CAMPBELL'S Co 10-Q

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations OVERVIEW 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 July 30, 2023, including but not limited to "Part I - Item 1A. Risk Factors" and "Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations." Executive Summary Unless otherwise stated, the terms "we," "us," "our" and the "company" refer to Campbell Soup Company and its consolidated subsidiaries. We are a manufacturer and marketer of high-quality, branded food and beverage products. We operate in a highly competitive industry and experience competition in all of our categories. 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). 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 extended the waiting period under the HSR Act until 30 days after both we and Sovos Brands substantially complied with the Second Request, unless the waiting period was extended voluntarily by the parties or terminated earlier by the FTC. On February 13, 2024, we and Sovos Brands announced that both companies have certified substantial compliance with the Second Request. The certification of substantial compliance triggered the start of a 30-day waiting period which is expected to expire on March 11, 2024, after which the acquisition can be consummated. Subject to the satisfaction or waiver of customary closing conditions set forth in the merger agreement, we expect to complete the transaction the week of March 11, 2024. Business Trends 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 half of 2024, and we expect modest pressures of input cost inflation to continue throughout the remainder of 2024. Although we have experienced a reduction in our volumes due to lower consumption trends seen throughout the industry, we have seen sequential improvement in key brands and categories in the second quarter of 2024. We expect these volume trends to continue to improve and inflation to continue 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 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 decreased 1% in the quarter to $2.456 billion following a 12% 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 5%. • Gross profit, as a percent of sales, was 31.6% in 2024 compared to 30.5% in the prior-year quarter. The increase was primarily due to benefits from supply chain productivity improvements and favorable net price realization, partially offset by higher cost inflation and other supply chain costs. • Earnings per share were $.68 in 2024, compared to $.77 a year ago. The current quarter included expenses of $.12 per share and the prior-year quarter included expenses of $.03 per share from items impacting comparability as discussed below. 26 Net Earnings attributable to Campbell Soup Company The following items impacted the comparability of net earnings and net earnings per share: • We implemented several cost savings initiatives in recent years. In the second quarter of 2024, we recorded Restructuring charges of $2 million and implementation costs and other related costs of $29 million in Administrative expenses, $3 million in Cost of products sold, $1 million in Marketing and selling expenses and $1 million in Research and development expenses (aggregate impact of $27 million after tax, or $.09 per share) related to these initiatives. Year-to-date in 2024, we recorded Restructuring charges of $4 million and implementation costs and other related costs of $34 million in Administrative expenses, $6 million in Cost of products sold, $3 million in Marketing and selling expenses and $2 million in Research and development expenses (aggregate impact of $37 million after tax, or $0.12 per share) related to these initiatives. In the second quarter of 2023, we recorded Restructuring charges of $9 million and implementation costs and other related costs of $5 million in Administrative expenses (aggregate impact of $10 million after tax, or $.03 per share) related to these initiatives. Year-to-date in 2023, we recorded Restructuring charges of $9 million and implementation costs and other related costs of $8 million in Administrative expenses (aggregate impact of $13 million after tax, or $.04 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 second quarter of 2024, we recognized gains in Cost of products sold of $7 million ($5 million after tax, or $.02 per share) associated with unrealized mark-to-market adjustments on outstanding undesignated commodity hedges. Year-to-date in 2024, 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 second quarter of 2023, we recognized losses in Cost of products sold of $4 million ($3 million after tax, or $.01 per share) associated with unrealized mark-to-market adjustments on outstanding undesignated commodity hedges; • In the second 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, which began in the fourth quarter of 2023. Year-to-date in 2024, we recorded accelerated amortization expense in Other expenses / (income) of $14 million ($10 million after tax, or $.03 per share) related to customer relationship intangible assets; • In the first quarter of 2024, we announced our intent to acquire Sovos Brands. In the second quarter of 2024, we incurred costs in Other expenses / (income) of $10 million ($9 million after tax, or $.03 per share) associated with the pending acquisition. Year-to-date in 2024, we incurred costs in Other expenses / (income) of $19 million ($17 million after tax, or $.06 per share) associated with the pending acquisition; • In the second