CAMPBELL'S Co(CPB)Q3 2026 法說會逐字稿

Good morning, and welcome to the Cable Company Third Quarter 26 Earnings Question and Answer Session. Todd's conference is being recorded. All lines will be muted during the introductory remarks, with an opportunity for questions and answers afterwards. If you would like to ask a question, please press *1 on your telephone keypad. I would now like to turn the call over to Joshua Levine, Chief Investor Relations Officer at Campbell's.

Good morning, and thank you for joining the Campbell's Company Third Quarter Fiscal 26 Earnings Question and Answer Session. Earlier this morning, in conjunction with today's earnings announcement, the company published its press release, Form 10-Q and slide presentation as well as both a written and audio recording of management's prepared remarks. All of these materials can be found in the Investor Relations section of our website. Shortly after the conclusion of today's live Q&A session, we will post a transcript and audio replay of this call. Joining me today are Mick J. Beekhuizen, President and Chief Executive Officer, and Todd E. Cunfer, our Chief Financial Officer. During today's discussion, management may make forward-looking statements, which reflect our current views about future plans and performance. These statements rely on assumptions and estimates and are subject to risks and uncertainties. Please refer to Slide 3 of our presentation or our SEC filings for a discussion of factors that could cause our actual results to differ materially. We also use non-GAAP financial measures that we believe provide useful information for investors. Reconciliations to the most directly comparable GAAP measures are included in the appendix of our earnings presentation. Non-GAAP financial measures are not intended to be considered in isolation from, or as a substitute for, the financial information presented in accordance with GAAP. We will now open the call for questions. Operator?

If you would like to ask a question, please press *1 on your telephone keypad. To withdraw any questions, please press *1 again. Thank you. Our first question comes from Andrew Lazar from Barclays.

Great. Thanks so much. Good morning, everybody.

Good morning.

In today's prepared remarks, you discussed some tough decisions that will need to be made in Snacks as well as the potential for an incremental 2% to 3% unmitigated inflation above normal levels. Again, potentially. I know we are not getting into specific 2027 guidance at this point, but maybe you can help us with the magnitude of some of these key puts and takes for next year, the size of potential mitigating actions. I would assume much of your ongoing productivity is going to be used to offset baseline or underlying inflation.

Yes. Sure. Andrew, so base inflation prior to the Middle East conflict, we were looking at base inflation of around 3%. Obviously, with the price of oil where it is, if oil stays around $100 a barrel, we are looking at an additional 2% to 3% inflation on top of the core 3%. Also, as you probably know, there is a driver shortage out there that not only is causing higher diesel costs, but that is causing higher inflation from a logistics and freight perspective as well. We obviously have the reset of our incentive compensation as we have talked about before. That is now about a $40 million impact to next year. We would love to continue to invest in our brands, so we are planning some higher marketing investments. With all that as context, elevated productivity is essential going into next year. As we had previously announced, we are targeting $100 million SG&A takeout over the next couple of years. We announced an early retirement package, which was well received, so we will have some significant savings from that. We are going to have to get as much of that $100 million into next year as we possibly can. It will not all get into next year, but we will accelerate as much as we can to offset some of those cost pressures. And, obviously, net price realization as needed, where required. We are going to look really hard at our trade ROIs and, if we need to take some pricing, that is kind of a last resort, but we will need to do that. So definitely some cost pressures going into next year. We are taking this very, very seriously. We have elevated productivity initiatives, and Revenue Growth Management will be a very key component going into next year.

Okay. Thank you for that. And then just a follow-up. You talked about previously tightening your belt around cash flow and sort of capital allocation options. I guess, given all the potential costs and reinvestment coming in fiscal 2027, how should we think about what changes in capital allocation may be needed? And your current thoughts on where the dividend is at? Thanks so much.

