Ken Gosnell - VP, Finance Strategy and IR Keith McLoughlin - Interim President and CEO Anthony DiSilvestro - SVP and CFO

Bryan Spillane - Bank of America David Driscoll - Citi Chris Growe - Stifel Ken Goldman - JPMorgan Robert Moskow - Credit Suisse Steve Strycula - UBS Andrew Lazar - Barclays Jonathan Feeney - Consumer Edge

Good day, ladies and gentlemen, and welcome to the Campbell Soup First Quarter 2019 Earnings Call. [Operator Instructions] As a reminder, this conference call may be recorded. I would now like to introduce your host for today's conference, Mr. Ken Gosnell, Vice President, Finance Strategy and Investor Relations. Sir, you may begin.

Thank you, Crystal. Good morning, everyone. Welcome to the first quarter earnings call for Campbell Soup's fiscal 2019. With me here in New Jersey are Keith McLoughlin, Interim CEO; and Anthony DiSilvestro, CFO. As usual, we've created slides to accompany our earnings presentation. You will find the slides posted on our website this morning at investor.campbellsoupcompany.com. This call is open to the media, who participate in a listen-only mode. Today, we will make forward-looking statements, which reflect our current expectations. These statements rely on assumptions and estimates, which could be inaccurate and are subject to risk. Please refer to Slide 2 or our SEC filings for a list of factors that could cause our actual results to vary materially from those anticipated in forward-looking statements. Because we use non-GAAP measures, we have provided a reconciliation of these measures to the most directly comparable GAAP measure, which is included in the appendix of this presentation. With that, I'll turn the call over to Keith McLoughlin, Interim President and CEO. Keith?

