Good morning, and welcome to Campbell's 3rd quarter 2020 earnings presentation. I'm Rebecca Gardy, and I'm excited to join Campbell, as the new Vice President of Investor Relations. I look forward to getting to know you all in the coming months. As in prior quarters, we've created slides to accompany our earnings discussion. In addition to this earnings presentation, we will host an analyst Q and A only session at 8:30 Eastern on the morning of June 3rd.
A replay of this webcast and a transcript of this earnings presentation as well as of the Q and A session will be available on the Investor Relations section of campbellsoupcompany.com. As part of our remarks this morning, 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 3 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 to describe our business performance, we have provided a reconciliation of these measures to the most directly comparable GAAP measures, which is included in the appendix of this presentation, and will be posted to the IR section of our website as part of the transcript of today's call.
On slide 4, you can see our agenda. You'll hear from Mark Clouse, Campbell's President and CEO, and Mick Bakehousen, Chief Financial Officer. Mark will share his thoughts on our performance in the quarter and Mick will then walk through the financial details and our updated guidance for fiscal 2020. And with that, let me turn it over to Mark.
Thanks Rebecca. We're excited to have you as part of our team. For those of you who may not know, Rebecca joined the company in late March and has been working closely with Ken Gosnell and the entire finance team on the transition. She brings a broad range of and I'm confident that she will be a tremendous asset to the company and a fantastic resource for the investment community. Welcome.
I want to start who have done a remarkable job in this challenging and critical moment. And the support of their families over the last several months. I also wanna thank our customers for their partnership and collaboration and response to this moment and focus on the areas that matter most. This has helped ensure the entire organization is aligned behind 3 key priorities: First, take care of our people. This is our most important responsibility.
Next, produce and distribute our products as safely and as quickly as possible for our customers, consumers and communities across North America. And finally, anticipate and plan for the future. We have dedicated resources focused on meeting the evolving consumer and retail trends as well as procurement and manufacturing plans for a variety of demand scenarios. This simplified approach has served us extremely well. Our teams are executing Our plants have been running 20 fourseven to meet the unprecedented demand from our customers and consumers.
This performance was and continues to be remarkable. It represents a tremendous effort across the business. From our sales teams working with customers to our supply chain implementing safety and hygiene protocols for the new operating environment. The real heroes in the company are those frontline teams at our plants, in our warehouses and distribution centers, and in store sales, ensuring our food gets onto the shelves. Although we do still see supply challenges, we are moving quickly to add targeted capacity and we are working closely with customers to improve service levels and fully meet the demand we are experiencing.
In recognition of this performance to more entry and the company. Early on, we also made the decision to commit to focus our community support port and food to Campbell hometowns across North America. Now turning to our results in the quarter. The impact of the virus has been profound and has affected so many lives. Our thoughts and prayers are with all those families impacted We are expected or had originally planned.
We experienced broad based demand across our portfolio as consumers sought food that delivered quality, value and comfort, all attributes that match our brands very well. Consistent with our strategic plan, the steps we had already taken to focus the portfolio, deleverage our balance sheet, sharpen our operating model invest in our core brands and strengthen our accountability and execution gave us a great foundation and strengthened our ability to meet these precedented demands on the business. This quarter, we delivered growth across all key metrics with double digit increases in organic sales, adjusted EBIT and adjusted EPS. Organic net sales increased 17% with strong performance across both of our segments, led by U. S.
Retail soup, which increased 35%. Not surprisingly, our in market performance also surged across both divisions. In measured channels, our total company in market consumption increased 29% with double digit consumption increases across most of the portfolio In addition, our brands grew or held share in 9 of our 13 stated priority categories. In market results did exceed our net sales as the initial pantry loading exceeded shipment capacity and retail inventories were somewhat depleted. That situation is improving, but has not fully recovered.
The more recent slowdown of in market results is much more a function of our current lower inventory levels than a material slowdown in demand. As capacity catches up with demand, we expect this will normalize in the fourth quarter or early in fiscal 2021. We continue to advance other key business metrics and strategic plan initiatives, including 100 basis point adjusted gross margin expansion. Supported by productivity improvements and cost savings. We generated $30,000,000 of cost savings in the quarter which reflect initiatives from our multi year enterprise program and synergies from our snacks integration.
