What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-06-05 compared with 2024-03-06 · 191 added, 161 removed, 269 unchanged (57% of the section changed)

10 unchanged sentences

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.

On March 12, 2024, we completed the acquisition of Sovos Brands, Inc.

(Sovos Brands) for total purchase consideration of $2.899 billion.

For additional information on the Sovos Brands acquisition, see Note 3 to the Consolidated Financial Statements.

All references to the acquisition below refer to the Sovos Brands acquisition.

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.

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

Through the third quarter, we experienced a moderate amount of input cost inflation, and we expect 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.

We have lapped 2023 price increases and favorable net price realization will represent a reduced contribution to sales in 2024.

Consistent with trends seen throughout the industry, we have experienced a reduction in our volumes due to lower consumption;

however, we have seen modest sequential year over year volume/mix improvement in each of the last three quarters of 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.

• Net sales increased 6% in the quarter to $2.369 billion primarily due to a 7-point benefit from the acquisition of Sovos Brands.

On a two-year compounded annual growth rate (CAGR), net sales increased 5%.

• Gross profit, as a percent of sales, was 30.9% in 2024 compared to 30.0% 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.

The increase was primarily due to benefits from supply chain productivity improvements, mark-to-market adjustments on outstanding undesignated commodity hedges and lower costs associated with cost savings initiatives, partially offset by higher cost inflation and other supply chain costs and the impact of the acquisition.

• Earnings per share were $.44 in 2024, compared to $.53 a year ago.

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• 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.

In the third quarter of 2024, we recorded implementation costs and other related costs of $13 million in Administrative expenses, $3 million in Cost of products sold, $1 million in Marketing and selling expenses, $1 million in Research and development expenses and a reduction to Restructuring charges of $3 million related to these initiatives.

Year-to-date in 2024, we recorded Restructuring charges of $1 million and implementation costs and other related costs of $47 million in Administrative expenses, $9 million in Cost of products sold, $4 million in Marketing and selling expenses and $3 million in Research and development expenses related to these initiatives.

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 second quarter of 2024, we began implementation of a new optimization initiative to improve the effectiveness of our Snacks direct-store-delivery route-to-market network.

In the third quarter of 2024, we recognized $5 million in Marketing and selling expenses related to this initiative;

In the third quarter of 2024, the total aggregate impact related to the cost savings and optimization initiatives was $20 million ($15 million after tax, or $0.05 per share).

Year-to-date in 2024, the total aggregate impact related to the cost savings and optimization initiatives was $69 million ($52 million after tax, or $0.17 per share).

See Note 7 to the Consolidated Financial Statements and "Restructuring Charges, Cost Savings Initiatives and Other Optimization Initiatives" for additional information;

• In the first quarter of 2024, we announced our intent to acquire Sovos Brands and on March 12, 2024, the acquisition closed.

In the third quarter of 2024, we incurred $93 million of costs associated with the acquisition, of which $16 million was recorded in Restructuring charges, $39 million in Administrative expenses, $16 million in Other expenses / (income), $2 million in Marketing and selling expenses, $2 million in Research and development expenses and $18 million in Cost of products sold, of which $17 million was associated with the acquisition date fair value adjustment for inventory.

We also recorded costs of $2 million in Interest expense related to costs associated with the Delayed Draw Term Loan Credit Agreement (the 2024 DDTL Credit Agreement) used to fund the acquisition.

The aggregate impact was $95 million, $81 million after tax, or $.27 per share.

Year-to-date in 2024, we incurred $114 million of costs associated with the acquisition, of which $16 million was recorded in Restructuring charges, $39 million in Administrative expenses, $35 million in Other expenses / (income), $2 million in Marketing and selling expenses, $2 million in Research and development expenses, $18 million in Cost of products sold and $2 million in Interest expense.

The aggregate after-tax impact was $98 million, or $.33 per share;

• In the third quarter of 2024, we recognized gains in Cost of products sold of $13 million ($10 million after tax, or $.03 per share) associated with unrealized mark-to-market adjustments on outstanding undesignated commodity hedges.

Year-to-date in 2024, 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 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 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.

