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Item 2. Management’s Discussion and Analysis

2022-12-07 compared with 2022-06-08 · 102 added, 220 removed, 175 unchanged (65% of the section changed)

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This Management's Discussion and Analysis of Financial Condition and Results of Operations is provided as a supplement to, and should be read in conjunction with, the Consolidated Financial Statements and the Notes to the Consolidated Financial Statements in "Part I - Item 1.

Financial Statements," and our Form 10-K for the year ended August 1, 2021, including but not limited to "Part I - Item 1A.

Financial Statements," and our Form 10-K for the year ended July 31, 2022, including but not limited to "Part I - Item 1A.

Risk Factors" and "Part II - Item 7.

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We operate in a highly competitive industry and experience competition in all of our categories.

On May 3, 2021, we completed the sale of our Plum baby food and snacks business.

The results of the business through the date of sale were reflected in continuing operations within the Meals & Beverages reportable segment.

Beginning in 2022, the foodservice and Canadian business formerly in our Snacks segment is managed as part of the Meals & Beverages segment.

Segment results have been adjusted retrospectively to reflect this change.

Business Trends

We have been actively monitoring the impact of the dynamic macroeconomic environment, including the COVID-19 pandemic, the conflict between Russia and Ukraine and inflation, on all aspects of our business.

We anticipate that 2022 will continue to be a dynamic macroeconomic environment and we expect significantly elevated levels of input cost inflation to persist throughout the remainder of 2022.

We anticipate that these headwinds will be partially mitigated by inflation-driven pricing actions, supply chain productivity improvements and cost savings initiatives.

We have been actively monitoring the impact of the dynamic macroeconomic environment, including input cost inflation, the conflict between Russia and Ukraine and the COVID-19 pandemic, on all aspects of our business.

We anticipate that 2023 will continue to be a dynamic macroeconomic environment and we expect elevated levels of input cost inflation to persist throughout 2023.

We will continue to take actions to mitigate a portion of this inflationary pressure, but we do not expect such benefits will fully offset the incremental costs in 2023.

While we as a North American focused company have no direct exposure to Russia and Ukraine, we have experienced shortages in materials and increased costs for transportation, energy and raw materials due in part to the negative impact of the Russia-Ukraine conflict on the global economy.

To date, the conflict between Russia and Ukraine has not had any material impact on our business, financial condition or results of operations.

There still remains uncertainty around the COVID-19 pandemic.

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We will continue to evaluate the extent to which the COVID-19 pandemic will impact our business, consolidated results of operations and financial condition.

To date, the conflict between Russia and Ukraine has not had any material impact on our business, financial condition or results of operations.

Net periodic pension and postretirement benefit income excluding any actuarial losses or gains is estimated to be approximately $35 million lower in 2023, subject to the impact of interim remeasurements.

The decrease in 2023 is due to increases in discount rates used to determine the benefit obligations and a decline in the market value of plan assets.

Summary of Results

This Summary of Results provides significant highlights from the discussion and analysis that follows.

• Net sales increased 7% in the quarter to $2,130 million due to inflation-driven pricing and sales allowances, partially offset by volume declines and the impact from the divestiture of the Plum baby food and snacks business.

Volumes declined driven by select supply constraints and price elasticities, partially offset by retailer inventory rebuild.

• Gross profit, as a percent of sales, decreased to 31.2% in 2022 from 31.7% in the prior-year quarter.

The decrease was primarily due to higher cost inflation and other supply chain costs as well as unfavorable volume/mix largely due to reduced operating leverage, partially offset by inflation-driven pricing actions, supply chain productivity improvements and cost savings initiatives.

• Earnings per share from continuing operations were $.62 in 2022, compared to $.54 a year ago.

The current quarter included expenses of $.08 per share and the prior-year quarter included gains of $.03 per share from items impacting comparability as discussed below.

• Net sales increased 15% in the quarter to $2.575 billion due to inflation-driven pricing and sales allowances, partially offset by volume declines.

• Gross profit, as a percent of sales, was 32.4% in 2023 compared to 32.3% in the prior-year quarter.

The increase was primarily due to inflation-driven pricing actions, supply chain productivity improvements, lower promotional spending and lower restructuring-related costs, partially offset by higher cost inflation and other supply chain costs as well as unfavorable volume/mix.

• Earnings per share were $.99 in 2023, compared to $.86 a year ago.

The current and prior-year quarter included expenses of $.03 per share from items impacting comparability as discussed below.

Net Earnings attributable to Campbell Soup Company

The following items impacted the comparability of net earnings and net earnings per share:

Continuing Operations

• We implemented several cost savings initiatives in recent years.

In the third quarter of 2022, we recorded implementation costs and other related costs of $5 million in Administrative expenses and $1 million in Cost of products sold (aggregate impact of $5 million after tax, or $.02 per share) related to these initiatives.

