Campbell Soup Company
Q3 2021 Earnings Call Transcript

Published: 9 Jun 2021

[Operator:]

Good morning. My name is Myra and I will be your conference operator today. At this time, I would like to welcome everyone to the Campbell Soup Third Quarter Fiscal 2021 Earnings Conference Call. Today’s call is being recorded. Thank you. With that, I would now like to hand the conference over to your host, Ms. Rebecca Gardy. Ms. Gardy, you may begin your conference.

[Rebecca Gardy:]

Good morning and welcome to Campbell’s third quarter fiscal 2021 earnings presentation. I am Rebecca Gardy, Vice President of Investor Relations. Following the completion of this call, a copy of this presentation and a replay of the webcast will be available at investor.campbellsoupcompany.com. A transcript of this earnings conference call will be available within 24 hours at investor.campbellsoupcompany.com.

[Mark Clouse:]

Thanks, Rebecca. Good morning, everyone and thank you for joining us today. Throughout the last year, we rallied through the pandemic and made decisions focused on prioritizing the safety and well-being of our employees, while meeting the needs of our customers and consumers. This approach has served us well over the past 15 months as we progressed our strategy in a volatile operating environment. Our team pulled together, we executed with excellence, and we delivered strong results. As you saw in our press release this morning, our results this quarter reflected the challenging comparisons to the prior year as we cycled the demand surge that accompanied the onset of the COVID-19 pandemic and navigated several current headwinds. However, you will also have seen the continued strength in market on market shares, underpinned by healthy retention of new and younger households and the full recovery of distribution levels. We did face a significant inflationary environment in the quarter as well as shorter term increases in supply chain costs. We anticipated the vast majority of these drivers, but in certain areas, the pressures intensified, especially around inflation and some of the transitional costs moving out of the COVID-19 environment. We are confident that we can address these issues and we have plans and pricing already in place as we exit the fiscal year and enter fiscal 2022. Our confidence is further strengthened by our continued in-market momentum and the structural health of our business and brands.

[Mick Beekhuizen:]

Thanks Mark. Good morning, everyone. Turning to Slide 12, as Mark just shared, our third quarter results were impacted by last year’s demand surge related to the start of the COVID-19 pandemic as well as the gross margin impact due to pronounced inflation, our transition out of the COVID-19 environment and some executional pressure as we continued to advance our transformation agenda, primarily in our Snacks division. During the quarter, organic net sales declined 12% and adjusted EBIT decreased 27%, driven by lower sales volume and a lower adjusted gross margin partially offset by lower marketing and selling expenses. Adjusted EPS from continuing operations decreased 31% to $0.57 per share, primarily reflecting the decrease in adjusted EBIT. Year-to-date, our organic net sales increased 1%, driven by lower promotional spending in both divisions. Meals & Beverages increased 1%, mainly driven by growth in U.S. soup and V8 beverages, partially offset by declines in foodservice.

[Mark Clouse:]

Thanks, Mick. In closing, we expected this to be a challenging quarter for the company, but it was made even tougher by several additional factors. However, we do not see these challenges as structural nor do they temper in any way our confidence in the transformation we are implementing at Campbell. We knew this would not be simple, and we remain confident in how we are responding and the actions already underway. Finally, and most importantly, for the long-term health of our business is the progress we are making on our categories and brands and the overwhelmingly positive indicators that we are seeing from consumers and customers. We will address the inflation and execution. And as we continue to demonstrate sustainable growth, we will unlock Campbell’s full potential. With that, we will now turn it over to the operator to take your questions. Thank you.

[Operator:]

Thank you. We have our first question, comes from the line of Andrew Lazar from Barclays. Your line is open. Please go ahead.

[Andrew Lazar:]

Good morning, Mark and Mick.

[Mark Clouse:]

Hi, Andrew. Good morning.

