Campbell Soup Company (NYSE:CPB) Q4 2023 Earnings Call Transcript

Campbell Soup Company (NYSE:CPB) Q4 2023 Earnings Call Transcript August 31, 2023

Campbell Soup Company reports earnings inline with expectations. Reported EPS is $0.5 EPS, expectations were $0.5.

Operator: Greetings, ladies and gentlemen, and welcome to the Campbell Soup Company Fourth Quarter Fiscal 2023 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. It’s now my pleasure to introduce your host, Rebecca Gardy, Chief Investor Relations Officer. Please go ahead.

Rebecca Gardy: Good morning, and welcome to Campbell’s fourth quarter fiscal 2023 earnings conference call. I’m Rebecca Gardy, Chief Investor Relations Officer at Campbell. Joining me today are Mark Clouse, President and Chief Executive Officer; and Carrie Anderson, Chief Financial Officer. Today’s remarks have been prerecorded. Once we conclude the prepared remarks, we will transition to a live webcast Q&A session. For us to give as many participants as possible the opportunity to ask questions, we ask that you limit yourself to two questions. The slide deck and today’s earnings press release have been posted to the Investor Relations section on our website, campbellsoupcompany.com. Following the conclusion of the Q&A session, a replay of the webcast will be available at the same location followed by a transcript of the call within 24 hours.

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On our call today, we will make forward-looking statements, which reflect our current expectations. These statements rely on assumptions and estimates, which could be inaccurate and are subject to risk. Please refer to side 3 of our presentation or our SEC filings for a list of factors that could cause our actual results to vary materially from those anticipated in the forward-looking statements. Because we use non-GAAP measures, we have provided a reconciliation of each of these measures to the most directly comparable GAAP measure in the appendix of our presentation. On Slide 4, you will see today’s agenda. Mark will share his overall thoughts on our fourth quarter and full year performance as well as in-market performance by division. Carrie will then discuss the financial results of the quarter in more detail and review our guidance for the full fiscal year 2024.

And with that, I’m pleased to turn the call over to Mark.

Mark Clouse: Thanks, Rebecca. Good morning, everyone, and thank you for joining our fourth quarter fiscal 2023 earnings call. Speaking on behalf of Campbell’s management, I would like to extend our recognition of the dedication and hard work demonstrated by our teams throughout this year. We delivered the fourth quarter consistent with our expectations. And for the full year, we delivered strong growth across all three key financial metrics, coming in well ahead of our initial expectations and advancing many of our strategic initiatives. Collectively, we continue to solidify the foundation that has delivered consistent and dependable results over the past several years. Furthermore, our progress has set the stage for increased momentum in fiscal 2024 that we believe will result in broad-based growth and deliver compelling shareholder value creation.

Let me begin with the highlights of the fourth quarter. As expected, we delivered 5% organic net sales growth, led by inflation-driven net price realization and solid in-market performance enabled by an advantaged supply chain and effective marketing and selling investments. Fourth quarter consumption increased 3% versus the prior year and 25% versus four years ago. As expected, we did experience declines in adjusted EBIT and adjusted EPS in the quarter given our planned brand investments and the pension headwind, which we pointed out on prior earnings calls. For the full year, we delivered double-digit organic net sales growth of 10% and strong adjusted EBIT growth of 5%. Adjusted EPS of $3, representing 5% growth versus prior year, was at the top end of our guidance range.

As a reminder, the pension headwind was approximately $0.11 to adjusted EPS and four points of growth for the year. Consumption for the full year increased 8% versus the prior year, and reflected share growth across many brands. These strong results reflect the ongoing effective execution of our focused strategy along with the sustained consumer demand for our brands. We have strategically balanced the interplay between pricing and promotional frequency, while enhancing the tremendous equity and differentiation of our brands. We also continued to invest in expanding capacity for the future and enhance our capabilities in supply chain, marketing, sales and innovation. Looking ahead to fiscal 2024, we’re excited about the next stage of Campbell’s growth.

