Mark A. Clouse
President and Chief Executive Officer at Campbell Soup
Thanks, Rebecca. Good morning and thank you for joining our third quarter earnings call for fiscal 2022. As you read in our press release, we reported strong year-over-year performance. While expected, the performance represents a positive proof point for our continued successful execution in what remains a highly dynamic environment. Over the last several years, we've been navigating substantial headwinds, including the ongoing impact of COVID-19, labor and supply pressures, significant transformation and a rising level of inflation. The team has done a great job of controlling the controllables.
We have improved our execution and strengthened our supply chain by increasing labor and capabilities, while working with our retail partners to deploy inflation-driven pricing effectively and thoughtfully. Our results this quarter reflect this work. We delivered accelerated growth in sales, driven by continued consumer demand for our brands and significantly improved supply. The underlying health of our portfolio remained strong, though, we did experience some expected share pressure due to select remaining supply constraints and private label improvement in certain categories.
Also returning to growth were adjusted EBIT and adjusted EPS, reflecting our successful efforts to mitigate inflation and recover on labor and supply. Although, we expect the environment to remain challenging, we are confident that we are on a considerably stronger foundation and in a much better position to navigate the volatile macro environment moving forward. Our year-to-date performance and improved execution have led us to raise our previously communicated net sales guidance for the year. We are maintaining our adjusted EBIT and adjusted EPS guidance for fiscal 2022 to reflect the ongoing inflation pressure.
Now let's cover some specifics from Q3. Organic net sales were up 9%, primarily driven by the impact of our second wave of inflation-driven pricing, which is now reflected on shelf across both divisions. Our service levels also continued to recover, supported by improved labor hiring and retention, which enabled us to meet this demand, recover distribution, and enable retailers to begin to rebuild product inventories.
Volume declined in the quarter, driven by select labor and materials constraints and some price elasticities, albeit much lower than historical levels. We anticipate and have plans for similar volume trends going forward where demand and inventory replenishment is mitigated by some ongoing materials availability and price elasticity. We are remaining vigilant on elasticities with a variety of contingency plans in place if they begin to accelerate. Turning to profit, net price realization and our strength in supply chain execution offset the impact of accelerating inflation and lower volume, resulting in a 23% increase in adjusted EBIT and a 37% increase in adjusted EPS in the quarter.
While our adjusted EBIT margin was up 190 basis points versus the prior year, I want to remind you of our challenging margin performance in the prior-year quarter. I would characterize the improvement as more of a stabilization than a full recovery as the combination of our pricing actions, productivity improvements, and cost-savings initiatives began to catch-up with the current inflation in ingredients, packaging, freight, and labor. We expect continued inflation pressure going forward and have already announced a third wave of select pricing to take effect as we transition into fiscal 2023.
Now turning to in-market performance for the quarter, we saw increased consumption across both businesses. In-market performance remained positive, up 4% versus the prior year. Net sales were five points ahead of consumption in the quarter, reflecting the retail inventory rebuild previously noted. On a three-year basis, consumption grew 14%. Turning to slide 8, building on our in-market performance briefly discussed on the previous slide. We are very excited about the continued consumption and share growth of our key brands. In fact, all our key brands have grown consumption considerably over the last three years, with many of our most important brands at or above pre-pandemic share levels.
That said we experienced some short-term market share pressure on certain brands as we expected. These share losses tend to line up very closely with where our distribution levels were down, evidence that supply was one of the key drivers of this pressure. As we continue to recover distribution and are fully supporting our portfolio, we expect to see ongoing share recovery. We are already seeing this recovery in Snacks in the most recent period. In the quarter, we also experienced some continued share pressure from private label, following their distribution recovery and the market's higher overall prices causing some trading down.
Turning to Meals & Beverages; I continue to be pleased by the underlying health and strength of demand for our portfolio. Organic net sales in the division increased 9% versus prior year. Consumption grew 4% over prior year, including brands in four of our five core categories. We feel great about the progress we've made, especially when you compare this business to where we were three years ago prior to the pandemic, with consumption growth of 14% over that period and share gains in many of our categories. Let's turn to the next slide where I want to spend a moment framing how the Meals & Beverages portfolio is poised to win in the current dynamic environment of accelerating inflation and some recent trading down consumer behaviors.
In times of rising inflation, out-of-home meals are the number one occasion people cut back on. Grocery store occasions are the number one go-to occasion when consumers feel pressure. Despite recent average prices on shelf increasing in our key categories of soup and Italian sauce in the low to mid-double digits, volumes are still elevated versus the prior year, indicating that both the soup and Italian sauce categories are staying in consumers' baskets as prices are rising.
In fact, even in categories where we may be experiencing some share pressure from private label, it is consistently where consumers tend to be trading down into our categories, driving overall accelerated growth. As an example, in condensed soup where private label share has expanded, the category and Campbell's are growing significantly at 9% and 6%, respectively, versus the prior year. To keep fueling this growth, we are also continuing to shift our marketing message toward more value.
Turning to our soup portfolio on slide 11; in-market soup consumption continued to grow, increasing 5% versus prior year and 14% compared to three years ago. In the quarter, we continued to see strong share performance on key brands, but as expected, we did see pockets of share pressure, in particular, on condensed soup and Swanson, where inflation and slower private label pricing put some pressure on share.
However, we remain very confident in our overall competitive position. One proof point is we are growing shares in key strategic areas like our condensed icons, Chicken Noodle, Tomato, Cream of Chicken and Cream of Mushroom, the largest SKUs in the condensed business. In addition, overall share in condensed is up nearly two2 points versus three years ago prior to COVID-19, even with the most recent recovery of private label.
