Q3 2024 Campbell Soup Co Earnings Call

Greetings, ladies and gentlemen, and welcome to the Campbell Soup Company third quarter fiscal 2024 earnings conference call. At this time, all participants are in a listen only mode.

Operator: Greetings, ladies and gentlemen, and welcome to the Campbell Soup Company third quarter fiscal 2024 earnings conference call. At this time, all participants are in a listen-only mode. After today's presentation, there will be an opportunity to ask questions. If 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, press the star one. As a reminder, this conference call is being recorded. It is now my pleasure to introduce your host, Rebecca Gardy, Chief Investor Relations Officer. Please go ahead.

After todays presentation, there will be an opportunity to ask questions. If 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.

Good morning, and welcome to Campbell's third quarter fiscal 'twenty four 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, today's remarks have been prerecorded. Once we conclude the prepared remarks, we will transition to a live web.

Rebecca Gardy: Good morning, and welcome to Campbell's third quarter fiscal 24 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.

Rebecca Gardy: Today's remarks have been prerecorded. Once we conclude the prepared remarks, we will transition to a live webcast Q&A session. The slide deck and today's earnings press release have been posted to the investor relations section on our website, CampbellSoupCompany.com. At 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: <unk> Q&A session. The slide deck and today's earnings press release has been posted to the Investor Relations section on our website Campbell soup company Dot com. Following the conclusion of the Q&A session and a replay of the webcast will be available at the same location followed by a transcript of the call within 24 hours.

Rebecca Gardy: On our call today, we will make four 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 anticipated in the forward-looking statements. Because we used non-GAAP measures, we have provided a reconciliation of each of these measures to the most directly comparable GAAP measure in the appendix of our presentation.

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: Good 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 slide four outlines today's agenda, Mark will provide insights into our third quarter performance as well as our in market performance by Division.

Rebecca Gardy: Slide four outlines today's agenda. Mark will provide insight into our third quarter performance, as well as our 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 updated this morning. As a reminder, we completed the acquisition of Sovos Brands on March 12th, and as such, our third quarter and third quarter year-to-date financial results include a partial quarter of contribution from Sovos Brands. And with that, I am pleased to turn the call over to Mark.

Speaker Change: Carey will then discuss us announce results of the quarter in more detail and outline our guidance for the full fiscal year 2024, which we updated this morning. As a reminder, we completed the acquisition of service brands on March 12, and as such third quarter and third quarter year to date financial results include a partial quarter of contribution of silver.

Speaker Change: Brands and with that I am pleased to turn the call over to Mark. Thanks.

Mark A. Clouse: Thanks, Rebecca. Good morning, everyone, and thank you for joining our third quarter Fiscal 24 Earnings Call. As we announced today, we had a solid third quarter with sequential volume improvement, stable organic net sales, double-digit year-over-year adjusted EBIT and EPS growth while expanding margins. The integration of the Sovos brands is off to a fantastic start and has already added significant incremental growth to our company in the third quarter. We feel great about the confirmation of our diligence during the acquisition process and are excited about Sovos' long runway for growth.

Mark A. Clouse: Thanks, Rebecca good morning, everyone and thank you for joining our third quarter fiscal 'twenty four earnings call as we announced today, we had a solid third quarter with sequential volume improvement stable organic net sales double digit year over year, adjusted EBIT and EPS growth, while expanding margins the integration of the <unk>.

Mark A. Clouse: <unk> brands is off to a fantastic start and has already added significant incremental growth to our company in the third quarter.

Mark A. Clouse: We feel great about the confirmation of our diligence during the acquisition process and are excited about service as long runway for growth. We are also excited to be working with the many talented service brands team members, who have joined Campbell's we.

Mark A. Clouse: We are also excited to be working with the many talented Sovos Brands team members who have joined Campbell's. We saw stabilizing in-market performance on our base meals and beverage business but faced some moderate category pressure in the snacks category. However, we've seen improvement in the latest weeks and remain very confident in the continued consumer demand for snacking and the strength of our portfolio of advantaged brands. Additionally, we are pleased with our continued progress on the Snacks Operating Margin. We are updating our Fiscal 24 Outlook to reflect the addition of Sovos brands and the ongoing pace of the consumer recovery. Carrie will provide further details on this guidance a bit later.

Mark A. Clouse: We saw stabilizing end market performance on our base meals and beverage business, but faced some moderate category pressure in the snacks business.

Mark A. Clouse: However, we have seen improvement in the latest weeks and remain very confident in the continued consumer demand for snacking and the strength of our portfolio of advantage brands and.

Mark A. Clouse: Additionally, we are pleased with our continued snacks operating margin progress.

Speaker Change: We are updating our fiscal 'twenty four outlook to reflect the addition of <unk> brands and the ongoing pace of the consumer recovery Cary will provide further details on this guidance a bit later.

Mark A. Clouse: Turning to slide 7, organic net sales in the third quarter were comparable to the prior year period. As we expected, volume improved compared to the second quarter. Both adjusted EBIT and adjusted EPS increased by double digits, with the recent acquisition having no material impact on adjusted EPS. In-market consumption was down 2%, but up 6% versus two years ago, as we continue to normalize pricing and volume.

Speaker Change: Turning to slide seven organic net sales in the third quarter were comparable to the prior year period.

Speaker Change: As we expected volume improved compared to the second quarter, both adjusted EBIT and adjusted EPS increased by double digits with the recent acquisition, having no material impact to adjusted EPS in market consumption was down 2%, but up 6% versus two years ago as we continue to normalized price.

Speaker Change: <unk> and volumes the.

Mark A. Clouse: The two points of difference in organic net sales versus consumption were primarily driven by strength in unmeasured channels as food service in Canada both had strong cores. It is exciting to see the positive impact on the business from adding Sovos Brands. In Q3, on a pro forma basis, we see a 200 basis point improvement in top line and volume and mix growth. Looking at the now combined Campbells, we would rank among the fastest volume-driven growth companies in the food sector in recent periods.

Speaker Change: The two points of difference in organic net sales versus consumption was primarily driven by strength in unmeasured channels as foodservice in Canada, both had strong quarters.

Speaker Change: It is exciting to see the positive impact on the business from adding service brands in Q3 on a pro forma basis, we see a 200 basis point improvement in top line and volume and mix growth looking at the now combined Campbell's we would rank among the fastest volume driven growth companies in the food sector.

Speaker Change: Over recent periods as integration progresses, we expect to realize further topline and bottom line benefits I look forward to providing more details at our Investor day in September about how this acquisition when paired with the rest of our iconic portfolio will fuel. The next chapter of long term growth for the company.

Mark A. Clouse: As integration progresses, we expect to realize further top-line and bottom-line benefits. I look forward to providing more details at our Investor Day in September about how this acquisition, when paired with the rest of our iconic portfolio, will fuel the next chapter of long-term growth for the company. On slide 9, I want to go into more detail about the current consumer environment. Unquestionably, as prices have begun to moderate, consumers are starting to recover. This is substantiated by the first improvements in consumer confidence in a long time.

Speaker Change: On slide nine I want to go into more detail about the current consumer environment unquestionably as prices have begun to moderate consumers are starting to recover. This is substantiated by the first improvements in consumer confidence in a long time.

Mark A. Clouse: In addition, we are seeing significant growth in the percentage of the top 50 edible categories that are maintaining or increasing household penetration compared to the same period last year. Most importantly, we are seeing food volume stabilize as pricing normalizes. Yet, it is fair to say that the pace of this recovery has varied depending on the specific category and the consumer's income level.

Speaker Change: In addition, we are seeing significant growth in the percentage of the top 50 edible categories that are maintaining or increasing household penetration compared to the same period last year.

Speaker Change: Most importantly, we are seeing food volumes stabilize as pricing normalizes, yes. It is fair to say that the pace of this recovery is very depending on the specific category and the consumers' income level. For example, our snacks business, which has been the most resilient to date is now facing some short term pressure.

Mark A. Clouse: For example, our snacks business, which has been the most resilient to date, is now facing some short-term pressure, especially among lower and middle-income consumers. We are seeing some modest improvement in the snacking segment in the most recent weeks, with the expectation of more of a full recovery in the first half of fiscal 2025. Overall, we're staying focused on what we can control, with an emphasis on execution, innovation, and strong collaboration with our retail partners to remain relevant and win by meeting them both on quality and value.

Especially among the lower and middle income consumers.

Speaker Change: We are seeing some modest improvement in the snacking segment in the most recent weeks with the expectation of more of a full recovery in the first half of fiscal 2025.

Speaker Change: Overall, we are staying focused on what we can control with an emphasis on execution innovation and strong collaboration with our retail partners to remain relevant and win by meeting them, both on quality and value growing and improving share trends along with stabilizing volumes are clearly a positive.

Mark A. Clouse: Growing and improving share trends, along with stabilizing volumes, are clearly a positive indication, and we expect that to continue going forward. Moving to our Meals and Beverages division, on slide 10, we achieved comparable organic net sales in the quarter. More importantly, we delivered volume improvement from the second quarter as planned. Organic net sales outpace consumption, reflecting the strength in unmeasured channels. As mentioned earlier, this was primarily in food service in Canada.

Speaker Change: Patients and we expect that to continue going forward moving.

Speaker Change: Moving to our meals and beverages division on slide 10, we achieved comparable organic net sales in the quarter.

Speaker Change: More importantly, we delivered volume improvement from the second quarter as planned organic net sales outpaced consumption, reflecting the strengthen unmeasured channels as mentioned earlier. This was primarily in foodservice in Canada.

Mark A. Clouse: As we look at meals and beverages on a pro forma combined basis with the addition of Sovos Brands, meals and beverages net sales grew 5%. Similarly, combined dollar consumption grew 3% for the quarter. This supports the ongoing transformation of our meals and beverages business and demonstrates the ability for this key business to be a positive driver of Campbell's growth going forward. Now, let me briefly cover our soup portfolio on slide 11.

Speaker Change: As we look at meals and beverages on a pro forma combined basis with the addition of service brands meals and beverages net sales grew 5%. Similarly combined dollar consumption grew 3% for the quarter. This supports the ongoing transformation of our meals and beverages business and demonstrates the ability for.

Speaker Change: This key business to be a positive driver of Campbell's growth going forward.

Speaker Change: Now, let me briefly cover our soup portfolio on slide 11.

Mark A. Clouse: We had an improvement in share on soup during the quarter, fueled by improving trends across most key segments. In particular, as consumers continue to focus on stretchable meals, the cooking side of the portfolio benefited in the quarter, with notable dollar share gains in condensed cooking and broth. It's important to note that the industry has been experiencing some supply issues more broadly on broth.

Speaker Change: We had an improvement in share on soup during the quarter fuelled by improving trends across most key segments in particular as consumers continue to focus on stretching well meals.

Looking side of the portfolio benefited in the quarter with notable dollar share gains in condensed cooking and broth. It's important to note that the industry has been experiencing some supply issues more broadly on broth given the strength of our supply chain, we've been able to step up production to help meet that need which has accelerated.

Mark A. Clouse: Given the strength of our supply chain, we've been able to step up production to help meet that need, which has accelerated growth in this normally stable category. Although we expect industry capacity to return over time, it's adding significant new households for Swanson that we see as a positive indicator for the future, and our Ready to Serve business, although more pressured as a segment, we now have Rao's Ready to Serve Soup business under our umbrella, which had strong dollar share gains in the quarter.

