CPB
#Thank you, <UNK>
Good morning, everyone and welcome to our fourth quarter call
Today, I’ll focus my remarks on the marketplace, our performance, our plans and our outlook for fiscal 2018. As we’ve discussed previously, the operating environment remains challenging across the food industry
While macro economic conditions in the U.S
continue to improve in the quarter, the seismic shifts we’ve described in the past continue to alter the consumer food and retail landscapes
These disruptions include shifting demographics, changing consumer preferences for food with a focus on fresh and health and well-being and increase snacking behavior, a range of socioeconomic forces and technology advancements that are reshaping the consumer shopping experience
Additionally, there is no denying that the retailer landscape is changing dramatically with the emergence of new players, new store formats, and evolving business models
Several variables are at play, including value players expanding their presence in the U.S
, the growth of store brands and the explosion of e-commerce and meal delivery services disrupting the market
We expect conditions to remain hypercompetitive for the foreseeable future
In this environment what is Campbell doing to compete differently? First, we’re prioritizing investments, aligning our resources to future growth areas and creating opportunities from the disruptions in the market
To our growth agenda, we’re focusing on four strategic imperatives to strengthen our core business and at the same time expand in the faster growing spaces
Second, we’ve redesigned our retailer selling and support capabilities in June of fiscal 2017. Our new integrated structure aligns our sales and marketing resources to drive growth with existing customers and to pursue business in new channels
We’re rethinking our approach to collaborating with key customers around platform merchandising, such as health and well-being and snacking
We’re enhancing our data-driven shopper insights
And through our strategic foresights work, we’re better positioned to drive innovation and customization across both the perimeter and in the center store
Most customers have welcomed this new level of engagement and collaboration
Third, we’ve established a distinct digital e-commerce business unit to address both pure play and omni-channel opportunities
Finally, we believe that investing to differentiate our brands is the best way to appeal to consumers and build loyalty in a crowded market
Make no mistakes, these shifts are accelerating and converging and they’re having a dramatic impact on Campbell and across the industry
In this environment, sales growth remains challenging
With this as a backdrop, our performance in the quarter was mixed
Organic sales declined 1%, while adjusted EBIT and adjusted EPS, both increased double-digits
Despite multiple headwinds, we finished fiscal 2017 within our guidance and delivered another year of growth in adjusted EBIT and adjusted EPS
For the fourth quarter, our Global Biscuits and Snacks performance was slightly below what I would have liked in terms of the top line, but the team delivered a double-digit earnings increase versus the year-ago quarter
Americas Simple Meals and Beverages continued to deliver against its portfolio role, with sales performance in line with the categories in which we compete and margin expansion
I’m not happy with our performance in Campbell Fresh, but remain encouraged by the progress we’ve made this year to address our key executional issues
C-Fresh delivered modest sales growth and we expect this business to return to profitable growth in fiscal 2018. Let me now offer my perspective on each division’s performance and highlight our plans for fiscal 2018, starting with Global Biscuits and Snacks
Overall, I’m satisfied with the performance of the division in the quarter
Organic sales were comparable to a year ago, with expected gains in Pepperidge Farm, but below my expectations in Arnott’s due to our performance in Indonesia
Importantly, the business delivered a double-digit increase in operating earnings
I’m particularly pleased with the performance of Pepperidge Farm snacks, especially the Goldfish brand, which once again delivered strong sales results
In the quarter, growth was fueled by larger pack sizes
Over an extended period of time, this team has delivered a steady cadence of innovation and effective marketing programs, while also expanding the brand’s health and well-being credentials with organic and whole grain offerings
I’m also enthusiastic about the launch of our new Pepperidge Farm Farmhouse Cookie line, a thin crispy cookie made with simple ingredients
Farmhouse is on track to be the biggest Pepperidge Farm snack launch in more than a decade
In Australia, the team delivered growth in biscuits behind the return to the original version of Arnott’s Shapes crackers
Additionally, our new Tim Tam gelato-inspired varieties performed well
Segment operating earnings increased 35%, as a result of our strong enabler program, a return to more normal marketing levels and reduced administrative costs
Looking ahead to fiscal 2018, we expect to grow sales in Global Biscuits and Snacks
In Pepperidge Farm, we intend to dial up our real food and health and well-being efforts by emphasizing our goodness credentials
New snacking consumer insights will also shape how we connect with our consumers develop new packaging formats and adapt to new retail environments
In particular, we have plans to extend Goldfish to older kids, a new demographic for the brand
We’ll continue to execute the successful marketing strategy that has led to both sales and share gains this year by investing behind our proven Milano Moments’ campaign
We also plan to build on the successful launch of Farmhouse Cookies and drive increased trial of Tim Tam biscuits in the U.S
from both traditional retailers and e-commerce channels
