CAMPBELL'S Co Q1 FY2025 earnings call

• Mark Clouse addressed his retirement and congratulated the incoming CEO. Campbell's Q1 results were generally in-line with expectations, with net sales up 10% due to Sovos, but organic net sales down 1% due to consumer environment and later Thanksgiving. 16 Leadership Brands showed growth. Integration of Sovos is progressing well, with Rao's performing better than expected. The team is navigating the complex environment, delivering productivity and cost savings. Reaffirmed fiscal '25 guidance, with Q2 expected to show sequential top-line and market share momentum.
• Carrie Anderson discussed financial results: reported net sales up 10% driven by Sovos, organic net sales down 1% due to consumer and inventory factors. Adjusted EBIT grew 6%, adjusted EPS $0.89. Gross profit margin declined 70 basis points, primarily from acquisition impact. Planned productivity and cost savings initiatives to offset core inflation. Marketing and selling expenses and admin expenses increased but flat as percentage of net sales. Meals & Beverages net sales up 22% due to acquisition, Snacks organic net sales down 2% due to various factors.

Meals & Beverages

• Organic net sales were flat compared to prior year with volume and mix growth of 1%. Including Sovos on a pro forma basis, net sales grew 2%, fueled by 3% volume and mix growth, with in-market dollar consumption increasing 5%. The soup portfolio saw dollar consumption growth, with Campbell's in-line with category average and condensed soup segment growing share. The Italian sauce portfolio, led by Rao's with 15% in-market consumption growth and Prego with 5%, has strong momentum, with Rao's expected pro forma growth in fiscal '25 to be slightly above 10%.

Snacks

• Delivered 2% decline in organic net sales, impacted by ~1 percentage point from planned reduction in Partner brands. However, saw overall snacking categories beginning to recover, with solid performance in crackers, fresh bakery and deli snack segments. Goldfish held #1 position, Pepperidge Farm bakery grew volume and share, and Snack Factory had in-market growth and share gains.

• Reaffirmed fiscal '25 guidance, expecting steady progress. Q2 expected to have sequential top-line and market share momentum. Full-year planned productivity and cost savings initiatives to offset low-single digit core inflation. Sovos Brands, specifically Rao's, performing better than anticipated, expected pro forma growth in fiscal '25 slightly above 10%. Adjusted net interest expense expected in range of $340 million to $345 million, a $10 million improvement. Q2 expected to have sequential improvement, adjusted EPS in low $0.70 range. Second half of fiscal '25 expected to see modest improvement in organic growth, adjusted EPS progress with neutral net price and marketing impact, higher productivity savings, lower interest headwind, and 53rd week benefit.

• Uncertainty in macroeconomic and consumer environment. Competitive pressure in certain snack categories from new entrants and private label. Inventory fluctuations influenced by timing of holidays, such as later Thanksgiving affecting retailer inventory levels.

Q: Ken Goldman asked about gross margin and marketing performance versus expectations.

A: Mark Clouse said mix of business was a factor, with strong Sovos/Rao's performance and softer organic business. Carrie Anderson added mix of gross margin with higher Sovos/Rao's at lower margin and legacy business at higher margin. Interest expense was better, and marketing/selling phasing expected to step up in Q2.

Q: Andrew Lazar inquired about back half organic sales and industry expectations.

A: Mark Clouse said back half expected to have modest improvement, cycling from prior headwinds and adding organic help from Rao's, with robust plan in Q2. Promotional perspective is in line with historical, disciplined on price in certain categories.

Q: Peter Galbo asked about inventory timing shift related to Thanksgiving.

A: Mark Clouse said meals and beverages had ~2-point delta between in-market consumption and net sales, majority related to later Thanksgiving timing, with inventory build in November moving out of first quarter.

Q: Robert Moskow asked about snacking margins.

A: Carrie Anderson said second half of year expected margin improvement for snacks with improving volume trends, mix, neutral net price and marketing impact, and productivity/cost savings initiatives. Mark Clouse was encouraged by recent share trends and committed to margin agenda while sustaining growth trajectory.

Q: Jim Salera asked about snacking promo and consumer trends.

A: Mark Clouse said promotion in snacking is not out of line, volume is moving up, and second half will cycle lower base, with Rao's lessons applicable to other premium brands with true quality points of difference