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Text: A transcript of this earnings conference call will be available within 24 hours at investor.
These statements rely on assumptions and estimates which could be inaccurate and are subject to risk.
On Slide 4, you will see our agenda.
With us on the call today are Mark Clouse, Campbell's President and CEO and our Chief Financial Officer, Mick Beekhuizen.
Mark will share his overall thoughts on our second quarter performance and end market performance by division.
Mick will discuss the financial results of the quarter in more detail and review our guidance for the full year fiscal 2021.
Mark will come back to share his perspective on our outlook beyond the pandemic, and we will close the call with an analyst Q&A.
We have now passed the one-year mark of working within this challenging COVID-19 environment and I'm very proud of their continued performance and dedication.
Campbell delivered strong second quarter results with growth in all three key financial metrics.
Organic net sales increased 5% with continued demand across both divisions, fueled by accelerating in-market results including positive share progress across most of the portfolio and a strong holiday period.
Net sales were tempered by continued Foodservice weakness following a resurgence of COVID-19 cases in December, which led to greater away from home restrictions as well as some supply constraints given these cases lead to increased absenteeism rate in our plants during the month.
The Foodservice weakness and supply constraints each created about a point of headwind in the quarter versus our expectations.
The labor situation has since improved significantly and we continue to make steady progress on supply going into the second half of the year.
We reacted quickly to these headwinds, appropriately shifting spending to reflect this pressure, but where supply was available, we executed our planned increased investment in advertising and consumer promotion on our core brands.
Taking everything into account, we had 8% adjusted EBIT growth and 17% adjusted earnings per share growth, leading to a very good quarter.
By segment, Meals & Beverages posted 6% net sales growth, punctuated by a very successful soup season and the continued strong performance of brands like V8 and Prego.
This was partially mitigated by declines in Foodservice.
The Snacks business delivered another solid quarter with sales growth of 4%, largely driven by our power brands in salty snacks including Kettle Brand potato chips, Late July snacks and Cape Cod potato chips as well as Pepperidge Farm Farmhouse bakery products.
Most notably, we achieved the primary objective we outlined in our Q1 earnings call, to return to share growth.
Nearly 75% of our portfolio held or increased share in the second quarter versus the prior year.
This included meaningful share improvement in key focus areas like ready-to-serve soup, Prego and Snyder's of Hanover pretzels, with continued momentum on condensed soup, V8, our salty snacks portfolio and Goldfish.
There were a few exceptions, such as Swanson broth where we knew we'd be challenged on supply.
We feel very good about how we are addressing the challenges on broth by expanding overall capacity and growing Pacific Foods, which was the fastest growing broth brand in measured channels in the second quarter.
E-commerce continued to be an important growth channel for us with in-market dollar consumption increasing 89% over the prior year.
With the click-and-collect fulfillment model representing slightly more than a third of our e-commerce retail sales, we are sharply focused on partnering with our customers to deliver value to our consumers, including bundling products for easy meal prep and inspiring creative snacking options.
Turning to Slide 7, within the Meals & Beverages division, we had another strong quarter with consumption growth of 9%, principally due to volume gains.
We delivered on our objective of share growth and saw positive in-market consumption growth in almost all categories led by condensed soups, Prego, V8 beverages, ready-to-serve soup and Pacific Foods soups and broth.
We continue to execute our plans and feel great about our progress against our Win in Soup strategy, led by a great start to soup season and a strong holiday period.
In fact, U.S. soup sales grew 10% with strength across all categories.
This was fueled by more than a third of the in-market consumption growth coming from new buyers.
The number of retained soup buyers in this quarter is the highest since the pandemic started almost a year ago.
Our condensed soups were, once again, the highlight of the quarter with double-digit net sales growth and continued share gains, especially among millennials.
With a 0.7 share increase, condensed had its 8th consecutive quarter of share gains, an amazing run that started well before the pandemic.
This performance was driven by our quality improvements, strong advertising, and the retention of new households.
Additionally, during the important holiday season, the number of buyers of condensed cooking soups grew double-digits and we continue to grow household penetration this quarter versus prior year.
Year-to-date, our condensed soups have the highest household retention rate within the entire Meals & Beverage division.
Within ready-to-serve, share improved this quarter driven by strong base velocity growth in Chunky and improved availability.
Chunky had an exceptional quarter with double-digit net sales gains and in-market consumption growth, outpacing competition and increasing share nearly 2 points with growth among all cohorts, including millennials.
