Q2 2025 The Campbell’s Co Earnings Call

Speaker Change: Good morning and welcome to the Campbell's second quarter fiscal 2025 earnings conference call. Today's conference is being recorded. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end.

Speaker Change: If you would like to ask a question, please press star one on your telephone keypad. I would now like to turn the call over to Rebecca Gardy, Chief Investor Relations Officer at Campbell's. Please go ahead.

Speaker Change: Good morning and welcome to Campbell's second quarter fiscal 25 earnings conference call. I'm Rebecca Gardy, Campbell's Chief Investor Relations Officer. Joining me today are Mick Beekhuizen 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 and today's earnings press release have been posted to the Investor Relations section on our website, TheCamblesCompany.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: Slide two outlines today's agenda. Mick will provide insights into our second quarter performance as well as our in-market performance by division. Please recall that effective first quarter fiscal 25, we are using Serkana Mulo Plus for in-market data.

Speaker Change: Carrie will then discuss the financial results of the quarter in more detail and review our guidance for the full fiscal year 25.

Speaker Change: As we noted in this morning's press release, the company's guidance does not reflect any impact from the imposition of import tariffs by the US and potential retaliatory actions taken by other countries, as the tariff and trade environments are rapidly evolving at this time.

Speaker Change: On our call today, we will make forward-looking statements which reflect our current expectations.

Speaker Change: These statements rely on assumptions and estimates which could be inaccurate and are subject to risk. [inaudible]

Speaker Change: Because we use non-GAAP measures , we have provided a reconciliation of each of these measures to the most directly comparable gap measure in the appendix of our presentation. And now it is my pleasure to turn it over to Mick Beekhuizen, our new Chief Executive Officer, Mick.

Mick Bakhausen: Thanks, Rebecca. Good morning, everyone. Before I review our Q2 results, I want to start by expressing how honored and energized I am to lead the Campbell's team as CEO and accelerator strategy that has been fueling our performance.

Mick Bakhausen: Having helped shape Campbell's strategy since joining the company in 2019 most recently as president in our meals and beverages division I'm committed to building upon the strong foundation we have in place I'm committed to building upon the strong foundation we have in place

Mick Bakhausen: that starts with our talented people who are engaged, accountable and committed to winning.

Mick Bakhausen: We have the best portfolio in the industry with category leading brands in both divisions. These brands are important to our customers and highly relevant to our consumers. I am confident that we are well prepared to deliver top tier performance. Thank you very much.

Mick Bakhausen: Similarly to the first quarter, our Q2 earnings performance was in line with our expectations despite the dynamic operating environment.

Mick Bakhausen: Unfortunately, the anticipated recovery of some of our snacks categories did not materialize during the quarter and as a result our top line was slightly below expectations.

Mick Bakhausen: We continued to invest behind our brands, resulting in good overall in-market results with an aggregate stable market share.

Mick Bakhausen: Ten out of our sixteen leadership brands grew or helped share in the quarter, a testament of the overall strength.

Mick Bakhausen: of our leadership brand portfolio. Going into the second half of the year, we are focused on maintaining the momentum within our meals and beverages division. While in our snacks division, we are focused on successful innovation, select brand support and price back architecture to meet consumer needs. We are focused on successful innovation. We are focused on successful innovation. We are focused on successful innovation.

Mick Bakhausen: From an operational perspective, we continued to make substantial progress on the server's integration and advanced various cost savings initiatives throughout the organization.

Mick Bakhausen: On the flip side are Snacks Margin, so short of our expectations.

Mick Bakhausen: Driven by unfavorable mix and some operational headbands in a fresh bakery business during the important holiday period

Mick Bakhausen: We are actively addressing both areas and, combined with a normalization of our commercial support, we expect our next margin to improve sequentially throughout the second half of the fiscal year.

Mick Bakhausen: As reported in our press release this morning, we updated our full-year guidance to reflect the slower than anticipated recovery of our snacking categories, impacting the outlook for our second half.

Mick Bakhausen: We are committed to investing in our brand portfolio while accelerating certain cost savings initiatives to manage through the current consumer environment.

Mick Bakhausen: We expect organic net sales to be in the range of down 2% to flat, adjusted even of plus 3% to plus 5% and an adjusted EPS range of 2.95 to 305.

Mick Bakhausen: Carrie will provide more details in a moment. This updated guidance does not reflect any impact on our business from tariffs or other regulatory changes. This is a fluid situation and we are working through mitigation plans for a variety of scenarios. [inaudible]

Mick Bakhausen: Overall, we have worked to do, but I feel confident in our plans for the second half. We have a strong brand portfolio supported by great talent that's focused on delivering results by partnering with our customers and meeting consumer needs.

Mick Bakhausen: Now let's turn to key highlights for my second quarter results [inaudible]

Mick Bakhausen: Turning to slide six, we delivered 9% growth in net sales, reflecting the contribution from sovus.

Mick Bakhausen: Organic net sales were down 2% driven by relatively consistent performance within meals and beverages and weaker than anticipated snacking categories amid a competitive environment.

Mick Bakhausen: Importantly, volumes in the second quarter remained flat, marking the fourth consecutive quarter of flat or increasing volume for the total enterprise.

Mick Bakhausen: Adjusted EBIT increased 2% first prior year and adjusted EPS was 74 cents. The service acquisition will slightly accretive to adjusted EPS in the quarter.

Mick Bakhausen: Turning to slide seven. In Q2, we saw stable performance with total company leadership brands flat on consumption, what a majority grew or health share.

Mick Bakhausen: As a reminder, our leadership brands represent approximately 90% of our enterprise net sales.

Mick Bakhausen: Our meals and beverages leadership brands continue to demonstrate their strength, with dollar consumption up 1%.

