Mark Clouse: Yes. So it’s a good question, Ken. And there’s clearly, I would say, very distinctly different parts of our portfolio as we kind of look at it today. I would certainly say one of the things that has been a standout for us has been our Snacks business. And as much as we talk a lot about the dynamics within Meals & Beverages, I would just say, for 50% of the business, we feel very, very good about how the brands have held up And although, we still see some pressure on pretzels, where you’ve got a very distinct driver and reason for that in the acceleration of that category through some new sub-segments, the most — the majority of our brands and especially our power brands really are positioned well. And although, we’ll cycle some pricing there as well, I feel very good about how we’re competitively positioned as it relates to brands like Goldfish or even our Pepperidge Farm cookie business, which we see a great holiday ahead and really have some terrific innovation coming.
Snack Factory has been very strong. Our Kettle potato chips is probably an area where we’ve seen a little bit more competition. But we know how to play that. We have a great value proposition as it relates to Kettle and Cape Cod and some super innovation there as well. So I would just say from a snack standpoint, and half of our business, we feel really good about how we’re positioned. Then I think as you get into Meals & Beverages, I do think that’s probably where we’ve experienced a little bit more pressure on share. But it is interesting as you kind of fully unpack it. One of the points that I made in my prepared remarks is, for example, on soup, if you were to remove broth as a segment, where we know we’re getting a lot more pressure from private label, it’s a more commoditized segment.
If you took broth out of that, our share is flat in soup, which is really a testament to the core growth areas I talked about, which represents 70% of that portfolio and where I fully expect to continue to grow and drive positive share as we have over the last several years. You had brands like Chunky returning to share growth. Pacific continues to do well. Our condensed cooking business has really just been performing extremely well competitively. And even in those categories where private label exists, those differentiations that are within those brands have been quite effective. I think on broth and some of our flankers within soup, which is where arguably we felt some of the greatest pressure, I think those are areas where you will see us be very focused on ensuring that value is protected in particular during key seasons or key holidays.
But we’ll make sure that we stay competitive. I think on some of the flankers, the opportunity that I think we have there is really to determine that those value propositions, and I think in some cases, we’ll have a good path forward. In others, you may see some rationalization in areas as we really tighten that portfolio for the future. But as I said, I think the thing that stands out to me is we talk a lot about the soup business, and is that a hindrance or a help. I think unpacking a little bit more of the segmentation helps a lot. When you contain 7% of our sales in the company that are in these more challenged areas and with opportunity to improve, I feel a lot better, and I hope the investors would as well that on the balance of that portfolio, we feel very good.
Pace has been another standout, and we’ve seen positive share there and really expect that value proposition. It’s used heavily in cooking in meals right now, which bodes quite well for Pace. And then Prego is an interesting one, right? We continue to grow as pasta sauce category performs very well. But we know there’s this other segment in ultra-distinctive that has really been outsized growth and we can’t compete there with Prego. That’s not what that brand does. So although I don’t love the share impact there, I kind of understand it. And of course, that’s a big catalyst for the Sovos, the potential Sovos acquisition, which I think will be a great complement to our Prego business and give us a lot of conviction going forward. So I think I would start by just saying, I don’t think the share performance of the business, when you look at the parts that are most critical, are in a dire position.
I think the areas where we do need some work are fairly contained and focused, and I think there’s a lot of reasons to believe that where we have strength, we’ll continue to drive that going forward.
Ken Goldman: Very helpful. Thank you. Have a great weekend.
Mark Clouse: Bye. Thanks, Ken.
Operator: Your next question comes from the line of Peter Galbo from Bank of America. Your line is open.
Peter Galbo: Hi. Good morning, Mark, Carrie. How are you guys?
Mark Clouse: Hi, Peter.
Peter Galbo: Mark, I just wanted to kind of hone in a little bit and not to make you do math on the call. But I think if you just kind of take the midpoint of the range you put into the outlook, it implies something like 100 basis points of gross margin expansion in ’24 relative to ’23. And understanding that’s probably a back half-weighted number, I just wanted to maybe give you a chance what gives you the confidence between, I guess, cost savings and COGS productivity maybe moderating inflation just to get there that we should kind of have confidence that, that can come back in the second half of the year?