quarter of 2024, we recorded pre- and after-tax litigation expenses in Administrative expenses of $1 million related to the Plum baby food and snacks business (Plum), which was divested on May 3, 2021. Year-to-date in 2024, we recorded pre- and after-tax litigation expenses in Administrative expenses of $3 million ($.01 per share) related to Plum; • Year-to-date in 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; and • In the second quarter of 2023, we recognized actuarial gains in Other expenses / (income) of $6 million ($4 million after tax, or $.01 per share). Year-to-date in 2023, we recognized actuarial losses in Other expenses / (income) of $9 million ($7 million after tax, or $.02 per share). The actuarial gains and losses related to interim remeasurements of certain U.S. pension plans due to lump sum distributions that exceeded or were expected to exceed service and interest costs resulting in settlement accounting for the plans. 27 The items impacting comparability are summarized below: Three Months Ended January 28, 2024 January 29, 2023 (Millions, except per share amounts) Earnings Impact EPS Impact Earnings Impact EPS Impact Net earnings attributable to Campbell Soup Company $ 203 $ .68 $ 232 $ .77 Restructuring charges, implementation costs and other related costs $ (27) $ (.09) $ (10) $ (.03) Commodity mark-to-market gains (losses) 5 .02 (3) (.01) Accelerated amortization (5) (.02) — — Costs associated with pending acquisition (9) (.03) — — Plum litigation expenses (1) — — — Pension actuarial gains — — 4 .01 Impact of items on Net earnings $ (37) $ (.12) $ (9) $ (.03) Six Months Ended January 28, 2024 January 29, 2023 (Millions, except per share amounts) Earnings Impact EPS Impact Earnings Impact EPS Impact Net earnings attributable to Campbell Soup Company $ 437 $ 1.46 $ 529 $ 1.76 Restructuring charges, implementation costs and other related costs $ (37) $ (.12) $ (13) $ (.04) Commodity mark-to-market losses (6) (.02) — — Accelerated amortization (10) (.03) — — Costs associated with pending acquisition (17) (.06) — — Plum litigation expenses (3) (.01) — — Cybersecurity incident costs (2) (.01) — — Pension actuarial losses — — (7) (.02) Impact of items on Net earnings (1) $ (75) $ (.25) $ (20) $ (.07) __________________________________________ (1) Sum of the individual amounts may not add due to rounding. Net earnings attributable to Campbell Soup Company were $203 million ($.68 per share) in the current quarter, compared to $232 million ($.77 per share) in the year-ago quarter. After adjusting for items impacting comparability, earnings decreased slightly reflecting higher other expenses, higher research and development expenses, higher administrative expenses and a higher effective tax rate, largely offset by improved gross profit. Earnings per share benefited from a reduction in the weighted average diluted shares outstanding. Net earnings attributable to Campbell Soup Company were $437 million ($1.46 per share) in the six-month period this year, compared to $529 million ($1.76 per share) in the year-ago period. After adjusting for items impacting comparability, earnings decreased reflecting higher marketing and selling expenses, lower gross profit, higher other expenses, higher interest expense and a higher effective tax rate. Earnings per share benefited from a reduction in the weighted average diluted shares outstanding. 28 SECOND-QUARTER DISCUSSION AND ANALYSIS Sales An analysis of net sales by reportable segment follows: Three Months Ended (Millions) January 28, 2024 January 29, 2023 January 30, 2022 % Change 2024/2023 Two-Year CAGR % Meals & Beverages $ 1,382 $ 1,408 $ 1,275 (2) 4 Snacks 1,074 1,077 934 — 7 $ 2,456 $ 2,485 $ 2,209 (1) 5 An analysis of percent change of net sales by reportable segment follows: 2024 versus 2023 Meals & Beverages Snacks Total (2) Volume/mix (2)% (2)% (2)% Net price realization (1) — 3 1 Divestiture — (1) (1) (2)% —% (1)% __________________________________________ (1) Includes 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% as declines in U.S. retail products, primarily declines in U.S. soup, beverages and Pace Mexican sauces, were partially offset by gains in Canada and foodservice. Sales were impacted by volume/mix declines with neutral net price realization. On a two-year CAGR basis, net sales increased 4%. Following a 7% increase in the prior year, sales of U.S. soup decreased 3% primarily due to decreases in ready-to-serve soups and condensed soups, partially offset by an increase in broth. In Snacks, sales were flat. Excluding the impact from the divestiture of the Emerald nuts business, sales increased driven by sales of our power brands, which increased 4%, partially offset by declines in sales of third-party partner brands. Sales increased due to increases in cookies and crackers, primarily Goldfish crackers and Lance sandwich crackers, and in salty snacks. Within salty snacks, increases primarily in Kettle Brand and Cape Cod potato chips more than offset declines in Pop Secret popcorn and Late July snacks. Sales benefited from favorable net price realization, partially offset by volume/mix declines. On a two-year CAGR basis, net sales increased 7%. Gross Profit Gross profit, defined as Net sales less Cost of products sold, increased by $17 million in 2024 from 2023. As a percent of sales, gross profit was 31.6% in 2024 and 30.5% in 2023. The 110 basis-point increase in gross profit margin was due to the following factors: Margin Impact Productivity improvements 220 Net price realization 100 Volume/mix (1) 30 Cost inflation, supply chain costs and other factors (2) (230) Higher restructuring-related costs (10) 110 __________________________________________ (1) Includes the impact of operating leverage. (2) Includes an estimated positive margin impact of 30 basis points from the benefit of cost savings initiatives and a 50 basis-point positive impact from the change in unrealized mark-to-market adjustments on outstanding undesignated commodity hedges, which were more than offset by cost inflation and other factors. 