Business context and reporting period
Campbell Soup Company is a global branded convenience-food manufacturer, reporting through U.S. Soup, Sauces and Beverages; Baking and Snacking; International Soup, Sauces and Beverages; and North America Foodservice. This Form 10-K covers the 52 weeks ended August 1, 2010; fiscal 2009 also comprised 52 weeks. The filing includes quarterly data, but is an annual report, not a standalone fourth-quarter filing.
Financial performance and position
| Metric | FY2010 | FY2009 |
|---|---|---|
| Net sales | $7.676 billion | $7.586 billion |
| Gross profit margin | 41.0% | 39.9% |
| Earnings before interest and taxes | $1.348 billion | $1.185 billion |
| Net earnings | $844 million | $736 million |
| Diluted EPS | $2.42 | $2.05 |
| Cash from operations | $1.057 billion | $1.166 billion |
| Capital expenditures | $315 million | $345 million |
| Total debt | $2.780 billion | $2.624 billion |
Cash from operations less capital expenditures was approximately $742 million. At year-end, cash was $254 million; current assets were $1.687 billion and current liabilities $2.065 billion. Total equity was $929 million. Debt includes $835 million of short-term borrowings, of which $700 million was current long-term debt. The company reported compliance with debt covenants and had an unused $1.5 billion revolving facility at year-end, except for $25 million of standby letters of credit.
Changes versus the prior year
- Sales rose 1%, while gross margin expanded 1.1 percentage points, primarily on productivity gains and higher selling prices; promotional spending and inflation partly offset those gains.
- Operating cash flow fell $109 million, mainly because pension contributions increased to $284 million from $13 million, partly offset by improved working capital.
- Segment sales were mixed: Baking and Snacking rose 7% and International Soup, Sauces and Beverages rose 5% (both benefited from currency); U.S. Soup, Sauces and Beverages declined 2%, and North America Foodservice declined 4%.
- Net earnings included $18 million, or $0.05 per diluted share, of identified comparability expenses in 2010. Fiscal 2009 included $58 million, or $0.16 per share, of net comparability expenses, including a $47 million after-tax European trademark impairment. Earnings per share also benefited from lower weighted-average diluted shares following repurchases.
For the fourth quarter, sales were $1.518 billion versus $1.528 billion; net earnings were $113 million versus $69 million, and diluted EPS was $0.33 versus $0.20.
Outlook, management commentary, risks and unusual items
- Management emphasized brand growth in simple meals, baked snacks and healthy beverages; product innovation and wellness; expansion in existing and emerging markets; and margin improvement through pricing, productivity and cost management.
- Fiscal 2011 capital expenditures were expected to be approximately $300 million. Management expected pension and postretirement expense of approximately $100 million in 2011; after a $100 million U.S. plan contribution in the first quarter, no further U.S. contributions were expected, while non-U.S. contributions were estimated at approximately $43 million.
- The filing provides no clear numerical fiscal 2011 sales or earnings guidance. Planned initiatives included new V8 V-Fusion Plus Tea products, soup portfolio and packaging changes, and continued supply-chain and soup-making simplification efforts.
- Key risks include competition and private-label substitution; dependence on large retailers (Wal-Mart accounted for approximately 18% of sales in 2010); commodity, packaging and energy cost volatility; currency movements; pension funding and assumptions; regulatory and food-safety exposure; supply-chain disruption; and execution of cost, technology and innovation initiatives.
- Unusual items included the final $12 million pre-tax pension-related restructuring charge from the 2008 efficiency program and a $10 million deferred-tax charge following U.S. health-care legislation. The 2008 Godiva sale generated a $462 million after-tax gain and materially affects longer-term comparisons. Management said known divestiture indemnification exposures were not material; it did not expect legal proceedings and ordinary-course claims to materially adversely affect results or financial condition.
Important facts for investors to verify
- Whether underlying sales and volume trends improve, particularly in U.S. soup and foodservice, and how much international growth depends on currency.
- Whether productivity savings can sustain gross-margin gains amid promotional spending and input-cost pressures.
- The size and timing of pension funding needs, and sensitivity of pension expense and funded status to discount rates and asset returns.
- Near-term refinancing and liquidity needs, including the $700 million current portion of long-term debt and replacement credit facilities entered into after year-end.
- The extent to which reported EPS growth reflects operating performance versus share repurchases and unusual items; the filing reports effective internal controls and an unqualified independent audit opinion.