Speaker Change: And this normally stable category.

Speaker Change: Although we expect industry capacity to return over time, it's adding significant new households for Swanson that we see as a positive indicator for the future.

Speaker Change: And our ready to serve business, although more pressured as a segment. We now have rayos ready to serve soup business under our umbrella, which had strong dollar share gains in the quarter.

Speaker Change: Slide 12 illustrates that we have now surpassed one of our main strategic plan goals, which was to build a $1 billion source business with the addition of the ultra distinctive rayos Italian sauce Campbell's has strengthened its leading share position in the total Italian sauce category in terms of both dollars.

Mark A. Clouse: Slide 12 illustrates that we have now surpassed one of our main strategic plan goals, which was to build a billion-dollar sauce business, with the addition of the ultra-distinctive Reos Italians. Campbell's has strengthened its leading share position in the total Italian sauce category in terms of both dollars and units, gaining 3.1 points of unit share and 3.1 points of dollar share in the third quarter.

Speaker Change: And units gaining three one points of unit share and $3 one points of dollar share in the third quarter, even more encouraging is the household penetration momentum we are seeing for prego and rayos with both increasing compared to the prior year.

Mark A. Clouse: Even more encouraging is the household penetration momentum we are seeing for Prego and Raos, with both increasing compared to the prior year. On slide 13, we updated the slide we presented in August when we announced the Sovos transaction. As we had suggested at the time, there were many factors that supported the potential for additional growth on Rayos.

Speaker Change: On slide 13, we updated this slide we presented in August when we announced the <unk> transaction as we had suggested at the time there were many factors that support the potential for additional growth on rayos I'm happy to say almost a year later, we have seen the validation of those assumptions as we continue to progress toward.

Mark A. Clouse: I'm happy to say that almost a year later, we have seen the validation of those assumptions as we continue to progress toward our next billion-dollar brand. I'm excited that Rayos is exceeding our expectations regarding household penetration and that we're seeing faster growth among younger consumers. The path ahead will continue to be fueled by household penetration gains and strengthening distribution and assortment. With innovation and adjacent categories as additional growth drivers, the future is bright.

Speaker Change: Our next billion dollar brand I'm excited that Reis is exceeding our expectations regarding household penetration and that we're seeing faster growth among younger consumers. The path ahead will continue to be fueled by household penetration gains and strengthening distribution and assortment.

Speaker Change: With innovation in adjacent categories as additional growth drivers the future is bright.

Mark A. Clouse: Moving to frozen on slide 14, although not a particularly big bet in our growth model, it was encouraging to see the progress in the quarter. Our total frozen meal business maintained positive momentum with strong velocity increases as the team optimized assortments and distribution, and with the continued strong performance from our expanding frozen pizza portfolio, we continue to see strong potential in this business. Overall, we continue to be encouraged by the success of Rayos' disciplined and thoughtful brand extensions, and we'll provide a comprehensive update on our plans going forward during our upcoming Investor Day.

Speaker Change: Moving to frozen on slide 14, although not a particularly big bet in our growth model. It was encouraging to see the progress in the quarter. Our total frozen meal business maintained positive momentum with strong velocity increases as the team has optimized assortments and distribution and with the continued strong.

Speaker Change: Performance from our expanding frozen pizza portfolio, we continue to see strong potential in this business.

Speaker Change: Overall, we continue to be encouraged by the success of Ras as disciplined and thoughtful brand extensions and we will provide a comprehensive update on our plans going forward during our upcoming Investor day.

Mark A. Clouse: I'll wrap up my remarks on the Meals and Beverages Division by discussing Noosa on slide 15. The Noosa business has been one of the more positive surprises in the Sovos Brands acquisition. It is an excellent product and brand that continues to perform very well.

Speaker Change: I'll wrap up my remarks on the meals and beverages division by discussing news on slide 15, the <unk> business has been one of the more positive surprises in the service brands acquisition.

Speaker Change: It is an excellent product and brand that continues to perform very well in fact in the quarter. The <unk> business returned to dollar growth driven by the success of its eight ounce yogurt. Additionally.

Mark A. Clouse: In fact, in the quarter, the Noosa Spoonable business returned to dollar growth, driven by the success of its 8-ounce yogurt. Additionally, the 8-ounce yogurt has now experienced 14 quarters of consecutive dollar consumption growth. Even though we have decided to explore strategic alternatives for the business, as yogurt's not a strategic category for Campbell's, the business has truly exceeded our expectations. I am grateful to the Noosa team for their tremendous focus and commitment.

Speaker Change: Additionally, the eight ounce yogurt has now experienced 14 quarters of consecutive dollar consumption growth, even though we have decided to explore strategic alternatives for the business as yogurt is not a strategic category for Campbell's the business has truly exceeded our expectations.

Speaker Change: I am grateful to the new <unk> team for their tremendous focus and commitment. It is a well run business with a dedicated team and great tasting unique products turning to our snacks business on slide 16, organic net sales declined by 1% slightly better than dollar consumption on.

Mark A. Clouse: It is a well-run business with a dedicated team and great-tasting, unique products. Turning to our snacks business on slide 16, organic net sales declined by 1%, slightly better than dollar consumption. However, on a two-year compounded annual growth rate basis, organic net sales increased six percent, matching dollar consumption growth for the quarter.

Speaker Change: The two year compounded annual growth rate basis organic net sales increased 6% matching dollar consumption growth for the quarter.

Mark A. Clouse: Our power brands increased net sales by 2% following a 16% increase in the prior year, showing the continued resilience of brands like Goldfish and Late July, which increased net sales by 5% and 26% respectively. On a two-year compounded annual growth rate basis, our power brands grew net sales and dollar consumption by 9%. Now that our power brands represent two-thirds of our snack space, This is a great foundation for sustained growth going forward. However, the strength of the power brands in the quarter was tempered by declines in lower-margin partner brands, contract manufacturing, and fresh bakery.

Speaker Change: Our power brands increased net sales by 2% following a 16% increase in the prior year showing the continued resilience of brands like goldfish and late July which increased net sales by 5% and 26% respectively on a two year compounded annual growth rate basis, our power.

Speaker Change: <unk> grew net sales and dollar consumption by 9%.

Speaker Change: Now that our power brands represent two thirds of our snacks business. This is a great foundation for sustained growth going forward.

Speaker Change: The strength of the power brands in the quarter was tempered by declines in lower margin partner brands and contract manufacturing and fresh bakery, we look forward to our Investor day, where we can provide both a clear growth acceleration path for power brands and a clear path to further optimize the remaining parts of our current <unk>.

Mark A. Clouse: We look forward to our investor day, where we can provide both a clear growth acceleration path for power brands and a clear path to further optimize the remaining parts of our current snack portfolio. On slide 17, I want to provide some context on the slower trends in the snacking categories seen over these past couple of quarters and add some proof points as to why we remain very bullish on the snacking occasion.

Speaker Change: <unk> portfolio on slide 17, I want to provide some context on the slower trends in the snacking categories seen over these past couple of quarters and add some proof points as to why we remain very bullish on the snacking occasion first over the past three years snacks categories have been the most resilient.

Mark A. Clouse: First, over the past three years, snacks categories have been the most resilient across food, essentially reflecting very little, if any, price elasticity. Recently, we have experienced some slowdown as low- and middle-income consumers have sustained economic pressure for so long that it's finally impacting staff. However, even with this category moderation, we're still averaging 8% consumption growth over the last three years, which is well above total food and historical snack growth averages. Second, the slowdown so far has been more modest compared to other edible categories, which is consistent with historical performance and learnings.

Speaker Change: Cross food, essentially reflecting very little if any price elasticity recently, we have experienced some slowdown as low and middle income consumers have sustained economic pressure for so long. It's finally impacting snacks. However.

Speaker Change: However, even with this category moderation, we're still averaging 8% consumption growth over the last three years, which is well above total food and historical snack growth averages.

Speaker Change: The slowdown so far has been more modest compared to other edible categories, which is consistent with historical performance and learnings that snacks meet a variety of consumer needs, including emotional support during difficult times, making it more resilient than many other categories.

Mark A. Clouse: The snacks meet a variety of consumer needs, including emotional support during difficult times, making them more resilient than many other categories. Finally, we're already seeing improvement as we enter the important summer holiday windows, where snacks are the star of the show for backyard barbecues and entertainment. So although I anticipate some continued pressure in the short term, we expect snacks will recover over the next couple of quarters and are confident in our overall expectation of outsized growth and sales over the longer term.

Speaker Change: Finally, we're already seeing improvement as we enter the important summer holiday windows, where snacks or the star of the show for backyard Barbecues and entertainment.

Speaker Change: So although I anticipate some continued pressure in the short term, we expect stacks will recover over the next couple of quarters and are confident in our overall expectation for outsized growth in snacking over the longer term.

Mark A. Clouse: In fact, a couple of standouts in the third quarter were late July and Pepperidge Farm cookies, fueled by innovation and great marketing. We spiced up our late July portfolio with the addition of scorchin' sauce and Hawaiian habanero, just in time for the summer snacking season.

Speaker Change: In fact, a couple of standouts in the third quarter were late July and Pepperidge farm cookies fueled by innovation and great marketing, we spiced up our late July portfolio with the addition of scorching source and Hawaiian Habanero just in time for the summer snacking season late.

Mark A. Clouse: Late July net sales in the quarter increased 26% compared to the prior year as the brand displays remarkable momentum supported by our great new product development, brand investment, and execution. On the sweeter side, we continue to drive strong levels of velocity in cooking, with new innovations in our Pepperidge Farm Milano cookie portfolio, such as the launch of our London Fog limited-time offer. Most importantly, our Pepperidge Farm Cookies portfolio continues to grow in buyers across all generations.

Speaker Change: <unk> net sales in the quarter increased 26% compared to prior year as the brand displays remarkable momentum supported by our great New product development brand investment and execution on the sweetener side, we continued to drive strong levels of velocity and cookies with new innovations in our pepperidge.

Speaker Change: Mulatto cookie portfolio, such as the launch of our London fog limited time offering.

Speaker Change: Importantly, our Pepperidge farm cookies portfolio continues to grow buyers across all generations, a positive proof point that as consumers are more selective on how they spend their snacking dollars are elevated brands are well positioned to win.

Mark A. Clouse: This is a positive proof point that as consumers are more selective about how they spend their snacking dollars, our elevated brands are well positioned to win. Slide 19 illustrates the continued margin progress in our snacks. On a two-year compound annual growth rate basis year to date, Snack's organic net sales grew 7%, and operating earnings increased 14%.

Speaker Change: Slide 19 illustrates the continued margin progress in our snacks business on a two year compound annual growth rate basis year to date snacks organic net sales grew 7% and operating earnings increased 14%. This growth came with approximately 190 basis points of margin expansion.

Mark A. Clouse: This growth came with approximately 190 basis points of margin expenditure. Key drivers of this margin expansion are initiatives to optimize our network, better execution in our manufacturing facilities, and disciplined spending. We expect to reach our 15% operating margin goal for the full year and are on track to reach our longer-term target of 17%. Before I wrap up, I wanted to address the recent announcement about further optimization of our supply chain. We are making significant investments to continue the transformation of our manufacturing and distribution network to maintain our competitive advantage while also selectively rationalizing less efficient or redundant areas to lower costs.

