CAMDEN, N.J.–(BUSINESS WIRE)–Feb. 27, 2019– Campbell Soup Company (NYSE:CPB) today reported its second-quarter results for fiscal 2019.
Three Months Ended
Six Months Ended
Mark Clouse, Campbell’s President and CEO stated, “I am pleased that, for the second consecutive quarter, we delivered sales and earnings performance in line with our expectations, enabling us to reaffirm our full-year guidance for fiscal 2019.
“During the quarter, we continued to make progress against key strategic initiatives. Our efforts to stabilize our core business, integrate Snyder’s-Lance, deliver our cost savings agenda and focus and optimize the portfolio are all on track. Over time, these actions will enable us to increase investments in our core businesses while significantly reducing debt and creating meaningful value for shareholders. While we have made steady progress, there is much more work to be done to fully unlock the potential of our business.
“Since joining the team and immersing myself in Campbell’s business, I am confident in the plans in place to address our near-in challenges and opportunities, with the commitment to set a clear strategic roadmap for the future. I am excited by the opportunities to build upon the company’s solid foundation of iconic brands, talented employees, engaged customers and loyal consumers. It is upon these strengths that we will continue to create a compelling plan that delivers profitable and sustainable growth, supported by a reenergized culture focused on accountability, performance and consumer-driven marketing and innovation.”
Items Impacting Comparability
The table below presents a summary of items impacting comparability in each period. A detailed reconciliation of the reported (GAAP) financial information to the adjusted information is included at the end of this news release.
Diluted Earnings Per Share
Restructuring charges, implementation costs and other
related costs associated with cost savings initiatives
* Numbers do not add due to rounding.
Sales increased 24 percent to $2.7 billion reflecting a 26-point benefit from the recent acquisitions of Snyder’s-Lance and Pacific Foods. Organic sales, which exclude the negative impact of currency translation, were comparable to the prior year as gains in Global Biscuits and Snacks were offset by declines in Campbell Fresh and Meals and Beverages. Sales in the quarter benefited by approximately 50 basis points from the change in revenue recognition adopted in fiscal 2019, which impacts the timing of expense related to promotional programs. The annual impact is not expected to be material.
Gross margin decreased from 35.1 percent to 26.3 percent. Excluding items impacting comparability, adjusted gross margin decreased 4.3 percentage points to 30.9 percent, including a 200-basis-point dilutive mix impact from the recent acquisitions. The remaining decline in adjusted gross margin was driven primarily by cost inflation and higher supply chain costs, as well as higher promotional investment, offset partly by productivity improvements and the benefits from cost savings initiatives. The increase in supply chain costs was driven primarily by higher warehousing and transportation costs, the majority of which were principally one-time in nature.
Marketing and selling expenses increased 16 percent to $264 million reflecting a 22-point increase from the inclusion of the recent acquisitions. Excluding items impacting comparability in the current year and the impact of the recent acquisitions, adjusted marketing and selling expenses decreased driven primarily by lower marketing overhead and selling expenses, including the benefits from cost savings initiatives. Administrative expenses increased 9 percent to $180 million. Excluding items impacting comparability, adjusted administrative expenses increased 15 percent to $160 million primarily due to the inclusion of the recent acquisitions.
Other expenses were $226 million as compared to $70 million in the prior year. Excluding items impacting comparability, other income decreased from $29 million in the prior year to $5 million reflecting amortization of intangible assets associated with recent acquisitions and lower gains on investments.
As reported EBIT was $19 million. Excluding items impacting comparability, adjusted EBIT decreased 1 percent to $399 million driven by declines in the base business, offset mostly by incremental earnings from our recent acquisitions. The change in revenue recognition had a favorable 3-point impact in the quarter.
Net interest expense was $92 million compared to $32 million in the prior year reflecting higher levels of debt associated with the recent acquisitions and higher average interest rates on the debt portfolio. The tax rate was 19.2 percent as compared to a negative 35.1 percent in the prior year. Excluding items impacting comparability, the adjusted tax rate increased 5.2 percentage points from 18.9 percent to 24.1 percent. The adjusted tax rate in the prior-year quarter benefited from a year-to-date true-up to reflect the lower U.S. federal tax rate as part of the Tax Cuts and Jobs Act enacted in December 2017.
