Campbell Reports Third-Quarter Results

  • Net Earnings Per Share (EPS) of $0.28; Adjusted Net EPS of $0.56
  • Net Sales from Continuing Operations Increased 16 Percent; Total
    Combined Net Sales of $2.388 Billion; Organic Sales from Continuing
    Operations Comparable to the Prior Year
  • Campbell Fresh Segment Reported as Discontinued Operations
  • Campbell Updates Fiscal 2019 Guidance to Reflect Improved EPS Outlook
    and Divestitures
  • Campbell to Host an Investor Day on June 13, 2019

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

CEO Comments

Mark Clouse, Campbell’s President and CEO stated, “Our results this
quarter were ahead of our expectations, making it the third consecutive
quarter that we met or exceeded our outlook. I am also pleased to see
profitability trends are improving, driven by sequential gross margin
improvement.

In the quarter, we continued to drive sales growth in Global Biscuits
and Snacks, fueled by our U.S. Snacks portfolio. The business continues
its growth trends on Pepperidge Farm, coupled with improvements in the
Snyder’s-Lance portfolio. In the Meals and Beverages segment, although
there is more to do, we are making steady improvements on gross margin
and profit and this business is showing signs of stabilization.”

Background on the Presentation of Results

On April 12, 2019, the company announced that it had entered into an
agreement to sell its Bolthouse Farms business. As a result of this, and
along with the recently completed divestitures of the U.S. refrigerated
soup and Garden Fresh Gourmet businesses in the third quarter of fiscal
2019, Campbell Fresh is now reported as discontinued operations. The
following table is a summary of the third-quarter results for sales,
earnings before interest and taxes (EBIT) and EPS for continuing
operations, discontinued operations and on a total combined basis.
Prior-year results have been adjusted to conform to the current-year
presentation. A detailed reconciliation of the reported (GAAP) financial
information to the non-GAAP information is included at the end of this
news release.

           

Three Months Ended

($ in millions, except per share) Apr. 28, 2019 Apr. 29, 2018 % Change

Continuing Operations

Net Sales as Reported (GAAP) $2,178 $1,878 16%
Organic -%
 
EBIT as Reported (GAAP) $266 $158 68%
Adjusted EBIT $316 $321 (2)%
 
Diluted EPS as Reported (GAAP) $0.43 $0.24 79%
Adjusted Diluted EPS $0.56 $0.59 (5)%
 

Discontinued Operations

Net Sales $210 $247 (15)%
 
EBIT (Loss) $(17) $(633) n/m
Adjusted EBIT (Loss) $7 $(13) n/m
 
Diluted Loss Per Share as Reported (GAAP) $(0.16) $(1.55) n/m
Adjusted Diluted EPS $- $0.10 n/m
 

Total Combined Company

Combined Net Sales $2,388 $2,125 12%
 
Combined EBIT (Loss) $249 $(475) n/m
Adjusted Combined EBIT $323 $308 5%
 
Diluted Net EPS as Reported (GAAP) $0.28 $(1.31) n/m
Adjusted Diluted Net EPS $0.56 $0.70 (20)%
 
n/m – not meaningful
 

Third-Quarter Results

Continuing Operations

Sales increased 16 percent to $2.2 billion reflecting a 17-point benefit
from the acquisition of Snyder’s-Lance, which was completed on March 26,
2018, partly offset by a 1-point negative impact from currency
translation. Organic sales were comparable to the prior year as gains in
Global Biscuits and Snacks were offset by declines in Meals and
Beverages. Sales in the quarter benefited by approximately 30 basis
points from the change in the new revenue recognition standard 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 increased from 32.7 percent to 33.2 percent. Excluding
items impacting comparability, adjusted gross margin decreased 2.1
percentage points to 33.4 percent, including a 170-basis-point dilutive
mix impact from the acquisition of Snyder’s-Lance. The remaining decline
in adjusted gross margin was driven primarily by cost inflation mostly
offset by supply chain productivity improvements, lower promotional
spending, the benefit from pricing actions and the benefits from cost
savings initiatives.

Marketing and selling expenses increased 11 percent to $245 million
reflecting a 14-point increase from the inclusion of the Snyder’s-Lance
acquisition. Excluding items impacting comparability and the impact of
the acquisition, adjusted marketing and selling expenses decreased
driven primarily by lower marketing overhead and selling expenses,
including the benefits from cost savings initiatives, partly offset by
higher incentive compensation. Administrative expenses increased 8
percent to $165 million. Excluding items impacting comparability,
adjusted administrative expenses increased 28 percent to $151 million
primarily due to higher incentive compensation expense and the inclusion
of the Snyder’s-Lance acquisition. The incentive compensation headwinds
were due to lapping below-target levels in the prior-year quarter and
improved performance in fiscal 2019.

