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 28, 2024, 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 The Campbell's 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 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. On August 26, 2024, we completed the sale of our Pop Secret popcorn business. For additional information on the divestiture, see Note 4 to the Consolidated Financial Statements. On February 24, 2025, we completed the sale of our noosa yoghurt business for $188 million, subject to certain customary purchase price adjustments. For additional information on the divestiture, see Note 4 to the Consolidated Financial Statements. Business Trends Our industry continues to navigate an ongoing recovery in light of global macroeconomic challenges, including changes in consumer purchasing and spending patterns; supply chain pressures; commodity cost volatility; labor market issues; and economic uncertainties amplified by increased regulatory activity, potential or actual imposition of tariffs and shifting global trade policies. Twenty-five percent tariffs on product imports from Mexico and Canada, and additional 10% tariffs on product imports from China (for an aggregate of 20%) went into effect on March 4, 2025. These actions are expected to result in retaliatory measures on U.S. goods. We are continuing to monitor the rapidly evolving tariff and global trade policies and are working with our suppliers to mitigate potential impacts on our business. The extent and duration of the tariffs and the resulting impact on general economic conditions and on our business are uncertain and depend on various factors, such as negotiations between the U.S. and affected countries, the responses of other countries or regions, exemptions that may be granted, availability and cost of alternative sources of supply and demand for our products in affected markets. Through the second quarter, we continued to experience some moderation in input cost inflation, as we continue to see cost improvement across certain ingredients and packaging materials. We anticipate continued supply chain productivity and benefits from cost savings initiatives to mitigate inflationary pressures and expect such benefits to offset incremental costs in 2025, excluding potential impacts of tariffs. We expect consumer trends to continue to evolve and our volumes to improve over time; however, economic pressures, including the challenges of persistent inflation and impacts of tariffs, may continue to negatively impact our volumes throughout 2025. 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. Company Name Change On November 19, 2024, at the 2024 Annual Meeting of Shareholders of the company, our shareholders approved an amendment to the company’s Restated Certificate of Incorporation to change the company’s name from “Campbell Soup Company” to “The Campbell’s Company.” The company’s name change became effective on November 19, 2024. Summary of Results This Summary of Results provides significant highlights from the discussion and analysis that follows. • Net sales increased 9% in the quarter to $2.685 billion primarily due to a 13-point benefit from the acquisition of Sovos Brands. • Gross profit, as a percent of sales, was 30.5% in 2025 compared to 31.6% in the prior-year quarter. The decrease was primarily due to unfavorable net price realization, the impact of cost inflation and other supply chain costs and the impact of the acquisition, partially offset by benefits from supply chain productivity improvements. • Earnings per share were $.58 in 2025, compared to $.68 in the prior-year quarter. The current quarter included expenses of $.16 per share and the prior-year quarter included expenses of $.12 per share from items impacting comparability as discussed below. 30 Net Earnings attributable to The Campbell's Company The following items impacted the comparability of net earnings and net earnings per share: • We implemented several cost savings initiatives in recent years. In the second quarter of 2025, we recorded Restructuring charges of $5 million and implementation costs and other related costs of $10 million in Cost of products sold, $8 million in Administrative expenses, $1 million in Marketing and selling expenses and $1 million in Research and development expenses related to these initiatives. 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 2025, we recorded Restructuring charges of $11 million and implementation costs and other related costs of $19 million in Administrative expenses, $18 million in Cost of products sold, $2 million in Marketing and selling expenses and $2 million in Research and development expenses 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 $.12 per share) related to these initiatives. In the second quarter of 2024, we began implementation of an optimization initiative to improve the effectiveness of our Snacks direct-store-delivery route-to-market network. Year-to-date in 2025, we recognized $8 million in Marketing and selling expenses related to this initiative. In the second quarter of 2025, the total aggregate impact related to the cost savings and optimization initiatives