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Text: I'm Rebecca Gardy, Vice President of Investor Relations.
A transcript of this earnings conference call will be available within 24 hours at investor.
Turning to slide 3.
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 thoughts on our overall first quarter performance and in-market performance by division.
Mick will discuss the financial results of the quarter in more detail and review our guidance for the second quarter.
We will close the call with an analyst Q&A.
I know I am grateful this year for the entire Campbell organization, especially our colleagues in the manufacturing plants and our distribution teams who have been producing and shipping to meet the higher demand the pandemic has brought, while prioritizing the safety of our people and following our heightened in-plant protocols.
Our strong top-line growth combined with gross margin expansion and value capture synergies, despite the impact of ongoing COVID-19 related costs, led to better than expected adjusted EBIT growth, up 18%, and a 31% increase in adjusted earnings per share to $1.02 per share.
It also was a strong executional quarter where we were able to strengthen supply levels to allow our retailers to improve inventory going into the crucial soup and holiday season.
In addition, we announced that our Board approved a 6% increase in our quarterly dividend, reflecting the Company's strong earnings performance, cash flows and increasing confidence in our long-term growth prospects as well as our continued commitment to shareholder returns.
Organic sales in the first quarter increased 8%, led by 12% organic sales growth in Meals & Beverages reflecting our continued investment in our brands to attract and retain new households as retailers also rebuilt inventory levels.
Turning to our Snacks Division, we drove solid growth, with organic sales up 4% reflecting sales increases across the majority of our nine power brands.
Our portfolio of unique and differentiated snacks remained in high demand as in-home consumption rapidly expanded.
We did make some selective strategic decisions to shift promotions from the first quarter to the balance of the year to help ease supply constraints, particularly in the Meals & Beverages division.
While these decisions did generate mixed share results as expected, we exited the first quarter in a much better position on retailer inventories and are seeing accelerating in-market performance as programming is ramping up into our key holiday season.
We expect that pressure of elevated demand on supply will continue in the near term, but we are building supply chain capacity and capabilities to help us better navigate this pressure and maximize availability while protecting and growing share.
For the sixth consecutive quarter, our total Company in-market dollar performance grew in measured channels, increasing 7%, with growth across almost the entire portfolio.
Continuing the momentum from the back half of fiscal 2020, October was the ninth consecutive month in which we grew household penetration versus prior year.
In our first quarter, we attracted millions of new households with the most notable increase coming from younger consumers.
We also continued to see elevated repeat rates with over 70% of households gained since the beginning of the pandemic purchasing our products again.
As we have said on previous calls, we consider this to be an enduring change in behavior and given strengthening consumer trends like quick-scratch cooking and at-home eating and snacking, we remain confident that we will retain a meaningful number of these households beyond the pandemic.
Within the Meals & Beverages division, soup net sales increased 21% with growth in all segments.
This reflects retailer inventory recovery, in-market gains, and moderated promotional activity.
We grew our household penetration in overall soup by 1.3 points.
In addition to gaining new buyers, we are retaining these new buyers as reflected by higher repeat rates.
And, among millennials, we grew share for total US soup by nearly 1 point, including significant growth of 2.7 points on condensed and over 1 point on ready-to-serve, demonstrating the sustained relevance of our core businesses with younger consumers.
Our condensed soups were the highlight of the quarter with double-digit net sales growth, gains in share led by cooking SKUs, and 4 million new households purchasing this quarter versus prior year.
We continued to bring new ideas and recipes to consumers who are cooking more frequently at home.
As these first-time cooks gain more confidence, we believe they will likely continue to use these skills to prepare more meals at home, well beyond the pandemic.
Our recipe solutions continue to resonate with consumers as we saw a 20% increase in overall recipe-related page views in the first quarter compared to the prior year.
Within ready-to-serve, we saw solid consumption growth, but supply pressure and our decision to moderate promotions as previously mentioned, resulted in some short-term share loss.
However, as supply has improved, we are seeing improved trends, supported by our Chunky NFL sponsorship activation, our Slow Kettle Crunch innovation, and our Well Yes!
We expect all these factors to have a very positive impact in the second quarter.
Our Pacific Foods growth engine performed well as we continued to build scale with nearly 22% dollar consumption growth in soup and broth in the quarter.
Pacific soup and broth grew share for the fourth consecutive quarter, including strong gains with millennials.
Pacific has also increased points of distribution and grew household penetration as we launched our first ever national advertising campaign.
Overall, we continue to feel great about the progress we've made against our Win in Soup strategy, as evidenced by our success expanding into millions of new households, attracting younger consumers and growing all of our core brands.
Turning now to the performance of our Snacks power brands, which grew dollar consumption by 6% in the quarter.
The most notable being Late July, which grew consumption sales by 26% and share by nearly 2 points.
We continued to run the brand's first national ad campaign throughout the quarter.
Late July is a great example of how our power brands are helping consumers make the most of their snacking moments.
We take a mainstream segment like tortilla chips and offer a product with higher quality including organic product credentials, highly relevant innovation and world-class marketing to better engage consumers, allowing them to trade up into a better snacking experience.
