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01/11 03:39
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
The earnings call reveals a decline in net sales for both Meals & Beverages and Snacks, driven by unfavorable volume/mix, despite favorable pricing. The Q&A highlights ongoing challenges in the Snacks segment and pressure on margins due to inflation and tariffs. While there are efforts to stabilize the Snacks segment and innovate, the guidance indicates declining EBIT and EPS. The La Regina acquisition is positive but not enough to offset broader concerns. Overall, the sentiment is negative, with potential stock price decline due to weak financial performance and guidance.
Organic Net Sales Decreased 1% year-over-year, driven by a 2% decline in consumption. The decline was mainly due to retailers building inventory in Snacks ahead of upcoming promotional activities.
Adjusted EBIT Margin Decreased by 11% year-over-year. The decline was attributed to cost increases and top-line headwinds, despite cost-saving initiatives, improved productivity, and selective in-market pricing increases.
Adjusted Gross Profit Margin Decreased by 150 basis points to 29.9%. This was driven by cost headwinds of 520 basis points, including cost inflation, supply chain costs, and gross tariffs. These were partially offset by cost savings and supply chain productivity improvements.
Adjusted EPS Decreased by 13% to $0.77. The decline was driven by lower adjusted EBIT, partially offset by lower interest expense and a 60 basis point increase in the adjusted tax rate.
Meals & Beverages Organic Net Sales Decreased by 2%, driven by declines in U.S. soup, Canada, SpaghettiOs, Pace Mexican sauces, and V8 beverages. This was partially offset by gains in Rao's. The decline was due to unfavorable volume/mix and partially offset by favorable net price realization.
Snacks Organic Net Sales Decreased by 1%, driven by lower net sales in third-party partner and contract brands, Snyder's of Hanover pretzels, fresh bakery, Goldfish crackers, and Cape Cod potato chips. Gains in Pepperidge Farm cookies partially offset the decline. The decline was due to unfavorable volume/mix and partially offset by favorable net price realization.
Operating Cash Flow Generated $224 million, in line with the prior year. The company prioritized reinvestment into the business and returned cash to shareholders through dividends and share repurchases.
Rao's sauces campaign: Focused on the elevated Rao's experience, highlighting the origin of its high-quality ingredients.
Goldfish multipack: Double-digit increases in consumption during the back-to-school period through strong retail execution and promotional support.
Pacific brand: Dollar consumption growth up 25% and volume consumption up 31%.
Rao's sauces growth: Outpaced the Italian sauce category with low single-digit dollar consumption growth and remained the #1 brand in the category.
La Regina acquisition: Acquired a 49% interest in La Regina entities, solidifying the partnership for Rao's sauces.
Category reporting updates: Cape Cod and Kettle Brand chips now compared against the total potato chip category; Late July compared against the total tortilla chip category.
Latin America business realignment: Snacking and meals and beverages retail business in Latin America now managed under Meals & Beverages segment.
Cost savings initiatives: Achieved $15 million in new savings, bringing total cost savings to $160 million towards a fiscal 2028 target of $375 million.
Adjusted EBIT margin: Decreased due to cost increases and top-line headwinds, despite selective pricing increases and productivity improvements.
Marketing and selling expenses: Decreased 2% due to lower selling expenses and cost savings initiatives.
Focus on consumer needs: Strengthened focus on evolving consumer needs, including health and wellness, premium experiences, and value propositions.
Snacks innovation pipeline: Developing innovations like avocado oil in chips and new product launches to align with health and wellness trends.
Goldfish brand strategy: Incremental marketing support, innovation, and strategic value approach to reignite growth.
Organic Net Sales Decline: Organic net sales were down 1%, driven by a 2% decline in consumption, with the difference mainly due to retailers building inventory in Snacks ahead of upcoming promotional activities.
Adjusted EBIT Margin Decline: Adjusted EBIT margin decreased, resulting in an 11% year-over-year adjusted EBIT decline due to cost increases and top-line headwinds.