was $25 million ($19 million after tax, or $.06 per share). Year-to-date in 2025, the total aggregate impact related to the cost savings and optimization initiatives was $60 million ($46 million after tax, or $.15 per share). See Note 8 to the Consolidated Financial Statements and "Restructuring Charges, Cost Savings Initiatives and Other Optimization Initiatives" for additional information; • In the second quarter of 2025, we recognized gains in Cost of products sold of $14 million ($10 million after tax, or $.03 per share) associated with unrealized mark-to-market adjustments on outstanding undesignated commodity hedges. In the second quarter of 2024, we recognized gains in Cost of products sold of $7 million ($5 million after tax, or $.02 per share) associated with unrealized mark-to-market adjustments on outstanding undesignated commodity hedges. Year-to-date in 2025, we recognized gains in Cost of products sold of $18 million ($13 million after tax, or $.04 per share) associated with unrealized mark-to-market adjustments on outstanding undesignated commodity hedges. Year-to-date in 2024, we recognized losses in Cost of products sold of $8 million ($6 million after tax, or $.02 per share) associated with unrealized mark-to-market adjustments on outstanding undesignated commodity hedges; • In the second quarter of 2025 and 2024, we recorded accelerated amortization expense in Other expenses / (income) of $7 million ($5 million after tax, or $.02 per share) related to customer relationship intangible assets due to the loss of certain contract manufacturing customers, which began in the fourth quarter of 2023. Year-to-date in 2025 and 2024, we recorded accelerated amortization expense in Other expenses / (income) of $14 million ($10 million after tax, or $.03 per share); • In the second quarter of 2025, we performed an interim impairment assessment on certain salty snacks and cookie trademarks within our Snacks segment, including Tom's , Jays , Kruncher's , O-Ke-Doke , Stella D'oro and Archway , collectively referred to as our "Allied brands," and recognized an impairment charge of $15 million on the trademarks. In the second quarter of 2025, we performed an interim impairment assessment on the Late July trademark within our Snacks segment and recognized an impairment charge of $11 million on the trademark. In the second quarter of 2025, the total aggregate impact of the impairment charges was $26 million ($19 million after tax, or $.06 per share). The charges were included in Other expenses / (income); • In the second quarter of 2025, we recorded $15 million ($.05 per share) of deferred tax expense related to the sale of the noosa yoghurt business, which was completed on February 24, 2025. In the first quarter of 2025, we recorded a loss in Other expenses / (income) of $25 million ($19 million after tax, or $.06 per share) on the sale of our Pop Secret popcorn business. Year-to-date in 2025, the total aggregate impact of charges associated with divestitures was $25 million ($34 million after tax, or $.11 per share); 31 • In the second quarter of 2025, we recorded litigation expenses in Administrative expenses of $1 million ($1 million after tax) related to the Plum baby food and snacks business (Plum), which was divested on May 3, 2021, and certain other litigation matters. In the second quarter of 2024, we recorded litigation expenses in Administrative expenses of $1 million ($1 million after tax) related to Plum. Year-to-date in 2025, we recorded litigation expenses in Administrative expenses of $2 million ($2 million after tax, or $.01 per share) related to Plum and certain other litigation matters. Year-to-date in 2024, we recorded litigation expenses in Administrative expenses of $3 million ($3 million after tax, or $.01 per share) related to Plum; • Year-to-date in 2025, we recognized insurance recoveries in Administrative expenses of $1 million ($1 million after tax) related to a cybersecurity incident that was identified in the fourth quarter of 2023. 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 the cybersecurity incident; • Year-to-date in 2025, we recognized an actuarial loss in Other expenses / (income) of $2 million ($1 million after tax) related to an interim remeasurement of our postretirement plan due to a plan amendment; and • In the first quarter of 2024, we announced our intent to acquire Sovos Brands and on March 12, 2024, the acquisition closed. In the second quarter of 2024, we incurred costs associated with the acquisition in Other expenses / (income) of $10 million ($9 million after tax, or $.03 per share). Year-to-date in 2024, we incurred costs associated with the acquisition in Other expenses / (income) of $19 million ($17 million after tax, or $.06 per share). The items impacting comparability are summarized below: Three Months Ended January 26, 2025 January 28, 2024 (Millions, except per share amounts) Earnings Impact EPS Impact Earnings Impact EPS Impact Net earnings attributable to The Campbell's Company $ 173 $ .58 $ 203 $ .68 Costs associated with cost savings and optimization initiatives $ (19) $ (.06) $ (27) $ (.09) Commodity mark-to-market gains 10 .03 5 .02 