Release Date: December 04, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• The Campbell's Co (CPB, Financial) reported a 10% increase in net sales for Q1 fiscal 2025, driven by the strong performance of Sovos Brands.
• The company's 16 leadership brands showed growth in both dollar consumption and market share, with a 2% increase in in-market dollar consumption.
• The integration of Sovos Brands is progressing well, with the Rao's brand exceeding expectations and contributing positively to the Meals and Beverages division.
• The Campbell's Co (CPB) reaffirmed its fiscal 2025 guidance, reflecting confidence in steady progress and strategic execution.
• The company announced a 5% increase in its regular quarterly dividend, indicating confidence in its earnings and cash flow.

Negative Points

• Organic net sales decreased by 1%, reflecting a dynamic consumer environment and inventory level impacts due to the later Thanksgiving holiday.
• Adjusted EPS decreased by 2% to $0.89, primarily due to higher interest expenses from increased debt levels.
• The Snacks division experienced a 2% decline in organic net sales, impacted by lower sales in partner and contract brands.
• The adjusted gross profit margin declined by 70 basis points, influenced by the acquisition of Sovos Brands.
• The company faces competitive pressure in certain snack categories, particularly from new entrants and private label products.

Q & A Highlights

Q: How did the gross margin and marketing expenses perform versus expectations for the quarter? A: Mark Clouse, CEO, explained that the primary building blocks like pricing, productivity, and cost savings were in line with expectations. The mix of business, particularly the strong performance of Rao's and Sovos, and softer organic business due to the later Thanksgiving timing, affected the gross margin. Carrie Anderson, CFO, added that the mix issue was due to higher Sovos and Rao's sales, which have a lower margin profile, while the legacy business with a higher margin profile came in lower.

Q: Are there any unusual timing benefits or tailwinds to consider for the second half of the fiscal year? A: Carrie Anderson, CFO, mentioned that organic growth is expected to modestly improve in the second half due to Sovos moving into organic growth and improving trends. There will be a more neutral net price and marketing impact, higher productivity and cost savings, lower interest expense headwinds, and a $0.07 benefit from the 53rd week in Q4.

Q: How does Campbell's view the competitive environment and promotional strategies in the snacks category? A: Mark Clouse, CEO, stated that the promotional environment in snacks is competitive but not unreasonable. The company is focused on maintaining discipline on price while ensuring appropriate levels of promotion to drive impulse purchases. The strategy includes leveraging brand equity, marketing, and innovation rather than deep discounting.

Q: Can you elaborate on the inventory timing shift related to Thanksgiving and its impact? A: Mark Clouse, CEO, explained that there was a roughly 2-point delta between in-market consumption and net sales in the Meals and Beverages segment, primarily due to inventory shifts related to the later Thanksgiving timing. More than half of this impact was attributed to the timing shift, with some inventory build occurring in November.

Q: What insights can be drawn from Rao's success with millennial households, and how can these be applied to other parts of the portfolio? A: Mark Clouse, CEO, highlighted that Rao's success is due to its differentiated product quality. The brand's appeal across different income levels, including millennials, is driven by its quality and value compared to takeout options. The lesson for other premium brands is to emphasize quality and frame occasions to highlight the product's worth.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.