The Campbell's Company (CPB) Earnings Call Transcript & Summary

With us today are CEO, Mick Beekhuizen; and CFO, Carrie Anderson. Thank you both for being here. As a reminder, Campbell will not be holding a breakout following today's fireside chat, just to remind everybody. So Mick, maybe a good place to start would be you've now been in the CEO role for about 6 months or so. How has it been so far? While already very familiar obviously with the company having been in key leadership roles across the company. I guess are there any new learnings? How has your view of the company changed, if at all?

Yes. First of all, Andrew, thank you for having us. I really appreciate it. And thank you all for being here. We had -- so I came into the company originally CFO. Then I became President of Meals & Beverage, now CEO since a little over 6 months. If I look at the overall company, I'm obviously very familiar with -- no big surprises. That being said, the environment obviously continues to evolve, which is something that in all these different roles has -- it's been a very different environment throughout that 6-year time period. So maybe kind of the one thing is as CEO, just really stepping back and knowing what we know, which is an amazing portfolio of brands and figuring out in this environment, how can we make sure that we get back to that sustainable profitable growth. So nothing changed with regard to my perception of the overall portfolio, great portfolio of brands. If anything, I see more and more opportunity now that I'm sitting in the seat that I'm in. And we just need to make sure that in this environment, we capitalize on it. focus on the controllables and make clear that there are certain areas that we don't control, but what are we going to do about it with the controllables.

Yes. Thank you for that. Campbell reported fiscal fourth quarter earnings just yesterday, provided its initial outlook for the coming fiscal year. I guess, broadly, what are the key couple of takeaways that you want investors to come away with? And after that, we'll talk with Carrie a little bit about getting into some more of the details around guidance. But just more broadly, Mick?

When I -- and you heard us talk a little bit about this is, first, stepping back, the consumer is evolving and making sure that we, as an organization, we realize that, and we are very conscious about that evolution of the consumer, I believe, is really important. And you saw that in the framework that we talked about during the earnings call. And that's really coming back to things like premiumization, flavor exploration as well as health and wellness and cooking comfort. And those are the trends that we are seeing with the consumer that are actually playing well with our portfolio. Now that being said, we need to make sure that we continue to evolve with our portfolio. What does that mean? That means we need to make sure that we invest in our brands, and you heard us talk a little bit about that as well as making sure that we have continued successful innovation. We've made progress on innovation. We need to make sure that we continue to do that across the board. So that's probably more from an evolution of the consumer perspective. Then the other thing that is obviously out there right now, it's -- we call it a dynamic operating environment. And that's coming back to, obviously, we have tariffs and we talked about that. We need to make sure that we, as a result, do as much as possible in order to help mitigate that. At the same time, we need to make sure we generate fuel for what I just talked about to invest in our brands. So how do we do that? We need to make sure that we continue to stay focused on productivity initiatives, and you heard us talk about increasing the overall focus on that from 3% to 5% of cost of goods. And on top of it, we increased our overall cost savings targets really on the one hand, to mitigate some of these headwinds that I just described, but also to invest in our portfolio.

Great. And then Carrie, I guess, maybe I was hoping we could dive a bit deeper on some of the key puts and takes on the outlook for fiscal '26. And maybe any detail on phasing, particularly as it relates to the fiscal first quarter?

Yes. Well, let me start with the top line. So our organic growth, we're expecting a range of minus 1% to basically plus 1%. So the midpoint of that range is flat organic growth. And I would say, as we think about the businesses, the continued momentum of Meals & Beverages, we've talked considerably about the at-home cooking trends. And so that momentum will continue for Meals & Beverages as we move into fiscal '26 as well as stabilization of snacks in the second half. So that forms essentially kind of the range for minus 1% to plus 1% organic growth. Now I'll go to the bottom line, and then we'll come back a little bit to the phasing piece. On the bottom line, we've got a few moving parts here. Obviously, we had a benefit of an additional week in fiscal '25. So the basis of our growth for our guidance range is essentially taking fiscal '25 and taking the additional week out. We have a divestiture, Pop Secret and Noosa that we're adjusting for. That's about a $0.04 impact there. So if you adjust for that extra week, you adjust for the divestitures essentially -- and then you look at the midpoint of our guidance range for EPS, it's effectively about $0.40 down at the midpoint of the range. And I would say, as you look at that decrease year-over-year of about that $0.40 range at the midpoint, about 2/3 of that is the tariff headwind that Mick talked about. Again, working to mitigate that. But for fiscal '26, we won't be able to mitigate all of that. Our expectation is we'll be able to mitigate about 60% of that, and that's embedded in that guidance. And then the other 1/3 is the rest of the business. And I would characterize the rest of the business as -- and we talked a bit about this, Mick talked about, investing in our brands. So stepping up our marketing and selling within a 9% to 10% range. So at the midpoint, 9.5%. And also, we've got some reset of incentive compensation. And so all of those things are considered in that other basically 1/3 of the other difference there. Now regarding your question on phasing, the way I would look at it, and I'll do it from a top line perspective because I think that's easiest to do. We have some lumpiness, and most of that lumpiness is because of what we're lapping from last year. But if you look at first half and second half, generally, I would expect to see some sequential improvement in the first half year-over-year and in the second half year-over-year. Particularly for snacks, I would say you'd see some -- it won't be a perfect linear line, but I would say sequential improvement as we talk about, again, snacks being stable -- reaching stabilization in the second half of the year. For Meals & Beverages, that's where the lumpiness comes in. And so it's really important that you understand what we're lapping. In the second half of fiscal '25, if you recall, we did a lot of work on [ Soho's ] integration. One of the things we did there is we integrated it into our ERP system. And so as a result of that, we saw some retailers pull forward some shipments in Q3 ahead of that implementation and then those things reversed out in the fourth quarter. So we're going to lap that as we move into fiscal '26 in the back half of the year. And as it relates to Q1, I would say, look, Q4, we were at minus 3% organic net sales growth across the entire company. I would say we would expect modest sequential improvement. Still, I would expect our organic net sales in Q1 to be down mainly for the reasons I just talked about. For Snacks, it's going to be about that gradual improvement. So still some pressure there in Q1, maybe sequentially a little better than Q4, but sequentially still down. And for Meals & Beverage, the other thing, there is some lumpiness in Q1. A couple of things. One, for Rao's, we have some promotion shifting from Q1 into Q2, and that's just effect of the way the calendar, the promotion calendar lands. And second, we had some benefits from weather last year with some hurricanes last year. So that benefited our meals and sauces part of the business last year. And so we're lapping that. So I hope that gives you a little bit of a framing of how we're thinking about guidance.