Mick Bakhausen: Seven of eight leadership brands grew or helped share in the second quarter and although swans and broad consumption continued to grow during the quarter, the modest share decline was driven by the anticipated private label recovery.

Mick Bakhausen: In Snacks, we made progress versus Q1 from a share perspective in a couple of key areas such as Preparation Farm Cookies and, although still down year over year, Snyder's of Hanover pretzels.

Mick Bakhausen: Similarly to the first quarter, total snacks consumption for our leadership grants was down about 1%.

Mick Bakhausen: We have a strong differentiated portfolio of brands within our snacks division and while we need to continue to evolve with the consumer, they provide a strong foundation for long-term growth.

Mick Bakhausen: As shown on the next page, consumers continue to turn to some of our key brands during the holidays driven by strong in market support, including our successful site season cooking and holiday cooking campaigns. Although dollar consumption for our holiday focused brands was flat during the period.

Dollar share increased by 30 basis points. [inaudible]

Mick Bakhausen: Specifically, our Campbell's condensed cooking products had a successful holiday season growing both dollar and volume share as well as volume consumption.

Mick Bakhausen: The broad category was a top three driver of food growth during the holiday period, and Swanson and Pacific broth grew consumption with shared declines driven by the anticipated private labor recovery.

Mick Bakhausen: As planned, we made significant investments in our snacks brands to drive loyalty and win this important period.

Mick Bakhausen: While both the bakery and cookie categories were soft, Pepperidge Farm, one of our three billion dollar brands delivered strong holiday performance, outperforming categories via innovation and besting class execution across both cookies and stuffing.

Mick Bakhausen: Turning to our meals and beverages division on slide 9, organic net sales declined 1% for the quarter, with continued volume and mixed growth of 1%, which was consistent with the first quarter. On a pro forma basis with the addition of sovils brands, meals and beverages, organic net sales were flat.

Mick Bakhausen: with in-market dollar consumption increasing 1%. During the second quarter, we experienced a supplier disruption related to SpaghettiOs which contributed a one-point decline to organic

Mick Bakhausen: Turning to Slide 10, a support portfolio continued to benefit from increased at-home cooking activity.

leading to growth in both condensed cooking and broth. [inaudible]

Mick Bakhausen: However, eating soup categories, both with incolnanced eating and ready to serve, was slightly weaker.

Mick Bakhausen: That being said, we marked a fifth consecutive quarter of volume share growth in Campbell's Total Wet Soup.

including Rails. [inaudible]

Mick Bakhausen: Campbell's condense segment maintained its positive trajectory, continuing to gain share driven by strong performance of our cooking portfolio used in meal prep, especially during the holiday season.

Mick Bakhausen: and Strong Household Penetration Growth. We have a broad and strong RTS portfolio with chunky, specific and rails, all of which perform the well in the quarter, gaining or holding share.

Mick Bakhausen: This was offset by pressure in our RTS convenience portfolio and about a point of share had went related to the de-listing of our Royal Yass brand.

Mick Bakhausen: In broth, we benefited from continued category growth, particularly as private label has not yet fully recovered.

Mick Bakhausen: We expect private label to continue to recover throughout the remainder of the year, resulting in slight share pressure in the second half.

Mick Bakhausen: However, if category growth continues and private labour recovery remains slow, we are well positioned to meet increasing consumer demand with the strength of our supply chain network.

Mick Bakhausen: With the number one and number two category leaders, Campbell's total Italian sauce portfolio shown on slide 11 outpaced the category in Q2, with dollar consumption of plus 5% and a share gain of 1.4 points. With Pregon Rails, we have two of the best positioned brands in Italian sauce, both of which are performing well against the roles in our portfolio. Thank you for joining us today.

Mick Bakhausen: Starting with Prego, we saw steady growth both in dollars and volume consumption and we grew dollars share by 20 basis points in the second quarter. Prego grew household penetration in the second quarter year over year with growth across all generational cohorts.

Mick Bakhausen: Our other distinctive rail sauce continued to outpace the Italian sauce category, resulting in 1.3 points of share gain in the quarter.

Mick Bakhausen: The first quarter of fiscal 25 benefited from a shift in promotional timing.

Mick Bakhausen: Specifically in the club channel. On the first half basis, consumption increased by 11% and share was up 1.5 share points. There's strong performance reinforces the strategic rationale for the acquisition and is a proof point of the successful integration of servals.

Turning to slide 12.

Mick Bakhausen: Railsaws delivered high single digit net sales growth in the second quarter and low-teens growth for the first half.

Mick Bakhausen: We continue to expect pro-form a year-over-year growth in fiscal 25 to be slightly above 10%. Over the long-term, consistent with what we shared at the investor day, we expect rails to grow in the mid-single to a high-single digit range.

Mick Bakhausen: Braille's brand equity remains exceptionally strong in terms of key metrics, awareness, household penetration, repeat and loyalty.

Mick Bakhausen: What's particularly exciting is the substantial runway for expansion. Despite leading the ultra distinctive Italian sauce category in dollar share, rails currently reaches only half as many households as a prego brand and maintains just 60% of prego's product assortment. [inaudible]

Mick Bakhausen: We're accelerating Rails brand awareness initiatives and expanding our innovation pipeline, having launched 10 new source products in the last year.

Mick Bakhausen: You may have seen the latest activation which brings consumers along the Rails homemade journey to experience what makes each jar of Rails so special and is a major point of difference from our competitors in the ultra distinctive space.

Mick Bakhausen: Millennial Household adoption continued to search at more than twice the category pace, reinforcing our conviction in Reo's long-term growth.

Mick Bakhausen: The compelling value proposition of Rails compared to mainstream Italian takeout continues to few incremental growth, allowing the brand to source volume from a significantly larger address for market across a broad range of consumer income levels.