Thanks, Ken, and good morning, everyone. Today, we will discuss the progress we've made executing the significant actions we announced on August 30, following our comprehensive Board-led strategy and portfolio review and in that context, review our first quarter results. As we stated at that time, fiscal 2019 will be a transition year for Campbell as we take steps to turn around the Company, and the year-over-year results we reported today reflect that. This morning, I will give you an overview of the steps we're taking to implement our new strategy, and in that context, share my perspective on our performance. Then, our Chief Financial Officer, Anthony DiSilvestro, will walk through the financial details of the quarter and our fiscal 2019 guidance which we reaffirmed today. Moving to Slide 4. As you'll recall, we announced on May 18, that the Board was launching its own strategy and portfolio review process, one with outside advisors and which all options were on the table. Together with those advisors, we evaluated a full slate of potential options for Campbell, including optimizing our portfolio and divesting assets, splitting the company in two and selling the entire company. After considerable analysis and evaluation and as discussed on August 30, the Board concluded that at this time, the best path forward to maximize shareholder value and maintain flexibility going forward is a three-pronged strategy. First, optimize our portfolio and focus on our core businesses with an emphasis on execution; two, divest certain non-core businesses in order to focus the Company, while significantly paying down debt; and three, to increase our successful multi-year cost saving efforts, while driving improved asset efficiency. We have not wasted time since then and we're doing what we said we would do. We are actively making Campbell a highly focused company that is built around our two core North American businesses, Snacks and Meals and Beverages. These are strong businesses, where we have the right to win with franchise brands, best-in-class products, and significant market positions. I will get into more specifics about each business in a moment, but I want to share a specific example of the greater operating discipline, resulting from our increased intensity, particularly in our core North American operations. Put simply, we are improving our execution and delivering on our commitments to create a stronger, more focused and more disciplined company. In late September, we had noted in our 10-K, that we were experiencing significant higher than expected costs, as well as considerable shipment delays across our Meals and Beverages portfolio, because of supply chain challenges we faced early in the quarter related to the start-up of a new distribution center in Ohio. This facility, which is operated by a third-party, will ultimately enable us to serve a broader customer base and provide greater service flexibility. During that same time period, our plant in Maxton, North Carolina, literally became an island as the flood waters rose from Hurricane Florence. In response, we deployed across functional team led by supply chain experts and sales leaders that displayed amazing teamwork and moved with urgency to overcome these issues with our third-party logistics provider. They made substantial improvements in the final month of the quarter to recapture the vast majority of these sales. It was a herculean effort and is indicative of new Campbell that we're building. This focus is carrying over into other areas of the Company as well. Let's start with soup. Moving to Slide 5. Within our Meals and Beverages business, our top priority is to stabilize and improve the performance of our soup business. As we have discussed, soup is a great business and we are taking it back to basics approach, leveraging our market leading brands and driving improved execution across the portfolio. In fiscal 2019, we are resetting the value proposition for U.S. soup. This starts with increased focus on our key brands, each of which we're managing with rigor and according to a specific portfolio role. Campbell's, Swanson, and Chunky are being managed to maximize margins and cash flow and Pacific and our Well Yes! brands are being managed to drive strong profitable growth. Despite the sales decline in the quarter, there are many reasons we're optimistic about soup, including greater operating discipline, improved merchandising, and a new management team, that is moving quickly and decisively to improve performance. The supply chain challenges I mentioned earlier hampered the start of the quarter, but soup gained momentum as the quarter progressed and soup sales grew in October. As we look to improve performance in soup, we outlined several areas of actions, when we spoke in August and let me highlight them here. First, our emphasis on adjusting price gaps is showing signs of progress, despite the challenging retail environment. This year we have more competitive pricing on key segments as we enter soup season versus a year ago. Second, we are optimizing our merchandising with increased frequency and breadth compared to a year ago. And third, we have refocused our marketing efforts around a new campaign with the iconic Campbell's brand front and center. In October, we launched a new contemporary campaign that features our Campbell's condensed, as the recipe starter for delicious and affordable family meals. We are driving efficiencies in our spend and focusing our marketing dollars on our most profitable brands to both increase purchase intent and strengthen long-term brand equity. We launched soup advertising later than usual this past quarter due to the distribution facility start-up issues that I previously mentioned as we sought to ensure marketing aligned with distribution capability. Soup advertising began appearing in the last two weeks of October, compared to September a year ago. While soup consumer marketing spend was lower than a year ago, we expect our soup marketing investments to normalize in the second quarter as we enter the heart of the soup season. Additionally, our Swanson broth business had a particularly good quarter. Swanson sales and share growth are driven by category momentum, expanded distribution, and a new marketing campaign that also started in October. Part of our back to basics approach on soup, includes selected consumer-driven innovation. In the quarter, we launched Campbell's Well Yes! sippable soups for affordable on-the-go snacking to attract new consumers to the category. It's early days, but the launch has gained strong distribution and early velocity is ahead of our expectations. Turning to Pacific. We are pleased with the performance of the brand and the progress of the integration. We are taking steps to increase our production efficiency and distribution capabilities at Pacific, as it continues to perform against this portfolio role to drive strong profitable growth and in line with our acquisition expectations. Our focus on operating discipline has been elevated across the division, particularly in soup. The result is a more effective Meals and Beverages leadership team that is executing well. Stabilizing soup is our top priority, given the importance of this business. We are executing the plans we outlined back in August with increased emphasis on price realization, optimized merchandising support, targeted consumer-driven innovation, and more effective and contemporary marketing focus on the iconic Campbell's master brand. We are doing the right things and are encouraged that our plans are beginning to have an impact. As we said last quarter in fiscal 2019, we will rebase soup and