Year-to-date in 2022, we recorded implementation costs and other related costs of $10 million in Administrative expenses and $5 million in Cost of products sold (aggregate impact of $12 million after tax, or $.04 per share) related to these initiatives.

In the third quarter of 2021, we recorded Restructuring charges of $2 million and implementation costs and other related costs of $11 million in Administrative expenses and $2 million in Cost of products sold (aggregate impact of $11 million after tax, or $.04 per share) related to these initiatives.

Year-to-date in 2021, we recorded Restructuring charges of $21 million and implementation costs and other related costs of $21 million in Administrative expenses and $1 million in Cost of products sold (aggregate impact of $32 million after tax, or $.10 per share) related to these initiatives.

In the first quarter of 2023, we recorded implementation costs and other related costs of $3 million in Administrative expenses ($.01 per share) related to these initiatives.

In the first quarter of 2022, we recorded implementation costs and other related costs of $2 million in Administrative expenses and $2 million in Cost of products sold (aggregate impact of $3 million after tax, or $.01 per share) related to these initiatives.

See Note 6 to the Consolidated Financial Statements and "Restructuring Charges and Cost Savings Initiatives" for additional information;

• In the third quarter of 2022, we recognized actuarial losses in Other expenses / (income) of $16 million ($12 million after tax, or $.04 per share).

Year-to-date in 2022, we recognized actuarial losses in Other expenses / (income) of $12 million ($9 million after tax, or $.03 per share).

In the third quarter of 2021, we recognized actuarial gains in Other expenses / (income) of $4 million ($3 million after tax, or $.01 per share).

Year-to-date in 2021, we recognized actuarial gains in Other expenses / (income) of $38 million ($29 million after tax, or $.10 per share).

The actuarial gains and losses related to the remeasurements of U.S.

and Canadian pension plans.

These interim remeasurements were each due to lump sum distributions that exceeded or are expected to exceed service and interest costs resulting in settlement accounting for the plans;

• In the third quarter of 2022, we recorded a loss in Interest expense of $4 million ($3 million after tax, or $.01 per share) on the extinguishment of debt;

• In the third quarter of 2022, we recognized losses in Cost of products sold of $5 million ($4 million after tax, or $.01 per share) associated with unrealized mark-to-market adjustments on outstanding undesignated commodity hedges.

Year-to-date in 2022, we recognized losses in Cost of products sold of $8 million ($6 million after tax, or $.02 per share) associated with unrealized mark-to-market adjustments on outstanding undesignated commodity hedges.

In the third quarter of 2021, we recognized gains in Cost of products sold of $22 million ($17 million after tax, or $.06 per share) associated with unrealized mark-to-market adjustments on outstanding undesignated commodity hedges.

Year-to-date in 2021, we recognized gains in Cost of products sold of $39 million ($30 million after tax, or $.10 per share) associated with unrealized mark-to-market adjustments on outstanding undesignated commodity hedges;

• Year-to-date in 2021, we recorded a $19 million ($.06 per share) deferred tax charge in connection with a legal entity reorganization as part of the continued integration of Snyder's-Lance, Inc.

(Snyder's-Lance).

• In the first quarter of 2023, we recognized actuarial losses in Other expenses / (income) of $15 million ($11 million after tax, or $.04 per share).

In the first quarter of 2022, we recognized actuarial losses in Other expenses / (income) of $6 million ($5 million after tax, or $.02 per share).

The actuarial losses related to interim remeasurements of certain pension plans due to lump sum distributions that exceeded or are expected to exceed service and interest costs resulting in settlement accounting for the plans;

• In the first quarter of 2023, we recognized gains in Cost of products sold of $5 million ($4 million after tax, or $.01 per share) associated with unrealized mark-to-market adjustments on outstanding undesignated commodity hedges.

In the first quarter of 2022, we recognized losses in Cost of products sold of $3 million ($2 million after tax, or $.01 per share) associated with unrealized mark-to-market adjustments on outstanding undesignated commodity hedges.

The items impacting comparability are summarized below:

Three Months Ended

May 1, 2022 May 2, 2021

(Millions, except per share amounts) Earnings

Earnings from continuing operations attributable to Campbell Soup Company $ 188 $ .62 $ 166 $ .54

Loss from discontinued operations $ — $ — $ ( 6 ) $ ( .02 )

Net earnings attributable to Campbell Soup Company $ 188 $ .62 $ 160 $ .52

Continuing operations:

Restructuring charges, implementation costs and other related costs $ (5) $ (.02) $ (11) $ (.04)

Pension actuarial gains (losses) (12) (.04) 3 .01

Loss on debt extinguishment (3) (.01) — —

Commodity mark-to-market gains (losses) (4) (.01) 17 .06

Impact of items on Earnings from continuing operations $ (24) $ (.08) $ 9 $ .03

Nine Months Ended

May 1, 2022 May 2, 2021

October 30, 2022 October 31, 2021

(Millions, except per share amounts) Earnings

Earnings from continuing operations attributable to Campbell Soup Company $ 661 $ 2.18 $ 720 $ 2.36

