cpb-20231029

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For The Quarterly Period Ended

Commission File Number

October 29, 2023

1-3822

CAMPBELL SOUP COMPANY


New Jersey			21-0419870
State of Incorporation			I.R.S. Employer Identification No.

1 Campbell Place

Camden, New Jersey 08103-1799

Principal Executive Offices

Telephone Number: (856) 342-4800

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class

Trading Symbol

Name of Each Exchange on Which Registered

Capital Stock, par value $.0375

CPB

New York Stock Exchange

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☑ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☑ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☑

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☑ No

There were 298,099,835 shares of capital stock outstanding as of November 30, 2023.

TABLE OF CONTENTS


PART I - FINANCIAL INFORMATION		3
	Item 1. Financial Statements	3
	Consolidated Statements of Earnings	3
	Consolidated Statements of Comprehensive Income	4
	Consolidated Balance Sheets	5
	Consolidated Statements of Cash Flows	6
	Consolidated Statements of Equity	7
	Notes to Consolidated Financial Statements	8
















	Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	24
	Item 3. Quantitative and Qualitative Disclosure About Market Risk	32
	Item 4. Controls and Procedures	32
PART II - OTHER INFORMATION		32
	Item 1. Legal Proceedings	32

	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	32
	Item 5. Other Information	33
	Item 6. Exhibits	33
INDEX TO EXHIBITS		34
SIGNATURES		35

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

CAMPBELL SOUP COMPANY

Consolidated Statements of Earnings

(unaudited)

(millions, except per share amounts)


	Three Months Ended
	October 29, 2023		October 30, 2022
Net sales	$	2,518	$	2,575
Costs and expenses
Cost of products sold	1,730		1,741
Marketing and selling expenses	222		201
Administrative expenses	158		158
Research and development expenses	24		21
Other expenses / (income)	24		18
Restructuring charges	2		—
Total costs and expenses	2,160		2,139
Earnings before interest and taxes	358		436
Interest expense	49		47
Interest income	1		1
Earnings before taxes	310		390
Taxes on earnings	76		93


Net earnings	234		297
Less: Net earnings (loss) attributable to noncontrolling interests	—		—
Net earnings attributable to Campbell Soup Company	$	234	$	297
Per Share — Basic


Net earnings attributable to Campbell Soup Company	$	.79	$	.99
Weighted average shares outstanding — basic	298		299
Per Share — Assuming Dilution


Net earnings attributable to Campbell Soup Company	$	.78	$	.99
Weighted average shares outstanding — assuming dilution	299		301

See accompanying Notes to Consolidated Financial Statements.

CAMPBELL SOUP COMPANY

Consolidated Statements of Comprehensive Income

(unaudited)

(millions)


	Three Months Ended
	October 29, 2023						October 30, 2022
	Pre-tax amount		Tax benefit (expense)		After-tax amount		Pre-tax amount		Tax benefit (expense)		After-tax amount
Net earnings (loss)					$	234					$	297
Other comprehensive income (loss):
Foreign currency translation:
Foreign currency translation adjustments	$	(9)	$	—	(9)		$	(8)	$	—	(8)

Cash-flow hedges:
Unrealized gains (losses) arising during the period	8		(2)		6		7		(2)		5
Reclassification adjustment for losses (gains) included in net earnings	—		—		—		(4)		1		(3)




Other comprehensive income (loss)	$	(1)	$	(2)	(3)		$	(5)	$	(1)	(6)
Total comprehensive income (loss)					$	231					$	291
Total comprehensive income (loss) attributable to noncontrolling interests					—						—
Total comprehensive income (loss) attributable to Campbell Soup Company					$	231					$	291

See accompanying Notes to Consolidated Financial Statements.

CAMPBELL SOUP COMPANY

Consolidated Balance Sheets

(unaudited)

(millions, except per share amounts)


	October 29, 2023		July 30, 2023
Current assets
Cash and cash equivalents	$	91	$	189
Accounts receivable, net	726		529
Inventories	1,340		1,291
Other current assets	82		52

Total current assets	2,239		2,061
Plant assets, net of depreciation	2,429		2,398
Goodwill	3,960		3,965
Other intangible assets, net of amortization	3,125		3,142
Other assets	504		492

Total assets	$	12,257	$	12,058
Current liabilities
Short-term borrowings	$	206	$	191
Accounts payable	1,368		1,306
Accrued liabilities	541		592
Dividends payable	113		113
Accrued income taxes	82		20

Total current liabilities	2,310		2,222
Long-term debt	4,500		4,498
Deferred taxes	1,076		1,067
Other liabilities	614		608

Total liabilities	8,500		8,395
Commitments and contingencies
Campbell Soup Company shareholders' equity
Preferred stock; authorized 40 shares; none issued	—		—
Capital stock, $.0375 par value; authorized 560 shares; issued 323 shares	12		12
Additional paid-in capital	388		420
Earnings retained in the business	4,573		4,451
Capital stock in treasury, at cost	(1,212)		(1,219)
Accumulated other comprehensive income (loss)	(6)		(3)
Total Campbell Soup Company shareholders' equity	3,755		3,661
Noncontrolling interests	2		2
Total equity	3,757		3,663
Total liabilities and equity	$	12,257	$	12,058

See accompanying Notes to Consolidated Financial Statements.