Mark Clouse: Well, we did a pretty good job laying out the drivers right there, Peter. I mean I think, remember, you’ve got a wonderfully helpful tailwind in our Snacks business and the margin agenda that we’re anticipating there. As we mentioned in the call, we feel terrific about the step change that we made in fiscal ’23, getting up over 14% from our starting point back kind of pro forma around the 12% range. And as we look at ’24, we’ve got a lot of confidence in the initiatives that are there that will keep driving that, and we expect that to be north of 15% as we get into the year. So another important step in our journey to our longer-term margin goals for snacking. But I think underlying kind of macro across the business, you do have a dynamic where you’ve got reducing inflation as you sequence through the year, especially as we come off a relatively high peak in ’23, you’re at low single digits today, our outlook is for low single digits as we go into the year.
And arguably, that’s front-loaded improving through the year is a big driver for that reason why. And then I do think with that kind of moderation, you are enabling your productivity and your cost savings to be more incremental and get back to driving margin expansion. And even on our Meals & Beverage business, where we’re anticipating more of modest margin improvement, that will be a big factor for that business and why we believe we’ll start that journey back to some stronger margins as we get into the, in particular, into the back half of the year. But I think as you imagine that landscape, that’s how we’re seeing this margin bridge or progression through the year. And although we are pointing to a tougher Q1, as many of the dynamics in Q4 still are around in Q1, we’re not imagining a significant headwind on gross margins or margins that are going to really impact dramatically and then improve as we go.
Carrie, did I miss anything in there?
Carrie Anderson: Talk a little bit about foodservice. That was a —
Mark Clouse: That’s a great point, yes.
Carrie Anderson: It will normalize, that growth normalized, which brings itself a little bit of unfavorable mix in fiscal 2023. We won’t have.
Mark Clouse: Yes. I mean that’s a great point. I mean if you look at mix for this year, even in this quarter, if you look at especially Meals & beverage. And if you’re wondering a little bit the drivers of that margin that we anticipated, but it’s certainly significant, about a-third of that is coming from mix, which is really driven by the outsized contribution of foodservice. As we get into Q1, that actually goes away because the recovery of food service was really most pronounced starting right in the beginning of fiscal ’23. So that mix benefit as you start to go through the balance of the year will be yet another absence, I would say, of a headwind that we had this year.
Peter Galbo: Got it. Very helpful. Thanks, Mark.
Mark Clouse: Okay. Thanks, Peter.
Operator: Your next question comes from the line of Michael Lavery from Piper Sandler. Your line is open.
Michael Lavery: Thank you. Good morning.
Mark Clouse: Hi, Mike.
Michael Lavery: I wanted to drill into margins a little bit. And I guess just two parts of it. You gave the — the outlook for 2024 is 15% plus in Snacks. Maybe just confirming, would you still feel like you’re on track for 17% by fiscal ’25? Or is that been pushed out a bit? And then on Meals & Beverage, certainly, going into some of the inflation headwinds and some things that are clear. But with the fading pricing, is it just stepped up of productivity that really drives a better improvement in the back half? Like maybe just unpack that a little bit better as well.
Mark Clouse: Yes. So I think on the snack side, and Carrie will do this one together as well. But I would tell you that, I continue to feel very confident in our road map to 17%. I think as far as do we get all the way there in ’25, it will depend a little bit, I think, on some of the environmental elements that have been creating a little bit of the challenge that we’ve seen over the last couple of years. But I feel very good now with what we put on the board in ’23 and what the outlook is for ’24. And so I think we’re in the hunt. But I’m a little hesitant. I want to see a couple more variables as it relates to inflation and more environmental costs. One of the things we’ve talked a little bit about that we’ve had to try to work our way through is some of the fixed let’s call it, fixed inflation like labor has been tougher, more challenging than we originally put into the model.
The good news is we found other means in which to continue to drive further productivity. And so I think we’re – although, I see the kind of line of sight, if you will, to ’17, probably want to see a couple more of those variables come in to confirm for sure exactly that timing. And I know we owe that back to folks and we’re working on that, and we’ll provide that in the near future. I think on Meals & Beverages, it’s a little bit of a function of kind of cycling out of some of the environmental elements that are there. I will say one of the things that on Meals & Beverage has been a little tougher in the more recent period is we’ve been very judicious on pricing relative to inflation, and that’s probably put a little more pressure in Q4 as well as, to some degree, in the first part of the year.