Loss from discontinued operations $ — $ — $ (6) $ (.02)

Net earnings attributable to Campbell Soup Company $ 297 $ .99 $ 261 $ .86

Continuing operations:

Restructuring charges, implementation costs and other related costs $ (3) $ (.01) $ (3) $ (.01)

Pension actuarial gains (losses) (9) (.03) 29 .10

Loss on debt extinguishment (3) (.01) — —

Pension actuarial losses (11) (.04) (5) (.02)

Commodity mark-to-market gains (losses) 4 .01 (2) (.01)

Deferred tax charge — — (19) (.06)

Impact of items on Earnings from continuing operations (1)

Impact of items on Net earnings (1)

$ (10) $ (.03) $ (10) $ (.03)

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(1) Sum of the individual amounts may not add due to rounding.

Earnings from continuing operations were $188 million ($ .62 per share) in the current quarter, compared to $166 million ($ .54 per share) in the year-ago quarter.

After adjusting for items impacting comparability, earnings from continuing operations increased reflecting an improved gross profit performance, lower marketing and selling expenses and lower interest expense, partially offset by sales volume declines and lower other income.

Earnings per share benefited from a reduction in the weighted average diluted shares outstanding.

Earnings from continuing operations were $661 million ($ 2.18 per share) in the nine-month period this year, compared to $720 million ($ 2.36 per share) in the year-ago period.

After adjusting for items impacting comparability, earnings from continuing operations decreased reflecting sales volume declines, lower other income and higher administrative expenses, partially offset by lower marketing and selling expenses, an improved gross profit performance, lower interest expense and a lower effective tax rate.

Net earnings attributable to Campbell Soup Company were $297 million ($.99 per share) in the current quarter, compared to $261 million ($.86 per share) in the year-ago quarter.

After adjusting for items impacting comparability, earnings increased reflecting an improved gross profit, partially offset by higher marketing and selling expenses, a higher effective tax rate and higher other expenses.

Earnings per share benefited from a reduction in the weighted average diluted shares outstanding.

THIRD-QUARTER DISCUSSION AND ANALYSIS

FIRST-QUARTER DISCUSSION AND ANALYSIS

An analysis of net sales by reportable segment follows:

Three Months Ended

(Millions) May 1, 2022 May 2, 2021 % Change

(Millions) October 30, 2022 October 31, 2021 % Change

Meals & Beverages $ 1,455 $ 1,266 15

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An analysis of percent change of net sales by reportable segment follows:

Meals & Beverages Snacks (2)

Meals & Beverages (2)

Volume and mix (1)% (2)% (1)%

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Decreased / (increased) promotional spending (1)

Divestiture (2) — (1)

Currency (1) — —

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(2) Sum of the individual amounts does not add due to rounding.

In Meals & Beverages, sales increased 6%.

Excluding the impact from the divestiture of the Plum baby food and snacks business, sales increased primarily due to increases in U.S.

soup, foodservice and Prego pasta sauces, partially offset by declines in Canada.

Inflation-driven pricing and sales allowances were partially offset by increased promotional spending.

Volume decreased primarily due to supply constraints driven by labor and materials availability and price elasticities, partially offset by retailer inventory rebuild.

In Meals & Beverages, sales increased 15% primarily due to increases across U.S.

retail products, including U.S.

soup and Prego pasta sauces, as well as gains in foodservice.

Inflation-driven pricing and sales allowances and lower levels of

promotional spending were partially offset by volume declines.

Sales of U.S.

soup increased 15% due to increases in condensed soups and ready-to-serve soups, while broth was comparable to prior year.

In Snacks, sales increased 8% while sales of our power brands increased 13%.

Snacks sales increased due to increases in salty snacks, primarily Snyder’s of Hanover pretzels and Kettle Brand potato chips, as well as in cookies and crackers, primarily Goldfish crackers.

Inflation-driven pricing and sales allowances and decreased promotional spending were partly offset by volume declines.

Volumes declined driven by supply constraints based on materials availability and price elasticities, partially offset by retailer inventory rebuild.

soup increased 11% due to increases in ready-to-serve soups, condensed soups and broth.

In Snacks, sales increased 15% driven by sales of our power brands, which increased 21%.

Sales increased due to increases in cookies and crackers, primarily Goldfish crackers, and in salty snacks, primarily Snyder’s of Hanover pretzels and Kettle Brand and Cape Cod potato chips.

Inflation-driven pricing and sales allowances were partly offset by volume declines and increased promotional spending relative to moderated levels in the prior year.

Gross profit, defined as Net sales less Cost of products sold, increased by $112 million in 2023 from 2022.

As a percent of sales, gross profit was 32.4% in 2023 and 32.3% in 2022.