Speaker Change: Key drivers of this margin expansion our initiatives to optimize our network better execution in our manufacturing facilities and disciplined spending we expect to reach our 15% operating margin goal for the full year and are on track to reach our longer term target of 17%.

Mark A. Clouse: We are investing approximately $230 million through fiscal 2026 in various facilities to modernize our supply chain, including added capacity and capabilities. These projects will create approximately 210 new jobs, especially with new aseptic technology opportunities in Maxton, North Carolina. This is in addition to the previously announced $160 million investment in our Richmond, Utah site to expand goldfish capacity. We are also closing our Tualatin plant as we shift soup and broth production to more advantageous sites, while also simplifying our Jeffersonville, Indiana plant to focus on late July tortilla chip production and move potato chip production to more scaled locations. The impact of these changes will be the reduction of 415 posts and will be executed over the next two years.

Speaker Change: Before I wrap up I wanted to address the recent announcement about further optimization of our supply chain, we are making significant investments to continue the transformation of our manufacturing and distribution network to maintain our competitive advantage, while also selectively rationalizing less efficient or redundant areas.

Speaker Change: As to lower cost, we are investing approximately $230 million through fiscal 2026, and various facilities to modernize our supply chain, including added capacity and capabilities. These projects will create approximately 210, new roles, especially with new aseptic technology.

Speaker Change: <unk> in Maxton North Carolina.

Speaker Change: This is in addition to the previously announced $160 million investment in our Richmond, Utah site to expand goldfish capacity. We are also closing our two wallets and plants as we shift soup and broth production to more advantage sites. While also simplifying our jeffersonville, Indiana plan to focus on late July tortilla.

Speaker Change: Chip production and move potato chip production to more scaled locations. The impact of these changes will be the reduction of 415 rolls and be executed over the next two years.

Mark A. Clouse: We continue to evaluate additional optimization opportunities across the network to build our supply chain of the future. At our upcoming Investor Day, we plan to provide full program details and savings to lay out the next source of fuel for growth and earnings. In summary, the third quarter was a solid quarter where we advanced in every aspect of the business. We saw stabilizing trends in growth and volumes, compelling earnings with margin improvement, and a great start to the integration of Sova.

Speaker Change: We continue to evaluate additional optimization opportunities across the network to build our supply chain of the future.

At our upcoming Investor Day, we plan to provide full program details and savings to lay out the next source of fuel for growth and earnings.

Speaker Change: In summary, the third quarter was a solid quarter, where we advanced in every aspect of the business.

Speaker Change: We saw stabilizing trends on growth in volumes compelling earnings with margin improvement and a great start to the integration of those brands as we continue to control the controllable and a dynamic environment I remain confident in our outlook and continue to see this moment as a tremendous time for the company to begin its new.

Mark A. Clouse: As we continue to control the controllables in a dynamic environment, I remain confident in our outlook and continue to see this moment as a tremendous time for the company to begin its next chapter of sustained growth. I'm looking forward to laying out that path fully for you at our upcoming Investor Day in September in New York City. With that, I'll turn it over to Carrie.

Speaker Change: Next chapter of sustained growth Im.

Speaker Change: I'm looking forward to laying out that path fully for you at our upcoming Investor Day in September in New York City with that let me turn it over to Kerry Thanks, Mark and good morning, everyone I'll start by sharing some highlights from our third quarter, we had a lot of positives, including the better than expected contribution of the established brands business to our performance.

Carrie L. Anderson: Thanks, Mark, and good morning, everyone. I'll start by sharing some highlights from our third quarter. We had a lot of positives, including the better-than-expected contribution of the Sovos Brands business to our performance. Reported net sales were up 6% driven by the partial quarter of sales contribution from Sobos Brands. Organic net sales, excluding the impact of acquisitions, divestitures, and currency, were comparable to the prior year and continue to show sequential volume improvements. On a two-year compounded annual growth rate basis, organic net sales grew 2%.

Carrie L. Anderson: Both adjusted EBIT and adjusted earnings per share increased double digits in the quarter, with expansion in both adjusted gross margin and adjusted EBIT. Adjusted EBIT increased 13%, primarily driven by the contribution of Sobos Brands, as well as higher adjusted earnings in the base business. Adjusted EPS increased 10% to $0.75, with the impact of the acquisition approximately neutral in the quarter, exceeding our initial expectations. Slide 24 shows that organic net sales were stable, with nominal impacts from net price realization and volume and mix.

Reported net sales were up 6% driven by the partial quarter of sales contribution from Southworth brands organic net sales, excluding the impact of acquisitions divestitures and currency were comparable to the prior year and continued to show sequential volume improvement.

Kerry: On a two year compounded annual growth rate basis organic net sales grew 2%.

Kerry: Both adjusted EBIT and adjusted earnings per share increased double digits in the quarter with expansion in both adjusted gross margin and adjusted EBIT margin.

Kerry: Adjusted EBIT increased 13%, primarily driven by the contribution of silver brands as well as higher adjusted earnings in the base business adjusted EPS increased 10% to 75.

Kerry: With the impact of the acquisition approximately neutral in the quarter exceeding our initial expectations.

Kerry: Slide 24 shows that organic net sales were stable with nominal impact from net price realization and volume and mix, we experienced sequential improvement in the third quarter and expect these volume trends to modestly improve in Q4.

Carrie L. Anderson: We experienced sequential improvement in the third quarter and expect these volume trends to modestly improve in Q4. Additionally, during the quarter, Sovo's brands added 7 percentage points to reported net sales growth, which exceeded our expectations. On slide 25, the third quarter adjusted gross profit margin expanded 30 basis points compared to the prior year to 31.2%. The drivers of margin expansion included supply chain productivity, cost savings initiatives, and favorable volume and mix. These contributors more than offset cost inflation and other supply chain costs and the impact of the SOBOS acquisition, which has a lower margin profile than the base business. Core inflation in the quarter remains in the low single-digit range, consistent with rates we experienced in the first half and much lower than the 8% reported in the prior year.

Kerry: During the quarter service brand added seven percentage points to reported net sales growth, which exceeded our expectations.

Kerry: On slide 25 third quarter adjusted gross profit margin expanded 30 basis points compared to the prior year to 31, 2%. The drivers of margin expansion included supply chain productivity cost savings initiatives and favorable volume and mix.

These contributors more than offset cost inflation and other supply chain costs and the impact of the <unk> acquisition, which has a lower margin profile than the base business.

Kerry: Core inflation in the quarter remained in the low single digit range consistent with rates, we experienced in the first half and much lower than the 8% reported in the prior year, we anticipate core inflation to remain in this range for the balance of fiscal 'twenty four and we will stay focused in areas of our portfolio with increased input cost such as.

Carrie L. Anderson: We anticipate core inflation to remain in this range for the balance of fiscal 24, and we will stay focused on areas of our portfolio with increased input costs, such as tomatoes, olive oil, cocoa, and other areas of persistent inflation, such as labor costs and warehousing. Through the end of the third quarter, we achieved $940 million of our $1 billion multi-year cost savings program. Similar to Q3, we expect our productivity initiatives and cost savings programs to offset the impact of inflation in the fourth quarter.

Kerry: Tomatoes, olive oil cocoa and other areas of persistent inflation, such as labor cost and warehousing costs through.

Kerry: Through the end of the third quarter, we achieved $940 million of our $1 billion multiyear cost savings program.

Kerry: Similar to Q3, we expect our productivity initiatives and cost savings programs to offset the impact of inflation in the fourth quarter.

Carrie L. Anderson: Turning to slide 26, other operating items include adjusted marketing and selling expenses, which increased 2% to $198 million. The increase was primarily due to the impact of the recent acquisition, partially offset by lower costs in the base business, including lower advertising and consumer promotion expense, lower incentive compensation expense, and lower selling expense. Adjusted administrative expenses increased $2 million, or 1%, to $156 million, due primarily to the addition of the recent acquisition.

Kerry: Turning to slide 26, other operating items include adjusted marketing and selling expenses, which increased 2% to $198 million.

Kerry: The increase was primarily due to the impact of the recent acquisition, partially offset by lower costs in the base business, including lower advertising and consumer promotion expense lower incentive compensation expense and lower selling expense.

Kerry: Adjusted administrative expenses increased $2 million or 1% to $156 million due primarily to the addition of the recent acquisition.

Carrie L. Anderson: Adjusted administrative expenses benefited from approximately $3 million in cost synergy realization from our acquisition integration plan that I will touch on a bit more when covering our next slide. As shown on slide 27, third quarter adjusted EBIT increased 13% and adjusted EBIT margin increased 90 basis points, primarily due to higher adjusted gross profit from the contribution of the acquisition and the base business. This was partially offset by higher adjusted expenses, including marketing and selling, administrative, research, and development, and other expenses, primarily due to the addition of Sobos Brands expenses in these P&L categories.

Kerry: Adjusted administrative expenses benefited from approximately $3 million and cost synergy realization from our acquisition integration plan that it will touch on a bit more when covering our next slide.

Kerry: As shown on slide 27 third quarter, adjusted EBIT increased 13% and adjusted EBIT margin increased 90 basis points, primarily due to higher adjusted gross profit from the contribution of the acquisition and the base business. This was partially offset by higher adjusted expenses, including marketing and selling.

Kerry: Administrative research and development and other expenses, primarily due to the addition of <unk> brands expense and these P&L categories.

Carrie L. Anderson: As mentioned earlier, these higher adjusted admin expenses were partially offset by approximately $3 million in cost synergies related to our Sovos Brands integration plan. We expect to realize a total of $50 million in annualized cost synergies by the end of the second year post-close, of which about two-thirds are expected in the administrative expense area and the balance in the cost of products sold. As Mark indicated, we are pleased with the pace of the integration and look forward to sharing more about the next phase of our cost savings initiatives at our Investor Day in mid-September, which will encompass Sovo Synergy Savings as well as incremental supply chain network savings.

Kerry: As mentioned earlier these higher adjusted admin expenses were partially offset by approximately $3 million in cost synergies related to our silver brands integration plan.

Kerry: We expect to realize a total of $50 million in annualized cost synergies by the end of the second year post close.

Mark A. Clouse: Of which about two thirds are expected in the administrative expense area and the balance in cost of products sold as Mark indicated we are pleased with the pace of the integration and look forward to sharing more about the next phase of our cost savings initiatives at our Investor day in mid September, which will encompass salvo synergy savings as well.

Mark A. Clouse: Incremental supply chain network savings.

Carrie L. Anderson: On slide 28, Adjusted EPS increased double-digitally to $0.75, primarily reflecting higher Adjusted EBIT and a lower Adjusted Effective Tax Rate, partially offset by higher Adjusted Net Interest Expense related to higher levels of debt to fund the acquisition. As we mentioned earlier, the acquisition was approximately neutral to Adjusted EPS. In Meals and Beverages, third quarter reported net sales increased 15% due to the partial quarter contribution of the Sovos Brands acquisition. Pro Forma third quarter net sales growth for the division, as if the acquisition had occurred at the beginning of the third quarter of fiscal 23, was approximately 5%, driven by the respective Pro Forma Q3 growth of Sobos Brands of approximately 27%.