strengthen our value proposition in the marketplace. We have made progress against that objective to start the year. That said, we acknowledge that there's much more work to be done and it will take time to fully stabilize the business. I want to talk about the focus and execution in our snacking business and the combination of the Pepperidge Farm and Snyder's-Lance portfolios to form Campbell Snacks. The combination of these powerful portfolios establishes Campbell's as a leading player in the attractive and growing U.S. snacking market. We continue to see opportunities to drive significant top line growth and margin expansion in Campbell Snacks, as we invest and innovate across our portfolio of leading brands, capture cost synergies, and create an enhanced culture of performance and accountability. The two businesses that comprise Campbell Snacks are robust. This quarter marks the 16th consecutive quarter of organic growth in Pepperidge Farm, and the underlying Snyder's-Lance business is strong as well with share growth in six of our eight key brands this quarter, including Lance, KETTLE, Cape Cod, Pretzel Crisps, Emerald, and high double-digit growth in our Late July brand. As we've discussed previously, it's worth noting that prior to the closing of the acquisition, the former Snyder's-Lance management team executed SKU rationalization and price realization plan that didn't materialize, which have been a headwind to consumer takeaway, particularly for the Snyder's of Hanover brand. We are driving innovation across Campbell Snacks by executing against key consumer snacking insights. The combination of Pepperidge Farm and Snyder's-Lance enables us to leverage a vast manufacturing network to create new innovations such as Goldfish, epic crunch. A new line in that older kids, which was developed in Pepperidge Farm's kitchens and made Snyder's-Lance bakery. There are numerous examples where we're transferring expertise across the portfolio, such as applying our real food knowledge to drive reinventions and products like Lance crackers with color source from plants, and Pop Secret made with natural flavors. As we integrate and drive synergies, we are diving into the portfolio role of these brands across our portfolio and making capital investments to support our growth franchises. Specifically, we are expanding capacity in Goldfish, Milano, and KETTLE, all of which are examples of brands that are growing and driving share growth in their respective categories. From a value capture standpoint, our Snyder's-Lance integration and synergy actions are on track. The team is delivering synergies across the business, including and manufacturing procurement, warehousing and distribution, as well as, streamlining our managing processes. In supply chain, we're leveraging our scale to reduce input cost and we are accelerating our investments in automation to improve our cost structure. We're delivering on our integration and synergy commitments, and we expect continued progress going forward. We are confident in the long-term growth and margin expansion potential for Snyder's-Lance. We have created a single Campbell snacks leadership team accountable for our North American snacks business that is applying a consumer first approach to growth, delivering against our integration efforts, and fully leveraging our deep knowledge of snacking that spans both Pepperidge Farm and Snyder's-Lance. Moving to Slide 7. The second leg of our new strategy is to divest non-core assets. This serves a number of purposes, it allows us to accelerate our focus significantly pay down debt and strengthen our balance sheet. On August 30, we announced our intention to begin this divestiture process by selling Campbell International and Campbell Fresh as we focus on our core businesses in North America. We started to work immediately after our last call, to begin the process of divesting these two businesses, our financial advisors have been actively soliciting. As expected, there has been very strong initial interest from a range of potential strategic and financial buyers for these assets, because both are solid businesses made up of great brands. We continue to believe these businesses will be a greater value to new owners, who are focused on these categories and geographies. Combined, these businesses represented approximately $2.1 billion in annual net sales in fiscal 2018. We intend to use the proceeds to pay down debt and combined with ongoing strong free cash flow, we aim to achieve a target leverage ratio of 3x net debt to EBITDA by the end of fiscal 2021. We continue to expect to announce buyers for these businesses before the end of the fiscal 2019. But our overwriting goal remains to run a highly disciplined process on a timeline that will achieve the maximum value for these attractive assets. As we also stated in August, we are not complete, we will continue to review additional actions to further focus and refine our portfolio against our go-forward strategy. Moving to Slide 8. The third leg of our strategy is something that we have delivered on effectively over the last several years, cost savings. On August 30, we announced plans to cut another incremental $150 million from our overall cost as well as steps to drive asset efficiency in working capital and capital expenditures, as we build a leaner, more focused, and more agile company. We have already started on this work and have continued to deliver meaningful cost savings with an additional $45 million realized in the first quarter. This remains a core Campbell strength and we are confident in our ability to deliver the full $945 million in cumulative annualized savings by the end of fiscal 2022. Our focus on cost reductions and asset efficiencies help drive improved cash flow, which continues to allow us to return value to our shareholders with $107 million in quarterly cash dividends, while continuing to invest in our core business. As we said previously, fiscal 2019 will be a transition year for Campbell as our new management team guided by the Board operationalizes our plans to focus our portfolio and dramatically improve our execution. I want to emphasize that the actions we're implementing are the right ones at this time to create shareholder value. The Board and management team are committed to look deleveraging the Company, maintaining our investment grade credit rating and rewarding our shareholders through long-term earnings growth and competitive cash dividends. I also want to reiterate that the Board remains committed to evaluating all strategic options if they can demonstrably enhanced value above and beyond the significant actions that we are currently undertaking. With that as context, we are pleased with our performance in the quarter, we are improving our execution and our results, we're on track with our expectations, leading us to reiterate our fiscal 2019 guidance for this transition year. We're hard wiring our operating plans to our key priorities, KPIs, employee objectives, and compensation practices to build a culture of performance, we're enhanced speed, decision making, and accountability are foundational. We are breaking down silos and working together in new ways across the company as evidenced by the continued successful integrations of both Snyder's-Lance and Pacific and the speed at which we acted to fix the supply chain issues at the new distribution center, this is quite encouraging. As you can see we are moving quickly to implement the plans we announced back in August and we are making measurable progress across all of our key priorities. And now, let me turn it over to Anthony for a discussion of our financial results. Anthony?

