Good day, ladies and gentlemen, and welcome to the Campbell Soup First Quarter 2019 Earnings Call. [Operator Instructions] As a reminder, this conference call may be recorded. I would now like to introduce your host for today's conference, Mr. Ken Gosnell, Vice President, Finance Strategy and Investor Relations. Sir, you may begin.

Thank you, Crystal. Good morning, everyone. Welcome to the first quarter earnings call for Campbell Soup's fiscal 2019. With me here in New Jersey are Keith McLoughlin, Interim CEO; and Anthony DiSilvestro, CFO. As usual, we've created slides to accompany our earnings presentation. You will find the slides posted on our website this morning at investor.campbellsoupcompany.com. This call is open to the media, who participate in a listen-only mode. Today, we will make forward-looking statements, which reflect our current expectations. These statements rely on assumptions and estimates, which could be inaccurate and are subject to risk. Please refer to Slide 2 or our SEC filings for a list of factors that could cause our actual results to vary materially from those anticipated in forward-looking statements. Because we use non-GAAP measures, we have provided a reconciliation of these measures to the most directly comparable GAAP measure, which is included in the appendix of this presentation. With that, I'll turn the call over to Keith McLoughlin, Interim President and CEO. Keith?

Thanks, Ken, and good morning, everyone. Today, we will discuss the progress we've made executing the significant actions we announced on August 30, following our comprehensive Board-led strategy and portfolio review and in that context, review our first quarter results. As we stated at that time, fiscal 2019 will be a transition year for Campbell as we take steps to turn around the Company, and the year-over-year results we reported today reflect that. This morning, I will give you an overview of the steps we're taking to implement our new strategy, and in that context, share my perspective on our performance. Then, our Chief Financial Officer, Anthony DiSilvestro, will walk through the financial details of the quarter and our fiscal 2019 guidance which we reaffirmed today. Moving to Slide 4. As you'll recall, we announced on May 18, that the Board was launching its own strategy and portfolio review process, one with outside advisors and which all options were on the table. Together with those advisors, we evaluated a full slate of potential options for Campbell, including optimizing our portfolio and divesting assets, splitting the company in two and selling the entire company. After considerable analysis and evaluation and as discussed on August 30, the Board concluded that at this time, the best path forward to maximize shareholder value and maintain flexibility going forward is a three-pronged strategy. First, optimize our portfolio and focus on our core businesses with an emphasis on execution; two, divest certain non-core businesses in order to focus the Company, while significantly paying down debt; and three, to increase our successful multi-year cost saving efforts, while driving improved asset efficiency. We have not wasted time since then and we're doing what we said we would do. We are actively making Campbell a highly focused company that…

Thanks Keith. Before getting into the detail, I'll make a few comments on our performance. Overall, our results were in line with our expectations and we are on track to achieve our fiscal year goals. As we disclosed in our 10-K in connection with the transition to our new U.S. warehouse optimization model, we experienced start-up issues at our new Findlay, Ohio distribution center early in the quarter, which were impacting our ability to ship product to our customers. The Findlay facility, which is operated by third-party logistics provider serves as the Midwest hub for distribution or a majority of our Meals and Beverage product. In October, we are able to recover quickly from the start-up challenges and despite $12 million of incremental cost, we finished the quarter with financial results that were in line with our original expectations. As we called out on the August 30 call, we expected the first quarter to be negatively impacted by a change in revenue recognition, the voluntary recall of flavor blasted Goldfish and some continued pressure on U.S. soup as we implement our promotional programs for the upcoming soup season. The impact from a change in revenue recognition which accelerates the timing of expense related to promotional programs at a 1 point negative impact on net sales, a 50 basis point impact on gross margin, and a 4 point negative impact on adjusted EBIT, the equivalent of $0.04 per share. Our organic sales declined 3%, including the 1 point negative impact from the change in accounting. And while the Goldfish brand have recovered well, we experienced some negative impact from the July 2018 voluntary recall of flavor blasted Goldfish. Excluding these two items that were more one-time in nature, the balance of the sales decline was mostly U.S. soup. During the quarter,…

Okay. Thank you, Anthony. And before we open up the call to questions, I just want to touch on the CEO search process. The Board has been extremely thorough to make sure it selects the right candidate to lead Campbell through this important time. This is a very attractive role to a number of highly qualified internal and external candidates. The Board continues to have extensive discussions with a number of candidates who possess deep experience in consumer packaged goods and a strong track record of proven results. The Board continues to expect to name a permanent CEO by the end of the calendar year. In summary, we're seeing the early signs of improved execution and performance this quarter. We're confident that our plans provide a clear strategic path forward and a strong foundation for executing the Campbell turnaround. We are squarely focused on our plan and will not be distracted from our mission, executing the plan to maximize value for all shareholders, much more work lies ahead, but we're pleased with the overall pace of our progress. And now, let me turn it back to Ken to open up the call for your questions. Ken?