[Andrew Lazar:]

I guess to start off, thanks for going through the detail on some of the challenges in the quarter. Given how fiscal 3Q played out, I’m trying to get a sense of maybe what gives you the confidence that you now have, I guess, the appropriate visibility for fiscal 4Q? And then maybe more important, it sounds like you have comfort that these issues are addressable and largely not structural. And so it’s obviously early to be talking with any specificity about fiscal ‘22, but some of these challenges, I think you mentioned are likely to persist a bit and be margin headwinds next year. So I am trying to get a sense of between the combination of pricing, productivity, some of the actions that you’re taking in the Snacks segment and such, I mean do you anticipate you’ll have sort of – and obviously elevated sales potentially as well. Do you anticipate you’ll have the firepower, so to speak, to at least help address or mitigate some of those costs to sort of protect profitability in a better way in ‘22? Or are those things that I mentioned maybe at this point not expected to be enough given some of the pressures you’ve gone into next year?

[Mark Clouse:]

Yes. Great question, Andrew. Let me start with Q4. And then, obviously, we will stop short to kind of giving a lot of detail on ‘22. But I’ll give you a perspective on kind of how we see that and how we thought about the variables that we talked about for this quarter affecting the business going forward. But first on Q4, I do – again, I’m always – in the current environment we’re in, certainly, we have had a couple – tough to predict a couple of the variables we’ve seen. But I do feel good that what we experienced in Q3 and how that translates into Q4, we’ve done a very good job of connecting those dots. And I do think you’ll see sequential improvement for a variety of reasons. First, I think we’re not going to have the winter storm. And just as a perspective, closing the Paris facility for 2 weeks in Texas that ended up being right around the $10 million additional headwind in Q3 that we obviously have not anticipated is part of the reason that we were off our expectations. So clearly, we’re not going to have that circumstance as we go into Q4. I think the second think is the comparable numbers in Q4, are just an easier comp, right? So you’ve got higher COVID costs in Q4 a year ago, you also have the opportunity to, as we’ve said all along in the back half, that we’d moderate marketing spending to kind of equate to the percent of net sales. And so that will give us a bit of a tailwind as well in the fourth quarter. And as I talked about some of the transformational kind of execution issues on snacks, and again, just as a little bit of deeper perspective on that. In the third quarter, it was really – I’ve been very proud of that team and done an amazing job through the integration from my perspective. I do think in the third quarter, the accumulation of initiatives, we cut over to SAP, we closed our Columbus, Georgia facility. We had three major capacity expansion projects going on in the backstop of COVID and not in a way of an excuse, but certainly, I think that put some added pressure on an already tough quarter for us as it related to Snacks. But as we look forward we have added the right resources, we’ve staged this the right way. We’re through some of that work. And so we expect that executional headwind that we saw in the third quarter to really kind of be behind us as we go through the fourth quarter. So that’s really the reason why we see the sequential improvement. And even on operating leverage and some of the things that were a bit bigger in nature in third quarter, I think, for that that carries over, we’ve got good estimates now. So we can kind of see how that operation works. We’re now running all of the SKUs that we had simplified a year ago. I think that was a little bit of the dynamic as we added those back, introduced a little bit of new complexity back into the supply chain, continuing to push hard through some of the labor challenges that we’ve had. So I think you’ll see that mitigate, but still be present. And so I think when you think about ‘22, obviously, the things I just described executionally, I think, will be behind us. As far as inflation goes, we feel very good about the progress we’re making on pricing. The conversations that we’re having with customers are very constructive. I’m really grateful that we’ve had this time to really build equity. I mean, this is probably the healthiest the portfolio has ever been going into that conversation. So that’s a good thing. I would be remiss not to say though, that inflation is a little bit of a moving target right now. And so although I feel great about what we’re doing, I think I kind of want to wait for the next quarter to see kind of where we’re landing on a couple of the variables and a couple of the commodities. And then as it relates to kind of this transitional headwind, I think it’s a little bit of a mixed bag. Obviously, we’re going to be working hard to address those areas, but we will cycle through the COVID environment at least into the first half of next year. So we will give you a lot more granularity on it, but I think it’s a very balanced position. Certainly, I think Q3 very much is the outlier, but I do think some of these variables will continue, but we’ve got very good plans against them. So hopefully, that helps to put it into a little bit of context.

