Campbell Soup Company Q1 FY2026 earnings call

• Mick welcomed Todd as new CFO. First quarter results in line with expectations. Organic net sales down 1% due to consumption decline. Leadership brands held share for eighth consecutive quarter. • Meals and beverages: Organic net sales down 2%, meals and beverages leadership brands held or grew share for ninth consecutive quarter. Broth consumption grew for ninth straight quarter. Condensed soup portfolio grew share for eighth consecutive quarter. • Snacks: Consumers' snacking behavior evolving. Organic net sales down 1% due to volume declines. Held or gained share in about half of portfolio. Focus on delivering consumer value, innovation, and omnichannel execution. • Announced acquisition of 49% interest in two Laragina entities, which secures access to unique ingredients, expands innovation capabilities, and reinforces commitment to Rails brand.

Organic net sales were down 1%, driven by a 2% decline in consumption. Leadership brands represent approximately 90% of enterprise net sales. Meals and beverages organic net sales decreased 2%, with unfavorable volume and mix of 3% offset by favorable net price realization. Snacks organic net sales declined by 1% due to volume declines, partially offset by positive net price realization. Meals and Beverages first quarter reported net sales decreased 4%, operating earnings decreased 13%. Snacks reported a 2% decrease in net sales, organic net sales decreased 1%.

• Reaffirmed full year fiscal twenty twenty six guidance. • Projected gross tariffs to be approximately 4% of cost of product sold, with 60% related to section two thirty two steel and aluminum tariffs. • Expect to mitigate approximately 60% of tariff impact through inventory management, supplier collaboration, alternative sourcing, productivity, cost savings, and surgical pricing actions. • Second quarter expected to have increase in promotional activity and marketing investment.

• Tariffs could have a significant negative impact on adjusted gross profit margin. • Macroeconomic challenges could affect short term performance. • Consumer preferences evolving which may require continuous adaptation of products and strategies.

Q: Please go ahead. Your line is open.

A: Good morning, Mick and Todd. Thanks for the question. And, Todd, welcome. I wanted to follow-up on the La Romano announcement. Perhaps we could get some added detail on the reason for the acquisition and the timing and also perhaps some added details on the on the remaining 51%, such as how the purchase price would be determined. Thank you.

Q: last quarter, Campbell spoke about its intention to stabilize the Snacks segment in the second half of the fiscal year. And it looks like that's you're still expecting that to be the case. I guess based on the data we can all see, it doesn't seem that trends improved maybe as much sequentially in the fiscal first quarter as you might have expected. Was hoping you could go through what gives you the conviction in a back half stabilization And how do you think this is impacted, if at all, from a key snack player talking, you know, more about affordability going forward? Thanks so much.

A: Yeah. Thank you, Andrew. So maybe stepping back first with regard to the overall categories and and when I look at snacks categories that we participate in, in the aggregate, the dollar consumption trend was sequentially relatively stable. I. E, it didn't deteriorate further in the third quarter for the third quarter in a row. So I do expect as a result that you're basically going into next quarter you're gonna continue to see that category pressure And I don't expect that to immediately change within the next couple of months. However, as we're getting into the second half, arguably, comps should become a little bit easier. And that's should allow categories overall to start to stabilize. That being said, you know, we're obviously, as I described also during my prepared remarks, we've focused on what we control when we clearly see that snacking is evolving and I described it extensively in my prepared remarks, but, like, we are very focused on making sure that we continue to evolve our portfolio with that. When I look specifically at our portfolio performance in Q1, If you look at bakery and cookies, one of the things that worked well is the innovation and particularly the cookie innovation. And that's really is something that we gotta make sure that we keep that momentum going. If I look within salty within chips, some benefit from timing of certain promotional activities. So I I expect that we're going to continue to feel a little bit of pressure on chips, also a relatively competitive call it, like, subcategory within salty. Within pretzels, we have great results around snack factory. They're really encouraging. We gotta make sure that we keep that momentum going. A lot around innovation, but also in market execution. With regard to Snyder's of Hannover, we still got some work to do. And then when I look at crackers, which is the the third major category within our snacks portfolio, it's really coming back to making sure that we reignite Goldfish. Now when I look at Gold Fish in Q1, as we also described, the back to school performance was quite good and encouraging, really also focused back on price pack architecture. I mentioned that in the past and the importance of that during the right moments, making sure we provide the right value to the consumer school period. and that came through with the multipack execution during the back So there's definitely some green shoots throughout that being said. Making sure that, for instance, we are getting Goldfish back to growth is critical for not only the cracker, you know, performance within our cracker category, but also more broadly within our snacks portfolio. So that's something that we are very focused on. When I look at Q1, we made some progress. We got still more work to do. As I pointed out, there are some proof points that we are going to continue to amplify throughout the year. I also think it's going to be really important to make sure that we see some of these proof points come together in Q2 and that will inform us around the the second half trajectory of our snacks business.