The 50 basis-point decrease in gross profit margin was due to the following factors:

The 10 basis-point increase in gross profit margin was due to the following factors:

Margin Impact

Price and sales allowances 1,130

Productivity improvements 230

Lower level of promotional spending 10

Lower restructuring-related costs 10

Cost inflation, supply chain costs and other factors (1)

Volume/mix (2)

Lower level of promotional spending 10

Productivity improvements 110

Price and sales allowances 790

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(1) Includes an estimated positive margin impact of 100 basis points related to the weather event in the prior year and 20 basis points from the benefit of cost savings initiatives, which were more than offset by cost inflation and other factors, including a 140 basis-point impact from the change in unrealized mark-to-market adjustments on outstanding undesignated commodity hedges.

(1) Includes an estimated positive margin impact of a 30 basis-point benefit from the change in unrealized mark-to-market adjustments on outstanding undesignated commodity hedge and 10 basis points from the benefit of cost savings initiatives, which were more than offset by cost inflation and other factors.

(2) Includes the impact of operating leverage.

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Marketing and selling expenses as a percent of sales were 7.8% in 2023 compared to 7.6% in 2022.

Marketing and selling expenses decreased 7% in 2022 from 2021.

The decrease was primarily due to lower advertising and consumer promotion expense (approximately 8 points).

The reduction in advertising and consumer promotion expense was due in part to the pacing of supply recovery in the current quarter and some on-going materials availability issues.

Marketing and selling expenses increased 18% in 2023 from 2022.

The increase was primarily due to higher advertising and consumer promotion expense (approximately 13 points) and higher selling expenses (approximately 9 points), partially offset by increased benefits from cost savings initiatives (approximately 2 points).

The increase in advertising and consumer promotion expense was due in part to moderated levels in the prior year from supply constraints.

Administrative Expenses

Administrative expenses as a percent of sales were 6.1% in 2023 compared to 7.0% in 2022.

Administrative expenses decreased 1% in 2022 from 2021.

The decrease was primarily due to lower costs associated with cost savings initiatives (approximately 4 points), partially offset by expenses related to the settlement of certain legal claims (approximately 3 points).

Administrative expenses increased 1% in 2023 from 2022.

The increase was primarily due to higher general administrative costs and inflation (approximately 9 points), partially offset by lower expenses related to the settlement of certain legal claims (approximately 8 points).

Other Expenses / (Income)

Other expenses was $10 million in 2022 compared to other income of $23 million in 2021.

Other expenses were $18 million in 2023 compared to other income of $1 million in 2022.

Other expenses in 2023 included pension actuarial losses of $15 million.

Other income in 2021 included pension actuarial gains of $4 million.

Excluding these amounts, the remaining decrease in other income was primarily due to income from transition services fees in the prior year.

Other income in 2022 included pension actuarial losses of $6 million.

Excluding these amounts, the remaining change was primarily due to lower net periodic pension and postretirement benefit income in the current year.

Operating Earnings

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Three Months Ended

(Millions) May 1, 2022 May 2, 2021 % Change

(Millions) October 30, 2022 October 31, 2021 % Change

Meals & Beverages $ 331 $ 280 18

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Operating earnings from Meals & Beverages increased 18%.

The increase was primarily due to improved gross profit performance, partially offset by sales volume declines.

Gross profit performance reflected mitigation of on-going inflation with pricing actions, lower other supply chain costs and supply chain productivity improvements, partially offset by unfavorable volume/mix, which was largely due to reduced operating leverage, as well as higher levels of promotional spending.

These results also reflect lower base operating earnings in the prior-year third quarter.

The increase was primarily due to higher gross profit, partially offset by higher marketing and selling expenses.

Gross profit margin increased due to the impact of inflation-driven pricing actions, supply chain productivity improvements and lower levels of promotional spending, partially offset by higher cost inflation and other supply chain costs as well as unfavorable volume/mix.

Operating earnings from Snacks increased 20%.

The increase was primarily due to improved gross profit performance and lower marketing and selling expenses, partially offset by higher administrative expenses.

Gross profit performance reflected mitigation of on-going inflation with pricing actions combined with the results of supply chain productivity improvements, execution improvements and cost savings initiatives, partially offset by some remaining elevated supply chain costs.

These results also reflect lower base operating earnings in the prior-year third quarter.

Corporate expense in 2022 included pension actuarial losses of $16 million, costs of $6 million related to costs savings initiatives, and unrealized mark-to-market losses on outstanding undesignated commodity hedges of $5 million.

Corporate expense in 2021 included costs of $13 million related to cost savings initiatives, pension actuarial gains of $4 million and unrealized mark-to-market gains on outstanding undesignated commodity hedges of $22 million.

Interest Expense

Interest expense decreased to $51 million in 2022 from $53 million in 2021, primarily due to lower levels of debt, partially offset by a loss on extinguishment of debt of $4 million in the current quarter.