CAMPBELL SOUP COMPANY

Consolidated Statements of Cash Flows

(unaudited)

(millions)


	Three Months Ended
	October 29, 2023		October 30, 2022
Cash flows from operating activities:
Net earnings	$	234	$	297
Adjustments to reconcile net earnings to operating cash flow


Stock-based compensation	17		15


Pension and postretirement benefit expense (income)	1		11
Depreciation and amortization	96		91
Deferred income taxes	7		3



Other	31		25
Changes in working capital
Accounts receivable	(207)		(198)
Inventories	(52)		(118)
Other current assets	(29)		(10)
Accounts payable and accrued liabilities	82		123


Other	(6)		(12)
Net cash provided by operating activities	174		227
Cash flows from investing activities:
Purchases of plant assets	(143)		(77)

Purchases of route businesses	(4)		(1)
Sales of route businesses	10		—



Net cash used in investing activities	(137)		(78)
Cash flows from financing activities:
Short-term borrowings, including commercial paper	1,103		557
Short-term repayments, including commercial paper	(1,081)		(512)



Dividends paid	(114)		(115)
Treasury stock purchases	(28)		(41)
Treasury stock issuances	—		2


Payments related to tax withholding for stock-based compensation	(14)		(18)



Other	(1)		—
Net cash used in financing activities	(135)		(127)
Effect of exchange rate changes on cash	—		(1)
Net change in cash and cash equivalents	(98)		21
Cash and cash equivalents — beginning of period	189		109

Cash and cash equivalents — end of period	$	91	$	130

See accompanying Notes to Consolidated Financial Statements.

CAMPBELL SOUP COMPANY

Consolidated Statements of Equity

(unaudited)

(millions, except per share amounts)


	Campbell Soup Company Shareholders’ Equity
	Capital Stock						Additional Paid-in Capital		Earnings Retained in the Business		Accumulated Other Comprehensive Income (Loss)		Noncontrolling Interests
	Issued			In Treasury											Total Equity
	Shares	Amount		Shares	Amount
Balance at July 31, 2022	323	$	12	(24)	$	(1,138)	$	415	$	4,040	$	2	$	2	$	3,333
Net earnings (loss)									297				—		297

Other comprehensive income (loss)											(6)		—		(6)
Dividends ($.37 per share)									(113)						(113)
Treasury stock purchased				(1)	(41)										(41)
Treasury stock issued under management incentive and stock option plans				1	39		(40)		—						(1)
Balance at October 30, 2022	323	$	12	(24)	$	(1,140)	$	375	$	4,224	$	(4)	$	2	$	3,469










Balance at July 30, 2023	323	$	12	(25)	$	(1,219)	$	420	$	4,451	$	(3)	$	2	$	3,663
Net earnings (loss)									234				—		234
Other comprehensive income (loss)											(3)		—		(3)
Dividends ($.37 per share)									(112)						(112)
Treasury stock purchased				(1)	(28)										(28)
Treasury stock issued under management incentive and stock option plans				1	35		(32)		—						3
Balance at October 29, 2023	323	$	12	(25)	$	(1,212)	$	388	$	4,573	$	(6)	$	2	$	3,757

See accompanying Notes to Consolidated Financial Statements.

Notes to Consolidated Financial Statements

(unaudited)

1. Basis of Presentation and Significant Accounting Policies

In this Form 10-Q, unless otherwise stated, the terms "we," "us," "our" and the "company" refer to Campbell Soup Company and its consolidated subsidiaries.

The financial statements reflect all adjustments which are, in our opinion, necessary for a fair statement of the results of operations, financial position and cash flows for the indicated periods. The accounting policies we used in preparing these financial statements are substantially consistent with those we applied in our Annual Report on Form 10-K for the year ended July 30, 2023.

The results for the period are not necessarily indicative of the results to be expected for other interim periods or the full year. Our fiscal year ends on the Sunday nearest July 31, which is July 28, 2024.

2. Recent Accounting Pronouncements

In September 2022, the Financial Accounting Standards Board (FASB) issued guidance that enhances the transparency of supplier finance programs by requiring disclosure of the key terms of these programs and a related rollforward of these obligations to understand the effect on working capital, liquidity and cash flows. The guidance is effective for fiscal years beginning after December 15, 2022, including interim periods in those fiscal years, except for the rollforward requirement, which is effective for fiscal years beginning after December 15, 2023. Early adoption is permitted. We adopted the guidance in the fourth quarter of 2023, with the exception of the rollforward information. The adoption did not have a material impact on our consolidated financial statements. See Note 16 for additional information.

In November 2023, the FASB issued guidance to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. In addition, the guidance enhances interim disclosure requirements, clarifies circumstances in which an entity can disclose multiple segment measures of profit or loss, provides new segment disclosure requirements for entities with a single reportable segment and contains other disclosure requirements. The purpose of the guidance is to enable investors to better understand an entity’s overall performance and assess potential future cash flows. The guidance is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. We are currently evaluating the impact that the new guidance will have on our consolidated financial statements.