Thanks Keith. We will now start our Q&A session. Since we have limited time, I request out of courtesy to the other callers, please ask only one question at a time. Okay, Crystal.

[Operator Instructions] And our first question comes from Bryan Spillane from Bank of America. Your line is open.

So I guess my question is just around the cost savings, I think it was $45 million of savings in the first quarter and you're still guiding to a $120 million for the year and I think, Anthony, you said that you expected more productivity in the back half. So could you just square, I guess if we're running at $45 million in the first quarter, why the savings won’t be more than $120 million for the full year?

Yes, sure, Bryan. So as you pointed out, we are at $45 million against the full year guidance of $120 million. So that's about two-thirds of that will come through cost, the other third through SG&A. My comment earlier about cost savings was meant to address productivity. So in addition to these cost savings programs, we target 3% of cost - of productivity savings every year and it's those savings that are a little bit more phased to the back half than the first half this year. So that was what I was addressing.

So the comps productivity was less than 3%, than in the first quarter?

Yes.

Our next question comes from David Driscoll from Citi. Your line is open.

I wanted to ask Keith, you got a bit of a chance here to see Campbell's from the Chief Executive Officer role, obviously you've been on the Board for years. You have $945 million laid out in the synergy capture, $500 million already achieved, $445 million left to go. Simple math would say that this is worth more than a $1 a share in terms of gross impact to Campbell's. Consensus estimates, couple of years out Keith, they only go up like $0.20. The question to you is, you’ve got a chance to look at these savings, are they real? Do you believe in this buck a share or better in savings potential? And then how much of this can actually go down to the bottom line on Campbell's or do you foresee most or all of this needing to be reinvested back into the business to restore top line growth?

Yes, that's a good question, and I think you partly answered a lot of that actually. So I think these numbers are real and having been on the Board for a few years, I've watched the Company execute on these cost initiatives and now, of course, being with the management team here, I see why they're good at it. It's a very disciplined and robust process and we track it rigorously, and of course, now in the middle of those meetings. So my confidence that we'll do it is high. As you know, to get to the $945 million, you have the $0.5 billion of the current program which is getting close to being complete or at least meeting that number. We've got the $295 million from Snyder's-Lance and we're reporting on that frequently as you can imagine, and we put the challenge up with another $150 million. So I would say that of the $945 million, that's $150 million - additional $150 million is where we’ve got to get more traction, we've got to get more line of sight, we've got obviously work underway to do that, but there is more work to do there. But Anthony, you've been leading the big part of those for us for several years and now with the new – can you add to that?

Yes, totally agree Keith, that we're highly confident against the $945 million. I think the other way to come out is in the context of our long-term growth algorithm and how do you get from 1% to 2% sales to 4% to 6% EBIT growth. And that delta implies about 50 basis points of margin expansion every year, and if you do the math against where we are today to the $945 million, it implies a little bit of - little over half of those cost savings need to go to expand margins. The other chunk of it can go back into the business to reinvest to grow the brand.

Our next question comes from Chris Growe from Stifel. Your line is open.

Anthony, you outlined $12 million in cost, I think it was related to the Ohio facility. I want to understand in the first quarter, if you were to add up to the Ohio costs or the incremental freight cost, the hurricane cost, could you give a number for what the totality of those costs were? And then as you offset that, obviously, marketing was little lower, was that the main offset to that incremental costs in the quarter?

Yes, that's pretty close. I think if you look at the $0.13 decline in EPS and back out taxes and currency, you've got a $0.17 decline. Of that $0.17 decline, $0.04 is revenue recognition, $0.03 is Findlay. The hurricane did not really have a significant impact when all is said and done. And then the balance of it which is $0.10 are combination of the gross margin pressure, the lower organic sales, partly offset by the reduction in advertising and consumer spending is how you get there.

And did you say, how much the advertising, just that piece that was down in the quarter?

No, I think in the press release, we say, we're up 13 selling and marketing and 28 points of that increase is the acquisition. So we're down double digits.

Our next question comes from Ken Goldman from JPMorgan. Your line is open.