[Andrew Lazar:]

Yes. And then just a very quick follow-up, just I want to make sure I understand what we mean by sort of some of these transitional costs. I guess is it just simply lapping some of the benefits around operating leverage and things of last year? Or are there other aspects involved in making this transition from a sort of COVID surge environment to a more normalized environment? I just want to make sure I’m clear on that. Thank you.

[Mark Clouse:]

Yes. So yes, let me make it – let me break it down in as very – hopefully, a very simple answer. I think there are three distinct things that we’re watching occur in that bucket. The first, it is really just lapping, right? That is the kind of cycling of a network that’s fully loaded and that leverage from year-to-year. The second piece, I think, that we saw transitionally in Q3. And again, I think these become more mitigated cost going forward. But we have really continued to see labor as a bigger challenge than I think we had expected it to be. And of course, that has a bit of a knock-on effect that as that labor has not enabled us to kind of meet the full targets on production, we’ve had to go to some higher-cost co-mans that we consciously invested in to make sure that supply and inventory was where we needed it. But those three variables of kind of leverage, labor and the external investment in co-manufacturers, is what we’re describing as that transitional bucket. And so I do think the lapping will continue. But the other two, we’re going to get better and manage through that as we go into next year. Does that help, Andrew?

[Andrew Lazar:]

Yes. Thanks very much.

[Operator:]

We have our next question comes from the line of Bryan Spillane from Bank of America. Your line is open. Please go ahead.

[Bryan Spillane:]

Hey, good morning, everyone.

[Mark Clouse:]

Hey, Bryan.

[Bryan Spillane:]

So I guess I just wanted to follow-up on the inflation question. And I guess just two quick ones. One is, as you’re thinking about the sort of things that could move around and for kind of the outlook for fiscal ‘22, is it really like grains and cooking oils? It just seems like what’s inflated most since the last earnings call have been more of the agricultural commodities. Like freight has already been inflationary, packaging to a certain degree. So I just want to make sure that we’re kind of thinking of – we’re trying to monitor what’s moving around. Are we really just talking about mostly the ag commodity?

[Mark Clouse:]

I think certainly, that’s where you’ve seen some of the rising costs more recently. I would also point to some of the volatility, though, on things like steel where we’ve seen some ups and downs. And again, I’m kind of cautious to kind of lock in on where we think that is. Obviously, one of the other areas that has emerged a little bit more recently is protein. But I would just say that as we’ve all been watching this, there have been ups and downs. And so, we continue to try to calibrate it and as we kind of went forward with our pricing actions that will be in place the first quarter, as we start the first quarter of fiscal ‘22, I feel very good about how that was informed and kind of how we saw the environment. But I think kind of the name of the game for ‘22 is going to be to remain pretty agile and nimble. And even as we’re talking to customers, we’re having that conversation where things may go up or down, we need to have that ability to have the dialogue as we go forward. So I don’t know, Mick, if you’ve got any other detail.

[Mick Beekhuizen:]

Yes, I think it’s a good question. I think if I look at it sequentially between the quarters as well between Q2, Q3, you continue to see, to Mark’s point, a steady increase in ingredients and pack, and those are the items that you also highlighted. And of course, some of it we expect to continue, particularly as we start to look further out, hence also some of the dialogue that we’re having around pricing. One of the other aspects in inflation is obviously freight costs, and we’ve seen that increase kind of from a year-over-year perspective to continue in Q3. We obviously saw already some of that in Q2. And although we’re anticipating that we might see a little bit of relief there, we continue to see freight currently at an elevated level.

[Mark Clouse:]

Yes. And while that’s going on, as you would expect, Bryan, we’re looking for a lot of other elements or levers that we can utilize to manage a little bit of that volatility. Obviously, through productivity, but also how we contingency plan and set up the year. So I feel very good about how that plan has come together, like I said, I also feel very good about how the on pricing are going. Never easy, but I think generally understood that – what the inflation looks like. And I certainly feel like we’ve been having very strategic and collaborative conversations about it.

[Mick Beekhuizen:]

And to put it in perspective, maybe if you look at Q2, you saw inflation on a rate basis up 3%, and you see inflation on a rate basis up in Q3, 4%.