With the strong increase in net sales, adjusted EBIT increased 31%, even with a significant uptick in marketing investments across both divisions and adjusted EPS increased 57 percent to $0.83 per share. We have attracted new consumers to our brands during the COVID-nineteen demand surge giving us access to millions of buyers who had not purchased our brands in the prior 52 weeks. As you might imagine, many of the households are younger and represents significant incremental growth for our brand. We are we continued to increase marketing investments across both divisions with a focus on helpful recipes and snack ideas. Building upon the tone and utility of our existing campaigns, our creative teams demonstrated agility with new digital and TV campaigns.
Including our crowded table Anthem advertising that celebrated the role our brands play in comforting people together during this period of separation. Of the Campbell's brand. We will continue to invest in the fourth quarter as we work to retain these new households. As you saw in our press release, we significantly raised our guidance for the year based on our exceptional performance in the third quarter and our current outlook for continued demand for I would caution that including the duration of the pandemic, further supply chain pressure changes in consumer behavior and macroeconomic conditions. However, we want to be as transparent as possible, so we're providing you our best perspective on the outlook for the business given what we are seeing today.
As we look ahead, we anticipate that some of the changes In fact, we see 4 clear consumer and retail trends that we believe will continue to shape the landscape for the immediate future First, what we call quick scratch cooking. Simple ingredients assembled for a great tasting meal will continue. We expect this will solutions. Next, we expect consumer online activities, both in terms of home delivery and click and collect to accelerate. We believe the platforms 3rd, we are also planning for the shelf to evolve in traditional retail environments that reflect these changing consumer trends.
The relevance of certain center of store categories like soup will likely increase and require more in store inventory. With perhaps a more limited assortment to optimize shelf sets for in store Finally, value will continue to play an important role as we anticipate the impact COVID will have on the economy, While we expect the economy to recover, critical. All four of these trends line up very well with our portfolio and position us well for the immediate future. With that, let's turn to a more detailed discussion of our 2 segments. The meals and beverages segment contains many trusted and fabric of the nation brands that consumers have been seeking out or returning to over the last several months based on the quality, convenience and value they offer Consumers also have gravitated to these brands because of the comfort they bring.
Think of tomato soup paired with grilled cheese. Or family spaghetti night with prego pasta sauce or the fun of sharing spaghettios with your kids. All of them have seen significant consumption gains during the crisis. And operating profit was up 35%. The sales gains were broad based with increases in U.
S. Soup, sauces, beverages and Canada. Market consumption advanced 39% in the quarter. And though fueled by the COVID surge, the underlying business had been performing well. We are fortunate we already had a clear growth strategy and had returned our focus and resources to these businesses before the crisis began.
Our food service business was negatively impacted by reduced demand as consumers sheltered in place and avoided restaurants. Although a headwind, it is important to remember the foodservice only represents approximately 5% of our total revenue. And our teams have moved quickly while repurposing versus prior year with ANC up 29% as we continued to connect with consumers in ways that would help them enjoy great meals and beverages while at home. As you would expect, the majority of our increased investment was focused on soup, including Pacific. Let's go deeper on soup.
You've heard me speak about our full commitment to our soup strategy for the past year and the potential year was always an important step in our long term plan to reignite soup and it has proven to be even more so in the context of the current moment. The quality improvements we made on our icon SKUs, tomato, chicken noodle, cream of mushroom and cream of chicken have served us extremely well in this environment. Consumer response to these quality improvements has been very positive and well timed, supporting the increased household penetration and higher repeat rates in new households. Total U. S.
Soup net sales grew 35% with double digit sales gains on condensed, ready to serve and broth, including Pacific. These products brought a variety of benefits We did see consumer switching. Within market consumption surges as high as 140%. We significantly depleted inventory in the initial stages of the pandemic. This was not a surprise as we worked to make as much food as we possibly could and distribute it as quickly as possible.