29 Marketing and Selling Expenses Marketing and selling expenses as a percent of sales were 8.8% in 2024 compared to 8.7% in 2023. Marketing and selling expenses in 2024 were comparable to 2023, as higher selling expenses (approximately 3 points) were offset by lower advertising and consumer promotion expense (approximately 3 points) driven by Meals & Beverages. Administrative Expenses Administrative expenses as a percent of sales were 7.7% in 2024 compared to 6.5% in 2023. Administrative expenses increased 17% in 2024 from 2023. The increase was primarily due to higher costs associated with cost savings initiatives (approximately 15 points) and higher general administrative costs and inflation (approximately 7 percentage points), partially offset by increased benefits from cost savings initiatives (approximately 7 points). Other Expenses / (Income) Other expenses were $26 million in 2024 compared to other expenses / (income) of $0 million in 2023 . Other expenses in 2024 included costs associated with the pending acquisition of $10 million and accelerated amortization expense of $7 million. Other expenses / (income) in 2023 included pension actuarial gains of $6 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 2% in 2024 from 2023. An analysis of operating earnings by segment follows: Three Months Ended (Millions) January 28, 2024 January 29, 2023 % Change Meals & Beverages $ 247 $ 249 (1) Snacks 161 150 7 408 399 2 Corporate income (expense) (89) (40) Restructuring charges (1) (2) (9) Earnings before interest and taxes $ 317 $ 350 __________________________________________ (1) See Note 6 to the Consolidated Financial Statements for additional information on restructuring charges. Operating earnings from Meals & Beverages decreased 1%. The decrease was primarily due to lower gross profit, partially offset by lower marketing and selling expenses. Gross profit margin decreased due to higher cost inflation and other supply chain costs, partially offset by supply chain productivity improvements, benefits from cost savings initiatives, favorable net price realization and favorable volume/mix. Operating earnings from Snacks increased 7%. 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, supply chain productivity improvements, benefits from cost savings initiatives and favorable volume/mix more than offsetting higher cost inflation and other supply chain costs. Corporate expense in 2024 included the following: • costs of $34 million related to costs savings initiatives; • $10 million of costs associated with the pending acquisition of Sovos Brands; • $7 million of accelerated amortization expense; • $1 million of Plum litigation expenses; and • $7 million of unrealized mark-to-market gains on outstanding undesignated commodity hedges. Corporate expense in 2023 included the following: • costs of $5 million related to cost savings initiatives; • $4 million of unrealized mark-to-market losses on outstanding undesignated commodity hedges; and • $6 million of pension actuarial gains. Excluding these amounts, the remaining increase was primarily due to higher net periodic pension and postretirement benefit income in prior year. 30 Interest Expense Interest expense of $46 million in 2024 increased from $45 million in 2023 primarily due to higher average interest rates on the debt portfolio. Taxes on Earnings The effective tax rate was 25.1% in 2024 and 23.9% in 2023. The increase in the effective tax rate was primarily due to nondeductible costs associated with the pending acquisition of Sovos Brands. SIX-MONTH DISCUSSION AND ANALYSIS Sales An analysis of net sales by reportable segment follows: Six Months Ended (Millions) January 28, 2024 January 29, 2023 January 30, 2022 % Change 2024/2023 Two-Year CAGR % Meals & Beverages $ 2,786 $ 2,863 $ 2,541 (3) 5 Snacks 2,188 2,197 1,904 — 7 $ 4,974 $ 5,060 $ 4,445 (2) 6 An analysis of percent change of net sales by reportable segment follows: 2024 versus 2023 Meals & Beverages Snacks Total Volume/mix (4)% (3)% (3)% Net price realization (1) 1 4 2 Divestiture — (1) (1) (3)% —% (2)% __________________________________________ (1) Includes revenue reductions from trade promotion and consumer coupon redemption programs. In Meals & Beverages, sales decreased 3% as declines in U.S. retail products, including U.S. soup, beverages and Pace Mexican sauces, were partially offset by gains in Canada and foodservice. Volume/mix declines were partially offset by favorable net price realization. On a two-year CAGR basis, sales increased 5%. Following a 9% increase in the prior year, sales of U.S. soup decreased 4% primarily due to decreases in ready-to-serve soups and condensed soups, partially offset by an increase in broth. In Snacks, sales were flat. Excluding the impact from the divestiture of the Emerald nuts business, sales increased driven by sales of our power brands, which increased 4%, partially offset by declines in sales