we're getting in those scaled markets will now be able to deliver in a much larger percent of the country, which is why we're so excited about it.

Speaker Change: Your next question comes from the line of Michael <unk>.

Michael: Your line is open.

Michael: Yes.

Michael: Thank you and good morning.

Michael: Wanted to start following up a little bit more on that.

Michael: DST color and wood.

Speaker Change: Would love to get a sense I know it sounds like it's.

Speaker Change: Fifth or so of the total so a smaller piece, but can.

Speaker Change: Can you quantify what the savings might look like from this and how to think about the economics.

Speaker Change: How this progresses.

Speaker Change: Yes, so obviously so as we said it's about 20 to do the all of the markets that we've sorted into kind of let's call. It.

Mark A. Clouse: And I would say what's been really exciting, although again, I think here there is a level of, again, pragmatism in the rollout as we continue to validate this as we go. But the early signs are it's a fairly expedited process, right, we kind of line up the right buyers, we get them ready, we acquire the routes, and then, in many cases, these are people that are in our network already, they may be an owner of an existing Pepperidge Farm route or a Snyder's Lance route, and so the speed at which to convert on that has been very good. And so now this gives us kind of the final piece of the puzzle to being able to plot forward to really a single SNACs network, even though in much of the country, you'll still see a dedicated Pepperidge Farm and a dedicated Snyder's Lance truck, it's all running through the same singular network, and in places where we didn't have the scale, you'll see these combo routes that are gonna give us Your next question comes from a line by Michael Lavery from Handler. Your line is open. Thank you. Good morning. I just wanted to start following up a little bit more on that DSD color, and I would love to get a sense.

Speaker Change: Under scaled.

Speaker Change: The potential of combo.

Speaker Change: It's about a fifth of about 20%.

Speaker Change: The routes we have.

Speaker Change: As you May remember, we've talked about this part of the journey really being a component.

Speaker Change: Several different elements that come together to really address route to market. So the combination of the warehouses.

Speaker Change: The combination of the depots added technology and capability both for the IV Pes as well within our warehouse network and now this ability to convert.

The combo routes and a fifth of the country.

Speaker Change: The economics of this relative to how we manage the investment is both an efficiency and an effectiveness play. So the good news is youre getting margin and efficiency arguably a bit more through the warehouse consolidation in the depot consolidation.

Speaker Change: Although I would say combo routes are going to give you some.

Speaker Change: <unk>.

Speaker Change: Savings as well.

Speaker Change: But then as you move to the idea of where the effectiveness comes from I think the technology upgrades as well as the combo routes are going to give us a very healthy boost in some markets, where arguably we've been underperforming as we've been just lighter on on scale and support and so the.

Michael Scott Lavery: I know it sounds like a fifth or so of the total, so a smaller piece, but can you quantify what http://TheBusinessProfessor.com Yeah, so obviously, so as we said, it's about 20 to do all of the markets that are sorted into kind of, let's call it underscaled with the potential of Combo, it's about a fifth or about 20% of the routes we have. As you may remember, we've talked about this part of the journey really being a component of several different elements that come together to really address the route to market. So the combination of the warehouses, the combination of the depots, added technology and capability both for the IDPs as well within our warehouse network, and now this ability to turn these into Combo routes in a fifth of the country. The economics of this, relative to how we manage the investment, is both an efficiency and an effectiveness play. So the good news is you're getting margin and efficiency, arguably a bit more through the warehouse consolidation and the depot consolidation. Although I would say combo routes are going to give you some intrinsic savings as well.

Speaker Change: <unk> of this are really the combination of both what we perceive to be the improvement.

Speaker Change: And top line, which of course is still at the heart of what we want snacks doing but also contributing.

Speaker Change: To the business, so what what I will talk a little bit more about this investor day, but what youre seeing not inconsistent with what we talked about in the past as you probably 50 basis points of margin that I would say is more directly related to distribution I think that and that's really through a timeframe of 26 I do think.