Other expenses were $20 million as compared to $35 million in the prior
year. Excluding items impacting comparability, other income decreased
from $16 million in the prior year to $8 million reflecting amortization
of intangible assets associated with acquisition of Snyder’s-Lance.

As reported EBIT was $266 million. Excluding items impacting
comparability, adjusted EBIT decreased 2 percent to $316 million driven
by declines in the base business reflecting higher adjusted
administrative costs and gross margin pressure, offset mostly by
incremental earnings from the acquisition of Snyder’s-Lance. The change
in revenue recognition had a favorable 2-point impact in the quarter.

Net interest expense was $91 million compared to $42 million in the
prior year. Excluding items impacting comparability in the prior year,
adjusted net interest expense increased $31 million reflecting the debt
associated with the acquisitions of Snyder’s-Lance and Pacific Foods, as
well as higher short-term interest rates. The tax rate was 25.1 percent
as compared to 37.1 percent in the prior year. Excluding items impacting
comparability, the adjusted tax rate decreased 6.5 percentage points
from 31.4 percent to 24.9 percent reflecting a lower U.S. federal tax
rate.

The company reported EPS from continuing operations of $0.43 per share.
Excluding items impacting comparability, adjusted EPS from continuing
operations decreased 5 percent to $0.56 per share reflecting higher
adjusted net interest expense, partly offset by a lower adjusted tax
rate. The change in revenue recognition had a favorable $0.01 per share
impact in the quarter.

Discontinued Operations

Sales decreased 15 percent to $210 million driven primarily by declines
in refrigerated soup reflecting the previously announced plans of
certain major private label customers to insource production in 2019.
Adjusted EBIT was $7 million compared to a loss of $13 million in the
prior-year quarter reflecting improved operational efficiency, including
the benefit from cost saving initiatives. The company reported a loss
from discontinued operations of $0.16 per share. Excluding items
impacting comparability, adjusted EPS from discontinued operations was
breakeven, compared to $0.10 per share in the prior year.

Total Combined Results

Total combined sales from continuing and discontinued operations
increased 12 percent to $2.4 billion reflecting a 15-point benefit from
the acquisition of Snyder’s-Lance. Adjusted combined gross margin
decreased 0.4 percentage points to 31.6 percent. Adjusted combined EBIT
increased 5 percent to $323 million reflecting incremental earnings from
the acquisition, partly offset by declines on the base business.
Adjusted net EPS was $0.56 per share compared to $0.70 per share in the
prior year.

Nine-Month Results

The following table is a summary of the nine-month results for sales,
EBIT and EPS for continuing operations, discontinued operations and on a
total combined basis.

           

Nine Months Ended

($ in millions, except per share) Apr. 28, 2019 Apr. 29, 2018 % Change

Continuing Operations

Net Sales as Reported (GAAP) $7,129 $5,743 24%
Organic (1)%
 
EBIT as Reported (GAAP) $1,010 $900 12%
Adjusted EBIT $1,134 $1,151 (1)%
 
Diluted EPS as Reported (GAAP) $1.82 $2.28 (20)%
Adjusted Diluted EPS $2.14 $2.46 (13)%
 

Discontinued Operations

Net Sales $666 $723 (8)%
 
EBIT (Loss) $(392) $(720) n/m
Adjusted EBIT (Loss) $- $(24) n/m
 
Diluted Loss Per Share as Reported (GAAP) $(1.10) $(1.73) n/m
Adjusted Diluted Earnings (Loss) per Share $(0.01) $0.16 n/m
 

Total Combined Company

Combined Net Sales $7,795 $6,466 21%
 
Combined EBIT $618 $180 n/m
Adjusted Combined EBIT $1,134 $1,127 1%
 
Diluted Net EPS as Reported (GAAP) $0.73 $0.55 33%
Adjusted Diluted Net EPS $2.13 $2.62 (19)%
 
n/m – not meaningful
 

Nine-Month Results

Continuing Operations

Sales increased 24 percent to $7.1 billion reflecting a 26-point benefit
from the acquisitions of Snyder’s-Lance and Pacific Foods. Organic sales
declined 1 percent.