Speaker Change: On slide 28, adjusted EPS increased double digit to 75.

Speaker Change: Primarily reflecting higher adjusted EBIT and a lower adjusted effective tax rate, partially offset by higher adjusted net interest expense related to higher levels of debt to fund the acquisition as we mentioned earlier the acquisition was approximately neutral to adjusted EPS.

Speaker Change: And Nielsen beverages third quarter reported net sales increased 15% due to the partial quarter contribution of the <unk> brands acquisition pro forma third quarter net sales growth for the division as if the acquisition had occurred at the beginning of the third quarter of fiscal 'twenty three was approximately 5% driven by the respective pro.

Speaker Change: Format Q3 growth of <unk> brands of approximately 27%. This Q3 pro forma silvis growth benefited from the timing of rail source inventory bills and a shift in the timing of a promotion in non measured channels.

Carrie L. Anderson: This Q3 Pro Forma Sobos growth benefited from the timing of Rayo Sauce inventory bills and a shift in the timing of a promotion in non-measured channels. However, organic net sales for meals and beverages, excluding the acquisition, were flat, with a favorable impact of volume and mix offset by net price realization.

Organic net sales for meals and beverages, excluding the acquisition were flat with the favorable impact of volume and mix offset by net price realization in.

Carrie L. Anderson: In the quarter, gains in our food service business were offset by lower sales in U.S. retail, where we saw declines in beverages, Campbell's Pasta, and Swanson Canned Poultry, partially offset by gains in Prego Pasta Sauce and U.S. Soup. Sales of U.S. Soup increased 2 percent, an encouraging indicator in the business and supportive of the expected sequential improvement in the second half of fiscal 24. The 2 percent sales increase was primarily due to an increase in broth sales, partially offset by lower sales of ready-to-serve and condensed soup.

Speaker Change: In the quarter of gains in our foodservice business were offset by lower sales in U S retail, where we saw declines in beverages, Campbell's pasta and Swanson canned poultry, partially offset by gains in prego pasta sauce and U S soup in U S soup sales increased 2% and encouraging indicator in the business.

Speaker Change: And supportive of the expected sequential improvement in the second half of fiscal 'twenty for a 2% sales increase was primarily due to an increase in broth sales, partially offset by lower sales of ready to serve and condensed soups.

Carrie L. Anderson: In addition, we were pleased with the third quarter meals and beverages operating margin of 18%, which improved 160 basis points year over year, more than absorbing the impact of the recent acquisition, which, as I mentioned earlier, has a lower margin profile than the base business. Third-quarter organic net sales in snacks were slightly lower by 1%, but we were encouraged by the continued sequential improvement of the year-over-year volume trends from the second quarter.

In addition, we were pleased with the third quarter meals and beverages operating margin of 18%, which improved 160 basis points year over year more than absorbed any impact of the recent acquisition, which as I mentioned earlier has a lower margin profile than the base business.

Speaker Change: Third quarter organic net sales and snacks were slightly lower by 1%, but we were encouraged by the continued sequential improvement of the year over year volume trends from the second quarter.

Carrie L. Anderson: The lower sales were primarily driven by declines in third-party partner brands, contract manufacturing, and bakery, partially offset by a 2% increase in our Snacks Power brand. On a two-year compounded annual basis, Snacks Organic Net Sales and Power Brands Net Sales increased 6% and 9%, respectively. Net price realization was neutral in the quarter.

Speaker Change: Lower sales were primarily driven by declines in third party partner brands and contract manufacturing and bakery, partially offset by a 2% increase in our snacks power brands on a two year compounded annual basis snacks organic net sales empower brands net sales increased 6% and 9% respectively.

Speaker Change: Net price realization was neutral in the quarter.

Carrie L. Anderson: Third quarter operating margin for Sachs was 15.2 percent. This was a lower margin compared to last year, but it came in as expected due to lapping a tougher comparison with last year's Q3 margin, benefiting from the combination of pricing waves and the timing of fiscal 23 marketing and selling expenses. Year-to-date margins of 14.9% have improved 40 basis points from the prior year and are approaching our 15% goal for the full year, fiscal 2024.

Speaker Change: Third quarter operating margin for Saks was 15, 2%.

Speaker Change: This was a lower margin compared to last year, but came in as expected due to lapping a tougher comparison with last year's Q3 margin benefiting from the combination of pricing waves and the timing of fiscal 'twenty, three marketing and selling expenses.

Speaker Change: Year to date margins of 14, 9% have improved 40 basis points from the prior year and are approaching our 15% goal for the full year fiscal 2024, we intend to share more details related to our longer term roadmap for our snacks margin of 17% during our Investor day.

Carrie L. Anderson: We intend to share more details related to our longer-term roadmap for a SNAX margin of 17% during our investor day. Turning to slide 31, we continue to generate strong cash flow from operations of nearly $900 million through the end of the third quarter. This result was slightly lower than the prior year, primarily due to costs related to the acquisition. Year-to-date capital expenditures were $376 million, up from $257 million in the prior year, as we continue to prioritize key growth and capability-building investments.

Speaker Change: Turning to slide 31, we continued to generate strong cash flow from operations of nearly $900 million through the end of the third quarter. This result was slightly lower than prior year, primarily due to costs related to the acquisition year to date capital expenditures were $376 million up from 257 million.

Speaker Change: In the prior year as we continue to prioritize key growth and capability building investments.

Carrie L. Anderson: We also remain committed to returning cash to our shareholders with $334 million of dividends paid and $46 million in anti-dilutive share repurchases year-to-date. With the closing of the Sovos Brands acquisition in the quarter, our net debt to adjusted EBITDA leverage at the end of the third quarter was 3.9 times, as expected. We remain committed to investment-grade ratings and our goal to return to our three-times net leverage target by the end of year three post-close. At the end of the third quarter, we had approximately $107 million in cash and cash equivalents and approximately $1.85 billion available under our revolving credit facility, which we renewed this quarter.

Speaker Change: We also remain committed to returning cash to our shareholders with $334 million of dividends paid and $46 million, an anti dilutive share repurchases year to date with the closing of the service brands acquisition in the quarter, our net debt to adjusted EBITDA leverage at the end of the third quarter was three nine.

Speaker Change: Times as expected, we remain committed to investment grade ratings and our goal to return to our three times net leverage target by the end of year three post close at the end of the third quarter, we had approximately $107 million in cash and cash equivalents and approximately $1 85 billion available under our.

Speaker Change: Our revolving credit facility, which we renewed this quarter.

Carrie L. Anderson: We are updating our fiscal 2024 full-year guidance to reflect the expected performance of the base business and the impact of the recent acquisition. Full-year reported net sales are expected to increase approximately 3 to 4 percent, driven by the partial year of net sales contribution of the Sobos brands. Full-year organic net sales growth is currently pacing to the midpoint of our updated range of approximately flat to down 1 percent, reflecting the current pace of consumer recovery.

Speaker Change: We are updating our fiscal 2020 for full year guidance to reflect the expected performance of the base business and the impact of the recent acquisition full year reported net sales are expected to increase approximately 3% to 4% driven by the partial year of net sales contribution of silver brands' full year organic net sales.

Speaker Change: Growth is currently pacing to the midpoint of our updated range of approximately flat to down 1%, reflecting the current pace of consumer recovery.

Carrie L. Anderson: At the midpoint, this represents about a half point lower than what we indicated on our second quarter earnings call when we said we expected organic net sales to be at the low end of flat to 2 percent. As Mark mentioned, and like other companies in the food industry, we continue to be impacted by a dynamic macroeconomic environment and are observing a discerning consumer that is particularly affected at lower income levels.

Speaker Change: At the midpoint. This represents about a half a point lower than what we indicated on our second quarter earnings call. When we said we expected organic net sales to be at the low end of flat to 2%.

Speaker Change: As Mark mentioned and like other companies in the food industry, we continue to be impacted by a dynamic macroeconomic environment and observing a discerning consumer that has particularly impacted at lower income levels.

Carrie L. Anderson: At the midpoint of our updated net sales guidance, implied fourth-quarter organic net sales growth is expected to moderately increase sequentially from Q3, and we expect a low pro forma net sales contribution from Sobos Brands in Q4, reflecting the timing shifts from Q3 that I mentioned earlier. We feel really good about the performance of Sobos Brands, specifically Rayo's, with sales growing faster than our expectations at the time of the deal announcement, thus enabling us to benefit from a higher level of adjusted EBIT contributions since closing. Moving forward, we still expect long-term Sobos Brands net sales growth to be in the mid-single digit range.

Speaker Change: At the midpoint of our updated net sales guidance implied fourth quarter organic net sales growth is expected to moderately increase sequentially from Q3, and we expect a low teens pro forma net sales contribution from tablets brands in Q4, reflecting the timing shifts from Q3 that I mentioned earlier.

Speaker Change: We feel really good about the performance of silver brand, specifically rails with sales growing faster than our expectations at the time of the deal announcement, thus, enabling us to benefit from a higher level of adjusted EBIT contribution since closing moving forward. We still expect long term service brands net sales growth to be in the mid single digit range.

Carrie L. Anderson: We'll provide more specifics on near-term fiscal 25 expectations on our fourth quarter earnings call. Full-year adjusted EBIT growth for the combined business is expected to be approximately 6.5% to 7%, reflecting the partial year contribution of the acquisition, inclusive of integration savings, and base business performance, including lower adjusted marketing and selling expenses and favorable net price realization, productivity, and cost savings, more than offsetting inflation and other supply chain costs. This outlook implies fourth-quarter double-digit adjusted EBIT growth driven by the contribution of the acquisition and the performance in the base business, including improving adjusted gross margin, as well as lapping a 23% increase in A and C in the prior year.

Speaker Change: <unk> will provide more specifics on near term fiscal 'twenty five expectations on our fourth quarter earnings call.

Full year adjusted EBIT growth for the combined business is expected to be approximately six 5% to 7%, reflecting the partial year contribution of the acquisition inclusive of integration savings and base business performance, including lower adjusted marketing and selling expenses and favorable net price realization productivity.

Speaker Change: <unk> and cost savings more than offsetting inflation and other supply chain costs. This outlook implies fourth quarter double digit adjusted EBIT growth driven by the contribution of the acquisition and the performance in the base business, including improving adjusted gross margin as well as lapping a 23% increase in ANC in the prior.

Speaker Change: For year as a reminder of the adjusted EBIT contribution of <unk> in our results include stock based compensation expense and acquisition related depreciation and amortization expense, whereas historically when silver was a standalone company. These costs were not included in their adjusted results.

Carrie L. Anderson: As a reminder, the adjusted EBIT contribution of Sobos in our results includes stock-based compensation expense and acquisition-related depreciation and amortization expense, whereas historically, when Sobos was a standalone company, these costs were not included in their adjusted results. Annual transaction-related depreciation and amortization expense is expected to be in the range of $15 to $20 million, in line with our original expectation. Full year adjusted EPS for the combined business is expected to be up approximately 2-3% in a range of $3.07 to $3.10.

Speaker Change: Annual transaction related depreciation and amortization expense is expected to be in the range of $15 million to $20 million in line with our original expectations.