As you look beyond it and the timeline for completing this will give us a little bit of dry powder, even beyond the 17% that will give us some optionality either spend back and invest in the business or potentially drive margin even further.

Speaker Change: And the 17% that we talked a little bit about today.

Speaker Change: In fiscal 'twenty six but in the near term probably relative speaking about 50 bps of margin benefit from it is a good kind of approximation.

Mark A. Clouse: But then, as you move to the idea of where the effectiveness comes from, I think the technology upgrades, as well as the combo routes, are going to give us a very healthy boost in some markets where arguably we've been underperforming as we've been just lighter on scale and support. And so the economics of this are really the combination of both what we perceive to be the improvement in the top line, which, of course, is still at the heart of what we want Snacks doing, but also contributing to the business. And we'll talk a little bit more about this investor day, but what you're seeing, not inconsistent with what we talked about in the past, is there's probably 50 basis points of margin that I would say is more directly related to distribution. And that's really through a timeframe of 26 weeks.

Speaker Change: Okay, that's really helpful. Thanks.

Speaker Change: Just a quick follow up on some of the comments on the portfolio you've touched on.

Speaker Change: The attractive balance in the Investor day slide it looks like you'll highlight how you're thinking about that.

Speaker Change: Questions in the past about what would a split ever makes sense. It sounds like that's not on your radar is that how youre thinking about.

Speaker Change: How you go forward and just.

Speaker Change: How the two classes of the business fit together.

Speaker Change: Yes.

Speaker Change: Hey.

Speaker Change: Yes, no. Good very good question I think the short answer to that is you know, we're going to let shareholder value kind of drive a little bit of of that dialogue I will say that I have been very consistent I think from the beginning.

Mark A. Clouse: I do think as you look beyond that and the timeline for completing this will give us a little bit of dry powder, even beyond the 17%, that will give us some optionality either to spend back and invest in the business or potentially drive margin even further beyond the 17% that we talked a little bit about today in fiscal 26. But in the near term, probably relative speaking about 50 bps of margin benefit from it is a good kind of approximation. Okay, that's really helpful.

Speaker Change: Even if for whatever.

Speaker Change: Economic cases for a split of the company.

Speaker Change: Would want to do that from a position of strength and so the moves that you see us, making and what we've been doing to kind of transform I would say the portfolio in the business over the last several years is going to set up what I think is going to be a best in class grocery business with meals and beverage.

Speaker Change: And our best in class Snacking business that.

Michael Scott Lavery: Thanks. Just a quick follow-up on some of the comments on the portfolio; you've touched on the attractive balance, and the Investor Day slide looks like you'll highlight how you're thinking about that. We've had questions in the past about whether a split would ever make sense. It sounds like that's not on your radar.

Speaker Change: On the meals and beverage side, you're now, adding these very compelling growth stories in what we're calling more of the distinctive or premium brands.

Speaker Change: While having a very solid foundation of mainstream brands and a more differentiated snacks business that now has a simplified.

Mark A. Clouse: Is that how you're thinking about how you go forward and just, you know, how the two pieces of the business fit together? Yeah, look, I think, yeah, no, good, good. Very good question.

Speaker Change: Both route to market and manufacturing platform that really gives us now I would say both halves of the business.

Speaker Change: In its strongest position and so now with that as we as we kind of live into that over the next year or so.

Mark A. Clouse: I think the short answer to that is, you know, we're going to let shareholder value kind of drive a little bit of that dialogue. I will say that I've been very consistent, I think, from the beginning, that even if for whatever the economic case is for a split of the company, I would want to do that from a position of strength. And so the moves that you see us making and what we've been doing to kind of transform, I would say, the portfolio and the business over the last several years is going to set up what I think is going to be a best-in-class grocery business with meals and beverage and a best-in-class snacking business that, you know, on the meals and beverage side, you're now adding these very compelling growth stories and what we're calling more of the distinctive or premium brands while having a very solid foundation of mainstream brands, and a more differentiated snacks business that now has a simplified both route-to-market and manufacturing platform that really gives us now, I would say, both halves of the business in its strongest position.