When you talk on Slide 5 about your plan to stabilize soup, there's some, I think low hanging fruit there that are the right moves in terms of price gaps and merchandising and so forth. But what I think it’s still to me not apparent in the plan is how you will drive consumers to get more excited by and interested in your core soup product? Reason I'm saying that is the only innovation I see here is on the Well Yes!, sipping soup side, which is not that big of a product, right? And then on Slide 23, you talk about everyone want what's next, so there's not a single product in the next column, that's a core Campbell Soup or Chunky product also. So I guess, what I'm trying to figure out what is the plan to spark sustained consumer interest in the core Campbell Soup red and white can as well as Chunky, any help there would be, I think very useful?

Sure. It's good question. Of course, you have - at the end of the day, what we're going to get paid for in soup is relevant consumer innovation. So you're right on target with the question. We've got to bring more relevant innovation at a faster rate to consumers. We're going to do that in a couple of ways. One is a big theme, as you know is focus, right. How do we focus on those core brands, those core categories, where we have strength, where we got more competition. And so the redeploy or deploy the R&D dollars against those key categories. It's going to be in areas like convenience. It's going to be in areas like meal preparation, right. How do you deal - how do you take away that 4:00 PM to 6:00 PM nightmare that happens in every household, like what's for dinner, it's going to be in healthy and vegetables, cooking - leveraging our cooking expertise, right and helping people deal with that timeframe to say here's an easy way to take some chicken or salmon and with this ingredients, with these capabilities make a healthy meal for your family. So it's going to be in those areas. Actually we've got lots of neat stuff happening, I'm very excited to get together with you all during Investor Day to show you some of the stuff that Roberto and his team have under the hood there, but it's not yet ready for prime time, but your point is well made and well taken, it's - we're going to paid for relevant innovations, that could bring excitement back into the category.

Our next question comes from Robert Moskow from Credit Suisse. Your line is open.

I guess I had a similar question as Ken did, but it was specifically about millennials. I thought, I remember 3 months ago that there was going to be a more concerted effort to target younger consumers with the Campbell brand and specifically in cooking. And I didn't see much here in terms of how you're doing that maybe your answer is the same wait until the Analyst Day. But then secondly, what I did see in the market a lot, was a lot of 10 for 10 - 10 cans of condensed soup for $10, what was the decision to go back to that, in the past I've heard that the Company really didn't want to discount that deeply in condensed, is that changing now?

Yes, I would say actually to your first part of your question around the millennials, we are - probably maybe you haven't seen yet, but we started in the last two weeks of October, a new campaign to buy condensed specifically against millennials and especially to show millennials, how to take the Campbell's condensed soup and use it for meal preparation. So you remember exactly correctly and actually the new campaign is right on that specific target segment with that featured benefit that you mentioned. In terms of the actual promotion, I can't speak the detail. I don't know, Anthony, if you have an experience on the 10 for one?

Yes, I mean, historically, our issue on 10 for 10 has been on our RTF , right, more though and that's what we wanted to get away from we have, it's not unusual to see 10 for 10 on some of the condensed side of it.

Our next question comes from Steve Strycula from UBS. Your line is open.

Quick question, on the gross margin piece what Anthony, what builds the confidence for the second half margin recovery on the gross margin rate maybe speak to what inflation assumptions are some of the headwinds that kind of dissipate? And then a quick follow-on would be on the international snacking piece, is that about a $1.2 billion revenue entity was call it $230 million of EBITDA, just some parameters would be helpful? Thanks.

Yes, so on the gross margin point. Obviously, we're down in the first quarter, there is some unusual things in there 60 basis points related to Findlay, 50 basis points on revenue recognition from higher trade on U.S. soup, cost inflation is running in that 4% to 5% range as we expected. Key drivers being steel, wheat, vegetables, dairy and resins. As we look ahead to the balance of the year, we do expect improving trends, right. There is a number of reasons for that. First is the accounting change, the revenue recognition is a bad guy in the first half is a positive in the second half. Second and this is an important one, we're going to wrap the acquisition of Snyder's-Lance end of March. So it turns from a being dilutive mix impact to a positive contributor to organic margin expansion. Third, we have communicated to our customers pricing actions that we're taking in a number of brands and is - these will go into effect in the second half have some impact and certainly have more impact as we move into 2020. Also we'll start to wrap some of the more significant inflation, so that should moderate a little bit. And as I said earlier on the call, our ongoing 3% productivity program, there's a little back-end loaded this year relative to other. So those are the four or five things that give us confidence that these trends will improve throughout the year. And on your other question, you're - I think you're right on the international sales. We're not going to break down the EBITDA at that level given where we are in these divestiture processes.

