Mark A. Clouse
President and Chief Executive Officer at Campbell Soup
Thanks, Rebecca. Good morning, and welcome to our second quarter earnings call for fiscal year 2022. Before I turn to the results of the quarter. I want to take a moment to thank all our teams, especially our front-line colleagues for navigating the impact on our operations during another difficult period of the pandemic. We are now at the 2-year mark of working within this challenging COVID-19 environment, and I'm very proud of their perseverance, continued performance and dedication. I also want to take a moment to express our concern for the people of Ukraine. Our sympathies and support go out to them during this crisis.
As we outlined during the Q1 earnings call, and as you saw in our press release, Q2 was challenging, as we expected, including industry-wide constraints on labor and materials availability made even tougher by the winter Omicron surge, as well as ongoing commodity and logistics inflation. However, more recently, labor and service levels are improving as COVID cases decline and we see greater impact from our aggressive hiring and training. Since October, our full-time filled headcount increased by 10 points, and we now see absenteeism and vacancy rates trending back to normal levels. This is translating to more production and the beginning of a return to normal distribution and inventory levels.
We do continue to expect inflation to remain persistent, especially as it relates to logistics. And although we have no direct exposure to Ukraine or Russia, we are monitoring any broader economic impact from the current crisis, especially on commodities. As we look forward and including the balance of these factors combined with the greater impact from pricing actions, easing prior-year comparisons and continued strong demand across our portfolio, we remain confident in reiterating our previously communicated full-year fiscal 2022 guidance. We loo forward to returning the business to growth, while building momentum in the back half and exiting the year a more capable and stronger business.
Now let's cover some specifics from Q2. Organic net sales were down 2%, primarily driven by industry-wide labor and supply challenges more than offsetting the favorable impact of net pricing in the quarter. On a 2-year basis, organic net sales remain elevated growing 3%. In-market performance remained positive up 1%. This was 3 points ahead of net sales in the quarter, reflecting a lag in inventory replenishment and lower distribution levels due to previously mentioned supply constraints. The in-market demand was balanced across both divisions. On a 2-year basis, consumption grew 9%, and importantly, our brands in 12 of our 13 core categories continue to grow in-market consumption.
Despite this growth, as expected, we experienced short-term market pressure on certain brands. These share losses tend to line-up very closely with where our distribution levels are down, supporting supply is the key driver of this pressure. As we recover distribution and can fully support our portfolio, we expect to return to share recovery as we move through the second half of the fiscal year.
Turning to profit. Lower volume and accelerating inflation weighed on margins and earnings resulting in a 17% decline in adjusted EBIT, and a 16% decline in adjusted EPS in the quarter, both very much inline with our expectations.
Turning to our Meals & Beverages division. I continue to be pleased by the underlying health and strength of demand for our portfolio. Consumption grew 1% over prior year and was up 11% versus 2 years ago, despite our supply challenges. Organic net sales decreased 2% versus prior year, lapping 5% growth in the prior year.
Turning to Soup on Slide 9. The next chapter of our Win in Soup strategy continues to deliver growth. In-market soup consumption continued to be ahead of the elevated levels in the prior year, increasing 3% versus prior year and 10% compared to 2 years ago. In the quarter, we continued to see strong share performance on key brands, but as expected, we did see pockets of share declines, in particular, on Condensed Soup, we continue to remain very confident in our overall competitive position. However, we experienced some share pressure as private label lapped an extended period of supply constraints.
As you see on Slide 10, we had continued success with younger buyers. We performed very well and brought in additional Millennial and Gen Z buyers to both our condensed eating and cooking varieties in the second quarter. On total U.S. Soup, household penetration in the quarter was up versus both the prior year and 2 years ago. And importantly, we continue to see more consumers participating in the Soup category and purchasing our Soup brands compared to pre-pandemic levels. While dollar spent per buyer increased due to our pricing actions, volume per buyer remained relatively stable to pre-pandemic levels despite specific supply constraints in the quarter. For the important holiday period, our soup and broth posted its second-largest holiday in the last 5 years, only down compared to last year as consumers return to fewer larger gatherings during this holiday season.
In ready-to-serve, Chunky had a very strong quarter, increasing consumption 9% on top of the 13% growth in the prior year quarter, leading to an astounding 25% consumption growth and over 2 points of share growth on a 2-year basis. As we shared at Investor Day, lunch is a key occasion for this brand and people are now eating even more low prep lunches compared to prior year. Our focus on the lunch occasion highlighted through a successful advertising campaign Lunchtime Is Your Halftime with Super Bowl winning coach from the Ram, Sean McVay is driving a positive sales lift including among younger households. Also, our latest innovation Chunky Spicy, which we are expanding is adding to the strong results of this important brand. In fact, Chunky Spicy Chicken Noodle launched earlier this year is already in the second quartile of all ready-to-serve items with strong trial and repeat.
