Business Context and Reporting Period
Company: Campbell Soup Company
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: May 3, 2009 (Third Quarter of Fiscal 2009)
Context: The company is a global manufacturer and marketer of branded convenience food products. The reporting period reflects the impact of significant divestitures in the prior year (Godiva Chocolatier, Australian salty snacks, French sauce business) and ongoing restructuring initiatives aimed at improving operational efficiency.
Key Financial Metrics
| Metric (in millions) | Three Months Ended May 3, 2009 | Nine Months Ended May 3, 2009 |
|---|---|---|
| Net Sales | $1,686 | $6,058 |
| Cost of Products Sold | $1,001 | $3,665 |
| Gross Profit | $685 | $2,393 |
| Gross Margin % | 40.6% | 39.5% |
| Earnings Before Interest and Taxes (EBIT) | $286 | $1,040 |
| Net Earnings (Continuing Ops) | $174 | $663 |
| Net Earnings (Total) | $174 | $667 |
| Diluted EPS (Continuing Ops) | $0.49 | $1.84 |
| Diluted EPS (Total) | $0.49 | $1.85 |
| Cash from Operating Activities | N/A | $806 |
| Cash and Cash Equivalents (End of Period) | $61 | $61 |
| Total Debt (Short-term + Long-term) | $2,582 | $2,582 |
Material Changes vs. Prior Comparable Period
- Revenue Decline: Net sales decreased 10% in the quarter and 4% year-to-date compared to the prior year. Currency translation and divestitures accounted for 9 percentage points of the quarterly decline and 7 percentage points of the year-to-date decline.
- Profitability Improvement (Continuing Ops): Earnings from continuing operations increased significantly to $174 million (quarter) and $663 million (nine months) compared to $54 million and $582 million in the prior year periods. This improvement is driven by lower administrative costs, improved gross margins, and reduced advertising spend, partially offset by currency headwinds.
- Discontinued Operations Impact: The prior year period included a $467 million after-tax gain from the sale of the Godiva Chocolatier business, which is not present in the current period. Excluding this one-time gain, underlying earnings from continuing operations have strengthened.
- Restructuring Costs: The prior year included a $172 million pre-tax restructuring charge. The current period recorded $6 million in restructuring-related costs for the quarter and $21 million year-to-date, primarily related to accelerated depreciation and exit costs.
- Share Count Reduction: Weighted average diluted shares outstanding decreased due to aggressive share repurchases funded by divestiture proceeds, boosting EPS.
Guidance, Outlook, and Management Commentary
- Strategic Initiatives: Management continues to execute seven key strategies for long-term growth, including product innovation and health/nutrition focus. The company recently acquired Ecce Panis, Inc. (artisan bread maker) for approximately $65 million to integrate into the Pepperidge Farm business.
- Restructuring Outlook: The company expects to incur an additional $15 million in pre-tax costs related to restructuring initiatives, primarily in the North America Foodservice segment. Annual pre-tax benefits from these initiatives are expected to be $15-$20 million starting in 2009.
- Liquidity and Capital: The company generated $806 million in operating cash flow year-to-date. It maintains a $1.5 billion committed revolving credit facility (unused except for letters of credit) and expects to meet future liquidity needs through operations and existing financing sources despite market disruptions.
- Capital Allocation: The company repurchased 13 million shares for $409 million year-to-date. Approximately $909 million remains available under the June 2008 share repurchase program. Capital expenditures are expected to be approximately $350 million for fiscal 2009.
- Risks: Key risks include competitive responses, consumer demand changes, raw material cost inflation, currency fluctuations, and the successful integration of acquisitions.
Investor Verification Checklist
- Divestiture Proceeds Usage: Verify the extent to which proceeds from the Godiva sale ($850 million) have been utilized for debt reduction versus share repurchases.
- Restructuring Cash Flow: Confirm the timing and magnitude of the remaining $15 million in expected restructuring cash outflows.
- Currency Sensitivity: Assess the specific impact of foreign currency translation on international segment earnings, which showed significant declines (e.g., International Soup, Sauces and Beverages sales down 26% in the quarter).
- Commodity Hedging: Review the impact of unrealized losses on commodity hedges ($14 million year-to-date) and the company's strategy for managing raw material cost inflation.
- Pension Obligations: Monitor potential future contributions to U.S. pension plans, as management noted they are evaluating contributions due to declining equity markets affecting funding levels.