Accelerated amortization (5) (.02) (5) (.02) Impairment charges (19) (.06) — — Charges associated with divestitures (15) (.05) — — Certain litigation expenses (1) — (1) — Costs associated with acquisition — — (9) (.03) Impact of items on Net earnings $ (49) $ (.16) $ (37) $ (.12) Six Months Ended January 26, 2025 January 28, 2024 (Millions, except per share amounts) Earnings Impact EPS Impact Earnings Impact EPS Impact Net earnings attributable to The Campbell's Company $ 391 $ 1.30 $ 437 $ 1.46 Costs associated with cost savings and optimization initiatives $ (46) $ (.15) $ (37) $ (.12) Commodity mark-to-market gains (losses) 13 .04 (6) (.02) Accelerated amortization (10) (.03) (10) (.03) Impairment charges (19) (.06) — — Charges associated with divestitures (34) (.11) — — Certain litigation expenses (2) (.01) (3) (.01) Cybersecurity incident recoveries (costs) 1 — (2) (.01) Postretirement actuarial losses (1) — — — Costs associated with acquisition — — (17) (.06) Impact of items on Net earnings (1) $ (98) $ (.33) $ (75) $ (.25) 32 __________________________________________ (1) Sum of the individual amounts may not add due to rounding. Net earnings attributable to The Campbell's Company were $173 million ($.58 per share) in the current quarter, compared to $203 million ($.68 per share) in the year-ago quarter. After adjusting for items impacting comparability, earnings decreased primarily due to higher marketing and selling expenses and higher interest expense, partially offset by an increase in gross profit. Net earnings attributable to The Campbell's Company were $391 million ($1.30 per share) in the six-month period this year, compared to $437 million ($1.46 per share) in the year-ago period. After adjusting for items impacting comparability, earnings decreased primarily due to higher interest expense, higher marketing and selling expenses and higher administrative expenses, partially offset by an increase in gross profit. SECOND-QUARTER DISCUSSION AND ANALYSIS Sales An analysis of net sales by reportable segment follows: Three Months Ended (Millions) January 26, 2025 January 28, 2024 % Change Meals & Beverages $ 1,679 $ 1,382 21 Snacks 1,006 1,074 (6) $ 2,685 $ 2,456 9 An analysis of percent change of net sales by reportable segment follows: Meals & Beverages (2) Snacks Total (2) Volume/mix 1% (2)% —% Net price realization (1) (2) (1) (2) Divestiture — (3) (1) Acquisition 23 — 13 21% (6)% 9% __________________________________________ (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 21%, primarily due to a 23-point benefit from the acquisition of Sovos Brands. Excluding the benefit from the acquisition of Sovos Brands, sales decreased primarily due to declines in SpaghettiOs and U.S. soup, partially offset by gains in foodservice. Lower net price realization was partially offset by favorable volume/mix. Sales of U.S. soup decreased 1% primarily due to declines in ready-to-serve soups and condensed soups, partially offset by increases in broth. In Snacks, sales decreased 6%. Excluding the impact from the divestiture of the Pop Secret popcorn business, sales decreased due to declines in third-party partner brands and contract manufacturing, Goldfish crackers and Snyder's of Hanover pretzels. Sales were impacted by volume/mix declines and lower net price realization. Gross Profit Gross profit, defined as Net sales less Cost of products sold, increased by $43 million in 2025 from 2024. As a percent of sales, gross profit was 30.5% in 2025 and 31.6% in 2024. 33 The 110 basis-point decrease in gross profit margin was due to the following factors: Margin Impact Net price realization (110) Cost inflation, supply chain costs and other factors (1) (50) Impact of acquisition (40) Higher costs associated with cost savings initiatives (30) Productivity improvements 110 Volume/mix (2) 10 (110) __________________________________________ (1) Includes an estimated positive margin impact of 50 basis points from the benefit of cost savings initiatives and a 30 basis-point positive impact from the change in unrealized mark-to-market adjustments on outstanding undesignated commodity hedges, which were more than offset by the impact of cost inflation and other factors. (2) Includes the impact of operating leverage. Marketing and Selling Expenses Marketing and selling expenses as a percent of sales were 9.5% in 2025 compared to 8.8% in 2024. Marketing and selling expenses increased 18% in 2025 from 2024. The increase was primarily due to the impact of the acquisition (approximately 11 points) and higher advertising and consumer promotion expense (approximately 7 points) driven by Meals & Beverages and Snacks. Administrative Expenses Administrative expenses as a percent of sales were 6.1% in 2025 compared to 7.7% in 2024. Administrative expenses decreased 13% in 2025 from 2024. The decrease was primarily due to lower costs associated with cost savings initiatives (approximately 11 points) and increased benefits from cost savings initiatives (approximately 6 points), partially offset by the impact of the acquisition (approximately 5 points). Other Expenses / (Income) Other expenses were $41 million in 2025 compared to $26 million