3. Accumulated Other Comprehensive Income (Loss)

The components of Accumulated other comprehensive income (loss) consisted of the following:


(Millions)	Foreign Currency Translation Adjustments(1)		Cash-Flow Hedges(2)		Pension and Postretirement Benefit Plan Adjustments(3)		Total Accumulated Comprehensive Income (Loss)
Balance at July 31, 2022	$	—	$	—	$	2	$	2
Other comprehensive income (loss) before reclassifications	(8)		5		—		(3)
Losses (gains) reclassified from accumulated other comprehensive income (loss)	—		(3)		—		(3)
Net current-period other comprehensive income (loss)	(8)		2		—		(6)
Balance at October 30, 2022	$	(8)	$	2	$	2	$	(4)

Balance at July 30, 2023	$	(1)	$	(4)	$	2	$	(3)
Other comprehensive income (loss) before reclassifications	(9)		6		—		(3)
Losses (gains) reclassified from accumulated other comprehensive income (loss)	—		—		—		—
Net current-period other comprehensive income (loss)	(9)		6		—		(3)
Balance at October 29, 2023	$	(10)	$	2	$	2	$	(6)

_____________________________________

(1)Included no tax as of October 29, 2023, July 30, 2023, October 30, 2022 and July 31, 2022.

(2)Included tax expense of $1 million as of October 29, 2023, a tax benefit of $1 million as of July 30, 2023, tax expense of $1 million as of October 30, 2022 and no tax as of July 31, 2022.

(3)Included tax expense of $1 million as of October 29, 2023, July 30, 2023, October 30, 2022 and July 31, 2022.

Amounts related to noncontrolling interests were not material.

The amounts reclassified from Accumulated other comprehensive income (loss) consisted of the following:


	Three Months Ended
(Millions)	October 29, 2023		October 30, 2022		Location of Loss (Gain) Recognized in Earnings







Losses (gains) on cash-flow hedges:
Commodity contracts	$	—	$	(3)	Cost of products sold
Foreign exchange forward contracts	—		(1)		Cost of products sold



Total before tax	—		(4)
Tax expense (benefit)	—		1
Loss (gain), net of tax	$	—	$	(3)

4. Goodwill and Intangible Assets

Goodwill

The following table shows the changes in the carrying amount of goodwill:


(Millions)	Meals & Beverages		Snacks		Total




Net balance at July 30, 2023	$	990	$	2,975	$	3,965




Foreign currency translation adjustment	(5)		—		(5)
Net balance at October 29, 2023	$	985	$	2,975	$	3,960

Intangible Assets

The following table summarizes balance sheet information for intangible assets, excluding goodwill:


	October 29, 2023						July 30, 2023
(Millions)	Cost		Accumulated Amortization		Net		Cost		Accumulated Amortization		Net
Amortizable intangible assets
Customer relationships	$	830	$	(246)	$	584	$	830	$	(229)	$	601
Indefinite-lived trademarks
Snyder's of Hanover					$	620					$	620
Lance					350						350
Kettle Brand					318						318
Pace					292						292
Pacific Foods					280						280
Cape Cod					187						187
Various other Snacks(1)					494						494
Total indefinite-lived trademarks					$	2,541					$	2,541
Total net intangible assets					$	3,125					$	3,142

____________________________________

(1)Associated with the acquisition of Snyder's-Lance, Inc. (Snyder's-Lance).

Amortization expense was $17 million for the three-month period ended October 29, 2023, and $11 million for the three-month period ended October 30, 2022. The increase in amortization expense in 2024 includes $7 million of accelerated amortization expense on customer relationships beginning in the fourth quarter of 2023 due to the loss of certain contract

manufacturing customers. As of October 29, 2023, amortizable intangible assets had a weighted-average remaining useful life of 15 years. Amortization expense is estimated to be approximately $68 million in 2024, $59 million in 2025 and $34 million per year for the following three years.

As of our 2023 annual impairment testing, indefinite-lived trademarks with approximately 10% or less of excess coverage of fair value over carrying value had an aggregate carrying value of $434 million and included Pacific Foods and certain other Snacks trademarks.

The estimates of future cash flows used in determining the fair value of goodwill and intangible assets involve significant management judgment and are based upon assumptions about expected future operating performance, economic conditions, market conditions and cost of capital. Inherent in estimating the future cash flows are uncertainties beyond our control, such as changes in capital markets. The actual cash flows could differ materially from management’s estimates due to changes in business conditions, operating performance and economic conditions.

5. Segment Information

Our reportable segments are as follows:

•Meals & Beverages, which consists of our soup, simple meals and beverages products in retail and foodservice in the U.S. and Canada. The segment includes the following products: Campbell’s condensed and ready-to-serve soups; Swanson broth and stocks; Pacific Foods broth, soups and non-dairy beverages; Prego pasta sauces; Pace Mexican sauces; Campbell’s gravies, pasta, beans and dinner sauces; Swanson canned poultry; V8 juices and beverages; and Campbell’s tomato juice. The segment also includes snacking products in foodservice and Canada; and

•Snacks, which consists of Pepperidge Farm cookies*, crackers, fresh bakery and frozen products, including Goldfish crackers*, Snyder’s of Hanover pretzels*, Lance sandwich crackers*, Cape Cod potato chips*, Kettle Brand potato chips*, Late July snacks*, Snack Factory pretzel crisps*, Pop Secret popcorn, and other snacking products in retail in the U.S. We refer to the * brands as our "power brands." The segment also includes the retail business in Latin America. The segment included the results of our Emerald nuts business, which was sold on May 30, 2023.

We evaluate segment performance before interest, taxes and costs associated with restructuring activities and impairment charges. Unrealized gains and losses on outstanding undesignated commodity hedging activities are excluded from segment operating earnings and are recorded in Corporate as these open positions represent hedges of future purchases. Upon closing of the contracts, the realized gain or loss is transferred to segment operating earnings, which allows the segments to reflect the economic effects of the hedge without exposure to quarterly volatility of unrealized gains and losses. Only the service cost component of pension and postretirement expense is allocated to segments. All other components of expense, including interest cost, expected return on assets, amortization of prior service credits and recognized actuarial gains and losses are reflected in Corporate and not included in segment operating results. Asset information by segment is not discretely maintained for internal reporting or used in evaluating performance.


