What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-12-06 compared with 2023-06-07 · 141 added, 204 removed, 183 unchanged (65% of the section changed)

8 unchanged sentences

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

On May 30, 2023, we sold our Emerald nuts business for $40 million, subject to certain post-closing adjustments.

The results of the business through the date of sale are reflected within the Snacks reportable segment.

See Note 17 to the Consolidated Financial Statements for additional information.

On May 30, 2023, we completed the sale of our Emerald nuts business for $41 million.

The results of the business through the date of sale were reflected within the Snacks reportable segment.

Sovos Brands, Inc.

(Sovos Brands) Acquisition Update

On August 7, 2023, we entered into a merger agreement to acquire Sovos Brands for $23.00 per share in cash, representing a total enterprise value of approximately $2.7 billion.

The closing of the Sovos Brands acquisition is subject to certain customary mutual conditions, including among other things the expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the HSR Act).

If any condition to the acquisition is not satisfied or waived, the completion of the acquisition could be significantly delayed or not occur at all.

On October 16, 2023, at a special meeting of Sovos Brands’ stockholders, the proposal to adopt the merger agreement was approved.

On October 23, 2023, we and Sovos Brands each received a request for additional information (the Second Request) from the U.S.

Federal Trade Commission (the FTC) in connection with the FTC’s review of the transaction contemplated by the merger agreement.

Issuance of the Second Request extends the waiting period under the HSR Act until 30 days after both we and Sovos Brands substantially comply with the Second Request, unless the waiting period is extended voluntarily by the parties or terminated earlier by the FTC.

We now expect that the merger will close in calendar 2024, and we will continue to engage with the FTC on its review with the objective of closing the transaction in mid-calendar 2024.

For additional information on this pending acquisition, see our Form 8-K filed with the U.S.

Securities and Exchange Commission on August 7, 2023.

Business Trends

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 volatility in costs 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.

The ultimate impact depends on the severity and duration of the pandemic, including the emergence and spread of new COVID-19 variants and resurgences, the continued availability and effectiveness of vaccines and actions taken by government authorities and other third parties in response to the pandemic.

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

Net periodic pension and postretirement benefit income excluding any actuarial losses or gains is estimated to be approximately $45 million lower in 2023.

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.

Our industry continues to be impacted by commodity cost fluctuations, labor cost inflation, input cost inflation and other global macroeconomic challenges.

We experienced a moderate amount of input cost inflation during the first quarter of 2024, and we expect modest pressures of input cost inflation to continue throughout the remainder of 2024.

We have also experienced a reduction to our volumes due to lower consumption trends seen throughout the industry.

We expect these trends to improve as inflation continues to moderate throughout the remainder of 2024.

We anticipate continued supply chain productivity and previously implemented pricing actions to mitigate some of the inflationary pressures, and expect such benefits to largely offset the incremental costs in 2024.

We will continue to evaluate the evolving macroeconomic environment to take action to mitigate the impact on our business, consolidated results of operations and financial condition.

We will also be lapping 2023 price increases, and anticipate that favorable net price realization will represent a reduced contribution to sales in 2024.

Summary of Results

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

• Net sales increased 5% in the quarter to $2.229 billion.

Favorable inflation-driven net price realization was partially offset by expected volume/mix declines, which were driven by lapping prior year retailer inventory rebuild as well as lower volume consumption due to elasticities.

• Net sales decreased 2% in the quarter to $2.518 billion following a 15% increase in the prior year.

Volume/mix declines were partially offset by net price realization.

On a two-year compounded annual growth rate (CAGR), net sales increased approximately 6%.

• Gross profit, as a percent of sales, was 31.3% in 2024 compared to 32.4% in the prior-year quarter.

The decrease was primarily due to unfavorable volume/mix, with favorable net price realization and supply chain productivity improvements more than offsetting higher cost inflation and other supply chain costs.

The decrease was primarily due to higher cost inflation and other supply chain costs as well as unfavorable volume/mix, partially offset by favorable net price realization and supply chain productivity improvements.

