Greetings, ladies and gentlemen and welcome to the Campbell Soup Company Fourth Quarter and Fiscal 2022 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. It is now my pleasure to introduce your host, Rebecca Gardy, Chief Investor Relations Officer. You may begin.

Good morning and welcome to Campbell’s fourth quarter and full fiscal year 2022 earnings conference call. I am Rebecca Gardy, Chief Investor Relations Officer at Campbell Soup Company. I am joined today by Mark Clouse, Campbell’s President and Chief Executive Officer; and Mick Beekhuizen, Campbell’s Chief Financial Officer. Today’s remarks have been prerecorded. Once we conclude our prepared remarks, we will transition to a live webcast Q&A session. The slide deck and today’s earnings press release have been posted to the Investor Relations section of our website, campbellsoupcompany.com. Following the conclusion of the Q&A session, a replay of the webcast will be available at the same location, followed by a transcript of the call within 24 hours. On our call today, we will be making 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 3 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 each of these measures to the most directly comparable GAAP measure in the appendix of this presentation. On Slide 4, you will see today’s agenda. Mark will share his perspective on our fourth quarter and full year performance as well as in-market performance by division. Mick will discuss the financial results of the quarter in more detail and then review our guidance for the full year fiscal 2023. And with that, I am pleased to turn the call over to Mark.

Thanks, Rebecca. Good morning and thank you for joining us today. On behalf of Campbell’s leadership, I want to begin by thanking the teams for all their hard work this year. By maintaining focus on the factors we can control, we delivered solid fourth quarter and full year results while advancing our strategic plan to deliver sustainable profitable growth. The teams executed with excellence across the company. We improved supply chain performance and implemented effective revenue management to counter inflation, all while demand for our portfolio of brands remained elevated. Importantly, we did what we said we were going to do. We delivered on the high-end of our original full year fiscal 2022 adjusted EPS guidance. We accomplished this despite the volatile environment we are in. And with the momentum we built throughout the year, we are confident in our ability to continue to deliver in fiscal 2023. Let me start with the fourth quarter. We delivered strong growth across all three key metrics, net sales, adjusted EBIT and adjusted EPS, driven by continued improvement in our supply chain execution, sustained consumer demand and our successful efforts to mitigate inflation. Organic net sales increased 6% versus the prior year due to net price realization, continued elevated consumer demand and significantly improved supply. Adjusted EBIT and adjusted EPS both returned to growth due to successful inflation mitigation and cost management. For the full year, organic net sales grew 2% and we delivered adjusted EPS of $2.85. As expected, adjusted EBIT decreased due to challenging inflationary pressures and our commitment to protect critical brand investments. Our financial results reflect the strong end-market performance of our brands. Fourth quarter consumption was up 8% versus the prior year and up 21% compared to 3 years ago. For the full year, consumption was up 4%…

Thanks, Mark and good morning everyone. We are pleased by the strong results we delivered in the fourth quarter in a challenging operating environment. As Mark said earlier, we are proud to have delivered strong full year results, with adjusted EPS at the high-end of our original fiscal 2022 guidance range. This is a testament to the progress our team has made throughout the year in areas such as our supply chain, allowing us to support continued elevated demand levels. Additionally, we have made significant progress regarding inflation mitigation via effective revenue management, continued productivity improvements and cost savings initiatives. Our cash generation during fiscal 2022 remains strong as well, with cash flow from operations of $1.2 billion, a 14% increase over prior year. Of which, we returned over $600 million in fiscal 2022 to our shareholders through dividends and share repurchases. At the end of my remarks, I will review our fiscal 2023 guidance. But now, let’s first discuss our fourth quarter results in more detail. Turning to Slide 25. For the fourth quarter, organic net sales increased 6% as our inflation-driven pricing actions continued to gain traction. Fourth quarter consumption was slightly ahead of our organic net sales performance, driven in part by year-over-year net sales declines in our non-measured channels and due to shipment timing following our July pricing. We now expect inventory replenishment to extend more into Q1. Adjusted EBIT increased 5% compared to the prior year to $269 million, primarily due to higher adjusted gross margin, partially offset by higher adjusted administrative expenses and lower adjusted other income. Our adjusted EBIT margin decreased 20 basis points to 13.5% compared to 13.7% in the prior year. Adjusted EPS from continuing operations increased 8% to $0.56 per share driven primarily by the increase in adjusted EBIT and…

[Operator Instructions] Your first question comes from the line of Andy Lazar from Barclays Capital. Your line is open.