Yes. So look, the dividend is extremely important to our shareholders. As we talked about before, there is no intention of increasing that dividend anytime soon. The dividend rate is a board decision that we review on a very regular basis. We are trying to balance that dividend rate with our ability to reduce leverage as quickly as possible. Maintaining that investment grade rating is an imperative to the management team and the board. We are getting very aggressive on how we can get back down to the low threes over the next couple of years. First and foremost, we have to stabilize earnings and ultimately grow the profitability of this business. That is what we are working very hard on. We will aggressively reduce working capital over the next couple of years. From a CapEx perspective, we are only focusing on the highest-priority projects. And then, as some of our peers have done, we will consider hybrid debt instruments to try to make the rating a little bit stronger than it normally would be. Obviously, M&A right now is off the table. These are constant conversations we are having internally. This is very important to management and shareholders, and we are working as hard as we can to get leverage down to the low threes as soon as possible.

Thanks so much.

Our next question comes from Tom Palmer from JPMorgan. Please go ahead. Your line is open.

Good morning. Thanks for the question. In the prepared remarks, I wanted to follow up a little bit on Andrew's comment. In terms of Snacks and the commentary about rationalizing the portfolio and consolidating nodes in the network, can you expand on this? Are there brands that you have in mind when you are talking about rationalizing? And when I hear nodes in the network, should we be thinking manufacturing or distribution as the area of focus? And anything on the timing of when we start hearing more definitive action taken? Thanks.

Sure. Hey, Tom. Let me give you some context. I am really looking at this in the context of simplification. We are focusing on the core of the portfolio and the core of the brands. A good example is Goldfish, focusing on households with kids. That has proven to be a fruitful strategy. You have seen that over the past two quarters: that core part of the Goldfish brand has stabilized and we are going to continue to put incremental fuel behind that. That is the Goldfish example. We have other examples throughout the portfolio. So it is really at the brand level: focus on the core. Additionally, from an innovation perspective, we will support fewer, more meaningful innovations. Instead of broad proliferation of small innovations, we will go bigger on certain pieces of innovation and make sure we support them so they truly become meaningful for the brand. Another area is the choices we are making around brand support within the broader snacks portfolio. Specifically, certain brands require more advertising support and are ready for that versus others. We are being very conscious about that allocation. That does not mean we are focusing on growth across the broader snacks brand portfolio; rather, we are making very conscious choices across the portfolio. From a cost perspective, we need to make sure we have fuel to support our brands. Todd gave some examples of different initiatives across the broader organization. Within the snacks portfolio, there are certain cost savings initiatives we have implemented in the past that we will continue to focus on to improve margins, both on the SG&A side and the supply chain side. We have made changes in the past; particularly with continued volume pressures, there is more opportunity there. Finally, looking at the brand portfolio and the top line, we see a tail of SKUs in certain brands that is not a lot of sales, but we believe reducing that tail could allow further simplification and as a result improve overall operations and our network. Hopefully that gives you context on what we are working through.

It did. Thanks for that, Mick. I had a quick follow-up. In the fourth quarter, it seems like there is a mention of a tariff refund. I did not see it quantified anywhere, including in the Q. Maybe any framing of that? And will that be isolated to the fourth quarter, or is there any tail there?

Yes. So the impact we are projecting for Q4 from a tariff refund is about $0.03 to $0.04 a share. That is solely offset by the higher fuel cost, the driver shortage, the impacts of the Iran conflict that we are already seeing so far. So those $0.03 to $0.04 are a good guy and a bad guy that kind of offset each other. The tariff refunds have two pieces. There is the direct piece that we are able to get back directly—think about that as the La Regina part of our business. Then there is a second piece, which is a bit smaller, which is our vendors who are getting those refunds for us. That will probably take a little more time for them to get the money and then for us to get that money back. There is a chance we could get some of that in Q4; some of that might roll into next year.

Our next question comes from Peter Grom from UBS. Please go ahead. Your line is open.

Great. So I was hoping to get some perspective on the organic sales outlook for the fourth quarter, which implies a pretty material improvement versus what we have seen year to date. Can you unpack the Q4 outlook in terms of timing dynamics that will help and what you were expecting in terms of underlying consumption?