[Bryan Spillane:]

Okay. And then just maybe just one a quick thought on just how you’re modeling elasticities. It seems like most companies now are anticipating or have already put through price increases. And I guess, especially maybe in simple meals, just how you’re approaching modeling elasticities, just given how much inflation the consumer is going to see? Thanks.

[Mark Clouse:]

Yes. And we’re being very, very thoughtful and strategic on how we’re reflecting critical price thresholds. We’ve got a very good plan that I think enables us to feel like – well, first and foremost, that will remain competitive, but also that in some of these categories where we are a significant leader that we’re also going to be able to sustain momentum where we’ve built it. I mean, the last thing we want to do is shut down growth and share that we’ve worked fairly hard to have in place. So we’re going to be thoughtful about it, but it also enables us, I think, to model, if you will, based on historical elasticity. We’re able to model a pretty good understanding of where those key thresholds are. We understand kind of how to balance this, what you do in list price versus what you do in trade. Obviously, there is a full range of leverage that we’re going to be using across revenue management to get that right. But I think for right now, we feel like given the historical significance, given our ability to protect certain price points, overall, as far as the health of the business going into it, we feel very good.

[Bryan Spillane:]

Alright. Thank you.

[Operator:]

Our next question comes from the line of Ken Goldman from JPMorgan. Your line is open. Please go ahead.

[Ken Goldman:]

Hi, good morning. One for Mark and one for Mick if I may. Mark, I think in general, list pricing in the sector takes maybe 2 to 3 months to go into effect once announced. If this is accurate and given that you have some other, I guess, arrows in your quiver besides just list pricing, why won’t pricing be a tailwind until the first quarter? I might have expected some of the conversations you’re having with customers, to be honest, you started a bit earlier. And for net price, you have started offsetting your cost a bit sooner. So I’m just trying to get a little into the weeds there?

[Mark Clouse:]

Yes. I think, Ken, the oddest answer is you will see it as a bit of a tailwind in Q4 to help mitigate. But the effective date, right? So relative to how we think about when are we targeting pricing really to fully be in place, that is the – essentially the first day of fiscal ‘22. And so although I do think there are circumstances as we’re going through this for people where we are making some moves a little quicker, the reality is that I’d rather kind of point to when I think the concentration of that will occur. But I do think, as you look into Q4, you’ll see some help from it, but probably not to the point that it’s able to mitigate it until we get into Q4 or into Q1.

[Ken Goldman:]

Okay. That’s helpful. And then can you give us a sense – I didn’t – maybe you talked about this and I missed it, but how to think about the gross margin in 4Q? I guess on the positive side, you won’t have the same headwind from the Texas storm impact. I think it’s also fair to maybe assume mark-to-market will be a tailwind again, but you’ll have worse inflation, you said, you have a harder comparison. So just any color on this line, I think, would be helpful.

[Mick Beekhuizen:]

Yes. No, it’s a very good question. And kind of maybe just stepping back, if you look at the overall midpoint of our Q4 guidance, you see that we’re at about 13.5% EBIT that implies approximately 110 basis points decline from an EBIT margin perspective year-over-year. That’s obviously better than what we have experienced this past quarter. If you kind of break that down to Mark’s earlier comments, on the one hand, you obviously have an easier comparison versus F20. But it also, at the same time were, obviously lapping a significant marketing investment in last year. So as a result, we expect it to normalize more in Q4 for F20. Now then to your question, what’s happening with regard to gross margin, we expect gross margin from a sequential perspective to be largely similar. However, to your point, we obviously will have a negative mark to market.

[Mark Clouse:]

Yes. And that’s a little different than you said. You are going to get a little bit anticipated reversal of the benefit that we saw in Q3 flip a little bit in Q4. So, it will be a bit of a headwind. Yes. And even if you go to a year ago, as a reminder, in the fourth quarter last year, we had a benefit. So, you are actually lapping a benefit as well as a little bit of a reversal of the Q3 benefit. So, that will moderate a little bit what you will see. But that’s consistent with what mix numbers are and what he is walking through…

[Mick Beekhuizen:]

So I think overall, similar gross margin. However, of course, we had the benefit in Q3, to Mark’s point, from a mark to market perspective, however, headwind from the year-over-year comparison in Q4.