Yes. Thank you for that. Very helpful color. Maybe we can drill down to the segment level a little bit. Campbell's, as you mentioned, looking for continued momentum in Meals & Beverages. I guess what are the key drivers of the organic sales performance in this segment in fiscal '26? Would you expect to be able for this segment to deliver positive year-over-year growth for the year? And I guess based on some prior year comparisons and some shifts, obviously, you talked about some of the lumpiness that obviously we'll keep in mind as well.

You want me to start off and then you can add. So if you look at fiscal '25, one of the things that -- and I mentioned it earlier from an overall consumer perspective, you see that cooking and cooking at home has been a positive trend, and that's definitely something that is playing right within part of our portfolio on the Meals & Beverage side. And you see that particularly -- if you step back and you look at the M&B portfolio, you see on the one hand, sure, you see soup. But within that, part of soup is also used as an ingredient, right? For instance, broth, but also part of condensed is used as an ingredient. And so on top of it, we are having easy meal solutions with, for instance, Italian sauce with 2 amazing brands, right? On the one hand, we obviously have a very strong foothold with Prego. But on the other hand, we also have Rao's now in the portfolio. And as you saw in Q4, Rao's continued to grow pretty strongly. But you put that all together and you look at the consumer continuing to look for value and convenience and you combine that with the overall focus on cooking at home and exploration, that is something that we believe our Meals & Beverage portfolio fits very well with.

Perfect. Maybe for soup on the one hand, right tariffs on tinplate and steel has led to the need for some pricing actions and other mitigating actions. On the other hand, the consumer obviously remains incredibly sensitive around value and soup plays an important role certainly supporting the consumer at times like these. I guess how do you balance these 2 dynamics? And what are you seeing in soup specifically in the competitive landscape at this point?

Yes. I agree, and I just mentioned it, making sure that we provide value to the consumer is really important. Now value obviously is defined not solely by price. If you look, for instance, at our overall Meals & Beverage portfolio, arguably, I personally think that Rao's is one of the values that we provide. It is providing an easy meal and if you compare it an easy meal at really high quality and really that premium at-home experience, which, by the way, I cooked it off to myself, you can't fail, right? You always have success, which is really important when you cook for a household. And so -- and if you look at the alternatives, particularly if you order in, for instance, some of those comparisons have been made in the past that's at a way higher price point. And if anything, actually, those price points have been moving up. So value is something that really goes back to your earlier point, we really got to make sure we look at the details across our portfolio. If I look at soup specifically, it plays the same parts within that, where we have, on the one hand, premium offerings like Rao's soup, but also Pacific. And on the other hand, we also have areas like, for instance, on the condensed side, where it provides an ingredient where it arguably also provides a lot of value because if you were to try to put all these different pieces together yourself, you would also have a -- you very clearly see that you're providing good value at the price point. Now back to pricing specifically and some of the actions that we've been taking, we are very surgical about the approach. We take into account everything that I just talked about and making sure that we connect it back to the consumer. We look at the value that we're providing to the consumer. But at the same time, once we have implemented pricing, we are making sure that we stay very close to how is it responding. The other thing is that the way that we've been thinking about it is that price points throughout the year also matter. And making sure that during the moments that really matter, if you want to call it that, we often refer to it as key drive periods, we want to make sure that we have a competitive price point. Like, for instance, broth over the holidays is a good example. So long story short, some surgical pricing, taking into account all these different considerations and in the meantime, making sure that we stay on top of it and that we course correct if necessary.