Turning to Swanson broth and stock. The continued supply recovery led to a fourth consecutive quarter of share growth, up 1.2 points in the quarter, a clear win during the important holiday season and a good example of where supply recovery directly translated to share recovery. On sauces, Prego continues to be the number one share leader. However, some supply challenges on our Prego Alfredo Sauce put pressure on share. We expect a steady recovery of supply beginning in the fourth quarter. Pace share continues to improve, while V8 beverage experienced some share loss in the quarter due to high-single digit declines in total points of distribution or TDPs compared to prior year driven by material shortages especially aluminum cans.
Turning to our Snacks division on Slide 12. Organic net sales were down 3% versus prior year, compared to 2 years ago grew 3%. On Snacks, we expected the significant impact from supply constraints we experienced. Despite these constraints, in-market consumption grew 1% over the prior year quarter and 8% on a 2-year basis reflecting the underlying strength of our brands, especially our power brands. In fact, our Snacks power brands continue to fuel performance with in-market consumption growth of 3% versus the prior year and 9% compared to 2 years ago, reflecting our efforts to prioritize power brands and to remain competitive. We are encouraged to see repeat rates ahead of prior year on 7 of 8 power brands and ahead on a 2-year basis on all power brands. Particular standouts were our Kettle Brand potato chips and Cape Cod potato chips, where we have successfully added capacity, each had a strong quarter with consumption growth of 26% and 20% compared to 2 years ago, and share growth of almost 2 share points combined.
Turning to Goldfish, also an area of significant capacity expansion and supply recovery, we performed well in the quarter holding share in a competitive marketplace and growing consumption by 9%. As we outlined at Investor Day, we recently launched our Goldfish Mega Bites, a bigger, bolder, cheesier Goldfish cracker and our family sized Goldfish aimed at meeting key consumer trends. Both are off to strong starts. We are executing our plan to elevate innovation based on consumer insights resulting in bigger, more impactful ideas. Since the launch in January Mega Bites achieved the fastest distribution growth in recent history of Goldfish innovation launches. Early consumer repeat rates were promising as consumers who purchased once are already coming back to buy again. We launched in January with a highly impactful PR and social campaign, and within its first week alone Mega Bites achieved over 1 billion earned media impressions. The full activation will run through the summer, and I have to say, it feels good to return to what we do best, building our brands. This is an important proof-point as we pivot from supply recovery to now running the business and what we believe will be more predictable conditions as we come through the rest of the fiscal year and into fiscal 2023.
Lastly on Goldfish, continuing our successful limited time offer strategy, we are excited about the launch of the Limited Edition Star Wars, The Mandalorian Cheddar Crackers. We have another limited time offer Goldfish release planned for the early summer including another surprising one of a kind flavor collaboration.
As we mentioned last quarter, we expected short-term share headwinds due to supply constraints on certain snack brands, specifically in late July snacks, Snyder's of Hanover pretzels and Lance sandwich crackers. Similar to supply pressures on Meals & Beverages, share pressure aligned with lower TDPs in the quarter compared to prior year. We have taken actions to improve overall performance, including core SKU prioritization efforts to increase production while reducing complexity, as well as prioritizing plant labor recruiting, training and retention. We feel confident these share headwinds are temporary as we have already seen strong improvement in our labor and production levels. As a result, we will return to our planned levels of investment through the back half of the fiscal year, and expect to be fully back on-track for what our snack brands do best, growing consumption and share.
To conclude, we expected Q2 to be tough as we navigated challenges and lapped strong performance from a year ago, and it was. We also expect stronger year-over-year performance in the second half of the fiscal year as we lap easier prior year comparables. In addition, we are in an improving position to meet our strong brand demand throughout the balance of the year as our staffing levels and vacancy rates are improving with nearly 3,500 new hires in the last 7 months. Also, in the second half, through the combination of our most recent pricing actions, our continued supply chain productivity improvements and cost savings initiatives, we will be better positioned to help offset ongoing inflationary pressure. We will remain nimble and use our full range of tools to offset additional inflation as needed, including potential further pricing actions where appropriate. Accordingly, we expect meaningful improvement and recovery in margins, profit and EPS in the balance of the year, and we remain confident in our plans and full-year outlook.
Before I turn it over to Mick, I would like to share a change to my leadership team. First, I would like to take a moment to thank Bob Furbee, our Executive Vice President, Global Supply Chain Officer who will be retiring after nearly 40 years with Campbell. Bob has had a remarkable career at Campbell, and has been a key part of our transformation. We are deeply grateful for his contributions and wish him the best in his retirement.
As we announced in January, our incoming Executive Vice President, Chief Supply Chain Officer, Dan Poland is working to drive operational excellence across our network. He brings extensive experience at all levels of the CPG supply chain, and has a track record of building high-performing teams, delivering exceptional product quality and driving execution, which will be invaluable as we continue to deliver growth, while also navigating one of the most dynamic and challenging supply chain environments.
With that, I will turn it over to Mick.