• Earnings per share were $.78 in 2024, compared to $.99 a year ago.

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• We implemented several cost savings initiatives in recent years.

In the third quarter of 2023, we recorded Restructuring charges of $6 million and implementation costs and other related costs of $13 million in Administrative expenses, $12 million in Cost of products sold and $2 million in Research and development expenses (aggregate impact of $24 million after tax, or $.08 per share) related to these initiatives.

Year-to-date in 2023, we recorded Restructuring charges of $15 million and implementation costs and other related costs of $21 million in Administrative expenses, $12 million in Cost of products sold and $2 million in Research and development expenses (aggregate impact of $37 million after tax, or $.12 per share) related to these initiatives.

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 first quarter of 2024, we recorded Restructuring charges of $2 million and implementation costs and other related costs of $5 million in Administrative expenses, $3 million in Cost of products sold, $2 million in Marketing and selling expenses and $1 million in Research and development expenses (aggregate impact of $10 million after tax, or $.03 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.

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

• In the third quarter of 2023, we recognized actuarial losses in Other expenses / (income) of $17 million ($13 million after tax, or $.04 per share).

Year-to-date in 2023, we recognized actuarial losses in Other expenses / (income) of $26 million ($20 million after tax, or $.07 per share).

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).

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 third quarter of 2023, we recognized losses in Cost of products sold of $9 million ($7 million after tax, or $.02 per share) associated with unrealized mark-to-market adjustments on outstanding undesignated commodity hedges.

Year-to-date in 2023, we recognized losses in Cost of products sold of $9 million ($7 million after tax, or $.02 per share) associated with unrealized mark-to-market adjustments on outstanding undesignated commodity hedges.

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 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 first quarter of 2024, we recognized losses in Cost of products sold of $15 million ($11 million after tax, or $.04 per share) associated with unrealized mark-to-market adjustments on outstanding undesignated commodity hedges.

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 2024, we recorded accelerated amortization expense in Other expenses / (income) of $7 million ($5 million after tax, or $.02 per share) related to customer relationship intangible assets due to the loss of certain contract manufacturing customers;

• In the first quarter of 2024, we announced our intent to acquire Sovos Brands and incurred costs in Other expenses / (income) of $9 million ($8 million after tax, or $.03 per share) associated with the pending acquisition;

• In the first quarter of 2024, we recorded costs of $2 million in Cost of products sold and $1 million in Administrative expenses (aggregate impact of $2 million after tax, or $.01 per share) related to a cybersecurity incident that was identified in the fourth quarter of 2023;

• In the first quarter of 2024, we recorded pre- and after-tax litigation expenses in Administrative expenses of $2 million ($.01 per share) related to the Plum baby food and snacks business (Plum), which was divested on May 3, 2021;

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

The actuarial loss related to interim remeasurements of a U.S.

pension plan due to lump sum distributions that were expected to exceed service and interest costs resulting in settlement accounting for the plan.

The items impacting comparability are summarized below:

Three Months Ended

April 30, 2023 May 1, 2022

October 29, 2023 October 30, 2022

(Millions, except per share amounts) Earnings

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Restructuring charges, implementation costs and other related costs $ (10) $ (.03) $ (3) $ (.01)

Commodity mark-to-market gains (losses) (11) (.04) 4 .01

Accelerated amortization (5) (.02) — —

Costs associated with pending acquisition (8) (.03) — —

Cybersecurity incident costs (2) (.01) — —

Plum litigation expenses (2) (.01) — —

Pension actuarial losses — — (11) (.04)

Commodity mark-to-market losses (7) (.02) (4) (.01)

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

Impact of items on Net earnings (1)

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

Nine Months Ended

April 30, 2023 May 1, 2022

(Millions, except per share amounts) Earnings

Net earnings attributable to Campbell Soup Company $ 689 $ 2.29 $ 661 $ 2.18

Restructuring charges, implementation costs and other related costs $ (37) $ (.12) $ (12) $ (.04)

Pension actuarial losses (20) (.07) (9) (.03)

Commodity mark-to-market losses (7) (.02) (6) (.02)

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

Impact of items on Net earnings $ (64) $ (.21) $ (30) $ (.10)

Net earnings attributable to Campbell Soup Company were $234 million ($.78 per share) in the current quarter, compared to $297 million ($.99 per share) in the year-ago quarter.

