Campbell Soup Company — Form 10-Q Summary
Business context and reporting period
Quarter ended October 27, 2013 (the first quarter of fiscal 2014); amounts are in U.S. dollars. Campbell sells branded convenience foods across five reportable segments. The quarter included Kelsen, acquired August 8, and Plum, acquired in June. The European simple meals business was classified as discontinued operations; its sale closed October 28, one day after quarter-end.
Financial performance and position
| Metric | Quarter / period-end | Prior comparable / reference |
|---|---|---|
| Net sales | $2.165 billion | $2.205 billion; down 2% |
| Gross margin | 35.9% | 37.2% |
| EBIT | $305 million | $368 million |
| Earnings from continuing operations | $180 million consolidated; $181 million attributable to Campbell in MD&A | $230 million consolidated; $232 million attributable in MD&A |
| Net earnings attributable to Campbell | $172 million; diluted EPS $0.54 | $245 million; diluted EPS $0.78 |
| Operating cash flow | $38 million | $81 million |
| Cash and cash equivalents | $305 million at October 27 | $333 million at July 28 |
| Borrowings | $2.585 billion short-term; $2.247 billion long-term | $1.909 billion short-term; $2.544 billion long-term at July 28 |
| Capital expenditures / dividends | $52 million / $97 million | $41 million / $92 million |
Current assets were $2.587 billion versus current liabilities of $4.104 billion at quarter-end. The company reported $1.811 billion of commercial paper within short-term borrowings. Its $2.0 billion revolving credit facilities were substantially unused, and it reported compliance with debt covenants. Cash flow from operations fell primarily due to lower earnings, partly offset by lower pension contributions. Investing cash outflow was $381 million, including $329 million for business acquisitions; financing provided $261 million, mainly from short-term borrowing.
Material changes versus prior period
- Sales declined 2%; acquisitions contributed 4 percentage points of growth, while volume and mix reduced sales by 4 points. Customer inventory movements also weighed on sales.
- Segment sales were mixed: Global Baking and Snacking rose 6% (including Kelsen); U.S. Simple Meals fell 4%; International Simple Meals and Beverages fell 13%; U.S. Beverages fell 8%; and Bolthouse and Foodservice rose 2%.
- Gross margin contracted 1.3 percentage points. Management cited cost inflation, acquisitions and the Plum recall, higher promotional spending, and unfavorable mix; productivity, pricing and lower restructuring costs partly offset these factors.
- Marketing and selling expense rose 11% to $261 million, primarily from advertising and acquisitions. Segment operating earnings declined 21% to $362 million.
- Discontinued European operations generated $137 million in sales and a $9 million loss, compared with $131 million in sales and $13 million of earnings a year earlier. The current period included sale-related costs and a $14 million incremental tax expense associated with the business reorganization.
Outlook, commentary, risks and unusual items
- The European business sale was for approximately €400 million ($550 million), subject to post-closing adjustments; expected after-tax proceeds were approximately $455 million. Proceeds were used to reduce debt and for general corporate purposes.
- Management expected fiscal 2014 capital expenditures of approximately $350 million. The 2014 workforce initiative eliminated about 200 positions, incurred a $20 million charge, and was expected to generate annual pretax savings of about $40 million beginning in 2015. The 2013 restructuring program was expected to generate about $40 million of annual pretax savings beginning in 2015; remaining program costs were estimated at $5 million.
- On November 8, after quarter-end, Campbell announced a voluntary recall of certain Plum pouch products due to a manufacturing defect that could cause spoilage. The quarter included $16 million of estimated recall costs ($11 million after tax, or $0.03 per share).
- Management highlighted competitive and consumer-demand pressures, retailer inventory practices, commodity and packaging inflation, execution of new products and marketing, acquisition integration, currency, interest rates, and realization of restructuring savings as risks to results.
- No clear full-year sales or earnings guidance is provided in the filing text.
Important facts for investors to verify
- Review the reported continuing-earnings figures: the statements show $180 million consolidated, while MD&A reports $181 million attributable to Campbell; confirm attribution and comparability adjustments.
- Assess the effects of the Plum recall, including final costs, customer returns and any further product or operational consequences.
- Track the use of European sale proceeds, debt reduction, and short-term borrowing and liquidity levels.
- Test whether projected restructuring savings and planned capital spending are achieved, and monitor sales, volumes and margins in challenged segments.
- Confirm final acquisition purchase-price allocations and subsequent adjustments, which were preliminary for Kelsen and Plum at quarter-end.