Q: Great. Thank you so much.

A: Yeah. Yeah. Thanks, David. It's it's something that we are very focused on, and you you heard me talk a little bit about this in the beginning of the prepared remarks as well. And and I I really kind of that focus on the consumer needs across the organization. You see that come through in these different megatrends that we've identified around whether it's premiumization, labor exploration, health and wellness, and cooking and comfort for snacking specifically people are still snacking as you're describing, how however snacking is evolving. And we see that really taking place within those three key pillars that are described earlier, whether it is that elevating the experience or people want an exciting experience, which comes back to premiumization or flavor exploration, or the focus on health and wellness. And our brands are call it, premium snacking brands, really have a have a place to win within those different trends. We just need to make sure that when we innovate, we're very conscious of what the consumer is looking for. So that allows us to continue to evolve our portfolio. And at the same time, from a messaging perspective, when we communicate or connect with the consumer, we need to make sure that we bring it back to these core focus areas that we know the consumer is focused on. So we're working through that, and definitely, some areas are working. Others we got some more work to do. The one thing that is an overarching, call it, like, important piece that I you know, pointed out also when I talked about Goldfish is to continue to focus on value. And that you see across the overall consumer spectrum and that's something that goes for both divisions. Thank you.

Q: I guess我 really have two. I wanted to know, Mick, you said two things about the soup business You said that it's important for you to raise price to cover costs. But also you recognize the importance of providing value and that there's been some share losses in eating soup. So, you know, these two things kinda clash with each other. Do you think you'll you'll need to improve affordability of eating soups And how have competitors responded to the price increases? Yep. Yep.

A: So definitely something we're very conscious of. Right? And and by the way, Rob, maybe stepping back for a minute. If you look at our total soup portfolio, obviously, the one hand, cooking, Cooking is really working. And you really we're really feeling some of that pressure on the eating side. Within cooking, that's really coming back to broth, on the one hand, We are seeing, by the way, that private label is recovering. And as a result, although I still expect continued one, growth of the category but also growth for us. I do expect that we're going to feel some of that share pressure that we've talked about in the past. To start to materialize as private label continues to recover. Now from a condensed perspective, the condensed portfolio is really split in two, and it's interesting when you peel that back and you really see the growth on the cooking side of condensed, which you're really back to a lot of as ingredients and then some of the the creams, for instance, that are being used in recipes, more eating focused, you know, products within our condensed portfolio, that's where you're feeling some of the pressure in general. Then when I get to RTS or ready to serve soups, which is a broader portfolio for us, right, that includes chunky, it includes HomeStyle, it did include in the past, well, yes, which we've now discontinued. That's where we felt the most pressure, which is on the one hand, because of what I described earlier, little bit of that pressure on eating soups in general, And then in combination with some of the pricing actions that we have taken that listen, we've taken them you know, we talked about it last quarter. We've been really surgical about it. But because of the disproportionate inflation, we did believe it was important to implement some of the pricing elasticities have materialized the way that we expected. We also believe that it's important for, as you're pointing out, the long term value of our brands, although in the short term, and particularly during the beginning of this quarter, it's definitely led to some pressure from a consumption as well as overall share perspective which you saw on one of the slides. Now that being said, we're also very conscious to bring it back to your piece around value is important, and value is important when it really matters. So going into the soup season, we have taken selective incremental actions in order to make sure that we are competitive in the marketplace. And if you look at the l four trend, you actually see that RTS is growing slightly and that share declines are much more subdued.

Q: Thank you. Good morning. Just wondering if you could come back to La Regina for a minute. You mentioned the margin benefit. But I suppose at 49%, would that still come through in operations? Or would that only occur after if if and when you have full consolidation And then in either case, maybe could you just touch a little bit on what, if any, implications the deal has for top line momentum It's always been a a strong brand, but it it it is certainly, you know, as it gets bigger and bigger, grows a little bit more slowly, How do we think about just, you know, what what you can do to keep the the momentum, going on on the on the, you know, the strength of the top line as well?

