Campbell Reports Second-Quarter Results

  • Campbell Reaffirms Fiscal 2019 Guidance
  • Net Sales Increased 24 Percent Reflecting Impact of Recently Completed
    Acquisitions; Organic Sales Comparable to the Prior Year
  • Earnings Per Share (EPS) Loss of $0.20 Reflecting Impairment Charges
    Related to Campbell Fresh Segment; Adjusted EPS of $0.77

CAMDEN, N.J.–(BUSINESS WIRE)–Campbell Soup Company (NYSE:CPB) today reported its
second-quarter results for fiscal 2019.

       

 

Three Months Ended

Six Months Ended

($ in millions, except per share)

Jan. 27,

2019

   

Jan. 28,

2018

   

%

Change

Jan. 27,

2019

   

Jan. 28,

2018

   

%

Change

Net Sales
As Reported (GAAP) $2,713 $2,180 24% $5,407 $4,341 25%
Organic – % (2)%
Earnings Before Interest and Taxes (EBIT)
As Reported (GAAP) $19* $243 n/m $369 $655 (44)%
Adjusted $399 $402 (1)% $811 $819 (1)%
Diluted Earnings Per Share
As Reported (GAAP) ($0.20)* $0.95 n/m $0.45 $1.85 n/m
Adjusted $0.77 $1.00 (23)% $1.57 $1.91 (18)%
 
n/m – not meaningful
* The current quarter included pre-tax impairment charges of $346
million, or $0.88 per share, related to the Campbell Fresh segment.
Note: A detailed reconciliation of the reported (GAAP) financial
information to the adjusted financial information is included at the
end of this news release.
 

CEO Comments

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

Three Months Ended Six Months Ended

Jan. 27,

2019

Jan. 28,

2018

Jan. 27,

2019

Jan. 28,

2018

As Reported (GAAP) ($0.20 ) $0.95 $0.45 $1.85
 
Impairment charges related to the Campbell Fresh segment $0.88 $0.25 $0.91 $0.25
 

Restructuring charges, implementation costs and other

related costs associated with cost savings initiatives

$0.06

$0.15

$0.18

$0.19

 
Costs associated with planned divestitures $0.03 $0.03
 
Transaction costs related to the acquisition of Snyder’s-Lance, Inc. $0.06 $0.06
 
Pension and postretirement benefit mark-to-market adjustments ($0.03 )
 
Nonrecurring net tax benefit related to U.S. Tax Reform $0.01   ($0.41 ) $0.01 ($0.41 )
Adjusted $0.77*   $1.00   $1.57* $1.91  
 

* Numbers do not add due to rounding.

 

Second-Quarter Results

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.

First-Half Results

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.

           
($ in millions, except per share)

 

2018

Results

2019 Guidance

Pre-Divestitures

2019 Pro Forma

Assuming Divestitures

 
Net Sales $8,685 $9,975 to $10,100 $7,925 to $8,050
 

Incremental Net Sales from Snyder’s-Lance and Pacific Foods

$1,500 to $1,550

$1,500 to $1,550

 
Adjusted EBIT $1,408* $1,370 to $1,410 $1,230 to $1,270
 
Adjusted EPS $2.87* $2.45 to $2.53 $2.40 to $2.50
 
* Adjusted – refer to the detailed reconciliation of the reported
(GAAP) financial information to the adjusted financial information
at the end of this news release.
Note: A non-GAAP reconciliation is not provided for 2019 guidance or
2019 pro forma since certain items are not estimable, such as
pension and postretirement mark-to-market adjustments, and these
items are not considered to reflect the company’s ongoing business
results. The pro forma scenario is provided for illustrative
purposes to provide approximate impact of potential divestitures as
if they occurred at the beginning of fiscal 2019 and is based on the
use of estimated sales proceeds.
 

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)

 
   

Meals and

Beverages

   

Global Biscuits

and Snacks

   

Campbell

Fresh

    Total*
Net Sales, as Reported $1,230 $1,243 $239 $2,713**

 

 

 

 

Volume and Mix -% 3% (7)% -%
Price and Sales Allowances -% 1% -% -%
Promotional Spending (1)% (1)% -% (1)%
Organic Net Sales (1)% 3% (7)% -%
Currency (1)% (2)% -% (1)%
Acquisitions 3% 75% -% 26%
% Change vs. Prior Year 1% 76% (7)% 24%
 
Segment Operating Earnings $255 $185 ($14)
% Change vs. Prior Year (10)% 35% n/m
 
n/m – not meaningful
* Numbers do not add due to rounding.
** Includes Corporate
Note: A detailed reconciliation of the reported (GAAP) net sales to
organic net sales is included at the end of this news release.
 
 

Six Months Ended Jan. 27, 2019

($ in millions)

 
   

Meals and

Beverages

   

Global Biscuits

and Snacks*

   

Campbell

Fresh

    Total*
Net Sales, as Reported $2,474 $2,461 $471 $5,407**

 

 

 

 

Volume and Mix (1)% 1% (4)% (1)%
Price and Sales Allowances -% 1% -% -%
Promotional Spending (2)% (1)% -% (1)%
Organic Net Sales (3)% 1% (4)% (2)%
Currency -% (2)% -% (1)%
Acquisitions 4% 78% -% 27%
% Change vs. Prior Year 1% 76% (4)% 25%
 
Segment Operating Earnings $549 $339 ($17)
% Change vs. Prior Year (11)% 33% -%
 
* Numbers do not add due to rounding.
** Includes Corporate
Note: A detailed reconciliation of the reported (GAAP) net sales to
organic net sales is included at the end of this news release.
 

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.

Campbell Fresh

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

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.

Reportable Segments

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.

Forward-Looking Statements

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.

       
CAMPBELL SOUP COMPANY

CONSOLIDATED STATEMENTS OF EARNINGS (unaudited)

(millions, except per share amounts)

 
 
Three Months Ended

January 27, 2019

January 28, 2018

Net sales $ 2,713   $ 2,180  
Costs and expenses
Cost of products sold 1,999 1,414
Marketing and selling expenses 264 228
Administrative expenses 180 165
Research and development expenses 23 27
Other expenses / (income) 226 70
Restructuring charges   2     33  
Total costs and expenses   2,694     1,937  
Earnings before interest and taxes 19 243
Interest, net   92     32  
Earnings (loss) before taxes (73 ) 211
Taxes on earnings   (14 )   (74 )
Net earnings (loss) (59 ) 285
Net loss attributable to noncontrolling interests        
Net earnings (loss) attributable to Campbell Soup Company $ (59 ) $ 285  
Per share – basic
Net earnings (loss) attributable to Campbell Soup Company $ (.20 ) $ .95  
Dividends $ .35   $ .35  
Weighted average shares outstanding – basic   301     301  
Per share – assuming dilution
Net earnings attributable to Campbell Soup Company $ (.20 ) $ .95  
Weighted average shares outstanding – assuming dilution   301     301  
 

Contacts

INVESTOR CONTACT:
Ken Gosnell
(856)
342-6081
ken_gosnell@campbellsoup.com

MEDIA CONTACT:
Thomas Hushen
(856)
342-5227
thomas_hushen@campbellsoup.com

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