As reported EBIT increased 12 percent to $1.0 billion. Excluding items
impacting comparability, adjusted EBIT decreased 1 percent to $1.1
billion reflecting declines in the base business offset mostly by
incremental earnings from the acquisitions.

The company reported EPS from continuing operations of $1.82 per share.
Excluding items impacting comparability, adjusted EPS from continuing
operations decreased 13 percent to $2.14 per share reflecting higher
adjusted net interest expense, partly offset by a lower adjusted tax
rate. The change in revenue recognition had no impact on a year-to-date
basis.

Discontinued Operations

Sales decreased 8 percent to $666 million. Adjusted EBIT was breakeven.
The company reported a loss from discontinued operations of $1.10 per
share. Excluding items impacting comparability, adjusted loss from
discontinued operations was $0.01 per share, compared to earnings of
$0.16 per share in the prior year.

Total Combined Results

Total combined sales from continuing and discontinued operations
increased 21 percent to $7.8 billion reflecting a 23-point benefit from
the acquisitions of Snyder’s-Lance and Pacific Foods. Adjusted combined
EBIT increased 1 percent to $1.1 billion. Adjusted net EPS declined 19
percent to $2.13 per share.

Cash flow from operations increased to $1.1 billion from $1.0 billion a
year ago due primarily to significant improvements from the company’s
working capital management efforts, partly offset by lower cash
earnings. In line with the company’s commitment to returning value to
shareholders, during the first nine months of fiscal 2019, the company
paid $318 million of cash dividends reflecting the quarterly dividend
rate of $0.35 per share.

Campbell Updates Fiscal 2019 Guidance

Based on the company’s improved earnings outlook for fiscal 2019 and the
impact of the Campbell Fresh divestitures, Campbell has updated its
guidance as shown in the table below. This fiscal 2019 guidance includes
an estimated 1 percentage-point negative impact from currency
translation. As mentioned earlier in this release, Campbell Fresh is now
reported as a discontinued operation and prior-year results have been
adjusted to conform to the current-year presentation.

             
($ in millions, except per share)
As Previously Disclosed Updated Results and Guidance

2018
Results*

   

Previous 2019
Guidance

2018
Results

   

Revised 2019
Guidance

 
Net Sales $8,685 $9,975 to $10,100 $7,735 $9,075 to $9,125
 
Adjusted EBIT $1,408** $1,370 to $1,410 $1,433** $1,390 to $1,410
 
Adjusted EPS from continuing operations n/a n/a $2.90** $2.50 to $2.55
 
Adjusted Net EPS $2.87** $2.45 to $2.53 $2.87** $2.50 to $2.55
 
n/a – not applicable
* Amounts represent 2018 results as previously disclosed prior to
the presentation change for discontinued operations.
** 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 as
certain amounts 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.
 

Cost Savings Program

In the third quarter of fiscal 2019, Campbell achieved $55 million in
savings under its multi-year cost savings program, inclusive of
Snyder’s-Lance synergies, bringing total program-to-date savings to $605
million. Year-to-date savings were $150 million through the first nine
months of fiscal 2019, benefiting both continuing and discontinued
operations. The previously announced cost savings target of $945 million
included $95 million of savings related to Campbell Fresh, which is now
reported as discontinued operations. For continuing operations, Campbell
is targeting cumulative annualized savings of $850 million by the end of
fiscal 2022, of which $535 million has been achieved program-to-date.

Segment Operating Review

An analysis of net sales and operating earnings by reportable segment
follows:

   

Three Months Ended Apr. 28, 2019
($
in millions)

 

Meals and
Beverages

   

Global Biscuits
and Snacks

    Total
Net Sales, as Reported $1,024 $1,154 $2,178

 

 

 

Volume and Mix (3)% 1% (1)%
Price and Sales Allowances 1% (1)% -%
Promotional Spending 1% 1% 1%
Organic Net Sales -%* 1% -%
Currency -% (2)% (1)%
Acquisition -% 38% 17%
% Change vs. Prior Year (1)%* 37% 16%
 
Segment Operating Earnings $207 $139
% Change vs. Prior Year (5)% 15%
 
* Numbers do not add due to rounding.
Note: A detailed reconciliation of the reported (GAAP) net sales to
organic net sales is included at the end of this news release.
 