Mick Bakhausen: With our strategic growth initiatives firmly in place, we remain confident in rails becoming our next one billion dollar brand.

Now let's turn to our snacks portfolio.

Mick Bakhausen: A bit of a half of that came from our plans reduction in partner and contract grants

Mick Bakhausen: A key driver for overall performance was the 1% decline in consumption of our leadership brands, which was consistent with our performance in Q1. Although Carrie will go through the details in a moment, I would like to talk about our Snacks margin for a minute.

Mick Bakhausen: The margin for a snack business was down 370 base points year over year.

Mick Bakhausen: What have was driven by a planned increase in commercial investment to support incremental promotional activity and marketing during the holiday season. The remainder was from short-term operational supply chain headwinds, particularly in a fresh bakery network that resulted in increased manufacturing and logistics costs to maintain service levels during the holidays. [inaudible]

and unfavorable mix. [inaudible]

Mick Bakhausen: We are proactively addressing our Snacks margin and anticipate a recovery in Q3 with a gradual improvement throughout the second half of the fiscal year. In fact, we are starting to lap more normalized promotional and marketing activity and we are already seeing improvements from a supply chain perspective.

Mick Bakhausen: Our Peppers Farm Bakery business continues its in market momentum for previous quarters as we maintained our overall share position. Additionally, we made sequential share progress on our Peppers Farm cookies business driven by the holiday activation.

Mick Bakhausen: Within the Delhi aisle, Sack Factory held share despite category headwinds. We continue to be excited about snack factory expanding into the snack aisle with pop-ups and bites, our unique much more big flavor innovations that will now sit alongside snipers of hand over distinct platforms.

Mick Bakhausen: In salty snacks, our brands hold leading positions in attractive segments that are growing much faster than the total chips categories. Although new entrants and stepped up promotions are putting pressure on shares, we have plans in place to continue to strengthen our position. [inaudible]

Mick Bakhausen: In crackers, Lens continue to expand share and grow consumption. Within Goldfish we experience weaker category performance and increase competitive promotional activity. [inaudible]

Mick Bakhausen: Going into the second half of this fiscal year, we have integrated plans in place to support our goldfish brand, with a focus on innovation, marketing support, and price back architecture initiatives.

Mick Bakhausen: Our snacking categories are attractive and resilient and we are well positioned with an advantage portfolio of relevant leadership grants.

Mick Bakhausen: We have confidence in the action plans we have in place to improve our in-market performance and build momentum in the second half of the year, starting with a robust innovation pipeline to deliver against consumer macro trends.

Mick Bakhausen: including Better4U Choices with products like kettle brand chips made with avocado oil. We're driving innovation and differentiation with new goldfish LTOs such as Harry Potter Butterbeer grams and other differentiated flavors.

Mick Bakhausen: We are also strategically expanding accessibility and enhanced value across our snack portfolio by introducing new pack sizes and price points.

Mick Bakhausen: that provide consumers more choices for their favorite snacks, from Pepperidge Farm Chasman and Mini Nantakat Cookies in single-served multipacks to goldfish in small-sized packs offering an attractive opening price point.

Overall, I'm excited about the opportunities within our Snacks portfolio.

Mick Bakhausen: Before I turn it over to Carrie, I want to highlight a core focus areas as we move into the second half of fiscal 25.

Kerry: We plan to continue to invest to support the long-term growth of our 16 leadership brands through highly relevant compelling innovation and marketing to drive excitement awareness and volume. In our Snacks division, we continue to stay focused on navigating consumer and competitive category dynamics.

Kerry: Specifically, in the second half, we are focused on select brand support, successful innovation launches and some price back architecture to stabilize our top line by the fourth quarter while we sequentially improve our snacks margin.

Kerry: Emils and beverages were focused on maintaining the at-home cooking momentum throughout our portfolio, which includes managing our broad business as we expect private label supply to continue to recover. [inaudible]

Kerry: Additionally, we are focused on sustaining rail growth by driving brand awareness and innovation while we complete the integration.

Kerry: Across the company, we are intensifying our efforts to improve efficiency and effectiveness to support top line growth and maintain a healthy margin profile. As mentioned, addressing margin performance in our next division is a top priority.

Kerry: Finally, we remain steadfast in our disciplined capital allocation strategy ensuring we balance growth investments with shareholder returns as we navigate the dynamic consumer environment.

Kerry: With that, let me turn it over to Carrie to go over the Q2 results and our updated guidance in more detail.

Thanks, Mick, and good morning, everyone.

Kerry: Our second quarter adjusted EPS was in line with our expectations, despite the dynamic operating environment Mick discussed earlier.

Kerry: And while the anticipated recovery of SNAC's categories did not materialize to the extent we expected, and this translated into a softer top line with some added pressure on adjusting gross margin, our adjusted EBIT was in line with our expectations as well.

Kerry: Reported net sales increased 9% driven by the strong sales contribution from sovos.

Kerry: Organic knit sales, excluding the impact of the Sovo's acquisition, the pop secret divestiture and currency decreased 2%

Kerry: Adjusted EBIT increased 2% due to the contribution from the acquisition, while adjusted EPS declined 8% to 74 cents due to higher interest expense from higher debt levels . . . . . . . . . .

Kerry: The impact of the acquisition was slightly accretive to adjusted EPS in the quarter, which continued to exceed our expectations.

Kerry: Turning to slide 19, as mentioned earlier, organic net sales for the second quarter were down 2% due to planned net price investment of 2% in support of the holiday season with flat volume and mix. So let's contributed 13 percentage points to reported net sales growth.

Kerry: On slide 20, second quarter, adjusted gross profit margin to climb 100 basis points.

Kerry: With margin in the base business down 60 basis points and a 40 basis point impact related to the acquisition. Base business margins were impacted by cost inflation and other supply chain cost and unfavorable net price realization, partially mitigated by productivity improvements and cost savings initiatives.