• In the third quarter of 2024, we recorded accelerated amortization expense in Other expenses / (income) of $6 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 $20 million ($15 million after tax, or $.05 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 pre- and after-tax litigation expenses in Administrative expenses of $3 million ($.01 per share) related to the Plum baby food and snacks business (Plum), which was divested on May 3, 2021;

• 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;

• 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).

• 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).

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

The actuarial 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.

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Three Months Ended

January 28, 2024 January 29, 2023

April 28, 2024 April 30, 2023

(Millions, except per share amounts) Earnings

Net earnings attributable to Campbell Soup Company $ 133 $ .44 $ 160 $ .53

Restructuring charges, implementation costs and other related costs $ (27) $ (.09) $ (10) $ (.03)

Costs associated with cost savings and optimization initiatives $ (15) $ (.05) $ (24) $ (.08)

Costs associated with acquisition (81) (.27) — —

Commodity mark-to-market gains (losses) 10 .03 (7) (.02)

Accelerated amortization (5) (.02) — —

Costs associated with pending acquisition (9) (.03) — —

Plum litigation expenses (1) — — —

Pension actuarial gains — — 4 .01

Pension actuarial losses — — (13) (.04)

Impact of items on Net earnings (1)

Six Months Ended

January 28, 2024 January 29, 2023

$ (91) $ (.30) $ (44) $ (.15)

__________________________________________

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

Nine Months Ended

April 28, 2024 April 30, 2023

(Millions, except per share amounts) Earnings

Net earnings attributable to Campbell Soup Company $ 570 $ 1.91 $ 689 $ 2.29

Restructuring charges, implementation costs and other related costs $ (37) $ (.12) $ (13) $ (.04)

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

Costs associated with cost savings and optimization initiatives $ (52) $ (.17) $ (37) $ (.12)

Costs associated with acquisition (98) (.33) — —

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

Accelerated amortization (15) (.05) — —

Costs associated with pending acquisition (17) (.06) — —

Plum litigation expenses (3) (.01) — —

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Impact of items on Net earnings $ (166) $ (.56) $ (64) $ (.21)

$ (75) $ (.25) $ (20) $ (.07)

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

Net earnings attributable to Campbell Soup Company were $133 million ($.44 per share) in the current quarter, compared to $160 million ($.53 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.

After adjusting for items impacting comparability, earnings increased primarily due to improved gross profit, partially offset by higher interest expense.

Net earnings attributable to Campbell Soup Company were $570 million ($1.91 per share) in the nine-month period this year, compared to $689 million ($2.29 per share) in the year-ago period.

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

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

SECOND-QUARTER DISCUSSION AND ANALYSIS

THIRD-QUARTER DISCUSSION AND ANALYSIS

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 %

(Millions) April 28, 2024 April 30, 2023 May 1, 2022 % Change 2024/2023 Two-Year CAGR %

Meals & Beverages $ 1,272 $ 1,108 $ 1,131 15 6

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Divestiture — (1) (1)

Acquisition 15 — 7

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(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.

In Meals & Beverages, sales increased 15%, primarily due to a 15-point benefit from the acquisition of Sovos Brands.

Favorable volume/mix was offset by lower net price realization.

Excluding the benefit from the acquisition of Sovos Brands, sales were comparable as gains in foodservice were offset by declines in U.S.

retail products.

retail products, declines in beverages and Campbell's pasta and Swanson canned poultry were partially offset by gains in Prego pasta sauces and U.S.

Sales of U.S.

soup increased 2% primarily due to an increase in broth, partially offset by decreases in ready-to-serve soups and condensed soups.

On a two-year CAGR basis, net sales increased 6%, including the impact of the acquisition.

In Snacks, sales decreased 2%.

Excluding the impact from the divestiture of the Emerald nuts business, sales decreased driven by declines in third-party partner brands, contract manufacturing, frozen products and fresh bakery, partially offset by sales of our power brands, which increased 2%.

Sales of power brands were driven by increases in cookies and crackers, primarily Goldfish crackers, and in salty snacks.

Sales were impacted by volume/mix declines and neutral net price realization.