[Ken Goldman:]

That’s helpful. Thanks so much.

[Mick Beekhuizen:]

Sure.

[Operator:]

Our next question comes from the line of Chris Growe from Stifel. Your line is open. Please go ahead.

[Chris Growe:]

I have two questions for you. The first one is in relation to the pricing you have announced so far, I realize we can’t talk about prospective pricing. And I guess if you can give a general number or perhaps even little by division, how much pricing do you have in place? And then just to reiterate, you expected to overcome inflation in fiscal ‘22, just to make sure that’s accurate.

[Mark Clouse:]

Yes. I think, Chris, what we feel good about is when we went out with our pricing action, as you might imagine, has been a while ago as we kind of kicked that off. We felt very good about the combination of pricing, our productivity, some of the other actions we are taking as well as the benefit that we will get, especially as you get to the back half of next year in lapping the period we are in right now. We felt very good about it. I think what you sense from us is a little bit of caution because of the volatility that we are watching on commodities. And so obviously, as we move forward through the fourth quarter, we start to set up ‘22 guidance and give another couple of months of coverage behind us as well as understanding where our commodities are coming in, we will have a better sense. I know what everyone is trying to get at, which is, do you feel like you can fully cover inflation next year with the tools you have got. I can tell you, we feel good, but we are going to have to really watch what happens over these next couple of months to kind of solidify our position. As far as magnitude of pricing, as you might imagine, it’s a little bit of a – depending on which business it is, where the commodities are impacting it more. We have been very clear and transparent on kind of the translation of inflation to where that pricing resides. Obviously, as I said before, we are also overlaying a very detailed kind of strategic lens to it to make sure that we are not doing anything that we are going to regret as far as the health of the business. So, it’s a pretty broad range. I mean, kind of mid-single digits is probably a good assumption if you were trying to cost average it across all of our businesses, if that helps a little bit.

[Chris Growe:]

It does. Thank you. Just as an editorial point, I mean the companies have had to go back for – took a price increase earlier in the year and have to go back again. So, it’s that kind of volatile environment, I get it…

[Mark Clouse:]

Yes. I just was going to say, Chris, and you know we are kind of having conversations with our customers that say, you know what, we have got to probably compare to historical approaches to pricing where you kind of publish and then kind of see in 12 months. This is much more of a collaboration and dialogue around what’s inflation doing. And again, our pricing is, I think, going to need to be a bit dynamic. Now of course, one of the variables we have that helps a lot with that is trade spending and the ability for us to use that a bit as a way to kind of manage a little bit of the ups and downs. But I am not surprised to hear that, so.

[Chris Growe:]

Yes. And just one other quick follow-on, which is in relation to your A&C spending, up strongly in the prior year, down less so this year. So, your overall spending still is higher. I guess I want to understand what you think you need to spend to retain all these households. Should your spending overall, I guess, on a 2-year basis, still be up a lot to try to retain these households? I am just trying to understand how you can right size that in the fourth quarter still, but yet retain these households and consumers?

[Mark Clouse:]

Yes. Well, I think a couple of things. One is, as Chris, as you will remember, in the fourth quarter last year, we really invested into the opportunity that we had given the elevated demand and profitability that we were experiencing. And we did that for a variety of reasons. One of which was to solidify the equity of the businesses, continue to really work on building equity with those households, especially younger households. We also learned a lot during that time. So, we used it as a bit of an opportunity to really fine-tune where the best ROIs were. And as an example, you would have seen in the third quarter, our digital spend went up almost 20 points. We are now over 60% of our spend is in digital, which I love for a variety of different reasons, but one of which is that it’s a very high ROI and a very efficient spend. And so, although I do think there are some key thresholds that we want to manage too, and as we have said, kind of the percent of net sales is a good proxy. When I look at that relative to where we have been, I feel like that’s a good level. And we have been able to kind of manage to that through the last couple of quarters into this quarter. And certainly, we are going to try to apply that kind of standard of philosophy as we go into ‘22.