After adjusting for items impacting comparability, earnings decreased reflecting higher other expenses and a higher effective tax rate as higher gross profit more than offset higher administrative expenses and higher marketing and selling expenses.

Other expenses increased as net periodic pension and postretirement benefit income excluding any actuarial losses was $12 million ($9 million after tax, or $.03 per share) lower in 2023.

Net earnings attributable to Campbell Soup Company were $689 million ($2.29 per share) in the nine-month period this year, compared to $661 million ($2.18 per share) in the year-ago period.

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

After adjusting for items impacting comparability, earnings decreased reflecting lower gross profit, higher marketing and selling expenses, higher other expenses and higher interest expense, partially offset by lower administrative expenses.

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

Net periodic pension and postretirement benefit income excluding any actuarial losses was $37 million ($28 million after tax, or $.09 per share) lower in 2023.

THIRD-QUARTER DISCUSSION AND ANALYSIS

FIRST-QUARTER DISCUSSION AND ANALYSIS

An analysis of net sales by reportable segment follows:

Three Months Ended

(Millions) April 30, 2023 May 1, 2022 % Change

(Millions) October 29, 2023 October 30, 2022 October 31, 2021 % Change 2024/2023 Two-Year CAGR %

Meals & Beverages $ 1,404 $ 1,455 $ 1,266 (4) 5

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

Meals & Beverages (2)

Volume and mix (11)% (3)% (7)%

2024 versus 2023 Meals & Beverages Snacks

Volume/mix (6)% (4)% (5)%

Net price realization (1)

Currency (1) — —

Divestiture — (2) (1)

(4)% (1)% (2)%

__________________________________________

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

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In Meals & Beverages, sales decreased 4% primarily due to declines in U.S.

soup and the impact of currency, partially offset by gains in foodservice.

The price driven in-market growth was more than offset by an expected decline in volume/mix driven by lapping prior year retailer inventory rebuild as well as lower volume consumption due to elasticities and increased competitive pressure.

The retailer inventory impact was most pronounced in U.S.

soup, which had a sales decline of 11% in comparison to relatively flat in-market performance.

In Snacks, sales increased 12% driven by sales of our power brands, which increased 16%.

Sales increased due to increases in cookies and crackers, primarily Goldfish crackers and Lance sandwich crackers, and in salty snacks, primarily Kettle Brand

potato chips, Snack Factory pretzel crisps, Cape Cod potato chips and Snyder’s of Hanover pretzels.

Sales benefited from favorable net price realization, partially offset by modest volume/mix declines.

Gross profit, defined as Net sales less Cost of products sold, increased by $3 million in 2023 from 2022.

retail products, including U.S.

soup and beverages, partially offset by gains in foodservice.

Volume/mix declines were partially offset by favorable net price realization.

On a two-year CAGR basis, net sales increased approximately 5%.

Following an 11% increase in the prior year, sales of U.S.

soup decreased 5% primarily due to decreases in condensed soups and ready-to-serve soups, partially offset by an increase in broth.

In Snacks, sales decreased 1%.

Excluding the impact from the divestiture of the Emerald nuts business, sales increased driven by sales of our power brands, which increased 5%.

Sales increased due to increases in cookies and crackers, primarily Lance sandwich crackers and Goldfish crackers, partially offset by declines in sales of third-party partner brands.

Sales benefited from favorable net price realization, partially offset by volume/mix declines.

On a two-year CAGR basis, net sales increased approximately 7%.`

Gross profit, defined as Net sales less Cost of products sold, decreased by $46 million in 2024 from 2023.