of third-party partner brands. Sales increased due to increases in cookies and crackers, primarily Goldfish crackers and Lance sandwich crackers. Within salty snacks, increases primarily in Kettle Brand potato chips and Snack Factory pretzel crisps more than offset declines in Pop Secret popcorn and Snyder's of Hanover pretzels. Sales benefited from favorable net price realization, partially offset by volume/mix declines. On a two-year CAGR basis, sales increased 7%. Gross Profit Gross profit, defined as Net sales less Cost of products sold, decreased by $29 million in 2024 from 2023. As a percent of sales, gross profit was 31.4% in 2024 and 31.5% in 2023. The 10 basis-point decrease in gross profit margin was due to the following factors: Margin Impact Cost inflation, supply chain costs and other factors (1) (400) Higher restructuring-related costs (10) Productivity improvements 220 Net price realization 170 Volume/mix (2) 10 (10) __________________________________________ 31 (1) Includes an estimated positive margin impact of 20 basis points from the benefit of cost savings initiatives, which was more than offset by cost inflation and other factors, including a 20 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. Marketing and Selling Expenses Marketing and selling expenses as a percent of sales were 8.8% in 2024 and 8.3% in 2023. Marketing and selling expenses increased 5% in 2024 from 2023. The increase was primarily due to higher selling expenses (approximately 3 points), higher other marketing expenses (approximately 1 point) and higher costs related to cost savings initiatives (approximately 1 point). Administrative Expenses Administrative expenses as a percent of sales were 7.0% in 2024 compared to 6.3% in 2023. Administrative expenses increased 8% in 2024 from 2023. The increase was primarily due to higher costs related to cost savings initiatives (approximately 8 points) and higher general administrative costs and inflation (approximately 3 points), partially offset by increased benefits from cost savings initiatives (approximately 4 points). Other Expenses / (Income) Other expenses were $50 million in 2024 compared to other expenses of $18 million in 2023. Other expenses in 2024 included costs associated with the pending acquisition of $19 million and accelerated amortization expense of $14 million. Other expenses in 2023 included pension actuarial losses of $9 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 decreased 3% in 2024 from 2023. An analysis of operating earnings by segment follows: Six Months Ended (Millions) January 28, 2024 January 29, 2023 % Change Meals & Beverages $ 534 $ 580 (8) Snacks 322 303 6 856 883 (3) Corporate income (expense) (177) (88) Restructuring charges (1) (4) (9) Earnings before interest and taxes $ 675 $ 786 __________________________________________ (1) See Note 6 to the Consolidated Financial Statements for additional information on restructuring charges. Operating earnings from Meals & Beverages decreased 8%. The decrease was primarily due to lower gross profit, partially offset by lower marketing and selling expenses. Gross profit margin decreased due to higher cost inflation and other supply chain costs, partially offset by supply chain productivity improvements and favorable net price realization. Operating earnings from Snacks increased 6%. 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 more than offsetting higher cost inflation and other supply chain costs. Corporate expense in 2024 included the following: • costs of $45 million related to costs savings initiatives; • $19 million of costs associated with the pending acquisition of Sovos Brands; • $14 million of accelerated amortization expense; • $8 million of unrealized mark-to-market losses on outstanding undesignated commodity hedges; • $3 million of Plum litigation expenses; and • $3 million of costs associated with a cybersecurity incident. Corporate expense in 2023 included the following: • $9 million of pension actuarial losses; and 32 • costs of $8 million related to cost savings initiatives. 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 $95 million in 2024 increased from $92 million in 2023 primarily due higher av erage interest rates on the debt portfolio Taxes on Earnings The effective tax rate was 24.8% in 2024 and 23.9% in 2023. The increase in the effective tax rate was primarily due to nondeductible costs associated with the pending acquisition of Sovos Brands. Restructuring Charges, Cost Savings Initiatives and Other Optimization 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, as well as our information technology infrastructure. On March 26, 2018, we completed the acquisition of Snyder's-Lance. Prior to the acquisition, Snyder's-Lance launched a cost transformation program following a comprehensive review of its operations with the goal of significantly improving its financial performance. We continued to implement this program and identified opportunities for additional cost synergies as we integrated Snyder's-Lance. In 2022, we expanded these initiatives as we continue to pursue cost savings by further optimizing our supply chain and manufacturing network and through effective cost management. In the second quarter of 2023, we announced plans to consolidate our Snacks offices in Charlotte, North Carolina, and Norwalk, Connecticut, into our headquarters in Camden, New Jersey. Cost estimates for these expanded initiatives, as well as timing for certain activities, are continuing