The snacks business will continue to deliver on the value proposition of the Snyder’s-Lance acquisition with top line and margin building momentum. Our Meals & Beverage business will be further strengthened and diversified with the planned strategic acquisition of Sovos Brands, which will extend our portfolio into the ultra-distinctive sauces segment and provides significant growth opportunities. This combination will make Campbell as one of the most dependable growth-oriented names in food. Carrie will provide full fiscal 2024 guidance later in the call. Before I review the division results, I’d like to provide some perspective on the current consumer landscape. We’ve spent a great deal of time analyzing the drivers and importantly, the potential implications going forward.

We see three factors currently putting some transitory pressure on category in market results. These are primarily impacting our Meals & Beverage businesses, and all influenced Q4 to some extent. The first area is the residual effects of COVID surges from the summer of fiscal 2022. These surges notably benefited categories like soup in the prior year, particularly during the summer, a period which historically has lower sales. We expect this effect to continue into Q1 and greatly diminish as we approach the second quarter of fiscal 2024. Directionally, the impact of this factor contributed about 50% of the decline in soup in the fourth quarter. This dynamic likely helped mitigate price-driven elasticities in Q4 fiscal of 2022. The next factor is lapping of double-digit pricing actions from a year ago.

This was a dynamic we expected and one that likely will continue to be a headwind throughout fiscal 2024, but sequentially lessening in the second half of the year. We do also expect sequential volume improvement to mitigate this pricing headwind as we move into Q2 in the second half. The third factor and likely contributing to the limited volume recovery to date is the consumer behavior in response to ongoing economic uncertainty and prolonged inflation. First, consumers began prioritizing categories based on more immediate needs and value leading to fewer categories in the shopper basket. This pattern of behavior resulted in a real focus on seasonal priorities and has obviously created a headwind on categories like soup in the summer. We expect our categories like soup, which is a top 10 category in the fall and winter, to increase in priority, and we’re already seeing some early signs of improvement.

The second behavior is a growing shift to more value-driven stretchable meals, which has had a mixed effect on our business. It has undoubtedly been a positive driver on categories like pasta sauce and condensed cooking soups, as well as broth, while also adding pressure on categories like ready-to-eat soup. We expect this behavior to subside as inflation continues to moderate. The positive news as it pertains to our Snacks division is that our brands consistently maintain a strong presence in consumers’ top categories throughout all seasons of the year. Moreover, our Snack power brands have displayed remarkable resilience as consumers, even while prioritizing value continue to sustain their purchases across our differentiated portfolio. Broadly speaking, we see these dynamics as transitional in nature.

While we do anticipate the persistence of these dynamics in the near term, we’re confident in the equity and the value of our brands within this environment. In fiscal 2024, we’ll maintain our support of our brands and remain vigilant on value to ensure we remain competitive, but do not see this as a catalyst for dramatic shifts in promotional or margin dilutive actions to chase volume or share. Turning to our division results. Our Meals & Beverages portfolio remains well positioned as consumers employ multiple strategies to stretch their food dollars. In the fourth quarter, we delivered organic net sales growth of 1%. As a reminder, the fourth quarter is the lightest in terms of seasonality for this business, and we’re also wrapping strong performance of 7% organic net sales growth in the prior year, primarily driven by inflation-driven pricing and some of the COVID surges I mentioned earlier.

While end market consumption was down in the fourth quarter by 4%, we saw strong performance by Prego, up 5%; and Pace, up 7%; and Pacific, up 11%. Compared to pre-COVID levels, dollar consumption for the division was up 17% overall. Diving more specifically into our Meals & Beverages portfolio, I wanted to highlight the progress we’ve made within several areas of our soup business. This year, we’ve refined our soup portfolio to establish distinct areas for growth and identified areas where scale and optimization will be more of the focus. The great news is our growth focus segments represent over two-thirds of our U.S. soup business and has consistently delivered strong growth and share results even where private label is present. Brands like our condensed icons, our condensed cooking soups, Chunky, Home Style and Pacific soup are compelling areas of consumer relevance even among younger households and continue to demonstrate long-term growth potential.

They are also brands where our marketing and innovation efforts have been very effective. In the quarter, our shares in this portion of the business were essentially flat. And versus four years ago, we’ve gained 1.2 share points with consumption up 27%. We’re confident in the trajectory of this business and are committed to continuing to fuel these segments going forward. The optimized portion of our soup portfolio, which represents less than a third of our U.S. soup business, has experienced recent share softness and thus remains an area of opportunity for us. These are areas where the segments are a bit more commoditized or value sensitive, like broth. So they have tended to be where private label or lower cost options have sourced some share.

The team remains vigilant in this segment of the portfolio, continuing to ensure we remain competitive without undermining any long-term profitability. Interestingly, this portion of the business represents only 14% of Meals & Beverages and is approximately 7% of Campbell’s total net sales and will become even smaller after the pending acquisition of the Sovos Brands business. Turning to Snacks on Slide 10. We finished the year strong with fourth quarter organic net sales up 9%, driven by our eight power brands. We maintained strong in-market momentum, growing consumption by 8% and 31% compared to four years ago, also driven by the strength of our power brands, which delivered double-digit dollar consumption for the fifth consecutive quarter.

Overall, fiscal 2023 was another fantastic year for Snacks, with net sales growing at 13% and operating earnings growth at 24%, these results provide compelling proof that our strategic focus on highly differentiated and relevant brands is working and can lead to sustainable profitable growth. The next slide highlights the impressive performance and continued growth of our power brands, which grew consumption 10% versus the prior year. On a four-year basis, consumption was up 39%, with all eight brands growing double-digits in the quarter while holding volume share. This illustrates the strength of our core portfolio and reflects the continuation of heightened consumer demand for snacking. Turning to Slide 12, our Snacks business has delivered tremendous growth over the past two years.

The business has grown net sales at a 7% CAGR with operating earnings growth at a 12% CAGR over a two-year period. In the last fiscal year, we drove a step change in operating margin, growing from 13.1% in fiscal 2022 to 14.4% in fiscal 2023. This is consistent with our Snacks margin road map and gives us increased confidence that we’ll continue to deliver on our long-term goals and show steady improvement in fiscal 2024, where we expect to be north of 15%. I’m excited and very optimistic as we enter the new year with proven strategies and strong fundamentals and advantaged strong supply chain and arguably one of the most focused portfolio stories in the industry. Within Snacks, we continue to expect accelerated growth and to build on the margin trajectory from this year.

And in Meals & Beverages, we expect to continue to strengthen the business with sequential and steady improvement throughout the year. This story will only be made stronger following the completion of the Sovos Brands acquisition, adding the most compelling growth story in food to the Campbell’s portfolio. It’s an exciting combination. We understand and have planned for some short-term broad-based category dynamics in the early part of the year, especially in Q1. However, we have strong plans in place and are well positioned to gain momentum and deliver another strong year, adding further evidence of the transformation of the Campbell’s business. With that, I’ll pass it to Carrie, who will review our fourth quarter and full year results and present our fiscal 2024 outlook.

Carrie Anderson: Thanks Mark, and good morning everyone. I’ll begin with an overview of our fourth quarter results, which came in largely as expected with a mid-single-digit organic net sales increase and an adjusted EBIT performance that reflected planned fourth quarter investments in sales and marketing, especially in our Snacks business and continued headwinds related to a non-operating item. Fourth quarter organic net sales increased 5% to nearly $2.1 billion, reflecting inflation-driven net price realization, partially offset by some unfavorable volume and mix. Adjusted EBIT of $242 million was a 10% decrease to prior year as higher adjusted gross profit was offset by planned investments in marketing and selling and higher adjusted other expenses related to lower pension and post-retirement benefit income.

Adjusted EPS decreased 11% to $0.50, driven primarily by lower adjusted EBIT. The impact of lower pension and post-retirement benefit income reduced adjusted EBIT margin by 40 basis points and adjusted EPS by $0.02 in the quarter. We are pleased with our overall performance for the full year. Our fiscal year net sales results exceeded our initial guidance expectations provided a year ago, finishing the year with organic net sales growth of 10%, driven by higher net price realization. Adjusted EBIT grew 5% and adjusted earnings per share finished at $3, also up 5% and ahead of the top end of our initial expectation range despite a $0.02 greater adjusted EPS impact than originally planned from pension and post-retirement income. Overall, for the year, this non-operating item reduced full year adjusted EBIT by $44 million and adjusted EPS by $0.11.

Slide 17 summarizes the drivers of our fourth quarter net sales growth. Excluding the impact of the sale of the Emerald nuts business, organic net sales grew 5% in the quarter. We generated 10 percentage points of growth from inflation-driven net price realization. Volume and mix declined five percentage points across both divisions. Our fourth quarter adjusted gross profit margin of 30.6% was generally in line with Q3 with the year-over-year change in margin driven primarily by unfavorable volume and mix. As shown in the bridge, net price realization and productivity improvements more than offset cost inflation and other supply chain costs. Moving to Slide 19. Our teams continue to successfully mitigate inflationary headwinds that averaged 12% for the year.

We saw steady moderation as we move through the quarters with Q4 core inflation finishing at 6% compared to a high of 18% in Q1. Fourth quarter’s rate reflected improved trends in oils and flour as well as improvement in logistics and transportation. Net pricing averaged 13% for the full year, reflecting contributions from three waves of pricing aimed at offsetting double-digit inflation. We ended the year with a fourth quarter net pricing contribution of 10%, still benefiting from the impact of pricing waves three and four with price wave three fully wrapped as of July. In addition to pricing, we continue to deploy a range of other levers to mitigate inflation including supply chain productivity improvements and broader margin-enhancing initiatives, including a focus on discretionary spending across the organization.

We are pleased with the progress we have made on our cost savings initiatives. Through the fourth quarter, we have achieved $890 million of total savings under our multiyear cost savings program, inclusive of Snyder’s-Lance synergies. We remain on track to deliver savings of $1 billion by the end of fiscal 2025. Moving on to other operating items. Adjusted marketing and selling expenses increased 9%, driven by higher advertising and consumer promotion expense, or A&C, which increased 23% compared to the prior year, and higher selling expenses, partially offset by increased benefits from cost savings initiatives. The increase in A&C this quarter was primarily driven by the planned increases in our Snacks division. Overall, our adjusted marketing and selling expenses represented approximately 9% of net sales for the quarter and the full fiscal year.

And adjusted administrative expenses increased by $11 million or 7% to $164 million due to higher general administrative costs and inflation, partially offset by increased benefits from cost-saving initiatives. As shown on Slide 21, adjusted EBIT for the fourth quarter decreased 10%, primarily due to higher adjusted marketing and selling expenses, higher adjusted administrative expenses and higher adjusted other expenses related to lower pension and postretirement benefit income this year, partially offset by higher adjusted gross profit. Lower pension and postretirement benefit income this year drove an approximate $7 million impact to adjusted EBIT. Overall, our adjusted EBIT margin decreased to 11.7% in the quarter, primarily driven by a lower adjusted gross profit margin, higher adjusted marketing and selling expenses and the impact of lower pension and postretirement benefit income.

Turning to Slide 22, adjusted EPS of $0.50 was down 11% or $0.06 per share, compared to the prior year. This was primarily driven by the decrease in adjusted EBIT and slightly higher interest expense, partially offset by a lower adjusted effective tax rate and a reduction in the weighted average diluted shares outstanding. Turning to the segments in Meals & Beverage, fourth quarter organic net sales increased 1%, reflecting net price realization, partially offset by unfavorable volume and mix. Sales increases in foodservice and Prego pasta sauces, were partially offset by declines in beverages, U.S. soup and Canada. Sales of U.S. Soup decreased 2%, primarily due to declines in ready-to-serve soups, partially offset by strong increases in broth and modest increases in condensed.

Segment operating earnings in the quarter for Meals & Beverages decreased 18% to $132 million, primarily due to lower gross profit. Fourth quarter operating margin declined to 14.1%, driven by lower gross profit margin, which was largely due to higher cost inflation and other supply chain costs, as well as unfavorable mix between retail and foodservice, partially offset by net price realization and supply chain productivity improvements. For the fiscal year, segment operating margin declined to 18.2%, compared to 19% in the comparable year ago period. In Snacks, fourth quarter organic net sales increased 9% driven by sales of Power Brands, which were up 13%, and reflected net price realization, partially offset by modest unfavorable volume and mix.

Segment operating earnings in the quarter increased 12% to $158 million, primarily due to higher gross profit, partially offset by higher marketing and selling expenses as well as higher administrative expenses. Gross profit margin increased due to the impact of net price realization and supply chain productivity improvements, more than offsetting higher cost inflation and other supply chain costs and unfavorable volume and mix. Overall, within our Snacks division, fourth quarter operating margin increased year-over-year by 60 basis points to 14%. For the fiscal year, we were pleased with our margin progress posting a 130 basis point improvement to 14.4%, compared to 13.1% in the prior year. I’ll now turn to our cash flow and liquidity. Fiscal 2023 cash flow from operations was $1.14 billion, compared to $1.18 billion in the prior year, primarily due to changes in working capital partially offset by higher cash earnings.

In line with our commitment to return value to shareholders, we have returned nearly $590 million through dividends and share repurchases through this fiscal year. Cash outflows from investing activities reflected capital expenditures of $370 million, $128 million higher than in the prior year, as we invested in key growth areas, particularly in our Snacks division. Our year-to-date cash outflows from financing activities were $723 million, including $447 million of dividends paid and $142 million of share repurchases. At the end of the quarter, we had approximately $301 million remaining under the current $500 million strategic share repurchase program and approximately $104 million remaining under our $250 million anti-dilutive share repurchase program.

Our balance sheet ended the fiscal year in a strong position, with net debt of $4.5 billion and with a net debt to adjusted EBITDA leverage ratio of 2.6 times, well below our targeted three times range. This puts us in great shape as we plan for the pending Sovos Brands acquisition. As of year-end, the company had approximately $189 million in cash and cash equivalents and approximately $1.85 billion available under its revolving credit facility, providing a significant excess liquidity and flexibility. Turning to Slide 26, let me walk you through our full year fiscal ’24 guidance. As a reminder, the sale of our Emerald nuts business, which we divested in May of fiscal 2023, is estimated to reduce net sales by approximately 0.5 percentage point and have a $0.01 per share dilutive impact in fiscal 2024.

Additionally, the acquisition of Sovos Brands is expected to close by the end of December 2023, and therefore, is not yet included in our current fiscal 2024 outlook. For revenue, we expect reported net sales growth to be in a range of down 0.5% to plus 1.5% and organic net sales growth of flat to 2% for the year. Our expectations reflect improving volume trends throughout the year with an expected lower contribution from pricing and disciplined levels of promotional activity. In terms of phasing, we do expect volume declines to continue in the first half of fiscal 2024 with sequential improvement leading to positive trends in the second half. This dynamic will be most pronounced in Q1, where we would expect top line to be very much in line with consumption.

For earnings, we expect adjusted EBIT and adjusted EPS growth of 3% to 5% with an adjusted EPS range of $3.09 to $3.15. We also see the opportunity for modest margin progress. Having exited Q4 with core inflation of 6%, we expect sequential quarterly improvement throughout fiscal 2024 and expect full year core inflation in the low single-digit range. We also expect productivity improvements of approximately 3% and cost savings of approximately $35 million to $40 million towards our $1 billion savings program. As a result of improved second half volume trends and these cost dynamics, earnings growth and margin expansion are expected to be second half weighted. Additionally, in line with our continued commitment to brand investments, we expect marketing and selling expense as a percent of net sales to be at the low end of our targeted 9% to 10% range with a step-up in marketing and selling spend in the first quarter of fiscal 2024, both on a year-over-year basis and sequentially compared to the fourth quarter of fiscal 2023.

Division operating margins are expected to improve overall for fiscal 2024 with Snacks operating margins expected to be above 15% and modest operating margin expansion in Meals & Beverage expected in the second half of the fiscal year. Our full year adjusted EBIT and EPS guidance also comprehends an estimated pension headwind of approximately $13 million to adjusted EBIT or $0.03 per share. This is significantly lower than the impact we saw in fiscal 2023 and represents approximately 1% of both adjusted EBIT and adjusted EPS growth compared to the 3% to 4% impact we saw in the prior year. This headwind will be most pronounced in the first quarter. Other key assumptions underlying our guidance included an expected net interest expense of approximately $185 million to $190 million and an adjusted effective tax rate of approximately 24%.

As we think about the phasing for the year, we expect the first quarter adjusted earnings growth rate to be the lowest of the year due to the concentration of higher inflation, increased marketing and selling expenses, the highest quarter impact from lower pension income and some costs related to a nonmaterial cyber incident. As you know, we don’t provide quarterly guidance. Given the unique dynamics in Q1, however, we expect first quarter adjusted EPS likely in the upper $0.80 range with momentum building as the year progresses. As I wrap up guidance, capital expenditures are expected to be approximately 4.7% of net sales. Our priorities for fiscal 2024 include select capacity expansion projects, including the recently announced Goldfish investment, our headquarter consolidation and other programs to support our Snacks margin improvement plan as well as important IT and productivity investments.

We see great opportunity to reinvest back into the business in support of growth and improve profitability. This is fueling the modest step-up in investment compared to the last couple of years and remains very much aligned with our long-term algorithm and capital allocation priorities. We are also committed to maintaining a competitive dividend and a strong balance sheet. In closing, we are confident that the relevance of our brands, our strength and capabilities in marketing, innovation and supply chain execution provide a solid setup for accelerated growth in the second half of the year and into fiscal 2025. That concludes my prepared remarks, and I’ll turn it over to the operator for Q&A.

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Q&A Session

Operator: [Operator Instructions] And your first question comes from the line of Andrew Lazar from Barclays. Your line is open.

Andrew Lazar: Good morning, everybody.

Mark Clouse: Hi, Andrew.

Andrew Lazar: Mark, thanks for some of your commentary at the outset on the sort of the current operating environment in the industry and how that sort of impacts your thinking for the year ahead. You talked about a number of impacts and then a bunch of sort of timing factors, right, to keep in mind as we think about the year. So I guess I was hoping maybe you could maybe give us a little bit more color on sort of how you see the phasing, particularly as it relates to sort of volume recovery as you go through the year? And for the — I guess, for the full year, how you would think that organic growth target you’ve laid out sort of breaks out between, let’s say, volume and pricing? And then I guess, secondly just would be, do you feel like the, given it’s a back-end loaded year, and it’s for reasons that I understand, do you feel like you’re giving yourself enough room or flexibility to sort of hit those numbers, particularly in light of some of the very recent or near-term trends that you discussed in the industry?

Thanks so much.

Mark Clouse: Yes, sure. It’s a great question and one that I think, as you would imagine, we probably spent the greatest amount of time really trying to unpack it. And as you point out, as you rightfully point out, it really starts from getting a good understanding of what we’re experiencing now. And I think we’ve had a couple of quarters where arguably, we’ve seen consistent across, pretty broad-based across the industry some slowdown and perhaps a little less volume recovery than what many of us might have originally expected. And so really digging into that to understand the drivers, I think, are important for getting the confidence or the conviction in the full year. As I laid out earlier, we kind of anchored on three things that we see influencing the numbers with kind of variable impact as it relates to timing or sequence through the year.

So, the first one and the one perhaps that for many might not have been immediately on the radar screen is this kind of tail end of COVID impact. And I know that’s perhaps something we didn’t talk a lot about a year ago in fourth quarter. But as we really took time to kind of step back and compare baselines of our categories, especially some of our, let’s call it, less prevalent in the summer categories like soup, you really do see a very tight linkage to where we saw a couple of the surges that occurred in the tail end of fiscal ’22 for us and into the first quarter of ’23. That is really the tail end of it. So although we see that as a fairly material impact on a couple of areas, I do think you’re going, by the time you get really into the later part of Q1 and into Q2, we don’t see that as much of an impact.

And in fairness, I think looking back, it was probably a catalyst for helping us deliver even better elasticities than perhaps anyone really expected at that time. Although I would still say, even without it, it was still much better elasticities than what history would provide. So I think that one’s definitely a transitional one. You can see a start. You can see an end. I think we’ll feel that a little bit in Q1. But as we get through the balance of the year, I would not expect that to be a headwind. I think the second area I talked about is pricing. And that one obviously will be with us throughout the year, but the orders of magnitude will sequentially improve pretty significantly after being at kind of the peak, which is about 16% pricing impact in Q1.