Finally, on condensed, we are thrilled that we are retaining the younger millennials that we have added in the last three years. The share losses tend to be more concentrated in the baby boomer cohort who are a bit more price-sensitive. As a result, we are very pleased to see our new consumers remain committed to our brand and our household retention remains high. On our ready-to-serve, or RTS business, share was down in the quarter due to the prioritization of core brands, Chunky and Well Yes! In fact, Chunky's strong performance resulted in 14% dollar consumption growth and nearly two2 points of share growth versus prior year.
In the third quarter, Prego consumption increased 7% versus the prior year. Versus three years ago, consumption's up 25% and repeat rate up nearly five5 points. Prego also continued to maintain its share leadership in the Italian sauce category. For Pace, a significant recovery in service during the quarter drove share growth of 0.2 points and household penetration of plus 0.5 points and added 800,000 new households in the quarter, driven primarily by millennials versus the prior year. Versus three years ago, we grew consumption 14%, and we're pleased with our strong progress to-date and remain confident in our ability to achieve our goals of building a $1 billion sauce business.
As we outlined in our Investor Day in December, driving the core is critical to achieving our goals, as is meaningful innovation and smart M&A. On slide 13, we're excited to share a glimpse into our Meals & Beverages innovation plans for fiscal 2023. Innovation on our business is critical. And now with supply improving, we can focus on rolling out a robust pipeline of new products. Starting with a new innovative approach to home quick scratch meals, we'll be launching our Campbell's Flavor Upflavorup line. This brings a versatile concentrated flavor sauce that will enable a variety of recipes, and the consumer can control flavor intensity and portions, a quick meal for one or a convenient family dinner.
Prego will also be expanding its lineup in fiscal 2023 as consumers continue to eat more at home to save money and seek value in the current inflationary environment. Younger consumers, especially, are seeking new specialty flavors and ways to enhance their at-home meals. Prego's new items will offer bold flavors to meet the growing need to bring greater variety to the in-home Italian sauce experience. Chunky Spicy, which is adding to the strong results of this important brand, will also be expanding their lineup in fiscal 2023. In fact, Chunky Spicy Chicken Noodle, launched earlier this year, is already rapidly approaching the first quartile of all ready-to-serve soup with strong trial and repeat. We are also launching an Old Bay Seasoned variety of Clam Chowder in conjunction with the limited edition launch of Old Bay Seasoned Goldfish.
Finally, we're also excited about Pacific ready-to-serve soups and chilis, which we'll be launching in the fourth quarter of fiscal 2022. We continue to drive innovation in this business and expect these new products to be a significant growth driver next fiscal year, solidifying our leadership in organic soup. The combination of our Chunky, Well Yes! and now organic Pacific ready-to-serve soup will create a formidable portfolio and a full range of choices for all consumer cohorts and price points. Turning to our Snacks division on slide 14; we delivered organic net sales growth of 8% versus prior year. We also experienced strong in-market performance of 4% over the prior-year quarter and 14% on a three-year basis. This acceleration in growth reflects the continued underlying strength of our brands, especially our power brands and significant improvement in our supply chain and service levels.
Our Snacks power brands continue to fuel performance with in-market consumption growth of 6% versus the prior year and 19% compared to three years ago, reflecting our efforts to prioritize power brands. We feel good that six of eight of our power brands grew consumption year-over-year, with the exceptions being late July and Pepperidge Farm cookies, both of which were negatively impacted by our remaining supply challenges. With respect to share, we experienced some expected pressure on our power brands as supply and promotional recovery took time through the quarter. Great examples of brands where supply is in place and we're supporting the business fully include both Kettle Brand and Cape Cod potato chips, with share gains of 1.5 points and 0.2 points, respectively.
Additionally, we have seen very little elasticity or trade down due to price sensitivity so far. This is true more broadly across all of salty snacks. In fact, private label and value brands lost share in the Snacks category in the quarter. Another standout has been our largest Snacks brand, Goldfish, which has grown from a favorite kids' food to a top choice of their teen siblings and their parents. In the quarter, Goldfish consumption was up 8% and up 18% on a three-year basis. On slide 16, I'll highlight a few of the recent Goldfish new product successes. Family Size and Mega Bites are the number one and number two fastest turning cracker innovation in calendar year 2022, fueling a buy rate increase of 11.4% year-over-year for this iconic brand.
Family Size is overdelivering across all metrics, with strong velocity, distribution and trial. Goldfish Mega Bites continues to outpace our target and overdeliver on our expectations, driven by strong velocity, trial and repeat rates. Our strategy to broaden our consumer base is working, as evidenced by more than half of buyers being households without children and Mega Bites performing well with older consumers. Additionally, we're building upon the successful limited time-only strategy that brought Frank's RedHot and Jalapeno Popper Goldfish to consumers. We recently launched our Old Bay Seasoned Goldfish. We quickly created a buzz among a passionate consumer base, logging more than 1 billion impressions in 48 hours. The product sold out within nine hours on Shop McCormick, with velocities very strong across all retail outlets.
To conclude, while we feel very good about the progress we've made, the operating environment remains challenging, and we expect ongoing margin pressure from inflation. However, we're in a better position to navigate it and now very much on our front foot. Going forward, in Q4, you should expect to see us: one, continue to work hard to use all our tools to combat inflation and manage margin pressure; two, leverage improving supply and execution to further recover distribution and inventory levels; three, return promotional and marketing investment to strengthen competitiveness and combat private label trade down.
And finally, four, work to create a compelling fiscal 2023 plan that balances the many nearing challenges while maintaining the momentum and progress on our long-term strategic plans. Although this environment may be different than our original expectations, we are pleased with the continued progress on the business and remain very confident in our ability to achieve our long-term objectives.
With that, let me turn it over to Mick to discuss our results in more detail.
