CAMPBELL'S Co Q4 FY2024 earnings call

Management Statement and Operational Highlights

• Successfully navigated the evolving consumer landscape in Q4, with sequential volume improvement across divisions, double-digit year-over-year adjusted EBIT and adjusted EPS growth, and sequentially improving margins.
• Sovos Brands acquisition continued to show momentum, with pro forma total company growth increased 150 basis points and 110 basis points benefit to volume and mix. Meals & Beverages division saw 1% organic net sales growth with 2% volume growth, and soup business strengthened with dollar consumption up in the latest four weeks.
• Italian Sauces brands Rao's and Prego showed strong growth, with Rao's in-market consumption in the high-teens and Prego up 2% in-market. Snacks business had encouraging indicators like continued improvement in vol/mix, but faced competitive pressure in salty snacks, addressed with targeted plans.
• Delivered $60 million of enterprise cost savings in fiscal '24, reaching a cumulative $950 million of the $1 billion multi-year cost savings program. Total productivity initiatives and cost savings programs offset inflation impact.

Segment Performance

• Meals & Beverages division: In the fourth quarter, organic net sales grew 1% year-over-year, fueled by 2% volume growth offset by 1 point of planned net pricing investment. On a pro forma combined basis with Sovos brands, net sales grew 4%. Full year organic net sales decreased 1% compared to the prior year, but adjusted EBIT increased 6% and adjusted EPS increased 3% to $3.08. Fourth quarter operating margin for Meals & Beverages was 17.6%, improving 350 basis points year-over-year, and full year operating margins improved 30 basis points to 18.5%.
• Snacks business: Fourth quarter organic net sales declined 3%. However, vol/mix trends sequentially improved to flat in the quarter. 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%.

Guidance

• Reported net sales expected to increase approximately 9% to 11% for fiscal 2025, reflecting full 12 months of Sovos Brands contribution and loss of Pop Secret sales.
• Organic net sales growth expected in a range of approximately flat to up 2%, reflecting variability in consumer recovery pace.
• Adjusted EBIT growth expected 9% to 11%, including Sovos Brands' operating income contribution and Pop Secret divestiture impact.
• Adjusted earnings per share expected to increase 1% to 4% and be in the range of $3.12 to $3.22, including $0.04 impact from Pop Secret divestiture.
• Expect core inflation to remain in the low-single digit range, productivity improvements of approximately 3%, and enterprise cost savings of approximately $70 million, inclusive of $10 million in cost synergies from Sovos integration.

Risks

• Consumer confidence波动 in Q4, signaling a fragile consumer state.
• Snacks business faces competitive pressure from new entrants in elevated segments like Kettle potato chips and organic/better-for-you tortilla chips, which is not primarily due to pricing or promotional activity but new market entrants.
• Cycling of broth net sales benefit in fiscal 2024 due to private label supply constraints will impact second half results.
• Core inflation in areas like olive oil, cocoa, packaging, labor, and warehousing could still pose cost pressure.

Q: Andrew Lazar asked about Meals & Beverages' momentum and industry recovery. Mark Clouse responded by discussing how Meals & Beverages fits the consumer trend of in-home eating, the sustainability of volume growth in soup without sacrificing margin, and the normalization of consumer behavior seen in various categories like soup, pasta sauce, etc.

A: Mark Clouse mentioned that Meals & Beverages is well-positioned for in-home consumption, soup has shown momentum with volume growth, and most core businesses are growing. He also noted that while Snacks has faced challenges, many subsegments are recovering.

Q: Ken Goldman asked about Snacks' competitive pressure from new entrants. Mark Clouse responded by discussing the tools available to address the pressure, including multiple brands in segments like pretzels, innovation and marketing plans, and the importance of promotional frequency and price gaps remaining reasonable.

A: Mark Clouse said they have multiple brands to defend, are resourced for innovation and marketing, and see the pressure as manageable in growing subsegments.

Q: Peter Galbo asked about organic sales guidance and the 53rd week. Mark Clouse and Carrie Anderson clarified that the 53rd week benefit is included in reported numbers but removed from organic sales, and discussed the phasing of organic sales growth with sequential improvement expected in the second half.

A: They explained that the 53rd week affects reported sales but not organic, and there is expected sequential improvement in categories beyond the first quarter.

Q: Michael Lavery asked about consumer risks and the 53rd week. Mark Clouse responded by discussing the balanced planning for a muted recovery, the resilience of the portfolio in different economic environments, and the clarification on the inclusion of the 53rd week in reported vs. organic metrics.

A: Mark Clouse said the plan is calibrated for a muted recovery, the portfolio is resilient, and the 53rd week's impact is in reported numbers but excluded from organic.

Q: Jim Salera asked about marketing spend in 2025 and how the Rao's dynamic informs it. Mark Clouse responded by discussing balancing value-centric messaging with innovation and brand equity building, particularly in addressing new entrants and highlighting unique brand attributes.

A: Mark Clouse said marketing spend will balance value and innovation, focusing on building brand equity and addressing competitive pressure through unique product offerings.