And then thinking longer term, getting soup right has always been critical to the success of Campbell. And although soup has been removed from the name, right, its importance remains. I guess where do things stand on soup if we're thinking more broadly? Is it now in the kind of place where you want it to be? Now it's just managing it? Or is there still more work to be done to sort of set up the foundation so that it can ultimately continue to deliver more consistently?

Yes. Having been the Meals & Beverage President, obviously, I wholeheartedly agree just having spent a lot of time on soup over the past couple of years, it's really important for Campbell's despite the fact that it's no longer in the name. We stay very focused on it. I think the other thing that we've learned, and you've been following Campbell's longer than I have. But if you look at the company itself, we've actually realized that we need to make sure that we stay close to soup. You've got to continue to invest in it, and we've got to make sure that we continue to nurture the brands in that portfolio. You can't take your eye off the ball. So we're staying very focused on it, and we're going to make sure that we continue to evolve that portfolio with the consumer. If I look at where the portfolio is right now, I look at it probably back to some of the earlier commentary around cooking. I look at it in 2 pockets. On the one hand, we have soup as an ingredient, which is coming back to broth, which has done really well. Again, on broth, we have 2 brands. On the one hand, we have Swanson. On the other hand, we have Pacific. Both of them, one of them more of a lower price point offering, the other one more of a premium price point offering also with organic orientation and focus, that's being Pacific. And then -- so within the soup as an ingredient pocket, we also have condensed. And condensed, I'll call about half of the condensed business is used as an ingredient for cooking. Think about cream of mushroom, think about cream of chicken, cream of chicken with herbs. Those types of ingredients are, back to my earlier comment, very hard to replicate, but they make amazing meals, and they provide, as a result, great value, and we've continued to see growth within that particular pocket of condensed soup. Now the other piece is, I'll call it, more convenience driven, which is ready-to-serve soup. On the ready-to-serve soup, we are seeing the premium offerings, whether it's Rao's or Pacific, we're continuing to see growth there. I feel very good about that, if anything, continued opportunity. Chunky has done really well. We have obviously, over the past, call it, 5, 6 years, continue to focus on reigniting that brand, and the team has done a great job around that. And I believe we're going to continue to be able to grow within the area and the offering that Chunky provides. If I then look at the broader ready-to-serve soup, there's a lot of onesies, twosies or areas within that. We took some action on discontinuing about now a little -- about a year ago, well, yes, which started to focus that portfolio. I still think across that portfolio, we got a little bit more work to do to make sure that we really provide good value.

Got it. Great. Maybe, I guess, how do you view the runway for growth for the Rao's brand? What are the biggest areas of opportunity? And are there still distribution opportunities available?

Yes. First of all, we are super excited to have Rao's within the portfolio. We obviously did the acquisition when I was President of Meals & Beverage -- of the Meals & Beverage division. I think it fits really well within Meals & Beverages, truly complementary, making sure that you have, on the one hand, Prego, which is, call it, more the mainstream offering. And at the same time, you have Rao's, which is that premium offering. If you look at the past quarter, you saw that we grew in high single digits. I believe that you've seen some of these comparisons to Prego and you see that there's continued to be a lot of upside opportunity if you do that comparison. Now specifically with regard to Rao's, when I step back and I look at it, you have high single-digit household penetration. You have extremely good repeat rates within the business. We call, as I mentioned before, like sauce is boss, we always say. sauce still has a lot of runway as a result through innovation, but also through some incremental distribution opportunities. If I look more broadly at the Rao's brand, Risa and I often have conversations about, hey, how can we continue to stretch the brand across the store. So long story short, we're close to $1 billion on Rao's, and I'm encouraging the team to quickly fly through that $1 billion.

Rao's delivered, I think, pro forma revenue growth up high single digit in fiscal '25. You've spoken about sort of the business being more of a mid- to high single-digit grower over time. I guess for fiscal '26, would you anticipate Rao's still remaining at that high single-digit level? Or is that -- is it likely to be more in the long-term range?

Well, listen, we're always -- we, as a team, are always very ambitious, and we want to make sure that we continue to drive growth across that brand. As I just said, I'm a really big believer. When I think about the range of mid- to high single digit, I think that's the right range.

Maybe shifting gears a little bit to snacks. I guess you're looking for the business to sort of stabilize in the back half of the year. Maybe first off, -- does that mean snacks will stabilize at some point in the second half? Or could snacks be sort of flat in the second half? And then just more what gives you the confidence that you can stabilize snacks that will ultimately come to fruition? I guess how much of the improvement is sort of easier comparisons versus, let's say, fundamental improvements? And how much maybe is category related versus better competitiveness as you've talked about?

Yes, I'll start there and then turn it over to Mick to give some more color and context on your question around categories and assumptions there. At the midpoint of our range, again, we're expecting about flat organic growth across the company. And I would say for snacks, again, stabilization in the second half. So the anticipation there is that you'd see some amount of category stabilization as well that will be beneficial as we look to stabilize our own business within that. I would say, again, gradual improvement as we move through the year. But I would say at the midpoint, we would expect to return to some growth, modest growth in the second half of the year as part of that midpoint of that guidance range. Mick?

Great. It's helpful.