The company reported a loss of $0.20 per share. Excluding items impacting comparability, adjusted EPS decreased 23 percent to $0.77 per share reflecting EBIT declines in the base business, a higher adjusted tax rate, and the expected dilutive impact from the acquisitions of Snyder’s-Lance and Pacific Foods. The change in revenue recognition had a favorable $0.03 per share impact in the quarter.
Sales increased 25 percent to $5.4 billion reflecting a 27-point benefit from the recent acquisitions of Snyder’s-Lance and Pacific Foods. Organic sales declined 2 percent.
As reported EBIT decreased 44 percent to $369 million. Excluding items impacting comparability, adjusted EBIT decreased 1 percent to $811 million reflecting declines in the base business offset mostly by incremental earnings from recent acquisitions.
Net interest expense was $185 million compared to $62 million in the prior year reflecting higher levels of debt associated with the recent acquisitions and higher average interest rates on the debt portfolio. The tax rate increased from 5.6 percent to 26.6 percent. Excluding items impacting comparability, the adjusted tax rate increased 0.5 percentage points from 23.8 percent to 24.3 percent.
The company reported EPS of $0.45. Excluding items impacting comparability, adjusted EPS decreased 18 percent to $1.57 per share primarily reflecting adjusted EBIT declines in the base business.
Cash flow from operations increased to $846 million from $660 million a year ago reflecting significant improvements from the company’s working capital management efforts and wrapping payments last year on hedges associated with an anticipated debt issuance, offset partly by lower cash earnings. In line with the company’s commitment to returning value to shareholders, during the first half of fiscal 2019, the company paid $212 million of cash dividends reflecting the quarterly dividend rate of $0.35 per share.
Campbell Reaffirms Fiscal 2019 Guidance
Following second-quarter results, Campbell continues to expect full-year performance to be consistent with guidance provided on Aug. 30, 2018. As previously announced, given the strategy to pursue divestitures, the company has provided an outlook for fiscal 2019 based on the company’s existing portfolio of businesses, as well as on a pro forma basis assuming the planned divestitures are completed as of the beginning of fiscal 2019. This fiscal 2019 guidance and pro forma, as shown in the table below, include the impact of the Snyder’s-Lance and Pacific Foods acquisitions and an estimated 1 percentage-point negative impact from currency translation.
2019 Pro Forma
Incremental Net Sales from Snyder’s-Lance and Pacific Foods
$1,500 to $1,550
Cost Savings Program
In the second quarter of fiscal 2019, Campbell achieved $50 million in savings under its multi-year cost savings program, inclusive of Snyder’s-Lance synergies, bringing total program-to-date savings to $550 million. Year-to-date savings of $95 million through the first half of fiscal 2019 are pacing slightly ahead of schedule, helping to offset other cost pressures. As previously announced, the company expects to deliver cumulative annualized savings of $945 million by the end of fiscal 2022.
Segment Operating Review
An analysis of net sales and operating earnings by reportable segment follows:
Three Months Ended Jan. 27, 2019
($ in millions)
Six Months Ended Jan. 27, 2019
Meals and Beverages
Sales in the quarter increased 1 percent to $1.230 billion. Organic sales decreased 1 percent reflecting mixed results, as increases in beverages behind consumption gains in V8 vegetable juice and V8 Energy were more than offset by declines in Plum, Canada and Prego pasta sauces. Excluding the benefit from the acquisition of Pacific Foods, sales of U.S. soup were comparable to the prior year with gains in ready-to-serve soups and broth, offset by declines in condensed soups.
Segment operating earnings decreased 10 percent to $255 million. The decrease was driven primarily by higher levels of cost inflation and higher warehousing and transportation costs, which began to moderate in January, as well as higher promotional spending, offset partly by lower marketing and selling expenses.
Global Biscuits and Snacks
Sales in the quarter increased 76 percent to $1.243 billion. Excluding the benefit from the acquisition of Snyder’s-Lance and the negative impact of currency translation, organic sales increased 3 percent. This performance reflects continued growth in Pepperidge Farm, driven by solid consumption gains in Pepperidge Farm fresh bakery products and Goldfish crackers, as well as growth in Arnott’s biscuits, fueled by innovation. Sales of Pepperidge Farm have now grown in 17 consecutive quarters.