Kerry: Through the second quarter, we have delivered approximately $65 million of total savings under the $250 million cost savings program announced at our investor day in September of 2024.

Kerry: Turning to side 21, the total combined dollar spend on adjusted marketing and selling expenses and admin expenses increased compared to the prior year, primarily reflecting the integration of sovos.

Kerry: Adjusted administrative expenses decreased 2% driven by the benefits from cost savings initiatives partially offset by the impact of the acquisition.

Kerry: It's shown on slide 22, second quarter, adjusted EBIT increased 2%, primarily due to higher adjusted gross profit, partially offset by an increase in adjusted marketing and selling expenses.

Kerry: On slide 23, adjusted EPS decreased 8% to 74 cents, as adjusted e-bick growth was more than offset by higher interest expense primarily related to the acquisition.

Kerry: Turning to slide 24, Meals and Beverages reported a 21% increase in net sales growth due to the contribution of the acquisition. [inaudible]

Kerry: Organic net sales declined 1% compared to prior year, with a planned 2% investment and net realized price to support incremental promotional activity during the important holiday period, soup season, and innovation launches, and favorable volume and mix of 1%

Kerry: Second-quarter operating earnings in the division increased 18%, primarily due to the benefits of the acquisition, partially offset by higher marketing and selling expenses in the base business.

Kerry: Q2 operating margin for meals and beverages decreased 60 basis points to 17.3% driven primarily by the impact of the acquisition.

Kerry: Excluding the acquisition, operating margin in the base business was essentially flat year over year as increased marketing investment was largely offset by higher adjusted gross profit margin and lower adjusted administrative and R&D expenses.

Kerry: Second quarter, organic knit sales and snacks, decreased 3%, driven primarily by declines and third party partner in contract brands, goldfish crackers and snipers of handover pretzels.

Kerry: Sales were impacted by lower net price realization of 1% and volume and mixed declines of 2%. About half of the sales declines were the result of lower third party partner and contract brand sales.

Kerry: Snacks operating earnings in the quarter decline 29% due to higher marketing and selling investments and lower gross profit as the impact of inflation and other supply chain cost.

Kerry: Unfavorable volume and mix and lower net price realization were only partially offset by supply chain productivity and benefits from cost savings initiatives.

Kerry: Q2 operating margin for snacks decreased 370 basis points to 11.3 percent. Roughly half of the margin decline compared to the prior year was driven by planned increased promotional and marketing investments to support our brands during the critical holiday season.

Kerry: The other half resulted from increased supply chain cost, which Mick mentioned earlier, primarily in our Fresh Bakery network, as well as unfavorable mix. Although we continue to advance our cost savings and productivity initiatives, these were not sufficient to offset these headwinds.

Kerry: We do anticipate snacks margins to improve sequentially throughout Q3 and Q4, as compared to Q2.

Kerry: Supply chain costs have already shown improvements since the beginning of the calendar year.

Kerry: Marketing spend as a percentage of sales is expected to decrease post-the holiday period.

Kerry: and we will have easier net price comparisons and expect a more favorable mix, particularly in Q4. Additionally, we are focused on driving SGNA efficiencies to further support margin enhancement going forward.

Kerry: Turning to side 26, we generated $737 million in operating cash flow in the second quarter year to date, an 8% increase from the prior year period.

Kerry: Capital expenditures were $211 million a year to date, and we've left investments to support growth, asset sustainability, and initiatives to drive productivity, cost savings, and enhanced business capabilities.

Kerry: We also remain committed to returning cash to our shareholders with $227 million of dividends paid and $56 million in anti-dilutive sharey purchases year-to-date.

Kerry: Our net debt to adjusted EBITDA leverage ratio at the end of the second quarter was 3.7 times, reflecting the financing of the Soviet acquisition, which is similar to our ratio at the end of the first quarter. We remain committed to investment-grade ratings and our goal is to return to our three times net leverage target in fiscal 27. We remain committed to investment-grade ratings and our goal is to return to our three times net leverage ratio at the end of the third quarter.

Kerry: At the end of the second quarter, the company had approximately $829 million in cash and cash equivalence and approximately $1.85 billion available under our revolving credit facility.

Speaker Change: As Mick mentioned earlier, our guidance does not incorporate any impact that may result from tariffs or other regulatory matters. We are now expecting full-year reported net sales to increase approximately 6% to 8%, which includes a one-point impact from the NUSA divestiture.

Speaker Change: Full-year organic net sales is expected in a range of down 2% to flat, excluding the 53rd week.

Speaker Change: The lower organic net sales expectation is a result of a more muted volume mix contribution in the second half following the weaker than anticipated recovery and snacking categories in the second quarter.

Speaker Change: As a reminder, Sobos moves into organic growth in mid-2-3 and our base meals and beverages business will be cycling the broth net sales benefit in fiscal 2024 resulting from private label supply constraints.

Speaker Change: We expect adjusted evic growth of three to five percent inclusive of the impact of the divestiture of New South.

Speaker Change: While the slower recovery in snacking categories has translated into lower top line for the full year, we are driving additional momentum in our enterprise cost savings initiatives to help mitigate some of this pressure on earnings and margin. [inaudible]

Speaker Change: As a result of our strong year-to-day performance, we are increasing our cost savings expectations for the full year from $90 million to $120 million.

Speaker Change: This includes savings from the integration of SOVOs and several previously discussed network optimization projects across both divisions.

Speaker Change: Additionally, we expect adjusted marketing and selling expense for the full year and second half to be at the lower end of our targeted range of 9-10% of net sales.

Speaker Change: Adjusted earnings per share is now expected to be in a range of $2.95 to $3.05, inclusive of the one-cent elusive impact of the debustiture of Musa.