As a percent of sales, gross profit was 31.3% in 2024 and 32.4% in 2023.

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__________________________________________

(1) Includes a 10 basis-point impact from the change in unrealized mark-to-market adjustments on outstanding undesignated commodity hedges.

Includes the impact of a 50 basis-point benefit in 2022 from the settlement of an insurance claim.

(1) Includes an estimated positive margin impact of 10 basis points from the benefit of cost savings initiatives which was more than offset by cost inflation and other factors, including an 80 basis-point negative impact from the change in unrealized mark-to-market adjustments on outstanding undesignated commodity hedges and a 10 basis-point negative impact from a cybersecurity incident.

(2) Includes the impact of operating leverage.

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Marketing and selling expenses increased 10% in 2024 from 2023.

The increase was primarily due to higher selling expenses (approximately 5 points), partially offset by increased benefits from cost savings initiatives (approximately 3 points).

Advertising and consumer promotion expense declined slightly.

The increase was primarily due to higher selling expenses (approximately 4

points), higher advertising and consumer promotion expense (approximately 2 points) and higher other marketing expenses (approximately 2 points).

The increase in advertising and consumer promotion expense was primarily in Snacks.

Administrative Expenses

Administrative expenses as a percent of sales were 6.3% in 2024 compared to 6.1% in 2023.

Administrative expenses increased 11% in 2023 from 2022.

The increase was primarily due to higher costs associated with cost savings initiatives (approximately 5 points), higher general administrative costs and inflation (approximately 5 points), higher incentive compensation (approximately 2 points) and higher benefit-related costs (approximately 2 points), partially offset by lower expenses related to the settlement of certain legal claims (approximately 3 points).

Administrative expenses in 2024 were comparable to 2023.

Lower general administrative costs (approximately 4 points) were offset by inflation (approximately 2 points) and higher costs associated with cost savings initiatives (approximately 1 point).

Other Expenses / (Income)

Other expenses were $24 million in 2024 compared to other expenses of $18 million in 2023.

Other expenses / (income) in 2023 included pension actuarial losses of $17 million.

Other expenses in 2022 included pension actuarial losses of $16 million.

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

Other expenses in 2024 included costs associated with the pending acquisition of $9 million and accelerated amortization expense of $7 million.

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

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

Operating Earnings

Segment operating earnings increased 4% in 2023 from 2022.

Segment operating earnings decreased 7% in 2024 from 2023.

An analysis of operating earnings by segment follows:

Three Months Ended

(Millions) April 30, 2023 May 1, 2022 % Change

(Millions) October 29, 2023 October 30, 2022 % Change

Meals & Beverages $ 287 $ 331 (13)

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Operating earnings from Meals & Beverages decreased 13%.

The decrease was primarily due to lower gross profit with part of the decline due to lapping an insurance settlement in the prior year.

Gross profit margin decreased due to unfavorable

volume/mix, with favorable net price realization and supply chain productivity improvements largely offsetting higher cost inflation and other supply chain costs.

Operating earnings from Snacks increased 41%.

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

Gross profit margin increased due to favorable net price realization and supply chain productivity improvements more than offsetting higher cost inflation and other supply chain costs as well as unfavorable volume/mix.

Corporate expense in 2023 included costs of $27 million related to costs savings initiatives, pension actuarial losses of $17 million and unrealized mark-to-market losses on outstanding undesignated commodity hedges of $9 million.

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

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

Interest Expense

Interest expense of $47 million in 2023 decreased from $51 million in 2022.

The decline was primarily due to a loss on extinguishment of debt of $4 million in the prior-year quarter.

Taxes on Earnings

The effective tax rate was 23.1% in 2023 and 23.0% in 2022.