Thanks Keith. Before getting into the detail, I'll make a few comments on our performance. Overall, our results were in line with our expectations and we are on track to achieve our fiscal year goals. As we disclosed in our 10-K in connection with the transition to our new U.S. warehouse optimization model, we experienced start-up issues at our new Findlay, Ohio distribution center early in the quarter, which were impacting our ability to ship product to our customers. The Findlay facility, which is operated by third-party logistics provider serves as the Midwest hub for distribution or a majority of our Meals and Beverage product. In October, we are able to recover quickly from the start-up challenges and despite $12 million of incremental cost, we finished the quarter with financial results that were in line with our original expectations. As we called out on the August 30 call, we expected the first quarter to be negatively impacted by a change in revenue recognition, the voluntary recall of flavor blasted Goldfish and some continued pressure on U.S. soup as we implement our promotional programs for the upcoming soup season. The impact from a change in revenue recognition which accelerates the timing of expense related to promotional programs at a 1 point negative impact on net sales, a 50 basis point impact on gross margin, and a 4 point negative impact on adjusted EBIT, the equivalent of $0.04 per share. Our organic sales declined 3%, including the 1 point negative impact from the change in accounting. And while the Goldfish brand have recovered well, we experienced some negative impact from the July 2018 voluntary recall of flavor blasted Goldfish. Excluding these two items that were more one-time in nature, the balance of the sales decline was mostly U.S. soup. During the quarter, we implemented our promotional programs for the upcoming soup season and are encouraged by the improving trend. We continue to achieve our cost savings goals against our aggregate program, which includes Snyder's-Lance. We generated $45 million of incremental cost savings in the quarter, bringing the program to-date total to $500 million. As we've discussed, we are now targeting to reach $945 million of costs and synergy savings by the end of 2022. We are pleased with the progress made on the acquisitions of Snyder's-Lance and Pacific Foods. The integration of these businesses is on track and the financial performance is meeting our expectations. Combined, the acquisitions were neutral to our adjusted EPS results in the quarter. Given our first quarter performance and outlook for the balance of the year, we are reaffirming our guidance for fiscal 2019. And in connection with our plan announced August 30, we intend to divest our international snacking business and the Campbell Fresh business. Together with our financial advisors, we've initiated divestiture processes and have seen significant buyer interest for both businesses. I will now review our detailed results. For the first quarter, net sales on an as reported basis increased 25% to approximately $2.7 billion, reflecting the recent acquisitions of Snyder's-Lance and Pacific Foods, and as I mentioned, organic sales declined 3%. Adjusted EBIT decreased 2% to $410 million, excluding the 4 point negative impact from the change in revenue recognition, adjusted EBIT increased 2%, driven primarily by the incremental earnings from the recent acquisitions, partially offset by 12 point decline on the base business reflecting gross margin pressure. Adjusted EPS decreased 14% or $0.13 to $0.79 per share, reflecting adjusted EBIT declines in the base business, including the $0.04 negative impact from the change in revenue recognition, partly offset by lower adjusted tax rate. In aggregate, the acquisitions of Snyder's-Lance and Pacific Foods had no net impact on adjusted EPS in the quarter. Breaking down our net sales performance for the quarter, organic net sales declined 3%, driven by higher promotional spending and lower volume. Lower volumes were primarily the result of decline in U.S. soup. Promotional spending negatively impacted net sales by two points, one point of which was the result of the new revenue accounting guidance, which accelerates the timing of promotional expense. The impact of the accounting change is not expected to be material for the fiscal year. The balance of the increase in promotional spending primarily reflects increased spending on the U.S. soup business. There was a one point negative impact on net sales from currency translation this quarter. And the recent additions of Snyder's-Lance and Pacific Foods to the portfolio, added 29 percentage points, bringing our as reported net sales increase to 25%. Our adjusted gross margin percentage decreased 4.9 point in the quarter. Excluding a 190 basis point dilutive impact from the acquisitions of Snyder's-Lance and Pacific Foods, our adjusted gross margin percentage declined three points, while the acquisitions are reducing our overall margins as we add them to the portfolio, we are confident that the margins on these businesses will increase over time as we integrate them into Campbell and achieve targeted cost and synergy savings. Cost inflation and other factors had a negative impact of 290 basis points, a majority of which was cost inflation, which on a rate basis increased approximately 4.5%, reflecting higher prices on steel cans, vegetables, wheat, dairy and resins as well as the continuing escalation of transportation and logistics costs. The balance of the margin decline was driven primarily by higher than expected distribution costs associated with the start-up of the Findlay, Ohio, distribution facility. These negative drivers were partly offset by benefits from our cost savings initiatives. Higher promotional spending including the 50 basis points impact of the change in revenue recognition, had a negative impact of 140 basis points. Portfolio mix had a negative impact of 20 basis points. Pricing had a positive impact of 30 basis points, reflecting actions taken in our Global Biscuits and Snacks segment. Lastly, our supply chain productivity program, which is incremental to our cost savings program contributed 120 basis points of margin improvement. All in our adjusted gross margin percentage decreased to 31.6%. Moving on to other operating items. Adjusted marketing and selling expenses increased 12% in the quarter, due primarily to the impact of recent acquisitions, probably offset by lower advertising on the base business within Meals and Beverages. The reduction in spending reflects a reallocation of support from advertising to promotional spending, reduced support levels in light of the distribution challenges, faced earlier in the quarter and a later start to our U.S. soup campaigns relative to the prior year. Adjusted administrative expenses increased 19% to $163 million, due primarily to the impact of recent acquisitions. Excluding the impact of acquisitions, adjusted administrative expenses increased slightly, reflecting costs associated with the current proxy contest. For additional perspective on our performance, this chart breaks down our adjusted EPS change between our operating performance and below the line items. Adjusted EPS decreased $0.13 from $0.92 in the prior year quarter to $0.79 per share in the current quarter. On a currency neutral basis, adjusted EBIT had a negative $0.01 impact on EPS, reflecting lower EBIT on the base business, inclusive of a $0.04 negative impact from the change in revenue recognition, partly offset by the addition of Snyder's-Lance and Pacific Foods. Net interest expense increased by $63 million, a $0.16 negative impact to EPS, driven by an increase in the debt levels to fund our recent acquisitions and reflecting the impact of higher interest rates. Our adjusted EPS benefited from a lower adjusted effective tax rate, increasing EPS by $0.04. Our adjusted effective tax rate was 24.3% in the quarter, which declined by 3.9 percentage points, due primarily to the lower U.S. federal tax rate, offset partly by the favorable settlement of certain U.S. state tax matters in the prior year quarter. And lastly, there was a $0.01 negative impact on EPS from currency translation this quarter, completing the bridge to $0.79 per share. And although not shown on the chart, in aggregate, the acquisitions of Snyder's-Lance and Pacific Foods were neutral to adjusted EPS. Now turning to our segment results. In Meals and Beverages, organic sales declined 5%, driven primarily by declines in U.S. soup, Prego and Canada partly offset by gains in V8 beverages. The segment sales were negatively impacted by one point from the change in revenue recognition. Excluding the benefit from the acquisition of Pacific Foods and the impact from the change in revenue recognition, sales of U.S. soup decreased 6%, driven by declines in ready-to-serve and condensed soups, partly offset by gains in broth. The sales decline in U.S. soup, reflects continued competitive pressure across the market and increased promotional spending. We are encouraged by the improved trends through the quarter as we implemented our promotional plans for the upcoming soup season, while consumer takeaway dollar sales declined 7% in the quarter, they were comparable to the prior year in the last four-week period. We are also encouraged by the performance of V8 beverages, which achieved sales gains in the quarter driven by V8 +Energy and the core vegetable juice business. Segment operating earnings declined 11% to $294 million. The decrease was driven primarily by a lower gross margin percentage, partly offset by lower advertising expenses. Gross margin performance reflects the impact of higher levels of cost inflation, increased promotional spending, including the impact from the change in revenue recognition and higher than expected distribution costs associated with the Findlay, Ohio distribution facility start-up. Here's a look at U.S. wet soup category performance and our share results as measured by IRI. For the 52-week period ending October 28, 2018, the category showed a decline, decreasing 40 basis points. Our sales in measured channels, including Pacific on a pro forma basis declined 4.6%, as we continue to wrap the major customer issue that we started to face a year ago. We had a 58.6% market share for the 52-week period, down 250 basis points from the year ago period. Private label grew share, increasing 160 basis points, primarily reflecting gains and brought finishing at 15.9%. All other branded players collectively had a share of 25.5%, increasing 90 basis points. Although not shown on the chart for the four-week period ending October 28, 2018, our sales, the measured channels were up 20 basis points, a notable improvement versus the latest 52-week period. In Global Biscuits and Snacks sales were $1,218 billion in the quarter, including $554 million from the acquisition of Snyder's-Lance. Please note that we've moved the Latin America business to the Meals and Beverages segment and have adjusted prior period results. Excluding the benefit from the acquisition of Snyder's-Lance, and the negative impact from currency translation, organic sales decreased 1%, driven primarily by declines in Kelsen cookies in the U.S. Sales of Pepperidge Farm, Goldfish crackers increased slightly in the quarter. As expected sales of Goldfish crackers were negatively impacted by the voluntary product recall in July 2018, although we are very pleased with how the brand has recovered. On Snyder's-Lance, it is important to note that the SKU rationalization and price realization initiatives are having a negative impact on sales growth, particularly on the Snyder's of Hanover brand. While SKU rationalization is having a short-term impact on sales, this action will result in a more streamlined and profitable portfolio going forward. Snyder's-Lance sales performance was in line with our expectations with the core brands achieving sales growth as measured by consumer takeaway and with six of the eight core brands achieving market share gains. Segment operating earnings increased 32% to $154 million, reflecting a 45 point benefit from the acquisition of Snyder's-Lance. Excluding the impact of the acquisition, segment operating earnings declined, due primarily to a lower gross margin, reflecting higher level of cost inflation. In the Campbell Fresh segment, organic sales decreased 1% to $232 million driven by declines in refrigerated soup, Garden Fresh Gourmet, and Bolthouse Farms refrigerated beverages, partly offset by gains in carrots. Segment operating loss was $3 million compared to a loss of $6 million in the prior year. Although modest, the stick this $3 million year-over-year improvement reflects improved operational efficiency in beverages, partly offset by the impact of refrigerated soup volume decline. As disclosed in our non-GAAP reconciliation in corporate, we recorded a non-cash impairment charge on the fixed asset of our refrigerated soup plant as we consider a potential sale as part of our planned divestiture of the Campbell Fresh segment. On a companywide basis, cash from operations increased to $231 million compared to $188 million in 2018, as lower working capital requirements and lower payments and hedging activities were probably offset by lower cash earnings. The cash outlay for capital expenditures, with $111 million, $53 million higher than the prior year, reflecting the timing of cash payments as well as investment to support our cost savings initiatives and the addition of Snyder's-Lance and Pacific Foods to the portfolio. We continue to forecast CapEx of approximately $400 million for fiscal 2019. We paid dividends totaling $107 million compared to $111 million in 2018. As previously announced, we suspended our share repurchases in the second quarter of fiscal 2018 as a result of the acquisition of Snyder's-Lance. Net debt of $9.6 billion is up from $3.3 billion a year ago, reflecting the impact of the $6.1 billion acquisition of Snyder's-Lance, and the $700 million acquisition of Pacific Foods, partly offset by positive cash flow generated by the base business. As part of our August 30 plan, we have initiated processes to divest our international snacking business and Campbell Fresh and we'll use the proceeds from these divestitures to reduce debt and improve our leverage ratio. Now, I'll review our 2019 guidance, which is unchanged from August 30. As we did previously, we are providing guidance based on our existing portfolio of businesses and also on a pro forma basis, assuming planned divestitures were completed as of the start of the fiscal year with proceeds used to reduce debt. I'll start with the guidance pre-divestitures. We expect sales to increase to a range of $9,975 billion to $10,100 billion as we benefit from the incremental impact of both the Snyder's-Lance and Pacific Foods acquisitions. This top line guidance implies that organic sales are expected to decline slightly, while we're seeing improved trends as we implement our promotional programs, we anticipate that U.S. soup sales will decline in 2019. In addition, we expect sales in Campbell Fresh to be negatively impacted as two major private label refrigerated soup customers will in-source production starting in 2019. We expect adjusted EBIT to be in the range of $1,370 billion to $1,410 billion as declines on our base business are mostly offset by the incremental acquisition impact of Snyder's-Lance and Pacific Foods. Both of these acquired businesses are performing in line with our expectations and represent significant long-term growth opportunities. The EBIT decline on the base business reflects the anticipated decline in organic sales, the negative impact of 4% to 5% cost inflation on gross margin, and the negative impact from higher incentive compensation, which was significantly reduced in 2018. We are forecasting a decline in our gross margin percentage of approximately 2 point as cost inflation and higher promotional spending, are only partly offset by 3% cost productivity and benefits from cost savings. Gross margin trends are expected to improve in the back half of the year for several reasons. A positive impact from the change in accounting, wrapping the Snyder's-Lance acquisition, pricing actions were currently implementing in the marketplace, phasing of productivity gains and some moderation of year-on-year cost inflation. We expect adjusted EPS to be in the range of $2.45 to $2.53 per share. The delta between EBIT and EPS performance is primarily driven by the interest expense associated with the acquisition of Snyder's-Lance and Pacific Foods. We expect interest expense in the range of $375 million to $390 million, and an adjusted tax rate of approximately 25%. And against our cost and synergy target, we expect to retrieve $120 million of savings. We are also providing forecast for 2019 on a pro forma basis, assuming the planned divestitures were completed as of the beginning of the fiscal year and based on the use of estimated proceeds to reduce debt. As you can see on the chart, our sales base decline to about $8 billion, adjusted EBIT to a range of $1,230 billion to $1,270 billion, and adjusted EPS to a range of $2.40 to $2.50. The overall anticipated dilution from the divestitures is modest given the current level of profitability of the Campbell Fresh division. As I've stated, we've initiated divestiture process for both Campbell International and Sea Fresh and have seen significant buyer interest for both businesses. That concludes my remarks. And now, I'll turn it back to Keith.

Okay. Thank you, Anthony. And before we open up the call to questions, I just want to touch on the CEO search process. The Board has been extremely thorough to make sure it selects the right candidate to lead Campbell through this important time. This is a very attractive role to a number of highly qualified internal and external candidates. The Board continues to have extensive discussions with a number of candidates who possess deep experience in consumer packaged goods and a strong track record of proven results. The Board continues to expect to name a permanent CEO by the end of the calendar year. In summary, we're seeing the early signs of improved execution and performance this quarter. We're confident that our plans provide a clear strategic path forward and a strong foundation for executing the Campbell turnaround. We are squarely focused on our plan and will not be distracted from our mission, executing the plan to maximize value for all shareholders, much more work lies ahead, but we're pleased with the overall pace of our progress. And now, let me turn it back to Ken to open up the call for your questions. Ken?

Thanks Keith. We will now start our Q&A session. Since we have limited time, I request out of courtesy to the other callers, please ask only one question at a time. Okay, Crystal.

[Operator Instructions] And our first question comes from Bryan Spillane from Bank of America. Your line is open.

So I guess my question is just around the cost savings, I think it was $45 million of savings in the first quarter and you're still guiding to a $120 million for the year and I think, Anthony, you said that you expected more productivity in the back half. So could you just square, I guess if we're running at $45 million in the first quarter, why the savings won’t be more than $120 million for the full year?

Yes, sure, Bryan. So as you pointed out, we are at $45 million against the full year guidance of $120 million. So that's about two-thirds of that will come through cost, the other third through SG&A. My comment earlier about cost savings was meant to address productivity. So in addition to these cost savings programs, we target 3% of cost - of productivity savings every year and it's those savings that are a little bit more phased to the back half than the first half this year. So that was what I was addressing.

So the comps productivity was less than 3%, than in the first quarter?

Yes.

Our next question comes from David Driscoll from Citi. Your line is open.

I wanted to ask Keith, you got a bit of a chance here to see Campbell's from the Chief Executive Officer role, obviously you've been on the Board for years. You have $945 million laid out in the synergy capture, $500 million already achieved, $445 million left to go. Simple math would say that this is worth more than a $1 a share in terms of gross impact to Campbell's. Consensus estimates, couple of years out Keith, they only go up like $0.20. The question to you is, you’ve got a chance to look at these savings, are they real? Do you believe in this buck a share or better in savings potential? And then how much of this can actually go down to the bottom line on Campbell's or do you foresee most or all of this needing to be reinvested back into the business to restore top line growth?

Yes, that's a good question, and I think you partly answered a lot of that actually. So I think these numbers are real and having been on the Board for a few years, I've watched the Company execute on these cost initiatives and now, of course, being with the management team here, I see why they're good at it. It's a very disciplined and robust process and we track it rigorously, and of course, now in the middle of those meetings. So my confidence that we'll do it is high. As you know, to get to the $945 million, you have the $0.5 billion of the current program which is getting close to being complete or at least meeting that number. We've got the $295 million from Snyder's-Lance and we're reporting on that frequently as you can imagine, and we put the challenge up with another $150 million. So I would say that of the $945 million, that's $150 million - additional $150 million is where we’ve got to get more traction, we've got to get more line of sight, we've got obviously work underway to do that, but there is more work to do there. But Anthony, you've been leading the big part of those for us for several years and now with the new – can you add to that?