Speaker Change: Full-year net interest expense is expected to be between $325 million to $330 million. Reflecting the benefit of the after-tax proceeds from the New City of Estature, which will be used to reduce debt.

Speaker Change: At the midpoint of our guidance range, we expect second half organic net sales growth to sequentially improve from Q2, turning positive in the fourth quarter. And we would expect second half adjusted EPS to be more equally distributed excluding the 53rd week.

Speaker Change: Finally, capital expenditures are expected to be approximately 4.7% of net sales, a slight change to reflect cash timing.

Speaker Change: To wrap up, we believe in the strength of our portfolio and our ability to continue to execute our strategic priorities.

Speaker Change: Looking ahead, we are focused on the elements within our control. We are committed to a balanced, disciplined approach to protect and expand our market leading positions across both divisions while maintaining operational excellence and delivering continued cost savings.

Speaker Change: We have a flexible balance sheet, strong cash flow generation, and financial discipline. We have proven our resiliency to navigate challenging environments and I'm confident in our team's ability to deliver our second half plans while executing our roadmap for long-term sustainable value creation.

Speaker Change: Before turning it over to the operator, I'll close by thanking the entire Campbell's team for their hard work and contributions, particularly as we maneuver through this dynamic environment. That concludes our preparing remarks and with that operator let's begin the Q&A.

Speaker Change: As a reminder to ask the question, please press star, followed by the number one on your telephone keypad to withdraw any questions, press star one again.

Speaker Change: Our first question comes from Andrew Lazar from Barclays. Please go ahead, your line is open.

Great. Thanks so much. Appreciate it.

Speaker Change: Mick, as we think about the fiscal second half, I guess I'm trying to get a better sense of sort of what actions are specifically driving the lower profit outlook, really with an eye towards understanding if there are a rise guidance to sort of giving the company enough room to get snacks back on track, you know, in the context of a slower sort of category rebound and more competitive environment. [inaudible]

Speaker Change: And maybe as a second piece to this, last quarter, Campbell expected net price to be less than a hundred basis point headwind to organic sales. I'm just wondering if that's changed with the new guidance. Thanks so much.

Great morning, Andrew.

Speaker Change: Let me take the first part and then carry if you can follow up on the second piece. And maybe what I'll do, Andrews, let me step back for a minute and give you a little bit of context about the revised guidance and the different piece, which I think addresses what you're getting at. If you look at the. I'll see you next time.

Speaker Change: Q1 call, we accept that it's going to be important to see how the second quarter and the holiday season come together.

Speaker Change: And that's going to be a good indicator for us, for the outlook for the second half of the year.

Speaker Change: Of course, first of all, when I look at meals and beverages and across the board, the business is performing in line with our original expectations. And if anything, I'm actually encouraged by some of the momentum that we have there in the business. Now, with regard to our snacks business. Thank you very much.

Speaker Change: Obviously a believer in our business, however unfortunately the broader smacking categories didn't improve as we had originally anticipated.

Speaker Change: and particularly that pertains to key categories such as cookies and crackers.

They were softer.

Speaker Change: So as a result, we revised the outlook for the whole year to reflect that broader operating environment. Now that being said

Speaker Change: At the same time, while we're making progress on call savings productivity initiatives, you did see that our snacks margin for the quarter was lower than what we had anticipated.

Speaker Change: And although I believe we're going to continue to make sequential progress on the Snacks margin, I don't think we'll achieve the margin level that we previously communicated for the year, which gets a little bit back to your question.

Speaker Change: So, if you then look at a midpoint of our EPS Guidance Range,

Xtuning Newser, within about 16 cents. [inaudible]

Speaker Change: which, with a reduction in interest expense, results in an ebit reduction of about 80 million dollars.

Speaker Change: I'll call 60 million dollars of that is driven by the next top line reduction of give or take 200 million dollars and that translates in if you take a 30% gross margin in about 60 million dollars of even. [inaudible]

At the midpoint, we are assuming that the top line grows.

Speaker Change: Within our overall business is going to sequentially improve from Q2 and then turn positive in the fourth quarter.

Speaker Change: Now, the other 20 million of the 80 million of eBay's reduction is a net effect over reduction in our Snacks margin outlook for the full year and incremental cost savings initiatives.

Speaker Change: and regarding our Snacks margin, although we're still expecting to make sequential progress.

Speaker Change: I now expect that margins will be more in that 13.5% range for the full year.

Speaker Change: for stepping back and you look at the range of our EPS.

Speaker Change: At the mid-level, I described that we would have that sequential recovery on the organic sales.

Speaker Change: and if you look at the high end of the range,

I basically expect it's next woods. [inaudible]

More quickly, recover.

of the lower end of the range. [inaudible]

Speaker Change: Expecting, basically, that we have no top line recovery on our snacks business throughout the remainder of the year while we continue to focus on call saving initiatives to support our brands.

Speaker Change: So in that middle range, if you look at particularly our snacks business, we expect that stabilizational top line by the fourth quarter.

Speaker Change: And then regarding your question on price, I'd say, you know, certainly in Q1, we had about 100 basis points of net price investment in Q2. We talked about stepping that up to about 200 basis points.

Mick Bakhausen: And so as I think about the second half, we're going to start to lap some of that increased promotion investment from the prior year, so we would expect promotion to be less of a headwind in the second half, but still a headwind. And I think our guidance that make just walk through sufficiently provides a room for the right amount of promotion investment. [inaudible]

Mick Bakhausen: to support the second half and our recovery. And look, we'll be, you know, when and where, we'll always be, you know, we'll maintain competitive pricing gaps and support our innovation launches and our guidance certainly would support that.

Great, thanks so much.

Mick Bakhausen: Our next question comes from Jim Salera from Stevens. Please go ahead. Your line is open.

