Q4 2024 Campbell Soup Co Earnings Call
Speaker Change: Greetings ladies and gentlemen and welcome to the Campbell Soup of any fourth quarter fiscal 2024 earnings conference call.
Speaker Change: At this time I'll participate in the listening mode.
Speaker Change: After today's presentation, there will be an opportunity to ask questions.
Speaker Change: If you would like to ask a question during this time, simply press star, followed by the number 1 on your telephone keypad.
Speaker Change: As a reminder, this conference call is being recorded. It is now my pleasure to introduce your host, Rebecca Gardy, Chief in Fester Relations Officer. Please go ahead.
Rebecca Gardy: Good morning, and welcome to Campbell's fourth quarter fiscal 2024 earnings conference call. I'm Rebecca Gardy, Chief Investor Relations Officer at Campbell's. And joining me today, our Mark Clouse Chief Executive Officer and Carrie Anderson Chief Financial Officer.
Speaker Change: Today's remarks have been pre-recorded. Once we conclude the prepared remarks, we will transition to a live webcast Q&A session. The slide deck in today's earnings press release have been posted to the Investor Relations section on our website, CampbellSoupCompany.com.
Speaker Change: Following the conclusion of the Q&A session, a replay of the webcast will be available at the same location, followed by a transcript of the call within 24 hours.
Speaker Change: 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.
Speaker Change: Please refer to slide three of our presentation or our SEC filing for list of factors that could cause our actual results to very materially from those anticipated in the forward-looking statements.
Speaker Change: Because we use non-gap measures, we have provided a reconciliation of each of these measures to the most directly comparable gap measure in the appendix of our presentation.
Speaker Change: Slide 4 outlines today's agenda. Mark will provide insight into our fourth quarter and full year performance, as well as our in-market performance by division.
Speaker Change: will then discuss the financial results of the fourth quarter and full year fiscal 24 in more detail and outline our guidance for the full fiscal year 2025 which we provided this morning.
Speaker Change: As a reminder, we completed the acquisition of Sovos Brands on March 12th and as such, the full fiscal year 2024 financial results include a partial year contribution from Sovos Brands and with that, I'm pleased to turn the call over to Mark.
Mark: Thanks Rebecca, good morning everyone and thank you for joining our fourth quarter fiscal 24 earnings call.
Mark: In Q4, we continue to successfully navigate the evolving consumer landscape and delivered solid results, including sequential volume improvement across both divisions.
Speaker Change: A second consecutive quarter of double digit year over year adjusted ebit growth and adjusted eps growth.
Speaker Change: Underpinned by sequentially improving margins on both businesses.
Speaker Change: It also marks the end of a dynamic year during which we drove significant progress against our strategic plan. In addition, we continued to see momentum on the servos brand's business and advance the integration of the best growth story in food into our meals in beverages business.
Speaker Change: In Market Performance, we're still mixed, but improved for both divisions, with substantial volume-driven progress on meals and beverages and sequential improvement on snacks. While the snacks category recovery is unfolding at a somewhat slower pace than we'd like, it continues progressing in the right direction.
Speaker Change: Finally, we also introduce fiscal 25 guidance today, which reflects our expectation of steady progress and incorporates an appropriate level of pragmatism as we continue to navigate the recovery of snacks in the first half of the year. Carrie will provide more details in a moment.
Speaker Change: While we remain vigilant as we head into fiscal 25, we have also never been more confident in the strength and long-term trajectory of our business. We remain steadfast in our view that consumer behavior will continue to normalize.
Carrie: and that we are uniquely positioned to deliver sustained and dependable growth with one of the best portfolios in all of food.
Carrie: We look forward to sharing more of this story at our Investor Day on September 10th in New York.
Speaker Change: Turning to slide 7, organic net sales in the fourth quarter declined 1% compared to the prior year.
Speaker Change: As we expected, volume improves sequentially, and both adjusted EBIT and adjusted EPS increased by double digits. The Sevus brand's acquisition was approximately neutral to adjusted EPS, which again exceeded our expectations.
Speaker Change: In-market consumption was essentially flat compared to the prior year, and the one point of difference in organic net sales versus consumption was primarily driven by headwinds from partner brands and some trade phasing, both of which were in our snacks business.
Speaker Change: On a full year basis, we were down slightly on top line, while growing adjusted EBIT and adjusted EPS. I'd note that adjusted EPS at $3.8 for the full year put us roughly at the midpoint of our most recent guidance.
Speaker Change: As I mentioned, the trend of sequential volume and mix improvement we've experienced over the past two quarters, continued in Q4. We were encouraged to see growth in meals and beverages of 2% and snacks remain stable in the quarter.
Speaker Change: This trend continues to reflect the improving consumer dynamics, including total foods move this quarter into positive territory for both dollars and units.
Speaker Change: Strong consumer metrics support this continued progress, including roughly 70% of edible categories growing household penetration, similar to Q3, and for the first time in a while the recovery is beginning to extend to lower and middle income households.
Speaker Change: The one negative indicator was of modest reversal and consumer confidence in the fourth quarter.
Speaker Change: Signaling the somewhat fragile state of the consumer, and why being prudent on expectations still makes sense. However, overall, as we've said before, we continue to see the recovery of the consumer environment, not as a question of if, but rather a question of when.
Speaker Change: On slide 9, I want to briefly expand upon the material benefit we're experiencing with the integration of servos.
Speaker Change: While our Q4 net sales declined 1% from the prior year on an organic basis, including the Proforma contribution from servos, total company growth would have increased 150 basis points.
Speaker Change: There's also a 110 basis point benefit to volume and mix, resulting in an approximately 2% pro-forma growth rate on volume and mix for the total company.
Speaker Change: This growth continues to pace ahead of our initial estimates, and reflects the strength and the resilience of the service businesses growth, especially the Rayo's brand.
Speaker Change: Moving to our meals in beverage division on slide 10, we achieved growth of 1% in organic net sales in the quarter compared to the prior year. More importantly, that growth was fueled by a 2% volume growth offset by a point of plan net pricing investment.
Speaker Change: On a pro-formic combined basis with the addition of servos brands, Meals & Beverage is not sales group 4%.
Speaker Change: Also fueled by volume mix growth and consistent within market consumption.
Speaker Change: This is the second quarter of strong performance across our legacy meals and beverage businesses and so of us brands. Both fueled by volume growth and important indicator that's building confidence in the improving potential of our meals and beverages division going forward.
Speaker Change: Moving to more good news on page 11, our soup business also strengthening Q4 and is building even more momentum in the latest four weeks with dollar consumption up 2% and 6% respectively as we head into soup season.
Speaker Change: Campbell's Wetsube Dollar consumption increased 2 points during the fourth quarter, surpassing the category average by approximately 1.
Speaker Change: Notably, we did experience robust share gains in our swans and broth business as a major private label supplier was experiencing supply constraints.
Speaker Change: It's important to note that although our share was helped by this dynamic, the category trends are also very healthy, up-double digits, creating a great opportunity for swans and to add new households.
Speaker Change: Underlying Category Growth continues to benefit from the consumers pulling back on eating meals away from home in favor of home cooking.
Speaker Change: The one remaining area focus on soup is ready to serve, where we're experiencing category pressure and some trading down.
Speaker Change: We expect both dynamics to improve as the weather changes and the role of ready to serve at lunch becomes more relevant.
Speaker Change: We're already seeing some stabilization and are confident about our robust pipeline of innovation in marketing across our chunky, Pacific and Reyes brands. Overall, this quarter we also answered a very important question about soup.
Speaker Change: Can Soup Grow Volume Mix after COVID and inflation, and it did up nearly 2%.
Speaker Change: Turning to Italian sauces, slide 12 highlights are two market-leading brands at the forefront of our billion-dollar sauces portfolio, Reos and Prego. I could not be happier with the continued strong growth of Reos within market consumption in the high-teens range.
Speaker Change: Reo's compliments the steady performance of Prego, which was up 2% in market. This combination of brands that address different occasions and price points gives us a fantastic ability to grow overall share by meeting multiple consumer needs.
Speaker Change: We'll provide more details on our expectations for Rails at our investor day, but we remain very confident in our previously stated ongoing growth rate of mid-single digits with a high single digit growth expectation for fiscal 25.
Speaker Change: The team on service has done an excellent job during the integration, not only maintaining the business but advancing the growth and strategy across support folio.
Speaker Change: Slide 13 outlines a few reasons why we are confident in the continued growth of Rails. The spite ranking is the number one Italian sauce brand in terms of dollar share.
Speaker Change: Reyes has about 50% of the household penetration and 60% of the skew assortment of prego. There's also a significant opportunity to continue to build brand awareness as the team ready's new marketing and innovation for Fiscal 2025.
Speaker Change: Additionally, the brand is growing share across all economic demographics and is thriving amongst millennial consumers. In fact, Rails is growing with millennials at a rate 2.8 times faster than the category.
Speaker Change: We are thrilled to see younger consumers embrace this ultra-distinct brand, and believe this provides a strong foundation for us to build rails into a household staple in the future.
Speaker Change: Finally, on slide 14, just to remind everyone that our meals and beverages division also includes brands like pace, Pacific and V8 energy, all of which represent great opportunities for additional growth as leading brands in their respective advantage categories or segments.
Speaker Change: Turning to our snacks business on slide 15, despite the 3% decline for the quarter, we saw many encouraging indicators.
Speaker Change: We were pleased to see continued improvement in VOLMIX, as well as in market results compared to Q3.
Speaker Change: We did see some competitive pressure in salty snacks that were addressing with targeted plans in place in Q1.
Speaker Change: It's important to note, much of that share pressure is not a result of pricing or promotional activity but rather new entrants into our elevated segments like kettle potato chips or organic better for you tortilla chips.
Speaker Change: Although we continue to see investment and promotion going forward, we expect levels to remain competitive and disciplined.
Speaker Change: It's important to remember that although managing price gaps is important, growing our elevated snacks brands will be more influenced by the impact of our innovation and marketing efforts. Those plans are particularly robust for fiscal 2025, given us even more confidence.
Speaker Change: On slide 16, I'd like to quickly provide some additional color on the bridge between the in-market 1% decline and are overall 3% decline in organic then sales.
Speaker Change: There were two key drivers.
Speaker Change: First, as we expected, there was approximately a 1% reduction driven by partner and contract brands, which I'll explain a bit more about in a moment.
Speaker Change: Second, we cycled about a point of favorable trade phasing in Q4 of Fiscal 23 that created some additional pressure on pricing in the quarter. This is a one-time dynamic that we do not expect to repeat in Fiscal 2025.
Speaker Change: Let me go a bit deeper now on the partner and contract brains headwind. As you will likely recall, we've discussed the role of these partner and contract brains in the past.
Speaker Change: Partner Brands or Brands Campbell's does not own that we agreed to sell through IDPs to improve the scale of their routes. Contract Brands are products that Campbell's manufacturers to support the scale of our manufacturing plans and are shipped to another company or customer.
Speaker Change: Although these businesses play an important role on average, they have approximately 50% lower variable contribution margin than our power brands, and also, in many cases, support competitors' products.
Speaker Change: So, as we grow our power brands and optimize our DSD and manufacturing network, our reliance on these businesses has gone down. Although there is a top line headwind in the near term, it is clearly the right strategic decision to focus more on our own brands and improve the mix of our business.
Speaker Change: We expect this trend to continue in fiscal 25, but as you can see we've been working this number down and reduced it by more than a half.
Speaker Change: We'll provide a bit more detail on our destination for these businesses during investor day.
Speaker Change: In addition to the right-sizing of partner and contract brands and with a similar objective, we recently announced the sale of our Pop Secret Business. Although a very strong brand in the microwave popcorn segment, we do not see the brand or the category as a core focus area for our SNAC business.