Speaker Change: Full year adjusted EPS for the combined business is expected to be up approximately 2% to 3% and a range of $3 <unk> to $3 10.

Carrie L. Anderson: This includes expected dilution from the SOGOS acquisition between 1 to 2 cents per share for fiscal 24. This full-year outlook also implies double-digit growth in Q4 adjusted EPS driven by expected higher adjusted EBIT partially offset by higher net interest expense related to the acquisition, and then a few other guidance items that I'll update. Full year cost savings towards our $1 billion enterprise-wide program are expected to be in the range of $55 to $60 million.

Speaker Change: This includes expected dilution from the <unk> acquisition between one to two per share for fiscal 'twenty for this full year outlook also implies double digit growth in Q4, adjusted EPS driven by expected higher adjusted EBIT, partially offset by higher net interest expense related to the acquisition.

Speaker Change: And then a few other guidance items settle update.

Speaker Change: Full year cost savings towards our $1 billion enterprise wide program are expected to be in the range of $55 million to $60 million full.

Carrie L. Anderson: Full-year adjusted net interest expense is now expected to be approximately $245 million versus our prior forecast of $185 to $190 million, reflecting incremental interest expense associated with the new acquisition-related debt. And full-year capital expenditures are expected to be approximately $500 million as we continue to invest in our business for the long run. All other underlying guidance assumptions remain unchanged.

Speaker Change: Full year adjusted net interest expense is now expected to be approximately $245 million versus our prior forecast of $185 million to $190 million, reflecting incremental interest expense associated with the new acquisition related debt and.

Speaker Change: In full year capital expenditures are expected to be approximately $500 million as we continue to invest in our business for the long run all other underlying guidance assumptions remain unchanged.

Carrie L. Anderson: To wrap up, we were pleased with our third quarter results, delivering double-digit growth in both adjusted EBIT and EPS and margin expansion, as well as better-than-expected acquisition performance. As we head into Q4, we remain encouraged by the continued expectation of improving volume trends in the business, another quarter of double-digit adjusted EBIT and earnings per share growth, and building on the great start to the integration of the Sobos Brands business. With that, I will turn it over to the operator to begin Q&A.

Speaker Change: To wrap up we were pleased with our third quarter results delivering double digit growth in both adjusted EBIT and EPS and margin expansion as well as better than expected acquisition performance as we head into Q4, we remain encouraged by the continued expectation for improving volume trends in the business another quarter of double digit adjusted EBIT.

Speaker Change: And earnings per share growth and building on the great start to the integration of the silver brands' business with that let me turn it over to the operator to begin Q&A.

Speaker Change: Thank you we will now begin the question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad to raise your hand and joined the queue. If you would like to withdraw your question simply press Star one again.

Operator: Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star 1 again. Your first question comes from the line of Andrew Lazar from Barclays.

Carrie L. Anderson: Thank you. We will now begin the question-and-answer session. If you would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, please press star 1 on your telephone keypad.

Speaker Change: Your first question comes from the line of Andrew Lazar from Barclays. Your line is open.

Andrew Lazar: Your line is open. Great. Thank you. Good morning, Mark and Carrie.

Great. Thank you good morning, Marc and Carrie.

Speaker Change: Hey, Andrew Hey, there.

Mark A. Clouse: Mark maybe to start off.

Andrew Lazar: I guess, what gives you the confidence in a full recovery in your fiscal first half of 'twenty five while simultaneously taking down your 24 organic sales forecast by about 50 basis points and I guess when you say full recovery, how do you sort of define that thank you yeah. Yeah. It's a good question.

Mark A. Clouse: Thank you. Yeah. Yeah. That's a good question. Um, so I think, you know, one of the things, maybe just set a little bit of context. I think one of the things that is being made.

Speaker Change: So I think one of the things.

Speaker Change: Maybe just set a little bit of context, I think one of the things that has made.

Mark A. Clouse: Predicting consumer recovery a little more challenging than it probably seems that it should be is the non-linear kind of path that it's followed, where depending on the income level of the consumer and the category that you're referencing, the pace of impact has been somewhat staggered, and I gave the example this morning, which I think is a big reason for the moderation in Organic Outlook for the balance of the year, which is that the snacks business, And I think a combination of the role that snacking plays, a little bit of the emotional connection, and tough times, all of those elements have kind of made snacks a bit more resilient.

Speaker Change: This predicting.

Speaker Change: <unk> recovery, a little more challenging.

Speaker Change: Then it probably seems that it should be.

Speaker Change: As the non linear kind of path that is followed where depending on income level of consumer and category that you're referencing.

Speaker Change: The pace of impact has been.

Speaker Change: Somewhat staggered and I gave the example, this morning, which which I think is a big reason for the.

Speaker Change: Moderation in organic outlook for the balance of the year, which is that the snacks business in many ways.

Speaker Change: And not in consistent with history.

Speaker Change: It has to be very resilient.

Speaker Change: And I think a combination of the role that stacking plays a little bit of the emotional.

Speaker Change: Connection in tough times, all of those elements have kind of made stacks a bit more resilient, but as we started the third quarter. We began to see what I would describe as kind of a catching up if you will of some consumer trade down.

Mark A. Clouse: But as we started the third quarter, we began what I would describe as kind of a catching up, if you will, of some consumer trade down, a little bit more buying on promotion, things that we had seen in the meals and beverage categories almost a year ago. And so as you look at meals and beverages, and especially as we watch these next four weeks, or the last four weeks, you see kind of a full cycle of that consumer change in behavior on meals and beverages, and thus, you're seeing meals and beverages to a certain degree recover.

Speaker Change: A little bit more buying on promotion and things that we had seen on the meals and beverage categories almost a year ago.

Speaker Change: So as you look at meals and beverage and especially as we watch. These next four weeks or the last four weeks you see kind of a full cycling of that consumer.

Speaker Change: And behavior at meals and beverage and thus youre seeing.

Speaker Change: Meals and beverages to a certain degree recover and when I say recover it's not a hockey stick of of change to positive, but more of a neutral base.

Mark A. Clouse: And when I say recover, it's not a hockey stick of change to positive, but more of a neutral base that then the categories kind of return, I would say, more to a historical run rate. And so in the last four weeks, as an example, if you were to cue all the meals and beverage categories on a dollar basis, we're up about 1%, and on units, we're about up the same. So you're seeing both, units and dollars normalized to positive, but fair to say meals and beverage kind of felt the impact a lot earlier. So why do we say the first half? And again, you know, that's a pretty broad six-month window.

Speaker Change: Then the categories kind of return I would say more to a historical.

Speaker Change: Our run rate and so in the last four weeks as an example, if you would assume all the meals and beverage categories.

On a dollar basis were up about 1% and on units were about up to say so you are seeing both.

Speaker Change: Units and dollars normalized positive.

Speaker Change: But fair to say meals and beverage kind of felt the impact.

Speaker Change: A lot earlier, so why we say the first half and again.

Speaker Change: That's a pretty broad six month window.

Speaker Change: Thank you.

Speaker Change: I'm trying not to create a false sense of accuracy of pinpointing it but I do think through the first half of the year snacks, we'll we'll have cycled a fair amount of what I would say.

Mark A. Clouse: I think, you know, I'm trying not to create a false sense of accuracy in pinpointing it, but I do think through the first half of the year, snacks will have cycled through a fair amount of what I would say their consumer adjustment or change in behavior is. Now, a little bit of the underlying element in all of this that's important is still how well are we executing. What does the promotional landscape look like? How are we doing with innovation and all the other variables? And I do feel really good about that outlook for 2025.

Speaker Change: Their consumer adjustment or change in behavior is now.

Speaker Change: A little bit of the underlying element in all of this that's important is still how well are we executing what is the promotional landscape look like.

How are we doing with innovation all the other variables and I do feel really good.

Mark A. Clouse: And so I think that the combination of those, albeit about six months later than we would have liked it to be, but I think then as you cycle through that kind of full swing, that puts you in a position to see it in the first half of next year. Now, one thing that I will say is encourage. And this was always a little bit of a question mark and needed a bit more real-time data.

Speaker Change: That outlook in 2025, and so I think the combination of those albeit about six months later than we would have liked it to be but I think that as you cycle through that that kind of full swing that puts you in a position where to see it in.

Speaker Change: In the first half of next year now one thing that I will say is encouraging.

Speaker Change: And this was always a little bit of a question mark in a bit more real time data.

Mark A. Clouse: As we go into the summer, obviously, the holiday weekends and kind of summer, you know, barbecue and entertainment are such a key moment for snacking. What is a little bit more encouraging is that you're seeing the snack categories in the latest four weeks, although not back to fully positive, pretty close to neutral, you know, down about a quarter of a point, units are off about a half of a point. But that's significantly better than what we were seeing in Q3.

Speaker Change: As we go into the summer obviously, the holiday weekends in kind of the summer.

Speaker Change: Barbecue and entertainment.

Speaker Change: As such a key moment for snacking.

Speaker Change: Is a little bit more encouraging is youre seeing the snacks categories at the latest four weeks.

Speaker Change: Though not back to fully positives are pretty close to neutral.

Speaker Change: Down about a quarter of a point units are off about a half a point, but that's significantly better than what we were seeing in Q3, and even more interesting I think some of the categories that indexed a little bit more to the upper end of middle income to higher income are actually performing really well in the latest four weeks.

Mark A. Clouse: And even more interesting, I think, some of the categories that index a little bit more to the upper end of middle income to higher income are actually performing really well in the latest four weeks, things like kettle potato chips, tortilla chips, and some of our specialty chips, these categories are all growing in the latest four weeks at kind of mid-single digits, which again, the recovery path is not necessarily linear. Unfortunately, for the middle and lower middle classes and lower income, they feel it a little bit more, and I think the duration's weighed a bit heavier.

Speaker Change: Things like <unk>.

Speaker Change: Kettle potato chips.

Speaker Change: Tortilla chips.

Speaker Change: Some of our specialty like.

Speaker Change: Pretzel Crisps these categories are all.

Speaker Change: Growing in the latest four weeks kind of mid single digits, which which again the recovery path is not necessarily linear unfortunately for the middle and lower middle and lower income they feel it a little bit more and I think the durations wait a bit heavier so that may be a little more than you bargained for Andrew on <unk>.

Mark A. Clouse: So that may be a little more than you bargained for, Andrew, on why we're pinpointing this. But it is complicated, and I think trying to help people understand why it's not so simple to just put a pin in the ground on when it's going to turn by every category is probably important. Now, I appreciate the context. Thanks very much. I'll pass it on. Your next question comes from the line of Jim Salera from Stevens.

Speaker Change: Why would pinpoint it but it is complicated and I think trying to help people understand why it's not so simple.

Speaker Change: Just put a pin in the in the ground on what it's going to turn.

Speaker Change: By every category is probably important to understand yes, I appreciate the context, thanks very much I'll pass it on.

James Ronald Salera: Your next question comes from the line of Jim Salera from Stevens. Your line is open. Bye, guys. Good morning. Thanks for taking our questions.

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

James Ronald Salera: Your line is open. Hi guys. Good morning. Thanks for taking our questions.

Speaker Change: Hi, guys. Good morning, Thanks for taking my question Hey, Jack.