We also believe our and key non measured channels where growth experienced, and we didn't get everything perfect in regard to product availability. We worked hard to balance the demand across all customers and channels. We've learned a lot along the way. We have already implemented necessary course corrections and saw improvements as the quarter progressed. Overall though, we are extremely pleased with our performance in the quarter, particularly the significant gains in household penetration, as our volume per buyer was up materially.
Campbell Soup's household penetration increased nearly 10 percentage points versus the same quarter last year. We gained millions of households across all generations with the largest gain being the millennial cohort. It was also an important quarter for our Pacific Food brands as it too significantly increased its household penetration. With the scale and resources of Campbell behind it, the timing was right to accelerate the growth of this important Perhaps most exciting is the repeat rates we are seeing for these new households and the positive engagement with consumers we are experiencing in with a 57% increase in A and C in the quarter. We made the decision to keep our advertising on the air as much of our existing creative ready to serve in broth as we provided our consumers with ideas and inspiration for quick scratch cooking with a range of classic meals and new creative ideas.
While there was an initial pantry load in the quarter, we did see strong consumer pull through driven by increased usage and new eating patterns. Now more than ever, growing better suited for at home lunch than soup. These advertising spots have been very effective for us and have driven strong base velocity lifts while on air while also increasing brand perception and relevance. Something we discussed previously is our concerted effort to improve customer relationships. Our relationships as a result of to ensure we are meeting all our customers' needs to the best of our ability in this dynamic environment.
In other parts of the division, we saw similar results. In particular, the growth of our Prego pasta sauce brand accelerated dramatically with consumption up more than 50% versus prior year. Importantly, this quarter marked an entire year of Prego Holding the number one share in Italian sauce. In addition to Prego, other parts of our meals and sauces portfolio saw strong growth. Including pace and supporting players such as SpaghettiOs, as consumers turn to these familiar shelf stable favorites for comfort quality, convenience and value.
The VA portfolio also continues to be a positive performer for us coming out of the quarter. Our sizable Canadian business also performed well, driven by similar consumer behavior as in the U. S. Of note, the largest share gains in soup in Canada came from our Pacific Foods brand. All in all, a truly remarkable expanding our consumer base across the portfolio.
This was another strong quarter Similar to our meals and beverage divisions, snacks experienced increased demand and we continued to invest in our brands. The division delivered 19% consumption growth in Q3 in measured channels, with all 9 power brands growing consumption double digits. Also similar to our meals and beverage division, Snacks in market demand exceeded immediately available capacity especially on brands like Goldfish and our bakery business with a more limited inventory. Consistent with meals and beverage, we are catching up on inventory and to be in a stronger position going into the next couple of months. Our in market performance was balanced across the portfolio, with increases coming from new brands like late July leading with 38% growth and classic brands like Milano, which grew at 28%.
The strong growth in premium snacks such as late July, Milano and even pretzel factory underscore consumers' desire for comfort and small indulgences during this time of uncertainty. Our snacking brands gained 5.4 percentage points of household penetration during the quarter with increases across our snacks, a positive sign of the relevancy of our brands and an early indicator of our ability to retain these new consumers. We're now focused on making those new households stick and are looking at several levers to do this, including continuing to connect through compelling communication, ensuring continued availability and providing the variety and formats that meet their needs today and into the future. Marketing expense in Snacks increased 11% in the quarter and we intend to double down in our marketing investment in the 4th quarter to retain these new consumers. We will turn marketing on for all of our power brands with new campaigns for late July and Goldfish.
This quarter, 7 of our 9 power brands grew or held share. We grew more than one point across 5 of the power brands with the strongest coming from late July at 2.5 points and Lance at 1.9 points. We saw small losses on Goldfish down 0.7 points and Snyder's of Hanover down 0.5 points despite strong consumption growth of 11% and 21% respectively. Even as some of the earlier COVID demand slows, with this rapid expansion of our brands, we are well positioned for the future. Where we expect Snacks will continue to be a primary driver of growth in the industry.