in 2024 . Other expenses in 2025 included impairment charges related to the Allied brands and Late July trademarks of $26 million and accelerated amortization expense of $7 million. Other expenses in 2024 included costs associated with the acquisition of $10 million and accelerated amortization expense of $7 million. Operating Earnings Segment operating earnings decreased 1% in 2025 from 2024. An analysis of operating earnings by segment follows: Three Months Ended (Millions) January 26, 2025 January 28, 2024 % Change Meals & Beverages $ 291 $ 247 18 Snacks 114 161 (29) 405 408 (1) Corporate income (expense) (73) (89) Restructuring charges (1) (5) (2) Earnings before interest and taxes $ 327 $ 317 __________________________________________ (1) See Note 8 to the Consolidated Financial Statements for additional information on restructuring charges. Operating earnings from Meals & Beverages increased 18%. The increase was primarily due to the benefit of the acquisition of Sovos Brands, partially offset by higher marketing and selling expenses. Operating earnings from Snacks decreased 29%. The decrease was primarily due to lower gross profit and higher marketing and selling expenses. Gross profit decreased primarily due to the impact of cost inflation and other supply chain costs, unfavorable volume/mix and unfavorable net price realization, partially offset by supply chain productivity improvements and the benefits from cost savings initiatives. 34 Corporate expense in 2025 included the following: • $26 million of impairment charges related to the Allied brands and Late July trademarks; • costs of $20 million related to costs savings and optimization initiatives; • $7 million of accelerated amortization expense; • $1 million of certain litigation expenses, including expenses related to Plum ; and • $14 million of unrealized mark-to-market gains on outstanding undesignated commodity hedges. Corporate expense in 2024 included the following: • costs of $34 million related to cost savings initiatives; • $10 million of costs associated with the acquisition of Sovos Brands; • $7 million of accelerated amortization expense; • $1 million of Plum litigation expenses; and • $7 million of unrealized mark-to-market gains on outstanding undesignated commodity hedges. Excluding these amounts, the remaining decrease was primarily due to lower administrative costs. Interest Expense Interest expense of $88 million in 2025 increased from $46 million in 2024 primarily due to higher levels of debt. Taxes on Earnings The effective tax rate was 30.0% in 2025 and 25.1% in 2024. The increase in the effective tax rate was primarily due to $15 million of deferred tax expense recognized related to the sale of the noosa yoghurt business in the current quarter, partially offset by nondeductible costs associated with the acquisition of Sovos Brands in the year-ago quarter . SIX-MONTH DISCUSSION AND ANALYSIS Sales An analysis of net sales by reportable segment follows: Six Months Ended (Millions) January 26, 2025 January 28, 2024 % Change Meals & Beverages $ 3,385 $ 2,786 22 Snacks 2,072 2,188 (5) $ 5,457 $ 4,974 10 An analysis of percent change of net sales by reportable segment follows: Meals & Beverages (2) Snacks Total (2) Volume/mix 1% (2)% —% Net price realization (1) (2) (1) (1) Divestiture — (2) (1) Acquisition 22 — 13 22% (5)% 10% __________________________________________ (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 22%, primarily due to a 22-point benefit from the acquisition of Sovos Brands. Excluding the benefit from the Sovos Brands acquisition, sales decreased primarily due to declines in U.S. soup and SpaghettiOs , partially offset by gains in foodservice and Prego pasta sauces. Lower net price realization was partially offset by favorable volume/mix. 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 decreased 5%. Excluding the impact from the divestiture of the Pop Secret popcorn business, sales decreased due to declines in third-party partner brands and contract manufacturing, Goldfish crackers, Pepperidge Farm cookies and Snyder's of Hanover pretzels. Sales were impacted by volume/mix declines and lower net price realization. 35 Gross Profit Gross profit, defined as Net sales less Cost of products sold, increased by $122 million in 2025 from 2024. As a percent of sales, gross profit was 30.9% in 2025 and 31.4% in 2024. The 50 basis-point decrease in gross profit margin was due to the following factors: Margin Impact Net price realization (100) Impact of acquisition (50) Cost inflation, supply chain costs and other factors (1) (30) Higher costs associated with cost savings initiatives (20) Productivity improvements 140 Volume/mix (2) 10 (50) __________________________________________ (1) Includes a 50 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. (2) Includes the impact of operating leverage. Marketing and Selling Expenses Marketing and selling expenses as a percent of sales were 9.3% in 2025 and 8.8% in 2024. Marketing and selling expenses increased 15% in 2025 from 2024. The increase was primarily due to the impact of the acquisition (approximately 11 points), higher advertising and consumer promotion