Campbell Soup Company Q3 FY2026 earnings call

### Portfolio Simplification & Core Focus - The company is pursuing a simplification strategy focused on strengthening high-priority core brands across the portfolio, reducing low-value SKU proliferation that creates operational inefficiency. - The Goldfish brand's core focus on households with children has stabilized the business after prior declines, with multi-pack SKUs growing 6% over the last 13 weeks. - In the Snacks portfolio, management is prioritizing fewer, larger-scale innovation initiatives instead of broad proliferation of small projects, and is actively optimizing allocation of advertising support across brands. - The Pepperidge Farm bakery segment has stabilized operationally, with improved on-shelf availability after prior self-inflicted headwinds.

### Revenue Growth Management (RGM) Optimization - The company has prioritized building internal RGM capabilities over the past six months and is already seeing progress from these efforts. - Trade investment optimization is a key focus: temporary price reductions (TPRs) without supporting feature/display deliver low returns and will be limited, while feature/display promotions have strong ROI and will receive prioritized investment. - Price-pack architecture is adjusted to align with growing consumer demand for multi-pack formats.

### Cost & Capital Structure Strategy - The company has a previously announced target of $100 million in SG&A cost reduction over multiple years, and is accelerating implementation to offset 2027 cost pressures, partially supported by a well-received early retirement program. - Maintaining the company's investment-grade credit rating is a top priority, with a target of reducing net leverage to the low 3x range over the next few years. - M&A is currently off the table as the company prioritizes deleveraging and stabilizing core business profitability.

The transcript does not provide full absolute financial results or revenue contribution percentages for each segment. Only partial performance context is shared: Q3 2026 Snacks segment margin improved sequentially from just over 7% in Q2 to 10% in Q3, though margins remain ~400 basis points lower year-over-year. Sequential margin improvement was driven by reduced trade spend and lower marketing spend compared to Q2. For Meals & Beverage (MMB), consumption is running slightly positive heading into Q4, and the segment is expected to deliver strong net sales growth in Q4 2026 supported by post-ERP conversion recovery from Q3 impacts and new innovation pipeline fill.

- For Q4 2026: Organic net sales are expected to come in at the lower end of the previously guided -1% to -2% range (i.e., closer to -2%). Gross margin is expected to be similar to Q3's 240 basis points year-over-year decline, with a 70-80 basis point benefit from the La Regina acquisition. EPS is expected to fall below the 220 cent midpoint of the prior guided range. The tariff refund will add 3-4 cents per share to Q4 earnings, which is fully offset by current higher fuel and logistics costs. A small portion of total tariff refunds may spill over into fiscal 2027. - For fiscal 2027: Base inflation was already expected to be ~3% before the Middle East conflict; if oil remains near $100 per barrel, an incremental 2% to 3% inflation is expected for a total of 5-6% full-year inflation. Inflation will be elevated in the first half of fiscal 2027 regardless of conflict developments, with uncertainty around second half inflation if the conflict persists. - The full year 2027 weighted average share count is expected to be ~306 million, including the incremental shares issued for the La Regina acquisition.

- Sustained elevated oil prices (around $100 per barrel) driven by the ongoing Middle East conflict could push total fiscal 2027 inflation to 5-6%, driven by higher direct commodity costs, packaging costs, logistics/freight costs from driver shortages and elevated diesel prices, and higher prices for inputs including aluminum and fertilizer. - The salty snacks segment is expected to face continued near-term sales pressure as the company implements portfolio simplification and operational improvements, with stabilization expected to take time. - If inflation remains elevated, the company may need to implement broader pricing actions, which could be negatively impacted by competitive retail market dynamics. - There is some risk that retail partners will pressure the company to share a portion of received tariff refunds with consumers or retailers, though management currently has no plans to issue refunds. - Hybrid debt, which the company is considering to improve credit ratings, carries a 150 basis points higher coupon than standard debt and would create a modest drag on EPS.

Q: What is the magnitude of 2027 cost pressures and how large will mitigating actions be? / A: Before the Middle East conflict, base 2027 inflation was projected at 3%. If oil stays near $100/barrel, an additional 2-3% inflation will hit the company, on top of a $40 million impact from reset incentive compensation and planned higher marketing investments. The company will accelerate the previously announced $100 million SG&A reduction program to bring as much savings as possible into 2027, supported by an early retirement program, optimize trade ROI, and implement net price increases only as a last resort.

Q: What changes to capital allocation are planned for 2027, and what is the status of the dividend? / A: The dividend is extremely important to shareholders, but management has no plans to increase the dividend in the near term. The top priority is balancing the dividend with rapid deleveraging to maintain the investment-grade credit rating, with a target of reaching low 3x net leverage. The company will cut low-priority CapEx, aggressively reduce working capital, consider hybrid debt for 50% equity credit from rating agencies, and M&A is currently off the table.

Q: Can you expand on planned Snacks portfolio rationalization and supply chain network consolidation? / A: The overall strategy is simplification and focusing on core high-value brands and SKUs. The company will cut the low-revenue SKU tail to improve operational efficiency, allocate marketing support to priority core brands, and pursue fewer, larger innovation projects instead of broad small-scale innovation. Supply chain and SG&A cost reduction initiatives are ongoing in the Snacks segment to free up resources for brand investment, particularly as volumes face continued pressure.

Q: How do you balance the EPS drag of hybrid debt with the goal of credit rating stabilization? / A: Hybrid debt typically carries a 150 basis points higher coupon than standard debt, so it will create a modest drag on EPS (though it does not impact EBITDA). The key benefit is that it receives 50% equity credit from rating agencies, which improves leverage metrics and credit standing. Management is balancing the earnings cost against the credit benefit, and notes that peers have successfully used this tool, so it remains under active consideration.