	Three Months Ended
(Millions)	October 29, 2023		October 30, 2022
Net sales
Meals & Beverages	$	1,404	$	1,455
Snacks	1,114		1,120
Total	$	2,518	$	2,575


	Three Months Ended
(Millions)	October 29, 2023		October 30, 2022
Earnings before interest and taxes
Meals & Beverages	$	287	$	331
Snacks	161		153
Corporate income (expense)(1)	(88)		(48)
Restructuring charges(2)	(2)		—
Total	$	358	$	436

_______________________________________

(1)Represents unallocated items. Costs related to the cost savings initiatives were $11 million and $3 million in the three-month periods ended October 29, 2023, and October 30, 2022, respectively. Unrealized mark-to-market adjustments on outstanding undesignated commodity hedges were losses of $15 million and gains of $5 million in the three-month periods

ended October 29, 2023, and October 30, 2022, respectively. Accelerated amortization expense related to customer relationship intangible assets was $7 million in the three-month period ended October 29, 2023. Costs of $9 million associated with the pending acquisition of Sovos Brands, Inc. (Sovos Brands) were included in the three-month period ended October 29, 2023. Costs of $3 million related to a cybersecurity incident were included in the three-month period ended October 29, 2023. Litigation expenses related to the Plum baby food and snacks business of $2 million were included in the three-month period ended October 29, 2023. There was a pension actuarial loss of $15 million in the three-month period ended October 30, 2022.

(2)See Note 6 for additional information.

Our net sales based on product categories are as follows:


	Three Months Ended
(Millions)	October 29, 2023		October 30, 2022
Net sales
Soup	$	860	$	893
Snacks	1,173		1,173
Other simple meals	302		315
Beverages	183		194
Total	$	2,518	$	2,575

Soup includes various soup, broths and stock products. Snacks include cookies, pretzels, crackers, popcorn, potato chips, tortilla chips and other salty snacks and baked products. Other simple meals include sauces, gravies, pasta, beans and canned poultry. Beverages include V8 juices and beverages, Campbell’s tomato juice and Pacific Foods non-dairy beverages.

6. Restructuring Charges and Cost Savings Initiatives

Multi-year Cost Savings Initiatives and Snyder's-Lance Cost Transformation Program and Integration

Continuing Operations

Beginning in fiscal 2015, we implemented initiatives to reduce costs and to streamline our organizational structure.

Over the years, we expanded these initiatives by continuing to optimize our supply chain and manufacturing networks, as well as our information technology infrastructure.

On March 26, 2018, we completed the acquisition of Snyder's-Lance. Prior to the acquisition, Snyder's-Lance launched a cost transformation program following a comprehensive review of its operations with the goal of significantly improving its financial performance. We continued to implement this program and identified opportunities for additional cost synergies as we integrated Snyder's-Lance.

In 2022, we expanded these initiatives as we continue to pursue cost savings by further optimizing our supply chain and manufacturing network and through effective cost management. In the second quarter of 2023, we announced plans to consolidate our Snacks offices in Charlotte, North Carolina, and Norwalk, Connecticut, into our headquarters in Camden, New Jersey. Cost estimates for these expanded initiatives, as well as timing for certain activities, are continuing to be developed.

A summary of the pre-tax charges recognized in the Consolidated Statements of Earnings related to these initiatives is as follows:


	Three Months Ended
(Millions)	October 29, 2023		October 30, 2022		Recognized as of October 29, 2023
Restructuring charges	$	2	$	—	$	282
Administrative expenses	5		3		388
Cost of products sold	3		—		105
Marketing and selling expenses	2		—		21
Research and development expenses	1		—		8
Total pre-tax charges	$	13	$	3	$	804

A summary of the pre-tax costs associated with the initiatives is as follows:


(Millions)	Recognized as of October 29, 2023
Severance pay and benefits	$	242
Asset impairment/accelerated depreciation	111
Implementation costs and other related costs	451
Total	$	804

The total estimated pre-tax costs for actions that have been identified are approximately $885 million to $905 million and we expect to incur substantially all of the costs through 2025. These estimates will be updated as the expanded initiatives are developed.

We expect the costs for actions that have been identified to date to consist of the following: approximately $245 million to $250 million in severance pay and benefits; approximately $135 million in asset impairment and accelerated depreciation; and approximately $505 million to $520 million in implementation costs and other related costs. We expect these pre-tax costs to be associated with our segments as follows: Meals & Beverages - approximately 32%; Snacks - approximately 43%; and Corporate - approximately 25%.

Of the aggregate $885 million to $905 million of pre-tax costs identified to date, we expect approximately $710 million to $730 million will be cash expenditures. In addition, we expect to invest approximately $620 million in capital expenditures, of which we invested $482 million as of October 29, 2023. We expect to invest in substantially all of the capital expenditures through 2025. The capital expenditures primarily relate to optimization of production within our Meals & Beverages manufacturing network, a U.S. warehouse optimization project, improvement of quality, safety and cost structure across the Snyder’s-Lance manufacturing network, optimization of information technology infrastructure and applications, implementation of our existing SAP enterprise-resource planning system for Snyder's-Lance, enhancements to our headquarters in Camden, New Jersey, and optimization of the Snyder’s-Lance warehouse and distribution network.