Cost Pressures: Significant cost pressures, including inflation and supply chain costs, were not fully offset by cost savings initiatives and selective in-market pricing increases.
Tariff Impact: Tariffs had a 200 basis point negative impact on adjusted gross profit margin in the quarter, with gross tariffs projected to be approximately 4% of cost of products sold for fiscal 2026.
Snacks Business Pressure: The Snacks business faced pressure as consumers became more intentional with purchases, leading to volume declines and challenges in certain product categories like pretzels and crackers.
Ready-to-Serve Soup Segment Challenges: The Ready-to-Serve soup segment experienced market share declines due to price increases and the discontinuation of certain product lines.
Competitive Pressures in Snacks: Competitive pressures in the Snacks segment, particularly in pretzels and crackers, led to market share and consumption declines.
Consumer Behavior Shifts: Shifts in consumer behavior, such as increased selectivity in purchases and evolving snacking preferences, impacted sales and market share in key product categories.
Economic Uncertainty: Macroeconomic challenges, including inflation and changing consumer spending patterns, created headwinds for the company's financial performance.
Supply Chain Costs: Elevated supply chain costs, including those related to tariffs and inflation, negatively impacted gross profit margins.
Fiscal 2026 Guidance Reaffirmation: The company reaffirmed its full-year fiscal 2026 guidance ranges, which exclude the additional week in fiscal 2025. This guidance includes a significant impact from tariffs, projected to be approximately 4% of the cost of products sold. Approximately 60% of this impact is related to Section 232 steel and aluminum tariffs, with the remainder largely from global IEEPA tariffs. The company expects to mitigate approximately 60% of this impact through inventory management, supplier collaboration, alternative sourcing, productivity, cost savings, and selective pricing actions.
Tariff Mitigation Strategies: The company plans to mitigate tariff impacts through inventory management, supplier collaboration, alternative sourcing opportunities, productivity improvements, cost savings, and selective pricing actions. These measures are expected to offset approximately 60% of the tariff impact in fiscal 2026.
La Regina Transaction: The company anticipates closing the acquisition of a 49% interest in two La Regina entities in the second half of fiscal 2026. This transaction is expected to be neutral to the reaffirmed guidance for fiscal 2026 adjusted EPS.
Marketing and Selling Expenses: In the second quarter of fiscal 2026, marketing and selling expenses are expected to be at the upper end of the target range of 9% to 10% of net sales.
Cost Savings Target: The company aims to achieve a fiscal 2028 cost savings target of $375 million, with $15 million in new savings delivered in Q1 fiscal 2026, bringing total savings to $160 million.
Capital Expenditures: The company continues to prioritize reinvestment into the business to drive growth, with Q1 fiscal 2026 capital expenditures amounting to $127 million.
Debt Reduction: The company remains committed to deleveraging its balance sheet towards a goal of 3x net debt to adjusted EBITDA leverage ratio.
Dividends Paid: $120 million in dividends were paid during the quarter.
Share Repurchase Program: $24 million in anti-dilutive share repurchases were conducted in the quarter. Approximately $174 million remains under the anti-dilutive share repurchase program.
The earnings call reveals a decline in net sales for both Meals & Beverages and Snacks, driven by unfavorable volume/mix, despite favorable pricing. The Q&A highlights ongoing challenges in the Snacks segment and pressure on margins due to inflation and tariffs. While there are efforts to stabilize the Snacks segment and innovate, the guidance indicates declining EBIT and EPS. The La Regina acquisition is positive but not enough to offset broader concerns. Overall, the sentiment is negative, with potential stock price decline due to weak financial performance and guidance.
The earnings call reveals several concerns: declining soup and snacks performance, margin pressures from tariffs, and a negative EPS outlook for fiscal '26. Despite some positive developments like Rao's growth and cost-saving initiatives, the overall sentiment is weighed down by declining margins, tariff impacts, and unclear guidance on mitigating these issues. The Q&A section highlights analysts' concerns over tariff mitigation sustainability and productivity savings risks. The lack of aggressive pricing to offset tariffs and unclear management responses further contribute to a negative sentiment.
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