In Australia, we have plans to strengthen our core with new varieties of Shapes crackers, expand our health and well-being offerings with new Arnott’s Vita-Wheat cracker chips and Cruskits products, drive on-the-go snacking with a variety of new multi-pack single serve products, and we recently launched an integrated Arnott’s master brand advertising campaign to support the business
Turning now to Campbell Fresh
I’m not satisfied with the performance this quarter, but I’m optimistic that our key executional issues are now largely behind us
In the fourth quarter, Campbell Fresh returned to growth with a modest 1% increase in sales, driven by Garden Fresh Gourmet in our farms business
However, sales in the beverage business declined slightly as we continue to deal with capacity constraints, largely due to newly enhanced quality processes we put in place, both in our plant and with our new co-packer
As we previously said, we began increasing promotional activity towards the end of the fourth quarter, and we continue to expect to ramp up to normal promotional levels during the first quarter of fiscal 2018. Let me be clear, I’m disappointed with the operating loss in Campbell Fresh this quarter, which reflects a number of costs that are one-time in nature, including higher carrot costs, as well as increased expenses to further refine our new quality protocols
We have plans underway to increase efficiencies as part of our overall effort to eliminate supply constraints and improve margins, while delivering our new higher-quality standards
As I said before, we’ve learned some tough lessons in C-Fresh
Despite the executional challenges, we remain confident in the growth potential of the Packaged Fresh category, and believe our C-Fresh strategy is sound
Throughout fiscal 2017, we took steps to build a stronger foundation for growth under our new C-Fresh leadership team
Looking ahead, we plan for the business to grow profitably in fiscal 2018, as we return to more normal capacity and promotional activity across the beverage portfolio
We also have a robust innovation pipeline to help fuel additional growth and we’ll begin to introduce new beverage products to the market, such as plant protein milk
We also plan to expand distribution of Garden Fresh Gourmet sauces and fresh soup
Finally, our largest division, Americas Simple Meals and Beverages
Similar to other center store categories, sales declined
Organic sales decreased 3% in the quarter, driven by soup and V8 beverages
Operating earnings increased 4%
Let me start with our shelf stable beverage business
Sales declined in the quarter
As we’ve discussed previously, the entire shelf stable beverage category has been hurt by ongoing consumer concerns about sugar and calories, and by consumer shopping the store perimeter for fresh juices and other functional beverages
These trends continue to negatively impact our V8 portfolio, in particular, V8 V-Fusion and V8 Splash
However, V8 100% Vegetable Juice and V8 +Energy continue to meet the demands of consumers seeking beverages that deliver health and well-being benefit
In the quarter, consumption of V8 Vegetable Juice increase behind our ongoing media investment, focused on our core baby boomer consumers and we expanded distribution of V8 +Energy
Looking ahead, as discussed at our Investor Day, we have a clear strategy to improve performance of the V8 brand with continued focus on V8 Vegetable Juice, the revitalization of V8 Blends with new benefits focused messaging on the front of the label and steady growth V8 +Energy
While our performance will improve, we do not expect this business to return to growth in fiscal 2018. Now let’s turn to soup
As you know, this was a relatively small quarter for U.S
While consumer takeaway was consistent with a year ago, soup sales declined 4%, all of which was related to lower retailer inventory levels
For the year, U.S
soup sales declined 1%, while sales of condensed soup and broth declined, I’m pleased with the growth of our ready-to-serve portfolio, including Chunky, Slow Kettle and the meaningful contribution from the successful mid-year launch of our new Well Yes! line
We’ve modified our outlook for 2018 in U.S
soup, since we spoke in July for sales, as we now expect additional headwinds, let me explain
As I mentioned at the outset of my remarks, the retailer landscape is changing dramatically amidst intense competitive activity
Each year, we enter a set of complex negotiations with our key retail partners
Our goal is to drive growth, both for our customers and for Campbell
Unfortunately, this year we’ve been unable to reach an agreement with a large customer on a promotional program for soup
We expect this will negatively impact our U.S
soup sales with this customer, particularly in the first-half Accordingly, we now expect our soup sales to decline in fiscal 2018. We are taking a number of steps to mitigate the profit risk, and of course, we’re continuing discussions with this customer to create a win-win solution
We believe, our fiscal 2018 soup lineup and promotional programs are strong, and we’re pleased that, they’ve been well received in the balance of the marketplace
For the upcoming soup season, we’ll build on the continued launch of Well Yes! Soup and introduced five new varieties
We have compelling brand partnerships with popular movie franchise to drive our kids’ soups
We’re rolling out innovation in Swanson broth
We have robust holiday plans across the portfolio
We’re launching the New Chunky Maxx line with 40% more protein, and we have strong integrated marketing, including a New Chunky campaign that fully leverages our NFL sponsorship
We’ll continue to work closely with all of our customers to maximize the sales opportunity during the upcoming soup season
And now a quick update on the pending acquisition of Pacific Foods
You may have seen recent media reports regarding a lawsuit involving the estate of one of the co-founders in Pacific
Campbell is not named in the suit and we’re not going to comment on the litigation
We remain enthusiastic about Pacific
It will add another purpose-driven brand, with a track record of growth to our portfolio
We’re working to resolve outstanding issues, so that we may complete this transaction in the coming months
A highlight for fiscal 2017 was our successful multi-year cost savings initiative
As announced this year, we increased our target by $150 million and now expect to deliver $450 million in savings by the end of fiscal 2020. We remain committed to managing costs aggressively and reinvesting a portion of the savings back into the business in fiscal 2018 to position the company for long-term growth
As we outlined in July, we’re focusing our investments on our four strategic imperatives, as we believe, these areas will be future growth drivers of our business
First, as I mentioned earlier, we created a new e-commerce business unit to scale our capabilities across North America, including content creation, data analytics and forging new partnerships
Expanding our e-commerce organization is critical to capture more than our fair share of the rapidly growing market for online grocery, which we expect to reach $66 billion annually by 2021. We’re in a good position to do so with experienced digital and e-commerce leadership in place and a solid strategy to develop new capabilities
Second, we’re targeting increased investment in snacking, as consumers continue to seek new and better-for-you snacking options
The snacking market is worth approximately $125 billion in the U.S
alone and growing around 3%
We plan to invest in people and resources to expand our business beyond cookies and baked snacks to other snacking and mini meal categories
Third, we’ll continue to invest in our real food credentials in our core business; including adding more vegetables and whole grains; converting all our soups to chicken with no antibiotics, while continuing to eliminate artificial colors and flavors from our products and completing the removal of BPA from the lining of our cans in the U.S
and Canada
Finally, in the health and well-being space, we plan to invest across the company, focusing on food with attributes such as natural, organic, functional and fresh
Additionally, for the longer-term, we’ll continue to fund Habit, our personalized nutrition start-up
We’re applying the learnings from our successful beta test in San Francisco, as we expand the service nationally
We continue to expect multiple business models to emerge that ultimately will create value
These four strategic imperatives represent significant growth potential for Campbell, as we continue to differentiate our company and our brands over time
The rapidly evolving marketplace requires new approaches and smart investment to engage with new and existing customers to make our brands more relevant to new generations of consumers, while satisfying our loyal core consumers and to explore new models of innovation
This longer-term view sometimes comes at the expense of shorter-term performance
We have our eye on the long-term targets, as we continue to believe that they are attainable
However, to achieve them, we must further invest to diversify our portfolio towards the faster-growing consumer spaces of health and well-being and snacking, while increasing our participation in the growing e-commerce space
And we must do this, while raising the bar on transparency and making our food more real and more sustainable
Looking ahead to fiscal 2018, we expect sales growth in both Global Biscuits and Snacks and Campbell’s Fresh
However, we expect sales to decline in Americas Simple Meals and Beverages
As I outlined earlier, U.S
soup sales will be negatively impacted by lower promotional support with a large customer
Additionally, we do not expect our V8 beverage business to grow in fiscal 2018. Given the difficult operating environment, the outlook for our Americas division and our plan to invest back in the business for the long-term, we expect net sales to change by minus 2% to 0%, adjusted EBIT to change by minus 1% to plus 1%, and adjusted EPS to change by 0% to plus 2%, this guidance excludes the pending acquisition of Pacific Foods
<UNK> will walk you through additional details during his remarks
In closing, across the industry, the pace of change and disruption continues to accelerate
We expect the operating environment to remain challenging in fiscal 2018. Campbell is prepared to address the short-term challenges we’re facing, and make the necessary investments to position the company for long-term growth
Our purpose, growth agenda and strategic imperatives provide the guide as we take the steps to be the leading health and well-being food company
Thank you
And now I’ll turn the call over to our Chief Financial Officer, <UNK> <UNK>
Good morning, <UNK>
<UNK>, you raised a very good point and it’s always a very thoughtful process to balance the performance in the short-term with significant long-term investments
In this environment and for the last several years, we have been acting very decisively and aggressively
When you think about it, we bought five companies in the last five years
If you include the pending acquisition of Pacific, we divested lower performing businesses
We have closed several manufacturing facilities and consolidated assets and giving – give – invested to give us much more flexibility and cost savings in our supply chain
We’ve realized our cost savings program over delivering the $300 million a year early and setting a goal for another $150 million, which we have a line of sight to
And we’ve really amped up new models of innovation going into places that we haven’t gone before
So we haven’t been sitting still for a moment
And this continued stream of investment is on top of all of that activity
And we believe that the investments that we’re making really – are in sufficient support in 2018 to get these ideas jumpstarted and/or continue to invest where we have already been activating
And so I’m comfortable with the fact that, it’s the right level of investment and we’re still able to show some EPS and EBIT growth in the process
Hi, Matt
Yes, we don’t necessarily comment on the specifics with a customer, but let me answer the question more in aggregate
Our negotiations with customers for soup season involve joint business planning with plans for spending and merchandising linked to a sales goal
And what we seek are win-win-win solutions, win for the consumer, win for the customer and win for Campbell
And so, in this particular situation, we were not able to achieve that negotiation
And so what I can tell you though is, our programs are strong, our A&C investment is robust and our new products are really unique with the Well Yes! and Chunky Maxx
And they’ve been really well received by customers in general in the marketplace, and we will continue to keep the dialogue open and strive for that win-win-win solution
Yes, I think that the – again, as I said, I think the retailer environment right now is hypercompetitive
I mean, you’ve got the Amazon acquisition of Whole Foods, the expansion of Leadle and Aldie, creating some new retail formats and some escalated competition in the marketplace
However, I’m optimistic that retail continues to morph
I mean, I remember and I’m going way back when club stores and supercenters were a new format
And the retailer market and companies like ours adjust to that
So we’re really focused on making our brands accessible in multiple channels, and we believe that the new sales design that we have will help us in that effort
So, yes, I do think these are challenging times
And I do think that, as the consumer changes, retailers will change with the consumer and we’ve got to do the same
Hello, <UNK>
So in the snacking area, I’ll take it in three parts
The first is our internal innovation
And we have real insights about the frequency of consumer snacking and mini meal consumption now five times a day as opposed to only about a third of the population eating three square meals
So we think that’s a very rich space for us to expand with our brands internally
So we have a concerted effort across the enterprise to really look at the – a series of platforms that we’ve identified and bring health and well-being more into the front and center on snacking, starting with mindful kids snacking, which we think is a good base for us
So the investment is really in the people and resources to amp up that internal innovation
The second part of it is partnerships, and we’re continuing to look at partnerships like Chef’d, for example, where we can actually incorporate our brands into new models and accessible channels
And then the third would be, smart M&A
And we continue to be very disciplined about the M&A that we do and this will be no different
But this is an area, where we have an interest, particularly in the better-for-you snacking arena
So it’s really a three-pronged approach, but we do believe that’s a very robust space for us as a company across the enterprise
I think that’s built into the growth expectations for the Global Biscuits and Snacks Division, and some of the innovations that we will be developing will also be hitting the marketplace in future years
Thank you
I’m comfortable that we’ve given you the information that we’re willing to disclose
So, beyond that, I don’t believe we should be talking about the details
Yes, we have a very disciplined robust process with our customers in joint business planning, which starts with discovery of opportunities, development of ideas, decisions made and then delivery and execution
And so, we have been working on these joint business plans for many years with many customers
They really involve things like pricing merchandising shelves, performance, consumer activation, customization, packaging, product assortment, they’re very, very comprehensive strategic plans that we co-develop with our customers
And we have very strong programs this year and very robust plans with customers
So I’m optimistic with this other one situation that we will get to a win-win solution
Hi, <UNK>
We’re not experiencing this in other categories
We believe that we have the right balance of strengthening our core business and at the same time expanding into faster growing spaces
So, again, we believe that we are spending adequately and aggressively in our Global Biscuits and Snacks in our Campbell Fresh business to build those very on-trend categories
Just a reminder, though, the soup business is still a very large and profitable business for us, and we have to keep our brands differentiated and relevant
And so we’ve been really investing very specifically in the real food credentials of our core business to better satisfy consumers and customers and innovation to keep the center store robust, which is definitely needed in today’s environment
We – that said, we have had really good margin expansion in the category and we’re operating as a company very profitably
So, I do think that if there are M&A opportunities out there that we can bolt-on or supplement what we’re doing, we are open to that, but we’re again, very disciplined about our approach to that
Hi, <UNK>
Private label has definitely been around for a long time and has traditionally been below average share in our categories
And acknowledging the fact that we did feel the impact on Swanson broth this year
We believe in a world of private label that the best insulation is brand differentiation and that’s where we’re focused
And so, and the other – the flip side of it is, in the Fresh business, we do participate with store brands in some of our fresh categories
So it’s not a one size fits all on how to work in an environment with private label
Yes, we have specific plans to differentiate broth this year