Pacific Foods is now the fastest growing wet soup brands on a dollar share basis, outperforming against competitors on many fronts by delivering on-trend innovation and impactful advertising.
This important growth engine continues to perform above our expectations.
In the second quarter, Pacific Soup and Broth outperformed the category posting dollar consumption growth of 25%, the 5th consecutive quarter of share gains driven by brand strength and a meaningful increase in household penetration.
We are thrilled with the performance of Pacific Foods and are equally excited about our robust innovation pipeline that includes new canned offerings as well as additional plant-based products.
As I mentioned earlier, Swanson broth struggled on share, as we expected.
We continued to recover on supply throughout the quarter and we are making steady progress through a combination of expanding internal capacity and bringing on additional co-manufacturing.
In the most recent period, we are seeing both share and supply levels improve, a trend we expect to continue through the balance of the year.
Beyond soup, a stand out in the Meals & Beverages portfolio was Prego which maintained its Number 1 share position in the Italian sauce category for the 21st consecutive months and has widened the gap against competitors.
Prego sales growth came primarily from the gain of an additional 4 million new households across all demographic cohorts.
Our V8 beverages also performed very well this quarter, delivering its fourth straight quarter of both share and household gains.
Notably in Q2, these gains were across all sub-brands of the business and we saw new households coming into the V8 portfolio, driven by both V8 Original and V8 +Energy.
Overall Meals & Beverages delivered a strong quarter as it continued to drive relevance with its brands to a younger consumer base and delivered share gains in many of its key categories.
Let's turn to the Snacks segment, which represents about half of our total annual revenue.
Our performance was, again, fueled by our power brands, which grew dollar consumption by 8% over the previous year.
Within the power brands, our salty snacks brands grew dollar consumption by double-digits and realized share growth.
This was in part due to the implementation of our capacity expansion projects as well as increased A&C investments to support our media campaigns and innovation, including Snyder's of Hanover Pretzel Rounds and Twisted Sticks.
On the Snyder's of Hanover brand, the combination of successful innovation, fundamental execution and brand activation led to share growth, double-digit dollar consumption and nearly 5 million new households, turning around what had been a challenging share period.
Our Pepperidge Farm Farmhouse products also delivered exceptional results across bakery and cookies, growing dollar consumption by 41% and household penetration by 1.5 points.
On Goldfish, we improved our performance according to the plan we outlined last quarter, returning to growth in net sales and improved dollar consumption.
We adapted marketing content during the holidays with digital partnerships focused on new ways for the consumer to enjoy Goldfish such as movie night snack mixes or classic lunch combinations with Campbell's tomato soup, all leading to positive engagement metrics and increased purchase intent.
Additionally, we are launching new flavors within Flavor Blasted Goldfish which continued to grow consumption by double-digit.
As you'll see on Slide 9, the is only the beginning of what is arguably our strongest slate of innovation yet, which includes Twisted pretzel sticks and better for you options like Late July veggie tortilla chips.
We are very excited about the breadth of our Snacks pipeline in the second half of the fiscal year, which will complement what we have on deck later this year for Meals & Beverages.
Overall, we feel very good about our Snacks performance and the steady growth it delivered as we provide consumers with elevated snacking experiences through our unique and differentiated portfolio of power brands.
We also made significant steps on value capture, including the recent transition to SAP to streamline and improve capabilities.
Looking ahead, we believe we have additional runway to improve Snacks' profitability with further network optimization opportunities and we remain confident in our long-term strategy and our ability to deliver additional cost savings.
With the strong results in the second quarter and our overall first half performance, we are confident in the outlook for the full year.
Turning to Slide 11.
As Mark just shared, we, once again, delivered strong results with another quarter of sales growth, driven by continued elevated consumer demand as well as growth in adjusted EBIT and adjusted EPS.
Our top line growth of 5% reflected healthy in-market consumption of approximately 8% in the quarter, tempered by declines in Foodservice and some COVID-19 related supply challenges that Mark discussed.
Adjusted EBIT increased 8% as higher sales volumes were only partially offset by higher adjusted administrative expenses.
Adjusted earnings per share from continuing operations increased by 17% to $0.84 per share, reflecting an increase in adjusted EBIT as well as lower adjusted net interest expense.