Yes, totally agree Keith, that we're highly confident against the $945 million. I think the other way to come out is in the context of our long-term growth algorithm and how do you get from 1% to 2% sales to 4% to 6% EBIT growth. And that delta implies about 50 basis points of margin expansion every year, and if you do the math against where we are today to the $945 million, it implies a little bit of - little over half of those cost savings need to go to expand margins. The other chunk of it can go back into the business to reinvest to grow the brand.

Our next question comes from Chris Growe from Stifel. Your line is open.

Anthony, you outlined $12 million in cost, I think it was related to the Ohio facility. I want to understand in the first quarter, if you were to add up to the Ohio costs or the incremental freight cost, the hurricane cost, could you give a number for what the totality of those costs were? And then as you offset that, obviously, marketing was little lower, was that the main offset to that incremental costs in the quarter?

Yes, that's pretty close. I think if you look at the $0.13 decline in EPS and back out taxes and currency, you've got a $0.17 decline. Of that $0.17 decline, $0.04 is revenue recognition, $0.03 is Findlay. The hurricane did not really have a significant impact when all is said and done. And then the balance of it which is $0.10 are combination of the gross margin pressure, the lower organic sales, partly offset by the reduction in advertising and consumer spending is how you get there.

And did you say, how much the advertising, just that piece that was down in the quarter?

No, I think in the press release, we say, we're up 13 selling and marketing and 28 points of that increase is the acquisition. So we're down double digits.

Our next question comes from Ken Goldman from JPMorgan. Your line is open.

When you talk on Slide 5 about your plan to stabilize soup, there's some, I think low hanging fruit there that are the right moves in terms of price gaps and merchandising and so forth. But what I think it’s still to me not apparent in the plan is how you will drive consumers to get more excited by and interested in your core soup product? Reason I'm saying that is the only innovation I see here is on the Well Yes!, sipping soup side, which is not that big of a product, right? And then on Slide 23, you talk about everyone want what's next, so there's not a single product in the next column, that's a core Campbell Soup or Chunky product also. So I guess, what I'm trying to figure out what is the plan to spark sustained consumer interest in the core Campbell Soup red and white can as well as Chunky, any help there would be, I think very useful?

Sure. It's good question. Of course, you have - at the end of the day, what we're going to get paid for in soup is relevant consumer innovation. So you're right on target with the question. We've got to bring more relevant innovation at a faster rate to consumers. We're going to do that in a couple of ways. One is a big theme, as you know is focus, right. How do we focus on those core brands, those core categories, where we have strength, where we got more competition. And so the redeploy or deploy the R&D dollars against those key categories. It's going to be in areas like convenience. It's going to be in areas like meal preparation, right. How do you deal - how do you take away that 4:00 PM to 6:00 PM nightmare that happens in every household, like what's for dinner, it's going to be in healthy and vegetables, cooking - leveraging our cooking expertise, right and helping people deal with that timeframe to say here's an easy way to take some chicken or salmon and with this ingredients, with these capabilities make a healthy meal for your family. So it's going to be in those areas. Actually we've got lots of neat stuff happening, I'm very excited to get together with you all during Investor Day to show you some of the stuff that Roberto and his team have under the hood there, but it's not yet ready for prime time, but your point is well made and well taken, it's - we're going to paid for relevant innovations, that could bring excitement back into the category.

Our next question comes from Robert Moskow from Credit Suisse. Your line is open.

I guess I had a similar question as Ken did, but it was specifically about millennials. I thought, I remember 3 months ago that there was going to be a more concerted effort to target younger consumers with the Campbell brand and specifically in cooking. And I didn't see much here in terms of how you're doing that maybe your answer is the same wait until the Analyst Day. But then secondly, what I did see in the market a lot, was a lot of 10 for 10 - 10 cans of condensed soup for $10, what was the decision to go back to that, in the past I've heard that the Company really didn't want to discount that deeply in condensed, is that changing now?

Yes, I would say actually to your first part of your question around the millennials, we are - probably maybe you haven't seen yet, but we started in the last two weeks of October, a new campaign to buy condensed specifically against millennials and especially to show millennials, how to take the Campbell's condensed soup and use it for meal preparation. So you remember exactly correctly and actually the new campaign is right on that specific target segment with that featured benefit that you mentioned. In terms of the actual promotion, I can't speak the detail. I don't know, Anthony, if you have an experience on the 10 for one?

Yes, I mean, historically, our issue on 10 for 10 has been on our RTF , right, more though and that's what we wanted to get away from we have, it's not unusual to see 10 for 10 on some of the condensed side of it.

Our next question comes from Steve Strycula from UBS. Your line is open.

Quick question, on the gross margin piece what Anthony, what builds the confidence for the second half margin recovery on the gross margin rate maybe speak to what inflation assumptions are some of the headwinds that kind of dissipate? And then a quick follow-on would be on the international snacking piece, is that about a $1.2 billion revenue entity was call it $230 million of EBITDA, just some parameters would be helpful? Thanks.

