Campbell Soup Company — Form 10-Q Summary
Reporting period: Second quarter and six months ended January 28, 2024. Fiscal year ends July 28, 2024. Financial amounts are in millions except per-share data.
Financial performance
| Metric | Three months | Six months |
|---|---|---|
| Net sales | $2,456, down 1% year over year | $4,974, down 2% |
| Net earnings attributable to Campbell | $203, versus $232 | $437, versus $529 |
| Diluted EPS | $0.68, versus $0.77 | $1.46, versus $1.76 |
| Gross margin | 31.6%, versus 30.5% | 31.4%, versus 31.5% |
| Operating cash flow | Not provided separately for the quarter | $684, versus $732 |
Quarterly sales declined primarily on lower volume/mix, partly offset by pricing. Meals & Beverages sales fell 2% in the quarter and 3% year to date; Snacks sales were flat in both periods. Quarterly gross margin improved on productivity and pricing, partly offset by inflation and other supply-chain costs. Year-to-date earnings were pressured by lower gross profit, higher selling and other expenses, interest expense, and taxes. Management said earnings, after adjusting for comparability items, decreased slightly in the quarter.
Liquidity, debt, and cash flow
- At January 28, cash was $169; current assets were $2,070 and current liabilities $2,056, for positive working capital of $14.
- Short-term borrowings were $14 and long-term debt was $4,506. The filing reports total debt carrying value of $4.52 billion. Debt fair value was $4.143 billion.
- Six-month operating cash flow of $684 was below the prior-year $732, primarily due to lower cash earnings. Investing used $256, including $263 of capital expenditures; financing used $448. Cash declined by $20.
- The $1.85 billion revolving credit facility was unused except for $1 of letters of credit. The separate $2 billion delayed-draw term loan for the proposed Sovos Brands acquisition was also unused at period end.
- Supplier-finance program obligations included in accounts payable were $252 at period end, versus $258 at July 30, 2023. The company says supplier terms and its obligations are unchanged by the program.
Material changes and unusual items
- Quarterly reported EPS included a net $0.12 per-share impact from items affecting comparability, versus $0.03 in the prior-year quarter. Items included cost-savings charges, acquisition costs, accelerated amortization, commodity-hedge mark-to-market gains, and Plum-related litigation expense.
- Six-month comparability items reduced EPS by $0.25, including cost-savings charges, Sovos acquisition costs, accelerated amortization, Plum litigation, cybersecurity costs, and commodity-hedge losses.
- Accelerated amortization reflects the loss of certain contract-manufacturing customers. The company recorded $14 of this expense year to date.
- Six-month capital expenditures rose to $263 from $155. Cash dividends paid were $224, and share repurchases were $29.
Outlook, management commentary, and risks
- Management reported moderate input-cost inflation in the first half and expects modest inflationary pressure for the remainder of 2024. It expects inflation to moderate and volume trends to improve, while noting reduced contribution from pricing as prior-year price increases are lapped. Productivity and pricing are expected to largely offset incremental costs in 2024.
- The company expects 2024 capital expenditures of approximately $470–$500. Its broader cost-savings and optimization program has estimated pre-tax costs of $890–$915 through 2025, including $715–$740 expected cash expenditures, plus approximately $700 of planned capital investment. It targets approximately $1 billion in annual ongoing savings by the end of 2025; $915 of program-to-date pre-tax savings had been generated by January 28, 2024.
- A new Snacks route-to-market initiative is expected to incur expenses of up to approximately $115 through 2029.
- The proposed Sovos Brands acquisition is for $23 per share in cash, with an approximately $2.7 billion enterprise value. After the reporting date, the parties certified substantial compliance with the FTC’s additional-information request; the company expected the waiting period to expire March 11, 2024, and anticipated closing that week, subject to customary conditions. Campbell intends to fund the acquisition with new debt.
- Key risks cited include input-cost and labor inflation, competition and changing consumer demand, supply-chain disruption, execution of savings and integration plans, commodity and interest-rate volatility, cybersecurity, litigation and regulatory matters, and whether the Sovos transaction closes on expected terms. The company said known litigation matters were not expected to materially adversely affect results or financial condition, while noting some potential losses cannot be reasonably estimated.
Important facts for investors to verify
- Whether the Sovos acquisition closed as expected, its debt financing terms, and the resulting leverage and integration costs.
- Whether volume recovery and moderating inflation materialize, particularly in soup and other Meals & Beverages products.
- Progress toward the cost-savings targets, including remaining cash charges and capital investment.
- Developments in Plum-related litigation, cybersecurity remediation, and any impairment risk for goodwill or trademarks.