CPB

Business Context and Reporting Period

Company: Campbell Soup Company
Filing Type: Form 10-K (Annual Report)
Period Ended: August 2, 2009 (52 weeks)
Business Overview: A global manufacturer and marketer of branded convenience food products organized into four segments: U.S. Soup, Sauces and Beverages; Baking and Snacking; International Soup, Sauces and Beverages; and North America Foodservice. The company operates in approximately 120 countries with principal geographies in North America, Australia, France, Germany, and Belgium.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Decline: Net sales decreased 5% to $7.586 billion, driven by unfavorable currency impacts (-4%), divestitures (-2%), and lower volume/mix (-2%), partially offset by price increases (+7%).
• Profitability: Earnings from continuing operations increased 9% to $732 million, despite a $67 million impairment charge on European trademarks and $22 million in restructuring costs. This improvement was aided by lower interest expense and reduced marketing/selling costs.
• Discontinued Operations: Net earnings were significantly lower than 2008 due to the absence of the $462 million gain from the sale of the Godiva Chocolatier business, which occurred in the prior year. 2009 discontinued operations included only a $4 million tax benefit related to that sale.
• Segment Performance:
  • U.S. Soup, Sauces and Beverages: Sales increased 3% due to pricing and growth in ready-to-serve soups.
  • Baking and Snacking: Sales decreased 10% due to the divestiture of Australian salty snacks and currency headwinds, though earnings improved significantly due to lower restructuring charges compared to 2008.
  • International: Sales declined 16% due to the divestiture of the Lesieur brand in France, currency impacts, and lower sales in Germany.

Guidance, Outlook, and Risks

Management Commentary & Strategy:

• Focus on seven key strategies including expanding icon brands, driving consumer satisfaction through wellness/value, and increasing margins via price realization and productivity.
• Completed acquisition of Ecce Panis, Inc. (artisan breads) for $66 million in May 2009.
• Continued share repurchases: 17 million shares repurchased in 2009 at a cost of $527 million. Approximately $800 million remains available under the June 2008 program.
• Dividends declared were $1.00 per share in 2009, an increase from $0.88 in 2008.

Risks and Contingencies:

• Raw Material Costs: Exposure to price fluctuations in commodities (tomatoes, grains, beef, energy) and packaging materials.
• Currency: Significant exposure to foreign exchange rates (Australian dollar, Canadian dollar, Euro), which negatively impacted 2009 results.
• Competition: Intense competition from private label and other branded food manufacturers.
• Pension Obligations: Defined benefit pension plans are subject to market volatility; the company contributed $260 million to a U.S. plan in Q1 2010 due to declining asset values.
• Customer Concentration: Wal-Mart Stores, Inc. accounted for 18% of consolidated net sales in 2009.

Investor Verification Checklist

• Impairment Charge: Verify the $67 million impairment charge on European trademarks (Germany/Nordic region) and its impact on future international earnings.
• Restructuring Progress: Monitor the realization of the projected $15-$20 million annual pre-tax benefits from the 2008 restructuring initiatives.
• Pension Funding: Assess the impact of the $260 million pension contribution made in Q1 2010 on future liquidity and cash flow.
• Currency Hedging: Review the effectiveness of hedging strategies given the 4% negative currency impact on sales and the significant exposure to the Euro and Australian Dollar.
• Share Repurchase Program: Track the utilization of the remaining $800 million authorization under the June 2008 program.