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

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Productivity improvements 250

Net price realization 100

Lower costs associated with cost savings initiatives 40

Volume/mix (1)

Cost inflation, supply chain costs and other factors (2)

Higher restructuring-related costs (10)

Impact of acquisition (3)

Net price realization (20)

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(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.

(2) Includes a 90 basis-point positive impact from the change in unrealized mark-to-market adjustments on outstanding undesignated commodity hedges and an estimated positive margin impact of 50 basis points from the benefit of cost savings initiatives, which were more than offset by cost inflation and other factors.

(3) Includes a negative margin impact of 70 basis points from a Sovos Brands acquisition date fair value adjustment for inventory.

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.

Marketing and selling expenses as a percent of sales were 8.7% in 2024 and 2023.

Marketing and selling expenses increased 6% in 2024 from 2023.

The increase was primarily due to the impact of the acquisition (approximately 7 points) and higher costs associated with costs savings and optimization initiatives (approximately 3 points), partially offset by lower advertising and consumer promotion expense (approximately 2 points) driven by Meals & Beverages and lower incentive compensation (approximately 2 points).

Administrative Expenses

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Administrative expenses increased 25% 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).

The increase was primarily due to costs associated with the acquisition (approximately 23 points), higher general administrative costs and inflation (approximately 7 points) and the impact of the acquisition (approximately 3 points), partially offset by increased benefits from cost savings initiatives (approximately 5 points) and lower incentive compensation (approximately 3 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.

Other expenses were $30 million in 2024 compared to other expenses of $23 million in 2023 .

Other expenses in 2024 included costs associated with the acquisition of $16 million and accelerated amortization expense of $6 million.

Other expenses in 2023 included pension actuarial losses of $17 million.

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

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Three Months Ended

(Millions) January 28, 2024 January 29, 2023 % Change

(Millions) April 28, 2024 April 30, 2023 % Change

Meals & Beverages $ 229 $ 182 26

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(1) See Note 7 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.

Operating earnings from Meals & Beverages increased 26%.

The increase was primarily due to the benefit of the acquisition of Sovos Brands, higher gross profit and lower marketing and selling expenses.

Gross profit margin increased due to supply chain productivity improvements, favorable volume/mix and benefits from cost savings initiatives, partially offset by higher cost inflation and other supply chain costs, unfavorable net price realization and the dilutive impact of the acquisition.

Operating earnings from Snacks decreased 7%.

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 the benefits from cost savings initiatives.

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;

• $77 million of costs associated with the acquisition of Sovos Brands;

• costs of $23 million related to costs savings and optimization initiatives;

• $6 million of accelerated amortization expense;

• $1 million of Plum litigation expenses;

• $13 million of unrealized mark-to-market gains on outstanding undesignated commodity hedges.

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• costs of $27 million related to cost savings initiatives;

• $17 million of pension actuarial losses;

• $9 million of unrealized mark-to-market losses on outstanding undesignated commodity hedges.

• $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.

Excluding these amounts, the remaining decrease was due to lower general and administrative expenses.

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.

Interest expense of $70 million in 2024 increased from $47 million in 2023 primarily due to higher levels of debt to fund the acquisition.

Taxes on Earnings

The effective tax rate was 26.9% in 2024 and 23.1% 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

The increase in the effective tax rate was primarily due to nondeductible costs associated with the acquisition.

NINE-MONTH DISCUSSION AND ANALYSIS

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 %

Nine Months Ended

(Millions) April 28, 2024 April 30, 2023 May 1, 2022 % Change 2024/2023 Two-Year CAGR %

Meals & Beverages $ 4,058 $ 3,971 $ 3,672 2 5

6 unchanged sentences

Divestiture — (1) (1)

Acquisition 4 — 2

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(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.

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

In Meals & Beverages, sales increased 2% reflecting a 4-point benefit from the acquisition of Sovos Brands.

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.

Excluding the benefit from the acquisition, sales decreased primarily due to declines in U.S.

retail products, including U.S.

soup and beverages, partially offset by gains in foodservice and Canada.

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.

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.