Yes. So there is some noise around the ERP conversion from Sovos affecting Rao's, particularly Q3 versus Q4. That negatively impacted Q3. That $30 million lap comes into Q4. M&B will have some strong growth from a net sales perspective in the quarter. Their consumption is running slightly positive, so that is a good story and we anticipate it will probably continue to hover in that range as we close out the year. There is also a fair amount of pipeline fill from innovation. M&B has some pretty exciting innovation primarily in soups and sauces, which will help Q4 as well. So M&B from a net sales perspective, we are anticipating having a very solid Q4. Snacks will probably be fairly similar to what you saw in Q3 and might be a little bit worse than that. All in all, net sales should be flattish to slightly up for the quarter, which is helpful. There are a lot of moving pieces as it relates to earnings, which you alluded to in your question, and the outlook still embeds a relatively wide range. From a net sales perspective, I think the lower end, minus 2%, is probably a more realistic assumption at this point. From a gross margin perspective, organically, we should probably have similar results to what we had in Q3. We were down about 240 basis points, so somewhere in that range. With the acquisition now partially in our financials as we go into Q4, the acquired margin will come into our P&L. We will get about a 70- to 80-basis-point benefit from there for the first time. Marketing and selling we anticipate will be up slightly. We thought it would be up more in Q3; some of the marketing shifted out of Q3 into Q4. Originally thought Q4 would be down, but it will be slightly up. Taxes: no big impact there. The share count, because of the way GAAP requires us now to include approximately 7 million shares from the acquisition, artificially raises our share count from 299 to 306 million. So I would say net sales definitely at the lower end of that minus 1% to minus 2% range. And I would say EPS still has moving parts, but that probably is more $0.22 and below.

Great. Thank you so much. I will pass it on.

Our next question comes from Peter Galbo from Bank of America. Please go ahead. Your line is open.

Hey, guys. Good morning. Thanks for taking the question. Todd, in your response to Andrew's question around the puts and takes for 2027, I wanted to clarify: would that include the stepped up share count from La Regina? I just wanted to make sure that mechanically that is flowing through next year as well.

Yes. So for the full year, we will have approximately 300 million shares.

Okay. And then, Mick, my other question is around your comments about the possibility of issuing hybrid debt. I understand, and I may be a little out of my depth here, but understanding it will help more on the leverage side, you also mentioned trying to stabilize earnings. I would think a hybrid issuance would come with a higher coupon rate. How do you reconcile stabilizing earnings on one hand versus the EBITDA/leverage piece on the other?

Yes. So the hybrid debt tends to be 150 to 200 basis points higher, so it will be a drag on EPS. Obviously, it would not affect EBITDA. Different people look at it differently. There is a bit of a negative impact from an earnings perspective. Depending on the type of hybrid debt you do and what you execute, you tend to get about 50% equity credit from a rating agency perspective, which is a positive. So that is the consideration. Everything is in balance. We are trying to balance what is best for shareholders and what is best from a credit perspective. We are trying to thread that needle right now. Hybrid can be a very useful tool, and some of our peers have executed it successfully, so it is something we will consider.

Thanks very much, guys.

Our next question comes from Chris Carey from Wells Fargo Securities. Please go ahead. Your line is open.

Hi. Good morning, everybody. I wanted to start on price increases or the concept that you might be willing to use price increases as a tool to confront this higher inflation backdrop. Can you expand on how you would think about this given the competitive dynamic right now? And perhaps how you would see net price realization versus RGM and specific areas in the portfolio where you would have the highest cost justification for incremental pricing?

Yeah. Maybe I will start and then Todd will add. First of all, as we continue to see inflationary pressures, we are going to stay focused on generating elevated levels of productivity, incremental cost savings initiatives, and then also focus on positive net price realization. Todd mentioned we are building up the Revenue Growth Management capability; that has been something we have been very focused on over the past six months and we are making good progress. As a result, I believe there is opportunity there. As we mentioned earlier, as a last resort we would consider potential list price increases. Todd, anything else to add?

Yes. Look, the cost pressures could result in a 5% to 6% inflation scenario. The different components of RGM will have to be utilized. There is a big opportunity in optimizing trade investment ROIs. A number of our investments are not returning terrific benefits for the company, and we are adjusting those as we speak. If that is not enough, if we need to do some surgical pricing in different parts of the portfolio to maintain margins, we will clearly take a look at that. The external environment globally is very volatile and changes day to day. We will take appropriate actions as necessary.