Great. Good morning, everybody.

Hi, Andy. Good morning.

So – Good morning. I guess first off, Mark, you’re guiding to a 4% to 6% organic top line gain in fiscal ‘23. Maybe you can talk a bit about the key drivers to this in terms of expectations around pricing and promotional spend versus volume expectations. And then I’ve just got a follow-up.

sure. Yes. So 4% to 6%, to kind of build it up, anticipates what I would describe on the pricing side as kind of low teens pricing and then likely a couple hundred or so basis points of promotional spend back. So think of it as kind of double-digit net pricing impact. So there is no outsized promotional spend, but there is some reinvestment, as we had anticipated. Elasticities have continued to be very positive versus historical levels. But as we land fully Wave 3 pricing that rolled out in P12 of ‘22, we’ve been seeing elasticities in about the 50% range, better on snacking, a little bit of a step-up as anticipated for next year, probably more like 60% of historical elasticities. And then you’ve got some tailwinds as we have kind of pushed some of the inventory recovery forward from ‘22 to ‘23. I’ll explain that, I’m sure, in a bit. But – and the step-up in investment that we have. And so collectively, you put those pieces together, you get to the 4% to 6%. I think as you think about the year and where the incrementality of pricing sits as well as where the supply recovery will probably be most prevalent, we’re anticipating a stronger first half growth. In particular, Q1, I think we will have a positive relationship to consumption, a little bit of a flip of Q4 as we saw a little bit of timing of shipments move into Q1.

Got it. Got it. That’s helpful. Yes. And it’s a good segue into the second question, which is really just – I realize there are plenty of moving pieces here to guidance. And maybe a bit more color on expected phasing for the year and any discrete items that we need to keep in mind along these lines. You obviously mentioned the flip in shipments versus consumption expected as you go into Q1. But any other things around phasing that we should be aware of more, for modeling purposes and such?

Yes. Sure. So maybe let me give a little bit more color. And Mick, feel free to jump in if I miss something. But on the EBIT side, to kind of give you a little bit of the building blocks there, as Mick said, we continue to expect inflation next year in the low teens, is what we’ve positioned it as, with pricing and some of our productivity covering that. And then the balance of productivity and cost savings are really more than enough to offset the step-up in investment in marketing and selling as well as covering the pension that Mick laid out. So I think the net of that is modest overall EBIT growth, probably a relatively flat gross margin as you think about the – where the building blocks come from. I generally don’t like to guide the gross margin, but I think stable is the way I would describe it. I also think, as you’re thinking about our investment and how much and where are we, we’ve talked a lot about the goal of getting into that 9% to 10% range for marketing and selling. I think you should anticipate for ‘23, we will be on the low end of that range, but a step up from where we were in ‘22 as we build that back. When you think about phasing for the year, I do think it’s a little bit of a reverse story from the top line. I think you’ll see probably our toughest quarter on inflation in the first quarter as well as a place where I would expect to see investment returning. As you might remember, a year ago, we were in a little bit of a supply-constrained world, and thus then adjusting some of the investments that we had. We will see that come back. And then I think the other thing that’s important to note is the pension that Mick talked about two-thirds of that will be in the first half of the year. And so as you put those things together, the way I would expect as a Q1 where margins will be a little challenged and then kind of stabilizing, normalizing as we go through the year to deliver that relatively overall stable gross margin and modest improvement in EBIT. I think what’s important, just to point this out, but I’m sure it’s kind of self-explanatory in the numbers. But the EBIT without the pension in it, we’re 1% to 5% growth on the base, but without the without the pension in there, we’re 4% to 8%, which would put us very much in line with our long-term guidance and EPS kind of rolls through to the same kind of dynamic. So at the end of the day, I think when you look a little bit past the accounting on the pension, the underlying guide, I think, continues to support the momentum and progress that we’ve been talking about and describing.

Thanks so much.

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

Hi, good morning, everybody.

Hi, Ken.

Hi. Just to tie a bow, I guess, on the conversation about the one-time puts and takes in 1Q. Is there any way for us to sort of estimate or quantify the degree to which shipments are expected to exceed consumption? I understand these dynamics are hard to forecast, but I just kind of want to minimize surprises if we can.