On a two-year CAGR basis, sales increased 5%, including the impact of the acquisition.

In Snacks, sales decreased 1%.

Excluding the impact from the divestiture of the Emerald nuts business, sales were comparable as sales of our power brands, which increased 4%, were offset by declines in sales of third-party partner brands, fresh bakery and contract manufacturing.

Sales of power brands were driven by increases in cookies and crackers, primarily Goldfish crackers and Lance sandwich crackers, and in salty snacks.

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

On a two-year CAGR basis, sales increased 6%.

Gross profit, defined as Net sales less Cost of products sold, decreased by $29 million in 2024 from 2023.

Gross profit, defined as Net sales less Cost of products sold, increased by $35 million in 2024 from 2023.

As a percent of sales, gross profit was 31.3% in 2024 and 31.0% in 2023.

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

The 30 basis-point increase in gross profit margin was due to the following factors:

Margin Impact

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

Higher restructuring-related costs (10)

Productivity improvements 230

Net price realization 110

Lower costs associated with cost savings initiatives 20

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

Impact of acquisition (2)

Volume/mix (3)

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(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.

(1) Includes an estimated positive margin impact of 30 basis points from the benefit of cost savings initiatives and a 20 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, including a 10 basis-point negative impact from a cybersecurity incident.

(2) Reflects the Sovos Brands acquisition date fair value adjustment for inventory.

(3) Includes the impact of operating leverage.

2 unchanged sentences

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).

The increase was primarily due to the impact of the acquisition (approximately 2 points), higher selling expenses (approximately 2 points), higher costs related to cost savings and optimization initiatives (approximately 1 point) and higher other marketing expenses (approximately 1 point), partially offset by lower advertising and consumer promotion expense (approximately 1 point) driven by Meals & Beverages, and lower incentive compensation (approximately 1 point).

Administrative Expenses

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Administrative expenses increased 14% 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).

The increase was primarily due to costs associated with the acquisition (approximately 8 points), higher costs related to cost savings initiatives (approximately 5 points), higher general administrative costs and inflation (approximately 5 points), and the impact of the acquisition (approximately 1 point), partially offset by increased benefits from cost savings initiatives (approximately 5 points).

Other Expenses / (Income)

Other expenses were $80 million in 2024 compared to other expenses of $41 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 2024 included costs associated with the acquisition of $35 million and accelerated amortization expense of $20 million.

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

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Operating Earnings

Segment operating earnings decreased 3% in 2024 from 2023.

Segment operating earnings increased 1% in 2024 from 2023.

An analysis of operating earnings by segment follows:

Six Months Ended

(Millions) January 28, 2024 January 29, 2023 % Change

Nine Months Ended

(Millions) April 28, 2024 April 30, 2023 % Change

Meals & Beverages $ 763 $ 762 —

Snacks 489 482 1

1,252 1,244 1

Corporate income (expense) (312) (189)

3 unchanged sentences

(1) See Note 7 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 Meals & Beverages were comparable with prior year due to lower gross profit offset by the benefit of the acquisition of Sovos Brands and lower marketing and selling expenses.

Gross profit margin decreased due to

higher cost inflation and other supply chain costs and the dilutive impact of the acquisition, partially offset by supply chain productivity improvements, favorable net price realization, favorable volume/mix and the benefits of cost savings initiatives.

Operating earnings from Snacks increased 1%.

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.

Gross profit margin increased due to supply chain productivity improvements, favorable net price realization, 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:

• $96 million of costs associated with the acquisition of Sovos Brands;

• costs of $68 million related to costs savings initiatives;

• $19 million of costs associated with the pending acquisition of Sovos Brands;

• $20 million of accelerated amortization expense;

• $8 million of unrealized mark-to-market losses on outstanding undesignated commodity hedges;

• $3 million of Plum litigation expenses;

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

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

Corporate expense in 2023 included the following:

• $9 million of pension actuarial losses;

• costs of $35 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.

• $26 million of pension actuarial losses;

• $9 million.of unrealized mark-to-market losses 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, partially offset by lower general and administrative expenses.

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

Interest expense of $165 million in 2024 increased from $139 million in 2023 primarily due to higher levels of debt to fund the acquisition .