Regarding margins in Snacking during the quarter, there was improvement relative to last quarter, which is encouraging. You remain below where you want the business to be over time. Give us a sense of how that fiscal Q3 margin came in relative to your own expectations. Was there any timing dynamic with lower marketing, or are you starting to get your hands around the margin structure and perhaps expect some stabilization at a minimum from here?

Yes. We went from EBIT margin last quarter a little over 7% to about 10% this quarter. We said we would have sequential improvement from Q2 to Q3, and we did. It was largely in line with our expectations. The bad news is both quarters were still down around 400 basis points year over year, which is not acceptable. The higher margin in Q3 was driven both sequentially and year over year by lower trade spend. Some of our RGM capabilities are starting to kick in, which is great. We had a little bit less marketing in Q3 than in Q2, which helped the margin structure. We talked about bakery performance: the good news is it is getting stabilized; we are improving on-shelf availability. To get that improvement, we basically canceled all promotions in Q3. That hurt volume in the top line and probably helped margins a little because we pulled out the vast majority of the trade. Mixed story. We feel good that we got to 10%, but it is not nearly where it needs to be. We will probably see a similar profile, but in Q4 we have significant things to do. The key to improving margins over the next couple of years is, number one, grow Goldfish. We have stabilized the business but it is still down 1% to 2%; we have to get that to growth. That is the biggest and most profitable piece of the Snacks portfolio. Simplifying the portfolio will improve mix, reduce waste, and make plants more efficient. We will continue to look at the cost structure of the snacks business both from a network and overhead perspective; those projects are well underway.

Thank you very much.

Thank you. Our next question comes from David Palmer from Evercore ISI. Please go ahead. Your line is open.

Thanks. Heading into fiscal 27, you will be dealing with the inflation you talked about and choices you are making around Snacks. But thinking about your core businesses and the goal of returning those to modest, profitable growth, where do you think the near- and medium-term potential wins are from an organic sales perspective?

Sure. Even this quarter, there are clear proof points. Within the Meals and Beverages portfolio, the at-home cooking consumer trend is resilient and we expect that trend to continue. That is a big part of our Meals and Beverages portfolio and plays right into cooking soups and Rao's. Pacific is another brand in that portfolio that is doing well. We have seen consistent growth throughout this fiscal year and expect to continue supporting the portfolio with great innovation next fiscal year. From a Snacking perspective, Goldfish is an important part of the portfolio. We are stabilizing the core and need to bring the brand back to growth; we are doing everything across the brand to support that growth and it is important from a profitability perspective. Within Pepperidge Farm, another core part of the snacks portfolio, we are making great operational progress which is important. We have now several $4 billion-plus brands with Campbell's—Campbell's, Rao's, Goldfish, and Pepperidge Farm—and we need to make sure we are set up for success and growing those areas.

I had one follow-up about the soup and sauces business. You are doing condensed Campbell's condensed sauces. Why is that a big idea and the right extension? Why not focus on ready-to-serve? Is there anything you can do to stabilize that part of the portfolio?

Good question. First, about condensed soup: a little over 50% of that portfolio is used for cooking, as an ingredient—think of cream of mushroom—and the other half is the eating part of the portfolio. The cooking part has consistently been growing because consumers go to the soup aisle to buy condensed cooking product to make scratch meals at home. That is a trend we are leaning into with condensed sauces we are launching. Consumers are already using our condensed cooking products for that purpose and they are exploring different flavors, which these products address. I am very excited about the innovation coming next fiscal year. Regarding ready-to-serve soup, we have work to do. The premium part of that portfolio—the top 20% like Rao's and Pacific—is growing. The mainstream part is under pressure. We will support the premium brand growth and increase the relevance of the mainstream portfolio. We will address the tail SKUs that represent a disproportionate headwind and introduce innovation next year focused on better-for-you attributes and other positives of the product. More to come on that.

Thank you.

Our next question comes from Megan Klatt from Morgan Stanley.