Taxes on Earnings

The effective tax rate was 23.0% in 2022 and 24.2% in 2021.

The decrease in the effective tax rate was primarily due to state tax law changes in the prior year.

NINE-MONTH DISCUSSION AND ANALYSIS

An analysis of net sales by reportable segment follows:

Nine Months Ended

(Millions) May 1, 2022 May 2, 2021 % Change

Meals & Beverages $ 3,672 $ 3,743 (2)

Snacks 2,903 2,860 2

$ 6,575 $ 6,603 —

An analysis of percent change of net sales by reportable segment follows:

Meals & Beverages (2)

Volume and mix (6)% (6)% (6)%

Price and sales allowances 7 6 7

Decreased / (increased) promotional spending (1)

Divestiture (2) — (1)

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(1) Represents revenue reductions from trade promotion and consumer coupon redemption programs.

(2) Sum of the individual amounts does not add due to rounding.

In Meals & Beverages, sales decreased 2%.

Excluding the impact from the divestiture of the Plum baby food and snacks business, sales were comparable to the prior year as increases in U.S.

soup were offset by declines in Canada.

Inflation-driven pricing and sales allowances were partially offset by increased promotional spending relative to moderated levels in the prior year.

Volume decreased primarily due to supply constraints driven by labor and materials availability.

Sales of U.S.

soup increased 2%, due to increases in ready-to-serve soups, broth and condensed soups.

In Snacks, sales increased 2% while sales of our power brands increased 6%.

Snacks sales increased due to increases in cookies and crackers, primarily Goldfish crackers, partially offset by declines in non-core businesses.

Sales of salty snacks increased slightly with increases in Snyder’s of Hanover pretzels mostly offset by declines in Late July snacks.

Inflation-driven pricing and sales allowances and decreased promotional spending were partly offset by volume declines.

Volumes declined driven by supply constraints due to labor and materials availability and price elasticities, partially offset by retailer inventory rebuild .

Gross profit, defined as Net sales less Cost of products sold, decreased by $168 million in 2022 from 2021.

As a percent of sales, gross profit was 31.3% in 2022 and 33.7% in 2021.

The 240 basis-point decrease in gross profit margin was due to the following factors:

Margin Impact

Cost inflation, supply chain costs and other factors (1)

Volume/mix (2)

Higher level of promotional spending (10)

Higher restructuring-related costs (10)

Productivity improvements 120

Price and sales allowances 490

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(1) Includes an estimated positive margin impact of 30 basis points from the benefit of cost savings initiatives, which was more than offset by cost inflation and other factors, including a 70 basis-point impact from the change in unrealized mark-to-market adjustments on outstanding undesignated commodity hedges.

(2) Includes the impact of operating leverage.

Marketing and Selling Expenses

Marketing and selling expenses as a percent of sales were 8.4% in 2022 compared to 9.7% in 2021.

Marketing and selling expenses decreased 14% in 2022 from 2021.

The decrease was primarily due to lower advertising and consumer promotion expense (approximately 13 points).

The reduction in advertising and consumer promotion expense was due in part to the pacing of supply recovery in the current year and some on-going materials availability issues.

Administrative Expenses

Administrative expenses as a percent of sales were 6.9% in 2022 compared to 6.8% in 2021.

Administrative expenses were comparable in 2022 with 2021.

The change was primarily due to expenses related to the settlement of certain legal claims (approximately 4 points), partially offset by increased benefits from cost savings initiatives (approximately 3 points).

Other Expenses / (Income)

Other income was $10 million in 2022 compared to other income of $86 million in 2021.

Other income included pension actuarial losses of $12 million in 2022 and pension actuarial gains of $38 million in 2021.

Excluding these amounts, the remaining decrease in other income was primarily due to income from transition services fees in the prior year.

Operating Earnings

Segment operating earnings decreased 6% in 2022 from 2021.

An analysis of operating earnings by segment follows:

Nine Months Ended

(Millions) May 1, 2022 May 2, 2021 % Change

Meals & Beverages $ 713 $ 785 (9)

Snacks 376 377 —

1,089 1,162 (6)

Corporate income (expense) (96) (7)

Restructuring charges (1)

Earnings before interest and taxes $ 993 $ 1,134

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(1) See Note 6 to the Consolidated Financial Statements for additional information on restructuring charges.

Operating earnings from Meals & Beverages decreased 9%.

The decrease was primarily due to sales volume declines, partially offset by lower marketing and selling expenses.

Operating earnings from Snacks were comparable to the prior year.

Lower marketing and selling expenses and improved profit performance were offset by sales volume declines and higher administrative expenses due to the settlement of certain legal claims.

Gross profit performance was impacted by higher cost inflation and other supply chain costs and unfavorable volume/mix, which was largely due to reduced operating leverage, partially offset by the impact of pricing actions and lower promotional spending combined with the results of supply chain productivity improvements and cost savings initiatives.

