Carrie L. Anderson
Executive Vice President, Chief Financial Officer at Campbell Soup
Thanks, Mark, and good morning, everyone. I'll begin with an overview of our fourth quarter, including continued strong performance from the Sovos Brands acquisition.
Fourth quarter reported net sales were up 11%, driven by the contribution from Sovos. Organic net sales excluding the impact of acquisitions, divestitures and currency decreased 1% compared to the prior year to $2 billion. Importantly, as Mark mentioned earlier, we continue to show sequential volume improvement moving into positive territory. Similar to third quarter, both adjusted EBIT and adjusted earnings per share increased double digits in Q4, with expansion in both adjusted gross margin and adjusted EBIT margin. Adjusted EBIT increased 36%, primarily due to higher adjusted gross profit from the contribution of Sovos and base business performance. Adjusted EPS increased 26% to $0.63, with the impact of the acquisition approximately neutral in the quarter, which as Mark mentioned, continued to exceed our expectations.
Turning to Slide 23 on a full-year basis, net sales were up 3%, including four and a half months of sales contribution from the Sovos acquisition. Organic net sales decreased 1% compared to the prior year with unfavorable volume and mix, partially offset by the benefit of net price realization. Our organic full-year net sales result was in-line with the low-end of our guidance range and we have now delivered two consecutive quarters of stable or growing year-over-year volume and mix.
Full-year adjusted EBIT increased 6%, driven by higher adjusted gross profit from the contribution of the acquisition and base business performance. Adjusted EBIT margin improved 50 basis points, driven primarily by an increase in adjusted gross margin. Full-year adjusted EPS increased 3% to $3.08, with the impact of the acquisition approximately neutral during the fiscal year.
Moving to Slide 24, organic net sales declined slightly in the quarter as sequential improvement in volume and mix was more than offset by unfavorable net pricing. We did see volumes turn positive in the quarter within our meals and beverages division and neutral volumes in snacks, and both divisions saw volume improvement in the quarter compared to Q3. Looking ahead, we expect volume trends to continue to modestly improve as we move through fiscal '25. During the quarter, Sovos Brands added 12 percentage points to reported net sales growth, which exceeded our expectations.
On Slide 25, fourth quarter adjusted gross profit margin expanded 80 basis points to 31.4%, consistent with Q3 margins and in-line with our expectations. Drivers of margin expansion included supply chain productivity, lower other supply chain costs and favorable mix. These contributors more than offset unfavorable net price realization, moderate cost inflation and the impact of the Sovos Brands acquisition, which has a lower margin profile than the base business.
Core inflation in the quarter remained in the low single-digit range, consistent with rates we experienced throughout the year and much lower than the 12% we reported for full-year fiscal '23. We anticipate core inflation to remain in the low single-digit range for fiscal '25, and we remain focused in areas of the portfolio where we still see higher year-over-year input costs, including olive oil, cocoa and packaging costs, and other areas of persistent inflation such as labor cost and warehousing costs. In fiscal '24, we delivered $60 million of enterprise cost savings, reaching a cumulative $950 million of our $1 billion multi-year cost savings program. For the full-year, our total productivity initiatives and cost savings programs more than offset the impact of inflation.
Turning to Slide 26, Q4 other operating items included adjusted marketing and selling expenses, which decreased 4% to $187 million. The decrease was primarily driven by lower advertising and consumer expenses in the base business as we lapped significant spending in the prior year. Reductions in advertising and customer expenses on the base business were partially offset by the impact of the Sovos Brands acquisition.
Fourth quarter adjusted administrative expenses modestly increased 1% to $165 million. The added adjusted administrative costs from the acquisition were partially mitigated by lower incentive compensation costs and approximately $7 million in cost synergy realization in the quarter from our Sovos integration plan. This brings our total Sovos integration synergy capture to $10 million for fiscal '24.
As shown on Slide 27, fourth quarter adjusted EBIT increased 36% and adjusted EBIT margin increased 260 basis points to 14.3%. This was primarily due to higher adjusted gross profit from the contribution of the acquisition and base business performance. Lower adjusted marketing and selling expenses were offset by the modest increase in adjusted administrative and R&D cost and an increase in adjusted other expenses, which were driven by higher amortization of intangible assets related to the acquisition and lower pension and post-retirement benefit income.