Segment operating earnings increased 35 percent to $185 million, reflecting a 34-point benefit from the acquisition of Snyder’s-Lance. Excluding the impact of the acquisition, segment operating earnings increased slightly driven primarily by volume gains, offset partly by higher levels of cost inflation.
Overall performance for the Campbell Fresh segment was consistent with expectations. Sales in the quarter decreased 7 percent to $239 million driven by expected declines in refrigerated soup, reflecting the previously announced plans of certain major private label customers to insource production in 2019, as well as declines in Bolthouse Farms refrigerated beverages and Garden Fresh Gourmet, offset partly by gains in carrots.
Segment operating loss was $14 million compared to a loss of $11 million in the prior year. The $3 million year-over-year decrease was primarily due to the decline in refrigerated soup volume, offset partly by improved operational efficiency in the Bolthouse Farms business.
Corporate in the second quarter of fiscal 2019 included non-cash impairment charges of $346 million related to the Campbell Fresh segment, charges related to cost savings initiatives of $22 million, and costs associated with planned divestitures of $10 million. Corporate in the second quarter of fiscal 2018 included a non-cash impairment charge of $75 million related to the Campbell Fresh segment, charges related to cost savings initiatives of $27 million, and acquisition transaction costs of $24 million. The remaining increase in expenses primarily reflects the wrapping of gains on investments in the prior-year quarter and higher administrative expenses.
Conference Call and Webcast
Campbell will host a conference call to discuss these results today at 8:30 a.m. Eastern Time. To join, dial +1 (409) 350-3941. The access code is 7291448. Access to a live webcast of the call with accompanying slides, as well as a replay of the call, will be available at investor.campbellsoupcompany.com. A recording of the call will also be available until midnight on Mar. 13, 2019, at +1 (404) 537-3406. The access code for the replay is 7291448.
Campbell Soup Company earnings results are reported as follows:
Meals and Beverages includes the retail and food service businesses in the U.S. and Canada. The segment includes the following products: Campbell’s condensed and ready-to-serve soups; Swanson broth and stocks; Pacific broth, soups, non-dairy beverages and other simple meals; Prego pasta sauces; Pace Mexican sauces; Campbell’s gravies, pasta, beans and dinner sauces; Swanson canned poultry; Plum food and snacks; V8 juices and beverages; and, Campbell’s tomato juice. Beginning in fiscal 2019, the segment also includes the simple meals and shelf-stable beverages business in Latin America. Prior to fiscal 2019, the business in Latin America was managed as part of the Global Biscuits and Snacks segment. Prior-period segment results have been adjusted retrospectively to reflect this change.
Global Biscuits and Snacks includes the U.S. snacks portfolio consisting of Pepperidge Farm cookies, crackers, bakery and frozen products in U.S. retail, and Snyder’s-Lance pretzels, sandwich crackers, potato chips, tortilla chips and other snacking products. The segment also includes Arnott’s biscuits in Australia and Asia Pacific, Kelsen cookies globally, and the simple meals and shelf-stable beverages business in Australia and Asia Pacific.
Campbell Fresh includes Bolthouse Farms fresh carrots, carrot ingredients, refrigerated beverages and refrigerated salad dressings; Garden Fresh Gourmet salsa, hummus, dips and tortilla chips; and, the U.S. refrigerated soup business.
About Campbell Soup Company
Campbell (NYSE:CPB) is driven and inspired by our Purpose, “Real food that matters for life’s moments.” For generations, people have trusted Campbell to provide authentic, flavorful and affordable snacks, soups and simple meals, and beverages. Founded in 1869, Campbell has a heritage of giving back and acting as a good steward of the planet’s natural resources. The company is a member of the Standard and Poor’s 500 and the Dow Jones Sustainability Indexes. For more information, visit www.campbellsoupcompany.com or follow company news on Twitter via @CampbellSoupCo. To learn more about how we make our food and the choices behind the ingredients we use, visit www.whatsinmyfood.com.