Yes. Maybe a way to do that, Ken, is to give you a little bit of color on Q4. Because I do think, to some degree, an expectation that net sales would have been perhaps at or favorable to consumption might have been an expectation out there. And I will say that relative to our own modeling, we saw a little bit more of the shipment timing move into Q1. But maybe it will be helpful to bridge Q4 and then I’ll tell you kind of what to think about as you get into Q1. So I think probably the biggest shift, if you will, in the difference between the two, and this was a little bit of a unique dynamic, but I think the right call, which was to roll out our Wave 3 pricing in the last month of ‘22. And that was really designed to ensure that we had the pricing fully reflected and in place as we stepped off in fiscal ‘23. However, in a month where you’re executing pricing, I do think we saw a little bit slower, especially as it relates to inventory recovery as we executed that. The good news is, as we project in the Q1, that’s probably a couple of hundred basis points of difference that I think will move into the Q1 timing. And as we start the year, we see momentum as – in support of that. So I think that’s the first piece. The other two, as we have continued to prioritize the retail environment, some of the non-measured channels, especially on snacking, it was about 200 basis points of headwind for our snacks business, about 100 basis points overall for the company of decline in unmeasured channels, which is part of that bridge as well. And then perhaps the final piece, but on a smaller level of contribution, although I feel tremendous about the progress we’re making on supply chain, we still have a few businesses where material availability has slowed full supply recovery. That’s primarily Lance late July in V8, where each of them have their own kind of material availability challenge that will take us some time into ‘23 to fully recover. So you put that into the mix as well. So as you think about Q1, imagining that we’re a couple of hundred basis points ahead of kind of in-market consumption, I do think the unmeasured channels will stabilize and be more in line as supply fully comes back in line, especially in our snacking businesses. And so I think that’s probably a good way to kind of think about the dynamics of the movement from Q4 to Q1 and maybe a little bit of explanation on why you might not have seen a little bit more top line, in particular, on the snack business in Q4.

Great, thank you for that. And then a quick follow-up on promotional spending, can you maybe elaborate a bit on what drove that sort of sudden increase, I’d say, in the fourth quarter in promo spending and snacking, I guess how sure that trend would be? And kind of how you think about – I know you talked about a couple of 100 basis points in ‘23. But is there a breakdown by segment, just very roughly, Mark, that we can kind of model in?

Yes, yes. No. And I think we tried to kind of allude to that is, as we were moving from Q3 into Q4, that as supply came back in line and given the nature of snacking, it is probably more important to get that balance of promotion right. And it’s interesting when you look at snacks in the fourth quarter, although you did see about 400 basis points of step-up in promotional spend, you also saw vol mix that was down only about 3 points, which relative to the total net pricing we took would imply a very low elasticity. And part of that is the nature of snacking. And so what we want to make sure we are doing perhaps more so in snacking than other categories is really ensuring that we stay competitive as it relates to units, because in the end, that’s really what’s indicative of the future health of the business. And so I think that balance is what we are striking. I do not think you will see 400 basis points as an ongoing runway. I do think we – the summer does tend to be a little bit more historically promoted period. And so you saw that. And given what we were lapping, which was very light on promotion. I think it’s a more normalized view of promotion than it might have looked at first glance with 400 basis points. But as I think you get into ‘23, I think it will. As I said, 200 basis points, probably a little more distortion to snacking, but generally in that ballpark for the year is a good assumption.

Great. Thank you.

Yes. And by the way, just as closing that out, I mean that is why you saw, I think in Q4 the unit share performance that I talked about in the remarks. And the fact that we were growing units in salty snacks, which is perhaps the most fiercely competitive segment of snacking was – in my mind, as I thought about what we were trying to accomplish in the quarter, was a very positive outcome.

Okay.

Your next question comes from the line of Peter Galbo from Bank of America. Your line is open.

Hey guys. Good morning. Thanks for taking the question.

Sure Peter.

Mark, I guess just the first question, going back – to circle back on Andrew’s question around gross margin and realizing that you have given a little bit of color there. I just – in the context of some of the guidance elements that Mick has given, it would kind of seem that gross margins would actually have to be up to make the EBIT math and the EPS math work versus kind of the flattish. And just wanted to make sure that your comment wasn’t that they would be flat, but could potentially be up on the year?