Mark A. Clouse: Mark I wanted to maybe size up the longer term opportunity for rayos, given the strength and the performance to the sources scene.

Speaker Change: Can you just give us some thoughts around what you think the upside is on the SaaS side, and then maybe speak to some of the other growth avenues like frozen pizza frozen meals ready to serve soup and as we integrate <unk> into our models, how we should think about that as the growth engine moving forward.

Mark A. Clouse: Yeah, obviously, there's a lot of good detail in that question. And I will say that, excuse me, part of the advantage of doing our investor day in September is it'll give us a chance to really have that wired pretty tight and arguably be able to give you a little more depth on it. But, Here's what I'll say so far. I could not be more happy with how the Raios integration has gone. I have to say it's on almost every variable within how you would assess an acquisition for a company. And again, I'm not entirely surprised.

Speaker Change: Yes, obviously theres a lot of.

Speaker Change: A lot of good detail on that question and I will say that that I think.

Speaker Change: Excuse me part of it.

Speaker Change: Part of the advantage of.

Doing our Investor day in September that will give us a chance to really have that wired pretty tight.

Speaker Change: And arguably be able to give you a little more depth on it but.

Speaker Change: Here's what I'll say so far.

Speaker Change: I could not be more.

Speaker Change: I'm happy with how the rayos integrations going and really.

I have to say, it's at almost every variable.

Speaker Change: Within how you would assess it.

Mark A. Clouse: We were very patient. I think a lot of great diligence was done, but almost to the point. We have validated all of our assumptions, if not identified upside, just about everything that we laid out for you at the time of the announcement. So, whether you're looking at the deal economics, right?

Speaker Change: An acquisition for our company and again Im not entirely surprised we were very patient in.

Speaker Change: I think a lot of great diligence, but.

Speaker Change: Almost to the point.

Speaker Change: We have validated all of our assumptions if not identified upside.

Speaker Change: Just about everything.

Speaker Change: That we laid out for you at the time of the announcement so.

Speaker Change: Whether youre looking at the deal economics right all of those are more positive today than they were a great job executing.

Mark A. Clouse: All of those are more positive today than they were, a great job executing the deal financials really across the board. The health of the business, if you remember, I mentioned this in my comments, but we laid out a list of reasons to believe why growth on Raoche would continue and, really, to the point: We're pacing ahead of what we would have expected those to look like. And again, just another really incredible testament to the team, which is another point.

Speaker Change: The.

Speaker Change: The deal financials really across the board.

Speaker Change: Health of the business. If you remember I mentioned this in my comments, but.

Speaker Change: We laid out a list of reasons to believe.

Speaker Change: Why growth on Rayos would continue and really to the item. We're pacing ahead of what we would have expected those to look like and against another.

Mark A. Clouse: I really, again, applaud the work that Todd and his team did in assembling an organization and a group of folks that really know this business and how to drive it. And I could not be more happy about the number of those employees that have joined Campbell's, starting with Risa, who's leading our efforts, including our Pacific business, and doing just an amazing job. So, I mean, honestly, as I tick down the list, I just would say everything so far really feels good.

Speaker Change: Really incredible Testament to.

Speaker Change: To the team which is another point.

Speaker Change: I really.

Speaker Change: Again applaud the work that Todd and team had done.

Speaker Change: And assembling an organization and a group of folks that really know this business and how to drive it in.

Speaker Change: Could not be more happy about the number of those.

Speaker Change: Employees that have joined Campbell's starting with reset who is leading.

Speaker Change: Our efforts, including our Pacific business and doing just an amazing job. So I mean honestly as I ticked down the list I just would say everything.

Speaker Change: So far really feels good I do recognize it is early in.

Mark A. Clouse: Now, I do recognize it's early, and there are some things in your question that I want to spend a little more time understanding, like the role of frozen. We do not depend on that heavily in our growth model, but I will say when I look at the performance of frozen pizza as an example, it is really encouraging. And if I think about other adjacencies like soup and dry pasta, both of which are doing very, very well,

Speaker Change: There are some things in your question that I want to spend a little more time on understanding like the role of frozen we.

Speaker Change: We did not depend on that heavily.

Speaker Change: And our growth model, but I will say when I look at the performance of frozen Pizza as an example.

Speaker Change: It is really encouraging and if I think about other adjacencies like soup and.

Speaker Change: Dry pasta.

Speaker Change: Both of which are doing very very well and as I said on the call today I think perhaps one of the most pleasant surprises to be.

Mark A. Clouse: And, you know, as I said on the call today, I think perhaps one of the most pleasant surprises will be the strength of the Noosa business. And although, you know, we had a fairly clear understanding that yogurt was probably not a long-term strategic category for us, the strength of that business, the uniqueness, and even the performance of it are again testaments to a really great team that's leading it and doing a terrific job of running it. So, when I think about it, I don't think we're willing to change.

Speaker Change: Is really the strength of the new <unk> business and although.

Speaker Change: We had a fairly.

Speaker Change: Clear understanding that yogurt is probably not a long term.

Speaker Change: Strategic category for us the strength of that business. The unique this and even the performance of it again, a testament to a really great team, that's leading it and doing a terrific job of running it. So when I think about it I don't think were willing to change and by the way also on synergy.

Mark A. Clouse: And by the way, also on synergy. You know, I think really clear line of sight to the 50 million, arguably, the path to achieving that may be a little bit faster, which will certainly help in the accretion and dilution, although, you know, I do expect there to still be some dilution as we look at 25. But I think the net of all of it is a really encouraging start. A significant and comprehensive validation of our assumptions.

Speaker Change:

Speaker Change: Think really clear line of sight to the $50 million.

Speaker Change: Arguably the path to achieving that may be a little bit faster, which will certainly help in the accretion and dilution, although I do expect still to be some dilution as.

Speaker Change: As we look at at 25.

Speaker Change: But I think the net of all of it is a really encouraging start.

Speaker Change: Significant and comprehensive validation of our assumptions and I think in September we will try to give you a little bit more detail in unpacking each of the pieces.

Mark A. Clouse: And I think in September, we'll try to give you a little bit more detail and an unpacking of each, so hopefully that helps get you started with a little bit more to come as we get together again in September.

Speaker Change: So hopefully that helps get you started with a little bit more to.

Speaker Change: To come as we as we get to get together in September.

Speaker Change: Yeah, that's great I appreciate the color I'll hop back in the queue.

Speaker Change: Your next question comes from the line of David Palmer from Evercore ISI. Your line is open.

David Palmer: Your next question comes from the line of David Palmer from Evercore ISI. Your line is open.

David Palmer: Thanks. Good morning.

David Palmer: Thanks, Good morning.

Speaker Change: Interesting to hear your.

Comments about the low income consumer in the pullback and stacks kind of reminds me of what's happening in fast food and in both segments I would imagine that key players are keen not to lose the upcoming key summer selling season, you talked about that.

Mark A. Clouse: Interesting to hear your comments about the low-income consumer and the pullback in snacks. It kind of reminds me of what's happening with fast food. And in both segments, I would imagine that key players are keen not to lose the upcoming key summer selling season. You talked about that. I just wonder, I guess the question is, what should we expect from the price mix from that segment over the next one or two quarters as you probably face that type of environment? Thanks.

Speaker Change: I just wonder I guess the question is what should we expect from price mix from that.

Speaker Change: That segment over the next one or two quarters is as you probably face that type of environment.

Mark A. Clouse: Yeah, you know, I think that, you know, we've talked about this a little bit before that from a historical perspective, well, well before COVID, the snack categories, in general, tend to be a bit more. I think it's a function a bit of the impulse nature of the categories and the competitive nature of the categories.

Speaker Change: Yeah, I think that.

Speaker Change: We've talked about this a little bit before that from a historical perspective, well well before COVID-19.

Speaker Change: The snacks categories in general tend to be a bit more.

Speaker Change: Promoted bowl I think it's a function a bit of the.

Speaker Change:

Speaker Change: The impulse nature of the categories and the competitive nature of the categories I do think.

Mark A. Clouse: What you should expect to see from us is continuing to remain competitive. Now, I do think, given our categories and brands, we're not going to win this fight in the longer term by taking price down dramatically or going to promoted levels that are not sustainable. That's not going to be the right playbook for more elevated brands.

Speaker Change: What you should expect to see from us.

Speaker Change: As continuing to remain competitive now I do think given our categories and brands.

Speaker Change: We're not going to win this fight on the on the longer term by taking price.

Speaker Change: Down dramatically or going to promoted levels that are not sustainable.

Speaker Change: That's not going to be the right playbook for more elevated brands I think a great example of that is right now in cookies, which is a tough category, where we are seeing a fair amount of trading down into private label. The good news is our Pepperidge farm business is really kind of holding its own.

Mark A. Clouse: I think a great example of that is right now in cookies, which is a tough category where we are seeing a fair amount of trading down into private label. The good news is our Pepperidge Farm business is really kind of holding its own, not by dealing with price points but by continuing to bring added value. And so, you know, kind of in the mindset of if I'm being a little more thoughtful with my snack dollars, let's make it really count.

Speaker Change: By dealing the price points, but by continuing to bring added value and so kind of in the mindset of if I'm being a little more thoughtful with my snack dollars, let's make it really counts.

Mark A. Clouse: It's been more of the strategy in our more premium cookie business, which is proving to kind of hold our own in that category, which has been probably one of the more difficult. I think as you get into salty, what we're going to want to do there is make sure that we've got reasonable price gaps, that we are in the key windows and on display at those key moments while continuing to bring a really robust level of innovation and news to our brands.

Speaker Change: There has been more of the strategy on our more premium cookie business, which is proving.

Speaker Change: To kind of be holding our own in that category, which has been probably one of the more difficult.

Speaker Change: As you get into salty.

Speaker Change: What we're going to want to do there is make sure that we've got reasonable price gaps.

Speaker Change: That we are is the key windows and on display at those key moments, while continuing to bring a really robust level of innovation and news on our brands and I think in particular, one of the places we're seeing a lot of competition as in Kettle potato chips, which which has been in.

Mark A. Clouse: And I think in particular, one of the places we're seeing a lot of competition is in kettle potato chips, which has been an extremely successful segment and continues to be, but we're also seeing a lot more competition there. And so we're going to want to make sure that we get the balance right. But what does that actually mean?

Speaker Change: Extremely.

Speaker Change: Successful segment.

Speaker Change: It continues to be but we're also seeing a lot more competition, there and so we're going to want to make sure that we get the balance right. So what does that actually mean I think in the fourth quarter Youll see a little bit of a balance between promo in.

Mark A. Clouse: I think in the fourth quarter, you'll see a little bit of a balance between promotion and investment in marketing. The net of it, I think, will be a pretty healthy investment. Nothing that is out of the realm of history relative to promotion, but certainly, we want to stay nimble and make sure that we're as competitive as possible. And so, you know, would you see a hundred basis points or so of investment in promotion as we think about Q4? I think that's probably a generally good proxy as we kind of navigate these next couple of quarters.

Speaker Change: Investment in marketing the net of it I think will be a pretty healthy investment.

Speaker Change: Nothing that is out of the realm of of history relative to promotion, but certainly we want to stay nimble.

Speaker Change: And make sure that were as competitive as possible and so.