This release contains “forward-looking statements” that reflect the company’s current expectations about the impact of its future plans and performance on the company’s business or financial results. These forward-looking statements, including any statements made regarding sales, EBIT and EPS guidance, rely on a number of assumptions and estimates that could be inaccurate and which are subject to risks and uncertainties. The factors that could cause the company’s actual results to vary materially from those anticipated or expressed in any forward-looking statement include: (1) the company’s ability to execute on and realize the expected benefits from the actions it intends to take as a result of its recent strategy and portfolio review; (2) the ability to differentiate its products and protect its category leading positions, especially in soup; (3) the ability to complete and to realize the projected benefits of planned divestitures and other business portfolio changes; (4) the ability to realize the projected benefits, including cost synergies, from the recent acquisitions of Snyder’s-Lance and Pacific Foods; (5) the ability to realize projected cost savings and benefits from its efficiency and/or restructuring initiatives; (6) the company’s indebtedness and ability to pay such indebtedness; (7) disruptions to the company’s supply chain, including fluctuations in the supply of and inflation in energy and raw and packaging materials cost; (8) the company’s ability to manage changes to its organizational structure and/or business processes, including selling, distribution, manufacturing and information management systems or processes; (9) the impact of strong competitive responses to the company’s efforts to leverage its brand power with product innovation, promotional programs and new advertising; (10) the risks associated with trade and consumer acceptance of product improvements, shelving initiatives, new products and pricing and promotional strategies; (11) changes in consumer demand for the company’s products and favorable perception of the company’s brands; (12) changing inventory management practices by certain of the company’s key customers; (13) a changing customer landscape, with value and e-commerce retailers expanding their market presence, while certain of the company’s key customers maintain significance to the company’s business; (14) product quality and safety issues, including recalls and product liabilities; (15) the costs, disruption and diversion of management’s attention associated with campaigns commenced by activist investors; (16) the uncertainties of litigation and regulatory actions against the company; (17) the possible disruption to the independent contractor distribution models used by certain of the company’s businesses, including as a result of litigation or regulatory actions affecting their independent contractor classification; (18) the impact of non-U.S. operations, including trade restrictions, public corruption and compliance with foreign laws and regulations; (19) impairment to goodwill or other intangible assets; (20) the company’s ability to protect its intellectual property rights; (21) increased liabilities and costs related to the company’s defined benefit pension plans; (22) a material failure in or breach of the company’s information technology systems; (23) the company’s ability to attract and retain key talent; (24) changes in currency exchange rates, tax rates, interest rates, debt and equity markets, inflation rates, economic conditions, law, regulation and other external factors; (25) unforeseen business disruptions in one or more of the company’s markets due to political instability, civil disobedience, terrorism, armed hostilities, extreme weather conditions, natural disasters or other calamities; and (26) other factors described in the company’s most recent Form 10-K and subsequent Securities and Exchange Commission filings. The company disclaims any obligation or intent to update the forward-looking statements in order to reflect events or circumstances after the date of this release.
CONSOLIDATED STATEMENTS OF EARNINGS (unaudited)
(millions, except per share amounts)
January 27, 2019
January 28, 2018
CONSOLIDATED SUPPLEMENTAL SCHEDULE OF SALES AND EARNINGS (unaudited)
CAMPBELL SOUP COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
Reconciliation of GAAP to Non-GAAP Financial Measures
Second Quarter Ended January 27, 2019
Campbell Soup Company uses certain non-GAAP financial measures as defined by the Securities and Exchange Commission in certain communications. These non-GAAP financial measures are measures of performance not defined by accounting principles generally accepted in the United States and should be considered in addition to, not in lieu of, GAAP reported measures. Management believes that also presenting certain non-GAAP financial measures provides additional information to facilitate comparison of the company’s historical operating results and trends in its underlying operating results, and provides transparency on how the company evaluates its business. Management uses these non-GAAP financial measures in making financial, operating and planning decisions and in evaluating the company’s performance.
Organic Net Sales
Organic net sales are net sales excluding the impact of currency and acquisitions. Management believes that excluding these items, which are not part of the ongoing business, improves the comparability of year-to-year results. A reconciliation of net sales as reported to organic net sales follows.
Items Impacting Earnings
The company believes that financial information excluding certain items that are not considered to reflect the ongoing operating results, such as those listed below, improves the comparability of year-to-year results. Consequently, the company believes that investors may be able to better understand its results excluding these items.
The following items impacted earnings:
The following tables reconcile financial information, presented in accordance with GAAP, to financial information excluding certain items:
costs and other
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Source: Campbell Soup Company
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