Camden / NJ. (csc) Campbell Soup Company reported its first-quarter results for fiscal 2020. Mark Clouse, Campbell’s President and CEO, stated, «Our performance to start the new fiscal year was largely in-line with our expectations and builds upon the solid foundation we set in fiscal 2019. I was especially pleased that our in-market consumption grew more than 1 percent in measured channels. Additionally, we grew soup share for the first time in 10 quarters, one of the early signs of progress in our three-year journey to revitalize this business. Strong in-market consumption on U.S. soup was offset by the timing of shipments related to the Thanksgiving holiday. In Snacks, we delivered another quarter of strong marketplace performance with 8 of 9 power brands growing or holding share, while we continued to make steady progress integrating the business and delivering cost synergies.»
First-Quarter Results from Continuing Operations
Reported and organic sales decreased 1 percent driven by declines in Meals + Beverages offset partly by gains in Snacks.
Gross margin increased from 33.0 percent to 33.8 percent. Excluding items impacting comparability in the prior year, adjusted gross margin increased 0.3 percentage points driven primarily by productivity improvements, the benefits from cost savings initiatives, and the benefit of recent pricing actions, offset partly by cost inflation and higher promotional spending.
Marketing and selling expenses decreased 2 percent to USD 206 million. Excluding items impacting comparability in the prior year, adjusted marketing and selling expenses decreased 1 percent as increased investments in advertising and consumer promotion expenses were more than offset by the benefits of cost savings initiatives. Administrative expenses decreased 9 percent to USD 134 million. Excluding items impacting comparability, adjusted administrative expenses decreased 7 percent, reflecting the benefits of cost savings initiatives.
Other expenses were USD 56 million. Excluding items impacting comparability in the current year, adjusted other income was USD 8 million compared to USD 0 in the prior-year period. The year-over-year change in adjusted other income reflects lower losses on investments and higher pension and postretirement benefit income.
As reported Ebit decreased 3 percent to USD 317 million. Excluding items impacting comparability, adjusted Ebit increased 6 percent to USD 392 million as sales declines were more than offset by lower adjusted administrative expenses, higher adjusted other income and improved gross margin performance.
Net interest expense was USD 80 million compared to USD 90 million in the prior year reflecting lower levels of debt. The tax rate was 28.7 percent as compared to 23.7 percent in the prior year. Excluding items impacting comparability, the adjusted tax rate increased 0.2 percentage points to 24.0 percent.
The company reported EPS of USD 0.56. Excluding items impacting comparability, adjusted EPS increased 10 percent to USD 0.78 per share, reflecting the increase in adjusted Ebit and lower interest expense.
Cash flow from operations decreased to USD 182 million from USD 231 million a year ago primarily related to incentive compensation. During the first quarter of fiscal 2020, the company paid USD 107 million of cash dividends, or the equivalent of USD 0.35 per share, to common stock shareholders.
Campbell Updates Fiscal 2020 Net Sales Guidance
On Oct. 11, 2019, Campbell completed the sale of the European chips business. The results of this business up through the time of sale have been reported as continuing operations within the Snacks segment. As a result, the outlook for fiscal 2020 has been updated to reflect a 2-point negative impact on net sales for the remainder of the year. Fiscal 2020 comprises 53 weeks, one additional week compared to fiscal 2019. The benefit of the 53rd week, consistent with the prior fiscal 2020 guidance, is estimated to be worth 2 points of net sales, adjusted Ebit and adjusted EPS. The outlook for organic net sales remains unchanged, as it excludes the negative impact from the sale of the European chips business, along with the estimated contribution of the 53rd week. Expected net proceeds of approximately USD 3 billion from the divestitures of Campbell Fresh, Campbell International and the European chips business are being used to reduce debt. This guidance takes into account the expected impact of the paydown on the company’s interest expense in fiscal 2020.
As a result, the fiscal 2020 outlook for organic net sales, adjusted Ebit and adjusted EPS for continuing operations, as shown in the table below, remains unchanged from guidance provided on Aug. 30, 2019.
Cost Savings Program from Continuing Operations
In the first quarter of fiscal 2020, Campbell achieved USD 45 million in savings under its multi-year cost savings program, inclusive of Snyder’s-Lance synergies, bringing total program-to-date savings to USD 605 million. As previously announced, the company expects to deliver cumulative annualized savings of USD 850 million by the end of fiscal 2022.
Segment Operating Review
Meals + Beverages
Sales decreased 3 percent to USD 1.2 billion driven primarily by the timing of U.S. soup shipments, as well as declines in foodservice, offset partly by gains in Prego pasta sauces. Sales of U.S. soup decreased 3 percent with shipments lagging in-market consumption by 2 points, which were negatively impacted by movements in retailer inventory levels in both broth and condensed soups related to the timing of the Thanksgiving holiday. Sales of ready-to-serve soups were comparable to the prior year.
Segment operating earnings decreased 3 percent to USD 282 million. The decrease was driven primarily by cost inflation and sales declines offset partly by the benefits of cost savings initiatives and supply chain productivity programs.
Sales increased 2 percent to USD 1.0 billion driven primarily by gains in Goldfish crackers, fresh bakery products, and Pepperidge Farm cookies, as well as gains in Cape Cod and Kettle Brand potato chips, offset partly by declines in the partner brands within the Snyder’s-Lance portfolio as we continue our planned prioritization of select partners to reduce complexity and improve execution.
Segment operating earnings of USD 125 million were comparable to the prior year as the benefits of cost savings initiatives and supply chain productivity programs were offset by cost inflation and increased marketing support.
Corporate expenses included charges related to the sale of the European chips business of USD 64 million and costs related to cost savings initiatives of USD 8 million. Corporate expenses in the first quarter of fiscal 2019 included costs related to cost savings initiatives of USD 27 million. The remaining decrease in expenses primarily reflects gains on open commodity contracts, lower losses on investments, lapping costs in the prior year related to the 2019 proxy contest, and higher pension and postretirement benefit income.
The results for Campbell Fresh and Campbell International are reported as discontinued operations. The company completed the divestiture of the Campbell Fresh segment in fiscal 2019 and the divestiture of Kelsen Group on Sept. 23, 2019. The company expects to close the sale of Arnott’s and certain of Campbell’s international operations in the second quarter of fiscal 2020. The company reported a loss from discontinued operations for fiscal 2020 of USD 0.01 per share compared to a gain of USD 0.05 per share in the prior year. Excluding items impacting comparability, the adjusted earnings from discontinued operations were USD 0.08 per share compared to USD 0.09 per share in the prior year.