expense (approximately 3 points) and higher costs related to cost savings and optimization initiatives (approximately 2 points), partially offset by lower other marketing expenses (approximately 1 point). The increase in advertising and consumer promotion expense was driven by Snacks and Meals & Beverages. Administrative Expenses Administrative expenses as a percent of sales were 6.2% in 2025 compared to 7.0% in 2024. Administrative expenses decreased 2% in 2025 from 2024. The decrease was primarily due to increased benefits from cost savings initiatives (approximately 5 points); lower costs related to cost savings initiatives (approximately 4 points); lower incentive compensation (approximately 1 point) and lower benefit-related costs (approximately 1 point), partially offset by the impact of the acquisition (approximately 5 points) and higher general administrative costs (approximately 4 points). Other Expenses / (Income) Other expenses were $84 million in 2025 compared to $50 million in 2024. Other expenses in 2025 included impairment charges related to the Allied brands and Late July trademarks of $26 million, a loss of $25 million on the sale of the Pop Secret popcorn business, accelerated amortization expense of $14 million and a postretirement actuarial loss of $2 million. Other expenses in 2024 included costs associated with the acquisition of $19 million and accelerated amortization expense of $14 million. Operating Earnings Segment operating earnings increased 3% in 2025 from 2024. An analysis of operating earnings by segment follows: Six Months Ended (Millions) January 26, 2025 January 28, 2024 % Change Meals & Beverages $ 628 $ 534 18 Snacks 256 322 (20) 884 856 3 Corporate income (expense) (179) (177) Restructuring charges (1) (11) (4) Earnings before interest and taxes $ 694 $ 675 __________________________________________ (1) See Note 8 to the Consolidated Financial Statements for additional information on restructuring charges. 36 Operating earnings from Meals & Beverages increased 18%. The increase was primarily due to the benefit of the acquisition of Sovos Brands. Operating earnings from Snacks decreased 20%. The decrease was primarily due to lower gross profit and higher marketing and selling expenses. Gross profit decreased primarily due to the impact of cost inflation and other supply chain costs, unfavorable volume/mix and unfavorable net price realization, partially offset by supply chain productivity improvements and benefits from cost savings initiatives. Corporate expense in 2025 included the following: • costs of $49 million related to costs savings initiatives; • $26 million of impairment charges related to the Allied brands and Late July trademarks; • $25 million loss on the sale of the Pop Secret popcorn business; • $14 million of accelerated amortization expense; • $2 million postretirement actuarial loss; • $2 million of certain litigation expenses, including expenses related to Plum; • $18 million of unrealized mark-to-market gains on outstanding undesignated commodity hedges; and • $1 million of insurance recoveries related to a cybersecurity incident. Corporate expense in 2024 included the following: • costs of $45 million related to cost savings initiatives; • $19 million of costs associated with the acquisition of Sovos Brands; • $14 million of accelerated amortization expense; • $8 million of unrealized mark-to-market losses on outstanding undesignated commodity hedges; • $3 million of Plum litigation expenses; and • $3 million of costs associated with a cybersecurity incident. Interest Expense Interest expense of $175 million in 2025 increased from $95 million in 2024 primarily due to higher levels of debt. Taxes on Earnings The effective tax rate was 26.4% in 2025 and 24.8% in 2024. The increase in the effective tax rate was primarily due to $15 million of deferred tax expense recognized related to the sale of the noosa yoghurt business in the current year, partially offset by excess tax benefits associated with the vesting of stock-based compensation awards in the current year and nondeductible costs associated with the acquisition of Sovos Brands in the prior year. 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. 37 In 2022, we expanded these initiatives as we continued 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. A summary of the pre-tax charges recognized in the Consolidated Statements of Earnings related to these initiatives is as follows: January 28, 2024 (Millions, except per share amounts) Three Months Ended Six Months Ended Total Program Restructuring charges $ 2 $ 4 $ 297 Administrative expenses 29 34 437 Cost of products sold 3 6 128 Marketing and selling expenses 1 3 23 Research and development expenses 1 2 10 Total pre-tax charges $ 36 $ 49 $ 895 Aggregate after-tax impact $ 27 $ 37 Per share impact $ .09 $ .12 A summary of the pre-tax costs associated with these initiatives is as follows: (Millions) Total Program Severance pay and benefits $ 253 Asset impairment/accelerated depreciation 134 Implementation costs and other related costs 508 Total $ 895 Of the aggregate $895 million pre-tax costs incurred, approximately $720 million were cash expenditures. 