Campbell Soup Company — Q1 FY2022 Form 10-Q
Reporting period: Three months ended October 31, 2021; comparison period ended November 1, 2020. Amounts are in millions except per-share data. Campbell manufactures and markets branded food and beverage products. The quarter’s results were affected by continued elevated retail demand, supply constraints, inflation, and comparison with prior-year retailer inventory recovery.
Financial results
| Metric | Q1 FY2022 | Q1 FY2021 |
|---|---|---|
| Net sales | $2,236 | $2,340 |
| Gross profit margin | 32.3% | 34.7% |
| Earnings before interest and taxes | $376 | $461 |
| Net earnings attributable to Campbell | $261 | $309 |
| Diluted EPS | $0.86 | $1.02 |
| Operating cash flow | $288 | $180 |
| Capital expenditures | $69 | $74 |
- Sales fell 4%; volume and mix reduced sales 6%, while price and sales allowances contributed 4%. Promotional spending increased relative to the prior-year quarter’s moderated levels. Plum, sold May 3, 2021, also affected comparability.
- Meals & Beverages sales declined 7% to $1,266 and segment operating earnings fell 17% to $280. Snacks sales declined 1% to $970 and segment operating earnings fell 5% to $128. Snacks power-brand sales increased 3%.
- Gross margin contracted 240 basis points. Cost inflation, supply-chain costs and other factors reduced margin by 480 basis points; higher promotional spending and unfavorable mix also weighed on results. Pricing and sales allowances and productivity improvements partly offset those pressures.
- Interest expense decreased to $47 from $55, primarily due to lower debt. The effective tax rate declined to 20.7% from 23.9%, mainly from favorable resolution of tax matters.
- Operating cash flow increased mainly because of working-capital changes, particularly accounts payable and accrued liabilities, despite lower cash earnings.
Balance sheet and liquidity
- At October 31, 2021, cash was $69; current assets were $1,876 and current liabilities were $2,338. Negative working capital was $462, compared with $119 at August 1, 2021.
- Short-term borrowings were $480, up from $48 at fiscal year-end; long-term debt was $4,567, down from $5,010. Total debt carrying value was $5,047, versus $5,058 at August 1. The filing reports debt fair value of $5,518 at quarter-end.
- A $1.85 billion revolving credit facility, maturing in September 2026, was unused except for $1 of standby letters of credit. Campbell reported compliance with debt covenants and stated it expects available financing sources to meet foreseeable requirements.
- Quarterly dividends paid were $116, or $0.37 per share. Campbell repurchased approximately 1.5 million shares for $63 under its repurchase programs.
Outlook, risks and unusual items
- Management expected elevated input-cost inflation and a constrained labor market to persist through the remainder of FY2022. Pricing actions, productivity and savings initiatives were expected to offset some, but not all, incremental costs. The filing provides no clear company-wide sales or EPS forecast.
- Management expected FY2022 capital expenditures of approximately $300. Separately, the ongoing cost initiatives were expected to require total pre-tax costs of $715–$730, with most remaining costs in 2022; approximately $615–$630 was expected to be cash expenditure. Campbell reported $415 invested in related capital expenditures by quarter-end and expected approximately $450 in total through 2022.
- Management targeted approximately $850 in annual ongoing savings by the end of 2022 from existing initiatives and approximately $150 of additional annual savings by the end of 2025, for approximately $1 billion in cumulative annual savings. The quarter generated an additional $15 of pre-tax savings.
- Comparability items reduced current-quarter EPS by $0.03, versus a $0.01 benefit in the prior-year quarter: cost initiative charges, pension actuarial losses versus prior-year gains, and commodity-hedge mark-to-market losses versus prior-year gains.
- Risks highlighted include COVID-19 uncertainty, supply-chain disruption, labor and commodity inflation, customer inventory practices, competition and consumer acceptance of pricing, execution of savings initiatives, litigation, and product quality and safety. Campbell is defending a securities class action concerning past public statements about its former Campbell Fresh segment; the filing says potential loss amounts could not be reasonably estimated and did not expect known matters to materially adversely affect results or financial condition.
Important facts for investors to verify
- Whether price increases and productivity gains can offset inflation, promotional spending and supply-chain costs without further margin deterioration.
- Whether supply constraints ease and demand and customer inventory patterns normalize, particularly in Meals & Beverages.
- Progress, cash costs and realized savings against the cost-transformation targets and capital-spending plans.
- Near-term debt maturities, negative working capital, and continued access to commercial paper and committed credit.
- Developments in the securities litigation and any changes in the company’s assessment of potential exposure.