Speaker Change: Would you see 100 basis points or so of.

Speaker Change: Investment in promo as.

Speaker Change: As we think about Q4, I think thats probably jet.

Speaker Change: Generally good.

Speaker Change: Proxy as we kind of navigate these next couple of quarters.

Mark A. Clouse: No, that's helpful. Thank you. And on meals and beverages, just a quick one there. The pricing down by a percent, we were a little surprised to see that. Why did that happen, and what's your outlook for pricing in that segment going forward?

Speaker Change: No that's helpful. Thank you.

Speaker Change: Meals and beverages, just a quick one there just the <unk>.

Speaker Change: Racing down a percent was a little surprised to see that why did that happen and what's your outlook for pricing in that in that segment going forward.

Mark A. Clouse: Yeah, I think, interestingly enough, as I said earlier, this kind of staggered [inaudible] dealing with a year ago, and what we've been doing is really making sure that we've got the right framework in place relative to price gaps. I'll give you a great example of getting that balance right.

Speaker Change: Yes, I think part of.

Speaker Change: Interestingly enough as I said earlier this kind of staggered.

Speaker Change: Approach to consumer behavior.

Speaker Change: We're a lot further down the road as it relates to.

Speaker Change: The meals and beverage categories, which arguably we're experiencing a little bit of a trade down pressure in some of the <unk>.

Speaker Change: Competitive dynamics that we're seeing now in snacks.

Speaker Change: We're dealing with a year ago.

Speaker Change: And what we've what we've been doing is really making sure that we've got the right framework in place relative to price gaps I'll give you a great example.

Speaker Change: Of getting that balance right. When you think about our condensed soup business, that's one of the areas.

Mark A. Clouse: When you think about our condensed soup business, that's one of the areas where we've tended to really see a lot of competitive pressure, and that's probably where private label has been a bit more relevant as we've looked at trade down and where we've experienced it. So, over the course of the last six months or so, we've really been fine-tuning what that price gap needs to be while continuing to support some innovation and marketing on the business.

We've tended to really see a lot of competitive pressure and thats, probably where private label has been a bit more relevant.

Speaker Change: We've looked at trade out and where we've experienced so over the course of the last six months or so we've really been fine tuning what that price gap needs to be while continuing to support some innovation and marketing on the business and in the third quarter, we were able to kind of re stabilize if you will the share position.

Mark A. Clouse: And in the third quarter, we were able to kind of re-stabilize, if you will, the share position, but the category was still down about 4%. As you go into the latest four weeks, and recognize that we are coming into the summer where the magnitude of the numbers is certainly smaller, but you're now seeing an acceleration or step up, if you will, in the soup business, and an acceleration of both the top line, which is now positive on the condensed business, as well as share and units looking better, while private label has taken a bit of a step back in that category.

Speaker Change: But the category was still down.

Speaker Change: About 4% as you go into the latest four weeks and recognizing we are coming into the summer where the magnitude of the numbers are certainly smaller.

Speaker Change: But youre now seeing even an acceleration or step up if you will.

Speaker Change: In the soup business and accelerating both top line, which is now positive on the condensed business as well as share and units looking better while private label has taken a bit of a step back in that category. So I think in many ways.

Mark A. Clouse: So I think in many ways that may have been a little bit more muted pricing that was recognized as probably not the right thing to do for the category. This is not a significant deal down. You know that because you're also seeing very material gross margin on meals packages at the same time. I know that in the consensus, it was a little lower than what some people had modeled, but please remember that the mixed impact of Sovos into that number is diluting that by about 30 basis points in the quarter.

That may have been a little bit more muted pricing that was was recognized as probably not the right thing to do for the category. This is not a significant deal down you'd know that because youre also seeing.

Speaker Change: Very material gross margin.

Speaker Change: Okay.

Speaker Change: I know that in the consensus.

Speaker Change: A little lower than what some people had modeled but please remember.

Speaker Change: The mix impact of sell those into that number.

Mark A. Clouse: If you were to add that, you'd be a lot closer to, I think, where people's expectations were. So, you know, generally speaking, I feel very good about the profit trajectory for meals and beverages, but I also think we've got that playbook pretty well refined, and you see it in soup as the recovery really continues to build momentum and actually move into positive territory, both on units and on dollars, which is really good.

Speaker Change: As diluting that about 30 basis points in the quarter. If you were to add that you'd be a lot closer to I think where people's expectations were so.

Speaker Change: Generally speaking I feel very good about the profit trajectory for meals and beverage.

Speaker Change: But I also think we've got that playbook pretty well refined and youll see it in soup.

Speaker Change: As the recovery really continues to build momentum.

Speaker Change: And actually moving into positive territory, both on units and on dollars, which is really important.

Mark A. Clouse: That's helpful. Thank you.

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

Speaker Change: Hey, Mark good morning.

Peter Thomas Galbo: Hey, Mark, Carrie, good morning. Hi, Peter.

Peter Thomas Galbo: Peter maybe if I could.

Mark A. Clouse: Hey, maybe if I could just pick up on the last point you had there on the trajectory of gross margin. I mean, I think the revised guidance implies that, you know, a meaningful kind of ramp into the fourth quarter, both sequentially and year over year, relative certainly to where the quarter came in. So maybe you can just unpack kind of what's driving the, you know, or re-acceleration on the gross margin line as we get into 4Q and then start, you know, starting to think about 25. Yeah.

Peter Thomas Galbo: Maybe if I could just pick up on the last point you had there on the trajectory of gross margin I mean, I think kind of at the revised guidance implies.

Peter Thomas Galbo: A meaningful kind of ramp into the fourth quarter, both sequentially and year over year.

Speaker Change: Relative certainly to where the quarter came in so maybe you can just unpack kind of what's driving the acceleration of Reacceleration on the gross margin line as we get into <unk> and then starting to think about 25.

Mark A. Clouse: Yeah, why don't I give a little bit of broader context, I'll let Carrie do a little bit of the bridge or the do-to, but you're absolutely right, it is important to remember that fourth quarter a year ago. We had a pretty tough quarter a year ago, where we were feeling a lot of the kind of cumulative impact in absorption in some of our facilities, given the volume reduction that we'd experienced If you remember, we talked a lot about this other supply chain cost line, which was a combination of some inflation but also what I would describe as some of the inefficiency that we were navigating in the business.

Speaker Change: Yeah, why don't I, I'll give a little bit of broader context, I'll, let carey do a little bit of the bridge or the do too, but youre absolutely right. It is important to remember.

Speaker Change: The fourth quarter, a year ago, we're cycling a pretty tough quarter from a year ago, where.

Speaker Change: We were feeling a lot of the kind of cumulative impact.

Speaker Change: And absorption in some of our facilities given the volume reduction that we had experienced through that cycle of pricing. If you remember we talked a lot about this other supply chain cost line.

Speaker Change: Which was a combination of some inflation, but also what I would describe as some of the inefficiency that we were navigating.

Speaker Change: On the business and so when you take that away and you start to stack on top of it the productivity.

Mark A. Clouse: And so when you take that away and you start to stack on top of it, the productivity that we have at the same time, as well as, you know, one of the linchpins for the quarter was the recovery or improvement in the soup trajectory, which gives us an underlying tailwind on mix, which also was depressed in the fourth quarter, along with the Stacks Roadmap and all of the other variables that we have attributing.

Speaker Change: That we have at the same time as well as.

Speaker Change: One of the Linchpins to the quarter was the recovery or improvement in the in the soup trajectory, which gives us a underlying tailwind on mix.

Speaker Change: Which also was depressed in the fourth quarter.

Speaker Change: Along with the stacks roadmap and all of the other variables that we have.

Speaker Change: Attributing we are expecting a significant step up in <unk>.

Mark A. Clouse: We are expecting a significant step up in EBIT and in margin. Again, a very healthy gross margin expansion, but where I talked a little bit about the dilution associated with Sovos, you'll see that more to the tune of about 40 basis points on the company. It's about 80 BIPs or so.

Speaker Change: EBIT and in margin.

Speaker Change: Again, a very healthy gross margin expansion, but we're.

Speaker Change: I talked a little bit about the.

Speaker Change: The dilution associated with so those youll.

Speaker Change: Youll see that more to the tune.

Speaker Change: Of about 40 basis points on the company its about 80.

Mark A. Clouse: Again, not a problem, not what we expect, but generally will depress a little bit of the upside. Still significant upside even with that, but at the end of the day, a little bit more modest than what might be in a few models. But the net of all of that is you're going to be looking at EBIT growth that is probably in the 30s for percent growth, very, very strong EPS growth, and margin expansion really across the board.

Speaker Change: Bps or so again.

Speaker Change: Not a problem that inconsistent with what we expect but generally.

Speaker Change: Well depressed a little bit of the upside still significant upside even with that but at the end of the day.

Speaker Change: A little bit more a little bit more modest than what might be a few models, but the net of all of that is youre going to be looking at EBIT growth that that is probably in the 34% growth.

Speaker Change: Very very strong EPS growth.

Speaker Change: And margin expansion really across the board so a very good quarter.

Mark A. Clouse: So a very good quarter of sustained sequential recovery, which has really been, you know, albeit maybe a little bit behind the pace of recovery that we wanted in the total business, the march forward has been very, you know, consistent and methodical in the fourth quarter. I don't know. I may have covered all of it. But do I cover it all? I'm sorry. You covered it perfectly. I'm sorry. It's a lot like Q3 in terms of the drivers of that expectation. Yeah, I think with the notable exception that snacks, as we noted in Q2, had a very, very good Q3. That's why you see a little bit of pressure in Q3.

Sustained sequential recoveries.

Speaker Change: Has really been.

Speaker Change:

Speaker Change: Albeit maybe a little bit behind the pace of recovery that we wanted.

Speaker Change: The total business of the.

Speaker Change: March forward.

Speaker Change: Has been very consistent and methodical in fourth quarter, we will continue that.

Speaker Change: I don't know I think I've covered all of it yet, but I covered it perfectly.

Speaker Change: A lot like Q3 in terms of the drivers of that.

Speaker Change: I expect to expand center, yes, I think with the notable exception that snacks as we.

Speaker Change: Noted in the Q2 had a very very good Q3, that's why you see a little bit of pressure in Q3, I would expect to see them return to growth in the fourth quarter.

Peter Thomas Galbo: Got it. Okay, that's super helpful.

Speaker Change: Got it okay.

Speaker Change: Super Helpful. And then Mark maybe just a quick one on Nielsen Bev.

Peter Thomas Galbo: And then, Mark, maybe maybe just a quick one on meals and bevs. I think you called out in the press release, you know, food service actually as a source of upside. That would seem to kind of buck the trend relative to what we're hearing from other folks. Yeah, a lot of other folks. So maybe you can just touch on that a bit.

Speaker Change: I think you called out in the press release foodservice actually as a source of upside.

Speaker Change: That would seem to kind of buck the trend relative to what we're hearing that a lot of other folks. So maybe you can just touch on that a bit.

Mark A. Clouse: Yeah, I think the big enabler for us on the food service... kind of divergence, if you will, from many of our peers has been the benefit of the supply chain progress we've had. You know, as a reminder, our food service business, which sits in our meals and beverage division, is actually made up of both meals and beverages and snacks. And one of the things that we're seeing a lot of growth on right now is the expansion in capacity that we've been adding to snacking and enabling our food service teams to be able to sell with confidence against those brands. So that's gone very well.