A: Maybe I'll start off with the top line. And, Todd, if you can then you know, add a little bit around the consolidation piece and the margin piece. So from an overall growth perspective, you did see that we continue to have growth this past quarter We talked about this in the past as call it, mid- to high single digit growth as always been the the focus going into this fiscal year. We had 4% consumption growth this past quarter. A little bit of timing of promotional activity between Q1, Q2 and it's still I'm very comfortable that we're gonna see that mid to high single digit growth trajectory materialize. From from a p and l and impact, because of the call option that we have, we will actually consolidate 100% of the P and L on into our business. So we will get the full gross margin impact. It'll be significant for Rails, obviously not terribly significant for the entire company. But we'll have about, we'll have a very favorable impact on the brand. We will then back out 51% of the earnings of La Regina through a minority interest line. And then, obviously, we'll have any additional interest expense coming through as we finance the purchase. As we talked about earlier, for this year, it should be a washed EPS. Over time, obviously, we believe it will be accretive.

Q: Great. Thank you. I'll hop back in the queue.

A: Yep. Sure. So you you're absolutely right. It making sure that we get Goldfish right is really important. Obviously, one of our billion dollar brands across our broader portfolio and making sure that we have that growth back will will help snacks, but, obviously, will help a broader organization. When I look at the Goldfish itself, and I look at kind of these these key focus areas. First of all, maybe specifically to your question, household penetration, relatively stable. It's really buy rate. That we felt a little bit more of the pressure. When I think about what are you as a result gonna do about it. Making sure that we provide oh, one, a clear message with regard and reminder of what Goldfish is and the that Goldfish is here and that goldfish all and and what Goldfish provides At the same time, from an innovation perspective, making sure that we give people also choices within the Goldfish portfolio. And one of the examples of that is, for instance, the goldfish pretzel innovation. That is coming out. So making sure that that we provide kind of the full power of the franchise is really important in order to support that pyrate in combination with reminding people what goldfish stands for. At the same time and so that comes back to innovation, brand, messaging, At the same time, as I described earlier, and I described this also in the past, is price pack architecture, I think, is really important, which brings it back to making sure that we have the right value at the right moment. And that's something that we're very focused on across not only Goldfish but the broader portfolio. But that also is really important for Goldfish itself. And a proof point of that is what you saw with the multipack growth during the back to school period this past quarter. And then the last thing that I'd say is, call it, like the daily blocking and tackling I refer to omnichannel execution. You know, in my prepared remarks as well. I really look at it as making sure we have really good execution in the marketplace is absolutely critical. So it's really those different components that should allow us to get back to growth with Goldfish in a brand that arguably has a right to win in the market.

Q: Hi, good morning, everyone. Wanted to ask about margins. Yeah. I think I think this is a historically low gross margin in the quarter going back some time. And so I wanted to get a sense of, you know, how the quarter, you know, from a gross margin perspective, you know, has come in relative to your to your own expectations. And you know, what what whether you think that the the rest of the year gross margin relative to current levels, whether on an absolute basis or a year over year basis, you know, see some steady improvement. And I and I ask that in the context of, I think, you know, this is gonna be the peak inflation you know, quarter. You know, relative to what your guidance anyways. And and there there potentially is some some some relief you know, through through the rest of the year. So it's kind of, you know, how it came in relative to expectations and and phasing from here. And then, you know, as you look at the business and you've handled this inflation, you know, cycle, just, you know, any any thoughts on prospects for know, margins over time? Thanks so much.

A: Sure. Look. So, obviously, incredible inflation both from just normal inflationary input costs, labor costs, plus a very large impact from tariffs. In the quarter and throughout the majority of the year. So it came in exactly as we expected it it would be. As we, you know, had in our in our slides over 500 basis points of total you know, cost pressures with, you know, 200 basis points approximately of that being tariffs. Inflation throughout the entire cost system also was a similar amount to tariffs for the quarter. And then we had incremental depreciation, higher logistics costs, a number of other items that put some additional pressure on it. Now the good news is the supply chain team is doing an incredible job and and and was able to offset 70% of of those costs. So, you know, kudos to them. We would be in much worse shape if not for their incredible efforts. This inflation will remain for the vast vast majority of the year. We will there'll be a similar impact in Q2. Just FYI, you know, gross margins, was down 150 basis points in Q1, will be down a similar amount, maybe even a little bit more in Q2. Probably we'll get a little bit better as we get into Q3. And then as we begin to lapse some of the tariff impacts that we started to have in Q4, and and some of the cost improvement opportunities that the supply chain is working on now come to full fruition, we will as second half comes together, we will see improvement throughout the quarter. Particularly in Q4, again, because we will be lapping some of those tariff impacts. Look, we're not happy about where the gross margins are clearly. We know we need to get them well above 30%. You know, over time, and we have a number of cost initiatives in place to ensure that happens.