Jim Salera: Good morning. Thanks for taking our questions. Mick, I actually wanted to follow up on some of your commentary there.

Mick Bakhausen: So, can you maybe walk us through what you're assuming for the consumer recovery in the back half of the year? And if I think about the mix of

where potential outperformance underperformance could come from in snacks.

Mick Bakhausen: Would it be that the category improves and you guys kind of improve alongside the category or there's opportunity with some of the innovation that you have and maybe some of the you know promotional activity you have to gain share even if the category remains softer and maybe as I go a second piece to that.

Speaker Change: on slide seven, you know, goldfish with one of the brands that I believe did not grow or hold sharing, you spoke to some of that in the prepared remarks. So just thinking about, you know, some of the innovation there, and I know you guys had some flavor extensions on the crisps and you mentioned Harry Potter LTOs.

Speaker Change: Just not so we think about, you know, that particularly contributing to either share gains or holding or losing care in the context of the broader category of recovery.

Speaker Change: Yeah, yeah, okay, great. Thank you. Thank you for the question. It's a good question and let me try to take it in different pieces. So first of all, with regard to our snacks business.

Speaker Change: As I mentioned, we are expecting from a top line perspective that Q3 will continue to be an environment which I expect to look relatively similar to what we are seeing in Q2.

Speaker Change: Then if you go into Q4, we're assuming the stabilization from the top line perspective. Now, bye bye.

Speaker Change: Take the overall second half and with what we are on the one hand we're obviously focused on what the categories are doing but on the other hand we're obviously also very focused on what we are doing which comes back a little bit. [inaudible]

to what you're describing with. [inaudible]

a brand or a core brand for us like Goldfish.

Speaker Change: And this does go across a broad afforded podium, right? We have eight amazing And I think

Leadership branch within. [inaudible]

Speaker Change: Our Snack Support Folio, and we need to make sure that we work on every single one of them within these different categories. That being said, there are certain ones, like as you pointed out, like Goldfish, where we are particularly focused in making sure that we're making progress.

Goldfish

Speaker Change: And you see it in some of the scanner data and you also heard me talk about it in the context here is

Speaker Change: Not where we currently want it to be, we're focused on bringing growth back to Goldfish. Goldfish is highly relevant and I think the team has great plans in place.

Speaker Change: for the broader portfolio of snacking brands, but then also goldfish specifically. And when I look at goldfish, it's really coming back to on the one hand, making sure that we have that proper support in place, that the team is currently working through, whether it's on the one hand.

Speaker Change: in and around the promotional support in the marketplace. Carrie talks a little bit about that. The team is working through that. And then on the flip side, of course, making sure that we get the goldfish message out there which

Speaker Change: really resonates with the consumer and as a result that support is going to be very important.

Now, at the same time, the team...

Speaker Change: has issued described some great innovation that is currently coming into the marketplace.

Speaker Change: And we're putting a lot of, you know, time and energy behind it to make sure that we are executing it to its fullest extent. Now then, finally,

When I think about value, which is a important component.

Speaker Change: in the current consumer environment, and we obviously see it across a broader Campbell's portfolio, but right now maybe even a little bit more pronounced. .

Speaker Change: In the on the snacking side because of its discretionary nature, we need to make sure that we have the right price points in the marketplace for the right occasion or the right purchase occasion. That then also comes back to price back architecture.

Speaker Change: And that's one of the other areas that you see within our broader snacking portfolio, but it also then comes to fruition within goldfish and making sure that we have this proper entry point into goldfish as a brand or the cracker category.

I appreciate the detail. I'll pop back into the queue.

Speaker Change: Our next question comes from Ken Goldman from JP Morgan. Please go ahead, your line is open.

Hi, thank you.

Speaker Change: On snacking, just in light of some of the top line challenges.

Speaker Change: as well as your comment that the margin will be down, you know, this year.

Speaker Change: How confident are you that you can still achieve your target of 17% in fiscal 27 and maybe more importantly, how confident are you that 17% regardless of the timeline is still a reasonable goal as we look ahead into future years. Thank you.

Yep, yep.

Speaker Change: Thank you, Ken. When I look at the Snacks margin and particularly where we're currently at, of course, so maybe just first of all stating.

Speaker Change: What might seem obvious is, the Q2 level is not where we...

Speaker Change: Should be will be an ongoing to be going forward. And I think we laid that out pretty in a lot of detail in the preparing marks, but when I look forward

Speaker Change: and with where we're at, focus on the sequential improvement going into the second half.

Speaker Change: There is a reason to believe I know the team is all over that, of course we're working through some of these operational challenges but at the same time the team is also identifying continued savings.

Speaker Change: Obviously ending the year at a lower level than we had originally where we wanted to be.

Speaker Change: That being said, as I step back and I look at the different building blocks.

Speaker Change: that we had identified in the past, and we stay focused on…

Whether it is...

Our broader.

Speaker Change: Network that we've been working on, including the DSD as well as some of the mix improvements. I still believe that these different building blocks are there in order to improve our overall snacks margin.

Speaker Change: Wow, we also continue to support our brand so that's not a key reason for us that we're continuing to stay very focused on it. [inaudible]

So, putting all these different pieces together, I'm still confident [inaudible]

that we're going to see a positive trajectory towards that 17%.

Speaker Change: I think to your point in and around timing I do agree that with where we're currently at it feels a little bit like you're pushing that a little bit back and I think we're going to learn a lot about the overall environment. I think we're going to learn a little bit more about the environment.

Speaker Change: that we're operating in from a snacks perspective in the next six months and that is going to be really important and it's going to inform us also going into fiscal 26 to make sure that we support our brand portfolio for long term value creation.