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: (Millions) Total Program Meals & Beverages $ 288 Snacks 383 Corporate 224 Total $ 895 As of July 28, 2024, we substantially completed the multi-year cost savings initiatives and Snyder's-Lance cost transformation program and integration, and we generated total pre-tax savings of approximately $950 million. Certain phases that had not been fully implemented were incorporated into the 2025 cost savings initiatives described below. Sovos Brands Integration Initiatives On March 12, 2024, we completed the acquisition of Sovos Brands. See Note 3 to the Consolidated Financial Statements for additional information. We identified opportunities for cost synergies as we integrate Sovos Brands. In 2024, we recorded Restructuring charges of $21 million for severance pay and benefits related to initiatives to achieve the synergies and generated pre-tax savings of $10 million. The charges incurred in 2024 were associated with the Meals & Beverages segment. In 2025, the initiatives to achieve synergies were incorporated into the cost savings initiatives described below. 38 2025 Cost Savings Initiatives On September 10, 2024, we announced plans to implement cost savings initiatives beginning in 2025, including initiatives to further optimize our supply chain and manufacturing network, optimization of our information technology infrastructure and targeted cost management. We also identified additional opportunities for cost synergies as we integrate Sovos Brands. As mentioned above, we substantially completed our previous multi-year cost savings initiatives and Snyder's-Lance cost transformation program and integration. Certain initiatives from that program have been incorporated into our 2025 cost savings initiatives. Cost estimates for the 2025 initiatives, as well as timing for certain activities, are continuing to be developed. A summary of the pre-tax charges recorded in the Consolidated Statement of Earnings related to these initiatives is as follows: January 26, 2025 (Millions, except per share amounts) Three Months Ended Six Months Ended Restructuring charges $ 5 $ 11 Administrative expenses 8 19 Cost of products sold 10 18 Marketing and selling expenses 1 2 Research and development expenses 1 2 Total pre-tax charges $ 25 $ 52 Aggregate after-tax impact $ 19 $ 40 Per share impact $ .06 $ .13 A summary of the pre-tax costs associated with the initiatives is as follows: (Millions) Recognized as of January 26, 2025 Severance pay and benefits $ 11 Asset impairment/accelerated depreciation 17 Implementation costs and other related costs 24 Total $ 52 The total estimated pre-tax costs for actions that have been identified to date are approximately $190 million, and we expect to incur substantially all of the costs through 2028. These estimates will be updated as the detailed plans are developed. We expect the costs for the actions that have been identified to date to consist of the following: approximately $20 million in severance pay and benefits; approximately $50 million in asset impairment and accelerated depreciation; and approximately $120 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 72%; Snacks - approximately 9% and Corporate - approximately 19%. Of the aggregate $190 million of pre-tax costs identified to date, we expect approximately $135 million will be cash expenditures. In addition, we expect to invest approximately $215 million in capital expenditures, of which we invested $57 million as of January 26, 2025. The capital expenditures primarily relate to optimization of production within our manufacturing network, implementation of our existing SAP enterprise-resource planning system for Sovos Brands and optimization of information technology infrastructure and applications. We expect the initiatives, once all phases are implemented, to generate annual ongoing savings of approximately $250 million by the end of 2028. As of January 26, 2025, we have generated total program-to-date pre-tax savings of $65 million. 39 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 26, 2025 (Millions) Three Months Ended Six Months Ended Meals & Beverages $ 16 $ 37 Snacks 2 5 Corporate 7 10 Total $ 25 $ 52 Other Optimization Initiatives In the second quarter of 2024, we began implementation of an 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 six-month period ended January 26, 2025, we incurred $8 million in Marketing and selling expenses related to this initiative. As of January 26, 2025, we have incurred $13 million in Marketing and selling expenses related to this initiative. 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. Operating Activities We generated cash flows from operations of $737 million in 2025, compared to $684 million in 2024. The increase in 2025 was primarily due to higher cash earnings and changes in working capital. We had negative working capital of $232 million as of January 26, 2025, and $1.386 billion as of July 28, 2024. 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 $1.179 billion as of January 26, 2025, and $1.423 billion as of July 28, 2024. 