Speaker Change: While there will be a modest impact in that stales in EPS this year, we're confident that as we continue to refine our snacks portfolio, the continued focus will be a further enabler to faster and more profitable growth.
Speaker Change: As I mentioned earlier, we did experience some competitive pressure on our power brands in Q4, resulting in dollar consumption that was flat compared to the prior year. On a two-year basis, our power brands did grow 9.5%.
Speaker Change: Moreover, we continue to see meaningful progress in the quarter on key brands like Goldfish.
Speaker Change: which continues the drive-in market growth.
Speaker Change: We believe strongly in the accelerated growth of these brains within our snacks portfolio and are responding to the near-term pressure by delivering strong innovation, increasing our marketing efforts and investing it sustainable and discipline levels as we continue to make strides towards our long-term goals for the category.
Speaker Change: Another important focus area for fiscal 24 was delivering stacks margin improvement.
Speaker Change: and I'm pleased that despite the volatile environment, we were able to reach approximately 15% operating margin for the full year. This finished reflects 170 basis points of expansion over the last two years.
Speaker Change: We remain extremely confident in our savings and productivity roadmaps for snacks. But we'll always ensure that we're appropriately supporting our brands given our priority of growth.
Speaker Change: As you will hear from Carrie in a moment, we're being measured in our fiscal 25 guidance for snacks, margin improvement until we fully cycle the consumer and category recoveries.
Carrie: To that end, although we do expect margin progress in fiscal 25 on snacks, we're targeting approximately 50 basis points of year over year improvement. Again, all savings initiatives remain on track, and this moderation from our originally planned 100 basis points increase.
Carrie: Simply reflects the acceleration of plan marketing investment into this year, reflecting the competitive environment and a near-term moderate margin headwind from the pop secret divestiture.
Carrie: We remain confident in our stated long-term goal of 17% margins for stacks, and we'll talk more about that path during Investor Day.
Carrie: In summary, our fourth quarter performance was a solid close to fiscal 24, with steady progress across the business and against our strategic plan. We saw stabilizing trends in growth and volumes, compelling earnings with margin improvement, and continued progress in upgrading so-vos friends.
Speaker Change: I'd like to thank the entire Campbell's team for their hard-working commitment in finding ways to deliver and in ever-evolving consumer environment.
Speaker Change: I recognize that we're not fully through the consumer recovery yet, but I can clearly see the light at the end of the tunnel.
Speaker Change: This paired with the tremendous progress we've made in transforming Campbell's business, is setting up what I believe will be a very exciting next chapter in our storied history.
Carrie: We look forward to laying out that chapter at our upcoming Investor Day on September 10th in New York. With that, let me turn it over to Carrie. Thanks Mark and good morning everyone. I'll begin with an overview of our fourth quarter, including Continued Strong Performance from the Southwest Brands Acquisition.
Carrie: Fourth quarter reported net sales were up 11% driven by the contribution from so-vos. Organic net sales excluding the impact of acquisitions, divestitures, and currency decreased 1% compared to the prior year to $2 billion.
Carrie: Importantly, as Mark mentioned earlier, we continued to show sequential volume improvement, moving into positive territory. Similar to 3rd quarter, both adjusted EBIT and adjusted earnings per share increased double digits in Q4, with expansion in both adjusted gross margin and adjusted EBIT margin.
Mark: Adjusted EBIT increase 36% primarily due to higher adjusted gross profit from the contribution of so-gos and base business performance.
Mark: Adjusted EPS increased 26% to 63 cents with the impact of the acquisition of approximately neutral in the quarter, which as Mark mentioned, continue to exceed our expectations.
Speaker Change: Turning to sigh 23 on a full year basis, Net Sales were up 3% including 4.5 months of sales contribution from the Sova's acquisition. Organic Net Sales decreased 1% compared to the prior year with unfavorable volume and mix partially offset by the benefit of net price realization.
Speaker Change: Our organic full-year net sales result with a line with the low end of our guidance range, and we have now delivered two consecutive quarters of stable or growing year-over year volume in mix.
Speaker Change: Full year adjusted EBIT increase 6% driven by higher adjusted gross profit from the contribution of the acquisition and base business performance.
Speaker Change: Adjusted EBIT margin improved 50 basis points, driven primarily by an increase in adjusted gross margin.
Speaker Change: For a year adjusted EPS increased 3% to $3.8 with the impact of the acquisition approximately neutral during the fiscal year.
Speaker Change: Moving to slide 24, Organic Net Sales declined slightly in the quarter as sequential improvement in volume and mix was more than offset by unfavorable net pricing. We did see volumes term positive in the quarter within our meals and beverages division and neutral volumes in snacks.
Speaker Change: and both divisions saw volume improvement in the quarter compared to Q3. Looking ahead, we expect volume trends to continue to modestly improve as we move through fiscal 25. During the quarter, so Blast Brands added 12 percentage points to reported net sales growth, which exceeded our expectations.
Speaker Change: On slide 25, fourth quarter adjusted gross profit margin expanded 80 basis points to 31.4% consistent with Q3 margins and in line with our expectations. Drivers of margin expansion included supply chain productivity, lower other supply chain cost and favorable mix.
Speaker Change: These contributors more than offset unfavorable net price realization, moderate cost inflation and the impact of the so-blast brand's acquisition, which has a lower margin profile than the base business.
Operator: 24 earnings conference call. At this time, all participants are in 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. As a reminder, this conference call is being recorded.
Speaker Change: Core inflation in the quarter remained in the low single digit range, consistent with rates we experience throughout the year, and much lower than the 12% we reported for full year fiscal 23.
Rebecca Gardy: 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 fourth quarter fiscal 2024 earnings conference call. I'm Rebecca Gardy, chief investor relations officer at Campbell's. Joining me today are Mark Clouse, chief executive officer, and Carrie Anderson, chief financial officer. Today's remarks have been pre-recorded. Once we conclude the prepared remarks, we will transition to a live webcast Q&A session.
Speaker Change: We anticipate cornflation to remain in the low single digit range for fiscal 25, and we remain focused in areas of the portfolio where we still see higher year over year input costs, including olive oil, cocoa and packaging costs.
Speaker Change: and other areas of persistent inflation, such as labor cost and warehousing costs. In fiscal 24, we delivered $60 million of enterprise cost savings, reaching a cumulative $950 million of our $1 billion multi-year cost savings program.
Speaker Change: For the full year, our total productivity initiatives and cost savings programs more than all set the impact of inflation.
Rebecca Gardy: The slide deck and today's earnings press release have been posted to the investor relations section on our website, CampbellSoupCompany.com. Following the conclusion of the Q&A session, a replay of the webcast will be available at the same location followed by a transcript of the call within 24 hours. On our call today, we will make four looking statements which reflect our current expectations. These statements rely on assumptions and estimates which could be inaccurate and are subject to risk.
Speaker Change: Turning to slide 26, Q4 other operating items included adjusted marketing and selling expenses, which decreased 4% to $187 million.
Speaker Change: The decrease was primarily driven by lower advertising and consumer expenses in the base business.
Speaker Change: as we lap significant spending in the prior year. Reductions in advertising and customer expenses on the base business were partially off said by the impact of the Sobaless Brands acquisition.
Rebecca Gardy: Please refer to slide three of our presentation or our SEC filing for list of factors that could cause our actual results to vary materially from those anticipated in the four looking statements. Because we use non-GAP measures, we have provided a reconciliation of each of these measures to the most directly comparable GAP measure in the appendix of our presentation. Slide four outlines today's agenda. Mark will provide insight into our fourth quarter and full year performance as well as our in market performance by division.
Speaker Change: Fourth quarter adjusted administrative expenses modestly increased 1% to $165 million.
Speaker Change: The added adjusted administrative costs from the acquisition were partially mitigated by lower incentive compensation costs and approximately $7 million in cost synergies realization in the quarter from our so-bus integration plan.
Speaker Change: This brings our total selfless integration synergy capture to $10 million for fiscal 24.
Rebecca Gardy: Carrie will then discuss the financial results of the fourth quarter and full year fiscal 24 in more detail and outline our guidance for the full fiscal year 2025 which we provided this morning. As a reminder, we completed the acquisition of SOVO's brands on March 12th and as such, the full fiscal year 2024 financial results include a partial year contribution from SOVO's brands.
Speaker Change: It's shown on 527 fourth quarter adjusted EBIT increased 36% and adjusted EBIT margin increased 260 basis points to 14.3%. This was primarily due to higher adjusted gross profit from the contribution of the acquisition and base business performance.
Speaker Change: Lower adjusted marketing and selling expenses were offset by the modest increase in adjusted administrative and R&D cost.
Mark Clouse: And with that, I'm pleased to turn the call over to Mark. Thanks, Rebecca. Good morning, everyone.
Speaker Change: and an increase in adjusted other expenses, which would driven by higher amortization of intangible assets related to the acquisition and lower pension and post-retirement benefit income.
Mark Clouse: And thank you for joining our fourth quarter fiscal 24 earnings call. In Q4, we continue to successfully navigate the evolving consumer landscape and delivered solid results, including sequential volume improvement across both divisions, a second consecutive quarter of double digit year-over-year adjusted EBIT growth and adjusted EPS growth underpinned by sequentially improving margins on both businesses. It also marks the end of a dynamic year during which we drove significant progress against our strategic plan.
Speaker Change: On slide 28, adjusted EPS increased double digits to 63 cents, primarily reflecting higher adjusted event, partially offset by higher net interest expense related to higher levels of debt to fund the acquisition.
Speaker Change: As we mentioned earlier, the acquisition was approximately neutral to adjusted EPS in Q4 and to the full year.
Speaker Change: In meals and beverages, fourth quarter net sales increased 28% driven by the contribution of the
Mark Clouse: In addition, we continued to see momentum on the SOVO's brand's business and advance the integration of the best growth story in food into our meals and beverages business. In market performance was still mixed but improved for both divisions with substantial volume driven progress on meals and beverages and sequential improvement on snacks. While the snacks category recovery is unfolding at a somewhat slower pace than we'd like, it continues progressing in the right direction.
Speaker Change: Proforma Q4 Net Sales Growth for the Division, as if we had owned sovos for all of Q4 Fiscal 23, would have been approximately 4%. Driven by the respective Proforma Q4 Growth of sovos, a 14%.
Speaker Change: Organic Net Sales increased 1% driven by gains in U.S. soup, food service, and prego pasta sauces, partially offset by declines and beverages.
Mark Clouse: Finally, we also introduced fiscal 25 guidance today, which reflects our expectation of steady progress and incorporates an appropriate level of pragmatism as we continue to navigate the recovery of snacks in the first half of the year. Kerry will provide more details in a moment. While we remain vigilant as we head into fiscal 25, we have also never been more confident in the strength and long-term trajectory of our business. We remain steadfast in our view that consumer behavior will continue to normalize and that we are uniquely positioned to deliver sustained and dependable growth with one of the best portfolios in all of food.
Speaker Change: It was great to see year-over-year volume trends turn positive in the quarter for meals and beverages, with favorable volume and mix of 2% partially offset by lower net price realization of 1%.
Speaker Change: In U.S. soup, Nest sales increased 2% primarily due to an increase in broth, partially offset by decreases in ready to serve and condense soup.
Speaker Change: Additionally, fourth quarter operating earnings increased 60 percent, primarily driven by the contribution of the
Speaker Change: We were pleased with the Q4 meals and beverages operating margin of 17.6%, which improved 350 basis points as compared to the prior year. More than absorbing the impact of the recent acquisition, which, as I mentioned earlier, has a lower margin profile than the base business.