   

Nine Months Ended Apr. 28, 2019
($
in millions)

 

Meals and
Beverages

   

Global Biscuits
and Snacks

    Total
Net Sales, as Reported $3,513 $3,615 $7,129**

 

 

 

Volume and Mix (1)% 1% (1)%
Price and Sales Allowances -% 1% -%
Promotional Spending (1)% -% (1)%
Organic Net Sales (2)% 1%* (1)%*
Currency -% (2)% (1)%
Acquisitions 3% 63% 26%
% Change vs. Prior Year -%* 61%* 24%
 
Segment Operating Earnings $753 $478
% Change vs. Prior Year (9)% 27%
 
* 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 decreased 1 percent to $1.024 billion. Organic
sales were comparable to the prior year reflecting mixed results, as
solid performance in Canada was offset by decreases in V8
beverages and Prego pasta sauces in the U.S. The adoption of new
accounting guidance for revenue recognition resulted in a positive
1-point impact on sales. Sales of U.S. soup were comparable to the prior
year as gains in broth were offset by moderating declines in condensed
and ready-to-serve soups.

Segment operating earnings in the quarter decreased 5 percent to $207
million. The decrease was driven primarily by cost inflation and higher
administrative expenses, partly offset by supply chain productivity
programs, lower promotional spending and the benefit of recent pricing
actions.

Global Biscuits and Snacks

Sales in the quarter increased 37 percent to $1.154 billion. Excluding
the benefit from the acquisition of Snyder’s-Lance and the negative
impact of currency translation, organic sales increased 1 percent. This
performance reflects continued solid growth in Pepperidge Farm, driven
by consumption gains in Pepperidge Farm fresh bakery products and Goldfish
crackers, offset partly by declines in the international biscuits and
snacks operating segment.

Segment operating earnings in the quarter increased 15 percent to $139
million, reflecting a 21-point benefit from the acquisition of
Snyder’s-Lance. Excluding the impact of the acquisition, segment
operating earnings decreased driven primarily by cost inflation and
higher administrative expenses, partly offset by supply chain
productivity programs.

Corporate

Corporate in the third quarter of fiscal 2019 included a pension
settlement charge of $28 million associated with a U.S. pension plan,
charges related to cost savings initiatives of $19 million, and costs of
$2 million associated with the planned divestiture of the company’s
international biscuits and snacks operating segment. Corporate in the
third quarter of fiscal 2018 included transaction and integration costs
of $72 million related to the acquisition of Snyder’s-Lance, charges
related to cost savings initiatives of $45 million, and a charge of $22
million related to the settlement of a legal claim. The remaining
increase in expenses primarily reflects losses on open commodity
contracts 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 2279106. 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 Jun.
19, 2019, at +1 (404) 537-3406. The access code for the replay is
2279106.

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. Beginning in the third quarter of fiscal 2019, the segment also
includes a portion of the U.S. refrigerated soup business that was
previously managed as part of the Campbell Fresh segment. Prior-period
segment results have been adjusted retroactively to reflect these
changes.

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.

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
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
April 28, 2019     April 29, 2018
Net sales $ 2,178   $ 1,878  
Costs and expenses
Cost of products sold 1,455 1,263
Marketing and selling expenses 245 220
Administrative expenses 165 153
Research and development expenses 26 25
Other expenses / (income) 20 35
Restructuring charges 1   24  
Total costs and expenses 1,912   1,720  
Earnings before interest and taxes 266 158
Interest, net 91   42  
Earnings before taxes 175 116
Taxes on earnings 44   43  
Earnings from continuing operations 131 73
Loss from discontinued operations (47 ) (466 )
Net earnings (loss) 84 (393 )
Net loss attributable to noncontrolling interests    
Net earnings (loss) attributable to Campbell Soup Company $ 84   $ (393 )
Per share – basic
Earnings from continuing operations attributable to Campbell Soup
Company
$ .44 $ .24
Loss from discontinued operations (.16 ) (1.55 )
Net earnings (loss) attributable to Campbell Soup Company $ .28   $ (1.31 )
Dividends $ .35   $ .35  
Weighted average shares outstanding – basic 301   301  
Per share – assuming dilution
Earnings from continuing operations attributable to Campbell Soup
Company
$ .43 $ .24
Loss from discontinued operations (.16 ) (1.55 )
Net earnings (loss) attributable to Campbell Soup Company* $ .28   $ (1.31 )
Weighted average shares outstanding – assuming dilution 302   301  

*The sum of the individual per share amounts may not add due to
rounding.

 

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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