We have successfully applied this model to other brands as well, such as Kettle Brand chips and Snack Factory Pretzel Crisps, which also had double-digit dollar consumption growth in the quarter.
We also made significant progress on Goldfish in the quarter with both supply and service levels improving.
We have also redirected marketing aimed toward snacking options at home and restored promotional spending toward the end of the quarter.
This is resulting in improved consumption and share in the most recent periods.
We feel very good about our Snacks performance and the steady growth it delivers supported by a very healthy base business.
In addition, we continue to remain on-plan to deliver the value capture synergies that we initially outlined as part of our acquisition of Snyder's-Lance.
Our investment in capacity expansion in both Goldfish and our chips, demonstrates our conviction in the long-term growth potential of our brands.
We are still working through some supply constraints, including a challenge in cookies where the combination of demand and labor impacted by COVID-19 has had some negative impact on supply.
Despite these isolated challenges, we feel very confident in our ability to meet the long-term demand driven by the expected sustained growth of consumer snacking behavior.
Given the rapid growth of the e-commerce channel across foods, I want to touch on our enterprise performance in the quarter.
Our e-commerce in-market dollar consumption results were once again impressive, growing 85% over prior year.
Consumers' use of e-commerce, and particularly click-and-collect for groceries, has increased by a considerable amount these past several months and we believe this trend will continue.
Accordingly, we are investing to strengthen our capabilities and in our support of key partnerships to serve the millions of consumers who are shopping online.
Given our overall financial results and the actions we have taken to start the year, we are well-positioned across our entire portfolio heading into Q2 and the key soup and holiday season.
As Mark just shared, we had a strong start to fiscal 2021 with another quarter of strong sales growth, driven by elevated consumer demand, gross margin expansion, despite the COVID-19 cost headwinds, and robust adjusted EBIT and adjusted earnings per share growth ahead of expectations.
I'll now review our first quarter results in more detail and provide guidance for the second quarter.
For the first quarter, reported net sales increased 7% to $2.3 billion.
Organic net sales increased 8% in the quarter, which excludes the impact of the sale of the European chips business.
Adjusted EBIT increased 18% to $463 million, as higher sales volumes, improved adjusted gross margin performance and lower selling expenses were partially offset by increased marketing and slightly higher adjusted administrative expenses.
Adjusted earnings per share from continuing operations increased by 31%, or $0.24, to $1.02 per share, reflecting an increase in adjusted EBIT as well as a lower net interest expense.
Breaking down our net sales performance for the quarter, organic net sales increased 8% from the prior year.
This performance was driven by a 6 point gain in volume across the majority of our retail brands, offset partially by declines in foodservice.
Lower levels of promotional spending in both segments drove a 2 point gain.
The divestiture of the European chips business negatively impacted net sales in the quarter by a point, and the impact from currency translation in the quarter was neutral.
All-in, our reported net sales were up 7% from the prior year.
Our adjusted gross margin increased by 100 basis points in the quarter to 34.8%.
Favorable product mix, which drove a 30 basis point improvement in our adjusted gross margin, was largely driven by the increased contribution from our soup products within our Meals & Beverages segment.
Separately, we are estimating a 60 basis point gross margin improvement from better operating leverage within our supply chain network as we significantly increased our overall production, primarily within Meals & Beverages.
Net pricing drove a 120 basis point improvement, due to lower levels of promotional spending in the quarter.
Inflation and other factors had a negative impact of 270 basis points driven by cost inflation, as overall input prices on a rate basis increased approximately 2%, as well as other operational costs and continued COVID-19 related costs.
This was partially offset by our ongoing supply chain productivity program, which contributed a 150 basis point improvement, and includes, among others, initiatives within procurement and logistics optimization.
Our cost savings program, which is incremental to our ongoing supply chain productivity program, added 10 basis points to our gross margin expansion.
Moving on to other operating items.
Marketing and selling expenses increased 1% in the quarter to $208 million.
This increase was driven primarily by our planned increased investment in advertising and consumer promotion expenses, which is up 17% versus a year ago.
These investments primarily reflect higher levels of support behind soup, to continue to drive usage, inspire meal solutions, build brand awareness among younger households, and support innovation.
These investments were partially offset by the benefits of our cost savings initiatives, lower marketing overhead, and lower selling expenses.
Adjusted administrative expenses increased $11 million or 9% to $137 million, driven by higher benefit costs and general administrative costs, including incremental consulting charges related to supply chain optimization, as well as inflation, partially offset by the benefits from our cost savings initiatives.
Moving to the next slide, we have continued to successfully deliver against our multi-year enterprise cost savings initiatives.
This quarter, we achieved $15 million in incremental year-over-year savings, inclusive of Snyder's-Lance synergies.
To-date, that brings our savings for the overall program to $740 million.
We expect an additional $60 million to $70million in the balance of fiscal 2021 and 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 to highlight the key drivers of performance this quarter.
As discussed, adjusted EBIT grew by 18%.
This was largely driven by the increase in demand for our products with sales gains contributing $53 million of EBIT growth.
The overall adjusted gross margin expansion of 100 basis points contributed $23 million of EBIT growth, which more than offset higher marketing and selling expenses of $2 million reflecting our investments in A&C, partially offset by lower selling expenses.
The remaining impact of all other items, consisting of adjusted administrative expenses, R&D and adjusted other income in aggregate was nominal.
Our adjusted EBIT margin increased year-over-year by 180 basis points to 19.8%.
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 $0.24 from $0.78 in the prior-year quarter to $1.02 per share.
Adjusted EBIT had a positive $0.18 impact on adjusted EPS.
Net interest expense declined year-over-year by $25 million, delivering a $0.06 positive impact to adjusted EPS, as we have used proceeds from completed divestitures and our strong cash flow to reduce debt.
The impact from the adjusted tax rate was nominal, completing the bridge to $1.02 per share.
In Meals & Beverages, organic net sales increased 12% to $1.3 billion, reflecting double-digit increases across most of our US retail products, including gains in US soups, inclusive of Pacific Foods soups and broth, Prego pasta sauces, V8 beverages, Campbell's pasta, and Pace Mexican sauces, as well as gains in Canada, partially offset by declines in foodservice.
Volume was favorable in US retail and Canada, driven by increased demand of food purchases for at-home consumption, offset partially by the negative impact on foodservice as a result of shifts in consumer behavior and continued COVID-19 related restrictions.
Net sales of US soup, including Pacific, increased 21% compared to the prior year due to retailers rebuilding inventory for the upcoming soup season, in-market gains in condensed soups and broth and moderating promotional spending.
Operating earnings for Meals & Beverages increased 18% to $333 million.
The increase was primarily driven by sales volume growth and improved gross margin, offset partially by increased marketing investment.
The gross margin performance was impacted by the lower levels of promotional spending and favorable mix, as productivity improvements and improved operating leverage were offset by other operational costs, cost inflation and COVID-19 related costs.
Within Snacks, organic sales increased 4% driven primarily by lower levels of promotional spending as well as healthy velocity on the majority of the base business.
We saw volume gains in fresh bakery products, Late July snacks, Pop Secret popcorn, Pepperidge Farm cookies, Snack Factory Pretzel Crisps, as well as Kettle Brand potato chips, which partially offset declines in Lance sandwich crackers.
Sales of Goldfish crackers were relatively flat in the quarter, as increased demand for family size products were offset by reduced away-from-home consumption.
Operating earnings for Snacks increased 11% driven by lower selling expenses, lower marketing overhead, and sales volume gains, partly offset by higher administrative expenses.
Gross margin performance was consistent with prior year as lower levels of promotional spending were offset by higher net supply chain costs as productivity improvements, cost savings initiatives and improved operating leverage were more than offset by cost inflation and COVID-19 related costs.
I'll now turn to our cash flow and liquidity.
Cash flow from operations was $180 million, comparable to the prior year as changes in working capital were basically offset by higher cash earnings and lower other cash payments.
Cash from investing activities decreased by $341 million, driven by lapping the net proceeds from our divested businesses in the prior year.
The cash outlay for capital expenditures was $74 million, $24 million lower than the prior year driven by discontinued operations, and in line with our previously communicated full-year expectation.
Cash outflows for financing activities were $245 million compared to $453 million a year ago.
The reduced cash outflow reflects lower debt repayments.
Dividends paid in the amount of $108 million were comparable to the prior year, reflecting our current quarterly dividend of $0.35 per share.
We ended the quarter with cash and cash equivalents of $722 million.
I'll now turn to guidance.
As I've reviewed, the Company's strong first quarter fiscal 2021 results were impacted by increased demand stemming from the COVID-19 pandemic.
The impact of the continuing pandemic on the Company's fiscal 2021 results is uncertain and makes it difficult to provide a full year outlook at this time.
Based on our expectation of a continued elevated demand landscape and increased investment in our brands, we are providing the following guidance for the second quarter of fiscal 21.
We expect year-over-year growth in net sales of 5% to 7% as growth more closely aligns with consumption reflecting better inventory, strong programming and improving share positions.
We expect adjusted EBIT growth to be in line with year-over-year sales growth for the quarter as we invest to win the season and keep fueling the retention of new households behind key consumer trends.
We expect the combination of healthy EBIT growth and the benefit of significantly reduced interest expense year-over-year to result in adjusted earnings per share growth of 12% to 15%, or $0.81 to $0.83 per share.
While it remains very difficult to provide anymore direction for the balance of the year, as time has progressed our outlook does continue to strengthen.
In closing, our first-quarter results were a strong start to the year.
I am proud of the continued strong execution by our teams throughout the organization.

user
q1 adjusted earnings per share $1.02 from continuing operations.
increases quarterly dividend by 6% to $0.37 per share.
qtrly organic net sales increased 8%.
sees q2 2021 net sales up 5% to up 7%.
sees q2 2021 adjusted earnings per share $0.81 to $0.83.
remains on track to deliver annualized savings of $850 million by end of fiscal 2022.

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