I think they are going to be relatively stable is what I would say. So, I always hate to give precise numbers on gross margin. But I do think what I would expect to see – and remember this too, like when we talk about cost savings and even some of our productivity, that’s not all in gross margin. Part of that is below the line. And that contribution, as Mick laid out, the cost savings goal for the year does give us some counter to the increase in marketing and selling spend that we have below. So, I think when you put those together, it’s helpful. Mick?

Yes. Maybe kind of to be a little bit more precise around the cost savings, think about it as about a third is going to cost of goods. The remainder is below the gross margin line.

Got it. Okay.

So, I think if you did that math, if you rolled that math together, I think it will allow for you to have a little bit of kind of offset to where you would see marketing and selling up and the pension recovery with cost savings relative to then a gross margin that I think will be healthy, but generally, probably pretty stable.

Got it. Okay. And then Mark, just going back to some of your comments from prior calls around soup. I think it played out kind of as you expected or as you have communicated, maybe more or so in broth, that private label has taken more of the share. I guess what we have seen in the Nielsen data is, on the condensed side, realizing that broth is maybe a part of that, private label has taken more share in condensed relative to ready-to-serve. But maybe that’s not what you are seeing in your business. So, I just wanted to understand if there was a difference between the data that we are seeing and what you are seeing internally.

No. And that’s what we would have expected, right. So, private label in our soup business really is prevalent in two places. It’s the condensed business and it’s the broth business. And those are the two places where we recognize where we have got to be very, very on top of price gaps and the overall value proposition. I think the one piece of context that I will just give to you that I do think is important, and I mentioned it in my comments, in a condensed world where we are 80% of the category, and the category is up double digits, that is a good thing for us overall. Although, again, I am never happy or satisfied with any share loss at all. I do think the overall strength of the segment has been very positive. I think further to that, we have tried to really carve out the parts of the condensed business that we want to make sure that we are defending in a more perhaps vigorous way. And that’s – we describe it as our icons, but that’s essentially chicken noodle, tomato, cream of mushroom, cream of chicken, these are the kind of juggernauts of condensed. And when we look at those head-to-head versus private label, we are actually winning on share expansion and growth. What is – where the decline is coming from is on a lot of the flankers, which tend to be a little bit higher priced. There are things like healthy requests and some of the longer tail on flavors. And so as we go into ‘23, what we are really going to be trying to do is maintain that focus on icons, but also providing a little bit more support behind the broader portfolio to try to continue to bring…

Your next question comes from the line of Jason English from Goldman Sachs. Your line is open.

Hey. Good morning folks. Thanks for letting me in.

Hi Jason.

Hi. I am surprised to hear you measure measured channels as a headwind in snacks. It’s been growth accretive for most companies. Can you shed some light on what’s going on there? Where are you seeing the weakness? And what’s driving it?

Yes. What it is, Jason, is a little bit of decision-making between where we steer supply in the short-term. So, I don’t feel at all like it will be a problem in the future at all. But I do think in the fourth quarter, we have made some decisions to strengthen our presence in some of the retail channels where we had been weaker on supply and kind of prioritized recovery there. I think you will see strong recovery as we go into the – into fiscal ‘23. And I don’t think you will see that as a drag on the business at all as we go forward. And yes, it’s a very healthy channel and one we want to be present in going forward or healthy channels that we want to be present in going forward. But in the fourth quarter, it was a little bit of pick your spot. And we decided that we prioritize the retail first.

Understood. Thank you. And I am a little surprised by some of your comments on snacking, the characterization, salty snacks is exceptionally promotional or something to that effect. And your highlight on units over value, it very much sounds like you are pivoting to a volume over value strategy, which we as analysts here have been conditioned over the years to get very nervous about because it’s often led to a path to like value destruction, margin compression, race to the bottom. Maybe you can give us some context, like why we shouldn’t be concerned around some of the language you are using and where – what you are choosing to highlight as areas that we should focus on.

