CAMPBELL'S Co Q2 FY2025 earnings call

Management Statement and Operational Highlights

• Q2 Results: Reported net sales increased 9% driven by Sovos. Organic net sales down 2%, adjusted EBIT up 2%, adjusted EPS $0.74. Sovos acquisition slightly accretive to adjusted EPS.
• Leadership Brands: Approximately 90% of enterprise net sales. Meals & Beverages Leadership Brands up 1% in dollar consumption, 7 of 8 grew/held share. Snacks Leadership Brands down ~1% in consumption, but some brands made progress.
• Holiday Performance: Campbell’s condensed cooking products grew dollar and volume share. Pepperidge Farm had strong holiday performance outperforming categories via innovation and execution.
• Operational Progress: Substantial progress on Sovos integration, advanced cost savings initiatives. Focus on maintaining momentum in Meals & Beverages, innovation and brand support in Snacks to stabilize topline and improve margin.

Segment Performance

• Meals & Beverages: Organic net sales declined 1% for the quarter, with continued volume and mix growth of 1%. With Sovos, net sales grew 21%. Soup portfolio benefited from at-home cooking, but eating soup categories were slightly weaker. Rao's sauce had high-single-digit net sales growth in Q2 and low teens growth for the first half. Proforma year-over-year growth in fiscal '25 expected to be slightly above 10%.
• Snacks: Organic net sales decreased 3% driven by declines in third-party partner and contract brands, Goldfish, and Snyders of Hanover pretzels. Snacks margin fell short of expectations due to unfavorable mix and operational headwinds, but expected to improve sequentially in the second half. Leadership Brands in Snacks had about 1% decline in consumption, but some brands like Pepperidge Farm had strong holiday performance.

Guidance

• Updated full year fiscal 2025 guidance: Reported net sales expected to increase ~6%-8%, organic net sales down 2% to flat. Adjusted EBIT expected to grow 3%-5%. Adjusted EPS range $2.95-$3.05. Increased cost savings expectations to $120M. Snacks margin expected to improve sequentially in second half. Full year organic net sales expected in range of down 2% to flat, excluding the 53rd week.

Risks

• Impact of import tariffs and potential retaliatory actions, which are rapidly evolving and not reflected in current guidance. The tariff and trade environments are fluid, and mitigation plans are being developed for various scenarios.

Question and Answer

• Q: Andrew Lazar asked about actions driving lower profit outlook and net price impact. A: Mick and Carrie responded on Snacks margin recovery, price investment, and category performance. Mick discussed revised guidance and Snacks margin improvement, while Carrie noted net price investment in Q1 and Q2 and expectations for reduced promotion headwind in second half.
• Q: Jim Salera asked about consumer recovery in Snacks and Goldfish innovation. A: Mick discussed Snacks top line expectations, Goldfish brand focus, and innovation. He highlighted focus on brand support, innovation launches, and price-pack architecture for Goldfish to drive growth.
• Q: Ken Goldman asked about Rao's guidance and consumption deceleration. A: Mick and Carrie talked about Rao's growth drivers and margin building blocks. Mick noted Rao's continued growth with lapped club activity shifts, and Carrie emphasized margin drivers like favorable mix and leadership brand growth.
• Q: Peter Galbo asked about broth expectations and EPS cadence. A: Mick and Carrie discussed broth category performance, private label recovery, and EPS phasing. They noted broth category holding up well, with private label recovery slower than expected, and EPS phasing considering snacking margin pressure and lapped promotional investment.
• Q: Robert Moskow asked about competitive intensity in crackers and Goldfish. A: Mick responded on salty snacks differentiation, Goldfish brand focus, and price pack architecture. He discussed differentiated brands in salty snacks, Lance's performance in crackers, and Goldfish's focus on innovation and price points to address competitive intensity.