I wanted to come back to your comments on the 2% to 3% additional inflation you cited looking ahead to fiscal 27 if oil stays around $100 a barrel. Can you help us understand how the inflation cadence might flow through the year? Given where you are hedged, I would think it might be a little back loaded as hedges roll off. Can you give context on where you are hedged today for fiscal 2027 and bucket the biggest pockets of pressure so we can track given oil is very volatile? Thank you.

Yeah. We are almost fully hedged for our fiscal year 26, which ends in July, so there should be little noise around that. We do have some hedges in the first half of the next fiscal year. Given the elevated cost environment, we probably have a little less hedging than we would normally do because we were anticipating prices would mitigate; obviously there is risk in that. Given where prices are right now, it is looking more clear that the first half inflation will be pretty high. Those prices are somewhat set even if the war ended today; it would take a while for oil prices, fertilizer, and aluminum to move out of the region and bring prices down. So we will have elevated inflation for sure in the first half. The question is what the second half looks like. If the war continues for several more months, we could be looking at a full year of elevated inflation. We are looking aggressively at cost savings, RGM optimization, and pricing as necessary.

Thanks, Todd. Then a follow-up on Snacks: Goldfish core seems to have stabilized; Bakery is improving operationally; the question mark is Salty. Could things get worse before they get better on salty snacks given SKU rationalization and simplification? How should we think about the trajectory and realistic timeline for that business to stabilize?

You are right. Goldfish is working and maintaining momentum. Fresh Bakery is feeling better operationally, which allows us to start reintroducing promotional activity, improving that front. For Salty, as you saw in my prepared remarks, we are focusing on simplification and strengthening the core, including bigger, bolder innovation and improving in-market execution. That is going to take longer. In the near term we will continue to feel pressure on Salty, and as some of the plant initiatives take shape, that should start to improve the trajectory. But it will take time.

Understood. Thank you.

Next question comes from Robert Moskow from TD Cowen. Please go ahead. Your line is open.

Hey, thanks for the question. Todd and Mick, you both talked about improving RGM and eliminating trade programs that are not working. Any further detail or themes? Are there types of promotions proving more effective than others—do you need longer duration deals or deeper deals? Any theme?

Yes. The most obvious, but important point is when we run a temporary price reduction just on the shelf, the return is poor and we need to limit those as much as possible. When we get feature and display, the ROIs are really strong. We need to work across marketing and sales to get as much feature and display as we can, and that is where we will focus our investment. If we cannot get feature and display, we are probably going to walk away from some TPRs because the returns are not there.

I would add a couple pieces: make sure we have the right price point in seasonal drive periods and support those. The whole package needs to work—feature, display, and broader brand support. A nugget on Goldfish: from a price-pack perspective, multipacks are growing; in the last 13 weeks, multipacks are growing 6%. Making sure we have the right price points and pack types in the marketplace is critical.

Okay. Thank you.

Our last question today comes from Max Gumford from BNP Paribas. Please go ahead. Your line is open.

Thanks for the question. First, regarding the tariff refunds, commentary from retail would suggest there is potential they may give back refunds to the consumer. Do you see any risk that the retailer puts pressure on you to give back some of these funds as well?

I guess there is always a risk. We have no intention at this point to give any of that money back. If you look at our gross margins, we obviously have not been able to offset tariffs and normal inflation; we took minimal pricing this past year. So our intention right now is not to refund any of those tariffs.

I would add that there are always many puts and takes. We are very focused on making sure we provide value to the consumer; we think about that every day and discuss it constantly. There are many considerations in these decisions.

Great. And I wanted to clarify that the 2% to 3% incremental inflation called out for FY 2027 is a holistic number beyond just oil and commodities related to oil, correct? It is your best guess based on every input you are procuring.

Yeah. Prior to the conflict, as we were planning for FY 2027, we were looking at inflation close to 3%. The incremental piece from oil and the things around the strait being impacted adds another 2% to 3%, which gets you to the 5% to 6% range. So it is not just oil directly; it is everything oil gets into—packaging, logistics. We are also seeing aluminum from that region very elevated and fertilizer, which could have impacts on the farming community this year. Everything the conflict is impacting goes into that incremental 2% to 3%.

Okay. Thanks very much. I will leave it there.

We are out of time for questions today. This will conclude today's conference call. Thank you for your participation. You may now disconnect.