Mark Clouse: We look forward to sharing more of this story at our investor day on September 10th in New York. Turning to slide 7, organic net sales in the fourth quarter declined 1% compared to the prior year. As we expected, volume improves sequentially, and both adjusted EBIT and adjusted EPS increased by double digits. The Savos Brands acquisition was approximately neutral to adjusted EPS, which again exceeded our expectations. In-market consumption was essentially flat compared to the prior year, and the one point of difference in organic net sales versus consumption was primarily driven by headwinds from partner brands and some trade phasing, both of which were in our snacks business.
Speaker Change: For the full year of meals and beverages operating margins improve 30 basis points to 18 and a half percent.
Speaker Change: Fourth quarter, organic nit sales and snacks decrease 3%. Volume and mixed trends sequentially improve to flat in the quarter with roughly 1% growth in power brands, and 1% reduction in partner brands.
Speaker Change: In addition, we saw slightly more than a 2% unfavorable net price realization, of which approximately half was a planned increase in net pricing investment, and the balance reflecting the lapping of favorable trade phasing in Q4 of fiscal 23.
Mark Clouse: On a full-year basis, we were down slightly on top line while growing adjusted EBIT and adjusted EPS. I'd note that adjusted EPS at $3.8 for the full year put us roughly at the midpoint of our most recent guidance. As I mentioned, the trend of sequential volume and mix improvement we've experienced over the past two quarters continued in Q4. We were encouraged to see growth in meals and beverages of 2% and snacks remain stable in the quarter.
Speaker Change: Fourth quarter operating margin for snacks increased 50 basis points to 14.5% and full-year margin improve 40 basis points to end the year at 14.8%. Generally aligned with our goal of reaching approximately 15% margins for the year as we navigated the ongoing consumer recovery.
Speaker Change: We remain on track with our network and route to market initiatives as part of our margin roadmap.
Mark Clouse: This trend continues to reflect the improving consumer dynamics, including total foods move this quarter into positive territory for both dollars and units. Strong consumer metrics support this continued progress, including roughly 70% of edible categories growing household penetration, similar to Q3, and for the first time in a while the recovery is beginning to extend to lower and middle income households. The one negative indicator was a modest reversal in consumer confidence in the fourth quarter, signaling the somewhat fragile state of the consumer, and why being prune on expectations still makes sense.
Speaker Change: Though as we think about fiscal 25, we will be a bit more conservative with a margin expectation modestly above 15% as volume trends continue to normalize and we absorb the near-term impact of the POP Secret Investiture.
Speaker Change: This will give us some flexibility to remain competitive while supporting our brands and innovation launches this coming year, while staying focused on our long-term margin goal of 17%.
Speaker Change: Turning to 531, we generated strong cash flow from operations of nearly $1.2 billion in fiscal year 24. This result represented a 4% increase compared to the prior year, despite incurring one-time cash cost associated with the acquisition.
Mark Clouse: However, overall, as we've said before, we continue to see the recovery of the consumer environment not as a question of if, but rather a question of when. On slide nine, I want to briefly expand upon the material benefit we're experiencing with the integration of SOVOS. While our Q4 net sales declined 1% from the prior year on an organic basis, including the pro forma contribution from SOVOS, total company growth would have increased 150 basis points.
Speaker Change: fiscal 24 capital expenditures were 517 million dollars as we continue to prioritize key growth and capability building investments, including capital requirements related to so-based brands.
Speaker Change: We also remain committed to returning cash to our shareholders with $445 million of dividends paid and $67 million an anti-dollute of share repurchases during the fiscal year.
Mark Clouse: There's also 110 basis point benefit to volume and mix, resulting in an approximately 2% pro forma growth rate on volume and mix for the total company. This growth continues to pace ahead of our initial estimates and reflects the strength in the resilience of the SOVOS business's growth, especially the Rayos brand. Moving to our meals and beverage division on slide 10, we achieved growth of 1% in organic net sales in the quarter compared to the prior year.
Speaker Change: Our net dead to adjusted Eva Deliverage at the end of the fourth quarter was 3.7 times as expected. We remain committed to investment grade ratings and our goal to return to our 3 times net leverage target by the end of year 3 post-close.
Speaker Change: At the end of Q4, we had approximately $108 million in cash and cash equivalents and ample liquidity under our revolving credit facility.
Speaker Change: Turning to 532, our full year fiscal 25 guidance reflects a balance between sequential progress.
Mark Clouse: More importantly, that growth was fueled by a 2% volume growth offset by a point of plan net pricing investment. On a pro forma combined basis with the addition of SOVOS brands, meals and beverages net sales grew 4%, also fueled by volume mix growth and consistent within market consumption. This is the second quarter of strong performance across our legacy meals and beverage businesses and SOVOS brands. Both fueled by volume growth, an important indicator that's building confidence in the improving potential of our meals and beverages division going forward.
Speaker Change: While also reflecting a reasonable range as we continue to navigate the ongoing consumer recovery.
Speaker Change: As a reminder, we completed the sale of our pop secret business earlier this week. The Investiture is estimated to reduce net sales by approximately 1 percentage point and have a 4-cent earnings per share dilute of impact in fiscal 25, which is reflected in our full-year guidance.
Speaker Change: Fiscal 25 comprises 53 weeks, one additional week compared to Fiscal 24.
Speaker Change: The benefit of the 53rd week is included in our fiscal 25 guidance, and it is estimated to be worth approximately 2 points of net sales and adjusted e-bit growth, and approximately 6 cents of adjusted EPS.
Mark Clouse: Moving to more good news on page 11, our soup business also strengthened in Q4 and is building even more momentum in the latest four weeks, with dollar consumption up 2% and 6% respectively, as we head into soup season. Campbell's wet soup dollar consumption increased two points during the fourth quarter, surpassing the category average by approximately one point. Notably, we did experience robust share gains in our Swanson broth business as a major private-label supplier was experiencing supply constraints.
Speaker Change: Full-year reported net sales are expected to increase approximately 9 to 11 percent, which reflects a full 12 months of net sales contribution from Sovos Brands, and the loss of 11 months of net sales from the divestiture of pop secret.
Speaker Change: As a reminder, sovos moves into our organic growth calculation starting March 12, 2025. We expect sovos brand's fiscal 25 pro-forma net sales growth, as if we had owned sovos for all of fiscal 24 to be in the high single-digit range.
Mark Clouse: It's important to note that although our share was helped by this dynamic, the category trends were also very healthy, up double digits, creating a great opportunity for Swanson to add new households. Underline category growth continues to benefit from the consumers pulling back on eating meals away from home in favor of home cooking. The one remaining area focus on soup is ready to serve, where we're experiencing category pressure and some trading down.
Speaker Change: Following a year of double-digit growth, Rayos will laugh its more significant distribution gains beginning in January. Moving forward, we still expect long-term, sub-less brands, Nest sales growth to be in the mid-single-digit range.
Speaker Change: Full-year organic net sales growth is expected in a range of approximately flat to up to percent, reflecting the variability in the pace of consumer recovery.
Mark Clouse: We expect both dynamics to improve as the weather changes and the role of ready to serve at lunch becomes more relevant. We're already seeing some stabilization and are confident about our robust pipeline of innovation and marketing across our chunky, pacific, and reas brands. Overall, this quarter we also answered a very important question about soup. Can soup grow volume mix after COVID and inflation? And it did, up nearly 2%. Turning to Italian sauces, slide 12 highlights are two market leading brands at the forefront of our billion dollar sauces portfolio, Reos and Prego.
Speaker Change: Our organic net sales growth expectations reflect modest positive volume and mix for the year.
Speaker Change: In terms of phasing, we expect Q1 organic net sales growth to be relatively flat, a modest improvement from Q4, and for the balance of the year we expect sequential improvement in the consumer environment.
Speaker Change: Importantly, for the second half, although we expect healthier category trends, we will be cycling the Brocknet sales benefit in fiscal 24 that was the result of private labels supply constraints.
Speaker Change: We expect adjusted e-bic growth of 9 to 11 percent, including the operating income contribution of civil brands and the impact of the divestiture of pop secret.
Mark Clouse: I could not be happier with the continued strong growth of Reos within market consumption in the high teens range. Reos compliments the steady performance of Prego, which was up 2% in market. This combination of brands that address different occasions and price points gives us a fantastic ability to grow overall share by meeting multiple consumer needs. We'll provide more details on our expectations for Reos at our investor day, but we remain very confident in our previously stated ongoing growth rate of mid single digits, with a high single digit growth expectation for fiscal 25.
Speaker Change: As a reminder, the adjusted ebit contribution of sovos in our guidance includes stock-based compensation expense and acquisition-related depreciation and amortization expense. We're as historically when sovos was a standalone company, these costs were not included in their adjusted results.
Speaker Change: This will 25 transaction related depreciation and ambrosization expense is expected to be approximately $18 million in line with our original expectations.
Speaker Change: We expect full-year cornflation in the low single digit range.
Mark Clouse: The team on service has done an excellent job during the integration, not only maintaining the business but advancing the growth and strategy across support portfolio. Slide 13 outlines a few reasons why we are confident in the continued growth of Reos. Despite ranking as the number one Italian sauce brand in terms of dollar share, Reos has about 50% of the household penetration and 60% of the skew assortment of Prego. There's also a significant opportunity to continue to build brand awareness as the team reties new marketing and innovation for fiscal 2025.
Speaker Change: Consistent with fiscal 24. We also expect productivity improvements of approximately 3% and enterprise cost savings of approximately 70 million dollars, inclusive of 10 million dollars in cost energies related to the integration of so-vos.
Speaker Change: Of the $70 million roughly one-third will benefit gross profit and two-thirds to be realized in the marketing, selling and general administrative expense categories.
Speaker Change: Additionally, in line with our continued commitment to brand investments, we expect adjusted marketing and selling expense as a percent of net sales to return to our targeted range of 9 to 10 percent.
Mark Clouse: Additionally, the brand is growing share across all economic demographics and is thriving amongst millennial consumers. In fact, Reos is growing with millennials at a rate 2.8 times faster than the category. We are thrilled to see younger consumers embrace this ultra distinctive brand and believe this provides a strong foundation for us to build Reos into a household staple in the future. Finally, on slide 14, just to remind everyone that our meals and beverages division also includes brands like Pace, Pacific and V8 Energy, all of which represent great opportunities for additional growth as leading brands in their respective advantage categories or segments.
Speaker Change: For Q1, we expect an increase in marketing and selling spend as compared to Q1 fiscal 24 with the addition of so-called brand expenses, as well as other targeted brand investments in the base business.
Speaker Change: Total company, adjusted EBIT margin, is expected to be similar to fiscal 24, with a modest improvement in adjusted gross margin, offset with the impact of the acquisition as it moves into our base for a full 12 months.
Speaker Change: As well as the normalization of incentive compensation and higher levels of marketing and selling cost for the base business.
Speaker Change: As mentioned earlier, Snacks operating margin is expected to be modestly above fiscal 24. Meals and beverages operating margin is expected to be modestly lower, reflecting the mixed impact of sovos, partially offset by a modest margin improvement in the base business.
Mark Clouse: Mark Clouse. We did see some competitive pressure in salty snacks that were addressing with targeted plans in place in Q1. It's important to note much of that share pressure is not a result of pricing or promotional activity but rather new entrants into our elevated segments like kettle potato chips or organic better for you tortilla chips. Although we continue to see investment in promotion going forward, we expect levels to remain competitive and disciplined.
Speaker Change: Adjusted earnings per share is expected to increase 1 to 4% and be in a range of $3.12 to $3.22, including the 4% impact of the divestiture of pop secret.
Speaker Change: We expect servos to be approximately neutral to adjusted EPS in fiscal 25.