On Slide 28, adjusted EPS increased double digits to $0.63, primarily reflecting higher adjusted EBIT, partially offset by higher net interest expense related to higher levels of debt to fund the acquisition. As we mentioned earlier, the acquisition was approximately neutral to adjusted EPS in Q4 and to the full-year.
In meals and beverages, fourth quarter net sales increased 28%, driven by the contribution of the Sovos brands acquisition. Pro forma Q4 net sales growth for the division as if we had owned Sovos for all of Q4 fiscal '23 would have been approximately 4%, driven by the respective pro forma Q4 growth of Sovos of 14%. Organic net sales increased 1%, driven by gains in U.S. soup, foodservice and Prego pasta sauces, partially offset by declines in beverages. It was great to see year-over-year volume trends turn positive in the quarter for meals and beverages with favorable volume and mix of 2%, partially offset by lower net price realization of 1%.
In U.S. soup, net sales increased 2%, primarily due to an increase in broth, partially offset by decreases in ready-to-serve and condensed soups. Additionally, fourth quarter operating earnings increased 60%, primarily driven by the contribution of the Sovos Brands acquisition and higher gross profit in the base business. We were pleased with the Q4 meals and beverages operating margin of 17.6%, which improved 350 basis points as compared to the prior year, more than absorbing the impact of the recent acquisition, which as I mentioned earlier, has a lower margin profile than the base business. For the full-year, meals and beverages operating margins improved 30 basis points to 18.5%.
Fourth quarter organic net sales in snacks decreased 3%. Volume and mix trends sequentially improved to flat in the quarter with roughly 1% growth in power brands and 1% reduction in partner brands. In addition, we saw slightly more than a 2% unfavorable net price realization, of which approximately half was a planned increase in net pricing investment and the balance reflecting the lapping of favorable trade phasing in Q4 of fiscal '23.
Fourth quarter operating margin for snacks increased 50 basis points to 14.5%, and full-year margin improved 40 basis points, to end the year at 14.8%, generally aligned with our goal of reaching approximately 15% margins for the year as we navigated the ongoing consumer recovery. We remain on track with our network and route-to-market initiatives as part of our margin roadmap. Though as we think about fiscal '25, we will be a bit more conservative with a margin expectation modestly above 15% as volume trends continue to normalize and we absorb the near-term impact of the Pop Secret divestiture. This will give us some flexibility to remain competitive, while supporting our brands and innovation launches this coming year, while staying focused on our long-term margin goal of 17%.
Turning to Slide 31, we generated strong cash flow from operations of nearly $1.2 billion in fiscal year '24. This result represented a 4% increase compared to the prior year despite incurring one-time cash costs associated with the acquisition. Fiscal '24 capital expenditures were $517 million as we continue to prioritize key growth and capability building investments, including capital requirements related to Sovos Brands. We also remain committed to returning cash to our shareholders with $445 million of dividends paid and $67 million in antidilutive share repurchases during the fiscal year.
Our net debt to adjusted EBITDA leverage at the end of the fourth quarter was 3.7 times as expected. We remain committed to investment grade ratings and our goal to return to our three times net leverage target by the end of year three, post close. At the end of Q4, we had approximately $108 million in cash and cash equivalents and ample liquidity under our revolving credit facility.
Turning to Slide 32, our full-year fiscal '25 guidance reflects a balance between sequential progress while also reflecting a reasonable range as we continue to navigate the ongoing consumer recovery. As a reminder, we completed the sale of our Pop Secret business earlier this week. The divestiture is estimated to reduce net sales by approximately one percentage point and have a $0.04 earnings per share dilutive impact in fiscal '25, which is reflected in our full-year guidance.
