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. 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, 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 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 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, 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. The current quarter included expenses of $.30 per share and the prior-year quarter included expenses of $.15 per share from items impacting comparability as discussed below. 28 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 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 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; • 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; and 29 • 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 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. The items impacting comparability are summarized below: Three Months Ended April 28, 2024 April 30, 2023 (Millions, except per share amounts) Earnings Impact EPS Impact Earnings Impact EPS Impact Net earnings attributable to Campbell Soup Company $ 133 $ .44 $ 160 $ .53 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) — — Pension actuarial losses — — (13) (.04) Impact of items on Net earnings (1) $ (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 Impact EPS Impact Earnings Impact EPS Impact Net earnings attributable to Campbell Soup Company $ 570 $ 1.91 $ 689 $ 2.29 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) — — Plum litigation expenses (3) (.01) — — Cybersecurity incident costs (2) (.01) — — Pension actuarial losses — — (20) (.07) Impact of items on Net earnings $ (166) $ (.56) $ (64) $ (.21) 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 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. 30 THIRD-QUARTER DISCUSSION AND ANALYSIS Sales An analysis of net sales by reportable segment follows: Three Months Ended (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 Snacks 1,097 1,121 999 (2) 5 $ 2,369 $ 2,229 $ 2,130 6 5 An analysis of percent change of net sales by reportable segment follows: 2024 versus 2023 Meals & Beverages Snacks Total (2) Volume/mix 1% (1)% —% Net price realization (1) (1) — — Divestiture — (1) (1) Acquisition 15 — 7 15% (2)% 6% __________________________________________ (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 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. Within U.S. 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. soup. 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%. Gross Profit Gross profit, defined as Net sales less Cost of products sold, increased by $64 million in 2024 from 2023. As a percent of sales, gross profit was 30.9% in 2024 and 30.0% in 2023. The 90 basis-point increase in gross profit margin was due to the following factors: Margin Impact Productivity improvements 250 Lower costs associated with cost savings initiatives 40 Volume/mix (1) 20 Cost inflation, supply chain costs and other factors (2) (100) Impact of acquisition (3) (100) Net price realization (20) 90 __________________________________________ (1) Includes the impact of operating leverage. (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. 31 (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 8.7% 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 Administrative expenses as a percent of sales were 8.8% in 2024 compared to 7.5% in 2023. Administrative expenses increased 25% in 2024 from 2023. 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 $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. Operating Earnings Segment operating earnings increased 10% in 2024 from 2023. An analysis of operating earnings by segment follows: Three Months Ended (Millions) April 28, 2024 April 30, 2023 % Change Meals & Beverages $ 229 $ 182 26 Snacks 167 179 (7) 396 361 10 Corporate income (expense) (135) (101) Restructuring charges (1) (13) (6) Earnings before interest and taxes $ 248 $ 254 __________________________________________ (1) See Note 7 to the Consolidated Financial Statements for additional information on restructuring charges. 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: • $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; and • $13 million of unrealized mark-to-market gains on outstanding undesignated commodity hedges. Corporate expense in 2023 included the following: • costs of $27 million related to cost savings initiatives; • $17 million of pension actuarial losses; and • $9 million of unrealized mark-to-market losses on outstanding undesignated commodity hedges. 32 Excluding these amounts, the remaining decrease was due to lower general and administrative expenses. Interest Expense 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 acquisition. NINE-MONTH DISCUSSION AND ANALYSIS Sales An analysis of net sales by reportable segment follows: 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 Snacks 3,285 3,318 2,903 (1) 6 $ 7,343 $ 7,289 $ 6,575 1 6 An analysis of percent change of net sales by reportable segment follows: 2024 versus 2023 Meals & Beverages Snacks (2) Total Volume/mix (3)% (2)% (2)% Net price realization (1) 1 3 2 Divestiture — (1) (1) Acquisition 4 — 2 2% (1)% 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 increased 2% reflecting a 4-point benefit from the acquisition of Sovos Brands. Volume/mix declines were partially offset by favorable net price realization. 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. 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 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. 