I'm also pleased with the performance we're seeing on some of our new innovations that I discussed previously, specifically veggie Goldfish, Snyder's of Hanover pretzel rounds and twisted sticks as well as our late July organic potato chips. While we had slower distribution builds than we had planned due to COVID-nineteen, we are seeing early positive signs on repeat as we continue to build awareness. We have also developed new and creative ways to keep advancing new product launches. In fact, we just launched 2 new bakery items just in time for Memorial Day, farmhouse honey wheat bread and the extension of our successful farmhouse butter breads into buns. Let's finish our discussion of snack with a review of progress against integration and value capture.
That we initially outlined as part of the acquisition of Snyder's Lance. In response to COVID 19, and I continue to be very pleased with the consistent progress of the integration of the business and teams. In Q3, we completed the actions we spoke of last quarter to improve the result was with ongoing savings from our procurement and organizational effectiveness efforts. Our snacks business which represents about half of our annual sales continued to perform well and fulfill its portfolio role. With that, let me turn it over
to Mick for a deeper dive on our financial results and segment performance. Thanks, Mark. Clearly, our operating performance for the third quarter was significantly impacted by the surge in demand for our products stemming from the COVID 19 pandemic. I'll now share my perspective on the quarter and outlook for the balance of the year. As Mark stated, organic net sales increased 17% from the prior year.
Organic net sales for meals and beverages increased 21% for the quarter, driven by gains across a majority of our retail brands with our U. S. Soups and Prego pasta sauces growing in excess of 30% year over year. In snacks, organic net sales increased 12%, driven by double digit growth in 8 of our 9 power brands. Our adjusted gross margin benefited primarily from favorable product mix and operating leverage.
As well as supply chain productivity improvements and cost savings initiatives, offset partially by moderating cost inflation and other supply chain costs, including mark to market losses on outstanding commodity hedges, and incremental costs incurred related to COVID 19. We continue to make strong progress against our cost savings target of $850,000,000 by the end of fiscal 2022. Delivering $30,000,000 of incremental savings in the third quarter, bringing the program to date total for continuing operations to $618,000,000. Top line growth, gross margin improvement and delivery on our cost savings programs combined with continued investment in our brands resulted in year over year adjusted EBIT growth of 31% in the quarter. Year over year adjusted EPS growth was 57%, reflecting our adjusted EBIT performance, as well as the benefit We are raising our fiscal 2020 guidance for net sales, adjusted EBIT and adjusted EPS, as a result of our strong in an uncertain environment.
And although the effect of the COVID 19 pandemic on our sales, adjusted EBIT and adjusted EPS cannot be predicted with certainty this revised outlook reflects our current expectation of trends through the balance of the fiscal year. I'll now review our results in Organic net sales, which excludes the impact of the divested European Chips business, increased 17% to approximately $2,200,000,000, driven by volume growth in both meals and beverages and snacks, reflecting increased demand for at home food consumption in March April. Adjusted EBIT increased 31 percent to $386,000,000 as higher sales volumes and an improved adjusted gross margin were offset partially by increased marketing investment. Adjusted EPS from continuing operations increased by 57 percent or $0.30 to $0.83 per share. Reflecting an increase in adjusted EBIT and lower net interest expense.
For the 1st 9 months Net sales increased 4% while organic net sales increased 5%, driven by growth in both meals and beverages and Snacks. Adjusted EBIT increased 13 percent to $1,100,000,000 reflecting higher sales volume and improved gross margin and higher adjusted other income. Offset partially by increased marketing investment. Adjusted EPS from continuing operations increased by 24% or $0.45 to $2.34 per share, reflecting the increase in adjusted EBIT, and lower adjusted net interest expense. Breaking down our net sales performance for the quarter, organic net sales were up 17%.
This performance was driven by the 17 point gain in volume with growth across the majority of our retail brands, offset partially by declines in our food service business. The divestiture of the European Chips business negatively impacted net sales in the quarter by two points and the impact from currency translation in the quarter was neutral. All in, our reported net sales were up 15% from the prior year. Our adjusted gross margin increased by 100 basis points in the quarter to 34.7%. Favorable product mix, which drove 120 basis points improvement in our adjusted gross margin was largely driven by the increased contribution from our soup business within our meals and beverages segment and a favorable mix within our snacks portfolio.
