Campbell Soup Company — Form 10-Q Summary
Business and period: Campbell Soup Company manufactures and markets branded food and beverages, primarily through its Meals & Beverages and Snacks segments. This report covers the third quarter and first nine months of fiscal 2023, ended April 30, 2023; comparisons are with the periods ended May 1, 2022. Dollar figures are in millions except per-share amounts.
Financial performance
| Metric | Q3 FY2023 | Q3 FY2022 | Nine months FY2023 | Nine months FY2022 |
|---|---|---|---|---|
| Net sales | $2,229 | $2,130 | $7,289 | $6,575 |
| Gross margin | 30.0% | 31.2% | 31.0% | 31.3% |
| Earnings before interest and taxes | $254 | $294 | $1,040 | $993 |
| Net earnings | $160 | $188 | $689 | $661 |
| Diluted EPS | $0.53 | $0.62 | $2.29 | $2.18 |
| Operating cash flow | Not provided for quarter | Not provided for quarter | $918 | $1,101 |
- Quarterly sales grew 5%, led by Snacks, while Meals & Beverages sales declined. Price realization was favorable, but volume/mix fell 7% company-wide. Management cited retailer inventory comparisons, consumer price sensitivity and competitive pressure.
- Quarterly gross profit dollars rose slightly to $668, but gross margin contracted 120 basis points. Inflation and supply-chain costs and unfavorable volume/mix outweighed pricing and productivity benefits.
- For the first nine months, sales increased 11%; segment operating earnings rose 14% to $1,244 before corporate expense and restructuring charges. Meals & Beverages sales rose 8% and Snacks sales rose 14%.
Balance sheet, cash flow and capital
- At April 30, 2023, cash was $223, short-term borrowings $263 and long-term debt $4,496. Total reported debt was $4,759, compared with $4,810 at July 31, 2022.
- Current assets were $2,104 and current liabilities $2,288, resulting in negative working capital of $184, versus negative $923 at fiscal year-end. Management attributes negative working capital in part to debt due within one year and its focus on core working capital.
- Nine-month operating cash flow was $918, down from $1,101, primarily due to working-capital changes, partly offset by higher cash earnings. Capital expenditures were $257, compared with $179; management expected approximately $360 for full-year 2023.
- The company paid $336 in dividends and repurchased $141 of stock during the nine months. The quarterly dividend was $0.37 per share.
- Campbell borrowed $500 under a term loan in March and used the proceeds and cash on hand toward repayment of $566 of notes at maturity. Its $1.85 billion revolving facility was substantially unused at quarter-end, and the company reported compliance with debt covenants.
Outlook, risks and unusual items
- Management expected elevated input-cost inflation to persist through 2023 and said mitigation actions would not fully offset incremental costs. No full-year revenue or EPS guidance is provided in the supplied filing text.
- Cost-saving initiatives are expected to incur approximately $880–$900 of total pretax costs through 2025, of which $700–$720 is expected to be cash expenditure. Campbell also expected approximately $620 of related capital investment through 2025 and targeted roughly $1 billion in annual ongoing savings by the end of 2025. It reported $880 of cumulative pretax program savings to date.
- Quarterly EPS included $0.15 of adverse comparability items, chiefly restructuring and implementation costs, pension actuarial losses and commodity-hedge mark-to-market losses; the prior-year quarter included $0.08 of such items. Excluding these items, management said quarterly earnings declined, while nine-month earnings increased.
- On May 30, 2023, Campbell sold its Emerald nuts business for $40, subject to adjustments, and expected an after-tax loss of approximately $15. The business’s results through the sale date remained in Snacks.
- Key disclosed risks include persistent cost inflation, supply-chain disruption, competition and consumer response to pricing, execution of savings initiatives, commodity and currency volatility, litigation, pension costs, cybersecurity, and potential impairment of goodwill or intangible assets. The filing says litigation outcomes and potential losses can be difficult to estimate; management did not believe known matters were likely to materially adversely affect consolidated results or financial condition.
Important facts for investors to verify
- Whether pricing and productivity can offset inflation without further volume declines or margin pressure, particularly in Meals & Beverages.
- Actual delivery, cash costs and timing of the savings program against the 2025 targets, including the planned capital spending.
- Cash conversion and working-capital trends, alongside debt maturities, interest costs and covenant headroom.
- The final Emerald sale adjustment and recognized loss, and whether any subsequent transition or operating effects are material.
- Potential effects of litigation, pension remeasurements, commodity hedges and impairment-sensitive trademarks on future reported results.