Campbell Soup Company — Form 10-Q Summary
Reporting period: Third quarter and first nine months of fiscal 2012, ended April 29, 2012. Comparisons are with the quarter ended May 1, 2011, and the corresponding nine-month period. Amounts are in millions except per-share data.
Financial performance
| Metric | Quarter | Nine months |
|---|---|---|
| Net sales | $1,821 vs. $1,813, up 0.4% | $6,094 vs. $6,112, down 0.3% |
| Gross margin | 38.8% vs. 40.4% | 38.9% vs. 40.3% |
| Earnings before interest and taxes | $264 vs. $307 | $1,009 vs. $1,110 |
| Net earnings attributable to Campbell | $177 vs. $187 | $647 vs. $705 |
| Diluted EPS | $0.55 vs. $0.57 | $2.01 vs. $2.11 |
| Operating cash flow | Not separately presented | $838 vs. $858 |
| Capital expenditures | Not separately presented | $173 vs. $133 |
Quarterly earnings were pressured by lower gross margin and higher advertising and consumer promotion spending; a lower effective tax rate partly offset the decline. Quarterly effective tax rate was 26.2%, versus 34.3%. Nine-month rate was 31.1%, versus 31.3%. The quarter’s gross margin decline reflected cost inflation and other factors, higher promotional spending, and mix, partly offset by higher prices and productivity improvements.
Segments and material changes
- Quarter: U.S. Simple Meals sales declined 2% and segment earnings declined 14%; Global Baking and Snacking sales rose 3% but earnings fell 11%; International Simple Meals and Beverages sales fell 1% and earnings fell 10%; U.S. Beverages sales rose 5% while earnings fell 17%; North America Foodservice sales were flat and earnings fell 9%.
- Nine months: Sales were down 2% in U.S. Simple Meals and 3% in International Simple Meals and Beverages, while Global Baking and Snacking rose 3%, U.S. Beverages rose 2%, and North America Foodservice rose 5%. Segment earnings fell 12% in Global Baking and Snacking, 14% in International Simple Meals and Beverages, and 28% in U.S. Beverages; North America Foodservice earnings rose 14%.
- Management cited input-cost inflation, lower volumes in several businesses, promotions, and advertising as key profit headwinds. Higher selling prices and productivity gains provided offsets. Sales growth in beverages and foodservice contrasted with weaker soup performance in several markets.
Cash, debt, liquidity, and capital allocation
- At April 29, 2012, cash was $383, down from $484 at July 31, 2011. Current assets were $1,767 and current liabilities $1,908.
- Short-term borrowings were $751 and long-term debt was $2,006, for total balance-sheet borrowings of $2,757; the comparable July 2011 total was $3,084. Long-term debt fair value was $2,667 versus carrying value of $2,414.
- Nine-month operating cash flow of $838 less capital expenditures of $173 implies approximately $665 of cash flow after capital spending. Financing activities used $755, including $281 of dividends and $272 of treasury-stock purchases. Cash declined by $101 over the period.
- The company forecast fiscal 2012 capital expenditures of approximately $325. It had $751 of short-term borrowings due within one year and $2.0 billion of committed revolving credit facilities, unused except for $3 of standby letters of credit. Management said expected operating cash flows, borrowing capacity, and cash were sufficient for foreseeable needs; the company reported compliance with debt covenants.
- Dividends declared were $0.87 per share for the nine months. Approximately $819 remained under the June 2011 $1 billion share-repurchase authorization.
Outlook, risks, and unusual items
- No specific sales or earnings forecast for the full year is provided in the filing. The restructuring program is expected to generate annual pretax cash savings of about $60 beginning in 2012, rising to about $70 in 2014. Completion is expected by the end of 2013.
- Restructuring charges were $4 pretax in the quarter and $9 year to date. The program’s total estimated pretax cost is $75, of which $72 had been recognized; approximately $3 remained. About $50 of the total is expected to be cash expenditure, mostly in 2012, with about $40 of related capital spending. Management did not expect program cash outflows to materially adversely affect liquidity.
- Restructuring actions include supply-chain and workforce changes, Australian biscuit-plant automation, U.S. production consolidation, and exit from Russia. The Russia exit was substantially completed in 2012.
- Identified risks include competitive responses and consumer acceptance of pricing, promotions and new products; input and packaging cost inflation; customer concentration and inventory practices; achievement of projected savings and guidance; currency, interest-rate, tax and economic changes; and business disruptions, litigation, and execution of business-process changes.
- The company uses derivatives to manage currency, interest-rate, commodity, and equity-price exposures, not for speculation. It reported no significant change in market-risk exposures from fiscal 2011 year-end. Recent accounting-standard adoptions had no material financial-statement impact.
Most important facts for investors to verify
- Whether gross-margin pressure from inflation, promotions, and mix persists, and whether price increases and productivity offset it.
- Whether soup volumes and performance improve while growth continues in baking, beverages, and foodservice.
- Delivery and timing of the restructuring savings, remaining costs, and planned capital expenditures.
- Cash generation and financing needs given short-term borrowings, dividends, repurchases, and projected capital spending.
- Drivers and sustainability of the lower quarterly tax rate, and the effect of share repurchases on per-share results.