Campbell Soup Company — FY2013 Form 10-K
Business context and reporting period. Campbell Soup Company manufactures and markets branded convenience foods, including soups, sauces, beverages, snacks and fresh products. The fiscal year ended July 28, 2013, comprised 52 weeks; this is an annual filing, not a standalone fourth-quarter report. Reported net sales reflect continuing operations; the European simple-meals business is presented as discontinued operations.
Financial performance
| Metric | FY2013 | FY2012 |
|---|---|---|
| Net sales | $8.052 billion | $7.175 billion |
| Gross margin | 36.2% | 39.2% |
| Earnings before interest and taxes | $1.080 billion | $1.155 billion |
| Earnings from continuing operations attributable to Campbell | $689 million; $2.17 diluted EPS | $734 million; $2.29 diluted EPS |
| Net earnings attributable to Campbell | $458 million; $1.44 diluted EPS | $774 million; $2.41 diluted EPS |
| Cash from operating activities | $1.019 billion | $1.120 billion |
| Capital expenditures | $336 million | $323 million |
| Total debt | $4.453 billion | $2.790 billion |
Sales rose 12%; Bolthouse Farms and Plum acquisitions contributed 11 percentage points. Gross profit was $102 million higher, but margin fell three percentage points, mainly due to cost inflation, acquisition mix, restructuring-related costs and higher promotional spending; productivity and pricing partly offset these pressures. Continuing-operations earnings per share included $0.31 of identified comparability expenses in 2013, versus $0.02 in 2012.
Operating cash flow declined $101 million, primarily because of higher working-capital requirements. Cash and cash equivalents were $333 million at year-end, while current liabilities were $3.282 billion, including $1.909 billion of short-term borrowings. The company had $2.0 billion of revolving credit facilities, substantially unused, and stated that expected cash flows and borrowing sources would meet foreseeable liquidity needs. Dividends paid were $367 million; declared dividends were $1.16 per share.
Material changes and unusual items
- Bolthouse Farms was acquired in August 2012 for approximately $1.55 billion; it contributed $756 million of FY2013 sales. Plum was acquired in June 2013 for approximately $249 million and contributed $14 million of sales during the reported period.
- Campbell recorded $142 million of restructuring charges and related costs ($90 million after tax, or $0.28 per share). Actions included plant closures, workforce reductions and manufacturing changes. The program was expected to generate approximately $30 million of savings in 2014 and $40 million annually beginning in 2015.
- FY2013 discontinued operations recorded a $231 million loss, including a $396 million impairment charge on European business goodwill and trademarks and $18 million of related tax expense. The business had $532 million of sales in both 2013 and 2012.
- Campbell announced final, exclusive negotiations to sell its European simple-meals business; the proposed sale was subject to European competition-law clearance. The filing does not report a completed sale or final transaction value.
- After year-end, Campbell completed the approximately $325 million acquisition of Kelsen Group, funded with commercial paper; Kelsen’s results are not included in FY2013.
Outlook, management commentary and risks
Management’s strategy is to strengthen North American soup and simple meals while expanding in snacks, healthy beverages and international markets. For 2014, the company planned more than 30 new soup products, further investment in Plum and Bolthouse, and initiatives across Pepperidge Farm and international markets. Expected 2014 capital expenditures were approximately $350 million. Fiscal 2014 was expected to contain 53 weeks. The filing provides no specific consolidated FY2014 earnings or revenue guidance.
Key risks include intense branded and private-label competition; consumer acceptance of new products, pricing and promotions; raw-material and packaging-cost volatility; dependence on major retailers (Walmart and affiliates represented about 19% of 2013 sales); supply-chain disruption; acquisition integration and divestiture execution; foreign-exchange and international-market exposure; pension funding and assumptions; food safety and product recalls; and information-security and regulatory risks. Management said ordinary-course legal proceedings were not expected to have a material adverse effect. Management and the auditor reported effective internal control over financial reporting.
Important facts for investors to verify
- Whether the proposed European business sale closed, its final terms and proceeds, and how the divestiture affects continuing results.
- Whether Campbell achieves the projected restructuring savings while managing transition costs, closures and production transfers.
- Whether acquired businesses deliver sustained growth and margins, and how the Kelsen acquisition and acquisition financing affect leverage.
- Whether gross-margin pressure eases as inflation, promotions and acquisition mix change; separate organic performance from acquisition-driven growth.
- Debt repayment and refinancing needs, working-capital trends, and the company’s ability to maintain liquidity alongside dividends and capital spending.