Speaker Change: I think we'll have a great understanding.

Speaker Change: What is the value potential and how should we judge it versus other options, but know that we will always look.

Speaker Change: And evaluate but right now I feel like all roads through lead through executing and delivering on this vision that we have for both the divisions and I think if we do that we're going to have a very compelling story within food.

Speaker Change: Your next question comes from the line of Jim <unk> from Stephens. Your line is open.

Jim: Hi, guys. Thanks for taking my question.

Jim: Mark.

Circle back to some of the commentary around the back half cadence for the top line.

Jim: If I look at goldfish in particular I believe they gained dollar share in the second quarter, which is up from flat in the first quarter.

Mark A. Clouse: Just any color around what's driving the success there if that's something that can be replicated.

Mark A. Clouse: Replicated across some of the other snacking brands and if we think about a reacceleration or an acceleration in the back half what components of the snacking portfolio would you expect that to come from.

Mark A. Clouse: And so now with that, as we kind of live into that over the next year or so, I think we'll have a great understanding of what the value potential is and how we should judge it versus other options, but know that we'll always look and evaluate. But right now, I feel like all roads lead through executing and delivering on this vision that we have for both of the divisions, and And I think if we do that, we're going to have a very compelling story with. Your next question comes from Jim Salera from Stevens. Your line is open.

Speaker Change: Yes, so it's a great question.

Speaker Change: Goldfish as we said you know kind of.

Speaker Change:

Speaker Change: Foundational and in many ways as business, Great example for us.

Speaker Change: How do we drive.

James Ronald Salera: Hi, guys. Thanks for taking our question. Hey, Jeff.

Speaker Change: These iconic differentiated snack brands and the magic in Goldfish has really been this combination I would say of good base business support while expanding into adjacent consumer targets initially and now with Chris really into.

Mark A. Clouse: Mark, I wanted to circle back to some of the commentary around the back half cadence for the top line. If I look at Goldfish in particular, I believe they gained dollar share in the second quarter, which is up from flat in the first quarter. Just any color around what's driving the, If that's something that can be kind of replicated across some of the other snacking brands, and if we think about a re-acceleration or acceleration of the back half, what components of the snacking portfolio would you expect that to come from? Yeah, so it's a great question.

Speaker Change: And occasions, so that we're now able to begin source from other snacking categories.

Speaker Change: It fit better like think of chips.

Speaker Change: Or more of a munching occasion that the goldfish is now competing with an off to an extraordinary start you pair that with the success of our limited time offerings and much of our innovation in the past has been successful as well.

Mark A. Clouse: Um, you know, goldfish is, as we said, kind of, foundational and, in many ways, has been this great example for us of how we drive these iconic differentiated snack brands. And the magic of Goldfish has really been this combination, I would say, of good base business support while expanding into adjacent consumer targets initially and now with crisps really into adjacent occasions so that we're now able to begin sourcing from other snacking categories that fit better, like think of chips or more of a munching occasion that Goldfish is now competing with and off to an extraordinary start. You pair that with the success of our limited-time offerings, and much of our innovation in the past has been successful as well. You might have heard a little bit too of a subtle nod to geographic opportunity, as I mentioned, as a more North American megabrand. And there is significant runway for Goldfish as we think about Canada and even Latin America.

Speaker Change: You might have heard a little bit to kind of a subtle nod to.

Speaker Change: Geographic opportunity as I've mentioned that as a more north American Mega brand and there is significant runway on goldfish as we think about Canada, and even Latin America.

Speaker Change: As we continue to dig deeper there we're seeing.

Speaker Change: <unk> real opportunity for white space in those areas and so when I think about goldfish.

Speaker Change: And I think about what we've done now to prove the.

Speaker Change: Expand the ability of the brand.

Speaker Change: I think it is a great blueprint now I would argue that we've done a very good job in other brands like late July our Kettle brand.