Year-to-date, our organic net sales which excludes the impact from the sale of the European chips business increased 7% driven by strong end market consumption growth in both Meals & Beverages and Snacks.
Adjusted EBIT increased 13%, reflecting higher sales volume, improved adjusted gross margin performance, and higher adjusted other income, offset partially by increased adjusted administrative expenses.
Year-to-date, our adjusted EBIT margin increased year-over-year by 110 basis points to 18.5%.
Adjusted earnings per share from continuing operations increased 23% to $1.86 per share, reflecting the increase in adjusted EBIT and lower adjusted net interest expense.
I'll review in the next couple of slides our second quarter results in more detail and provide guidance for the full fiscal year 2021.
Breaking down our net sales performance for the quarter, reported and organic net sales increased 5% from the prior year.
This performance was largely driven by a 4 point gain in volume across the majority of our retail brands, partially offset by declines in foodservice and in partner brands within the Snyder's-Lance portfolio.
Additionally, we took a strategic approach to dining back promotional spending in both segments where we faced supply constraints.
And those actions, net of price and sales allowances, contributed 1 point to net sales growth.
Our adjusted gross margin decreased by 10 basis points in the quarter to 34.3%.
While product mix was slightly negative in the quarter we're estimating a 50 basis point gross margin improvement from better operating leverage within our supply chain network as we increased our overall production.
Net pricing drove a 90 basis point improvement due to lower levels of promotional spending in the quarter.
Inflation and other factors had a negative impact of 330 basis points, a little over half of the increase was driven by cost inflation as overall input prices, on a rate basis, increased approximately 3% which we expect to continue to be a headwind for the rest of the fiscal year.
The remainder was driven by increases in other operational costs and continued COVID-19 related costs.
Inflation in the quarter was partially offset by our ongoing supply chain productivity program which contributed a 140 basis point improvement and included initiatives, among others, within procurement and logistics optimization.
Our cost savings program, which is incremental to our ongoing supply chain productivity program, added 50 basis points to our gross margin.
Moving on to other operating items; adjusted marketing and selling expenses decreased $3 million or 1% in the quarter.
This decrease was driven primarily by the benefits of cost savings initiatives and lower marketing overhead cost, largely offset by an 8% increased investment in A&C.
These investments primarily reflect higher levels of media spend to support our salty snacks brands, including new product launches as well as our soup business as we continue to drive usage through new recipes, inspire meal solutions, and support our innovation.
Adjusted administrative expenses increased $17 million or 13%, driven primarily by higher benefits related costs and higher general administrative costs, partially offset by the benefits from our cost savings initiatives.
Overall, our adjusted marketing and selling expenses represented 10.2% of net sales during the quarter, a 70 basis point decrease compared to last year.
Adjusted administrative expenses represented 6.7% of net sales during the quarter, a 50 basis point increase compared to last year.
Moving to the next slide, we have continued to successfully deliver against our multi-year enterprise cost savings initiatives.
This quarter, we achieved just over $20 million in incremental year-over-year savings.
We expect an additional $40 million to $50 million evenly spread over the balance of fiscal 2021, on track to deliver $75 million to $85 million of cost savings for the fiscal year with the majority of the savings from the Snyder's-Lance integration.
We remain on track to deliver our cumulative savings target of $850 million by the end of fiscal 2022.
To help tie this all together, we are providing an adjusted EBIT bridge on Slide 16 to highlight the key drivers of performance this quarter.
As discussed, adjusted EBIT grew by 8%.
This was driven by the increase in demand for our products with sales gains contributing $40 million of EBIT growth, which was partially offset by the previously described adjusted gross margin decline.
In addition, the increase in adjusted administrative expenses was only partially offset by lower adjusted marketing and selling expenses, lower adjusted R&D expenses and higher adjusted other income.
Our adjusted EBIT margin increased year-over-year by 40 basis points to 17.2%.
The following chart breaks down our adjusted earnings per share growth between our operating performance and below the line items.
Adjusted earnings per share increased $0.12 from $0.72 in the prior year quarter to $0.84 per share.
Adjusted EBIT had a positive $0.07 impact on adjusted EPS.
Adjusted net interest expense declined year-over-year by $17 million delivering a $0.04 positive impact to adjusted EPS, as we have used proceeds from completed divestitures in fiscal 2020 and our strong cash flow to reduce debt.
The impact from the adjusted tax rate was nominal, completing the bridge to $0.84 per share.