33 The 30 basis-point increase in gross profit margin was due to the following factors: Margin Impact Productivity improvements 230 Net price realization 110 Lower costs associated with cost savings initiatives 20 Cost inflation, supply chain costs and other factors (1) (300) Impact of acquisition (2) (20) Volume/mix (3) (10) 30 __________________________________________ (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. Marketing and Selling Expenses Marketing and selling expenses as a percent of sales were 8.8% in 2024 and 8.4% in 2023. Marketing and selling expenses increased 5% in 2024 from 2023. 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 Administrative expenses as a percent of sales were 7.6% in 2024 compared to 6.7% in 2023. Administrative expenses increased 14% in 2024 from 2023. 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 acquisition of $35 million and accelerated amortization expense of $20 million. Other expenses in 2023 included pension actuarial losses of $26 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 1% in 2024 from 2023. An analysis of operating earnings by segment follows: 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) Restructuring charges (1) (17) (15) Earnings before interest and taxes $ 923 $ 1,040 __________________________________________ (1) See Note 7 to the Consolidated Financial Statements for additional information on restructuring charges. 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 34 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 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; • $20 million of accelerated amortization expense; • $3 million of Plum litigation expenses; • $3 million of costs associated with a cybersecurity incident; and • $5 million of unrealized mark-to-market gains on outstanding undesignated commodity hedges. Corporate expense in 2023 included the following: • costs of $35 million related to cost savings initiatives; • $26 million of pension actuarial losses; and • $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 $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 acquisition. Restructuring Charges, Cost Savings Initiatives and Other Optimization Initiatives Multi-year Cost Savings Initiatives and Snyder's-Lance, Inc. (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. 35 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 Nine Months Ended (Millions, except per share amounts) 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 Administrative expenses 13 13 47 21 430 Cost of products sold 3 12 9 12 111 Marketing and selling expenses 1 — 4 — 23 Research and development expenses 1 2 3 2 10 Total pre-tax charges $ 15 $ 33 $ 64 $ 50 $ 855 Aggregate after-tax impact $ 11 $ 24 $ 48 $ 37 Per share impact $ .04 $ .08 $ .16 $ .12 A summary of the pre-tax costs associated with these initiatives is as follows: (Millions) Recognized as of April 28, 2024 Severance pay and benefits $ 241 Asset impairment/accelerated depreciation 124 Implementation costs and other related costs 490 Total $ 855 The total estimated pre-tax costs for actions that have been identified are approximately $905 million to $930 million and we expect to incur substantially all of the costs through 2025. These estimates will be updated as the expanded initiatives are developed. We expect the costs for actions that have been identified to date to consist of the following: approximately $250 million to $255 million in severance pay and benefits; approximately $140 million in asset impairment and accelerated depreciation; and approximately $515 million to $535 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 33%; Snacks - approximately 43%; and Corporate - approximately 24%. 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 $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. 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 April 28, 2024, we have generated total program-to-date pre-tax savings of $940 million. 36 Segment operating results do not include restructuring charges, implementation costs and other related costs because we evaluate segment performance excluding such charges. A summary of the pre-tax costs associated with segments is as follows: April 28, 2024 (Millions) Three Months Ended Nine Months Ended Costs Incurred to Date Meals & Beverages $ 7 $ 16 $ 267 Snacks — 30 375 Corporate 8 18 213 Total $ 15 $ 64 $ 855 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. 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 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 $897 million in 2024, compared to $918 million in 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. 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 approximately $260 million at April 28, 2024 and July 30, 2023. 37 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 $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. 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 $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 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. 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 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 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 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; and • $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. 38 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. 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. CRITICAL 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 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 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 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; • the risks related to the availability of, and cost inflation in, supply chain inputs, including labor, raw materials, commodities, packaging and transportation; 39 • 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 co-manufacturer and 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; • 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, 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. 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.