Speaker Change: Just to pick up on what Mick said in terms of if you go back to some of our comments around investor

Thank you. Thank you.

Speaker Change: Outline, a lot of those drivers in margin into mixed point those building blocks are still there. A key one is around favorable mix that that should lead to margin expansion around growth in the leadership brands.

Speaker Change: And with a lower scale brand, so your partner contract brands will be coming down over the next few years relative to the growth and leadership brands. That will be a mixed driver along with what Mick talked about in terms of network optimization and our DSD optimization as it relates to both. And with a lower scale brand, so your partner contract brands will be coming down over the next few years relative to the growth and leadership brands.

Speaker Change: The warehousing logistics piece, but also as we talked about the root optimization.

Speaker Change: pieces that we talked about last year. So all of those things are there. Eric,

Speaker Change: Obviously, we've got some short-term pressure, the top line pressure that's putting that pressure on the margin right now, but all of those levers are still there.

Speaker Change: Can I ask a very quick follow-up and thank you for that, Raios.

Speaker Change: You know, you kept your guidance. The data has been decelerating in both one and two year basis or on those basis. How?

Speaker Change: Comfortable, are you with the rate of change in consumption? I mean, obviously you seem to be pretty comfortable just given that you reiterated, but you know, how should investors think about what we're seeing from some of the syndicated and alternative data out there for that brand? Yeah.

Yep, yep.

Speaker Change: Ken, thank you for asking the question because we are obviously also very focused on making sure that we continue to grow rails. Also because they did.

Speaker Change: I'm a very big believer in the brand and you do see it in the broader results. However, to your point, a little bit of that deceleration.

Looks like between...

Speaker Change: in NQ-2 versus Q-1. Now, when you feel that on in a little bit further back, what you're going to find is that there's actually certain particular club activity that shifted between...

The two quarters [inaudible]

Speaker Change: And as a result, going into the second half with a pretty good, you know, where all the different pieces come together in order to expect that that slightly above full of 10% is what we are working towards to for the full year.

Thank you.

Speaker Change: Our next question comes from Peter Galbo from Bank of America. Please go ahead, your line is open.

Peter Galbo: Hey, good morning, Mick and Carrie. Thank you for the question.

Peter Galbo: I wanted to circle back on the EPS cadence for the back half of the year. I believe, Carrie, in your remarks, you mentioned that EPS delivery would be relatively even between 3Q and 4Q if we kind of ignore the 53rd week.

Peter Galbo: And I just like very quickly going back through the history, that's just never been the case. You know, 4Q has always been a much lower EPS delivery quarter relative to 3Q, maybe outside of one year over the past 20, but historically it's been much, much lower seasonally.

Peter Galbo: So just, what gives you the confidence in delivering kind of on that, you know, even delivering the back half of the year? Given seasonality, given what we've seen historically, I think that's going to be just a big question from investors, you know, as they kind of contemplate the updated guidance.

Mick Bakhausen: Yeah, I think as you think about the third quarter, a couple things to think in mind is that is Mick talked about first snacks top line we wouldn't expect to see that stabilization until a fourth quarter. So you're still going to see some pressure there in the third quarter on on the snacking margin. [inaudible]

as we move through the years. So I think our...

Mick Bakhausen: My comment on that equal split, excluding that 53rd week is...

Mick Bakhausen: is reflecting the fact that you'll still have some pressure there.

on the snacking side in the PNL.

Mick Bakhausen: and you also have I think the fact that in the fourth quarter [inaudible]

Peter Galbo: I think you're right, Peter, in terms of acknowledging that that may be not be the seasonal trend, but you've also got some the benefit of laughing.

Peter Galbo: Some higher promotional investment from last year that will help obviously the top line but it'll also help the bottom line as well. So it's a piece, it's those two pieces that I would, I would say are a big piece of how we think about the facing for the third and the fourth quarter. [inaudible]

Speaker Change: Thanks, Carrie, for that. That's helpful. And Mick, just if I could, I think your tone or the company's tone has changed a bit in your for a few of your remarks as it relates to Ross.

Speaker Change: It seemed like there was maybe a better delivery in the quarter, maybe even than you expected, and potentially that there's been a slight change in how you're viewing the back half as you think about private label coming back online, not that that's not contemplated but that at least maybe things are holding up a touch better. [inaudible]

Speaker Change: So just wanted to understand, you know, anticipating the broad headwinds, you know, kind of whether your expectations have changed it all on the back half from, you know, maybe more negative to maybe slightly less negative versus your initial expectations. Thanks very much.

Yeah, yeah, food observation, and you're right. You're right.

Speaker Change: If I look back at about, call it even last quarter,

Speaker Change: Around the overall broth trajectory, I think it's probably twofolds, I think on the one end, I think the category is holding up really well and it comes back to what I described.

Speaker Change: My preparatory marks as well in and around meals and beverages. We're definitely seeing that.

Speaker Change: Trent of Continued Cooking at Home, supporting a variety of the categories and a variety of the brands.

Speaker Change: within our meals and beverage portfolio and broth with both Wonson as well as Pacific.

being one of those.

Then, so, categories doing well, we got two great brands.

Speaker Change: that continued to dwell in the marketplace. And at the same time, private label is recovering. However, a little bit slower than anticipated. It's a little bit slower than anticipated.

Speaker Change: Now, if I look at the backhand specifically to your question, yes, I still expect that to be a little bit overhead, that went, however, a little bit less than what was previously anticipated. If...

Speaker Change: I did a category performs better than what we expect, or private labels recovering slower.

Speaker Change: We will obviously try to do whatever we can with our supply chain who's done a, you know, they've done a phenomenal job and in order to make sure that we can provide supply we will continue to. Thank you.