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 $269 million at January 26, 2025 and $243 million at July 28, 2024. Investing Activities Capital expenditures were $211 million in 2025 and $263 million in 2024. Capital expenditures in 2025 included 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 $485 million in 2025. In Snacks, we have a direct-store-delivery distribution model that uses independent contractor distributors. From time to time, we purchase and sell routes, including certain routes under our optimization initiatives. The purchase and sale proceeds of the routes are reflected in investing activities. 40 On August 26, 2024, we sold our Pop Secret popcorn business for $70 million. Financing Activities Dividend payments were $227 million in 2025 and $224 million in 2024. The regular quarterly dividend paid on our capital stock was $.39 and $.37 per share in the second quarter of 2025 and 2024, respectively. On December 3, 2024, the Board of Directors approved an increase in the regular quarterly dividend from $.37 per share to $.39 per share, or 5%. They then declared a regular quarterly dividend of $.39 per share payable on January 27, 2025 to shareholders of record at the close of business on January 2, 2025. On February 26, 2025, the Board of Directors declared a regular quarterly dividend of $.39 per share payable on April 28, 2025 to shareholders of record at the close of business on April 3, 2025. 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. In September 2024, the Board authorized an anti-dilutive share repurchase program of up to $250 million (September 2024 program) to offset the impact of dilution from shares issued under our stock compensation programs. The September 2024 program has no expiration date, but it may be suspended or discontinued at any time. Repurchases under the September 2024 program may be made in open-market or privately negotiated transactions. The September 2024 program replaced an anti-dilutive share repurchase program of up to $250 million that was approved by the Board in June 2021 and has been terminated. During the six-month periods ended January 26, 2025 and January 28, 2024, we repurchased 1.134 million shares at a cost of $56 million and 707 thousand shares at a cost of $29 million, respectively, pursuant to our anti-dilutive share repurchase programs. As of January 26, 2025, approximately $205 million remained available under the September 2024 program and approximately $301 million remained available under the September 2021 program. See Note 15 to the Consolidated Financial Statements and “Unregistered Sales of Equity Securities and Use of Proceeds” for additional information. 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 October 2, 2024, pursuant to the registration statement, we completed the issuance of senior unsecured notes of $1.15 billion, consisting of: • $800 million aggregate principal amount of notes bearing interest at a fixed rate of 4.75% per annum, due March 23, 2035, with interest payable semi-annually on each of March 23 and September 23 commencing March 23, 2025; and • $350 million aggregate principal amount of notes bearing interest at a fixed rate of 5.25% per annum, due October 13, 2054, with interest payable semi-annually on each of April 13 and October 13 commencing April 13, 2025. 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. I n October 2024, we used a portion of the net proceeds from the issuance of the notes to repay $200 million of the $400 million outstanding under our 2022 Delayed Draw Term Loan Credit Agreement (the 2022 DDTL Credit Agreement) due November 15, 2025 and a portion of our outstanding commercial paper. In November 2024, we repaid the remaining $200 million outstanding under the 2022 DDTL Credit Agreement. We have $1.15 billion aggregate principal amount of senior notes maturing in March 2025, which we intend to repay by using a portion of the proceeds from the issuance of the notes along with cash on hand and issuing commercial paper. As of January 26, 2025, we had $1.179 billion of short-term borrowings due within one year, of which none was comprised of commercial paper borrowings. As of January 26, 2025, we issued $27 million of standby letters of credit. 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 January 26, 2025, 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. 41 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 28, 2024 (2024 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 2024 Annual Report on Form 10-K. The following areas all require the use of subjective or complex judgments, estimates or assumptions: trade and consumer promotion programs; the valuation of long-lived assets; pension and postretirement benefits and income taxes. Our critical accounting estimates are described in Management’s Discussion and Analysis included in the 2024 Annual Report on Form 10‑K. Valuation of long-lived assets — The valuation of long-lived assets is an area that requires the use of subjective or complex judgments, estimates and assumptions. Goodwill and intangible assets deemed to have indefinite lives are not amortized but rather are tested at least annually in the fourth quarter for impairment, or more often if