A summary of the restructuring activity and related reserves at October 29, 2023, is as follows:


(Millions)	Severance Pay and Benefits		Implementation Costs and Other Related Costs(3)	Asset Impairment/Accelerated Depreciation	Total Charges
Accrued balance at July 30, 2023(1)	$	13
2024 charges	2		6	5	$	13
2024 cash payments	(2)

Accrued balance at October 29, 2023(2)	$	13

__________________________________

(1)Includes $7 million of severance pay and benefits recorded in Other liabilities in the Consolidated Balance Sheet.

(2)Includes $5 million of severance pay and benefits recorded in Other liabilities in the Consolidated Balance Sheet.

(3)Includes other costs recognized as incurred that are not reflected in the restructuring reserve in the Consolidated Balance Sheet. The costs are included in Administrative expenses, Cost of products sold, Marketing and selling expenses and Research and development expenses in the Consolidated Statements of Earnings.

Segment operating results do not include restructuring charges, implementation costs and other related costs because we evaluate segment performance excluding such charges. A summary of the pre-tax costs associated with segments is as follows:


	October 29, 2023
(Millions)	Three Months Ended		Costs Incurred to Date
Meals & Beverages	$	4	$	255
Snacks	6		351
Corporate	3		198
Total	$	13	$	804

7. Earnings per Share (EPS)

For the periods presented in the Consolidated Statements of Earnings, the calculations of basic EPS and EPS assuming dilution vary in that the weighted average shares outstanding assuming dilution include the incremental effect of stock options and other share-based payment awards, except when such effect would be antidilutive. The earnings per share calculation for the three-month period ended October 29, 2023, excludes less than 1 million stock options that would have been antidilutive.

The earnings per share calculation for the three-month period ended October 30, 2022, excludes approximately 1 million stock options that would have been antidilutive.

8. Pension and Postretirement Benefits

Components of net periodic benefit expense (income) were as follows:


	Three Months Ended
	Pension				Postretirement
(Millions)	October 29, 2023		October 30, 2022		October 29, 2023		October 30, 2022
Service cost	$	3	$	4	$	—	$	—
Interest cost	16		17		2		2
Expected return on plan assets	(20)		(27)		—		—




Actuarial losses (gains)	—		15		—		—
Net periodic benefit expense (income)	$	(1)	$	9	$	2	$	2

The actuarial loss for the three-month period ended October 30, 2022 resulted from the remeasurement of a U.S. pension plan due to lump sum distributions that were expected to exceed service and interest costs resulting in settlement accounting for this plan. The actuarial loss recognized for the three-month period ended October 30, 2022 was primarily due to losses on plan assets, partially offset by increases in discount rates used to determine the benefit obligation.

9. Leases

The components of lease costs were as follows:


	Three Months Ended
(Millions)		October 29, 2023		October 30, 2022
Operating lease cost		$	24	$	20
Finance lease - amortization of right-of-use (ROU) assets		4		4

Short-term lease cost		19		17
Variable lease cost(1)		53		50

Total		$	100	$	91

__________________________________________

(1)Includes labor and other overhead in our service contracts with embedded leases.

The following tables summarize the lease amounts recorded in the Consolidated Balance Sheets:


	Operating Leases
(Millions)	Balance Sheet Classification	October 29, 2023		July 30, 2023
ROU assets, net	Other assets	$	288	$	275
Lease liabilities (current)	Accrued liabilities	$	72	$	70
Lease liabilities (noncurrent)	Other liabilities	$	220	$	208

	Finance Leases
(Millions)	Balance Sheet Classification	October 29, 2023		July 30, 2023
ROU assets, net	Plant assets, net of depreciation	$	26	$	27
Lease liabilities (current)	Short-term borrowings	$	12	$	13
Lease liabilities (noncurrent)	Long-term debt	$	16	$	15

The following table summarizes cash flow and other information related to leases:


	Three Months Ended
(Millions)	October 29, 2023		October 30, 2022
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	23	$	20

Financing cash flows from finance leases	$	4	$	4

ROU assets obtained in exchange for lease obligations:
Operating leases	$	36	$	15
Finance leases	$	3	$	—

10. Short-term Borrowings and Long-term Debt

On October 10, 2023, we entered into a delayed single draw term loan credit agreement (the 2024 DDTL Credit Agreement) totaling up to $2 billion scheduled to mature on October 8, 2024. Loans under the 2024 DDTL Credit Agreement bear interest at the rates specified in the 2024 DDTL Credit Agreement, which vary based on the type of loan and certain other conditions. The 2024 DDTL Credit Agreement contains customary representations and warranties, affirmative and negative covenants, including a financial covenant with respect to a minimum consolidated interest coverage ratio of consolidated adjusted EBITDA to consolidated interest expense (as each is defined in the 2024 DDTL Credit Agreement) of not less than 3.25:1.00, and events of default for credit facilities of this type. The proceeds of the loans under the 2024 DDTL Credit Agreement can only be used in connection with the acquisition of Sovos Brands. The 2024 DDTL Credit Agreement remained unused at October 29, 2023.