to be developed. A summary of the pre-tax charges recognized in the Consolidated Statements of Earnings related to these initiatives is as follows: Three Months Ended Six Months Ended (Millions, except per share amounts) January 28, 2024 January 29, 2023 January 28, 2024 January 29, 2023 Recognized as of January 28, 2024 Restructuring charges $ 2 $ 9 $ 4 $ 9 $ 284 Administrative expenses 29 5 34 8 417 Cost of products sold 3 — 6 — 108 Marketing and selling expenses 1 — 3 — 22 Research and development expenses 1 — 2 — 9 Total pre-tax charges $ 36 $ 14 $ 49 $ 17 $ 840 Aggregate after-tax impact $ 27 $ 10 $ 37 $ 13 Per share impact $ .09 $ .03 $ .12 $ .04 A summary of the pre-tax costs associated with these initiatives is as follows: (Millions) Recognized as of January 28, 2024 Severance pay and benefits $ 244 Asset impairment/accelerated depreciation 116 Implementation costs and other related costs 480 Total $ 840 The total estimated pre-tax costs for actions that have been identified are approximately $890 million to $915 million and we expect to incur substantially all of the costs through 2025. These estimates will be updated as the expanded initiatives are developed. 33 We expect the costs for actions that have been identified to date to consist of the following: approximately $245 million to $255 million in severance pay and benefits; approximately $135 million in asset impairment and accelerated depreciation; and approximately $510 million to $525 million in implementation costs and other related costs. We expect these pre-tax costs to be associated with our segments as follows: Meals & Beverages - approximately 32%; Snacks - approximately 43%; and Corporate - approximately 25%. Of the aggregate $890 million to $915 million of pre-tax costs identified to date, we expect approximately $715 million to $740 million will be cash expenditures. In addition, we expect to invest approximately $700 million in capital expenditures, of which we invested $492 million as of January 28, 2024. 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, enhancements to our headquarters in Camden, New Jersey, implementation of our existing SAP enterprise-resource planning system for Snyder's-Lance, 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, once all phases are implemented, to generate annual ongoing savings of approximately $1 billion by the end of 2025. As of January 28, 2024, we have generated total program-to-date pre-tax savings of $915 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: January 28, 2024 (Millions) Three Months Ended Six Months Ended Costs Incurred to Date Meals & Beverages $ 5 $ 9 $ 260 Snacks 24 30 375 Corporate 7 10 205 Total $ 36 $ 49 $ 840 Other Optimization Initiatives In the second quarter of 2024, we began implementation of a new initiative to improve the effectiveness of our Snacks direct-store-delivery route-to-market network. Pursuant to this initiative we will purchase certain Pepperidge Farm and Snyder's-Lance routes where there are opportunities to unlock greater scale in select markets, combine them and sell the combined routes to independent contractor distributors. We expect to execute this program in a staggered rollout and to incur expenses of up to approximately $115 million through 2029. LIQUIDITY AND CAPITAL RESOURCES We expect foreseeable liquidity and capital resource requirements to be met through anticipated cash flows from operations; long-term borrowings; short-term borrowings, which may include commercial paper; credit facilities; and cash and cash equivalents. We believe that our sources of financing will be adequate to meet our future requirements. We generated cash flows from operations of $684 million in 2024, compared to $732 million in 2023. The decline in 2024 was primarily due to lower cash earnings. We had positive working capital of $14 million as of January 28, 2024, and negative working capital of $161 million as of July 30, 2023. As of July 30, 2023, current assets were less than current liabilities, which included debt maturing in one year, due to a focus on lowering core working capital requirements. Total debt maturing within one year was $14 million as of January 28, 2024, 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 $252 million at January 28, 2024, and $258 million at July 30, 2023. 34 Capital expenditures were $263 million in 2024 and $155 million in 2023. Capital expenditures are expected to total approximately $470 million to $500 million in 2024. Capital expenditures in the first six months of 2024 included upgrades of assets across both segments of the business, chip and cracker capacity expansion for our Snacks business, enhancements to our headquarters in Camden, New Jersey and network optimization for our Meals & Beverages business. In Snacks, we have a direct-store-delivery distribution model that uses independent contractor distributors. 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 $224 million in 2024 and $226 million in 2023. The regular quarterly dividend paid on our capital stock was $.37 per share in both the second quarter of 2024 and 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. On February 28, 2024, the Board of Directors declared a regular quarterly dividend of $.37 per share payable on April 29, 2024 to shareholders of record at the close of business on April 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. The June 2021 program has no expiration date, but it may be suspended or discontinued at any time. 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). 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 707 thousand shares at a cost of $29 million in 2024 pursuant to our June 2021 program. As of January 28, 2024, approximately $75 million remained available under the June 2021 program and approximately $301 million remained available under the September 2021 program. We repurchased 1.298 million shares at a cost of $66 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 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. 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 January 28, 2024. As of January 28, 2024, we had $14 million of short-term borrowings due within one year, none of which was comprised of commercial paper borrowings. As of January 28, 2024, 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 January 28, 2024, 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. Loans under this facility bear interest at the rates specified in the facility, which vary based on the type of loan and certain other customary conditions. The facility supports our commercial paper program and other general corporate purposes. 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. We are in compliance with the covenants contained in our credit facilities and 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 We prepare our consolidated financial statements in conformity with accounting principles generally accepted in the United States. The preparation of these financial statements requires the use of estimates, judgments and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the periods presented. 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 July 30, 2023 (2023 Annual Report on Form 10-K). The accounting policies we used in preparing these financial 35 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. RECENT ACCOUNTING PRONOUNCEMENTS See Note 2 to the Consolidated Financial Statements for information on recent accounting pronouncements. FORWARD-LOOKING STATEMENTS This Report contains "forward-looking" statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements reflect our current expectations regarding our future results of operations, economic performance, financial condition and achievements. These forward-looking statements can be identified by words such as "anticipate," "believe," "estimate," "expect," "intend," "plan," "pursue," "strategy," "target," "will" and similar expressions. One can also identify forward-looking statements by the fact that they do not relate strictly to historical or current facts, and may reflect anticipated cost savings or implementation of our strategic plan. These statements reflect our current plans and expectations and are based on information currently available to us. They rely on several assumptions regarding future events and estimates which could be inaccurate and which are inherently subject to risks and uncertainties. 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 closing of the proposed transaction might not otherwise occur; • long-term financing for the Sovos Brands transaction may not be obtained on favorable terms, or at all; • 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; • 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; • the impact of strong competitive responses to our efforts to leverage brand power with product innovation, promotional programs and new advertising; • the risks associated with trade and consumer acceptance of product improvements, shelving initiatives, new products and pricing and promotional strategies; • 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 reliance on key supplier relationships; • risks related to the effectiveness of our hedging activities and our ability to respond to volatility in commodity prices; • our ability to manage changes to our organizational structure and/or business processes, including selling, distribution, manufacturing and information management systems or processes; • changes in consumer demand for our products and favorable perception of our brands; • changing inventory management practices by certain of our key customers; • a changing customer landscape, with value and e-commerce retailers expanding their market presence, while certain of our key customers maintain significance to our business; • product quality and safety issues, including recalls and product liabilities; • the possible disruption to the independent contractor distribution models used by certain of our businesses, including as a result of litigation or regulatory actions affecting their independent contractor classification; • the uncertainties of litigation and regulatory actions against us; • the costs, disruption and diversion of management's attention associated with activist investors; 36 • a disruption, failure or security breach of our or our vendors' information technology systems, including ransomware attacks; • impairment to goodwill or other intangible assets; • our ability to protect our intellectual property rights; • increased liabilities and costs related to our defined benefit pension plans; • our ability to attract and retain key talent; • goals and initiatives related to, and the impacts of, climate change, including from weather-related events; • negative changes and volatility in financial and credit markets, deteriorating economic conditions and other external factors, including changes in laws and regulations; and • 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.