Good day, ladies and gentlemen, and welcome to Campbell's Fourth Quarter And Full Year Fiscal 2019 Earnings Conference Call. At this time And as a reminder, today's conference call is being recorded. Would now like to turn the conference call over to Ken Gosnell, Vice President, Finance Strategy And Investor Relations. Please go ahead.
Thank you. Good morning everyone. Welcome to Campbell's 4th quarter and full year fiscal 2019 earnings call. As usual, we've created slides to accompany our earnings presentation. You will find these slides posted on our website this morning at investor.
Campbellsoupcompany.com. This call is open to the media who will participate in a listen only mode. Turning to Slide 2, 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. Additionally, concurrently with the filing of our 10 K in a few weeks we plan to file an 8 K, which will recast historical quarterly and full year unaudited financial information. Reflecting the discontinued operations as well as certain non GAAP financial measures reconciled to the GAAP presentation. On Slide 3, you can see the agenda we will cover today. With us on the call today are Mark Clouse, Campbell's President and CEO, and Anthony DeSalvestro, Chief Financial Officer.
Mark will share his thoughts on our performance 2019 against our strategic initiatives and provide his perspective on our outlook for fiscal 2020. Then Anthony will walk through the financial details as well as our guidance for fiscal 2020. With that, let me turn the call over to Mark.
Thanks, Ken. Good morning, everyone, and thanks for joining us today. This morning, I will make high level comments about our combined results, for ease of comparison to our most recently provided sales and earnings guidance. Anthony will bridge the various components of our results, including both continuing and discontinued operations given the sale of Campbell Fresh and the pending divestitures of the Campbell International Businesses. I'm pleased to say that in fourth quarter, we continued to do what we said we would.
This quarter showed meaningful improvement in our performance sequentially and versus a year ago across many measures. Additionally, Q4 completes a fiscal year, where we've made material progress on our strategic plan across the seeding our expectations, which is a critical first step in our journey to sustainable, profitable growth. We have demonstrated improved operating discipline, and this marks the 4th consecutive quarter this year that we have quarter, we delivered top line, gross margin and EPS growth in the year. Definitely a great way to finish. 2nd, we are well on our way to completing the divestitures shedding the underperforming fresh businesses that added complexity to the portfolio and working toward closing both of which are expected to close in the first half of fiscal twenty twenty.
This will do 2 critical things: It will improve our balance sheet and better focus of the business. In total, we expect net proceeds of approximately $3,000,000,000 from these transactions which will be used to significantly reduce our debt. Which brings clear focus that enables us to brands, like our Campbell Soup business and accelerating support on our unique and differentiated snacking portfolio. Including the Pepperidge Farm And Snyder's Lance brands. We've accomplished a great deal this year, and I'm very satisfied with our progress.
We have clearly stabilized the company from where By no means are we declaring victory. We have much to do to continue to strengthen our businesses, improve our marketing and innovation, and demonstrate executional excellence and created a solid foundation to build upon This is the best quarter we have delivered in terms of performance versus prior year and provide some encouragement for the potential of our new focused portfolio demonstrating what the business is capable of delivering. Looking at our Performance in the quarter reflected continued strength in the Snacks segment where organic sales increased 4% with contributions coming from across the business. In fact, we grew our held share in 8 of our top 9 snack power brands. Meanwhile, the meals and beverage business continued to stabilize.
Delivering 1% organic sales growth. We also made progress on gross margin Adjusted gross margin increased 60 basis points in the quarter, a material improvement versus the third quarter year to date, which was down significantly. We have also continued quarter, we achieved $45,000,000 in savings, including the Snyder's Lance synergies. For the year, that brings total savings to $165,000,000 from continuing operations. We have achieved program to date and continue to track to our cumulative savings target of $850,000,000 by the end of fiscal 2022.
Cash flow from operations was $1,400,000,000, reflecting major improvements in working capital as we continued to demonstrate increased discipline and effectiveness in optimizing Turning to a discussion of Results improved this quarter with organic sales up 1% behind the performance of soup, Prego, and PACE. The declines in operating earnings moderated as we continued to drive base enablers and benefited from our selective pricing actions. Which were more than offset by cost inflation. While we are encouraged by the performance to finish the year, As we told you at Investor Day, there is much work ahead in fiscal 2020. We still expect some volatility as we invest in the business and also make important choices to strengthen the portfolio with gains in condensed and ready to serve soups, which is encouraging.
Obviously, the fourth quarter is the smallest of the year, and it's important consumption increased 1.4% in the quarter with strong performance across the portfolio. This represents a significant improvement over the first 3 quarters. Turning to Slide 9. Across the board, we made progress with our fiscal 'nineteen soup plans. Which called for improving the fundamentals of the business including improved retail engagement, pricing and promotion and marketing.
This is the foundation we'll build upon as we execute the next phase of the plans in fiscal 2020 and fiscal 2021. As we said, we're taking a full swing at soup with an integrated and holistic plan. Here's how we're thinking about soup over the next 2 years. In fiscal 2020, on the plus side, we'll be injecting much needed investment in the businesses across quality, marketing and selective merchandising. Including returning our highly relevant Pacific brand to growth.
We also hope to validate the new vision for the soup aisle that was outlined at Investor Day. While continuing to strengthen important retailer relationships. We do expect some mitigating headwinds as we continue to as we've said previously, we expect a more stable soup business in fiscal 2020 with an improved trajectory in fiscal 2021 that builds upon the F 20 learnings and increases in investment in areas that are working or redirects as necessary, complemented by a more robust innovation pipeline. This change will not happen overnight. The soup plan is a 3 year journey with fiscal 2020 being the 2nd phase.
In other parts of the division, I'm pleased with the performance of our sauces business. As we outlined in June, we have work to do on the Prego and PACE brands, but they are responding well to the renewed focus and support. Prego delivered strong end market performance in the quarter with consumption growth and share gains. In fact, Frango has regained the share lead in the pasta sauce category, adding another number one brand to our roster. Meanwhile, PACE performed well in Q4 fueled by increased merchandising and effective customer programs.
Turning to V Eight, the shelf stable beverages category remained under pressure. While there are challenges in this business, it's foundation is strong and its plant based positioning is on trend. V Eight is the number one vegetable juice in the U. S. And the number 2 overall branded shelf stable juice.
We are continuing to work our way through some of the more disadvantaged parts of the portfolio, particularly splashed, which is driving the majority and our single serve business. That's our biggest opportunity with VA original and the differentiated VA plus energy and hydration lines. All of which tap into the plant driven benefits consumers are seeking. Let's take a look at our snacks segment on Slide 11. This was another very good quarter I feel very good about This year, we have over delivered our value capture while simultaneously unlocking the growth potential of this unique and differentiated portfolio.
By maintaining our momentum in Pepperidge Farm and applying our proven growth model to Snyder's Lance. Our performance was balanced across snacks. As I mentioned earlier, 8 of our 9 power snack brands grew or maintained share in the quarter. The Snacks business is really hitting its stride on both the top and bottom line behind increased marketing investments to fuel sales growth and efficiencies and enablers benefiting operating profit. I continue to be impressed with the proven growth model at Pepperidge Farm.
This marks the 19th consecutive quarter of organic growth at Pepperidge with sales again increasing mid single digits behind strong marketplace performance across all the major brands. Goldfish continued to perform well with increases on the core business. Fresh Bakery continued its strong growth trajectory fueled by the renovation of Swirl and new line extensions on Buns and rolls. Farmhouse cookies also had double digit consumption gains. Now let's turn to the Snyder's land side of the portfolio.
Marketplace performance was improved this quarter, especially against our power brands. In particular, we're very pleased with the response of Cape Guy and kettle to increase marketing, which drove consumption and share growth. In addition, the new campaign in Snyder's of Hanover is making a material difference as that business continues to improve. Now on Slide 13, beyond the power brands that we're investing in for growth, the Snyder's Lance portfolio also includes what Tribute, but do not own, and allied brands, regional brands that we own, but are noncore. Both play a very important role by providing distribution scale and efficiency.
We remain committed to this business, but in the quarter, our snacks results include about a one point headwind from these brands. Within this business, there are nearly 2000 SKUs. We're going to better prioritize select partners to reduce complexity and improve execution, while maintaining the vast majority of this business. Looking ahead, we expect a similar headwind in fiscal 2020. Let's dig into the progress of our integration and value capture.
I'm more than satisfied with the pace and progress In fact, we over delivered synergies every quarter this year. The over delivery in the quarter and for the full year is the result of very strong performance in the the consolidation of the sales headquarters and related operations and driving operational efficiency in manufacturing. In addition, the leadership team continues to do an excellent job in building Next, on Slide 15, I want to provide, which should be one of our final updates on the divestitures we identified last August. In June, we announced the agreement to sell the Kelson business to an affiliate of Ferrero. And in August, we announced the sale of the The sale of Campbell International was a long and complex process, but we are confident that the end result generated the greatest value from these assets.
In total, we will receive $2,500,000,000 for the Campbell International businesses. When you combine that with the divestiture of the Fresh businesses, we expect total net proceeds of approximately In addition to improving the balance sheet, which is today, fiscal 2019 was a reset year and fiscal 2020 will be a year of stabilization, which will include the investments we need to better support the businesses going forward. This translates to what I would characterize as relatively flat with some areas of modest improvement. This guidance reflects As I'm sure you all read in our press release yesterday, we announced that Anthony DiSilvestro will be leaving Campbell. This will be his final Bakehousen, who is joining us from Chibani.
The start of the new fiscal year and the near completion of the divestiture provides an opportune time to make this change. Anthony will stay on board until mid October to ensure we have smooth and seamless transition to Mick. Anthony has made many important contributions during his more than 2 decades with Campbell. He's enjoyed a remarkable career and played lead on the business. For his leadership on the divestitures and driving the cost savings program and for the excellence and execution that has to our improved performance this year.