Corporate expense in 2022 included costs of $15 million related to costs savings initiatives, pension actuarial losses of $12 million and unrealized mark-to-market losses on outstanding undesignated commodity hedges of $8 million.

Corporate expense in 2021 included costs of $22 million related to cost savings initiatives, pension actuarial gains of $38 million and unrealized mark-to-market gains on outstanding undesignated commodity hedges of $39 million.

The increase was primarily due to higher gross profit and lower administrative expenses, partially offset by higher marketing and selling expenses.

Gross profit margin declined due to higher cost inflation and other supply chain costs as well as unfavorable volume/mix and higher levels of promotional spending, partially offset by the impact of inflation-driven pricing actions and supply chain productivity improvements.

Corporate expense in 2023 included pension actuarial losses of $15 million, costs of $3 million related to costs savings initiatives and unrealized mark-to-market gains on outstanding undesignated commodity hedges of $5 million.

Corporate expense in 2022 included pension actuarial losses of $6 million, costs of $4 million related to cost savings initiatives and unrealized mark-to-market losses on outstanding undesignated commodity hedges of $3 million.

Excluding these amounts, the remaining increase was primarily due to lower net periodic pension and postretirement benefit income in the current year.

Interest Expense

Interest expense decreased to $144 million in 2022 from $163 million in 2021 primarily due to lower levels of debt, partially offset by a loss on extinguishment of debt of $4 million in the third quarter of 2022.

Interest expense of $47 million in 2023 is comparable to 2022.

Taxes on Earnings

The effective tax rate was 23.8% in 2023 and 20.7% in 2022.

The decrease in the effective tax rate was primarily due to a $19 million deferred tax charge recognized in the second quarter of 2021 in connection with a legal entity reorganization as part of the continued integration of Snyder's-Lance and the favorable resolution of several tax matters in the first quarter of 2022.

The increase in the effective tax rate was primarily due to the favorable resolution of several tax matters in 2022.

Restructuring Charges and Cost Savings Initiatives

Multi-year Cost Savings Initiatives and Snyder's-Lance Cost Transformation Program and Integration

Continuing Operations

Beginning in fiscal 2015, we implemented initiatives to reduce costs and to streamline our organizational structure.

Over the years, we expanded these initiatives by continuing to optimize our supply chain and manufacturing networks, including closing our manufacturing facility in Toronto, Ontario, as well as our information technology infrastructure.

Over the years, we expanded these initiatives by continuing to optimize our supply chain and manufacturing networks, as well as our information technology infrastructure.

On March 26, 2018, we completed the acquisition of Snyder's-Lance.

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Cost estimates for these expanded initiatives, as well as timing for certain activities, are continuing to be developed.

A summary of charges recorded in Earnings from continuing operations related to these initiatives is as follows:

Three Months Ended Nine Months Ended

A summary of the pre-tax charges recognized in the Consolidated Statements of Earnings related to these initiatives is as follows:

Three Months Ended

(Millions, except per share amounts)

May 1, 2022 May 2, 2021 May 1, 2022 May 2, 2021 Recognized as of May 1, 2022

October 30, 2022 October 31, 2021 Recognized as of October 30, 2022

Restructuring charges $ — $ — $ 264

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Per share impact $ .01 $ .01

A summary of the pre-tax costs in Earnings from continuing operations associated with these initiatives is as follows:

(Millions) Recognized as of May 1, 2022

A summary of the pre-tax costs associated with these initiatives is as follows:

(Millions) Recognized as of October 30, 2022

Severance pay and benefits

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Implementation costs and other related costs

The total estimated pre-tax costs for actions associated with continuing operations that have been identified are approximately $725 million to $735 million and we expect to incur substantially all of the costs through 2022.

The total estimated pre-tax costs for actions that have been identified are approximately $735 million to $740 million and we expect to incur the costs through 2023.

These estimates will be updated as the expanded initiatives are developed.

We expect the costs for actions associated with continuing operations that have been identified to date to consist of the following:

We expect the costs for actions that have been identified to date to consist of the following:

approximately $230 million in severance pay and benefits;

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and Corporate - approximately 26%.

Of the aggregate $725 million to $735 million of pre-tax costs associated with continuing operations identified to date, we expect approximately $625 million to $635 million will be cash expenditures.

In addition, we expect to invest approximately $440 million in capital expenditures, of which we invested $433 million as of May 1, 2022.

Of the aggregate $735 million to $740 million of pre-tax costs identified to date, we expect approximately $635 million to $640 million will be cash expenditures.

In addition, we expect to invest approximately $450 million in capital expenditures, of which we invested $440 million as of October 30, 2022.

We expect to invest in substantially all of the capital expenditures through 2023.