Speaker Change: Work with our customers to make sure that our product is on the shelf. Yeah, and I mentioned that in my prepared remarks that you know a reminder that so Los Moonsons are organic growth mid Q3 but we will still have

Mick Bakhausen: The, the broth, Eurorear headwinds as we lap the benefit that we had last year and the second half. But to mix point, lower than what we initially expected. And again, another shout out to our supply chain team that is.

Mick Bakhausen: It really, really over-delivering as it relates to our satisfying that Roth demand.

Thank you

Speaker Change: Our next question comes from Robert Moskow from TD Cowan. Please go ahead, your line is open.

Robert Moskow: Hi, thanks for the question. You know, you mentioned on the call that competitive intensity in crackers has heightened now.

Um...

and, you know, for the past.

Robert Moskow: Three-quarters or so, I think we've been dealing with competitive intensity being higher in salty snacks.

Nick: So, Mick, do you view both of these as similar phenomenons? [inaudible]

Speaker Change: I can see it in the data. There's been price investments in crackers. Do you need to make similar investments for goldfish to keep up with that? And should we be thinking about kind of a bit of a reset for the goldfish margin as a result? [inaudible]

Speaker Change: Yeah, so, thank you for the question. So, first of all, of course, with regard to salty, you're right, it is a competitive category. We have experienced that for a couple of quarters. That being said, we have a couple of highly differentiated brands that are.

Speaker Change: leading a little bit more towards the better for you proposition in that particular category and it's something that we are going to continue to build upon.

Speaker Change: specifically with regards to some of the innovation and I mention that also my prepared remarks.

Speaker Change: The categories that, you know, call it like sub-category with insolentia as a result that we are participating in is a category that has a little bit of, of till and so.

I feel pretty good about it now, that being said.

Speaker Change: Back to what I said earlier around price back architecture and making sure that we have.

Proper, attractive value proposition. That's probably the second thing.

Speaker Change: that we think a lot about to make sure that we as a result provide our product at the proper price points, including the entry price point for the consumer in salty. So salty, long story short, differentiated brands in combination with.

Speaker Change: Contractive Innovation that plays right into some of those consumer needs and then we need to make sure that we focus on the price pack architecture aspects. .

Speaker Change: to provide that value to the consumer. If I then go to crackers, I think crackers is a little bit of a different dynamic.

So...

Speaker Change: First of all, we have actually two brands within crackers. We have obviously the land.

Lance is doing well, and then...

Speaker Change: I think it is a brand that's obviously a little bit in the background, but it provides an attractive entry price point. It is great value for the consumer and on top of it it provides that portable protein proposition that consumers are looking for.

So, when I look at lands [inaudible]

And we've grown a cool assumption there.

Speaker Change: Sharers being relatively flat, but I know the teams are working hard to continue to get more out there in and around lands. Then from a goldfish perspective to your point around...

What are we doing on that?

Speaker Change: As I mentioned earlier, that is a key focus area for us because it is a core brand for us. It's really important to make sure that we get cold fish back to growth and I don't I don't look at it as

Speaker Change: A or let's put the data and look at it much more it's like we need to really continue to reiterate our overall goldfish proposition which is very attractive.

Speaker Change: Goldfish is a brand that is generally well-positioned as grown with its core consumer.

Yes, we are starting to lapse

some of that

Speaker Change: Chris Slange from last year, which obviously did really well, that's something that we've got to manage through, but the poor goldfish proposition is an attractive proposition that we need to continue to reiterate. We're going to take a look at what we're going to do in the future.

Speaker Change: Now at the same time, back to your point around competitive intensity, we do need to make sure that we have the proper level of promotional activity and that's what the team is currently.

Working through.

Speaker Change: And that also comes back to having a proper entry price point, which is...

That reference to the price back out architecture that I had earlier show. .

Speaker Change: A lot of call it like moving pieces there, but I know the team is all over it and obviously Goldfish is a core brand for us to make sure that we're successful there.

Speaker Change: Okay, can I put a quick follow-up? Have you started doing any math on what the tariff environment might mean for your steel can cost? I know it was an issue several years ago.

Speaker Change: And these tariffs can be even more substantial than that. So would it pass through in terms of like price surcharges from your supplier? If it, yeah, maybe, yeah, Rob, you know, of course, maybe I'll actually, you know, talk a little bit more broadly about tariffs because

Speaker Change: Sounds like you dealt with some of this with Campbell's in the past, but kind of, if I look at this particular situation, it's obviously evolving, it's multi-faceted, it's on the one end we have the country terrace with both.

Speaker Change: Canada, Mexico, specifically for us, and I know also some of the proposed skill in aluminum tariffs.

Speaker Change: When and then there might even be additional tariffs that we are obviously closely monitoring the situation and making sure we develop plans. If they were to come to fruition now.

Speaker Change: With regard to the mention of the fluid situation as you might have heard yesterday, the commerce secretary actually entered yesterday is that some of the country tariffs might actually be adjusted today. So again, we'll see what it all means.

Speaker Change: We don't know all the specifics yet, but if it gets implemented, as we currently, as is currently announced,

Speaker Change: We are importing from Canada both template steel which is used in our cans as well as canola oil used for our chips.

Speaker Change: on the flip side with some of the reference to the retaliatory tariffs. Those mainly relate to Canadian exports, so...

Speaker Change: We are producing our soup in the United States and we're importing it into Canada.

and that would obviously have an impact on that business.

Now

Speaker Change: From a mitigation perspective, we're closely working with our suppliers to mitigate potential impact at the same time, depending on how long these tariffs would be in place as well as the extent of the tariffs we might need to take other actions and

Speaker Change: That could include, for instance, pricing for some of our products. Now, that being said, I'm obviously going to be very focused to make sure that we provide a good value to our consumers.

Speaker Change: We are out of time for questions today. This will conclude today's conference call. Thank you for your participation. You may now disconnect.