Speaker Change: Where we've been able to add different occasions like air fried on kettle.

Speaker Change: [noise] flavor variety that really brings excitement the limited time offering model you see us expanding that.

Speaker Change: Other parts of the business, even more recently to cookies.

Mark A. Clouse: As we continue to dig deeper there, we're seeing real opportunity for white space in those areas. And so when I think about Goldfish, and I think about what we've done now to prove the expandability of the brand, I think it is a great blueprint. Now, I would argue that we've done a very good job with other brands like Late July, our kettle brand, where we've been able to add different occasions like air fried on the kettle and flavor variety that really brings excitement. The limited time offering model; you see us expanding that to other parts of the business, even more recently to cookies. If you haven't tried the London Fog, Milano, an excellent product.

Speaker Change: If you haven't tried the London fog mulatto excellent product.

Speaker Change: And so theres a lot of I think a lot of great learning that's going to travel to brands that are highly relevant in doing that and I think you put those elements together not only do you feel good about the continued runway our goldfish, but.

Speaker Change: Even even more along the way and look I don't think its exclusive snacking I think the ability for us to bring the goldfish playbook to meals and beverage.

Speaker Change: Is equally relevant and I would argue that although yes, we're cycling through a little tougher time on ready to eat soup. If you look over the last several years I mean chunky has just had a great great run.

Mark A. Clouse: And so there's a lot of, I think a lot of great learning that's going to travel to brands that are highly relevant in doing that. And I think you put those elements together. Not only do you feel good about the Continued Runway or Goldfish, but even more along the way. And look, I don't think it's exclusive to snacking.

Speaker Change: Again, driven by a very similar approach of great foundational base marketing.

Speaker Change: Just some super.

Speaker Change: Innovation that we've been bringing to the table, including some limited time offerings that have been quite quite effective as well. So I think the company.

Mark A. Clouse: I think the ability for us to bring the Goldfish playbook to meals and beverages is equally relevant. And I would argue that although, yes, we're cycling through a little tougher time on ready-to-eat soup. But if you look over the last several years, I mean, Chunky has just had a great, great run.

Speaker Change: In general has distilled down a pretty good playbook now.

Speaker Change: Yes, it was probably born of goldfish, and chunky, but youll see us applying now more broadly across the portfolio and I'll just conclude by saying.

Mark A. Clouse: Again, driven by a very similar approach of great foundational marketing and just some super innovation that we've been bringing to the table, including some limited-time offers that have been quite effective as well. So I think the company, in general, has distilled down a pretty good playbook now that, yes, was probably born of Goldfish and Chunky, but that you see us applying now more broadly across the portfolio. And I'll just conclude by saying, I think we're gonna inherit another great playbook in the Sovos team and what they've been doing in building the Reyes brand.

Speaker Change: I think we're going to inherit another great playbook and the <unk> team and what they've been doing on building the <unk> brand. So.

Speaker Change: I'm excited to get kind of get that on the table as well and continue to use.

That is kind of evidence or support for why.

Speaker Change: I think these businesses in the future are going to really be best in class.

Speaker Change: Contributing steady.

Speaker Change: <unk> sustainable growth.

Speaker Change: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.

Mark A. Clouse: So, I'm excited to kind of get that on the table as well and continue to use that as kind of evidence or support for why I think these businesses are going to really be best in class in contributing steady, predictable, sustainable growth. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.

Speaker Change: Please wait the conference will begin shortly.

Speaker Change: [music].

Speaker Change: Okay.

Speaker Change: Yes.

Yeah.

Speaker Change: [music].

Speaker Change: Okay.

Speaker Change: [music].

Operator: Please wait. The conference will begin shortly. Please wait. The conference will begin shortly. Please wait. The conference will begin shortly. Please wait. The conference will begin shortly.

Speaker Change: Okay.

Speaker Change: Yeah.

Speaker Change: Okay.

Speaker Change: [music].