Yes. I think the biggest indicator I can give you, Jason, is that we are not talking about anything even remotely broader or deeper than historical levels. And honestly, even with the Q4 example that I gave, we are still not back. And nor do I think we need to go all the way back to historical levels. At the same time, I do think that snacking in general, because of so much of the impulse decision-making that’s there, the balancing act between the two is perhaps a little bit more important. So, there is no shift in strategy. And again, I continue to be very confident in our ability to drive the margin goals that I know you and I have talked a lot about over the years and continue to see a runway. And even in the quarter, right, where we delivered that kind of investment, although our margins were off of, I think 30 basis points, it’s a really stable margin on the business that I expect to continue to accelerate as we get into ‘23. So, I don’t think you should have any concern at all about some shift in strategy that’s going to result in margin erosion. I do think what you should expect is some recovery of the promotion that has left the segment as we continue to kind of be in a position where we want to stay as competitive as possible. So, I think where you will land at the end is less probably promotion than we had historically, but certainly more than what we had last year, because it just was – it was too much. And again, it was because we didn’t have supply. And so I do expect that recovery to come. So, yes, please don’t read too much into this. It’s really about the recovery. But I do think in a world where inflation is so dramatic, continuing to calibrate volume and making sure you know where your volumes and your units are is a very important aspect of recognizing are we pricing in the right balance. So, I would tell you that it’s probably more about the overarching sustainability of the broader strategy and making sure that we have got that balance right.

Helpful context. Thanks a lot.

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

Hi. Thank you. I noticed in your CapEx guidance, I think it’s $325 million, it’s well below the 4% to 5% of sales that you have talked about at your Investor Day. And I want to know, are there any projects that are getting delayed? And is it correlated to your innovation plans, because 2% of sales this year contribution from innovation, it just sounds low in historical context. And I know at Investor Day, you talked about increasing that over time. So, can you talk about that?

Maybe I will do innovation first and then we will back into the capital. But – so if you remember on Investor Day, we showed a slide that had essentially kind of a historical run rate of about 1.5%. And then for ‘22, we had 2% innovation for – as our target, which we delivered, and saw momentum even on that as we were kind of exiting the year. As we move forward, we expect that to get back up into the 2% to 3% to 3% to 4% over time. And that is, in our mind, really kind of best-in-class. And again, you expect there to be a bit more innovation flowing through your snacks business just because of the nature of that category. But what I felt this year was important in a world where we were wrestling with a lot of external variables was to stay on track to deliver the goal that we laid out in Investor Day was a good step up. And then now with an even bigger pipeline in the future, we feel great about where we are going and where we are headed in the future. And I think our capital is really built to support that, but also with a good amount of it that’s related to continued cost savings and productivity. But Mick, I will let you…

No. I agree Mark. And basically, the way that I would think about, Rob, is that we had – we obviously spent this past year $242 million. This year, we are targeting $325 million. Obviously, quite a bit of an increase. But really to your earlier point, to make sure that we support the overall growth of our business while we obviously maintain our assets as well and we support all the innovations. So, we are not stepping back. If anything, I actually feel like we are doing step forward here, and we continue to make sure that we support the growth. And if you look at it from kind of as a percentage of revenues, of course, there is a little more kind of overall top line pricing reflected and all that. So, net-net, with 3.5% is – if you look at the mid-range of our net sales guidance and you take – put that $325 million in perspective, I actually feel pretty good where we are from an overall capital investment perspective.

Okay. So, if I could ask a follow-up. Mark, I think you said that one of the reasons for the inventory reload spilling into 1Q had to do with pricing actions that you took during fourth quarter. And I would have thought that customers would actually buy more inventory after you announced a price increase before the pricing goes through. Why doesn’t that dynamic play out?

Yes. It actually did. It just happened much earlier in the quarter. And then in the – normally, what we do on pricing, right, just the way that the nature of executing these, it tends to be at the turn of quarters. And you end up getting a little bit of an inventory build as you kind of roll out of the quarter and then a little bit slower start as people work through their lower-priced inventory before they replenish. I think the desire to get pricing in place for ‘23 led us to push that a little bit more forward. And I am really glad we did, because in the end, we are in a great position headed into the year. We are at a much stronger and kind of Wave 3 pricing fully behind us is what we wanted. But I will say that where you would normally have perhaps a little more of incentive to build in the final month, you just didn’t see that quite as much. And anyhow, at the end of the day, I think the good news is, as I have said, very consistent with prior circumstances, in this month, we are seeing that bounce back as you would expect. And so I think the good news is that it kind of carries that opportunity a little bit into Q1. And I think that in many aspects will be beneficial.

Okay. Thank you. End of Q&A:

And ladies and gentlemen, this concludes today’s conference call. Thank you for your participation. You may now disconnect.