Taxes on Earnings

The effective tax rate was 25.3% in 2024 and 23.7% in 2023.

The increase in the effective tax rate was primarily due to nondeductible costs associated with the pending acquisition of Sovos Brands.

The increase in the effective tax rate was primarily due to nondeductible costs associated with the acquisition.

Restructuring Charges, Cost Savings Initiatives and Other Optimization Initiatives

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

Multi-year Cost Savings Initiatives and Snyder's-Lance, Inc.

(Snyder's-Lance) Cost Transformation Program and Integration

Continuing Operations

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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 Six Months Ended

Three Months Ended Nine 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

April 28, 2024 April 30, 2023 April 28, 2024 April 30, 2023 Recognized as of April 28, 2024

Restructuring charges $ (3) $ 6 $ 1 $ 15 $ 281

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

(Millions) Recognized as of January 28, 2024

(Millions) Recognized as of April 28, 2024

Severance pay and benefits

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Of the aggregate $905 million to $930 million of pre-tax costs identified to date, we expect approximately $725 million to $750 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.

In addition, we expect to invest approximately $705 million in capital expenditures, of which we invested $508 million as of April 28, 2024.

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

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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.

As of April 28, 2024, we have generated total program-to-date pre-tax savings of $940 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

April 28, 2024

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

Meals & Beverages $ 7 $ 16 $ 267

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We expect to execute this program in a staggered rollout and to incur expenses of up to approximately $115 million through 2029.

In the three-month period ended April 28, 2024, we incurred $5 million in Marketing and selling expenses related to this initiative.

Sovos Brands Integration Initiatives

On March 12, 2024, we completed the acquisition of Sovos Brands.

See Note 3 for additional information.

We have identified opportunities for cost synergies as we integrate Sovos Brands.

Cost estimates to achieve the synergies are continuing to be developed.

The total expected pre-tax costs and timing of when we expect to incur those costs, as well as the expected future cash expenditures, will be updated as detailed plans are developed.

We expect the pre-tax costs to be associated primarily with the Meals & Beverages segment.

In the three-month period ended April 28, 2024, we recorded Restructuring charges of $16 million of severance pay and benefits related to initiatives to achieve the synergies.

We expect the initiatives, once all phases are implemented, to generate annual ongoing savings of approximately $50 million by the end of 2026.

As of April 28, 2024, we have generated pre-tax savings of $3 million.

Segment operating results do not include restructuring charges, nor implementation and integration costs because we evaluate segment performance excluding such charges.

The costs incurred in the three-month period ended April 28, 2024 were associated with the Meals & Beverages segment.

LIQUIDITY AND CAPITAL RESOURCES

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We generated cash flows from operations of $897 million in 2024, compared to $918 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.

The decline in 2024 was primarily due to costs associated with the acquisition.

We had negative working capital of $1.318 billion as of April 28, 2024, and $161 million 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 $1.427 billion as of April 28, 2024, and $191 million as of July 30, 2023.

We have $1.15 billion aggregate principal amount of senior notes maturing in March 2025 that we expect to repay and/or refinance using available sources, which may include cash on hand, accessing the capital markets, commercial paper and/or revolving credit facility.

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.

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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.

Amounts outstanding under these programs, which are included in Accounts payable on the Consolidated Balance Sheets, were approximately $260 million at April 28, 2024 and July 30, 2023.

On March 12, 2024, we completed the acquisition of Sovos Brands.

Cash consideration was $2.857 billion.

The acquisition was funded through the 2024 DDTL Credit Agreement of $2 billion and cash on hand.

Capital expenditures were $376 million in 2024 and $257 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.

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

Capital expenditures in the first nine months of 2024 included chip and cracker capacity expansion for our Snacks business, upgrades of assets across both segments of the 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.

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Dividend payments were $334 million in 2024 and $336 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.

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

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.

On May 13, 2024, the Board of Directors declared a regular quarterly dividend of $.37 per share payable on July 29, 2024 to shareholders of record at the close of business on July 3, 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 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 1.08 million shares at a cost of $46 million in 2024 pursuant to our June 2021 program.