NINE-MONTH DISCUSSION AND ANALYSIS

An analysis of net sales by reportable segment follows:

Nine Months Ended

(Millions) April 30, 2023 May 1, 2022 % Change

Meals & Beverages $ 3,971 $ 3,672 8

Snacks 3,318 2,903 14

$ 7,289 $ 6,575 11

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

Meals & Beverages Snacks

Volume and mix (5)% (1)% (3)%

Net price realization (1)

Currency (1) — —

__________________________________________

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

In Meals & Beverages, sales increased 8% primarily due to increases in U.S.

retail products, including U.S.

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

Favorable net price realization was partially offset by volume/mix declines.

Sales of U.S.

soup increased 4% primarily due to increases in ready-to-serve soups and broth.

In Snacks, sales increased 14% driven by sales of our power brands, which increased 19%.

Sales increased due to increases in cookies and crackers, primarily Goldfish crackers, Lance sandwich crackers and Pepperidge Farm cookies, and in salty snacks, primarily Snyder’s of Hanover pretzels, Kettle Brand and Cape Cod potato chips and Snack Factory pretzel crisps.

Sales benefited from favorable net price realization.

Gross profit, defined as Net sales less Cost of products sold, increased by $205 million in 2023 from 2022.

As a percent of sales, gross profit was 31.0% in 2023 and 31.3% in 2022.

The 30 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 restructuring-related costs (10)

Net price realization 1,020

Productivity improvements 270

__________________________________________

(1) Includes an estimated positive margin impact of 10 basis points from the benefit of cost savings initiatives, which was more than offset by cost inflation and other factors.

(2) Includes the impact of operating leverage.

Marketing and Selling Expenses

Marketing and selling expenses as a percent of sales were 8.4% in 2023 and 2022.

Marketing and selling expenses increased 10% in 2023 from 2022.

The increase was primarily due to higher advertising and consumer promotion expense (approximately 7 points) and higher selling expenses (approximately 6 points), partially offset by increased benefits from cost savings initiatives (approximately 3 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 6.7% in 2023 compared to 6.9% in 2022.

Administrative expenses increased 7% in 2023 from 2022.

The increase was primarily due to higher general administrative costs and inflation (approximately 7 points), higher costs associated with cost savings initiatives (approximately 2 points) and higher incentive compensation (approximately 2 points), partially offset by lower expenses related to the settlement of certain legal claims (approximately 5 points).

Other Expenses / (Income)

Other expenses were $41 million in 2023 compared to other income of $10 million in 2022.

Other expenses in 2023 included pension actuarial losses of $26 million.

Other income in 2022 included pension actuarial losses of $12 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

Segment operating earnings increased 14% in 2023 from 2022.

An analysis of operating earnings by segment follows:

Nine Months Ended

(Millions) April 30, 2023 May 1, 2022 % Change

Meals & Beverages $ 762 $ 713 7

Snacks 482 376 28

1,244 1,089 14

Corporate income (expense) (189) (96)

Restructuring charges (1)

Earnings before interest and taxes $ 1,040 $ 993

__________________________________________

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

Operating earnings from Meals & Beverages increased 7%.

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

Gross profit margin decreased due to unfavorable volume/mix, with favorable net price realization and supply chain productivity improvements more than offsetting higher cost inflation and other supply chain costs.

The decrease was primarily due to lower gross profit.

Gross profit margin decreased due to higher cost inflation and other supply chain costs as well as unfavorable volume/mix, partially offset by supply chain productivity improvements and favorable net price realization.

Operating earnings from Snacks increased 5%.

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

Gross profit margin increased due to favorable net price realization and supply chain

productivity improvements, partially offset by higher cost inflation and other supply chain costs as well as unfavorable volume/mix.

Corporate expense in 2023 included costs of $35 million related to costs savings initiatives, pension actuarial losses of $26 million and unrealized mark-to-market losses on outstanding undesignated commodity hedges of $9 million.

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

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

Gross profit margin increased due to favorable net price realization and supply chain productivity improvements more than offsetting higher cost inflation and other supply chain costs.

Corporate expense in 2024 included the following:

• $15 million of unrealized mark-to-market losses on outstanding undesignated commodity hedges;

• costs of $11 million related to costs savings initiatives;

• $9 million of costs associated with the pending acquisition of Sovos Brands;

• $7 million of accelerated amortization expense;

• $3 million of costs associated with a cybersecurity incident;

• $2 million of Plum litigation expenses.

Corporate expense in 2023 included the following:

• $15 million of a pension actuarial loss;

• costs of $3 million related to cost savings initiatives;

• $5 million of unrealized mark-to-market gains on outstanding undesignated commodity hedges.

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

Interest Expense

Interest expense of $139 million in 2023 decreased from $144 million in 2022 primarily due to a loss on extinguishment of debt of $4 million in the prior year.

Interest expense of $49 million in 2024 increased from $47 million in 2023.

The increase was primarily due to higher average interest rates on the debt portfolio.

Taxes on Earnings

The effective tax rate was 24.5% in 2024 and 23.8% in 2023.

The increase in the effective tax rate was primarily due to the benefit from the favorable resolution of several tax matters and state tax law changes in 2022.

Restructuring Charges and Cost Savings Initiatives

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

Three Months Ended Nine Months Ended

Three Months Ended

(Millions, except per share amounts)

April 30, 2023 May 1, 2022 April 30, 2023 May 1, 2022 Recognized as of April 30, 2023

October 29, 2023 October 30, 2022 Recognized as of October 29, 2023

Restructuring charges $ 2 $ — $ 282

7 unchanged sentences

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

(Millions) Recognized as of April 30, 2023

(Millions) Recognized as of October 29, 2023

Severance pay and benefits

1 unchanged sentence

Implementation costs and other related costs

The total estimated pre-tax costs for actions that have been identified are approximately $880 million to $900 million and we expect to incur the costs through 2025.

The total estimated pre-tax costs for actions that have been identified are approximately $885 million to $905 million and we expect to incur substantially all of the costs through 2025.

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

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Of the aggregate $885 million to $905 million of pre-tax costs identified to date, we expect approximately $710 million to $730 million will be cash expenditures.

In addition, we expect to invest approximately $620 million in capital expenditures through 2025, of which we invested $455 million as of April 30, 2023.

The capital expenditures primarily relate to optimization of production within our Meals & Beverages manufacturing network, a U.S.

In addition, we expect to invest approximately $620 million in capital expenditures, of which we invested $482 million as of October 29, 2023.

We expect to invest in substantially all of the capital expenditures through 2025.

The capital expenditures primarily relate to optimization of production within our Meals & Beverages

manufacturing network, a U.S.

warehouse optimization project, improvement of quality, safety and cost structure across the Snyder’s-Lance manufacturing network, optimization of information technology infrastructure and applications, implementation of our existing SAP enterprise-resource planning system for Snyder's-Lance, enhancements to our headquarters in Camden, New Jersey, and optimization of the Snyder’s-Lance warehouse and distribution network.

1 unchanged sentence

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 April 30, 2023, we have generated total program-to-date pre-tax savings of $880 million.

As of October 29, 2023, we have generated total program-to-date pre-tax savings of $895 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 associated with segments is as follows:

April 30, 2023

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

October 29, 2023

(Millions) Three Months Ended Costs Incurred to Date

Meals & Beverages $ 4 $ 255

Snacks 9 19 340

Corporate 3 198

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We believe that our sources of financing will be adequate to meet our future requirements.

We generated cash flows from operations of $918 million in 2023, compared to $1.101 billion in 2022.

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 debt maturing within one year and our focus to lower core working capital requirements.

We had negative working capital of $184 million as of April 30, 2023, and $923 million as of July 31, 2022.

Total debt maturing within one year was $263 million as of April 30, 2023, and $814 million as of July 31, 2022.

We generated cash flows from operations of $174 million in 2024, compared to $227 million in 2023.

The decline in 2024 was primarily due to lower cash earnings.

Current assets are less than current liabilities, which include debt maturing in one year, as we focus on lowering core working capital requirements.

We had negative working capital of $71 million as of October 29, 2023, and $161 million as of July 30, 2023.