Speaker Change: To provide a bit more clarity about the phasing of the year in Q1, we would expect adjusted EPS to be in the mid to high 80 cent range, reflecting modest solution impacts from the Sobaless acquisition and pop secret divestiture, as well as brand investments within our targeted 9 to 10% range.
Mark Clouse: It's important to remember that although managing price gaps is important, growing our elevated snacks brands will be more influenced by the impact of our innovation and marketing efforts. Those plans are particularly robust for fiscal 2025, giving us even more confidence. On slide 16, I'd like to quickly provide some additional color on the bridge between the in market 1% decline and our overall 3% decline in organic net sales. There were two key drivers.
Speaker Change: Full year adjusted net interest expense is expected to be between $350 million and $355 million
Speaker Change: Net interest expenses higher than fiscal 24 reflecting a full year of incremental debt related to the acquisition and higher expected interest expense associated with a refinancing of our March 20, 25 bond maturitys with expected debt issuance timing driven by market conditions.
Mark Clouse: First, as we expected, there was approximately a 1% reduction driven by partner and contract brands which I'll explain a bit more about in a moment. Second, we cycled about a point of favorable trade phasing in Q4 fiscal 23 that created some additional pressure on pricing in the quarter. This is a one-time dynamic that we do not expect to repeat in fiscal 2025. Let me go a bit deeper now on the partner and contract brands headwind.
Speaker Change: As I wrap up guidance, capital expenditures expected to be approximately 5% of net sales. Our priorities for fiscal 2025 include key networking optimization initiatives across both divisions.
Speaker Change: Capital related to the integration of so-vos including IT investments and completing our growth capacity investments in our snacks division for goal-fishing kettle brand chips.
Speaker Change: We see great opportunity to reinvest into the business in support of growth and improved profitability. This remains very much aligned with our long-term algorithm and capital allocation priorities that we'll talk more about at our upcoming investor day.
Mark Clouse: As you will likely recall, we've discussed the role of these partner and contract brands in the past. Partner brands or brands Campbell's does not own that we agree to sell through IDPs to improve the scale of their routes. Contract brands are products that Campbell's manufacturers to support the scale of our manufacturing plants and our ship to another company or customer. Although these businesses play an important role, on average, they have approximately 50% lower variable contribution margin than our power brands.
Speaker Change: To wrap up, we were pleased with our fourth quarter results delivering double-digit growth in both adjusted EBIT and EPS.
Speaker Change: and Margin Expansion.
Speaker Change: As we head into fiscal 25, we remain encouraged by the continued expectation for improving volume trends in the business and sustaining the momentum following our first full quarter with so-vost brands in our results. With that, let me turn it over to the operator to begin Q&A.
Mark Clouse: And also, in many cases, support competitors' products. So, as we grow our power brands and optimize our DSD and manufacturing network, our reliance on these businesses has gone down. Although there is a top line headwind in the near term, it is clearly the right strategic decision to focus more on our own brands and improve the mix of our business. We expect this trend to continue in fiscal 25, but as you can see, we've been working this number down and reduced it by more than a half.
Speaker Change: Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star 1 in your telephone keypad to raise your hand and join the queue. If you would like to withdraw your questions, simply press star 1 again. Your first question comes from a line of Andrew Lazar from Barclays. Your line is open.
Speaker Change: Break money, everybody.
Speaker Change: I'm sure there will be plenty of questions on snacks, so maybe I'd like to focus a bit on meals and beverages to start.
Mark Clouse: We'll provide a bit more detail on our destination for these businesses during investor day. In addition to the right sizing of partner and contract brands and with a similar objective, we recently announced the sale of our pop secret business. Although a very strong brand in the microwave popcorn segment, we do not see the brand or the category as a core focus area for our SNAC business. While there will be a modest impact in net sales in EPS this year, we're confident that as we continue to refine our SNAC portfolio, the continued focus will be a further enabler to faster and more profitable.
Andrew Lazar: Organic Hills Rose 1, right? 2% gain in volume, so momentum clearly improving here, even without servos being in the base. So it's hoping you could talk to a bit more about sort of the key drivers here and I guess more importantly, the sustainability, right of these improved results, especially in the context of the industry supply and broth coming back later this hour and a year.
Speaker Change: Yeah, so I think the first thing I just would say is that when you think about the consumer landscape that we're in right now
Speaker Change: You know, it's a good time to be in these categories and the old encourages fit very well.
Mark Clouse: As I mentioned earlier, we did experience some competitive pressure on our power brands in Q4, resulting in dollar consumption that was flat compared to the prior year. On a two-year basis, our power brands did grow 9.5%. Moreover, we continued to see meaningful progress in the quarter on key brands like Goldfish, which continued to drive in market growth. We believe strongly in the accelerated growth of these brands within our snacks portfolio, and are responding to the near term pressure by delivering strong innovation, increasing our marketing efforts, and investing at sustainable and discipline levels as we continue to make strides towards our long-term goals for the category.
Speaker Change: In a world where consumers are eating more in home as we continue to see those numbers extremely high, the behavior of cooking and driving value and affordability along with convenience.
Speaker Change: We really couldn't have a better fitting.
Speaker Change: I'll set a brands for that, and I think that underpins.
Speaker Change: A lot of the reasons why growth is continuing.
Speaker Change: I do think it's important, though, that, you know, for a lot of investors that I've spoken to. I think one of the big questions was, are you going to be able to get volume, you know, in the right direction on suit?
Mark Clouse: Another important focus area for fiscal 24 was delivering snacks margin improvement, and I'm pleased that despite the volatile environment, we were able to reach approximately 15% operating margin for the full year. This finish reflects 170 basis points of expansion over the last two years. We remain extremely confident in our savings and productivity roadmaps for snacks, but we'll always ensure that we're appropriately supporting our brands given our priority of growth. As you will hear from Carrie in a moment, we're being measured in our fiscal 25 guidance for snacks margin improvement until we fully cycle the consumer and category recoveries.
Speaker Change: Without more gaging, if you will, the margin, and I think this was a great quarter to demonstrate that. And even if you look into the latest four weeks as we go into Q1, the momentum on that business is really...
Speaker Change: Fairly Broadscaled, Fairly Universal, across all of our segments, a little bit more work to do on ready to serve, I think that will.
Speaker Change: You know, we continue to see consumers kind of choosing based on what the priority of the season is. And so I do expect ready to serve in Trunkey.
Speaker Change: to have a stronger first half of the year, but the reality is those businesses are in strong footing.
Mark Clouse: To that end, although we do expect margin progress in fiscal 25 on snacks, we're targeting approximately 50 basis points of year-over-year improvement. Again, all savings initiatives remain on track, and this moderation from our originally planned 100 basis points increase simply reflects the acceleration of plan marketing investment into this year, reflecting the competitive environment, and a near-term moderate margin headwind from the pop secret divest determined. We remain confident in our stated longer-term goal of 17% margins for snacks, and we'll talk more about that path during investor day.
Speaker Change: On share, there's no doubt that the broth dynamic with private label is helping. And we're seeing significant growth in broth, and we have now for a couple quarters. But I think what's interesting.
Speaker Change: is even if I account for the fact that we're a bit higher priced than private label in the dollar growth of the category and the volume growth.
Speaker Change: The category still is very, very healthy and all of that consumption is now happening with Swanson.
Speaker Change: So we feel really good about the trajectory of soup as we go into the season and into the holiday. I think, you know, as I pointed out our sauce business has been good, right, was good. It's good and absolutely consistent belief that it will continue to do very well. It was great to see both.
Mark Clouse: In summary, our fourth quarter performance was a solid close to fiscal 24, with steady progress across the business and against our strategic plan. We saw stabilizing trends in growth and volumes, compelling earnings with margin improvement, and continued progress integrating sow those brands. I'd like to thank the entire Campbell's team for their hard work and commitment and finding ways to deliver in an ever-evolving consumer environment. I recognize that we're not fully through the consumer recovery yet, but I can clearly see the light at the end of the tunnel. This paired with the tremendous progress we've made in transforming Campbell's business is setting up what I believe will be a very exciting next chapter in our storied history.
Speaker Change: Reo's and Priego growing.
Speaker Change: Because I think they are very complimentary in nature.
Speaker Change: You've got a mainstream prego business that was doing well in the quarter and then of course, Rayos just...
Speaker Change: Continues to...
Speaker Change: you know, be the driver that it's been in a total brand.
Mark Clouse: We look forward to laying out that chapter at our upcoming investor day on September 10th in New York.
Speaker Change: In the fourth quarter for race was up 25% and as we've talked a lot
Speaker Change: and we haven't even really started the marketing.
Speaker Change: and the next wave of innovation on that business. And so...
Carrie Anderson: With that, let me turn it over to Kerry. Thanks, Mark, and good morning, everyone. I'll begin with an overview of our fourth quarter, including continued strong performance from the Sowbless Brands acquisition. Fourth quarter reported net sales were up 11 percent driven by the contribution from Sowbless. Organic net sales, excluding the impact of acquisitions, divestitures, and currency, decreased 1 percent compared to the prior year to $2 billion. Importantly, as Mark mentioned earlier, we continued to show sequential volume improvement moving into positive territory.
Speaker Change: Are belief in that continuing to be a driver albeit moderated as we cycle.
Speaker Change: You got to remember this is almost a billion dollar business now.
Speaker Change: Growing at 25% is tough to imagine in the perpetuity, but as we said in 25, we're expecting high single digit growth and long return that mid-single, which will continue to contribute and solidify meals in beverage as a steady grower. Even if you've got some normalization.
Speaker Change: of Meals and beverages as you get into the back half of the year, there's still enough going on in that business that gives us a lot of confidence. They can be a positive contributor and I think that's...
Carrie Anderson: Similar to third quarter, both adjusted EBIT and adjusted earnings per share increased double digits in Q4, with expansion in both adjusted gross margin and adjusted EBIT margin. Adjusted EBIT increased 36 percent primarily due to higher adjusted gross profit from the contribution of Sowbless and base business performance. Adjusted EPS increased 26 percent to 63 cents with the impact of the acquisition approximately neutral in the quarter, which as Mark mentioned, continued to exceed our Williams.
Speaker Change: Kind of a new page, if you will, for meals and beverage, but as much as I loved the Raya's growth continuing, I'd have to say the super covering and it being volume driven was probably a more meaningful statement, a belief in the division for the future.
Carrie Anderson: This one percent compared to the prior year with unfavorable volume and mix partially offset by the benefit of net price realization. Our organic full-year net sales result was in line with the low end of our guidance range, and we have now delivered two consecutive quarters of stable or growing year-over-year volume and mix. Full-year adjusted EBIT increased 6 percent, driven by higher adjusted gross profit from the contribution of the acquisition and base business performance.
Speaker Change: and then maybe just super briefly because I know we've a lot to get there, just you've been very steadfast for a long time now in the broader industry kind of recovering is a more of a when not if.
Speaker Change: It's obviously been longer than most sort of expected. I think a lot of investors are still maybe somewhat more skeptical in this recovery just because we haven't seen it really in a really perceptible way in the data broadly speaking, not just campus specific. Maybe just really briefly just the rationale behind your belief in that. I know a lot of doom and gloom. I'm not seeing it in the numbers, right? If anything, you know, I know we'll talk about snacks. I'm sure at a moment.
Speaker Change: But even where I had some pressure on snacks, it was far more shared driven than category driven.
Speaker Change: You know, a lot of the categories were participating in 75% of them.
Carrie Anderson: Adjusted EBIT margin improved 50 basis points, driven primarily by an increase in adjusted gross margin. Full-year adjusted EPS increased 3 percent to $3.08 with the impact of the acquisition approximately neutral during the fiscal year. Moving to slide 24, organic net sales declined slightly in the quarter, as sequential improvement in volume and mix was more than offset by unfavorable net pricing. We did see volumes turn positive in the quarter within our meals and beverages division and neutral volumes and snacks, and both divisions saw volume improvement in the quarter compared to Q3.
