Campbell Soup Company (NYSE: CPB) — FY2022 Form 10-K
Reporting period: Fiscal year ended July 31, 2022 (52 weeks), compared with the 52-week year ended August 1, 2021. This is an annual report, not a standalone fourth-quarter filing. The company sells branded food and beverages through its Meals & Beverages and Snacks segments, primarily in North America.
Financial performance and liquidity
| Metric | FY2022 | FY2021 |
|---|---|---|
| Net sales | $8.562 billion | $8.476 billion |
| Gross profit margin | 30.7% | 33.2% |
| Earnings before interest and taxes | $1.163 billion | $1.545 billion |
| Earnings from continuing operations | $757 million | $1.008 billion |
| Diluted EPS from continuing operations | $2.51 | $3.30 |
| Cash flow from operations | $1.181 billion | $1.035 billion |
| Capital expenditures | $242 million | $275 million |
| Interest expense | $189 million | $210 million |
Net earnings attributable to Campbell were $757 million in 2022 versus $1.002 billion in 2021. The prior-year result included a $6 million loss from discontinued operations; 2022 had none. The effective tax rate was 22.4%, down from 24.6%.
At July 31, 2022, cash and cash equivalents were $109 million. Short-term borrowings were $814 million and long-term debt was $3.996 billion, for total reported borrowings of approximately $4.810 billion, down from $5.058 billion a year earlier. The company reported negative working capital of $923 million, compared with negative $119 million, largely reflecting $814 million of debt due within one year. Its $1.85 billion revolving credit facility was substantially unused, and the company reported compliance with debt covenants.
Dividends paid were $451 million; the annual dividend declared was $1.48 per share. Share repurchases totaled $167 million (3.8 million shares).
Material changes versus FY2021
- Sales rose 1%, as pricing and sales allowances contributed 8 percentage points, offset in part by a 6% decline in volume and mix and increased promotional spending.
- Meals & Beverages sales were $4.607 billion, down slightly; segment operating earnings fell 5% to $874 million. Snacks sales increased 3% to $3.955 billion, and segment operating earnings increased 1% to $517 million. Snacks power-brand sales grew 7%.
- Gross profit margin declined 250 basis points. Management attributed the decline chiefly to inflation and supply-chain costs, unfavorable volume/mix and higher promotional spending; pricing and productivity improvements partly offset these pressures.
- Continuing-operations earnings and diluted EPS declined. Comparability was affected by 2022 pension and postretirement actuarial losses ($44 million pre-tax) and commodity-hedge mark-to-market losses ($59 million pre-tax), versus actuarial gains of $203 million and commodity-hedge gains of $50 million in 2021. Cost-savings initiative expenses were $31 million pre-tax in 2022.
- Operating cash flow increased by $146 million, primarily due to working-capital changes, partly offset by lower cash earnings. Inventory increased to $1.246 billion from $933 million.
Outlook, risks and unusual items
- Management expects elevated input-cost inflation and supply pressures to continue through 2023 and does not expect mitigation actions to fully offset incremental costs. It anticipates at-home food demand will remain elevated relative to pre-pandemic levels.
- For 2023, planned capital expenditures are approximately $325 million, including a Snacks cracker-capacity expansion and a Meals & Beverages manufacturing line. The filing does not provide specific 2023 revenue or EPS guidance.
- The company targets approximately $1 billion of annualized cost savings by the end of 2025; it reported $850 million of program-to-date savings through FY2022. Identified initiative costs are estimated at $735–$740 million pre-tax through 2023, including approximately $635–$640 million in cash expenditures.
- Management expects 2023 net periodic pension and postretirement benefit income to be approximately $35 million lower, excluding actuarial gains or losses and subject to interim remeasurements.
- Key risks include continued inflation and inability to pass through costs without volume loss; labor, material and logistics constraints; private-label competition and changing consumer demand; concentration in large customers (five largest: 47% of sales; Walmart and affiliates: 22%); cyber and operational disruption; and litigation, food-safety and regulatory exposure.
- Goodwill was $3.979 billion and indefinite-lived trademarks were $2.549 billion. No impairment was recorded, but the auditor identified the impairment testing of certain trademarks as a critical audit matter; $434 million of trademarks had 10% or less excess fair-value coverage.
- The company disclosed ongoing shareholder securities litigation and indemnification obligations related to certain claims involving Plum products, including alleged heavy metals. It also guarantees distributor route-purchase loans with maximum potential payments of $500 million; management does not expect material payments.
Investor verification priorities
- Check the sustainability of pricing and whether volumes recover as supply constraints ease, particularly given the margin decline and promotional environment.
- Track the progression of input-cost inflation, supply-chain performance and the extent to which productivity and cost savings offset costs.
- Review near-term debt maturities, commercial-paper usage and liquidity, given negative working capital and $814 million of debt due within one year.
- Monitor progress and cash requirements for the cost-savings program, planned capital projects and the $1 billion savings target.
- Assess the assumptions supporting trademark valuations, pension estimates, customer concentration and the resolution or cost of disclosed legal and indemnity matters.