Campbell Soup Company — Q1 FY2021 Form 10-Q
Business context and period: The quarter ended November 1, 2020. Campbell sells branded food and beverages through Meals & Beverages and Snacks. Prior-year comparisons are to the three months ended October 27, 2019. Kelsen and Campbell International results are presented as discontinued operations; the European chips business was sold in October 2019 and its prior-period results remained in continuing operations.
Financial performance
| Metric | Q1 FY2021 | Comparable period |
|---|---|---|
| Net sales | $2.340 billion | $2.183 billion |
| Gross profit / margin | $813 million / 34.7% | $738 million / 33.8% |
| EBIT | $461 million | $317 million |
| Continuing-operations earnings | $309 million; $1.02 diluted EPS | $169 million; $0.56 diluted EPS |
| Net earnings attributable to Campbell | $309 million; $1.02 diluted EPS | $166 million; $0.55 diluted EPS |
| Operating cash flow | $180 million | $182 million |
| Capital expenditures | $74 million | $98 million |
Meals & Beverages sales grew 12% to $1.342 billion; Snacks sales rose 1% to $998 million. Sales growth reflected volume and mix, increased at-home food purchases, and lower promotional spending; the European chips divestiture reduced Snacks comparisons. Gross margin improved 0.9 percentage points, principally from productivity, lower promotion, and favorable mix, partly offset by inflation, supply-chain costs, and COVID-related costs. Interest expense declined to $55 million from $80 million, primarily due to lower debt. The effective tax rate was 23.9%, versus 28.7%.
Balance sheet and liquidity
At November 1, 2020, cash and equivalents were $722 million. Short-term borrowings were $1.084 billion and long-term debt was $4.996 billion, or $6.080 billion total debt by carrying value. Total debt was $6.196 billion at August 2, 2020. Current assets were $2.463 billion and current liabilities were $2.906 billion; reported negative working capital was $443 million. The company had a $1.85 billion revolving credit facility, substantially unused, and replaced it on November 2 with a new facility maturing November 2, 2023. The company reported compliance with debt covenants.
Changes, outlook, and notable items
- Management attributed elevated retail demand to COVID-19-related at-home consumption and expected the trend to continue through Q2 FY2021, while warning it could lessen or reverse. Foodservice remained affected by restrictions and changed consumer behavior. Operations remained open, but the company noted it could not fulfill every customer order and that future supplier, distribution, and production impacts were uncertain.
- Cost-reduction and Snyder’s-Lance integration initiatives generated an additional $15 million of pretax savings in the quarter. The company estimated total continuing-operations initiative costs of $700–$730 million through 2022, including $595–$625 million expected to be cash expenditures, and approximately $455 million of related capital investment through 2022. It projected initiative savings of $800–$810 million in FY2021 and ongoing annual savings of approximately $850 million by the end of 2022.
- Comparability items included $5 million after tax of current-quarter restructuring and implementation costs and a $3 million after-tax pension settlement gain. The prior-year quarter included a $60 million after-tax loss on the European chips sale and $27 million of after-tax discontinued-operations divestiture charges.
- Management expected FY2021 capital expenditures of approximately $350 million. The board approved an increase in the quarterly dividend from $0.35 to $0.37 per share, payable February 1, 2021.
- A securities class action alleging misleading statements concerning the former Campbell Fresh segment was dismissed on November 30, 2020, with leave to amend. Campbell said litigation outcomes are uncertain and that some potential losses could not be reasonably estimated; it did not believe known matters were likely to materially adversely affect results or financial condition.
Investor verification points
- Assess whether COVID-driven retail demand persists, reverses, or continues to pressure foodservice and order fulfillment.
- Track margin effects of inflation, supply-chain and pandemic costs, promotional activity, and product mix.
- Compare realized cost savings with the stated targets and monitor remaining restructuring costs and capital investment.
- Review debt maturities, borrowing needs, negative working capital, and compliance with the new revolving facility’s 3.25:1.00 minimum interest-coverage covenant.
- Monitor the amended securities litigation and other contingencies; the filing does not quantify a clear potential loss range.