Speaker Change: are back to growth. Now, it snacks all the way back to the historical growth level that I've anxious for it to be at.
Speaker Change: No, not overall, but, you know, you had kettle potato chips in the quarter was up 7%, you had pretzels up 4% Our organic and natural tortillas were up 5%
Speaker Change: Cookies a little bit less but still positive and total snacking, even total salty was up 1%. And I think the underlying metrics that I look at to determine
Carrie Anderson: Looking ahead, we expect volume trends to continue to modestly improve as we move through fiscal 25. During the quarter, countless brands added 12 percentage points to reported net sales growth, which exceeded our expectations. On slide 25, fourth quarter adjusted gross profit margin expanded 80 basis points to 31.4 percent, consistent with Q3 margins and in line with our expectations. Drivers of margin expansion included supply chain productivity, lower other supply chain cost and favorable mix.
Speaker Change: You know, what to expect coming forward, continue to point to me to normalization. I always try to remind us.
Speaker Change: that on the Campbell's Business and Kima Stacks right now, we're still cycling near double digit growth. I think 9% a year ago on total stacks, and a half on the power brand. So...
Speaker Change: Yes, I think there's been a little bit longer runway for this than I would have liked, but I really don't see
Carrie Anderson: These contributors more than offset unfavorable net price realization, moderate cost inflation, and the impact of the sovus brands acquisition, which has a lower margin profile than the base business. Core inflation in the quarter remained in the low single digit range, consistent with rates we experienced throughout the year, and much lower than the 12 percent we reported for full year fiscal 23. We anticipate core inflation to remain in the low single digit range for fiscal 25, and we remain focused in areas of the portfolio where we still see higher year-over-year input costs, including olive oil, cocoa, and packaging costs, and other areas of persistent inflation, such as labor cost and warehouse and costs.
Speaker Change: Um, the any indication from the data other than a little bit of a walk back on consumer confidence.
Speaker Change: Which, you know, again, I don't want to diminish
Speaker Change: How tough it is for a lot of consumers that are out there, but I feel like we've cycled enough of this that we're beginning to see the normalization. Again, we got soup up 6% in the latest four weeks, pasta sauce continues to grow, salsa is growing.
Speaker Change: really most of the core businesses for us. So, as I said, Andrew last quarter.
Andrew Lazar: and continue to believe a lot of this matters about where you are.
Andrew Lazar: Right? If you're in certain categories, I'm sure it still looks like recovery is a way to weigh, but I do think...
Andrew Lazar: This is not going to be a linear journey as we've said before and I'm happy that many of our categories are probably a little bit on the upper edge of that curve and recovering and even in it somewhat depressed.
Carrie Anderson: In fiscal 24, we delivered $60 million of enterprise cost savings, reaching a cumulative $950 million of our $1 billion multi-year cost savings program. For the full year, our total productivity initiatives and cost savings programs more than offset the impact of inflation. Turning to slide 26, Q4 other operating items included adjusted marketing and selling expenses, which decreased 4 percent to $187 million. The decrease was primarily driven by lower advertising and consumer expenses in the base business, as we lap significant spending in the prior year.
Speaker Change: Recovery for snacking, our sub-segment are doing quite well. Now, we've got some share and some new entrance into a couple different categories we need to address, but I'd rather have that fight than structural concern around the growth of the category.
Speaker Change: Thank you.
Speaker Change: You are next question comes from a line of Ken Golden from JP Morgan. Your line is open.
Ken Golden: Hi, thank you. I wanted to ask about snacks. Mark, I appreciate that it's not so much promo.
Carrie Anderson: Reductions in advertising and customer expenses on the base business were partially offset by the impact of the sovus brands acquisition. Fourth quarter adjusted administrative expenses modestly increased 1 percent to $165 million. The added adjusted administrative costs from the acquisition were partially mitigated by lower incentive compensation costs and approximately $7 million in cost energy realization in the quarter from our sovus integration plan. Johnson. This brings our total service integration synergy capture to $10 million for fiscal 24.
Ken Golden: That's acting as a headwind, as much as competition from new entrance.
Speaker Change: I'm curious, isn't this also a bit of a worry and the reason I'm asking is...
Speaker Change: You know, you're attacking the problem with innovation and marketing, it's great to see.
Speaker Change: But this is a problem across a number of food categories that we're seeing, which is that Challenger brands
Speaker Change: are taking share and intensifying and...
Speaker Change: Yes, what I would rather have competition via innovation and discounting sure, but I guess maybe you could walk us through your confidence, but your actions will be enough to offset this trend.
Carrie Anderson: It's shown on slide 27, fourth quarter adjusted EBIT increased 36% and adjusted EBIT margin increased 260 basis points to 14.3%. This was primarily due to higher adjusted gross profit from the contribution of the acquisition and base business performance. Lower adjusted marketing and selling expenses were offset by the modest increase in adjusted administrative and R&D cost and an increase in adjusted other expenses which were driven by higher amortization of intangible assets related to the acquisition and lower pension and post-retirement benefit income.
Speaker Change: Yeah, so it's a great question, Ken. I think the, and I certainly wouldn't want to make the sound as if we're not.
Speaker Change: You know, extremely focused and...
Speaker Change: Really?
Speaker Change: Viewing this is an important...
Speaker Change: you know, area to focus on as we get in the 25, but you know, the way I look at this is as I go across the places where we're experiencing the pressure and it's really insulting, right? So you have, you have a new instrument in pretzels, you have a new instrument in kettle and you have a new instrument in what I call better for you tortilla.
Carrie Anderson: On slide 28, adjusted EPS increased double digits to 63 cents, primarily reflecting higher adjusted EBIT partially offset by higher 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 Q4 and to the full year. In meals and beverages, fourth quarter net sales increased 28% driven by the contribution of the Sovos brand's acquisition. Proforma Q4 net sales growth for the division, as if we had own Sovos for all of Q4 fiscal 23 would have been approximately 4% driven by the respective proforma Q4 growth of Sovos of 14%.
Speaker Change: All of those are a concern, as you say, but as we look at what we have relative to the brands in the portfolio. I look at pretzels.
Speaker Change: and I say, okay, that one's been there for a while. I've got three brands that live in pretzels, right? I've started as my anover. I have stacked factory and I've actually got goldfish to place surprising large roll in pretzels.
Speaker Change: I've got all three brands that I can bring the bear in the defense with innovation and you're going to see when we get to investor day. By the way, for all three of these, we're going to really unpack three.
Speaker Change: You know, kind of a tack plan on how we see going after it because it is important for us to do it. But that's an example of where I feel like the tools we've got now.
Carrie Anderson: Organic net sales increased 1% driven by gains in US soup, food service, and pregal pasta sauces partially offset by declines and beverages. It was great to see year-over-year volume trends turn positive in the quarter for meals and beverages with favorable volume and mix of 2%, partially offset by lower net price realization of 1%. In US soup, net sales increased 2%, primarily due to an increase in broth partially offset by decreases in ready to serve and condensed soups.
Speaker Change: If I'm completely honest, I do think we need to have more marketing support in the plan to support the innovation we're driving and you see that in our outlook in our guidance.
Speaker Change: As we go in the next year, I think on cattle, I would say it's a little bit more of a me-too product and I've got this great two brands, cattle and Cape Cod that I need to use more.
Carrie Anderson: Additionally, fourth quarter operating earnings increased 60%, primarily driven by the contribution of the Sovos brand's acquisition and higher gross profit in the base business. We were pleased with the Q4 meals and beverages operating margin of 17.6%, which improved 350 basis points as compared to the prior year. More than absorbing the impact of the recent acquisition, which as I mentioned earlier, has a lower margin profile than the base business. For the full year, meals and beverages operating margins improved 30 basis points to 18.5%.
Speaker Change: as a portfolio to drive winning in that category and then on tortilla.
Speaker Change: We've got a great story on late July and so I think you hear me confident really for three reasons. One, I think our brains are well positioned to defend too. I think the innovation and the marketing has not been at its peak.
Speaker Change: While these have come in, so we've got to react and respond to that very well, and we're resource for that and we've got the pipeline as we go into next year. And again, I would say that I do not see these as an attack or a fight on price.
Carrie Anderson: Fourth quarter organic net sales and snacks decreased 3%. Volume and mix trends sequentially improved to flat in the quarter with roughly 1% growth in power brands and 1% reduction in partner brands. In addition, we saw slightly more than a 2% unfavorable net price realization of which approximately half was a planned increase in net pricing investment and the balance reflecting the lapping of favorable trade phasing in Q4 of fiscal 23. Fourth quarter operating margin for snacks increased 50 basis points to 14.5%, and full year margin improved 40 basis points to end the year at 14.8%.
Speaker Change: But I do think it's quite important.
Speaker Change: and our promotional frequency and then on Christcaps remain reasonable and so you'll continue to see very modest.
Speaker Change: Under a hundred basis of points with modest investment in some areas to ensure that we stay competitive. So, again, I don't want to over portray that we've got this thing.
Speaker Change: and completely.
Speaker Change: I've solved, but I do think we're in a really good position to address it and again, if I'm in a category that's growing 9%.
Speaker Change: As an example in kettle, that's not a horrible place to be to fight this fight, so I'm...
Carrie Anderson: Generally aligned with their goal of reaching approximately 15% margins for the year as we navigated the ongoing consumer recovery. We remain on track with our network and route to market initiatives as part of our margin expectation modestly above 15%. As volume trends continue to normalize and we absorb the near term impact of the POP secret divestiture. This will give us some flexibility to remain competitive while supporting our brands and innovation launches this coming year, while staying focused on our long-term margin goal of 17%.
Speaker Change: Happy that we're seeing the recovery and are elevated, sub-segment, subtracting and look, we know how to, this is a level playing field and opportunity for us to win in market. I'll always take that challenge.
Speaker Change: And if I can just thank you for that, I ask a very quick follow-up, you mentioned that certain parts of your guidance.
Speaker Change: Or maybe guidance in general is prudent. I won't go into that but I didn't want to ask a specific
Speaker Change: Question, which is that does your guidance assume a reversal in broad share next year? In other words, are you assuming that your goal is to share goes down it does. Okay, thank you. Yeah, the second and the second half of the year.
Carrie Anderson: Turning to slide 31, we generated strong cash flow from operations of nearly $1.2 billion in fiscal year 24. This result represented a 4% increase compared to the prior year, despite incurring one-time cash cost associated with the acquisition. Fiscal 24 capital expenditures were $517 million as we continue to prioritize key growth and capability building investments, including capital requirements related to service brands. We also remain committed to returning cash to our shareholders, with $445 million of dividends paid, and $67 million in anti-dilutive share repurchases during the fiscal year.
Speaker Change: We're anticipating kind of a normalization of share.
Speaker Change: and I think from a prudent standpoint, we've seen a little bit of this normalization before historically speaking, and so we're using that as our kind of guideline for what to plan, and then I know the team's aggressively going after beating that.
Mark: Thanks Mark!
Mark: Thanks for watching.
Speaker Change: You are next question, customer line, Peter Galbow from Bank of America, your line is open.
Peter Galbow: Hey guys, good morning.
Peter Galbow: I'm Peter
Mark: Mark, maybe if we can actually hone in a bit more on snacks, I mean, your largest competitor is obviously talked about also just pressure that they're seeing particularly in unseason, you know, or more playing, you know, potato chips, as well as tortilla chips.
Carrie Anderson: Our net debt to adjusted eva de leverage at the end of the fourth quarter was 3.7 times as expected. We remain committed to investment grade ratings and our goal to return to our 3 times net leverage target by the end of year 3 post-close. At the end of Q4, we had approximately $108 million in cash and cash equivalents and ample liquidity under our revolving credit facility.
Speaker Change: Just kind of the interaction you're seeing amongst, you know, late July, Kettle and Cape Todd. And it may be as a part B to that question, you know, those three brands in particular, at least when I think about them, tend to be a bigger presence maybe in club channels and just, you know, is there a...
Carrie Anderson: Turning to slide 32, our full year fiscal 25 guidance reflects a balance between sequential progress, while also reflecting a reasonable range as we continue to navigate the ongoing consumer recovery. As a reminder, we completed the sale of our pop secret business earlier this week. The divestiture is estimated to reduce net sales by approximately 1 percentage point and have a 4 cent earnings per share dilutive impact in fiscal 25, which is reflected in our full year guidance.
Speaker Change: Store format difference that you're noticing between club and maybe some of the smaller format stores would be helpful.
Speaker Change: Yeah, so there's definitely a bit more of bifurcation between what I would call the more mainstream.
Speaker Change: Segments and then what I would call the more elevated segments. So for example in Q4, I think potato chips is an overall sub-segment, grew by about 3%.
Carrie Anderson: Fiscal 25 comprises 53 weeks, one additional week compared to fiscal 24. The benefit of the 53rd week is included in our fiscal 25 guidance and it is estimated to be worth approximately 2 points of net sales and adjusted ebit growth and approximately 6 cents of adjusted EPS. Full year reported net sales are expected to increase approximately 9 to 11 percent, which reflects a full 12 months of net sales contribution from sowas brands and the loss of 11 months of net sales from the divestiture pop secret.
Speaker Change: which is not horrible but about 3% and arguably with a bit more trade-down pressure and a little bit more promotional focus. We do have you know, J. Cut, which is our, we call them our Allied brands, their J's potato chips. So we see a little bit of that in a very, very small part of our business.
Speaker Change: In the main power brand area, all of those are operating in a more elevated space and those seem to have been...
Speaker Change: One recovering much faster as they do tend to index to a little bit more middle to upper middle and higher in households, which have been a fair degree more resilient. So I think...
Carrie Anderson: As a reminder, sowas moves into our organic growth calculation starting March 12, 2025. We expect sowas brands fiscal 25 perform a net sales growth as if we had own sowas for all of fiscal 24 to be in the high single digit range following a year of double digit growth. Rails will lap its more significant distribution gains beginning in January. Moving forward, we still expect long term sowas brands net sales growth to be in the mid single digit range.
Speaker Change: Where you are playing on that front, it does tend to be more driven by who's bringing the innovation, who's bringing the right marketing, obviously promotion plays a very important role and I'm not diminishing that, but at the end of the day the fight is quite different.
Carrie Anderson: Full year organic net sales growth is expected in a range of approximately flat to up 2 percent, reflecting the variability in the pace of consumer recovery. Our organic net sales growth expectations reflect modest positive volume and mix for the year. In terms of phasing, we expect Q1 organic net sales growth to be relatively flat, a modest improvement from Q4. And for the balance of the year, we expect sequential improvement in the consumer environment.
Speaker Change: At those elevated segments, then it is...
Speaker Change: and what I'd call the more lower and mainstream segments where we do see it a little bit more fight on price. We do see a little bit more traction in private label. You know, probably the category where we have a little bit more of that analog is on pretzels.
Speaker Change: where our base pretzel is, you know, we see a little bit more pressure there, but even there, I think Snyder's kind of plays at a somewhat elevated level of that and that helps our business or our portfolio, I think, you know, you play a little more constructive of a way.
Carrie Anderson: Importantly, for the second half, although we expect healthier category trends, we will be cycling the broth net sales benefit in fiscal 24 that was the result of private label supply constraints. We expect adjusted ebit growth of 9 to 11 percent, including the operating income contribution of sowas brands and the impact of the divestiture pop secret. As a reminder, the adjusted ebit contribution of sowas in our guidance includes stock based compensation expense and acquisition related depreciation and amortization expense.
Speaker Change: Okay, now that's helpful and maybe just as a follow up to Ken's question.
Speaker Change: Um, just to clarify, I'm the organic salesguides for the year.
Speaker Change: You know, the first quarter being flat, I'm assuming then, you know, we should kind of see a step down, potentially in work sales, kind of through the middle part to the year, and then again, maybe that ramp up, just as you hit the 53rd week in 4K, which I think you're including in the organic sales garden, so maybe you can just clarify that. Thanks very much.
Carrie Anderson: Whereas historically, when sowas was a standalone company, these costs were not included in their adjusted results. Williams. Physical 25 transaction-related depreciation and amortization expense is expected to be approximately $18 million in line with our original expectations. We expect full year cornflation in the low single-digit range consistent with fiscal 24. We also expect productivity improvements of approximately 3 percent and enterprise cost savings of approximately $70 million, inclusive of $10 million in cost energies related to the ratio of sowows.
Speaker Change: Yeah, so 53rd week is not an organic sale reported, but not an organic right, and maybe Carrie talk a little bit about the phasing of the year, but we do not see like a Q2
Carrie: Significant drop-off. No, and certainly as we think about second quarter, you guys should benefit of your holiday season and a lot of our innovation starts to launch there. So, you know, I would say that you need to take a nap.
Carrie Anderson: Of the $70 million, roughly one-third will benefit gross profit and two-thirds to be realized in the marketing, selling, and general administrative expense categories. Additionally, in line with our continued commitment to brand investments, we expect adjusted marketing and selling expense as a percent of net sales to return to our targeted range of 9 to 10 percent. For Q1, we expect an increase in marketing and selling spend as compared[inaudible] Full year adjusted net interest expense is expected to be between $350 million and $355 million net interest expense is higher than fiscal 24 reflecting a full year of incremental debt related to the acquisition and higher expected interest expense associated with the refinancing of our March 2025 bond maturities with expected debt issuance timing driven by market conditions.
Speaker Change: Inter-consideration, and then as you move into the second half,
Speaker Change: I think the categories are still going to be healthy so I still think you see that that's a bunch of improvement in cagory health.
Mark: But what you are going to need to take into consideration as Mark talked about on M&B is cycling of the broth, as our shared normalizes in broth, so you want to make sure that you're you're putting that into your, into your models. Yeah, I think.
Speaker Change: One of the ways to think about this is at the time that you're cycling.
Speaker Change: A little bit of the broth headwinds.
Speaker Change: I'm also expecting the Stacks business to be
Speaker Change: will be returning a bit more to normality as far as category. I would plot your course for the years a little bit more.
Speaker Change: of a Gradual
Speaker Change: Improvement as we get in to the second quarter and beyond and then perhaps a little bit of a swath of who's.
Speaker Change: You know, kind of leading the drive, but in essence, kind of getting both businesses into what I would call a more normal trajectory.
Speaker Change: Thank you.
Speaker Change: Your next question comes from the line of Michael Lavory from Piper Stannler. Your line is open.
Michael Lavory: Thank you, Good Morning.
Speaker Change: I'm like, just to come back to the consumer thinking a little bit and maybe just try to understand how you balance and risk. I know.
Michael Lavory: On some of the macro teams across the street, there's a soft landing versus recession debate, and I'll be all that to them. But it does seem like there's a bias towards some risk as opposed to...
Michael Lavory: Improvement and I know you said you're looking at the data but
Michael Lavory: to some extent, you know, that can also be trailing more than leading, so just Carrie's may be
Carrie: How do you think about it?
Carrie: How you'd be positioned in a recession and if, you know, if the moment comes and it'll be even those of course, what that might look like exactly but
Speaker Change: Would you expect a benefit from switches to more food at home, or, you know, you've got now, especially with so much a bit of a premium and, you know, some attractive value options for consumers.
Carrie Anderson: As I wrap up guidance capital expenditures are expected to be approximately 5% of net sales. Our priorities for fiscal 2025 include key networking optimization initiatives across both divisions capital related to the integration of SOGOs including IT investments and completing our growth capacity investments in our SNACS division for goal fish and kettle brand chips. We see great opportunity to reinvest into the business in support of growth and improve profitability. This remains very much aligned with our long term algorithm and capital allocation priorities that we'll talk more about at our upcoming investor day.
Speaker Change: Balanced in your portfolio, you know, how do you expect that to net out? Maybe just think about how you've kind of covered those bases.
Speaker Change: Yeah, so the first thing I would say is I think that although you hear a...
Speaker Change: A perhaps more bullish tone.
Speaker Change: on the consumer landscape, then...
Speaker Change: and then maybe some others are even a bit contrarian to some of the points of you out there, more broadly speaking.
Speaker Change: I would tell you that we planned the year.
Speaker Change: in a way where we're not expecting some radical.
Carrie Anderson: To wrap up we were pleased with our fourth quarter results delivering double digit growth in both adjusted EBIT and EPS and margin expansion. As we head into fiscal 25 we remain encouraged by the continued expectation for improving volume trends in the business and sustaining the momentum following our first full quarter with SOGOs brands in our results.
Speaker Change: You know, accelerated recovery in fact I would say that
Speaker Change: We're expecting a relatively slow.
Speaker Change: Bounceback is it relates to snacking a more kind of normalized meals in beverage and a bit of a flip as I said in the back half where you'll see some headwinds from broth and perhaps a bit more normalized meals in beverage category and a more modest recovery.
Operator: With that let me turn it over to the operator to begin Q&A. Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star one and telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star one again.
Speaker Change: on stats. You see that in the zero to 2% range. How do I feel if that environment gets a bit worse? I think there's two things.
Andrew Lazar: Your first question comes from a line of Andrew Lazar from Barclays. Your line is open.
Mark Clouse: Great morning, everybody. Hey, Andrew. Mark, I'm sure there will be plenty of questions on snacks. So maybe I'd like to focus a bit on meals and beverages to start. Organic health rose rose one right 2% gain in volume. So I'm a men, I'm clearly improving here, even without sovose being in the base. So I was hoping you could talk just a bit more about sort of the key drivers here, and I guess more importantly, the sustainability right of these improved results, especially in the context of the industry supply and broth coming back later this calendar year.
Speaker Change: that helped me kind of calibrate the plan. The first is...
Speaker Change: I certainly would not suggest that what we're going to be cycling.
Speaker Change: is the same kind of...
Speaker Change: Outsized growth and upside that we saw as we were cycling pricing in a variety of other, you know, positive if you will, growth drivers, where.
Speaker Change: You know, your baseline is a relatively muted baseline. So let's imagine this hangs around a little longer.
Mark Clouse: Yeah, so I think the first thing I just would say is that when you think about the consumer landscape that we're in right now, you know, I mean, it's a good time to be in these categories. The meals and beverages fit very well in a world where consumers are eating more in home. As we continue to see those numbers extremely high, the behavior of cooking and driving value and affordability along with convenience, we really couldn't have a better fitting set of brands for that.
Speaker Change: Then we would expect, I think, is not going to be perhaps as dramatic.
Speaker Change: as a step down that we saw after cycling two or three years of just incredibly outside's growth. I think the second thing that I would point to is I do think...
Speaker Change: You know, this is a good time to have a portfolio like ours where you've got a variety of different, you know, not an endless, but a variety of different categories that really do match.
Mark Clouse: And I think that underpins a lot of the reasons why growth is continuing. I do think it's important, though, that, you know, for a lot of investors that I've spoken to, I think one of the big questions was, are you going to be able to get volume, you know, in the right direction on soup without mortgaging, if you will, the margin. And I think this was a great quarter to demonstrate that, and even if you look at the latest four weeks as we go into Q1, the momentum on that business is really fairly broad scaled fairly universal.