Our next question comes from Andrew Lazar from Barclays. Your line is open.

Just two quick things, one, I think on the last call you talked about U.S. soup probably worth about 1 point of a decline for the full year in total Company sales. I want to get a sense if that was still around what you were thinking? And then second, I'm just trying to square your comments from an earlier question around reinvesting maybe a little less than half of sort of the savings over the period of time back into the business. Were there some comments last quarter where you weren't necessarily, you didn't sound that you were expecting a significant reinvestment more of a reallocation from some brands to more disproportionate spending on some others, I wanted to make sure I just understood how to square those two comments? Thank you.

Yes, so on the sales part of it. Yes. So U.S. soup performance, we do expect soup sales will be down on a year of probably worth comes to a point to total company sales. The other headwind that we're facing is that the two major private label fresh soup customers moving to in-sourcing that will have a negative impact as we go through the year. In terms of the reinvestment, Andrew, I think if you just look at our - like, I said, if you look at our EBIT versus our sales, long-term algorithm is worth about 50 basis points, and that 50 basis point is about $60 million to $70 million of incremental EBIT every year. And then if you just work out the math on the program to go in terms of the annual savings, you need a little over half of that to go to that margin expansion. Now that's a little bit simplistic because obviously you have a basket of items that are going up or down in that EBIT bridge. But I think high level, that's about what we would expect to see happen going forward.

And Anthony around the reinvestment is a lot of it more in the marketing seeing consumer spend side or are there maybe spending that needs to be done behind capabilities in terms of what you need going forward that maybe we're less aware of?

Yes, no, I think that's a good question, it's just probably all of the above, right, I mean, it's not just limited to one area of investment, right. You're going to increase capabilities, one way or another whether in technology, or in people, or in brands, or in products. So yes, we've talked about this before and things like digital and e-commerce, we have been stepping up our level of investment and we'll continue to do.

And our next question will come from Jonathan Feeney from Consumer Edge. Your line is open.

Just wanted to ask a question on the gross margin, I guess, a related issue, which is the affordability. When I look at the 2-year progress, 1-year progress in gross margin even backing out the acquisition impact, it now compares unfavorably to I think a lot of your peers directly. And juxtapose that with the conversation about affordability, I guess I just wonder me looking at the data, I wonder how much of the issue is affordability per se and where is that data coming from? Is that the consumer, the retailer that's telling you that the products aren't affordable, particularly I assume that relate largely to the meals business and soup specifically. So I guess where's that data coming from? And are you confident that gross margins have bottomed and are going up from here on an organic basis you're setting aside whatever effect of the planned divestitures might have? Thank you very much.

Yes, I might need you to say a little bit more about the affordability part of the question, but just kind of generally relative to gross margins. Of course as our gross margins as you stated have been compressed here in the last couple of years, primarily driven by the under the performance in Sea Fresh and the major issue we've had with a major customer in soup. I mean that's a not insignificant challenge to our margins. And as we're stating and as you're seeing, we're starting to see getting traction, we are divesting the Sea Fresh side. And then in soup, it looks like we're getting traction both with a key customer and also in general. So that gives us confidence, we'll get the cost that work, we'll get the synergies from Snyder's-Lance, get their gross margins back closer to where Pepperidge Farm's are and that combination gives us confidence that the gross margin will expand. Would you had another question around affordability, I just want to make sure I get the question?

And it actually looks like the caller has disconnected.

Okay.

So that will conclude our question-and-answer session for today's conference. I'd now like to turn the call back over to Keith McLoughlin for any closing remarks.

Okay. Thank you, and thanks, everyone. I just - a couple of concluding remarks, hopefully, you can kind of get the little bit of the picture here that there are changes happening at Campbell's. We're in a turnaround and we're executing against the plan we laid out on August 30. We're pleased that the first quarter results give us the ability to reaffirm guidance for the full year. We're getting traction, we're seeing early signs of progress for the turnaround, but there is still a ton of work in front of us. So we are by no means declaring victory, this is the beginning - this is the beginning of the turnaround with the Campbell Soup Company. Thank you all for joining us this morning. We look forward to reporting to you back on Q2 earnings call. Have a great day, and for those in the U.S., a very Happy Thanksgiving. Thanks everyone.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program. And you may all disconnect. Everyone, have a wonderful day.