[Chris Growe:]

Good. Thanks.

[Operator:]

Our next question comes from the line of Robert Moskow from Credit Suisse. Your line is open. Please go ahead.

[Robert Moskow:]

Hi. Thanks. A couple of questions. One is, Mark, I thought that I heard you last quarter talk about kind of a broader or more extensive rollout of the transformation plan in Snacks and capturing more savings and more actions to do it. Regarding what happened in this quarter, does that change at all what you are planning to do there? And – or do you need to rethink how you go about it at all? And then secondly, on steel costs, maybe I am unfamiliar with how your contracts work with your suppliers. But I thought that they tend to lock in a price pretty early like in mid-year and then you go forward with that price for the fiscal year – for your fiscal year. Is it just that it’s not possible to lock in a price right now because the underlying commodity is jumping around so much or has something changed regarding the normal timing for locking in your…

[Mark Clouse:]

Yes. No, you are right, Rob, in the sense that we will eventually lock in a ‘22 price. It’s been a little bit moving around, I would say, from quarter-to-quarter. So as we kind of lay that down for ‘22, it’s a little bit of what we’re reacting to. So we know it’s elevated, right. We know what kind of the inflations peg that, but it is a little bit of a pass-through based on a certain time, as you said. So, we are kind of working through that right now. And as again, I think when we get to the fourth quarter earnings and set the ‘22 guidance, we will be in a much better position to kind of give a bit more comprehensive view of our coverage and where exactly we are.

[Robert Moskow:]

Okay. And regarding Snacks, is…?

[Mark Clouse:]

Yes. So, let’s talk about Snacks. So no, nothing changes. I mean I think, as I said before, I have been really impressed with what we have been able to accomplish in the integration. I continue to see tremendous potential as we look ahead. We are a bit behind, as you would expect, given the headwinds I just described for Q3 and Q4 on an absolute basis. But the underlying initiatives, the value capture, all of the foundational work that although may have created some strain on us in the quarter as far as execution and cost overall. As we normalize that over the – really the months ahead, I expect us to be back on that trajectory. And again, I think as we said before, we will kind of lay that out with a lot more granularity in Investor Day. But it doesn’t change in any way structurally what I think we should be capable of doing. I think we are – the ambition for the quarter in executing all of those initiatives at the same time, probably in hindsight, staging them a little differently, would have been a better idea. But we have kind of played through that now and are feeling very good about how that looks going forward.

[Robert Moskow:]

Got it. Great. Thanks.

[Operator:]

Our next question comes from the line of David Palmer from Evercore ISI. Your line is open. Please go ahead.

[David Palmer:]

Thanks and thanks for the discussion on gross margins earlier in the presentation. The input inflation part, you said maybe that might be 100 basis points based on the third comment. And then the transitional items, maybe somewhat more than that. I guess my question is about those transitional items. Clearly, you matched up pricing against the input side. But how much of those transitional items are really fair game for pricing offset? The mirror side of that is how much is Campbell specific? I would imagine labor and logistics is fair game for that. And how much do you think these transitional items can be offset by pricing into fiscal ‘22?

[Mark Clouse:]

Yes. I think we are not – I mean, some of these are – I would describe them very much as – well, at least to my knowledge, some of them are Campbell specific. I think you are right about labor and logistics. But the need for us to kind of invest in the supplement of co-manufacturers to kind of recover on supply, honestly, that feels like kind of a unique item to us that was very much of a kind of headwind that we will navigate through. I expect that to be better in Q4 and obviously, much better as we go forward. I think on the operating leverage, a little bit of it was us needing to understand exactly how much benefit we had gained a year ago when we were at our peak, how much the value of the simplicity of the portfolio versus adding those TDPs back in place we are going to take. And so I think what I would tell you is we have now calibrated that. I do think it will remain throughout the cycle of COVID-19, but some of these other elements, ones that are capable of being priced and the others that are more kind of unique to us. I think we will work through those. We have got good plans in place and I do see those as we describe them transitional in nature. And I think on balance, we will be able to address a great deal of those and just kind of be dealing with the leverage lap as we go into ‘22. Mick, anything?

[Mick Beekhuizen:]

No, that’s exactly how I would describe it. Yes. It’s really the lapping of the leverage where you saw last year some of the benefits around the operating leverage and you see kind of – some of that coming out right now. And I mean, net-net is relatively neutral.

[Mark Clouse:]

I will say that that we have been – and again, I don’t know how this was affecting other companies, but I will say labor has been a challenge. And I think – I feel very good about what we have done to address it. But even as you are kind of replacing labor, getting to kind of full efficiency, training new individuals and kind of getting back squarely at the levels we were earlier in the year. It’s taking a little bit of time and so I think that like I said although I see the steady progress I think we are being pragmatic as we make assumptions so that we don’t underestimate what that transition or time looks like.

[David Palmer:]

And I just wanted to – and this is more of a heavy topic and maybe one for the Analyst Day and maybe one for just later in general. But we are going to be getting past COVID here and there was a pre-COVID year fiscal ‘19, you will – by the end of ‘22, you might have 4250 million of productivity. The Street’s modeling sort of a mid-$160 million or so of gross profit growth from ‘19 to ‘22. And I know what you are kind of noting here is that ‘22 or part of it feels like also sort of an exit transition period out of COVID that might hamper profitability. But big picture, we would think that you should be bridging to much significantly higher gross profit dollars versus pre-COVID particularly with the multiyear stacked organic revenue growth that you will have had from trial and repeat coming out of COVID. So, I do wonder about some of the offsets that you are thinking about internally that the reinvestments that you have made and other friction costs that would offset those theoretical step-ups?

[Mark Clouse:]

Yes. No, it’s a great question. And I do think I think there is a couple of different important variables within that dialogue that we will spend time talking about when we are in our Investor Day. Obviously, one of those pieces was kind of bridging for folks the Snacks margin that we already talked about, how did the value capture work, where were the investments versus the upside, how are you – how did headwinds we are experiencing on inflation affect that. But maybe this is a way to kind of give you a little bit of context. And Mick had mentioned this earlier, but I think it’s a really important aspect. And obviously, we are disappointed with the quarter. I mean, our standard is that we do what we say and in this particular quarter, we didn’t do that. But I continue to see the challenges that were in the quarter as being very transitional in nature. And the underpinning of the great in-market results and being ahead of expectations as it relates to share and the retention of these households all bode well for us for the future. And maybe to give a little context to your question, specifically, if you take the midpoint of our ‘21 guidance and again, I am going to repeat a little bit of what Mick said. But I think it’s important. At the midpoint of our guidance, it represents versus that 2019 base, a top line growth of 6%, so a CAGR of about 3%. Obviously, we know that there is some foodservice in there and a little bit of partner brands, but in general, a 6% versus ‘19. Our EBIT during that same period with the midpoint of the range, so even with the adjustment in our guidance, is up 9% versus 2019 or at about a 5% CAGR for the 2 years. And as Mick had said earlier, EPS is up 27% since ‘19 with consumption up 9% during the same period. So, if you look at that, all of those – and again, I think people would expect this, but all of those are well above or well within our strategic plan targets. And I think that as we navigate into ‘22, we would expect to see, yes, some challenges as we continue to lap a few of these areas. I do want to kind of nail down a good number for inflation next year. But I feel very good about where we are on the journey. Don’t love the quarter, but I love the progress that we are making and, in particular, what I think will be the longest lasting, which is the strength of the brands and the businesses. So, I don’t know if that helps with perspective. I know what you are looking for, for ‘22, and we will do a good job of providing you that bridge when we get together at the end of the year. But I think not a bad perspective to kind of close out a little bit of the discussion with.

[David Palmer:]

Thanks. It’s helpful.

[Operator:]

It looks like that’s all the questions that we have at this time. I would like to turn the call back over to Ms. Gardy.

[Rebecca Gardy:]

Thank you, Myra. That concludes our call. Thank you all for participating. And we will speak later in September.

[Operator:]

This concludes today’s conference call. You may now disconnect.