events or changes in circumstances indicate that the carrying amount of the asset may be impaired. During the second quarter of 2025, we performed an interim impairment assessment on certain salty snacks and cookie trademarks within our Snacks segment, including Tom’s , Jays , Kruncher’s , O-Ke-Doke , Stella D’oro and Archway , collectively referred to as our "Allied brands." In 2025, sales performance was below expectations. In the second quarter of 2025, based on recent performance, we lowered our long-term outlook and recognized an impairment charge of $15 million on the Allied brands trademarks. As of January 26, 2025, the carrying value of the Allied brands trademarks was $28 million. During the second quarter of 2025, we performed an interim impairment assessment on the Late July trademark within our Snacks segment. In 2025, sales performance was below expectations. In the second quarter of 2025, based on recent performance, we lowered our long-term outlook and recognized an impairment charge of $11 million on the trademark. As of January 26, 2025, the carrying value of the Late July trademark was $47 million. The impairment charges were recorded in Other expenses / (income) in the Consolidated Statement of Earnings. As of January 26, 2025, the carrying value of indefinite-lived trademarks was $3.828 billion as detailed below: (Millions) Rao's $ 1,470 Snyder's of Hanover 620 Lance 350 Kettle Brand 318 Pace 292 Pacific Foods 280 Cape Cod 187 Various other Snacks (1) 311 Total $ 3,828 _____________________________________ (1) Includes the Late July and Allied brands trademarks. The $1.47 billion carrying value of the Rao's trademark associated with the Sovos Brands acquisition approximates fair value. Excluding the carrying value of the Rao's trademark, based on the 2024 annual impairment testing and interim assessments described above, indefinite-lived trademarks with approximately 10% or less of excess coverage of fair value over carrying value had an aggregate carrying value of $1.267 billion as of January 26, 2025, and included the Snyder's of Hanover , Pace , Pacific Foods, Late July and Allied brands trademarks. Although assumptions are generally interdependent and do not change in isolation, sensitivities to changes are provided below. Holding all other assumptions in our interim impairment assessment constant, changes in the assumptions below would reduce fair value of trademarks and result in impairment charges of approximately: (Millions) Allied brands Late July 1% increase in the weighted-average cost of capital $ 5 $ 10 1% reduction in revenue growth $ 5 $ 5 1% decrease in royalty rate $ 10 $ 25 42 The estimates of future cash flows used in impairment testing are made at a point in time, involve considerable management judgment, and are based upon assumptions about expected future operating performance, assumed royalty rates, economic conditions, market conditions and cost of capital. Inherent in estimating the future cash flows are uncertainties beyond our control, such as changes in capital markets. The actual cash flows could differ materially from management’s estimates due to changes in business conditions, operating performance and economic conditions. If our assumptions change or market conditions decline, potential impairment charges could result. 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 2024 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 risks associated with imposed and threatened tariffs by the U.S. and reciprocal tariffs by its trading partners; • the risks related to the availability of, and cost inflation in, supply chain inputs, including labor, raw materials, commodities, packaging and transportation, including those related to tariffs; • disruptions in or inefficiencies to our supply chain and/or operations, including reliance on key contract manufacturer and supplier relationships; • declines or volatility in financial markets, deteriorating economic conditions and other external factors, including the impact and application of new or changes to existing governmental laws, regulations, and policies; • 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; • changes in consumer demand for our products and favorable perception of our brands; • 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; • our ability to realize projected cost savings and benefits from cost savings initiatives and the integration of recent acquisitions; • 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; • 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; 43 • 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; • the costs, disruption and diversion of management's attention associated with activist investors; • our indebtedness and ability to pay such indebtedness; and • unforeseen business disruptions or other impacts due to political instability, civil disobedience, terrorism, 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. Item 3. Quantitative and Qualitative Disclosure About Market Risk For information regarding our exposure to certain market risk, see Item 7A, Quantitative and Qualitative Disclosure About Market Risk, in the 2024 Annual Report on Form 10-K.