In Meals & Beverages, net sales increased 6% to $1.3 billion, primarily reflecting strong volume growth, driven by in-market consumption for many of our U.S. retail products, including gains in U.S. Soups, V8 beverages, Prego pasta sauces, and Campbell's pasta; partially offset by declines in Foodservice driven by COVID-19 related restrictions.
Net sales of U.S. Soup, including Pacific Foods, increased 10% compared to the prior year, primarily due to volume gains in condensed soups and ready-to-serve soups.
Across the division, we moderated promotional activity in part due to supply constraints, particularly on broth.
Operating earnings for Meals & Beverages increased 7% to $258 million.
The increase was primarily driven by sales volume growth, offset partially by a lower gross margin and higher administrative expenses.
Within Snacks, net sales increased 4% driven by volume gains fueled by the majority of our power brands and lower levels of promotional spending on supply constrained brands.
The sales gains were driven by our salty snacks brands within the power brand portfolio namely Kettle Brand potato chips, Late July snacks, Cape Cod potato chips and Pop Secret popcorn as well as our fresh bakery products including Pepperidge Farm Farmhouse products.
Partially offsetting sales gains were declines in partner brands within the Snyder's-Lance portfolio as well as declines in Lance sandwich crackers, resulting from supply constraints in the quarter.
Operating earnings for Snacks increased 6% driven by sales volume gains and lower selling expenses, partially offset by higher marketing investment, administrative expenses and a lower gross margin.
I'll now turn to our cash flow and liquidity.
Fiscal year-to-date cash flow from operations decreased from $663 million in the prior year to $611 million, as changes in working capital were only partially offset by higher cash earnings.
Although we continued to make progress on working capital, we are lapping significant benefits in accounts payable in the prior year.
Our year-to-date cash from investing activities was largely reflective of the cash outlay for capital expenditures of $132 million, which was $35 million lower than the prior year, primarily driven by discontinued operations.
Our year-to-date cash outflows for financing activities were $405 million, reflecting cash outlays due to dividends paid of $215 million, which were comparable to the prior year, reflecting a quarterly dividend of $0.35 per share.
In December, we announced an increase in the quarterly dividend to $0.37 per share or an increase of 6%, which from a cash flow perspective, will be reflected in the third quarter.
Additionally, we reduced our debt by $176 million.
We ended the quarter with cash and cash equivalents of $946 million.
We expect to utilize the majority of this cash during the second half of the fiscal year for repayment of upcoming debt maturities of $721 million and $200 million in March and May respectively.
We expect net sales for fiscal 2021 to declined 3.5% to 2.5%.
Excluding the impact from the 53rd week in fiscal 2020 and impact of the European Chips divestiture, we expect organic net sales to decline 1.5% to 0.5%.
We expect adjusted EBIT of minus 1% to plus 1% as we will lap that initial COVID-19 demand surge in the second half of our fiscal year, combined with headwinds from increased promotional activity, partially offset by lower year-over-year COVID-19 related expenses and last year's one-time marketing investments.
We continue to expect net interest expense of $215 million to $220 million and an adjusted effective tax rate of approximately 24%.
As a result, we expect adjusted earnings per share of $3.03 to $3.11 per share, representing year-over-year growth of 3% to 5%.
The earnings per share impact of the 53rd week in fiscal 2020 was estimated to be $0.04 per share.
With respect to our guidance, let me add that we expect the third quarter to be somewhat more challenged from a net sales and EBIT perspective than Q4, as the before mentioned COVID-19 related demand surge was more pronounced in the third quarter of fiscal 2020 while the benefit from COVID-19 related costs and one-time marketing investments will disproportionately benefit our fourth quarter comparison.
Additionally, we expect our third quarter to be impacted by some isolated supply challenges as we navigate the recent winter storms.
In particular, we experienced about two weeks of disruption at our Paris, Texas plant, which produces Pace and Prego.
We expect improving momentum as we go forward.
Regarding capital expenditures; in light of the current operating environment with limited access to our factories, we now expect to spend 10% below the $350 million we had previously indicated for the full year, largely driven by the impacts from COVID-19 on the operating environment.
We delivered another strong quarter with a return to positive share growth in the majority of our portfolio and growth in all three key financial metrics, despite all the challenges of COVID-19.
Before we conclude, I want to share my perspective on the key factors underpinning our confidence in our outlook beyond the pandemic.
By now, I know you've heard a great deal about the stickiness of all new households gain throughout the pandemic from essentially all of our peers with a wide range of data and facts supporting that thesis.
We very much agree and we see similar trends in our own research and data.
I'd like to conclude today with three critical and differentiating points, key factors that served to underscore Campbell's advantage position going forward and will fuel our future growth trajectory.
Importantly, two of them have very little to do with COVID-19 or the stickiness of new households.
The first is our Snacks business which, as I mentioned earlier, consists of a unique and differentiated portfolio of brands that represent approximately 50% of the Company's annual revenues.
This business was growing before and a pandemic and we expect to sustain or exceed those historical growth rates going forward.
Snacks also includes a margin structure, which we believe still has significant opportunity for improvement versus the snacking peer group average, even after we deliver our current value capture.
We are finalizing our plans to unlock more value and we look forward to sharing more details with you as we move forward.
Second, no matter where you stand on the retention of new households gained during the pandemic, it is undisputable that Campbell's business, particularly our Meals & Beverages division and especially Soup is coming out of this period more advantaged and with renewed relevance.
Nearly 13 million new households purchased Campbell Soup since the initial peak of the pandemic, of which almost a third are millennials, outpacing both key competitors and the category average.
We have also seen macro behaviors like quick-scratch cooking take root and our research indicates more than 30% of the consumers are cooking more with Soup since the start of the pandemic.
Additionally, we believe increased at home lunches will endure as many people are expected to work from home more often post pandemic.
Beyond the role that our Meals & Beverages offerings play in the lunch occasion, snack-foods accompany nearly 30% of all lunches, which bodes well for our entire portfolio.
We've conducted extensive consumer research in an effort to determine sentiment, model consumer behavior exiting the pandemic, and sharpen our plans to ensure the sustainability of our recent gains.
The consumers who we've surveyed had an overall high level of satisfaction with Campbell's products in our Meals & Beverages and Snacks portfolio.
In fact, about four out of five new users surveyed said they were very or extremely satisfied with our brands.
As a result of this high satisfaction, those surveyed told us they'll continue to count on our brands going forward, turning to us for things like cooking solutions and quick lunches and meals.
This gives us every reason to believe consumers will continue to purchase our brands well after the pandemic.
Even more importantly, 70% of the consumers surveyed told us our brands better met their needs than competitive products.
These same consumers also told us that taste and convenience of our brands were the top drivers of overall satisfaction.
We feel this sets us up well for continued share progress going forward.
The research also has provided us with actionable insights in our opportunities to strengthen the retention of our consumers.
These include areas such as adding more convenient packaging options and sizes across our portfolio, developing new and inspiring recipes and satisfying consumer's need for permissible and more intense Snacks by providing a variety of flavors and healthier ingredients.
This specificity will focus our plans and innovation to target the areas with the highest probabilities of retaining these new consumers, particularly younger consumers for our brands.
For the third and final differentiating point that underscores our strong position going forward, we look to the strength of our balance sheet.
Given the cash generative nature of our business and our reduce leverage, which is now below 3 times, we are well positioned to generate significant cash flow, well above our ongoing commitment to base capital investments and dividends in the next three years.
This can and will be a source of opportunity that can be invested in high ROI initiatives or other actions to drive value creation.
So to wrap it up.
Our mission is clear.
Number one, sustain or accelerate our historical Snacks growth while improving margins; number 2, solidify our Meals & Beverages business as a steady and stable contributor behind recent transformational consumer trends and trial; and number 3, deploy what will be significant capital to fuel this growth and create differentiated value.
We look forward to sharing more in the months ahead about this next chapter as Campbell moves from turnaround to sustainable growth.

user
compname reports q2 adjusted earnings per share $0.84.
q2 adjusted earnings per share $0.84 from continuing operations excluding items.
q2 adjusted earnings per share $1.86 excluding items.
fiscal 2021 adjusted earnings per share guidance of $3.03 to $3.11.
qtrly net sales, both reported and organic, increased 5% to $2.28 billion.
sees fy2021 net sales from continuing operations down 3.5% to down 2.5%.
sees fy2021 organic net sales from continuing operations down 1.5% to down 0.5%.
campbell soup - qtrly growth driven by 4% increase in volume & mix as at-home food consumption remained elevated due to covid-19.
remains on track to deliver annualized savings of $850 million by end of fiscal 2022.

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