The capital expenditures primarily relate to a U.S.

thermal plants, optimization of information technology infrastructure and applications, and optimization of the Snyder’s-Lance warehouse and distribution network.

warehouse optimization project, improvement of quality, safety and cost structure across the Snyder’s-Lance manufacturing network, implementation of our existing SAP enterprise-resource planning system for Snyder's-Lance, transition of production within our Meals & Beverages manufacturing network, optimization of information technology infrastructure and applications and optimization of the Snyder’s-Lance warehouse and distribution network.

We expect to fund the costs through cash flows from operations and short-term borrowings.

We expect the initiatives for actions associated with continuing operations, once all phases are implemented, to generate annual ongoing savings of approximately $1,000 million by the end of 2025.

As of May 1, 2022, we have generated total program-to-date pre-tax savings of $840 million.

We expect the initiatives, once all phases are implemented, to generate annual ongoing savings of approximately $1 billion by the end of 2025.

As of October 30, 2022, we have generated total program-to-date pre-tax savings of $860 million.

Segment operating results do not include restructuring charges, implementation costs and other related costs because we evaluate segment performance excluding such charges.

A summary of the pre-tax costs in Earnings from continuing operations associated with segments is as follows:

(Millions) Three Months Ended Nine Months Ended Costs Incurred to Date

A summary of the pre-tax costs associated with segments is as follows:

October 30, 2022

(Millions) Three Months Ended Costs Incurred to Date

Meals & Beverages $ — $ 225

Snacks 4 11 310

Corporate 3 182

Total $ 3 $ 728

In addition, in the second quarter of 2021, we recorded a $19 million deferred tax charge in connection with a legal entity reorganization as part of the continued integration of Snyder's-Lance.

LIQUIDITY AND CAPITAL RESOURCES

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We generated cash flows from operations of $227 million in 2023, compared to $288 million in 2022.

The increase in 2022 was primarily due to changes in working capital, partially offset by lower cash earnings.

The decline in 2023 was primarily due to changes in working capital, partially offset by higher cash earnings.

Current assets are less than current liabilities as a result of our level of current maturities of long-term debt and short-term borrowings and our focus to lower core working capital requirements.

We had negative working capital of $847 million as of May 1, 2022, and $119 million as of August 1, 2021.

Total debt maturing within one year was $750 million as of May 1, 2022, and $48 million as of August 1, 2021.

We had negative working capital of $729 million as of October 30, 2022, and $923 million as of July 31, 2022.

Total debt maturing within one year was $858 million as of October 30, 2022, and $814 million as of July 31, 2022.

Capital expenditures were $77 million in 2023 and $69 million in 2022.

Capital expenditures are expected to total approximately $325 million in 2023.

Capital expenditures in the first nine months of 2022 included improvement of the quality and cost structure of the Snyder's-Lance manufacturing network, the implementation of our existing SAP enterprise-resource planning system for Snyder's-Lance, and cookie and cracker capacity expansion for our Snacks business.

Pepperidge Farm and Snyder’s-Lance have a direct-store-delivery distribution model that uses independent contractor distributors.

Capital expenditures in the first three months of 2023 included chip and cracker capacity expansion for our Snacks business and a new manufacturing line for our Meals & Beverages business.

In Snacks, we have a direct-store-delivery distribution model that uses independent contractor distributors.

In order to maintain and expand this model, we routinely purchase and sell routes.

The purchase and sale proceeds of the routes are reflected in investing activities.

On March 4, 2022, we completed the redemption of all $450 million outstanding aggregate principal amount of our 2.50% Senior Notes due August 2, 2022.

The consideration for the redemption was $453 million, including $3 million of premium.

We recognized a loss of $4 million (including the $3 million of premium and other costs), which was recorded in Interest expense in the Consolidated Statement of Earnings.

In addition, we paid accrued and unpaid interest on the redeemed notes through the date of settlement.

We used a combination of cash on hand and short-term debt to fund the redemption.

Dividend payments were $115 million in 2023 and $116 million in 2022.

The regular quarterly dividend paid on our capital stock was $.37 per share in both the third quarter of 2022 and 2021.

On March 2, 2022, the Board of Directors declared a regular quarterly dividend of $.37 per share payable on May 2, 2022 to shareholders of record at the close of business on April 7, 2022.

On May 24, 2022, the Board of Directors declared a regular quarterly dividend of $.37 per share payable on August 1, 2022 to shareholders of record at the close of business on July 7, 2022.

The regular quarterly dividend paid on our capital stock was $.37 per share in both the first quarter of 2023 and 2022.

On September 21, 2022, the Board of Directors declared a regular quarterly dividend of $.37 per share payable on October 31, 2022 to shareholders of record at the close of business on October 6, 2022.

On November 30, 2022, the Board of Directors declared a regular quarterly dividend of $.37 per share payable on January 30, 2023 to shareholders of record at the close of business on January 5, 2023.

In June 2021, the Board authorized an anti-dilutive share repurchase program of up to $250 million (June 2021 program) to offset the impact of dilution from shares issued under our stock compensation programs.