11. Financial Instruments

The principal market risks to which we are exposed are changes in foreign currency exchange rates, interest rates and commodity prices. In addition, we are exposed to price changes related to certain deferred compensation obligations. In order to manage these exposures, we follow established risk management policies and procedures, including the use of derivative contracts such as swaps, rate locks, options, forwards and commodity futures. We enter into these derivative contracts for periods consistent with the related underlying exposures, and the contracts do not constitute positions independent of those exposures. We do not enter into derivative contracts for speculative purposes and do not use leveraged instruments. Our derivative programs include instruments that qualify for hedge accounting treatment and instruments that are not designated as accounting hedges.

Concentration of Credit Risk

We are exposed to the risk that counterparties to derivative contracts will fail to meet their contractual obligations. To mitigate counterparty credit risk, we enter into contracts only with carefully selected, leading, credit-worthy financial institutions, and distribute contracts among several financial institutions to reduce the concentration of credit risk. We did not have credit risk-related contingent features in our derivative instruments as of October 29, 2023, or July 30, 2023.

We are also exposed to credit risk from our customers. During 2023, our largest customer accounted for approximately 22% of consolidated net sales. Our five largest customers accounted for approximately 47% of our consolidated net sales in 2023.

We closely monitor credit risk associated with counterparties and customers.

Foreign Currency Exchange Risk

We are exposed to foreign currency exchange risk, primarily the Canadian dollar, related to intercompany transactions and third-party transactions. We utilize foreign exchange forward purchase and sale contracts to hedge these exposures. The contracts are either designated as cash-flow hedging instruments or are undesignated. We hedge portions of our forecasted foreign currency transaction exposure with foreign exchange forward contracts for periods typically up to 18 months. The notional amount of foreign exchange forward contracts accounted for as cash-flow hedges was $83 million as of October 29, 2023, and $125 million as of July 30, 2023. Changes in the fair value on the portion of the derivative included in the assessment of hedge effectiveness of cash-flow hedges are recorded in other comprehensive income (loss), until earnings are affected by the variability of cash flows. For derivatives that are designated and qualify as hedging instruments, the initial fair value of hedge components excluded from the assessment of effectiveness is recognized in earnings under a systematic and rational method over the life of the hedging instrument and is presented in the same statement of earnings line item as the earnings effect of the hedged item. Any difference between the change in the fair value of the hedge components excluded from the assessment of effectiveness and the amounts recognized in earnings is recorded as a component of other comprehensive

income (loss). The notional amount of foreign exchange forward contracts that are not designated as accounting hedges was $17 million as of October 29, 2023, and $15 million as of July 30, 2023.

Interest Rate Risk

We manage our exposure to changes in interest rates by optimizing the use of variable-rate and fixed-rate debt. From time to time, we may use interest rate swaps in order to maintain our variable-to-total debt ratio within targeted guidelines. We manage our exposure to interest volatility on future debt issuances by entering into forward starting interest rate swaps or treasury lock contracts to hedge the rate on the interest payments related to the anticipated debt issuance. The forward starting interest rate swaps or treasury lock contracts are either designated as cash-flow hedging instruments or are undesignated. Changes in the fair value on the portion of the derivative included in the assessment of hedge effectiveness of cash-flow hedges are recorded in other comprehensive income (loss), and reclassified into Interest expense over the life of the debt. The change in fair value on undesignated instruments is recorded in Interest expense. The notional amount of forward starting interest rate swaps accounted for as cash-flow hedges was $525 million as of October 29, 2023. These forward starting interest rate swaps related to an anticipated debt issuance and mature in January 2025. There were no forward starting interest rate swaps or treasury lock contracts outstanding as of July 30, 2023. Since October 29, 2023, we have entered into additional forward starting interest rate swaps accounted for as cash-flow hedges with a notional value of $450 million.

Commodity Price Risk

We principally use a combination of purchase orders and various short- and long-term supply arrangements in connection with the purchase of raw materials, including certain commodities and agricultural products. We also enter into commodity futures, options and swap contracts to reduce the volatility of price fluctuations of wheat, diesel fuel, natural gas, soybean oil, aluminum, cocoa, corn, soybean meal and butter. Commodity futures, options and swap contracts are either designated as cash-flow hedging instruments or are undesignated. We hedge a portion of commodity requirements for periods typically up to 18 months. There were no commodity contracts designated as cash-flow hedges as of October 29, 2023, or July 30, 2023. The notional amount of commodity contracts not designated as accounting hedges was $197 million as of October 29, 2023, and $194 million as of July 30, 2023. The change in fair value on undesignated instruments is recorded in Cost of products sold.

We have a supply contract under which prices for certain raw materials are established based on anticipated volume requirements over a twelve-month period. Certain prices under the contract are based in part on certain component parts of the raw materials that are in excess of our needs or not required for our operations, thereby creating an embedded derivative requiring bifurcation. We net settle amounts due under the contract with our counterparty. The notional amount was $18 million as of October 29, 2023, and $47 million as of July 30, 2023. The change in fair value on the embedded derivative is recorded in Cost of products sold.

Deferred Compensation Obligation Price Risk

We enter into swap contracts which hedge a portion of exposures relating to the total return of certain deferred compensation obligations. These contracts are not designated as hedges for accounting purposes. Unrealized gains (losses) and settlements are included in Administrative expenses in the Consolidated Statements of Earnings. We enter into these contracts for periods typically not exceeding 12 months. The notional amounts of the contracts were $42 million as of October 29, 2023, and July 30, 2023.

The following table summarizes the fair value of derivative instruments on a gross basis as recorded in the Consolidated Balance Sheets as of October 29, 2023, and July 30, 2023:


(Millions)	Balance Sheet Classification	October 29, 2023		July 30, 2023
Asset Derivatives
Derivatives designated as hedges:

Foreign exchange forward contracts	Other current assets	$	3	$	—



Forward starting interest rate swaps	Other assets	3		—
Total derivatives designated as hedges		$	6	$	—
Derivatives not designated as hedges:
Commodity contracts	Other current assets	$	8	$	15

Deferred compensation contracts	Other current assets	—		4

Commodity contracts	Other assets	—		1

Total derivatives not designated as hedges		$	8	$	20
Total asset derivatives		$	14	$	20


(Millions)	Balance Sheet Classification	October 29, 2023		July 30, 2023
Liability Derivatives
Derivatives designated as hedges:

Foreign exchange forward contracts	Accrued liabilities	$	—	$	1



Total derivatives designated as hedges		$	—	$	1
Derivatives not designated as hedges:
Commodity contracts	Accrued liabilities	$	12	$	5

Deferred compensation contracts	Accrued liabilities	1		—




Total derivatives not designated as hedges		$	13	$	5
Total liability derivatives		$	13	$	6

We do not offset the fair values of derivative assets and liabilities executed with the same counterparty that are generally subject to enforceable netting agreements. However, if we were to offset and record the asset and liability balances of derivatives on a net basis, the amounts presented in the Consolidated Balance Sheets as of October 29, 2023, and July 30, 2023, would be adjusted as detailed in the following table:


	October 29, 2023						July 30, 2023
(Millions)	Gross Amounts Presented in the Consolidated Balance Sheet		Gross Amounts Not Offset in the Consolidated Balance Sheet Subject to Netting Agreements		Net Amount		Gross Amounts Presented in the Consolidated Balance Sheet		Gross Amounts Not Offset in the Consolidated Balance Sheet Subject to Netting Agreements		Net Amount
Total asset derivatives	$	14	$	(4)	$	10	$	20	$	(5)	$	15
Total liability derivatives	$	13	$	(4)	$	9	$	6	$	(5)	$	1

We are required to maintain cash margin accounts in connection with funding the settlement of open positions for exchange-traded commodity derivative instruments. Cash margin asset balances of $18 million at October 29, 2023, and $2 million at July 30, 2023, were included in Other current assets in the Consolidated Balance Sheets.

The following table shows the effect of our derivative instruments designated as cash-flow hedges for the three-month periods ended October 29, 2023, and October 30, 2022, in other comprehensive income (loss) (OCI) and the Consolidated Statements of Earnings:


		Total Cash-Flow Hedge OCI Activity
(Millions)		October 29, 2023		October 30, 2022
Three Months Ended
OCI derivative gain (loss) at beginning of quarter		$	(5)	$	—
Effective portion of changes in fair value recognized in OCI:

Foreign exchange forward contracts		5		7
Forward starting interest rate swaps		3		—

Amount of loss (gain) reclassified from OCI to earnings:	Location in Earnings
Commodity contracts	Cost of products sold	—		(3)
Foreign exchange forward contracts	Cost of products sold	—		(1)



OCI derivative gain (loss) at end of quarter		$	3	$	3

Based on current valuations, the amount expected to be reclassified from OCI into earnings within the next 12 months is a gain of $3 million.

The following table shows the total amounts of line items presented in the Consolidated Statements of Earnings for the three-month periods ended October 29, 2023, and October 30, 2022, in which the effects of derivative instruments designated as cash-flow hedges are recorded and the total effect of hedge activity on these line items are as follows:


	Three Months Ended
	October 29, 2023		October 30, 2022
(Millions)	Cost of products sold			Cost of products sold
Consolidated Statements of Earnings:	$	1,730		$	1,741

Loss (gain) on cash-flow hedges:
Amount of loss (gain) reclassified from OCI to earnings	$	—		$	(4)

The amount excluded from effectiveness testing recognized in each line item of earnings using an amortization approach was not material in all periods presented.

The following table shows the effects of our derivative instruments not designated as hedges in the Consolidated Statements of Earnings:


	Location of Loss (Gain) Recognized in Earnings	Three Months Ended
(Millions)		October 29, 2023		October 30, 2022
Foreign exchange forward contracts	Cost of products sold	$	(1)	$	(1)



Commodity contracts	Cost of products sold	12		(12)

Deferred compensation contracts	Administrative expenses	4		2

Total loss (gain)		$	15	$	(11)

12. Fair Value Measurements

We categorize financial assets and liabilities based on the following fair value hierarchy:

•Level 1: Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.

•Level 2: Inputs other than quoted prices included in Level 1 that are observable for the asset or liability through corroboration with observable market data.

•Level 3: Unobservable inputs, which are valued based on our estimates of assumptions that market participants would use in pricing the asset or liability.

