CAMPBELL's Co quarterly report, Q1 FY2012

Business context and reporting period

Campbell Soup Company’s Form 10-Q covers the first quarter of fiscal 2012, the three months ended October 30, 2011. The company reports five segments: U.S. Simple Meals; Global Baking and Snacking; International Simple Meals and Beverages; U.S. Beverages; and North America Foodservice. Amounts below are in millions of dollars, except per-share data.

Financial performance and position

• Gross profit fell $40 million. Management cited cost inflation and other factors, higher promotional spending and unfavorable mix, partly offset by productivity improvements and higher selling prices.
• Segment sales: U.S. Simple Meals $874 (down 3%); Global Baking and Snacking $568 (up 4%); International Simple Meals and Beverages $359 (down 3%); U.S. Beverages $198 (down 3%); and North America Foodservice $162 (up 6%).
• Segment operating earnings were strongest in U.S. Simple Meals, up 8% to $260 million; U.S. Beverages fell 45% to $30 million, largely due to input-cost inflation and increased marketing.
• Cash from operations improved by about $100 million year over year, primarily due to lower pension contributions and working-capital requirements. Capital expenditures were $35 million versus $27 million.
• At October 30, cash was $285 million; current assets were $2,123 million and current liabilities $2,033 million. Short-term borrowings were $567 million and long-term debt $2,422 million. The $2.0 billion committed revolving credit facilities were unused apart from $3 million of standby letters of credit; the company reported compliance with debt covenants.
• Dividends paid were $95 million and treasury-stock purchases were $85 million. The company repurchased approximately 3 million shares during the quarter; $943 million remained available under its June 2011 repurchase authorization.

Material changes, outlook and risks

• Sales declined 1% year over year. Volume and mix declined 5% overall, partly offset by higher pricing and currency effects. Campbell attributed lower earnings primarily to cost inflation and lower sales volumes, partly offset by pricing and productivity. Reduced weighted-average diluted shares helped keep EPS level with the prior year.
• Restructuring initiatives involve approximately 750 job eliminations, supply-chain changes and an exit from Russia. The company recorded $2 million of charges in the quarter, with $10 million of additional costs expected. It estimated total program costs of $75 million, including approximately $50 million in cash expenditures, and approximately $40 million in related capital spending. The initiatives are expected to be completed by the end of 2013.
• Management expected annual pretax cash savings of approximately $60 million beginning in 2012, rising to approximately $70 million in 2014. Fiscal 2012 capital expenditures were expected to total approximately $325 million. The filing does not provide a clear full-year sales or earnings guidance figure.
• Management stated that expected operating cash flows, borrowing capacity and cash balances should meet foreseeable liquidity needs. Principal risks cited include competition and consumer response to pricing and promotions, commodity and packaging-cost inflation, customer practices, foreign-exchange and interest-rate movements, and the company’s ability to realize savings and successfully execute business changes.
• The company uses derivatives to manage currency, interest-rate, commodity and equity-price exposures; it said these instruments are not used for speculation. It also cautioned that actual results may differ materially from forward-looking statements.

Important facts for investors to verify

• Whether pricing and productivity can offset continued input-cost inflation without further weakening volumes or margins.
• Progress in the U.S. Beverages and international businesses, where segment earnings declined notably, and the performance of new products and promotional strategies.
• Delivery and timing of restructuring savings, remaining costs, planned capital investments and the Russia exit.
• Cash conversion and working-capital trends, alongside pension contributions and the planned capital-spending level.
• Debt, liquidity and the pace of share repurchases and dividends relative to cash generation.