Total debt maturing within one year was $206 million as of October 29, 2023, and $191 million as of July 30, 2023.

As part of our focus to lower core working capital requirements, we have worked with our suppliers to optimize our terms and conditions, including the extension of payment terms.

Our current payment terms with our suppliers, which we deem to be commercially reasonable, generally range from 0 to 120 days.

We also maintain agreements with third-party administrators that allow participating suppliers to track payment obligations from us, and, at the sole discretion of the supplier, sell those payment obligations to participating financial institutions.

Our obligations to our suppliers, including amounts due and scheduled payment terms, are not impacted.

Supplier participation in these agreements is voluntary.

We have no economic interest in a supplier’s decision to enter into these agreements and no direct financial relationship with the financial institutions.

We have not pledged assets as security or provided any guarantees in connection with these arrangements.

The payment of these obligations is included in cash provided by operating activities in the Consolidated Statements of Cash Flows.

Amounts outstanding under these programs, which are included in Accounts payable on the Consolidated Balance Sheets, were $277 million at October 29, 2023, and $258 million at July 30, 2023.

Capital expenditures were $143 million in 2024 and $77 million in 2023.

Capital expenditures are expected to total approximately $360 million in 2023.

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

Capital expenditures are expected to total approximately $470 million to $500 million in 2024.

Capital expenditures in the first three months of 2024 included upgrades of assets across both segments of the business, chip and cracker capacity expansion for our Snacks business, network optimization for our Meals & Beverages business and enhancements to our headquarters in Camden, New Jersey.

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.

From time to time, we purchase and sell routes.

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

Dividend payments were $114 million in 2024 and $115 million in 2023.

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

On March 1, 2023, the Board of Directors declared a regular quarterly dividend of $.37 per share payable on May 1, 2023 to shareholders of record at the close of business on April 6, 2023.

On May 23, 2023, the Board of Directors declared a regular quarterly dividend of $.37 per share payable on July 31, 2023 to shareholders of record at the close of business on July 6, 2023.

The regular quarterly dividend paid on our capital stock was $.37 per share in both the first quarter of 2024 and 2023.

On September 20, 2023, the Board of Directors declared a regular quarterly dividend of $.37 per share payable on October 30, 2023, to shareholders of record at the close of business on October 5, 2023.

On November 29, 2023, the Board of Directors declared a regular quarterly dividend of $.37 per share payable on January 29, 2024 to shareholders of record at the close of business on January 4, 2024.

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 anti-dilutive program may be made in open-market or privately negotiated transactions.

In September 2021, the Board approved a strategic share repurchase program of up to $500 million (September 2021 program).

In September 2021, the Board approved a strategic share repurchase

program of up to $500 million (September 2021 program).

The September 2021 program has no expiration date, but it may be suspended or discontinued at any time.

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

We repurchased 2.692 million shares at a cost of $141 million in 2023.

Of this amount, $67 million was used to repurchase shares pursuant to our June 2021 program and $74 million was used to repurchase shares pursuant to our September 2021 program.

As of April 30, 2023, approximately $104 million remained available under the June 2021 program and approximately $301 million remained available under the September 2021 program.

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

We repurchased 679 thousand shares at a cost of $28 million in 2024 pursuant to our June 2021 program.

As of October 29, 2023, approximately $76 million remained available under the June 2021 program and approximately $301 million remained available under the September 2021 program.

We repurchased 859 thousand shares at a cost of $41 million in 2023.

See Note 13 to the Consolidated Financial Statements and “Unregistered Sales of Equity Securities and Use of Proceeds” for additional information.

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.

On October 10, 2023, we entered into a delayed single draw term loan credit agreement (the 2024 DDTL Credit Agreement) totaling up to $2 billion scheduled to mature on October 8, 2024.

Loans under the 2024 DDTL Credit Agreement bear interest at the rates specified in the 2024 DDTL Credit Agreement, which vary based on the type of loan and certain other conditions.

The 2024 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 2024 DDTL Credit Agreement) of not less than 3.25:1.00, and events of default for credit facilities of this type.

We borrowed $500 million under the DDTL Credit Agreement on March 13, 2023, and used the proceeds and cash on hand to repay the 3.65% $566 million Notes that matured on March 15, 2023.

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.

As of April 30, 2023, we had $263 million of short-term borrowings due within one year, $249 million of which was comprised of commercial paper borrowings.

As of April 30, 2023, we issued $29 million of standby letters of credit.

The proceeds of the loans under the 2024 DDTL Credit Agreement can only be used in connection with the acquisition of Sovos Brands.

The 2024 DDTL Credit Agreement remained unused at October 29, 2023.

As of October 29, 2023, we had $206 million of short-term borrowings due within one year, $195 million of which was comprised of commercial paper borrowings.

As of October 29, 2023, we issued $28 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 April 30, 2023, except for $1 million of standby letters of credit that we issued under it.

The facility remained unused at October 29, 2023, 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 April 4, 2023, we entered into an amendment to our existing revolving credit facility to replace remaining LIBOR-based benchmark rates applicable to borrowings under the revolving credit facility with SOFR-based benchmark rates, in advance of the cessation of LIBOR occurring on June 30, 2023.

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

In September 2020, we filed a registration statement with the Securities and Exchange Commission that registered an indeterminate amount of debt securities.

In August 2023, we filed a registration statement with the Securities and Exchange Commission that registered an indeterminate amount of debt securities.

Under the registration statement we may issue debt securities from time to time, depending on market conditions.

We intend to finance the pending Sovos Brands acquisition with the issuance of new debt.

SIGNIFICANT ACCOUNTING ESTIMATES

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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 30, 2023 (2023 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.

The accounting policies we used in preparing these financial statements are substantially consistent with those we applied in our 2023 Annual Report on Form 10-K.

Our significant accounting estimates are described in Management’s Discussion and Analysis included in the 2023 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 2023 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:

• the conditions to the completion of the Sovos Brands transaction may not be satisfied, or the regulatory approvals required for the transaction may not be obtained on the terms expected, on the anticipated schedule, or at all;

• long-term financing for the Sovos Brands transaction may not be obtained on favorable terms, or at all;

• closing of the Sovos Brands transaction may not occur or be delayed, either as a result of litigation related to the transaction or otherwise or result in significant costs of defense, indemnification and liability;

• the risk that the cost savings and any other synergies from the Sovos Brands transaction may not be fully realized or may take longer or cost more to be realized than expected, including that the Sovos Brands transaction may not be accretive within the expected timeframe or the extent anticipated;

• completing the Sovos Brands transaction may distract our management from other important matters;

• 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;

• disruptions in or inefficiencies to our supply chain and/or operations, including reliance on key supplier relationships;

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

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• negative changes and volatility in financial and credit markets, deteriorating economic conditions and other external factors, including changes in laws and regulations;

• unforeseen business disruptions or other impacts due to political instability, civil disobedience, terrorism, armed hostilities (including the ongoing conflict between Russia and Ukraine), extreme weather conditions, natural disasters, other pandemics or other calamities.

• unforeseen business disruptions or other impacts due to political instability, civil disobedience, terrorism, geopolitical conflicts (including the ongoing conflicts between Russia and Ukraine and in Israel and Gaza), extreme weather conditions, natural disasters, pandemics or other outbreaks of disease or other calamities.

This discussion of uncertainties is by no means exhaustive but is designed to highlight important factors that may impact our outlook.

We disclaim any obligation or intent to update forward-looking statements made by us in order to reflect new information, events or circumstances after the date they are made.

Quantitative and Qualitative Disclosure About Market Risk

For information regarding our exposure to certain market risk, see Item 7A, Quantitative and Qualitative Disclosure About Market Risk, in the 2022 Annual Report on Form 10-K.

There have been no significant changes in our portfolio of financial instruments or market risk exposures from the 2022 year-end.

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