And as that moderates through the year and gets better from quarter to quarter, I do expect that impact to become less significant just mathematically. But I also think that as you’re continuing to build and support the brands the way we’ve been doing it, I think that your volume and the prediction of volumes improving as you get to that kind of more, I would say, normal environment, I think that’s going to be one of the catalysts that helps the sequential improvement through the year. The last one and perhaps the most interesting, just to talk a little bit about is what’s the consumer behavior because perhaps at the end of the day, that’s going to be the greatest indicator of that recovery. And one of the things that I think has been interesting as we’ve really dug into this, is this bifurcation between seasonal categories.

And as consumers’ market baskets are shrinking, what we really see is this kind of two-pronged rationalization. One, first, prioritizing those categories that are more relevant in the season. So those that are more prevalent in the summer tend to hold up better in the consumer’s basket than maybe a soup, for example, where it drops pretty significantly in the summer in household penetration, and we can see that kind of amplified in a little bit of category-to-category comparisons. The great news is when the seasons move into the fall and into the winter, as I think we all understand kind of where the spikes are for soup in general, that jumps up to a top 10 category based on household penetration in those seasons. And that gives us a lot of conviction that the relevance and the prioritization of that in a shopper’s basket will begin to go up.

And in fact, even in the more recent trends, although far from perfect, we’ve started to see some of that improvement occurring. I mentioned this on the call, one of the things that’s quite interesting where snacking has been much steadier and more consistent. Part of that fact is because in every season, snacking is number one or number two as far as rating is a priority or household penetration for consumers. So I do think there is this dynamic where consumers are making trade-offs. And I think the second part of that is really this dynamic of consumers trying to stretch their dollar. And what I mean by that is we see a migration to categories and purchases that enable consumers to feed a greater number of family members or a greater number of servings.

And so you see things like pasta, rice, pasta sauce for us, our cooking condensed soups hold up and do very, very well, where some of our more single serve, maybe a little bit more individual products have been a little bit more impacted, if you will, by this recent kind of consumer tightening, if you will, that’s not unexpected in the — given the macroeconomic environment and kind of the sustained inflationary period. I think I expect that to continue. But as inflation perhaps moderates through the year, I would expect some of that pressure or some of that more return to normal to be present across the fiscal year, although I do see very much, especially in the first part of Q1, where we’re still in kind of that summer season. But this particular area will continue to impact the business.

But when you put together this kind of cycling of COVID, the moderation of pricing and what I think will be a better position for some of our categories relative to seasonality and priority in the basket along with a bit more expected normalizing of inflation, this is why we see the sequence of the year improving. And this is why we also think this is not a moment or a structural change to food that requires you to chase volume or share kind of to the bottom, right? So the idea that we’re going to need dysfunctional promotion to manage what I just walked through is just not what we’re seeing. And that’s why the confidence of the year is laid out the way it is. As far as why were we not more conservative? I think what we’ve always tried to do is appropriately give you the perspective on where we see ourselves and where we see the business with of course, a little bit of flexibility to deal with whatever the inevitable variability may be.

But we feel very good about how the year lays out. And even with a relatively tougher Q1 as we expect most of what you saw in Q4 to be more present in Q1, that sequence and that climb is going to be quite positive. Remember, too, this is — I remember when we delivered this imagining, lapping it. But last year Q1, we were 15% up on every metric. So top line, EBIT, EPS, all 15% growth. So our comps in the year are significantly tilted to a favorable first half to back half, which just is another reason as you model and do the math to feel a little better about that sequence.

Andrew Lazar: Great. Thanks for the detail. Have a good holiday.

Mark Clouse: Yes. Thanks. See you next week.

Operator: Your next question comes from the line of Ken Goldman from JPMorgan. Your line is open.

Ken Goldman: Hi. Thanks so much. Mark, you discussed some of the reasons for volumes to improve in the second half. I certainly appreciate the reasons why. I’m also curious to hear a little bit more about the plan to maybe improve market share, especially in soup and broth. I’m just curious, how we should think about share trends that we can see in Nielsen. Should we expect them to remain, I don’t know if the word challenged is right, but a little bit underwhelming until we can see some of the maybe bigger declines lapped. Or are there any changes you can make to pricing or other marketing efforts that maybe will help us see some of the scanner data in terms of market share reverse a little bit sooner?