Campbell Soup Company — Q3 2021 Form 10-Q
Reporting period: Third quarter and nine months ended May 2, 2021. The company manufactures and markets branded food and beverage products through its Meals & Beverages and Snacks segments. Unless otherwise stated, amounts are in millions.
Financial performance
| Metric | Three months ended May 2, 2021 | Prior-year quarter | Nine months ended May 2, 2021 | Prior-year period |
|---|---|---|---|---|
| Net sales | $1,984 | $2,238 | $6,603 | $6,583 |
| Earnings from continuing operations | $166 | $166 | $720 | $506 |
| Diluted continuing-operations EPS | $0.54 | $0.55 | $2.36 | $1.66 |
| Net earnings attributable to Campbell | $160 | $168 | $714 | $1,542 |
| Diluted net EPS | $0.52 | $0.55 | $2.34 | $5.07 |
| Operating cash flow | Not provided for the quarter | Not provided for the quarter | $881 | $1,125 |
Quarterly sales fell 11% year over year, with Meals & Beverages down 14% and Snacks down 8%, primarily as the company lapped pandemic-related pantry loading. Nine-month sales were nearly flat: Meals & Beverages rose 1%, while Snacks declined 1%.
Quarterly gross margin declined to 31.7% from 34.5%; management attributed the decrease mainly to inflation, supply-chain costs, reduced operating leverage, and unfavorable mix, partly offset by productivity. Nine-month gross margin was 33.7%, versus 34.2%. Quarterly segment operating earnings fell 33% to $288: Meals & Beverages decreased 35% and Snacks decreased 29%. Nine-month segment operating earnings fell 4% to $1,162.
Cash, debt, and liquidity
At May 2, 2021, cash was $209, short-term borrowings were $204, and long-term debt was $4,997; total debt carrying value was $5,201. Cash was $859 and short-term borrowings were $1,202 at August 2, 2020. Current assets of $1,863 were below current liabilities of $1,975, producing negative working capital of $112. Operating cash flow for the first nine months was $881, down from $1,125; capital expenditures were $190, compared with $220. Cash used in financing was $1,356, including $721 of long-term debt repayments and $327 of dividends.
The company had an unused $1,850 revolving credit facility maturing in November 2023, except for $1 of letters of credit, and reported compliance with its debt covenants. It expects to fund liquidity needs through operating cash flow, borrowings, credit facilities, and cash. Planned fiscal 2021 capital expenditures were approximately $300.
Material changes, outlook, and unusual items
- Management expects fourth-quarter 2021 sales to be below the prior-year quarter as pandemic-driven demand and the prior-year 53rd week are lapped. It expects inflation to remain a headwind, partly offset in 2022 by productivity and price increases planned for the first quarter of 2022.
- Management expects COVID-related and supply-chain costs to decrease as conditions normalize, while noting uncertainty about the pandemic, including variants. Winter storms disrupted some facilities and distribution in February; management said the impact was not material to third-quarter results.
- Cost-saving and integration initiatives had incurred $684 of pre-tax costs through May 2. The company estimated total continuing-operations costs of $700–$730 through 2022, including $600–$630 expected to be cash expenditures, and approximately $430 of related capital expenditures through 2022. Management projected approximately $850 of annual ongoing pre-tax savings by the end of 2022.
- Quarterly results included $15 of initiative-related costs and a $4 pension settlement gain. Nine-month results also included a $19 deferred tax charge related to a Snyder’s-Lance legal-entity reorganization and $38 of pension settlement gains. The prior-year nine-month comparison included a $1,039 pre-tax gain on divestitures and a $75 debt-extinguishment loss, among other items.
- The Plum business was sold on May 3, 2021, for $101, subject to post-closing adjustments; its assets and liabilities were classified as held for sale at quarter-end. Campbell agreed to indemnify the buyer for specified pending or future claims alleging heavy metals in products manufactured or sold by the closing date.
- A securities class action concerning prior statements about the former Campbell Fresh segment remained pending; defendants had moved to dismiss the amended complaint. The company said litigation outcomes and potential losses can be difficult to estimate and did not expect currently known matters to materially adversely affect consolidated results or financial condition.
Key facts for investors to verify
- Whether post-pandemic demand normalization, price increases, and productivity offset inflation and supply-chain costs as management expects.
- Progress against the cost-savings targets, remaining restructuring costs, and planned capital spending through 2022.
- Cash generation, working-capital needs, debt maturities, and liquidity following debt repayments and the Plum sale.
- Potential exposure from the Plum product claims indemnity and the pending securities litigation.
- Comparability of reported earnings: the prior-year period included substantial divestiture gains, while current-period results included pension gains, restructuring costs, and a tax charge.