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Repurchases under the September 2021 program may be made in open-market or privately negotiated transactions.

We repurchased approximately 2.7 million shares at a cost of $116 million in 2022.

Of this amount, $41 million was used to repurchase shares pursuant to our June 2021 program and $75 million was used to repurchase shares pursuant to our September 2021 program.

As of May 1, 2022, approximately $173 million remained available under the June 2021 program and approximately $425 million remained available under the September 2021 program.

We repurchased 859 thousand shares at a cost of $41 million in 2023 pursuant to our June 2021 program.

As of October 30, 2022, approximately $131 million remained available under the June 2021 program and approximately $375 million remained available under the September 2021 program.

See Note 12 to the Consolidated Financial Statements and “Unregistered Sales of Equity Securities and Use of Proceeds” for additional information.

As of May 1, 2022, we had $750 million of short-term borrowings due within one year, $170 million of which was comprised of commercial paper borrowings.

As of May 1, 2022, we issued $32 million of standby letters of credit.

November 2, 2020, we entered into a committed revolving credit facility totaling $1,850 million scheduled to mature on November 2, 2023.

On September 27, 2021, we replaced the facility with a new $1,850 million committed revolving facility that matures on September 27, 2026.

The facility remained unused at May 1, 2022, except for $1 million of standby letters of credit that we issued under it.

As of October 30, 2022, we had $858 million of short-term borrowings due within one year, $280 million of which was comprised of commercial paper borrowings.

As of October 30, 2022, we issued $30 million of standby letters of credit.

On September 27, 2021, we entered into a committed revolving credit facility totaling $1.85 billion scheduled to mature on September 27, 2026.

The facility remained unused at October 30, 2022, except for $1 million of standby letters of credit that we issued under it.

The facility contains customary covenants, including a financial covenant with respect to a minimum consolidated interest coverage ratio of consolidated adjusted EBITDA to consolidated interest expense (as each is defined in the credit facility) of not less than 3.25:1.00, measured quarterly, and customary events of default for credit facilities of this type.

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We expect to continue to access the commercial paper markets, bank credit lines and utilize cash flows from operations to support our short-term liquidity requirements.

On November 15, 2022, we entered into a delayed draw term loan credit agreement (the DDTL Credit Agreement) totaling up to $500 million scheduled to mature on November 15, 2025.

Loans under the DDTL Credit Agreement will bear interest at

the rates specified in the DDTL Credit Agreement, which vary based on the type of loan and certain other conditions.

The DDTL Credit Agreement contains customary representations and warranties, affirmative and negative covenants, including a financial covenant with respect to a minimum consolidated interest coverage ratio of consolidated adjusted EBITDA to consolidated interest expense (as each is defined in the DDTL Credit Agreement) of not less than 3.25:1.00, and events of default for credit facilities of this type.

We anticipate using any of the proceeds of the loans under the DDTL Credit Agreement to refinance our existing $566 million Notes with a maturity date of March 15, 2023.

We are in compliance with the covenants contained in our credit facilities and debt securities.

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Actual results could differ from those estimates and assumptions.

Our significant accounting policies are described in Note 1 to the Consolidated Financial Statements in the Annual Report on Form 10-K for the year ended August 1, 2021 (2021 Annual Report on Form 10-K).

Our significant accounting policies are described in Note 1 to the Consolidated Financial Statements in the Annual Report on Form 10-K for the year ended July 31, 2022 (2022 Annual Report on Form 10-K).

The accounting policies we used in preparing these financial statements are substantially consistent with those we applied in our 2022 Annual Report on Form 10-K.

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We wish to caution the reader that the following important factors and those important factors described in our other Securities and Exchange Commission filings, or in our 2022 Annual Report on Form 10-K, could affect our actual results and could cause such results to vary materially from those expressed in any forward-looking statements made by, or on behalf of, us:

• impacts of, and associated responses to the COVID-19 pandemic on our business, suppliers, customers, consumers and employees;

• the risks related to the availability of, and cost inflation in, supply chain inputs, including labor, raw materials, commodities, packaging and transportation;

• the impacts of, and associated responses to the COVID-19 pandemic on our business, suppliers, customers, consumers and employees;

• our ability to execute on and realize the expected benefits from our strategy, including growing sales in snacks and growing/maintaining our market share position in soup;

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• our ability to realize projected cost savings and benefits from cost savings initiatives and the integration of recent acquisitions;

• disruptions in or inefficiencies to our supply chain and/or operations including the impacts of the COVID-19 pandemic;

• the risks related to the availability of, and cost inflation in, supply chain inputs, including labor, raw materials, commodities, packaging and transportation;

• disruptions in or inefficiencies to our supply chain and/or operations;

• risks related to the effectiveness of our hedging activities and our ability to respond to volatility in commodity prices;

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis