Q1 2026 Earnings Call: Contradictions Emerge on Snack Strategy, Soup Pricing, and Tariff Mitigation Strategies

Date of Call: None provided

Financials Results

• Revenue: $2.7B net sales, down 3% reported; organic net sales down 1%
• EPS: Adjusted EPS $0.77, down 13% YOY (gross tariff impact $0.14, net tariff impact $0.04)
• Gross Margin: 29.9%, down 150 basis points YOY (driven by ~520 bps cost headwinds; gross tariffs contributed ~200 bps)
• Operating Margin: Approx. 14.2% (adjusted EBIT $383M), adjusted EBIT down 11% YOY

Guidance:

• Reaffirmed full‑year fiscal 2026 guidance ranges (previously provided Sept 3, 2025) excluding the extra week in fiscal 2025.
• Expect significant tariff headwind: gross tariffs ~4% of COGS (≈60% Section 232); anticipate mitigating ~60% via inventory, supplier collaboration, alternative sourcing, productivity/cost savings and targeted pricing.
• Q2: higher promotional activity and marketing; marketing & selling expected at upper end of 9–10% of net sales.
• Gross margins: Q2 similar pressure, improvement expected in H2 with Q4 benefit as tariffs are lapped.

Business Commentary:

• Financial Performance Amidst Dynamic Environment:
• Campbell's organic net sales decreased 1%, driven by a 2% decline in consumption, with retailers building inventory for upcoming promotional activities.
• The company's adjusted EBIT margin and adjusted EBIT declined 11% year-over-year due to cost increases that were not offset by cost savings and pricing actions.

• The decline in financial performance was attributed to elevated input costs, tariff-related pricing actions, and a challenging operating environment.

• Snacks Division Challenges and Strategies:

• The Snacks business faced overall share and consumption pressure, particularly in pretzels and crackers like Goldfish, which saw a consumption decline despite a strong back-to-school campaign.
• The company is focused on improving health and wellness benefits in the chips portfolio and enhancing innovation to meet evolving consumer preferences.
• Strategies to address these challenges include targeted marketing investments, leveraging price pack architecture, and enhanced innovation efforts to support share recovery.

• Meals and Beverages Segment Performance:
• Meals and Beverages saw a 2% decline in organic net sales, with an unfavorable volume and mix impact of 3%.
• Key brands like condensed cooking soups and broths grew, contributing to market share gains, while the ready-to-serve soups segment faced challenges due to price increases.

• The division's performance was influenced by competitive pricing actions to mitigate tariff-related inflation, impacting select segments like RTS soups.

• Investment in Rao's Sauces and Strategic Partnership:

• Campbell's announced a 49% interest in La Regina, producer of Rao's tomato-based pasta sauces, for $286 million.
• The investment is aimed at securing supply of high-quality ingredients and reinforcing the company's commitment to premium ingredient sourcing.
• This move supports the strategic growth of the Rao's brand, which has seen low single-digit consumption growth, and enhances innovation capabilities.

Sentiment Analysis:

Overall Tone: Neutral

• Management said Q1 results were "in line with our expectations," reaffirmed full‑year guidance and highlighted strategic progress (cost savings $160M to date) while acknowledging margin pressure: "Adjusted EBIT decreased 11%" and gross margin down 150 bps to 29.9% due to tariffs and cost inflation. Management expressed confidence in brand positioning and long‑term plans.

Q&A:

• Question from Thomas Palmer (JPMorgan): Can you add detail on the La Regina (Rao's) acquisition timing, rationale and the option on the remaining 51%?
  Response: Acquisition secures Rao's proprietary supply and partnership; buying 49% for $286M (closing H2: $146M upfront, $140M in one year); call option to buy remaining 51% at an implied valuation ~ $600M (up to ~20% premium); expected EPS‑neutral for FY26 and supports Rao's margin and growth.

• Question from Andrew Lazar (Barclays): What gives you conviction that the Snack segment will stabilize in the back half given weaker Q1 trends?
  Response: Category dollar consumption was sequentially stable; expect easier H2 comps and will rely on controllable actions—innovation, price‑pack architecture, targeted promotions and improved omnichannel execution—with Q2 proof points guiding the back‑half trajectory.

• Question from David Palmer (Evercore ISI): How do megatrends (e.g., GLP‑1 adoption, value sensitivity) affect salty‑snack subcategories and your approach into 2026?
  Response: Snacking is evolving across premiumization, flavor exploration and health/wellness; we will align innovation and messaging to those pillars while maintaining a focus on value to meet differing consumer needs across subsegments.

• Question from Robert Moskow (TD Cowen): How do you reconcile price increases to cover costs with the need for affordability in eating soups given some share losses?
  Response: Pricing was surgical to offset disproportionate tariff inflation; cooking soups are growing while eating/RTS saw pressure; management will use selective promotional actions over soup season to remain competitive and stabilize share.

• Question from Michael Lavery (Piper Sandler): At 49% ownership, how will La Regina margins flow through the P&L and what are top‑line implications?
  Response: Because of the call option we will consolidate 100% of La Regina's P&L and then record a 51% minority interest; this yields full gross margin benefit to Rao's on the P&L; transaction expected neutral to EPS in FY26 and accretive over time while supporting mid‑to‑high single‑digit Rao's growth.

• Question from Peter Grom (UBS): As the new CFO, where do you see the biggest opportunities to improve performance (growth, profitability, cash flow)?
  Response: Focus on streamlining analysis, prioritizing the right resources and investments, improving decision‑making and execution to drive growth, profitability and cash flow, leveraging prior large‑ and mid‑cap food experience.

• Question from James Salera (Stephens): Has Goldfish lost households or seen lower consumption frequency, and what will incremental marketing focus on?
  Response: Household penetration is relatively stable but buy‑rate has softened; plan centers on clear brand messaging, targeted innovation (e.g., pretzel SKU), price‑pack architecture (multipacks) and improved in‑market execution to restore buy‑rate and growth.

• Question from Christopher Carey (Wells Fargo): How did Q1 gross margin compare to expectations and what is the margin phasing outlook for the rest of the year?
  Response: Q1 margin performance matched expectations given >500bps total cost pressures (≈200bps tariffs); supply chain actions offset ~70% of costs; expect similar pressure in Q2, gradual improvement in Q3 and clearer recovery in H2 (notably Q4) as tariffs are lapped; long‑term target is gross margin well above 30%.

Contradiction Point 1

Snack Category Performance and Strategy

It highlights differing perspectives on the performance and strategic direction of the Snack category, which is critical for overall company growth and investor expectations.

What gives you confidence in stabilizing the snack segment in H2 FY, given Q1 trends? - Andrew Lazar (Barclays)

20251209-2026 Q1: We expect category pressures to continue but ease into the second half. We are focused on evolving our portfolio with consumer needs, such as premiumization, flavor exploration, and health and wellness. - Mick Beekhuizen(CEO)

What is the outlook for Snack Foods, given recent category pressures? - Jason English (Goldman Sachs)

2024Q1: Snack Foods sees bifurcation; power brands remain strong but face softening in value segments. Cost and mix optimizations are ongoing. The company remains optimistic about growth potential. - Mark Clouse(CEO)

Contradiction Point 2

Soup Category Price Positioning

This contradiction reveals differing approaches to pricing in the Soup category, which could impact revenue and consumer perception.

Are you considering reducing prices in the soup segment, and how have competitors responded to your price hikes? - Robert Moskow (TD Cowen)

20251209-2026 Q1: We are conscious of value, especially during key periods. While we've taken price increases to cover costs, we are aware of the importance of providing appropriate value, particularly during the soup season. - Mick Beekhuizen(CEO)

How are gross margins performing with promotional activities? - Andrew Lazar (Barclays)

2024Q1: While we've taken price increases to cover costs, we are aware of the importance of providing appropriate value, particularly during the soup season. - Mark Clouse(CEO)

Contradiction Point 3

Gross Margin Pressures and Mitigation Strategies

It involves differing explanations of gross margin pressures and strategies to mitigate them, which are critical for financial performance.

How did the latest quarter's gross margin compare to guidance, and what are the prospects for margin improvement? - Christopher Carey (Wells Fargo)

20251209-2026 Q1: The gross margin pressures were as expected due to inflation and tariffs. We achieved a 70% offset through cost savings. - Todd Cunfer(CFO)

Why haven't you raised prices more to offset tariff costs, and how does the actual tariff impact compare to expectations? - Robert Moskow (TD Cowen)

2025Q4: A primary impact is from raw material costs and freight, exacerbated by the persistent strength of the US dollar on imported goods. As we've discussed, Section 232 tariffs and IEPA tariffs continue to impact Rao's production. - Carrie Anderson(CFO)

Contradiction Point 4

Revenue Growth Strategy

This contradiction involves differing expectations for revenue growth, which is crucial for investor expectations and strategic planning.

What factors support stabilizing the Snack segment in the second half of the fiscal year, given Q1 trends? - Andrew Lazar (Barclays)

20251209-2026 Q1: We expect category pressures to continue but ease into the second half. We are focused on evolving our portfolio with consumer needs, such as premiumization, flavor exploration, and health and wellness. - Mick Beekhuizen(CEO)

What factors are driving stabilization in the snack portfolio, and are they category-driven or company-specific? - Thomas Palmer (JPMorgan)

2025Q4: We are focused on evolving our portfolio with consumer needs, such as premiumization, flavor exploration, and health and wellness. - Mick Beekhuizen(CEO)

Contradiction Point 5

Tariff Mitigation Strategies

It involves differing assessments of the impact of tariffs, which directly affects cost management and financial forecasting.

What impact will the La Regina deal have on revenue growth and AMC's funding? - Andrew Lazar (Barclays)

20251209-2026 Q1: Tariffs are phased in and include impacts from Canada, tinplate, aluminum, and Rao's imports. We are working to minimize the overall impact, including strategic inventory management. - Carrie Anderson (EVP and CFO)

Can you explain the impact of tariffs on Rao's production and unit economics? - Jim Salera (Stephens)

2025Q3: We are exploring all mitigation strategies, including strategic inventory management and product cost optimization, to minimize tariff impacts. Specific impact details are not yet clear, given the evolving trade landscape. - Carrie Anderson (EVP and CFO)