Campbell Soup Company — FY2020 Form 10-K
Business context and reporting period. Campbell Soup Company manufactures branded food and beverage products, reported in Meals & Beverages and Snacks. This is the fiscal year ended August 2, 2020, comprising 53 weeks; FY2019 comprised 52 weeks. Results reflect continuing operations unless noted. Campbell completed major portfolio sales and focused its business primarily on North America.
Financial performance and liquidity
| Metric | FY2020 | FY2019 |
|---|---|---|
| Net sales | $8.691 billion | $8.107 billion |
| Gross profit margin | 34.5% | 33.2% |
| Earnings before interest and taxes | $1.107 billion | $979 million |
| Interest expense | $345 million | $356 million |
| Earnings from continuing operations | $592 million; diluted EPS $1.95 | $474 million; diluted EPS $1.57 |
| Net earnings | $1.628 billion; diluted EPS $5.36 | $211 million; diluted EPS $0.70 |
| Cash from operating activities | $1.396 billion | $1.398 billion |
| Capital expenditures | $299 million | $384 million |
- Sales increased 7%; the extra fiscal week contributed about 2 percentage points. Meals & Beverages sales rose 9% to $4.646 billion and Snacks sales rose 5% to $4.045 billion.
- Gross margin improved 1.3 percentage points, mainly from productivity, cost savings, favorable mix and operating leverage, partly offset by inflation and pandemic-related supply-chain costs.
- Cash and cash equivalents were $859 million at year-end, versus $31 million a year earlier. Total debt was $6.196 billion, down from $8.712 billion in selected financial data; that prior-year figure includes $238 million of debt related to discontinued operations. Current assets were below current liabilities, resulting in negative working capital of $690 million.
- Campbell declared dividends of $1.40 per share for the year and paid $426 million in dividends.
Material changes and unusual items
- Net earnings were substantially increased by $1.000 billion after-tax gain from selling Campbell International businesses. Discontinued operations contributed $1.036 billion of earnings, versus a $263 million loss in FY2019. Continuing-operations earnings are a more informative measure of ongoing performance.
- Campbell sold its Kelsen business and Arnott’s and other international operations, and completed the sale of its European chips business. Earlier divestitures included Bolthouse Farms, Garden Fresh Gourmet and U.S. refrigerated soup. Proceeds were primarily used to reduce debt.
- FY2020 continuing-operations results included $52 million after-tax of restructuring and related costs, $92 million of pension and postretirement mark-to-market losses, $33 million of pension settlement charges, a $35 million loss on the Acre investment sale, a $37 million after-tax loss on the European chips sale, and a $57 million after-tax loss on debt extinguishment.
- The $75 million pre-tax debt-extinguishment loss contributed to reported interest expense; excluding it, interest expense declined with lower debt and average borrowing rates.
Outlook, management commentary and risks
- Management attributed stronger retail demand, particularly for soup and snacks, to increased at-home consumption during COVID-19. Foodservice was weaker, and Campbell said it could not fulfill all customer orders. Management cautioned that elevated demand could lessen or reverse as consumer behavior changes.
- Campbell targets $850 million of annualized cost savings from continuing operations by the end of 2022, including $295 million of Snyder’s-Lance synergies. It reported $725 million of cumulative annual pre-tax savings through FY2020 and expected $800–$810 million in 2021. The company estimated $665–$690 million of total pre-tax initiative costs and about $420 million of related capital investment through 2022.
- FY2021 capital expenditures were expected to be approximately $350 million. No specific consolidated revenue or earnings guidance is provided in the filing text.
- COVID-19 risks include continued supply constraints, workforce disruption, elevated employee and sanitation costs, demand normalization, and delays to integration and savings projects. Campbell expected pressure on availability and costs for some ingredients and packaging to continue into 2021.
- Other key risks include commodity and distribution-cost inflation, competition and private-label substitution, dependence on major retailers, execution of cost savings and Snyder’s-Lance integration, brand and product-safety risks, pension exposure, cybersecurity, and litigation or regulatory scrutiny. The five largest customers accounted for 44% of continuing-operations sales; Walmart alone accounted for about 21%.
- Potential distributor-loan guarantees totaled up to $445 million ($246 million for Pepperidge Farm and $199 million for Snyder’s-Lance); management did not expect material payments. The filing also describes shareholder litigation and other proceedings, with outcomes uncertain, but states that known matters were not expected to materially adversely affect consolidated results or financial condition.
Important facts for investors to verify
- Separate ongoing performance from the $1.000 billion after-tax divestiture gain and other comparability items; confirm the effect of the 53rd week on reported growth.
- Review the debt maturity schedule, including $1.202 billion due within one year, and the company’s refinancing and liquidity plans.
- Track whether cost savings, Snyder’s-Lance integration and planned capital projects meet management’s targets and timelines.
- Monitor whether pandemic-driven retail demand persists, whether supply constraints and incremental costs ease, and how foodservice performs.
- Assess customer concentration, potential litigation developments and the assumptions supporting goodwill and trademark valuations. The auditor identified impairment testing for certain trademarks as a critical audit matter; the audit opinion on the financial statements was unmodified.