Additionally, in order to optimize our supply chain output, Separately, we are estimating 110 basis point gross margin improvement from better operating leverage within our supply chain network as we significantly increased our overall production. Net pricing was minimal and resulted in had a negative impact of 300 basis points. Approximately 1 third of the impact is attributable to cost inflation, as overall input prices on a rate basis increased approximately 1.5%. Another third of the impact is related to mark to market losses on outstanding commodity hedges primarily related to diesel. Lastly, the remaining balance due to COVID nineteen, such as increased labor and sanitation costs.
The negative impact from cost inflation and other factors was offset partially by our ongoing supply chain productivity program, which contributed 130 basis points. This program includes, among others, initiatives around logistics optimization, ingredient sourcing, and plant asset utilization. And our cost savings program, which is incremental to our ongoing supply chain productivity program added 50 basis points to our gross margin expansion. This program includes the benefits of various initiatives, such as last year's closure of our manufacturing facility in Toronto, Ontario. And benefits from the ongoing integration of Snyder's Lance.
All in, our adjusted gross margin for the quarter was 34.7%. We are pleased with these gross Moving on to other operating items. Adjusted marketing and selling expenses increased 12% in the quarter $239,000,000. This increase was driven primarily by our planned increased investment in advertising and consumer promotion expenses. Which is up 19% versus a year ago.
These investments primarily reflect higher levels of support behind soup as well as investments in our Snacks Power Brands. Adjusted administrative expenses increased 4% to $144,000,000, primarily reflecting higher incentive compensation accruals as well as higher general administration costs and investments in information Technology, offset partially by the benefits from cost savings initiatives and lower benefits costs. Going to the next slide, we have continued to successfully deliver against our multiyear enterprise cost savings program. This quarter, we achieved $30,000,000 in savings, inclusive of Snyder's land synergies to date that brings our savings for the overall for the full year and continue to track to our cumulative savings target of $850,000,000 by the end of fiscal 22. To help tie all this together, we're providing an adjusted EBIT bridge to highlight the key drivers of performance this quarter.
As discussed, adjusted EBIT grew by 31%. This was largely driven by the increase in demand for our products with sales volume gains contributing $96,000,000 of EBIT growth. The overall adjusted gross margin expansion of 100 basis points contributed $22,000,000 of EBIT growth, which was more than offset by higher the remaining impact of all other items consisting of adjusted administrative expenses, R and D and other income in aggregate was nominal. Our adjusted EBIT margin increased year over year by 210 basis points to 17.2%. The following chart breaks down our adjusted EPS change between our operating performance and below from $0.53 in the prior year quarter to $0.83 per share.
Adjusted EBIT had a positive $0.24 impact on EPS. Net interest expense declined year over year by $34,000,000 delivering a $0.09 positive impact to EPS as we have used proceeds from completed divestitures and our strong cash of 23.6 percent was higher than the prior year rate of 21.5 percent, leading to a 0 point 0 $2 negative impact to EPS, completing the bridge to per share. Now turning to each of our segments. In meals and beverages, organic net sales increased 21 percent to $1,200,000,000, reflecting growth across our U. S.
Retail business, including soups, Cragopasta sauces, V Eight Beverages, Campbell's pasta, Haste Mexican Saucets and Swanson, Kent poultry, as well as growth in Canada, offset partially by declines in food service. Volumes within our retail business grew primarily due to increased food purchases for at home consumption, offset partially by a decline within our food service business, driven by stay at home mandates and other COVID 19 related restrictions. Net sales of U. S. Soups increased 35% compared to the prior year, with growth in condensed soups ready to serve soups and broth.
Operating earnings for meals and beverages increased 35% to $275,000,000. The increase was driven primarily by sales volume growth and an improved gross margin. Offset partially by increased marketing investments. The gross margin increase was driven by improved operating leverage and favorable product mix, as well as the benefits of supply chain productivity improvements and cost savings initiatives. Offset partially by cost inflation and higher other supply chain costs, which includes COVID-nineteen related costs.
Within Snacks, organic net sales increased 12 percent to $1,000,000,000, driven primarily by volume growth reflecting elevated demand of food purchases for at home consumption. These sales results reflect growth in fresh bakery products, Goldfish Crackers and Pepperidge Farm cookies, as well as Cattle Brand and Cape Cod potato chips. Pop secret popcorn, sniters of Hanover pretzels, Land sandwich crackers, later light snacks, and snack factory pretzel crisps. Operating earnings for Snacks increased 19 percent to $154,000,000. The increase was primarily due to sales volume growth and an improved gross margin offset partially by increased marketing investment and higher selling expenses.
The gross margin increase was impacted by favorable product mix as well as the benefits of supply chain productivity improvements and cost savings initiatives offset partially by cost inflation and higher other supply chain costs, which includes COVID 19 related costs. Cash from operations through the 1st 9 months of fiscal 2020 decreased year over year by $23,000,000 to $1,130,000,000, primarily driven by changes in working capital, principally accrued liabilities offset partially by increased cash earnings. Cash from investing activities increased by $2,500,000,000 to $2,320,000,000. Driven by the net proceeds from our divested businesses. The cash outlay for capital expenditures was $220,000,000, $54,000,000 lower than the prior year, primarily reflecting delays in certain projects impacted by the current operating environment.
We are now forecasting CapEx of approximately $300,000,000 for fiscal 2020. Cash outflows for financing activities were $2,380,000,000, compared to $441,000,000 a year ago. The year over year incremental cash outflow reflects the use of divestiture proceeds to pay down some of our debt. Dividends paid in the amount of $320,000,000 were comparable to the prior year, we had made significant progress to de lever our balance sheet, ending net debt of $5,500,000,000 as of the third quarter declined by approximately $2,900,000,000 in the 1st 9 months of fiscal 2020, as proceeds from completed divestitures, along with positive cash flow generated by the business, were used to reduce our debt. In April, we raised $1,000,000,000 through the issuance of 10 30 year bonds In early May, we repaid the $300,000,000, which was outstanding on our revolver and while we currently have an increased cash balance we plan to utilize these proceeds to reduce a portion with our overall liquidity position in light of the increased cash balance combined with the highly cash generative nature of our business.
Our leverage ratio which represents net debt to a trailing 12 month adjusted EBITDA from continuing operations is now at 3.2 times. Now I'll review our updated guidance for continuing operations for fiscal 2020. Which was significantly impacted by the increase in demand of our products amidst the COVID 19 pandemic and our current outlook for continued demand for our products. We are raising our fiscal 2020 outlook for net sales adjusted EBIT and adjusted EPS. As previously mentioned, although there exists a great deal of uncertainty, surrounding the effect and duration of the COVID 19 pandemic.
This revised outlook reflects our current expectation of trends through the balance of the fiscal year. We now expect adjusted EBIT growth of 12% to 14% and adjusted EPS growth of 25% to 27%. Or $2.87 to $2.92 per share. And as a reminder, fiscal 2020 is a 53 week year resulting in an additional week, which we believe to have about a 2 percentage point impact across net sales, adjusted EBIT and adjusted EPS. And for clarity, our outlook for organic sales excludes the negative 2 point impact from the sale of the European Chips business as well as a 2 point contribution from the 53rd week.
Overall, we had strong financial results during the quarter while operating in a challenging environment I'm particularly impressed by all the hard work from my colleagues within the supply chain and how quickly everyone within Campbell as adjusted to
This is a unique moment for Campbell and the entire food industry. How will this crisis impact consumer behavior in terms of the food they eat where they eat it and how they shop for it. What changes are episodic and what changes are structural? These are questions that we are focused on addressing as we work our way through the fourth quarter and plan for the upcoming fiscal year including anticipating the various scenarios and ensuring I'd like to and we expect to continue to Reduce debt and return resources to core brands was critical for our preparedness to react to this crisis. 3, this environment does not require a change in strategy for the company.
In fact, it has materially advanced our strategy of building relevance in our classic core brands while accelerating growth in our differentiated snack brands. Finally, we expect the primary Consumers seeking comfort food while still wanting wholesome food from brands they can trust. Quick scratch home cooking and increased focused on value and the acceleration of online shopping and marketing. Are very much aligned with our and ensure that Campbell is well positioned in this new world. Our live Q and A call will begin at 8:30 am Eastern this morning.