Speaker Change: You know, as we've seen over the last year, even now, right, we're shooting the broth as people who's eating more at home, continue to benefit from that and certainly pasta sauce has been.
Speaker Change: Fairly resilient and almost any economic environment. I think snacks, again, is a...
Speaker Change: Historically speaking, notwithstanding a little bit of what we're normalizing through right now, but you know, snacks is proven over time to be a bit more resilient.
Speaker Change: in economic downturns and so I think that the role that our brands play in the portfolio we have would.
Mark Clouse: Across all of our segments, a little bit more work to do, I'm ready to serve. I think that will, you know, we continue to see consumers kind of, you know, choosing based on what the priority of the season is. And so I do expect ready to serve in chunky to have a stronger first half of the year. But the reality is, is those businesses are in strong footing. On share, there's no doubt that the broth dynamic.
Speaker Change: would set us up, even in a tougher environment to be in a positive position. But I think that combination are both encouraging what are planned.
Speaker Change: is not assumed that we're going to see this kind of more outside recovery. That's kind of how that's why we said, look it, you know, I will say the consumer.
Speaker Change: Confidence to me is a very important metric and that was negative in Q4.
Mark Clouse: With private label is helping. And, you know, we're seeing significant growth in broth and we have now for a couple quarters. But I think what's interesting is, even if I account for the fact that we're a bit higher priced than private label in the dollar growth of the category and the volume growth, the category still is very, very healthy. And all of that consumption is now happening with Swanson. So we feel really good about the trajectory of soup as we go into the season and into the holiday.
Speaker Change: And, you know, my description of the consumer would be a little bit more biased to positive, but still fragile. And so I would not want to overestimate the certainty, if you will, of what the underlying dynamics may be pointing to.
Speaker Change: That's great color and then I'll just wrap up with a clarification because I want to come back to the 53rd week I have felt that I understood it and I think your answer just a second ago can fuse me because
Speaker Change: In the release, you say the benefit of the 53rd week is included in the fiscal 25 guidance below, and is estimated to be worth approximately 2 points of growth to both reported and organic in that sales, and adjusts the evidence along with the 6 cents to EPS. In the EPS and organic growth numbers,
Mark Clouse: I think, you know, as I pointed out, our sauce business has been good, right, was good is good and absolutely consistent belief that it will continue to do very well. It was great to see both reos and prego growing, because I think they are very complimentary in nature. You've got a mainstream prego business that was doing well in the quarter. And then of course, reos just continues to, you know, be the, be the driver that it's been a total brand in the fourth quarter for reos was up 25% and as we've talked a lot.
Speaker Change: How do we, where's the 53rd week and do we do it yet? Just to clarify, in the organic growth, the benefit of the 43rd week has been removed.
Speaker Change: but in the E-bit and in the E-P-S on the head is in there. It's just in the organic that sales growth, Michael, that it's been, that it's out. We don't normally extract an organic E-bit or... That's correct.
Mark Clouse: We haven't even really started the marketing and the next wave of innovation on that business. And so, you know, our belief in that, continuing to be a driver, albeit moderated as we cycle, you know, got to remember, this is almost a billion dollar business now growing at 25% is tough to imagine into perpetuity. But as we said in 25, we're expecting high single digit growth and longer term that mid single, which will continue to contribute and solidify meals and beverage as a steady grower, even if you've got some normalization of meals and beverages as you get into the back half of the year, there's still enough going on in that business that it gives us a lot of confidence.
Michael Lavory: Okay, thanks so much.
Speaker Change: You are next question comes from the line of Jim Seller from Stevens. Your line is open.
Speaker Change: Hi guys, this is Timone, thanks for taking our question
Speaker Change: Mark, I wanted to drill down on something you said earlier, talking about innovation in elevated segments and snacks.
Speaker Change: which would speak to you know focus from your peers on middle to higher income consumer. But then you also mentioned, Reo's is seeing growth across fall income segments and that's despite being you know premium products.
Speaker Change: Do you think that's reflective of consumer trade-down from food away from home so no matter what they're spending money on it, it's a brand like Rails, they're still saving money compared to restaurants?
Mark Clouse: They can be a positive contributor and I think that's kind of a new page, if you will, for meals and beverage, but as much as I love the reos growth continuing, I'd have to say the super recovery and it being volume driven was probably a more meaningful statement of belief in the division, of the future.
Speaker Change: or the particular categories that consumers are willing to pay more for if the quality.
Speaker Change: He delivers right and they'll cut back elsewhere in their shop.
Speaker Change: Yeah, so I would say almost.
Speaker Change: and you covered the watch we spread out of that.
Speaker Change: I absolutely see RAS and I use this analogy a lot from prior life I remember
Mark Clouse: And then maybe just super briefly, because I know we have a lot to get through just you've been very steadfast for a long time now in the broader industry kind of recovering is a more of a when not if. And it's obviously been longer than most would have expected I think a lot of investors are still maybe somewhat more skeptical in this recovery just because we haven't seen it really in a really perceptible way in the data broadly speaking not just Campbell specific maybe just really briefly just you're the rationale behind your belief in that.
Speaker Change: you know, launching, you know, Dejorno-Pizza many many years ago and the reality was is that although that at the time seemed like an incredibly expensive
Speaker Change: Rosen-Pizza as the frame of reference was expanded to include delivery pizza, all of a sudden became a great value. I think that is very similar to the dynamic.
Mark Clouse: Yeah, I know a lot of doom and gloom I just don't I'm not seeing it in the numbers right if anything you know I know we'll we'll talk about snacks I'm sure at a moment but even where I had some pressure on snacks it was far more share driven than category driven. You know a lot of the categories were participating in 75% of them are back to growth now it snacks all the way back to the historical growth level that I've anxious for it to be at no not overall but you know you had kettle potato chips in the quarter was up seven percent you have pretzels up four percent our organic and natural tortillas were up five percent you know cookies a little bit less but still positive and total snacking you know even total salty was up one percent so I and I think the underlying metrics that I look at to determine you know what to expect coming forward continue to point to me to normalization I mean I I always try to remind us that on the Campbell's business and Campbell's snacks right now we're still cycling near double digit growth I think nine percent a year ago on total snacks and I'm in a half on the on the power brand so yes I think there's been a little bit longer runway for this than I would have liked but I really don't see the any indication from the data other than a little bit of a walk back on consumer confidence which you know again and I don't want to diminish how tough it is for a lot of consumers that are out there but I feel like we've cycled enough of this that we're beginning to see the normalization again we got soup up six percent in the latest four weeks pasta sauce continues to grow salsa's growing really most of the core businesses for us so as I said Andrew last quarter and continue to believe a lot of this matters about where you are right if you're in certain categories I'm sure it still looks like recoveries away as a way but I do think this is not going to be a linear journey as we've said before and I'm happy that many of our categories are probably a little bit on the upper edge of that curve and recovering and even in a somewhat depressed recovery for snacking our sub segments are doing quite well now we've got some share and some new entrance into a couple different categories we need to address but I'd rather have that fight than a structural concern around the growth of the category.
Speaker Change: A brace where you have this incredible quality that arguably...
Speaker Change: at a much lower rate than a door-dash order.
Speaker Change: that, you know, gives a mediocre...
Speaker Change: Italian meal that you pay in 30-40 dollars for.
Operator: Thank you.
Speaker Change: Paying 8 to 9 dollars for a jar of rose and hopefully.
Speaker Change: A couple more for a package of rayos pasta, you're having a terrific Italian meal at home. It's incredibly convenient and it is a better one. And I think that is why...
Speaker Change: You are seeing Rayo's experience growth across all of the economic sectors. And I think...
Speaker Change: To your point, maybe I'll see you.
Speaker Change: Certainly true on rails, but I'd say also true on snacking.
Speaker Change: is you may be racializing some of your spend.
Speaker Change: and the amount that you were buying on snacks, but you also made decide that as I do that, I want to make sure.
Speaker Change: that what I'm buying is something that I'm going to really enjoy. It might be a little bit more permissible, a little cleaner label. And so what we've seen is this dynamic where some of the higher end sub-segments are more elevated as we would describe them.
Speaker Change: To be more resilient now, it's not as prolific as rail-s extending into the lower-income, but certainly as we think about mid-income and high-income categories like kettle potato chips.
Speaker Change: More natural and organic, tortilla chips have, as a category, have held up very well in both of those.
Speaker Change: That's great, and maybe if I could just sneak in one final question on that, how does that dynamic inform some of the marketing spend that you guys are going to be putting in in 2025 as we expect kind of a return to that 90-10% marketing and selling? Where's that incremental? Yes. To be put.
Speaker Change: Yeah, so I think, you know, as I said earlier, I do not want it to diminish.
Speaker Change: How tough it is out there for a lot of consumers, so I think you will continue to see.
Speaker Change: on a value centric.
Speaker Change: Communication and Messaging and many categories, and even on our more premium, it may be a little bit more about value in a different way, right? I mean, again, I think.
Speaker Change: You know, a higher price does not preclude one from creating tremendous value. So I think.
Speaker Change: You will see that continue to be part of it, but I also think as you think about where we're seeing pressure.
Speaker Change: from New Insurance or Me Too Products.
Ken Goldman: You are next question comes from a line of Ken Goldman from JP Morgan your line is open. Hi thank you. I wanted to ask about snacks.
Speaker Change: that are putting some share pressure.
Speaker Change: on businesses. I think what you're going to see is what you should see from us, which is really leading.
Mark Clouse: Mark I appreciate that it's not so much promo that's acting as a headwind as much as competition from new entrance yeah but I'm curious isn't this also a bit of a worry and the reason I'm asking is you know you're attacking the problem with innovation and marketing it's great to see but this is a problem across a number of food categories that we're seeing which is that challenger brands are taking share and intensifying and you know yes what I would rather have competition via innovation and discounting sure but I guess maybe you could walk us through your confidence that your actions will be enough to offset this trend and yeah, so it's a great question, Ken. I think I certainly wouldn't want to make the sounds as if we're not extremely focused and really viewing this as an important area to focus on as we get into 25.
Speaker Change: The consumer thinking and bringing new to the world, flavors, forms, products while continuing to market against what makes our brands like Kettle and Cape Cod and LHLI so unique and differentiated. So I think maybe where is this year?
Speaker Change: We went a little bit more all in on value. I think what you're going to see us as we move in the 25 is balancing that a bit between value but also, you know, really in building getting back to, I think, a more focused effort on driving the equity and the news and innovation behind the brand.
Speaker Change: Because in the long run, you know, in those elevated segments, that's going to determine when it.
Speaker Change: Right? I mean, yes, a new product coming into the category puts some near-term pressure on, but as we cycle that distribution, you know, I think we'll get a better impression of how we've done on ensuring that we really drive the equity in the news.
Mark Clouse: But the way I look at this is, as I go across the places where we're experiencing the pressure, and it's really salty, right? So you have a new entrance and pretzels, you have a new entrance in Kettle, and you have a new entrance in what I call better for you tortilla. All of those are a concern as you say, but as we look at what we have relative to the brands in the portfolio.
Speaker Change: Ladies and gentlemen, we have reached the end of our question and answer session, and this does conclude today's conference call. Thank you for your participation. You may now disconnect.
Mark Clouse: So I look at pretzels and I say, okay, that one's been there for a while. I've got three brands that live in pretzels, right? I've snited my hand over, I have snack factory, and I've actually got goldfish to place a surprising large roll in pretzel. I've got all three brands that I can bring to bear in the defense with innovation, and you're going to see when we get to investor day, by the way, for all three of these, we're going to really unpack for you the full, you know, kind of attack plan on how we see going after it because it is important for us to do it.
Mark Clouse: But that's an example of where I feel like the tools we've got. Now, if I'm completely honest, I do think we need to have more marketing support in the plan to support the innovation we're driving, and you see that in our outlook and our guidance as we go in the next year. I think on Kettle, I would say it's a little bit more of a MeToo product, and I've got this great two brands, Kettle and Cape Cod, that I need to use more as a portfolio to drive winning in that category.
Mark Clouse: And then on tortilla, we've got a great story on late July. And so I think you hear me confident really for three reasons. One, I think our brands are well positioned to defend too. I think the innovation and the marketing has not been at its peak while these have come in. So we've got to react and respond to that very well. And we're and we're resourced for that and we've got the pipeline as we go into next year.
Mark Clouse: And again, I would say that I do not see these as an attack or a fight on price, but I do think it's quite important that our promotional frequency and that our price gaps remain reasonable. And so you'll continue to see very modest, you know, under a hundred basis points, but modest investment in some areas to ensure that we stay competitive. So that's, you know, again, I don't want to over portray, you know, that we've got to sing completely solved.
Mark Clouse: But I do think we're in a really good position to address it. And again, if I'm in a category that's growing 9% as an example in Kettle, that's not a horrible place to be to fight this fight. So I'm I'm happy that we're seeing the recovery in our elevated sub-segment, sub-snacking. And look, we know how to, this is a level playing field an opportunity for us to win in market. I always take that, always take that challenge. And if I can just thank you for that.
Ken Goldman: Ask a very quick follow-up. You mentioned that certain parts of your guidance or maybe guidance in general is prudent. I won't go into that, but I did want to ask a specific question, which is that does your guidance assume a reversal in broad share next year? In other words, are you assuming that your bow share goes down? It does. Okay. Thank you. Yeah, in a second, in a second half of the year.
Ken Goldman: We're anticipating kind of a normalization of share, as, you know, now, having said that, we're going to fight like that to keep all those householders with slots in, but I think from a prudent standpoint, you know, we've seen a little bit of this normalization before historically speaking, and so we're using that as our kind of guideline for what the plan, and then I know the teams aggressively going after beating that. Thanks, Mark. Thanks, Ken.
Peter Galbo: You are a next question, and you're constantly buying a Peter Galbo from Bank of America. Your line is open.
Mark Clouse: Hey, guys, good morning. Hi, Peter. Mark, maybe if we can actually hone in a bit more on snacks, I mean, your largest competitor has obviously talked about also just, just pressure that they're seeing, particularly in unseason, you know, or more plain, you know, potato chips, as well as potato chips, and just kind of the interaction you're seeing amongst, you know, LHLI kettle and Cape Cod. And then maybe as a part B to that question, you know, those three brands in particular, at least when I think about them, tend to be a bigger presence, maybe in club channels, and just, you know, is there a store format difference that you're noticing between club and maybe some of the smaller format stores would be helpful?
Mark Clouse: Yeah, so there's definitely a bit more of bifurcation between what I would call the more mainstream segments, and then what I would call the more elevated segments. So for example, in Q4, I think potato chips as an overall sub-segment grew by about 3%, which is not horrible, but about 3%, and arguably with a bit more trade-down pressure, and a little bit more promotional focus. We do have, you know, J-Cop, which is our, we call them our Allied brands, their J's potato chips.
Mark Clouse: So we see a little bit of that in a very, very small part of our business. But in the main power brand area, all of those are operating in a more elevated space. And those seem to have been one, recovering much faster as they do tend to index to a little bit more middle to upper middle and higher income households, which have been a fair, you know, a fair degree more resilient.
Mark Clouse: So I think where you're playing on that front, it does tend to be more driven by who's bringing the innovation, who's bringing the right marketing. Obviously, promotion plays a very important role, and I'm not diminishing that. But at the end of the day, the fight is quite different at those elevated segments than it is in what I'd call the more lower and mainstream segments, where we do see it a little bit more fight on price.
Mark Clouse: We do see a little bit more traction in private label. You know, probably the category where we have a little bit more of that analog is on pretzels, where our base pretzel is, you know, we see a little bit more pressure there. But even there, I think Snyder's plays at a somewhat elevated level to that, and that helps our business or our portfolio. I think, you know, you know, playing a little more constructive of a way.
Carrie Anderson: Okay, no, that's helpful. And maybe just as a follow-up to Ken's question, just to clarify on the organic sales guidance for the year, the first quarter being flat, I'm assuming then we should kind of see a step down potentially in work sales kind of through the middle parts of the year, and then again, maybe that ramp up just as you hit the 53rd week in 4K, which I think you're including the organic sales guidance, so maybe you could just clarify that.
Carrie Anderson: Thanks very much. Yeah, so 53rd week is not an organic sales report, but not in the organic. Right, and maybe Carrie talked a little bit about the phasing of the year, but we do not see like a Q2 significant drop off. No, and certainly as we think about second quarter, you know, you've got your benefit of your holiday season and a lot of our innovation starts to launch there. So, you know, I would say that you need to take into consideration, and then as you move into the second half, I think the categories are still going to be healthy, so I still think you see that that's the quential improvement in category half, but what you are going to need to take into consideration, as Mark talked about on M&B is the cycling of the broth, as our share normalizes in broth, so you want to make sure that you're you're you're putting that into your into your models.
Carrie Anderson: Yeah, I think one of the ways to think about this is at time that you're cycling a little bit of a broth headwinds, I'm also expecting the snacks business to be returning a bit more to normality as far as category. So, I would I would plot your course for the years a little bit more of a gradual improvement as as we get into the second quarter and beyond, and then perhaps a little bit of a swap of who's, you know, kind of leading the drive, but but in essence, I'm kind of getting both businesses into what I would call a more normal trajectory.
Operator: Thank you.
Michael Lavery: Your next question comes from a line of Michael Lavery from Piper Stanley. Your line is open. Thank you.
Mark Clouse: Good morning. Just to come back to the consumer thinking a little bit and maybe just try to understand how you've balanced some risks. I know on some of the macro teams across the street there's a soft landing versus recession debate, and I'll leave all that to them, but it does seem like there's a bias towards some risk as opposed to improvement. I know you said you're looking at the data, but to some extent, you know, that can also be trailing more than leading.
Mark Clouse: So, just curious maybe how you think about how you'd be positioned in a recession and if, or, you know, if one comes and we even know, of course, what that might look like exactly, but would you expect to benefit from switches to more food at home, or, you know, you've got to now, especially with solvos, a bit of a premium and, you know, come from attractive value options for consumers balance in your portfolio. You know, how do you expect that to net out?
Mark Clouse: Maybe just think about how, you know, how you've kind of covered those bases. Yeah. So the first thing I would say is I think that although you hear a a perhaps more bullish tone on the consumer landscape than maybe some others or even a bit contrarian to some of the points of view out there. More broadly speaking, I would tell you that we plan the year in a way where we're not expecting some radical, you know, accelerated recovery.
Mark Clouse: In fact, I would say that we're expecting a relatively slow bounce back as it relates to snacking a more kind of normalized meals and beverage and then a bit of a flip, as I said in the back half, where you'll see some headwinds from broth and perhaps a bit more normalized meals and beverage category and a more modest recovery on snacks. You see that in the zero to two percent range, how do I feel if that environment gets a bit worse?
Mark Clouse: I think there's two things that help me kind of calibrate the plan. The first is I certainly would not suggest that what we're going to be cycling is the same kind of outsized growth and upside that we saw as we were cycling, pricing, and a variety of other, you know, positive, if you will, growth drivers where, you know, your baseline is a relatively muted baseline. So let's imagine this hangs around a little longer than we would expect.
Mark Clouse: I think it's not going to be perhaps as dramatic as a step down that we saw after cycling two or three years of just incredibly outsized growth. I think the second thing that I would point to is I do think, you know, this is a good time to have a portfolio like ours where you've got a variety of different, you know, not an endless, but a variety of different categories that really do match, you know, as we've seen over the last year, even now, right?
Mark Clouse: We're soup and broth as people eating more at home, continue to benefit from that, and certainly pasta sauce has been a fairly resilient in almost any economic environment. I think snacks, again, is historically speaking, notwithstanding a little bit of what we're normalizing through right now, but, you know, snacks has proven over time to be a bit more resilient in economic downturns. And so I think that the role that our brands play in the portfolio we have would set us up even in a tougher environment to be in a positive position.
Mark Clouse: But I think that combination are both encouraging, but our plan does not assume that we're going to see this kind of more outsized recovery. That's kind of how that's why we said, look, I will say the consumer confidence to me is a very important metric, and that was negative in Q4. And, you know, my description of the consumer would be a little bit more biased to positive, but still fragile. And so I would not want to overestimate the certainty, if you will, of what the underlying dynamics may be pointing to. Thank you. That's great color.
Michael Lavery: And then I'll just wrap up with a clarification because I want to come back to the 53rd week. I have felt that I understood it and I think your answer just a second ago confused me because in the release, you say the benefit of the 53rd week is included in the fiscal 25 guidance below and is estimated to be worth approximately two points of growth to both reported and organic net sales.
Michael Lavery: And to just leave it along with a six cents to EPS in the EPS and organic growth numbers. How do we, where's the 53rd week and do we just clarify in the organic growth, the benefit of the 3rd week has been removed. But in, but in the ebit and in the EPS. It is just in the organic net sales growth, Michael, that it's been that it's out. We don't normally extract an organic ebit or EPS. Okay. Thanks so much.
Jim Salera: Your next question comes from the line of Jim Salera from Stevens. Your line is open. Hi, guys. Good morning. Thanks for taking our question. Mark, I wanted to draw it on something you said earlier, you know, talking about innovation in elevated segments and snacks, which would speak to, you know, focus from your peers on middle with a higher income consumer. But then you also mentioned. [inaudible] that what I'm buying is something that I'm going to really enjoy.
Jim Salera: It might be a little bit more permissible, little cleaner label. And so what we've seen is this dynamic where some of the higher-end sub-segments are more elevated as we would describe them to be more resilient. Now, it's not as prolific as reos extending into the lower income, but certainly as we think about mid-income and high income categories like kettle potato chips and more natural and organic tortilla chips have as a category have held up very well in both of those.
Mark Clouse: That's great. And maybe if I could just sneak in one final question on that. How does that dynamic inform some of the marketing spend that you guys are going to be putting in in 2025 as we expect kind of a return to that 90-10 percent marketing and selling? Where's that incremental? Yeah, so I think as I said earlier, I do not want to diminish how tough it is out there for a lot of consumers.
Mark Clouse: So I think you will continue to see value-centric communication and messaging and many categories. And even on our more premium, it may be a little bit more about value in a different way. I mean, again, I think higher price does not preclude one from creating tremendous value. So I think you will see that continue to be part of it, but I also think as you think about where we're seeing pressure from new entrants or me two products that are putting some share pressure on businesses, I think what you're going to see is what you should see from us, which is really leading the consumer thinking and bringing new to the world, flavors, forms, products while continuing to market against what makes our brands like Kettel and Cape Cod and late July so unique and differentiated.
Mark Clouse: So I think maybe whereas this year, we went a little bit more all in on value. I think what you're going to see us as we move into 25 is balancing that a bit between value, but also really in building, getting back to, I think, a more focused effort on driving the equity and the news and innovation behind the brands. Because in the long run, in those elevated segments, that's going to determine winning, right?
Mark Clouse: I mean, yes, a new product coming into the category puts some near-term pressure on. But as we cycle that distribution, I think we'll get a better impression of how we've done on ensuring that we really drive the equity and the news.
Operator: Ladies and gentlemen, we have reached the end of our question and answer session and this does conclude today's conference call.
Operator: Thank you for your participation, you may now disconnect.