Mark A. Clouse: Yes, I think the big.

Speaker Change: Enabler for us on the foodservice.

Speaker Change: Kind of a divergence if you will from.

Speaker Change: For many of our peers has been the benefit of the supply chain progress we've had.

Speaker Change: As a reminder, our foodservice business, which sits in our meals and beverage division is actually made up of both meals and beverage and snacks businesses and one of the things that we're we're seeing a lot of growth on right now.

Speaker Change: The expansion in capacity.

Speaker Change: That we've been adding on snacking and enabling our foodservice teams to be able to sell with confidence against those brands.

Mark A. Clouse: And then I also think, interesting, when we think about the world of soup and we look for positive signs or positive indicators of the stabilization of this category and the role it can play, one of the areas we're seeing an uptick in demand is our frozen soup business in food service. So more selling of soup as a menu item has been a pleasant surprise and that, I think, continues to be those two drivers.

Speaker Change: So that's gone very well and then I also think.

Again interesting when we think about the world of soup and we look for.

Speaker Change: Positive signs are positive indicators of stabilization of this category and the role it can play.

Speaker Change: One of the areas, we're seeing an uptick in demand as our frozen soup business.

Speaker Change: In foodservice, so more selling of soup is a menu item.

Speaker Change: It has been a pleasant surprise and that I think continues.

Speaker Change: To be those two drivers our soup business and our snack business are really the two drivers for why I think youre seeing a little bit of a disconnect. If you will and the growth of our foodservice business versus what youre seeing more <unk>.

Mark A. Clouse: Our soup business and our snack business are really the two drivers for why I think you're seeing a little bit of a disconnect, if you will, in the growth of our food service business versus what you're seeing more macro-trend wise in that particular industry.

Speaker Change: Macro trend wise in that in that particular industry.

Speaker Change: Great. Thanks, very much guys.

Sunil Harshad Modi: Our next question comes from the line of Nick Modi from RBC Capital Markets. Your line is open.

Speaker Change: Our next question comes from the line of Nik Modi from RBC capital markets. Your line is open.

Sunil Harshad Modi: Yeah, thank you. Good morning, everyone. I have two quick ones for you.

Nik Modi: Yes, Thank you and good morning, everyone.

Nik Modi: Two quick ones for me.

Mark A. Clouse: Hey, Mark, just on SNAP, you know, it was obviously something that's been called out as a potential tailwind as we kind of rolled through the years. We just wanted to get any perspective from your side on if you're seeing any benefits of that. But the broader question, I guess, is just kind of pricing, which has been a key theme for this Q&A. Mark, do you worry about price thresholds right now

Nik Modi: Just on snap.

Speaker Change: It was obviously pulling us can call that a potential tailwind as we kind of roll through the year. So just wanted to get any perspective from your side on if you're seeing any benefit to that but the broader question. I guess is just kind of pricing has been a key theme for.

Speaker Change: For this Q&A.

Mark A. Clouse: Mark do you worry about kind of price thresholds right now I mean, it seems like just given the amount of inflation and our consumers are just now.

Mark A. Clouse: I mean, it seems like just given the amount of inflation, consumers are just, you know, feeling the burden. And I just wonder if we've kind of gone too far. You know, I and I know rollbacks are not part of the historical strategies here for the entire CPG industry. But, you know, just we seem to be in a very anomalous situation right now. So I just would love your thoughts around that.

Feeling the burden and I just wonder if like we kind of gone too far in.

Speaker Change: And I know rollbacks are not part of the historical strategy here for the entire CPG industry, but.

Speaker Change: We seem to be in a very anomalous situation right now so I guess I would love your thoughts around that.

Mark A. Clouse: Yeah, no, I know that is a significant topic of discussion right now, which is, you know, are we seeing and overpricing on an absolute basis. But when I look at the data today, I'm not yet seeing that as a significant concern other than as it relates to the contact, of where price gaps may be sitting. You know, one data point that, hopefully, will make everyone feel a little bit better.

Speaker Change: Yeah, No I know that is a.

Speaker Change: A significant topic of discussion right now, which as you know.

Speaker Change: Where are we seeing.

Speaker Change: And over pricing.

Speaker Change: <unk>.

Speaker Change: On an absolute basis.

Speaker Change: When I look at the data today.

Speaker Change: I'm not yet seeing that as a significant concern other than as it relates to the contracts.

Speaker Change: Of where price gaps maybe citic.

Speaker Change: One one data point that that hopefully.

We will make will make everyone feel a little bit better. If you look at the last four weeks through Memorial day.

Mark A. Clouse: If you look at the last four weeks through Memorial Day, salty as a broader category was essentially flat. And that's not a good thing, right, given the historical growth that we've seen. But relative to what we had been seeing in the third quarter as a more material slowdown in that segment, it was a little bit better. Now, arguably, that's a fairly promoted period around Memorial Day.

Speaker Change: Salty as a broader category was essentially flat.

Speaker Change: And thats not a good thing right given the historical growth that we've seen.

Speaker Change: Relative to what we had been seeing in the third quarter is a more material slowdown.

Speaker Change: And that segment was a little bit better now arguably.

Speaker Change: It's a fairly promoted period around memorial day.

Mark A. Clouse: And so I think you'll see that drumbeat of promotion fairly consistent. But I'm not yet concluding that any of our I can't speak to the industry broadly, but from our standpoint, I can't I wouldn't yet say that there's a place where we price too far. I do think there are some places where we have to narrow the price gap, perhaps a little bit better, a little bit tighter, maybe a little bit more frequency, but not necessarily a more dramatic step down in depth.

Speaker Change: And so I think youll see that drumbeat of promotion fairly consistent but im not yet concluding.

Speaker Change: That any of our I can't speak to the industry broadly, but from our standpoint.

Speaker Change: I can't I wouldn't yet say that there is a place where we price too far.

Speaker Change: Do think there are some places where we have to monitor the price gap perhaps.

Speaker Change: A little bit better or a little bit tighter, maybe a little bit more freak.

Speaker Change: Frequency, but not necessarily.

Speaker Change: More dramatic step down in depth.

Mark A. Clouse: So I think we need to watch that, and this is why I think these next few months through the summer and into the fall will be quite important for us. To kind of do a little bit of what we've done on meals and beverages, which is settle in on where we think the right price architecture looks like, the right promotion strategy, and make sure that we've got that balance right, but I'm not yet seeing a compelling call to action to necessarily lower prices. But as I said, I do think you'll see a pretty good drumbeat of promotion, not wild price points, but a good drumbeat of promotion in the fourth quarter.

Speaker Change: So I think we need to watch that and this is why I think these next.

Speaker Change: Few months through the summer and into the fall will be quite important for us.

Speaker Change: So kind of do a little bit what we've done on meals and beverage which is settle in.

Speaker Change: Where we think the right.

Speaker Change: Price architecture, it looks like the right promotion strategy.

Speaker Change: And make sure that we've got that balance right, but I'm not I'm not yet seeing a compelling.

Speaker Change: Call to action to necessarily lower pricing.

Speaker Change: But I do as I said I do think Youll see.

Speaker Change: A pretty good drumbeat of promotion.

Speaker Change: Wild price points.

Speaker Change: A fairly good drumbeat of promotion in the fourth quarter.

Great and then just on the snap.

Mark A. Clouse: Right, and then just on the snap perspectives.

Speaker Change: Perspective.

Mark A. Clouse: Yeah, look, I think snacks, you know, again, I am not. As we've dug into this information more, I look at this, and I go, you got a three-year CAGR of 8%. If you take the third quarter on a three-year..., which third quarter was our toughest underlying trend?

Speaker Change: Yes look I think snacks.

Speaker Change: Again I am not.

Speaker Change: As we've dug into this information more I look at this and I go.

Speaker Change: You got a three year CAGR of 8%.

Speaker Change: If you take the third quarter on a three year basis.

Speaker Change: Third quarter was our toughest underlying trends I mean, the latest four weeks look better actually as I said before.

Mark A. Clouse: I mean, the latest four weeks look better, actually, as I said before. But when you think about it in that context, there is a lot of discussion around whether there are structural changes in the demand for or the role of snacking? I just don't see it.

Mark A. Clouse: Do I see some normalization? and some catching up, a little bit of the economic wear down on consumers. I do agree, and I think that is the primary driver. But I don't think, in my mind, I see anything that indicates to me that we don't still have a great runway ahead. Now, what I will say is I do think our portfolio is a bit better positioned; look where the fight is really happening in snacking with Private Label, and there's no question that Private Label has made some headway into snacking, but a lot of that is happening, as you would expect, in the mainstream segment.

When you think about it in that context.

Speaker Change: A lot of discussion around is there structural changes in the in the demand or the the role of stacking I just don't see it do I see some normalization.

Speaker Change: And some.

Speaker Change: Catching up a little bit of of wearing down economically.

Speaker Change: Consumers I do I do agree and I think that is.

Speaker Change: The primary driver, but I don't think in my mind I see anything that indicates to me.

Speaker Change: That we don't still have a great runway ahead now what I will say is I do think our portfolio.

Speaker Change: It is a bit better position because if you look at where the fight is really happening in snacking.

Speaker Change: With private label and there is no question that private label has made some.

Speaker Change: Some headway into stacking, but a lot of that is happening in the main as you would expect in the mainstream segments.

Mark A. Clouse: And so the fact that our portfolio index is much more elevated categories, I actually like the setup for the future, even in a world where private label may play a bit more of a role in the stack, tend to be in that elevated level above. And even as I mentioned in the last four weeks, those segments. You're actually seeing a little bit more recovery. It's early, and I don't want to overcast the Memorial Day performance as a trend line, but I do think it's all encouraging and supports what we have believed, which is that the future of snacking and where the growth is really going to come from are more of these added value segments. And that, you know, bodes very well for how our portfolio is set up versus some of our competitors.

Speaker Change: And so the fact that our portfolio index is much more to elevated categories I actually like the setup for the future.

Speaker Change: Even in a world, where private label may play or a bit more of a role in stacks, we tend to be in.

Speaker Change: That elevated level above and even as I mentioned in the latest four weeks those segments.

Speaker Change: You are actually seeing a little bit more recovery, it's early and I don't want to over.

Speaker Change: Cash the Memorial day.

Speaker Change: Performance as a trend line, but I do think it's all encouraging and supports what we believed.

Speaker Change: Which is that the future of snacking.

Speaker Change: And where the growth is really going to come from is more of these added value segments in that that bodes very well for how our portfolio is set up versus some of our competitors.

Speaker Change: Great. Thanks ill.

Sunil Harshad Modi: Great. Thanks. Pass it on, and we have...

Speaker Change: Pass it on.

Speaker Change: Yeah.

Operator: And we have reached the end of our question and answer session. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation.

Speaker Change: And we have reached the end of our question and answer session, Ladies and gentlemen. This concludes today's conference call. Thank you for your participation you may now disconnect.

Speaker Change: Okay.

Speaker Change: A question and answer session, ladies and gentlemen. This concludes today's conference call. Thank you for your participation you may now.