Yes, so on the gross margin point. Obviously, we're down in the first quarter, there is some unusual things in there 60 basis points related to Findlay, 50 basis points on revenue recognition from higher trade on U.S. soup, cost inflation is running in that 4% to 5% range as we expected. Key drivers being steel, wheat, vegetables, dairy and resins. As we look ahead to the balance of the year, we do expect improving trends, right. There is a number of reasons for that. First is the accounting change, the revenue recognition is a bad guy in the first half is a positive in the second half. Second and this is an important one, we're going to wrap the acquisition of Snyder's-Lance end of March. So it turns from a being dilutive mix impact to a positive contributor to organic margin expansion. Third, we have communicated to our customers pricing actions that we're taking in a number of brands and is - these will go into effect in the second half have some impact and certainly have more impact as we move into 2020. Also we'll start to wrap some of the more significant inflation, so that should moderate a little bit. And as I said earlier on the call, our ongoing 3% productivity program, there's a little back-end loaded this year relative to other. So those are the four or five things that give us confidence that these trends will improve throughout the year. And on your other question, you're - I think you're right on the international sales. We're not going to break down the EBITDA at that level given where we are in these divestiture processes.

Our next question comes from Andrew Lazar from Barclays. Your line is open.

Just two quick things, one, I think on the last call you talked about U.S. soup probably worth about 1 point of a decline for the full year in total Company sales. I want to get a sense if that was still around what you were thinking? And then second, I'm just trying to square your comments from an earlier question around reinvesting maybe a little less than half of sort of the savings over the period of time back into the business. Were there some comments last quarter where you weren't necessarily, you didn't sound that you were expecting a significant reinvestment more of a reallocation from some brands to more disproportionate spending on some others, I wanted to make sure I just understood how to square those two comments? Thank you.

Yes, so on the sales part of it. Yes. So U.S. soup performance, we do expect soup sales will be down on a year of probably worth comes to a point to total company sales. The other headwind that we're facing is that the two major private label fresh soup customers moving to in-sourcing that will have a negative impact as we go through the year. In terms of the reinvestment, Andrew, I think if you just look at our - like, I said, if you look at our EBIT versus our sales, long-term algorithm is worth about 50 basis points, and that 50 basis point is about $60 million to $70 million of incremental EBIT every year. And then if you just work out the math on the program to go in terms of the annual savings, you need a little over half of that to go to that margin expansion. Now that's a little bit simplistic because obviously you have a basket of items that are going up or down in that EBIT bridge. But I think high level, that's about what we would expect to see happen going forward.

And Anthony around the reinvestment is a lot of it more in the marketing seeing consumer spend side or are there maybe spending that needs to be done behind capabilities in terms of what you need going forward that maybe we're less aware of?

Yes, no, I think that's a good question, it's just probably all of the above, right, I mean, it's not just limited to one area of investment, right. You're going to increase capabilities, one way or another whether in technology, or in people, or in brands, or in products. So yes, we've talked about this before and things like digital and e-commerce, we have been stepping up our level of investment and we'll continue to do.

And our next question will come from Jonathan Feeney from Consumer Edge. Your line is open.

Just wanted to ask a question on the gross margin, I guess, a related issue, which is the affordability. When I look at the 2-year progress, 1-year progress in gross margin even backing out the acquisition impact, it now compares unfavorably to I think a lot of your peers directly. And juxtapose that with the conversation about affordability, I guess I just wonder me looking at the data, I wonder how much of the issue is affordability per se and where is that data coming from? Is that the consumer, the retailer that's telling you that the products aren't affordable, particularly I assume that relate largely to the meals business and soup specifically. So I guess where's that data coming from? And are you confident that gross margins have bottomed and are going up from here on an organic basis you're setting aside whatever effect of the planned divestitures might have? Thank you very much.

Yes, I might need you to say a little bit more about the affordability part of the question, but just kind of generally relative to gross margins. Of course as our gross margins as you stated have been compressed here in the last couple of years, primarily driven by the under the performance in Sea Fresh and the major issue we've had with a major customer in soup. I mean that's a not insignificant challenge to our margins. And as we're stating and as you're seeing, we're starting to see getting traction, we are divesting the Sea Fresh side. And then in soup, it looks like we're getting traction both with a key customer and also in general. So that gives us confidence, we'll get the cost that work, we'll get the synergies from Snyder's-Lance, get their gross margins back closer to where Pepperidge Farm's are and that combination gives us confidence that the gross margin will expand. Would you had another question around affordability, I just want to make sure I get the question?

And it actually looks like the caller has disconnected.

Okay.

So that will conclude our question-and-answer session for today's conference. I'd now like to turn the call back over to Keith McLoughlin for any closing remarks.

Okay. Thank you, and thanks, everyone. I just - a couple of concluding remarks, hopefully, you can kind of get the little bit of the picture here that there are changes happening at Campbell's. We're in a turnaround and we're executing against the plan we laid out on August 30. We're pleased that the first quarter results give us the ability to reaffirm guidance for the full year. We're getting traction, we're seeing early signs of progress for the turnaround, but there is still a ton of work in front of us. So we are by no means declaring victory, this is the beginning - this is the beginning of the turnaround with the Campbell Soup Company. Thank you all for joining us this morning. We look forward to reporting to you back on Q2 earnings call. Have a great day, and for those in the U.S., a very Happy Thanksgiving. Thanks everyone.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program. And you may all disconnect. Everyone, have a wonderful day.