Fair value is defined as the exit price, or the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. When available, we use unadjusted quoted market prices to measure the fair value and classify such items as Level 1. If quoted market prices are not available, we base fair value upon internally developed models that use current market-based or independently sourced market parameters such as interest rates and currency rates. Included in the fair value of derivative instruments is an adjustment for credit and nonperformance risk.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following tables present our financial assets and liabilities that are measured at fair value on a recurring basis as of October 29, 2023, and July 30, 2023, consistent with the fair value hierarchy:


	Fair Value as of October 29, 2023		Fair Value Measurements at October 29, 2023 Using Fair Value Hierarchy						Fair Value as of July 30, 2023		Fair Value Measurements at July 30, 2023 Using Fair Value Hierarchy
(Millions)			Level 1		Level 2		Level 3				Level 1		Level 2		Level 3
Assets

Foreign exchange forward contracts(1)	$	3	$	—	$	3	$	—	$	—	$	—	$	—	$	—
Commodity derivative contracts(2)	8		2		4		2		16		11		3		2

Deferred compensation derivative contracts(3)	—		—		—		—		4		—		4		—
Deferred compensation investments(4)	1		1		—		—		1		1		—		—
Forward starting interest rate swaps(5)	3		—		3		—		—		—		—		—
Total assets at fair value	$	15	$	3	$	10	$	2	$	21	$	12	$	7	$	2


	Fair Value as of October 29, 2023		Fair Value Measurements at October 29, 2023 Using Fair Value Hierarchy						Fair Value as of July 30, 2023		Fair Value Measurements at July 30, 2023 Using Fair Value Hierarchy
(Millions)			Level 1		Level 2		Level 3				Level 1		Level 2		Level 3
Liabilities
Foreign exchange forward contracts(1)	$	—	$	—	$	—	$	—	$	1	$	—	$	1	$	—
Commodity derivative contracts(2)	12		11		1		—		5		3		2		—

Deferred compensation derivative contracts(3)	1		—		1		—		—		—		—		—
Deferred compensation obligation(4)	92		92		—		—		91		91		—		—

Total liabilities at fair value	$	105	$	103	$	2	$	—	$	97	$	94	$	3	$	—

___________________________________

(1)Based on observable market transactions of spot currency rates and forward rates.

(2)Level 1 and 2 are based on quoted futures exchanges and on observable prices of futures and options transactions in the marketplace. Level 3 is based on unobservable inputs in which there is little or no market data, which requires management’s own assumptions within an internally developed model.

(3)Based on index swap rates.

(4)Based on the fair value of the participants’ investments.

(5)Based on SOFR swap rates.

The following table summarizes the changes in fair value of Level 3 assets and liabilities for the three-month periods ended October 29, 2023, and October 30, 2022:


	Three Months Ended
(Millions)	October 29, 2023		October 30, 2022
Fair value at beginning of year	$	2	$	4
Gains (losses)	2		(1)

Settlements	(2)		(1)
Fair value at end of quarter	$	2	$	2

Fair Value of Financial Instruments

The carrying values of cash and cash equivalents, accounts receivable and accounts payable approximate fair value.

There were no cash equivalents at October 29, 2023 or July 30, 2023.

The fair value of short- and long-term debt was $4.108 billion at October 29, 2023, and $4.293 billion at July 30, 2023. The carrying value was $4.706 billion at October 29, 2023, and $4.689 billion at July 30, 2023. The fair value of long-term debt is principally estimated using Level 2 inputs based on quoted market prices or pricing models using current market rates.

13. Share Repurchases

In June 2021, the Board authorized an anti-dilutive share repurchase program of up to $250 million (June 2021 program) to offset the impact of dilution from shares issued under our stock compensation programs. The June 2021 program has no expiration date, but it may be suspended or discontinued at any time. Repurchases under the June 2021 program may be made in open-market or privately negotiated transactions.

In September 2021, the Board approved a strategic share repurchase program of up to $500 million (September 2021 program). The September 2021 program has no expiration date, but it may be suspended or discontinued at any time. Repurchases under the September 2021 program may be made in open-market or privately negotiated transactions.

During the three-month period ended October 29, 2023, we repurchased 679 thousand shares at a cost of $28 million pursuant to our June 2021 program. As of October 29, 2023, approximately $76 million remained available under the June 2021 program and approximately $301 million remained available under the September 2021 program. During the three-month period ended October 30, 2022, we repurchased 859 thousand shares at a cost of $41 million.

14. Stock-based Compensation

We provide compensation benefits by issuing stock options, unrestricted stock and restricted stock units (including time-lapse restricted stock units, EPS performance restricted stock units, total shareholder return (TSR) performance restricted stock units and free cash flow (FCF) performance restricted stock units). In 2024, we issued time-lapse restricted stock units, unrestricted stock, TSR performance restricted stock units and EPS performance restricted stock units. We last issued stock options and FCF performance restricted stock units in 2019.

In determining stock-based compensation expense, we estimate forfeitures expected to occur. Total pre-tax stock-based compensation expense and tax-related benefits recognized in the Consolidated Statements of Earnings were as follows:


	Three Months Ended
(Millions)	October 29, 2023		October 30, 2022
Total pre-tax stock-based compensation expense	$	17	$	15
Tax-related benefits	$	2	$	3

The following table summarizes stock option activity as of October 29, 2023:


	Options	Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life	Aggregate Intrinsic Value
	(In thousands)			(In years)	(Millions)
Outstanding at July 30, 2023	833	$	44.77
Granted	—	$	—
Exercised	—	$	—
Terminated	—	$	—
Outstanding at October 29, 2023	833	$	44.77	4.0	$	2
Exercisable at October 29, 2023	833	$	44.77	4.0	$	2

The total intrinsic value of options exercised during the three-month period ended October 30, 2022 was not material. We measured the fair value of stock options using the Black-Scholes option pricing model.

We expensed stock options on a straight-line basis over the vesting period, except for awards issued to retirement eligible participants, which we expensed on an accelerated basis. As of January 2022, compensation related to stock options was fully expensed.

The following table summarizes time-lapse restricted stock units and EPS performance restricted stock units as of October 29, 2023: