A transcript of this earnings conference call will be available within 24 hours at investor.
Organic net sales increased 5% with continued demand across both divisions, fueled by accelerating in-market results including positive share progress across most of the portfolio and a strong holiday period.
Taking everything into account, we had 8% adjusted EBIT growth and 17% adjusted earnings per share growth, leading to a very good quarter.
By segment, Meals & Beverages posted 6% net sales growth, punctuated by a very successful soup season and the continued strong performance of brands like V8 and Prego.
The Snacks business delivered another solid quarter with sales growth of 4%, largely driven by our power brands in salty snacks including Kettle Brand potato chips, Late July snacks and Cape Cod potato chips as well as Pepperidge Farm Farmhouse bakery products.
Nearly 75% of our portfolio held or increased share in the second quarter versus the prior year.
E-commerce continued to be an important growth channel for us with in-market dollar consumption increasing 89% over the prior year.
Turning to Slide 7, within the Meals & Beverages division, we had another strong quarter with consumption growth of 9%, principally due to volume gains.
In fact, U.S. soup sales grew 10% with strength across all categories.
With a 0.7 share increase, condensed had its 8th consecutive quarter of share gains, an amazing run that started well before the pandemic.
Chunky had an exceptional quarter with double-digit net sales gains and in-market consumption growth, outpacing competition and increasing share nearly 2 points with growth among all cohorts, including millennials.
In the second quarter, Pacific Soup and Broth outperformed the category posting dollar consumption growth of 25%, the 5th consecutive quarter of share gains driven by brand strength and a meaningful increase in household penetration.
Beyond soup, a stand out in the Meals & Beverages portfolio was Prego which maintained its Number 1 share position in the Italian sauce category for the 21st consecutive months and has widened the gap against competitors.
Prego sales growth came primarily from the gain of an additional 4 million new households across all demographic cohorts.
Our performance was, again, fueled by our power brands, which grew dollar consumption by 8% over the previous year.
On the Snyder's of Hanover brand, the combination of successful innovation, fundamental execution and brand activation led to share growth, double-digit dollar consumption and nearly 5 million new households, turning around what had been a challenging share period.
Our Pepperidge Farm Farmhouse products also delivered exceptional results across bakery and cookies, growing dollar consumption by 41% and household penetration by 1.5 points.
Our top line growth of 5% reflected healthy in-market consumption of approximately 8% in the quarter, tempered by declines in Foodservice and some COVID-19 related supply challenges that Mark discussed.
Adjusted EBIT increased 8% as higher sales volumes were only partially offset by higher adjusted administrative expenses.
Adjusted earnings per share from continuing operations increased by 17% to $0.84 per share, reflecting an increase in adjusted EBIT as well as lower adjusted net interest expense.
Year-to-date, our organic net sales which excludes the impact from the sale of the European chips business increased 7% driven by strong end market consumption growth in both Meals & Beverages and Snacks.
Adjusted EBIT increased 13%, reflecting higher sales volume, improved adjusted gross margin performance, and higher adjusted other income, offset partially by increased adjusted administrative expenses.
Year-to-date, our adjusted EBIT margin increased year-over-year by 110 basis points to 18.5%.
Adjusted earnings per share from continuing operations increased 23% to $1.86 per share, reflecting the increase in adjusted EBIT and lower adjusted net interest expense.
Breaking down our net sales performance for the quarter, reported and organic net sales increased 5% from the prior year.
This performance was largely driven by a 4 point gain in volume across the majority of our retail brands, partially offset by declines in foodservice and in partner brands within the Snyder's-Lance portfolio.
And those actions, net of price and sales allowances, contributed 1 point to net sales growth.
Our adjusted gross margin decreased by 10 basis points in the quarter to 34.3%.
While product mix was slightly negative in the quarter we're estimating a 50 basis point gross margin improvement from better operating leverage within our supply chain network as we increased our overall production.
Net pricing drove a 90 basis point improvement due to lower levels of promotional spending in the quarter.
Inflation and other factors had a negative impact of 330 basis points, a little over half of the increase was driven by cost inflation as overall input prices, on a rate basis, increased approximately 3% which we expect to continue to be a headwind for the rest of the fiscal year.
Inflation in the quarter was partially offset by our ongoing supply chain productivity program which contributed a 140 basis point improvement and included initiatives, among others, within procurement and logistics optimization.
Our cost savings program, which is incremental to our ongoing supply chain productivity program, added 50 basis points to our gross margin.
Moving on to other operating items; adjusted marketing and selling expenses decreased $3 million or 1% in the quarter.
This decrease was driven primarily by the benefits of cost savings initiatives and lower marketing overhead cost, largely offset by an 8% increased investment in A&C.
Adjusted administrative expenses increased $17 million or 13%, driven primarily by higher benefits related costs and higher general administrative costs, partially offset by the benefits from our cost savings initiatives.
Overall, our adjusted marketing and selling expenses represented 10.2% of net sales during the quarter, a 70 basis point decrease compared to last year.
Adjusted administrative expenses represented 6.7% of net sales during the quarter, a 50 basis point increase compared to last year.
This quarter, we achieved just over $20 million in incremental year-over-year savings.
We expect an additional $40 million to $50 million evenly spread over the balance of fiscal 2021, on track to deliver $75 million to $85 million of cost savings for the fiscal year with the majority of the savings from the Snyder's-Lance integration.
We remain on track to deliver our cumulative savings target of $850 million by the end of fiscal 2022.
As discussed, adjusted EBIT grew by 8%.
This was driven by the increase in demand for our products with sales gains contributing $40 million of EBIT growth, which was partially offset by the previously described adjusted gross margin decline.
Our adjusted EBIT margin increased year-over-year by 40 basis points to 17.2%.
Adjusted earnings per share increased $0.12 from $0.72 in the prior year quarter to $0.84 per share.
Adjusted EBIT had a positive $0.07 impact on adjusted EPS.
Adjusted net interest expense declined year-over-year by $17 million delivering a $0.04 positive impact to adjusted EPS, as we have used proceeds from completed divestitures in fiscal 2020 and our strong cash flow to reduce debt.
The impact from the adjusted tax rate was nominal, completing the bridge to $0.84 per share.
In Meals & Beverages, net sales increased 6% to $1.3 billion, primarily reflecting strong volume growth, driven by in-market consumption for many of our U.S. retail products, including gains in U.S. Soups, V8 beverages, Prego pasta sauces, and Campbell's pasta; partially offset by declines in Foodservice driven by COVID-19 related restrictions.
Net sales of U.S. Soup, including Pacific Foods, increased 10% compared to the prior year, primarily due to volume gains in condensed soups and ready-to-serve soups.
Operating earnings for Meals & Beverages increased 7% to $258 million.
Within Snacks, net sales increased 4% driven by volume gains fueled by the majority of our power brands and lower levels of promotional spending on supply constrained brands.
Operating earnings for Snacks increased 6% driven by sales volume gains and lower selling expenses, partially offset by higher marketing investment, administrative expenses and a lower gross margin.
Fiscal year-to-date cash flow from operations decreased from $663 million in the prior year to $611 million, as changes in working capital were only partially offset by higher cash earnings.
Our year-to-date cash from investing activities was largely reflective of the cash outlay for capital expenditures of $132 million, which was $35 million lower than the prior year, primarily driven by discontinued operations.
Our year-to-date cash outflows for financing activities were $405 million, reflecting cash outlays due to dividends paid of $215 million, which were comparable to the prior year, reflecting a quarterly dividend of $0.35 per share.
In December, we announced an increase in the quarterly dividend to $0.37 per share or an increase of 6%, which from a cash flow perspective, will be reflected in the third quarter.
Additionally, we reduced our debt by $176 million.
We ended the quarter with cash and cash equivalents of $946 million.
We expect to utilize the majority of this cash during the second half of the fiscal year for repayment of upcoming debt maturities of $721 million and $200 million in March and May respectively.
We expect net sales for fiscal 2021 to declined 3.5% to 2.5%.
Excluding the impact from the 53rd week in fiscal 2020 and impact of the European Chips divestiture, we expect organic net sales to decline 1.5% to 0.5%.
We expect adjusted EBIT of minus 1% to plus 1% as we will lap that initial COVID-19 demand surge in the second half of our fiscal year, combined with headwinds from increased promotional activity, partially offset by lower year-over-year COVID-19 related expenses and last year's one-time marketing investments.
We continue to expect net interest expense of $215 million to $220 million and an adjusted effective tax rate of approximately 24%.
As a result, we expect adjusted earnings per share of $3.03 to $3.11 per share, representing year-over-year growth of 3% to 5%.
The earnings per share impact of the 53rd week in fiscal 2020 was estimated to be $0.04 per share.
Regarding capital expenditures; in light of the current operating environment with limited access to our factories, we now expect to spend 10% below the $350 million we had previously indicated for the full year, largely driven by the impacts from COVID-19 on the operating environment.
The first is our Snacks business which, as I mentioned earlier, consists of a unique and differentiated portfolio of brands that represent approximately 50% of the Company's annual revenues.
Nearly 13 million new households purchased Campbell Soup since the initial peak of the pandemic, of which almost a third are millennials, outpacing both key competitors and the category average.
We have also seen macro behaviors like quick-scratch cooking take root and our research indicates more than 30% of the consumers are cooking more with Soup since the start of the pandemic.
Beyond the role that our Meals & Beverages offerings play in the lunch occasion, snack-foods accompany nearly 30% of all lunches, which bodes well for our entire portfolio.
Even more importantly, 70% of the consumers surveyed told us our brands better met their needs than competitive products.
Given the cash generative nature of our business and our reduce leverage, which is now below 3 times, we are well positioned to generate significant cash flow, well above our ongoing commitment to base capital investments and dividends in the next three years.
Number one, sustain or accelerate our historical Snacks growth while improving margins; number 2, solidify our Meals & Beverages business as a steady and stable contributor behind recent transformational consumer trends and trial; and number 3, deploy what will be significant capital to fuel this growth and create differentiated value.

Summary:
The Snacks business delivered another solid quarter with sales growth of 4%, largely driven by our power brands in salty snacks including Kettle Brand potato chips, Late July snacks and Cape Cod potato chips as well as Pepperidge Farm Farmhouse bakery products.
Prego sales growth came primarily from the gain of an additional 4 million new households across all demographic cohorts.
Adjusted earnings per share from continuing operations increased by 17% to $0.84 per share, reflecting an increase in adjusted EBIT as well as lower adjusted net interest expense.
Adjusted earnings per share from continuing operations increased 23% to $1.86 per share, reflecting the increase in adjusted EBIT and lower adjusted net interest expense.
Breaking down our net sales performance for the quarter, reported and organic net sales increased 5% from the prior year.
This performance was largely driven by a 4 point gain in volume across the majority of our retail brands, partially offset by declines in foodservice and in partner brands within the Snyder's-Lance portfolio.
We remain on track to deliver our cumulative savings target of $850 million by the end of fiscal 2022.
Adjusted earnings per share increased $0.12 from $0.72 in the prior year quarter to $0.84 per share.
The impact from the adjusted tax rate was nominal, completing the bridge to $0.84 per share.
Within Snacks, net sales increased 4% driven by volume gains fueled by the majority of our power brands and lower levels of promotional spending on supply constrained brands.
We expect net sales for fiscal 2021 to declined 3.5% to 2.5%.
Excluding the impact from the 53rd week in fiscal 2020 and impact of the European Chips divestiture, we expect organic net sales to decline 1.5% to 0.5%.
As a result, we expect adjusted earnings per share of $3.03 to $3.11 per share, representing year-over-year growth of 3% to 5%.