Fiscal '25 comprises 53 weeks, one additional week compared to fiscal '24. The benefit of the 53rd week is included in our fiscal '25 guidance and it is it is estimated to be worth approximately two points of net sales and adjusted EBIT growth, and approximately $0.06 of adjusted EPS. Full-year reported net sales are expected to increase approximately 9% to 11%, which reflects a full 12 months of net sales contribution from Sovos Brands, and the loss of 11 months of net sales from the divestiture of Pop Secret. As a reminder, Sovos moves into our organic growth calculation starting Marth 12, 2025. We expect Sovos Brands fiscal '25 pro forma net sales growth as if we had owned Sovos for all of fiscal '24 to be in the high single-digit range, following a year of double-digit growth. Rao's will lap its more significant distribution gains beginning in January. Moving forward, we still expect long-term Sovos Brands net sales growth to be in the mid-single-digit range. Full-year organic net sales growth is expected in a range of approximately flat to up 2%, reflecting the variability in the pace of consumer recovery. Our organic net sales expectations reflect modest positive volume and mix for the year.
In terms of phasing, we expect Q1 organic net sales growth to be relatively flat, a modest improvement from Q4. And for the balance of the year, we expect sequential improvement in the consumer environment. Importantly, for the second-half, although we expect healthier category trends, we will be cycling the broad net sales benefit in fiscal '24 that was the result of private label supply constraints. We expect adjusted EBIT growth of 9% to 11%, including the operating income contribution of Sovos Brands and the impact of the divestiture of Pop Secret. As a reminder, the adjusted EBIT contribution of Sovos in our guidance includes stock-based compensation expense and acquisition-related depreciation and amortization expense, whereas historically when Sovos was a standalone company, these costs were not included in their adjusted results.
Fiscal '25 transaction-related depreciation and amortization expense is expected to be approximately $18 million, in-line with our original expectations. We expect full-year core inflation in the low single-digit range, consistent with fiscal '24. We also expect productivity improvements of approximately 3% and enterprise cost savings of approximately $70 million, inclusive of $10 million in cost synergies related to the integration of Sovos. Of the $70 million, roughly one-third will benefit gross profit and two-thirds to be realized in the marketing, selling and general, administrative expense categories.
Additionally, in-line with our continued commitment to brand investments, we expect adjusted marketing and selling expense as a percent of net sales to return to our targeted range of 9% to 10%. For Q1, we expect an increase in marketing and selling spend as compared to Q1 fiscal '24, with the addition of Sovos Brands expenses as well as other targeted brand investments in the base business.
Total company adjusted EBIT margin is expected to be similar to fiscal '24, with a modest improvement in adjusted gross margin, offset with the impact of the acquisition as it moves into our base for a full 12 months, as well as the normalization of incentive compensation and higher levels of marketing and selling costs for the base business. As mentioned earlier, snacks operating margin is expected to be modestly above fiscal '24. Meals and beverages operating margin is expected to be modestly lower, reflecting the mix impact of Sovos, partially offset by a modest margin improvement in the base business.
Adjusted earnings per share is expected to increase 1% to 4% and be in a range of $3.12 to $3.22, including the $0.04 impact of the divestiture of Pop Secret. We expect Sovos to be approximately neutral to adjusted EPS in fiscal '25. To provide a bit more clarity about the phasing of the year, in Q1 we would expect adjusted EPS to be in the mid-to-high $0.80 range, reflecting modest dilution impacts from the Sovos acquisition and Pop Secret divestiture, as well as brand investments within our targeted 9% to 10% range.
Full-year adjusted net interest expense is expected to be between $350 million and $355 million. Net interest expense is higher than fiscal '24, reflecting a full-year of incremental debt related to the acquisition and higher expected interest expense associated with the refinancing of our March 2025 bond maturities with expected debt issuance timing driven by market conditions.
As I wrap up guidance, capital expenditures are expected to be approximately 5% of net sales. Our priorities for fiscal 2025 include key networking optimization initiatives across both divisions, capital-related to the integration of Sovos, including IT investments and completing our growth capacity investments in our snacks division for Goldfish and Kettle Brand chips. We see great opportunity to reinvest into the business in support of growth and improve profitability. This remains very much aligned with our long-term algorithm and capital allocation priorities that we'll talk more about at our upcoming Investor Day.
To wrap up, we were pleased with our fourth quarter results delivering double-digit growth in both adjusted EBIT and EPS and margin expansion. As we head into fiscal '25, we remain encouraged by the continued expectation for improving volume trends in the business and sustaining the momentum following our first full-quarter with Sovos Brands in our results.
With that, let me turn it over to the operator to begin Q&A.