I speak for all of our employees and the With that, let me turn it over to Anthony.
Overall, we had a good quarter as we benefited from cost and productivity savings as well as from net price realization. On our cost savings program, continued good progress as we achieved $45,000,000 in savings in the quarter from continuing operations, bringing the year to date total to $165,000,000 and the program to date total to $560,000,000. We are pleased with the progress on our divestiture program having recently announced agreements to sell the Campbell International Businesses completing the divestiture program will enable us to focus we will significantly reduce our debt level. Lastly, as we announced this morning, we are providing our 2020 guidance for continuing operations. As we discussed at our Investor Day in June, we expect stable performance in 2020 as we make the investments necessary to achieve long term growth.
I'll now review our detailed However, as we did last quarter, In this case, we will combine the results of continuing operations and the For the fourth quarter, net sales on an as reported basis increased 2% to approximately $1,800,000,000. Organic sales also increased 2% with gains in snacks as well as in meals and beverages. Adjusted EBIT of $252,000,000 increased 1% as sales gains and gross margin improvement were partly offset by higher marketing and selling expenses. Adjusted EPS from continuing operations increased by 14% or $0.05 to $0.42 per share, primarily due to a lower adjusted tax rate and a reduction in interest expense driven by strong cash flow and proceeds from the Campbell Fresh divestiture. Net sales from continuing operations on an as reported basis increased 23 percent to $8,100,000,000 benefiting from acquisitions, while organic net sales were comparable to the prior year as gains in snacks were offset by declines in meals and beverages.
Adjusted EBIT from continuing operations increased 1 percent to 1,266,000,000 and adjusted EPS of $2.30 was down 8%, reflecting the incremental interest expense from acquisitions, and a lower adjusted tax rate. And now on a combined basis and consistent with our previous guidance, net sales for the quarter increased 2 percent to $2,000,000,000, adjusted EBIT of $288,000,000 increased 2% and adjusted EPS, which exceeded our expectations, increased by 14% to $0.50 per share. For the full year, combined net sales increased 18 percent to $9,200,000,000, reflecting the acquisitions of Snyder's Lance And Pacific Foods, Adjusted EBIT decreased 1 percent to $2.63 declined 9% versus the prior year. Breaking down our net sales performance from continuing operations for the quarter. Organic net sales were up 2%, driven by a combination of increased volume and the benefit of recent pricing actions.
Approximately 70 basis points of the sales growth is a result of lapping the lost sales related to the voluntary recall of Flavor Blasted Goldfish Crackers in July 2018. Volume gains were driven by Snacks, while pricing gains were achieved across our two segments. Promotional spending was flat year over year, while the impact from currency translation in the quarter was neutral. As we refocus our portfolio on North America, we would expect currency translation impacts to be minimal. All in, our as reported net sales were up 2%.
We are pleased with our gross margin results as we continue basis points to 33.7 percent. Cost inflation and other factors had a negative impact of 320 basis points, On a rate basis, input prices increased approximately 4%, reflecting higher prices on steel cans, vegetables, aluminum, and wheat. Going the other way, our ongoing supply chain productivity program contributed 140 basis points and our cost savings program added 130 basis points to gross margin expansion. Net pricing contributed 50 basis points as we benefited from list pricing actions across several key categories and from lapping costs incurred related to the flavor blasted Goldfish recall last year. Reflecting strong sales gains in U.
S. Soup, mix was favorable by 60 basis points, bringing the gross margin percentage to 33.7%. Moving onto other operating items. Marketing and selling expenses increased 10% in the quarter primarily reflecting increased marketing investment on snacks and higher incentive compensation, driven by improved performance partly offset by benefits from cost savings initiatives. Adjusted administrative expenses increased 5% to $139,000,000 due primarily to the increased incentive compensation expense, partly offset by the benefits from cost savings initiatives.
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 increased $0.05 from $0.37 in the prior year quarter to $0.42 per share. On a currency neutral basis, adjusted EBIT had no impact on EPS as our increase in sales and gross margin were offset by higher marketing and selling expenses. Net interest expense declined by as we have used our strong cash adding $0.02 to EPS. Our adjusted effective tax rate declined by 4.2 points to 25.6 percent, benefiting from the reduced U.
S. Federal rate. And lastly, currency translation had no impact on EPS this quarter completing the bridge to $0.42 per share. Now turning to our segment results. In meals and beverages, organic sales increased 1%, reflecting sales gains in U.
S. Soup, Prego and PACE partly offset by declines in V Eight Beverages. Sales of U. S. Soup increased 3% versus the prior year, driven by gains in ready to serve and condensed soups.
Segment operating earnings declined 3% to 151,000,000 The decline was driven primarily by cost inflation and higher incentive compensation expense, partly offset by supply chain productivity gains, the benefits of cost savings initiatives and the benefit of list pricing actions. Here's a look at U. S. Wet suit category performance and our share results as measured by IRI. For the 52 week period ending July 28, 2019, the category declined 1.5%.
Our sales and measured channels, including Pacific, declined 3.7% and our market share declined by 130 basis points. Private label sales grew 5.9% with a market share gain of 120 basis points. All other branded players collectively experienced a sales decline of 80 basis points, gaining 20 basis points of market share. As shown on the chart, our consumption and share trends are improving. For the 13 week period ending July 28, our sales and measured channels increased 140 basis points, with share declining just ninety basis points.
In Campbell Snacks, sales in the quarter increased 3% to 967,000,000 organic sales increased 4%. This performance reflects continued momentum in Pepperidge Farm brachy products, kettle brand potato chips, snack factory, pretzel crisps, and late July snacks, as well as gains in Pepperidge Farm Goldfish Crackers, as the company lapsed the negative impact of the voluntary recall in July 2018. As Mark mentioned, 8 of our 9 snack power brands grew or held market share in the quarter. Segment operating earnings increased 2% to $133,000,000 as sales growth, cost savings and productivity gains were partly offset by cost inflation, increased marketing investment and higher incentive compensation. Cash from operations for fiscal 2019 increased by $93,000,000 to about $1,400,000,000, reflecting significant improvements in working capital performance and higher cash earnings.
The cash outlay for capital expenditures was $384,000,000, $23,000,000 lower than the prior year. Dividends paid in the amount of $423,000,000 were comparable to the prior year, reflecting our current quarterly dividend of $0.35 per share. Net debt of $8,533,000,000 declined by $1,135,000,000 compared to the prior year, as positive cash flow generated by the business and proceeds from the divestiture of Campbell Fresh were used to reduce debt. We expect to close the divestitures of the Campbell International businesses in the first half of twenty twenty, and we'll use the proceeds to further reduce our debt level. We are very pleased with the progress we have made on our divestiture program.
On Campbell International, We now have agreements to sell our Kelson business for $300,000,000 and the balance of Campbell International for $2,200,000. As mentioned, we anticipate closing on the international transactions in the first half of fiscal 2020. Together with the divestiture of our Campbell Fresh division, which was completed in the fourth quarter, we expect divestiture proceeds of approximately $3,000,000,000 And as discussed, these will be used to significantly reduce our debt level. The results of these businesses are now being reported as discontinued operations. For fiscal 2020, we are providing guidance for continuing operations, which excludes the results of Campbell International and Campbell Fresh.
Fiscal 2020 is a 53 week year, including 1 additional week, which is included in our guidance, and has about a 2 percentage point impact across net sales, EBIT and EPS. With our portfolio now focused in North America, Currency translation is not expected to have a material impact as non U. S. Dollar sales are now less than 10% of the total. Net sales are expected to increase 1% to 3%, reflecting the extra week, growth in snacks and improving trends in meals and beverages.
Adjusted EBIT is expected to increase by 2% to 4%, reflecting sales growth and the benefits from our costs and synergy program and productivity gains, increase by 9% to 11%. As I'll detail for you in a moment, EPS is benefiting from the use of divestiture proceeds including those anticipated from Campbell International to reduce debt. Although we don't provide quarterly guidance, I will say that we expect and to improve the performance of USSU. In addition, we expect cost inflation rates to moderate gradually throughout the year. Given the many moving parts to our financial reporting, we thought it would be helpful to provide additional details behind our EPS guidance.
As discussed, 2019 results are combination of discontinued and continuing operations. From the 2019 continuing operations base of $2.30, EPS will benefit from several drivers in 2020. First, interest expense will benefit from the use of C Fresh divestiture proceeds and the anticipated proceeds from the international divestitures. Based on our anticipated closing in the first half, we expect an interest benefit of approximately $0.16 per share. This estimate is based on Next, the additional week will add approximately $0.04 per share while growth on the base business on a like for like basis at 0 to $0.05.
Together, these drivers get us to our 2020 adjusted EPS guidance for continuing operations of $2.50 to $2.55. If you're using these numbers to calculate the dilution from our divestitures, please note that the interest benefits shown here is only a partial year. There's an estimated incremental 0.07 dollars which will wrap into 2021. Turning to some of the key assumptions underlying our guidance. Although moderating somewhat, we expect cost inflation to be approximately 3% in 2020.
As we've successfully delivered in the past, we expect ongoing supply chain productivity gains, excluding the benefit of our cost savings program, of approximately 2% to 3% of costs of products sold. Against our cost savings program, we expect to deliver an additional $140,000,000 of cost savings, including a meaningful contribution from Snyder's Lance synergies. Including the anticipated benefit of divestiture proceeds, we are forecasting interest expense in the range of 2.90 $300,000,000. Below the line and comparable to this year, we expect the adjusted tax rate to be approximately 24%. Are forecasting capital expenditures of approximately $350,000,000, a decrease from 2019 spending, reflecting the divestiture program.
Lastly, and as Mark mentioned, I will be leaving the company to pursue other interests. I have very much enjoyed my time here, and certainly wish the company all the success going forward. That completes my review. And now I'll turn it back to Ken for the Q and A.
Thanks, Anthony. We'll be happy to take your questions. Candice, let's open the lines and take our first
ask questions. And our first question comes from Andrew Lazar from Barclays. Your line is now open.
Good morning, everybody. And, Anthony, all the best going forward. Thanks for your help over the years. Just two of your things. One would be Mark, I realize fiscal 2020 is not yet the year where you have everything firing in terms of reframing the soup category.
Perhaps you could run through maybe just sort of top 2 or 3 things in that core suit business that we should be focused on really in order to monitor the progress as we go through sort of the coming soup season. Maybe those key benchmarks or metrics, that we can sort of focus on again to monitor the progress. And then just second, As we think through the relationship between inflation and productivity and such, it seems like you're looking for I would assume a productivity and maybe some incremental pricing to about help offset what you expect inflation to be Is it right to think that that leaves the cost and synergy savings really as the what's what you have as flexibility to reinvest behind the business this coming year, kind of that sort of $140,000,000 bucket and such.
Yes, thanks, Andrew. Well, let me start with the soup question first. And maybe it'll be helpful to give a little bit of context on what we're seeing in the marketplace right now and then how that kind of leads into the 2020 assumptions. So on the positive side, a couple of things that we're finding are very helpful and it was great to see you, albeit this summer and that the fourth quarter, it was great to see growth on soup. It's the first time in quite a number of years that we've been able drive growth on the business.
And I think if you look under what's really driving that, I think there's 3 things. The first is, the power of partnering again with our retailers to really collaborate with them on creating a vision and direction for the category and for the business. And I think in many ways that is translating into far better performance in market, better merchandising. Better reflection of our innovation that we do have, and a good understanding of the rights merchandising and pricing combination. I think the other thing that's been very effective has been the almost relaunch of well, yes, behind the convenience platform.
In the fourth quarter, that business was up 34% and added threeten of a share point. And so although we're light on innovation, as we've said in the past, I think the things that we are doing are working well. And so I would expect those positive drivers to carry forward into the 2020 season with the addition of a couple meaningful, adds to that. So our marketing and the strength of both the investment levels as well as the quality of that communication. I'm very excited about, as well as the investment in quality and some additional investments in pricing and the shelf, while we continue to cultivate those relationships with partners, our retail partners as we go forward.
I do think though there are a couple headwinds that will moderate that. And I'll get to the kind of benchmark at the end. If you look under the results today, you do see a fair amount of contribution in the headwinds related to distribution. So where this is coming from is some of the flankers on the ready to serve side as well as what I would call some of the tail, if you will, of the condensed business. The majority of this distribution loss is not regrettable losses.
But it is providing a bit of a headwind to the business. I do think that will moderate as we go through 2020, but I do expect still some headwinds from that. And then on the merchandising side, it will be a little bit of a balancing act. I expect to see us more aggressive on businesses like broth where we're seeing a lot more competitive tension, especially with private label. And I would see, promoted prices in some places where they're just unsustainable levels going up, which I know and as we expect in the near term, we'll see a little bit of headwinds from there.
So as you go into the season, think you'll want to look for 1, the executional performance of seeing the additional supported merchandising and market, the quality of that, the improvement on the products, and the improved quality on the businesses as well as a stable performance through the season. I certainly am hoping, and I think if we hit things on all cylinders, we'll see improvement in share as well. But I also think we're being prudent in setting expectations, in a balanced way as we really validate some of the work we're doing. But I think going through the season, if you were to see a more stable performance and an improving trajectory on share, I think that would be a successful season. And I think a great proof point on this next iteration of the business going forward.
And then Anthony, I don't know if you want to take the second question. We can kind of do it together probably. Andrew, thanks for the comment.
I think the way that
to think about it is on our $140,000,000 of cost savings, think of about half of that going into costs and the other half going into marketing and SG and A. So within gross margin, that combination of cost savings and productivity savings should be ahead of inflation. So it gives us some slight improvement in gross margin percentage. And then that'll provide the fuel to reinvest back into the marketing line as we go into 2020. Yes, I just would say, Andrew, as you think about that though, one of the things we've tried to do in this plan is there's a little bit in my mind, I would say flexibility that we want relative to pricing and making sure that our price gaps remain within the targets that we want them.
So I think we've, as you'll note from how we've laid out guidance, we've stopped short of guiding directly to gross margin because I do think we want a little bit of that flexibility. But I think the general balance of investment as it relates to inflation and productivity as Anthony laid out. It's right. All I would say is, I want to leave us a little bit of flexibility where that investment might land depending on how we see the environment unfold.
Thank you. And our next question comes from Ken Goldman from JP Morgan.
Anthony, best of luck for me as well. Thanks for all of your help over the years.
You're welcome.
Mark, on Slide 13, I think it is you highlighted I think 17% of the snacking business being noncore, and sort of broke out how you think about classifying some of those,
so that some of those
assets, history might suggest that when companies do this, sometimes the signal is that some of these businesses are being considered divestiture. So I wasn't sure if that's what you were implying by breaking it out and emphasizing it in this way, but I kind of wanted to just get a little bit more color on what you were, on the messaging from that slide?
Yes. Thanks, Ken. I think the the point of it was, I do think, it's more about the 11%, which is the partner and allied brands. I know I know everybody's familiar in general with what those are, but we haven't talked a lot about it. And I think as we've gone through it, we've now spent a year or so running it, we recognize the importance of that business, but I also would say there is a tremendous amount of complexity that's inherent with that.
If you think about the addition, as I said in my comments of almost 2000 SKUs, that we're trying to manage. What I would tell you is there's some really good parts of that business and there's some other parts that are very low margin adds a lot of complexity. And I think as we go forward and we really want to get this business set for the future. We're going to balance that. So focus on the parts of it that we really see, as enhancing that efficiency and scale as it was originally set up to do.
And there's probably some parts of that that will rationalize going forward. And I know a lot of times as we reconcile the growth rate on Snacks, For example, in this particular quarter, our power brands on Snyder's Lance grew 3% in market, while the total Snyder's Lance was up about 1.5 or so. And that difference, I think, is important just to understand that going forward as I would expect that to continue going forward. The balance of the non core businesses, which are primarily our Emerald Best business and our Pop secret business, are actually been pretty stable contributors. And right now, we'll always kind of review the portfolio and look the longer term desire, to have the optimal mix.
I think right now, we're feeling pretty good with that base business, as we move forward. And we'll continue to look at it. But more importantly, for us, I think in this messaging was really about understanding the partner and allied brands a little better.
Okay. Thank you for that. That's helpful. And then Some of the efforts that you're making this year require a little bit of a buy in for lack of a better word from from your customers, right, whether it comes to some on shelf changes for where you'd like condensed to be placed or certain changes in RTS. And at the same time, I think by your own admission, there's a decent innovation slate coming, but most of it or the bigger one is coming next year.
So Can you update us on sort of how your relationship is with those customers right now and with all of those changes? And I guess I could mention sort of lifting some promotional prices as well. Right now, is everything going sort of swimmingly or as you expected, or is there a little bit of pushback right now in the process?
I think overall, it's I would say it's going very well. And in fact, I think in many ways, is a little harder to quantify this, as you get into the journey. But the reality is I think in many ways, we've been absent from the dialogue strategically with our customers on the vision in the future. For these businesses. And I think as we're getting back to the table, really rolling up our sleeves and starting to see invest and come and a focus in a very different way, the receptiveness to work together has been very, very positive.
And I think A lot of times we've talked about the challenges in soup as a category, but remember the significance of how big this category is and what it represents for center of store for most of the retailer, universe, it's critical that there is a vision and a plan for this. And so as you look again, I get it a summer quarter, but as you look at a quarter like Q4, where you see overall positive response, not just in our business, but also improvement in the overall category It goes a long ways to keep people interested and engaged. Now I will say, I think, as, as perhaps is appropriate, I think a lot of the retail universe wants to see the results as does, I think all of us in the effectiveness of some of the programs and the plans we're doing. But as far as where we are in the journey right now and where we've come from, I really could not be more pleased with the receptiveness and the collaboration of our retail partners. Great.
Thank you.
Thank you. And our next question comes from Bryan Spillane from Bank of America. Your line is now open.
So I guess first question, just, Anthony,
if you could just, give us or
let us know, net leverage on a pro form a basis. So like once the proceeds are put to work, I'm getting around 3 times. Is that right?
Yes, obviously, I mean, our target remains three times debt to EBITDA, but we won't quite get there with the current proceeds. We need a little more time with the base business generating positive cash flow, but we will make a meaningful reduction, when we get the proceeds in.
Okay. And then I guess Mark, as we're thinking about that, you're going to get you get closer to that target. How do you think about ongoing sort of returning cash to shareholders? Just though the thoughts about dividend increases or share repurchases, just how you kind of think about that going forward?
Yes, I mean, I think as we get to more stable footing, we will continue to look at the best deployment of capital. And again, I think all of those are areas that we will continue to explore and make sure that we're trying to optimize value While also, again, I've said this before, although I think it will come in a very different context perhaps than where we've been in the immediate, past. But I do think there are going to likely be some opportunities for some tuck in M and A as well. And as we go forward, we'll begin to frame that, in a little bit more clarity. But I do think I'd stop short to say right now what the priorities are, but of course, our focus is going to be on maximizing shareholder value and we'll continue to look at all those options and working with the board to find the plans going forward.
But certainly it is good. And I think in many ways, as I think about 2019 as we complete the year, I think one of the strongest elements of that of this year has been that we have taken a lot of that uncertainty for the business off the table. And so whether that is the balance sheet, whether that is a much more diverse portfolio as it relates to international and the fresh business, I think the good news for us is our core business now and the predictability of it, relative to the variables that we're controlling I feel really good about that. And I think that I hope that will also be a strong statement for investors as well. As you're thinking about how to view our business going forward.
And although we've got some important proof points in 2020 to deliver, taking some of that downside off the table, I think, is a very good, very good progress for us in a year that saw a lot of moving parts.
Okay. And if I can, just one last quick one. Are there any stranded costs related to the divestitures that you'll be absorbing this year that might go away next year?
Yes. And I think we talked about this last quarter. There's about $20,000,000 with each business, both Campbell Fresh and Campbell International. I think the way to think about it, is that then becomes part of our addressable spend on the core against which our cost savings program is going to address and get after. Or said another way, Brian, we contemplated to a certain degree, those stranded costs as we went through the organization redesign and restructure that we just rolled out a month ago.
So the progress to get there, but but we certainly had visibility to that and thought about that in some of the design work we've been doing.
All right. Thanks for that. Have a great labor day.
You too, Brad. Thanks.
Thank you. And our next question comes from Jason English from Goldman Sachs. Your line is now open.
Hey, good morning, folks. And Anthony, congrats on a great career at Campbell and good luck on the next chapter. I've got a couple of questions. First, real quick housekeeping, kind of picking up where Mr. Spreen led us on the leverage.
Can you give us your expectation for cash from operations in fiscal 'twenty and your best estimate of where you're going to land from a leverage perspective by year end?
So a couple of comments to make on cash flow. We had a fantastic year this year on cash from operations and free cash flow. But as you think about going forward, we don't expect to be at the same level we are to date. And first of all, two reasons. One is Campbell Fresh was a positive cash flow generator.
Campbell International was a positive cash flow generator. We won't have those in the portfolio going forward. We had great progress on working capital this year. And so, although we expect to continue to reduce our working capital, probably not at the same pace that we did this year. So, That being said, we do expect to continue to generate significant positive cash from operations.
That's one of the attributes of this business. But I don't think we're going to give you an exact number on that one. And in terms of the leverage ratio, I think we'll be meaningfully below four times debt to EBITDA by the end of 2020.
Yes. And is the unwillingness to kind of frame the cash flow over a factor of just too many moving pieces right now? I guess I'm a little confused on whether the lack of clarity on that.
Yes. I mean, we're still working through it, in terms of finalizing our 2020 expectations for cash flow. And so we just need to work through it ourselves 1st and foremost.
Okay. And the next question coming back to Sue, the last couple of years have been a bit anomalous just in terms of the cadence of your soup belt, because of the promotional support at retail historically, you've been much heavier shipping in the first quarter in prep for soup season. With the improved relationships of retailers and the slightly more aggressive stance, should we expect this to be a more normalized year?
Yes, I think so, Jaysh, we're watching it closely. I mean, one of the things we are realizing though is that, and even if you look at this last quarter, we've been kind of, I would say, running a bit in front of consumption with our net sales and our shipments And part of that is, a little bit of what we're lapping from a year ago, but it is also a little bit of the recognition that as we strengthen our merchandising programs, the inventory levels that retailers are needing to support that is a little bit higher than it might have been historically. But I do expect as we get into 'twenty to have a more normalized year on that. You'll always see a bit of inventory that's going to build in front of the season just because of step up in display and merchandising. But I do think, as we kind of manage through the year, I don't think you'll see quite the volatility up and down.
As we did in 2019.
Thank you. And our next question comes from Chris Groley from Stifel.
Hi, good morning, and Anthony, my best wishes to you as well. And thanks so much for all your help over the years. I just wanted to ask a quick question if I could on on meals and beverages, it's a business that is stabilizing and you had a good fourth quarter performance. And that comes amid it seemed like little incremental spending this year. You talked about some of the factors that led to the better performance, but I want to get a sense of given the success you're seeing already and your desire to spend more aggressively in fiscal 2020, do you expect that to really take a step forward in fiscal 2020?
If I can relate to that, how much spending talked about $70,000,000 if I recall or so at the Investor Day. Does that all of that come through in fiscal 2020 or is that kind of spread over the future?
Yes. So a couple of things just to ground back on the numbers. So the $70,000,000 we talked about was the soup investment. Overall, if you include, the snacks business and the broader meals and beverage business, it's a bigger number. What we said was about a half, about half of our cost savings target over the next couple of years is what we've carved out, if you will, as the investment dollars we're planning.
I do think you'll see that a bit more front loaded, in 2020 as we talked about it, which is a little bit of why I think the calibration of a more neutral year is expected. On meals and beverage, I do think there continues to be some puts and takes We are encouraged by the support that we're seeing, across the businesses, but we do have some work, as we've said, to make sure that we're doing the right things to set up the portfolio for the future, while getting, that investment in place And again, I do think an important aspect of this will be the contribution from innovation, which really is more of a 21 factor. I also think we're trying to be a bit pragmatic in how we're positioning expectations as we validate some of the work that we're doing. And I think the good news is, if we're successful, more, more comprehensive on many of these things. I do think you'll see an improvement in that meals and beverage business as we go forward.
And I think we will continue to update milestones along the way. But certainly seeing the performance on soups, seeing improvement, in Prego and PACE. Although VA is still showing declines. I would tell you that the primary driver of that decline is splashed as we work through how we want to position that business for the future, which is including some rationalization on distribution and really trying to get that to a business that we think is the appropriate manageable level, while we then pivot on support for the more plant based messaging that we see on the core VA business as well as the VA plus, which is energy and hydration, and our single serve can business. So, again, I think we've got really clear roadmaps now for these businesses.
And I certainly hope that we continue perform well, but I do think I want to be a bit balanced as we go forward until we validate some of this effort and some of the work. Does that make sense, Chris?
Yes, absolutely, it does. Yes, that makes a lot of sense. That's what just that was good color and that's what I was looking for. Thank you. I have just one other quick one behind that, if I could, which is was a comment about over delivering on the value capture.
It also said the integration was on track. Are you getting savings more quickly or more savings? I was just trying to get my head around what over delivering means there.
Yes, I think it's really savings more quickly. So I think we've been able to execute on a few initiatives, ahead of pace. I don't think it's truly incremental to the program. But I do think we're obviously continuing to keep that pressure on as we go into 2020 to continue to try to move initiatives as fast as we can as we want to unlock that. And as that's the fuel, for the investment that we need on the business, we're pleased that we're getting to it sooner.
But I would not say that we're seeing it as truly incremental savings for the overall program.
Okay. That's the color too. Thanks so much for your time and have a great weekend. Thank you.
Thanks, Chris.
Thank you. And our last question comes from the line of Robert Moss Kaut from Credit Suisse. Your line is now open. Hi, thanks.
And, best wishes to you, Anthony. Just a couple of clarifying things, Mark. The price adjustments that you're making in soup, it sounds like there's several things Is there some deep discounts you want to walk away from? But then you're are you also saying that there's going to be some items where you want to reduce price to become more competitive? And then secondly on soup, can you give us a little more specifics on the quality improvements that you want to make And where do you think there's quality gaps, versus competition?
Yes. Great question. So your depiction of the pricing is exactly right. So, to give you a little bit more color on that, I do think especially as you look at our chunky business, I would say we, in the absence of some of the support in marketing, I think some of the promoted price points that we've seen are more aggressive than what I would say is appropriate and sustainable. I mean, one of the things that As I've said before, that's quite powerful about chunky is the quality of that product and its ability to really be to beat essentially any of the other ready to eat soups, on a quality perspective.
And so when we're dealing it so deep on price, I just don't think that's the right platform. Now what we will try to do is balance a little bit of that with some frequency And then, of course, a much more robust marketing program around it. And, you know, I think though in, in, as we've all seen this before, I also don't want to over, set those expectations. As I know, there will be some perhaps short term impact of that as we move off it, but it's absolutely the right thing to do to create, the margin stability and really the positioning of the brand going forward. Conversely, I think if you look at broth, where we're seeing the greatest amount of competition.
I think there, although I'm not, I would not say we want to get deeper on promoted price points I do think our frequency has opportunity to increase as we make sure that those price gaps especially in critical parts of the season are more competitive. And so I think on both the broth business and selectively on condensed, where we still see, a little bit of outlier as it relates to particular price gaps. I think you'll continue to see us Again, not so much on lowering absolute price points, but adding appropriate frequency on merchandising. So that's the balancing act on pricing. And your second question is actually a great combination to that discussion on pricing, which is quality.
So the places where I think we have the greatest, competitive pressure, whether it's on broth or whether it's on condensed is where you're going to see a significant step up in quality. And that will come both from some product improvements and investment. So think of enhancing ingredients And again, as I said at Investor Day, we're really focused on our 4 core, SKUs and flavors on condensed which are cream and mushroom, cream of chicken, chicken, noodle, and tomato. So across all four of those, you will see a combination of improvement in quality, while also really heightening, some of the inherent benefits of the products within the existing formulations that we think are much stronger differentiation than we've been using in the past, whether that is a double stock and simmer time on broth, whether it's 6 tomatoes and every canned tomato soup, there's a variety of things that we think we can really use, to help. And we've done extensive research now too, to really understand, especially on our lapsed users.
So the consumers that are either trading the lower price offerings or departing our segments, what is really driving that behavior and we've targeted the quality improvements to really try to answer those questions. And so, we're feeling really good about that and I think most of that will be ready as we go in the season, there will be a few of the quality improvements that will either flow in in the back half of the season or a couple that likely won't be fully in place until 21. But I am feeling good about what we'll have to work with as we go into the 20 soup season.
It's very helpful. And before I let you go here, you mentioned some flanker products in RTS and Cadent that lost distribution. Is that new since the Analyst Day or was that already contemplated
when It was already contemplated, but I do think as we start to try to help everybody see the detail of the soup results because we're all obviously going to be watching it very closely. I, what I'm really trying to do is make sure we're really crystal clear on what the puts and takes are. And to a certain degree, why do why are our expectations what they are I do think there are to mitigate. And of course, once we get the innovation going, that's going to be a big help, but I do think there are some things within both of those businesses that I would expect to see, especially in the first half of the year.
And that concludes our question and answer session. Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program. You may all disconnect. Everyone, have a great day.