Campbell Soup Company — Form 10-Q Summary
Reporting period: Third quarter and first nine months of fiscal 2016, ended May 1, 2016; comparison periods ended May 3, 2015. Financial statements are unaudited. Campbell reorganized reporting into three segments beginning in fiscal 2016, with prior-period segment results recast.
Financial performance
| Metric | Quarter | Nine months |
|---|---|---|
| Net sales | $1.870 billion, down 2% | $6.274 billion, down 2% |
| Gross margin | 35.3%, versus 35.9% | 35.6%, versus 34.7% |
| Net earnings attributable to Campbell | $185 million, versus $179 million | $644 million, versus $649 million |
| Diluted EPS | $0.59, versus $0.57 | $2.07, unchanged |
| Operating cash flow | $1.183 billion, versus $971 million | |
| Capital expenditures | $225 million, versus $242 million |
Quarterly earnings included a $25 million pre-tax Kelsen acquisition claim-settlement gain, while pension mark-to-market losses and restructuring-related costs reduced results. Excluding the items identified by management as affecting comparability, quarterly EPS was burdened by a net $0.06; the comparable prior-year impact was a net $0.09 burden. For nine months, the respective net impacts were a $0.41 and $0.09 EPS burden.
Cash flow less capital expenditures was approximately $958 million for the nine months, compared with approximately $729 million in the prior-year period. Cash and equivalents were $383 million at May 1, versus $253 million at fiscal year-end. Current assets were $2.042 billion and current liabilities $2.377 billion.
Short-term borrowings were $1.134 billion and long-term debt $2.552 billion, or $3.686 billion in total, compared with $4.095 billion at August 2, 2015. The company had a $2.2 billion revolving credit facility, largely unused, and reported compliance with debt covenants. The filing states that financing sources are expected to meet foreseeable needs.
Segment results and changes
- Americas Simple Meals and Beverages: Quarterly sales fell 3% to $999 million; operating earnings rose 1% to $225 million. Soup and V8 declines were partly offset by Prego and Plum gains. U.S. soup sales were down 5%, including a 13% decline in ready-to-serve soup; management cited category weakness, warmer weather, pricing actions and marketing execution issues on Chunky soups.
- Global Biscuits and Snacks: Quarterly sales fell 2% to $608 million and operating earnings fell 8% to $86 million. Currency translation, Kelsen declines and increased promotional spending weighed on sales or earnings.
- Campbell Fresh: Quarterly sales rose 6% to $263 million, largely reflecting Garden Fresh Gourmet, acquired in June 2015. Operating earnings fell 28% to $13 million, principally due to higher carrot costs. Weather-related crop yields constrained fresh-carrot supply.
Nine-month segment operating earnings increased 14% to $1.271 billion, but consolidated EBIT declined to $997 million from $1.011 billion as Corporate costs and restructuring charges increased. Nine-month gross margin improved, reflecting productivity and pricing, partly offset by pension losses and other costs; quarterly gross margin declined, with productivity gains offset by inflation, supply-chain costs, promotions and pension losses.
Outlook, unusual items and risks
- Campbell expects fiscal 2016 capital expenditures of approximately $350 million. It reported $225 million spent through May 1.
- The 2015 restructuring and cost-savings program is expected to cost $250 million–$325 million pre-tax through 2018. Management expects $205 million–$225 million of pre-tax savings in 2016 and approximately $300 million of ongoing annual savings beginning in 2018; $110 million of pre-tax savings had been realized in the first nine months.
- A change in pension accounting now recognizes actuarial gains and losses in earnings at remeasurement, rather than amortizing amounts over time. It was applied retrospectively. Pension mark-to-market losses were $54 million pre-tax in the quarter and $175 million year to date, driven by lump-sum benefit payments after a limited-time offer.
- The company identified risks including competition and consumer demand, promotional and pricing execution, customer practices, raw-material and energy cost or supply fluctuations, currency and interest rates, acquisition integration, restructuring savings, litigation and regulatory matters, and business disruptions.
- Campbell committed up to $125 million to Acre Venture Partners and had funded $26 million by May 1; the remaining commitment was $99 million. The filing reports no obligation to provide additional support beyond that commitment.
- A $25 million gain from settling a warranty-breach claim related to the Kelsen acquisition was recognized in the quarter; management said it had no meaningful ongoing impact on Kelsen. No specific consolidated sales or EPS guidance target is stated in the provided filing text.
Important facts for investors to verify
- Whether sales trends in soup, V8, biscuits and fresh carrots improve, and whether supply and marketing execution issues persist.
- Whether the planned restructuring savings are achieved and remaining costs stay within the $250 million–$325 million estimate.
- How pension remeasurement losses affect reported earnings and comparability in later periods.
- Whether cash generation, borrowing levels and the $99 million unfunded Acre commitment remain consistent with liquidity plans.