Campbell Soup Company — FY2015 Form 10-K Summary
Business context and reporting period
Campbell manufactures and markets branded convenience foods. Fiscal 2015 ended August 2, 2015, and comprised 52 weeks; fiscal 2014 had 53 weeks, complicating year-over-year comparisons. The company reported five segments in 2015 and implemented a three-division structure at the beginning of fiscal 2016: Americas Simple Meals and Beverages, Global Biscuits and Snacks, and Campbell Fresh.
Financial and operating performance
| Metric | FY2015 | FY2014 |
|---|---|---|
| Net sales | $8.082 billion | $8.268 billion |
| Gross profit margin | 34.7% | 35.1% |
| Operating earnings (EBIT) | $1.095 billion | $1.192 billion |
| Earnings from continuing operations | $691 million | $726 million |
| Continuing-operations diluted EPS attributable to Campbell | $2.21 | $2.33 |
| Cash provided by operations | $1.182 billion | $899 million |
| Capital expenditures | $380 million | $347 million |
| Total debt at year-end | $4.095 billion | $4.015 billion |
Operating cash flow less capital expenditures was approximately $802 million in 2015. Year-end cash was $253 million; current assets were $2.092 billion and current liabilities $2.806 billion. Short-term borrowings were $1.543 billion, including $1.532 billion of commercial paper. The company had an unused $2.2 billion revolving credit facility, apart from $3 million of letters of credit, and reported compliance with debt covenants. Dividends paid were $394 million; approximately 5 million shares were repurchased for $244 million.
Sales declined 2%, primarily reflecting currency translation and the extra week in 2014, partly offset by higher prices. Gross margin fell 0.4 percentage points as inflation and supply-chain costs outweighed pricing and productivity gains. Segment sales were $2.930 billion U.S. Simple Meals, $2.375 billion Global Baking and Snacking, $700 million International Simple Meals and Beverages, $689 million U.S. Beverages, and $1.388 billion Bolthouse and Foodservice. Segment operating earnings fell 5% overall: Global Baking and Snacking grew 5%, while International Simple Meals and Beverages declined 25%.
FY2015 fourth-quarter sales were $1.693 billion, gross profit $612 million, and net earnings attributable to Campbell $68 million, compared with $1.852 billion, $631 million, and $137 million, respectively, in the prior-year quarter. FY2015 included $67 million of restructuring and implementation costs in fourth-quarter net earnings.
Material changes and unusual items
- Campbell acquired Garden Fresh Gourmet on June 29, 2015, for $232 million, funded with commercial paper. It contributed $10 million of sales and reduced earnings by $1 million through year-end.
- Reported continuing-operations EPS included a $0.25-per-share after-tax impact from 2015 restructuring and implementation costs, versus $0.20 per share of comparability items in 2014. The 2014 extra week contributed about $0.08 per share.
- FY2015 restructuring charges were $102 million, with another $22 million of related implementation costs in administrative expenses. Total recognized pre-tax costs were $124 million.
- FY2014 net earnings included $81 million from discontinued operations, including a $72 million after-tax gain on the 2013 sale of the European simple meals business. Thus, total net earnings of $807 million in 2014 are not directly comparable with FY2015’s $691 million.
- Currency translation reduced FY2015 EPS by approximately $0.06. Campbell recorded a $6 million impairment of minor trademarks.
Outlook, management commentary, and risks
Management expects approximately $145 million of pre-tax savings from the 2015 initiatives in FY2016 and approximately $250 million of annual ongoing savings beginning in 2018. Estimated total pre-tax initiative costs are $250 million to $325 million through 2018, expected to be funded from cash and short-term borrowings. Planned FY2016 capital expenditures are approximately $350 million. No specific sales or EPS guidance is provided in the supplied filing text.
Management’s strategy is to strengthen core businesses while expanding in faster-growing areas, including fresh and packaged-fresh foods, developing markets, digital marketing, and e-commerce. Key risks include intense branded and private-label competition; input-cost inflation and weather-related supply disruption; currency exposure; dependence on large retailers (Walmart represented about 20% of 2015 sales and the five largest customers about 38%); execution of restructuring and acquisitions; product safety and recalls; and impairment risk for goodwill and brands. Goodwill was $2.344 billion and indefinite-lived trademarks $960 million at year-end. Campbell reported no material adverse effect expected from ordinary-course legal proceedings; management and its auditor concluded internal control over financial reporting was effective.
Important facts for investors to verify
- Separate underlying sales and earnings trends from the 53rd-week comparison, currency impacts, and restructuring charges.
- Track whether the projected cost savings are achieved on schedule and whether they translate into stronger margins and growth.
- Assess the balance-sheet implications of substantial commercial-paper borrowings, upcoming maturities, and planned investment and shareholder returns.
- Monitor performance in declining or pressured areas, especially U.S. soup, shelf-stable beverages, and international operations, alongside growth in snacks and fresh products.
- Review future impairment testing and acquisition integration, particularly for Garden Fresh Gourmet and other acquired brands.