As of April 28, 2024, approximately $58 million remained available under the June 2021 program and approximately $301 million remained available under the September 2021 program.

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

See Note 14 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.

On October 10, 2023, we entered into 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 proceeds of the loans under the 2024 DDTL Credit Agreement could only be used in connection with the acquisition of Sovos Brands and the payment of fees and expenses incurred in connection therewith.

On March 12, 2024, we borrowed $2 billion under the 2024 DDTL Credit Agreement and used the proceeds in order to fund the acquisition of Sovos Brands, along with the fees and expenses incurred in connection therewith.

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.

On March 19, 2024, pursuant to the registration statement, we issued senior unsecured notes of $2.5 billion, consisting of:

• $400 million aggregate principal amount of notes bearing interest at a fixed rate of 5.30% per annum, due March 20, 2026, with interest payable semi-annually on each of March 20 and September 20 commencing September 20, 2024;

• $500 million aggregate principal amount of notes bearing interest at a fixed rate of 5.20% per annum, due March 19, 2027, with interest payable semi-annually on each of March 19 and September 19 commencing September 19, 2024;

• $600 million aggregate principal amount of notes bearing interest at a fixed rate of 5.20% per annum, due March 21, 2029, with interest payable semi-annually on each of March 21 and September 21 commencing September 21, 2024;

• $1 billion aggregate principal amount of notes bearing interest at a fixed rate of 5.40% per annum, due March 21, 2034, with interest payable semi-annually on each of March 21 and September 21 commencing September 21, 2024.

The notes contain customary covenants and events of default.

If a change of control triggering event occurs, we will be required to offer to purchase the notes at a purchase price equal to 101% of the principal amount plus accrued and unpaid interest, if any, to the purchase date.

We used the net proceeds from the sale of the notes to repay the $2 billion of outstanding borrowings under the 2024 DDTL Credit Agreement used to fund the Sovos Brands acquisition, including fees and expenses in connection therewith, and the remainder of the net proceeds to repay commercial paper.

On April 5, 2024, we repaid $100 million of the $500 million outstanding under our Delayed Draw Term Loan Credit Agreement (the 2022 DDTL Credit Agreement) due November 15, 2025.

As of April 28, 2024, we had $1.427 billion of short-term borrowings due within one year, of which $258 million was comprised of commercial paper borrowings.

As of April 28, 2024, we issued $28 million of standby letters of credit.

On April 16, 2024, we terminated our existing revolving credit facility dated September 27, 2021 (as amended on April 4, 2023).

On April 16, 2024, we entered into a Five-Year Credit Agreement for an unsecured, senior revolving credit facility (the 2024 Revolving Credit Facility Agreement) in an aggregate principal amount equal to $1.85 billion with a maturity date of April 16, 2029 or such later date as extended pursuant to the terms set forth in the 2024 Revolving Credit Facility Agreement.

The 2024 Revolving Credit Facility Agreement remained unused at April 28, 2024, except for $1 million of standby letters of credit that we issued under it.

We may increase the 2024 Revolving Credit Facility Agreement commitments up to an additional $500 million, subject to the satisfaction of certain conditions.

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

The 2024 Revolving Credit Facility Agreement contains customary covenants, including a financial covenant with respect to a minimum consolidated interest coverage ratio of consolidated adjusted EBITDA to consolidated interest expense of not less than 3.25:1.00, and customary events of default for credit facilities of this type.

The facility supports our commercial paper program and other general corporate purposes.

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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

CRITICAL ACCOUNTING ESTIMATES

We prepare our consolidated financial statements in conformity with accounting principles generally accepted in the United States.

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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 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.

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 critical accounting estimates are described in Management’s Discussion and Analysis included in the 2023 Annual Report on Form 10‑K.

RECENT ACCOUNTING PRONOUNCEMENTS

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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 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;

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

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

• disruptions in or inefficiencies to our supply chain and/or operations, including reliance on key co-manufacturer and 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, 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.

• unforeseen business disruptions or other impacts due to political instability, civil disobedience, geopolitical conflicts, 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.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis