Campbell Soup(US:CPB)2022-03-09 14:48Financial Data and Key Metrics Changes - Organic net sales decreased by 2% in Q2 2022, primarily due to industry-wide labor and supply challenges, offsetting the favorable impact of net pricing [14][47] - Adjusted EBIT declined by 17% and adjusted EPS decreased by 16% compared to the prior year, both in line with expectations [17][49] - Year-to-date organic net sales declined by 3%, with adjusted EBIT down 16% compared to the prior year [50][74] Business Line Data and Key Metrics Changes - In the Meals & Beverages division, organic net sales decreased by 2%, while consumption grew by 1% over the prior year [18][65] - The Snacks division saw organic net sales down 3%, but end-market consumption grew by 1% over the prior year [28][71] - Key brands like Chunky and Goldfish showed strong performance, with Chunky experiencing a 9% increase in consumption [23][30] Market Data and Key Metrics Changes - Market performance was positive, with a 1% increase, reflecting a lag in inventory replenishment and lower distribution levels [14] - Consumption grew by 9% on a two-year basis across the portfolio, indicating strong underlying demand [15] - The company experienced short-term market pressure on certain brands due to distribution challenges [16] Company Strategy and Development Direction - The company aims to return to growth while building momentum in the second half of the fiscal year, focusing on supply recovery and pricing actions [13][39] - There is a strong emphasis on innovation, with new product launches like Goldfish Mega Bites expected to drive growth [30][110] - The company is committed to mitigating inflation through pricing, supply chain productivity improvements, and cost savings initiatives [56][75] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the ongoing challenges from inflation and supply chain disruptions but expressed confidence in the recovery and future performance [10][39] - The company expects meaningful improvement in margins, profit, and EPS in the second half of the year [39][74] - Management is monitoring the economic impact of the Ukraine crisis but noted no direct exposure to the region [12][86] Other Important Information - The company achieved $766 million in cash flow from operations in the first half of the fiscal year, returning nearly $300 million to shareholders through dividends and share repurchases [45][73] - The company is on track to deliver total savings of $1 billion by the end of fiscal 2025 through its cost savings initiatives [58] Q&A Session Summary Question: Gross margin pressure and SG&A leverage - Management indicated that the back half of the year presents opportunities for gross margin improvement, with expectations for better supply recovery and pricing actions [80][81] Question: Impact of rising costs and inflation guidance - Management confirmed that rising costs for transportation, fuel, and energy are factored into the guidance, with a focus on monitoring the situation in Ukraine [85][86] Question: Elasticity of pricing and consumer response - Management noted that while elasticity has been low, they expect some increase as they implement further pricing actions [95][96] Question: Supply situation and inventory management - Management anticipates improvements in supply earlier than Q4, with expectations for inventory levels to normalize [100][101] Question: Household penetration trends and consumption - Management expects to maintain strong demand despite a potential shift towards away-from-home dining, supported by improved supply and marketing efforts [104][105] Question: Innovation expectations and demographic expansion - Management highlighted a strong start for new products like Goldfish Mega Bites and expects innovation levels to increase significantly throughout the year [109][110]