Camden / NJ. (csc) Campbell Soup Company reported its fourth-quarter and full-year results for fiscal 2018.
|Three Months Ended||Twelve Months Ended|
|(USD in millions, except per share)||2018-07-29||2017-07-30||Change||2018-07-29||2017-07-30||Change|
|As Reported (GAAP)||USD 2,219||USD 1,664||33%||USD 8,685||USD 7,890||10%|
|Earnings Before Interest and Taxes|
|As Reported (GAAP)||USD 289||USD 440||(34%)||USD 469*||USD 1,400||(67%)|
|Adjusted||USD 281||USD 282||-%||USD 1,408||USD 1,492||(6%)|
|Diluted Earnings Per Share|
|As Reported (GAAP)||USD 0.31||USD 1.04||(70%)||USD 0.86||USD 2.89||(70%)|
|Adjusted||USD 0.25||USD 0.52||(52%)||USD 2.87||USD 3.04||(6%)|
|*Includes previously reported impairment charges primarily 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.|
Keith McLoughlin, Campbell’s interim President and CEO said, «Fiscal 2018 was a challenging year for Campbell. These results and our outlook for fiscal 2019 reinforce the need for the significant actions we announced this morning as part of our comprehensive, Board-led strategy and portfolio review. We believe these actions will put us on a path to create sustainable shareholder value».
Items Impacting Comparability
|Diluted Earnings Per Share||Three Months Ended||Twelve Months Ended|
|As Reported (GAAP)||USD 0.31||USD 1.04||USD 0.86||USD 2.89|
|Impairment charges related to Campbell Fresh segment and Plum trademark||USD 0.14||–||USD 2.03||USD 0.59|
|Restructuring charges, implementation costs and other related costs associated with cost savings initiatives||USD 0.11||USD 0.09||USD 0.45||USD 0.12|
|Transaction and integration costs related to the acquisition of Snyder’s-Lance||USD 0.03||–||USD 0.24||–|
|Claim settlement||–||–||USD 0.05||–|
|Pension and post-retirement benefit mark-to-market adjustments||(USD 0.31)||(USD 0.42)||(USD 0.34)||(USD 0.38)|
|Non-recurring net tax benefit related to U.S. Tax Reform||(USD 0.02)||–||(USD 0.42)||–|
|Sale of notes||–||(USD 0.18)||–||(USD 0.18)|
|Adjusted||USD 0.25*||USD 0.52*||USD 2.87||USD 3.04|
|*Numbers do not add due to rounding.|
Sales increased 33 percent to USD 2.219 billion reflecting a 36-point benefit from the recent acquisitions of Snyder’s-Lance and Pacific Foods. Organic sales declined 3 percent driven primarily by decreases in Americas Simple Meals and Beverages.
Gross margin decreased from 35.9 percent to 29.2 percent. Excluding items impacting comparability, adjusted gross margin decreased 5.6 percentage points to 30.6 percent including a 3-point negative impact from the recent acquisitions. The remaining decline in adjusted gross margin was driven primarily by cost inflation and higher supply chain costs, costs associated with the voluntary recall of flavor-blasted Goldfish crackers on July 23, 2018, unfavorable mix and higher promotional spending, partly offset by productivity improvements and the benefits from cost savings initiatives.
Marketing and selling expenses increased 29 percent to USD 223 million due primarily to 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 declined slightly. Administrative expenses increased 25 percent to USD 177 million due primarily to the inclusion of the recent acquisitions. Excluding items impacting comparability and the impact of the recent acquisitions, adjusted administrative expenses were comparable to the prior year as consulting costs incurred in connection with the Board-led strategic review and higher benefit costs were offset by lower incentive compensation expenses.
Other income was USD 69 million as compared to USD 206 million in the prior year. Excluding items impacting comparability, adjusted other income decreased USD 7 million to USD 1 million.
Ebit decreased 34 percent to USD 289 million. Excluding items impacting comparability, adjusted Ebit of USD 281 million was comparable to the prior year as the net benefit of the recent acquisitions of Snyder’s-Lance and Pacific Foods was offset by declines on the base business.
Net interest expense was USD 93 million compared to USD 23 million in the prior year. Excluding items impacting comparability in the prior year, adjusted net interest expense increased USD 64 million due to debt associated with the acquisition of Snyder’s-Lance and higher average interest rates on the debt portfolio. The tax rate was 52.0 percent as compared to 23.7 percent in the prior year. Excluding items impacting comparability, the adjusted tax rate increased 21.8 percentage points to 59.0 percent as the timing of tax expense on an adjusted basis was negatively impacted by impairment charges, as described last quarter.
Earnings were USD 0.31 per share in the quarter compared to USD 1.04 in the prior year. Excluding items impacting comparability, adjusted EPS decreased 52 percent to USD 0.25 per share, reflecting a higher adjusted tax rate, adjusted Ebit declines on the base business and the dilutive impact of the recent acquisitions.
Sales increased 10 percent to USD 8.685 billion driven by an 11-point benefit from the recent acquisitions of Snyder’s-Lance and Pacific Foods. Organic sales declined 2 percent driven primarily by decreases in Americas Simple Meals and Beverages, partly offset by gains in Global Biscuits and Snacks.
Ebit decreased from USD 1.400 billion to USD 469 million. Excluding items impacting comparability, adjusted Ebit decreased 6 percent to USD 1.408 billion reflecting performance of the base business, partly offset by incremental earnings from the recent acquisitions. Ebit declines in the base business were driven primarily by lower gross margin performance, including the impact of organic sales declines, partly offset by an increase in adjusted other income and lower marketing and selling expenses.
Net interest expense was USD 197 million compared to USD 107 million in the prior year. Excluding items impacting comparability, adjusted net interest expense increased USD 102 million to USD 215 million due to debt associated with the acquisition of Snyder’s-Lance and higher average interest rates on the debt portfolio. The tax rate was 4.0 percent as compared to 31.4 percent in the prior year reflecting the one-time favorable net tax benefit recorded as part of the Tax Cuts and Jobs Act. Excluding items impacting comparability, the adjusted tax rate decreased 5.2 percentage points to 27.2 percent, due primarily to the lower U.S. federal tax rate.
The company reported EPS of USD 0.86. Excluding items impacting comparability, adjusted EPS decreased 6 percent to USD 2.87 per share, reflecting Ebit declines on the base business and the dilutive impact of the recent acquisitions, partly offset by a lower adjusted tax rate and the benefit of lower weighted average shares outstanding.
Cash flow from operations increased to USD 1.305 billion from USD 1.291 billion a year ago. The year-over-year increase was due primarily to lower working capital requirements, partly offset by lower cash earnings.
Segment Operating Review
Americas Simple Meals and Beverages: Sales in the quarter decreased 1 percent to USD 789 million. Organic sales decreased 6 percent driven primarily by declines in U.S. soup and Canada. Excluding the benefit from the acquisition of Pacific Foods, sales of U.S. soup decreased 14 percent driven by declines in condensed soups, ready-to-serve soups and broth. Shipment declines of U.S. soup reflect increased competitive pressure across the market. Segment operating earnings decreased 21 percent to USD 155 million. The decrease was driven primarily by a lower gross margin percentage.
Global Biscuits and Snacks: Sales in the quarter increased 87 percent to USD 1.202 billion. Excluding the benefit from the acquisition of Snyder’s-Lance, organic sales were comparable to the prior year as gains in Pepperidge Farm cookies were offset by declines of Arnott’s biscuits in Indonesia and Goldfish crackers. Sales of Goldfish crackers were negatively impacted by the voluntary product recall.
Segment operating earnings increased 42 percent to USD 158 million, reflecting a 45-point benefit from the acquisition of Snyder’s-Lance. Excluding the impact of the acquisition, segment operating earnings declined due primarily to a lower gross margin percentage, including the adverse impact from the voluntary product recall, partly offset by lower marketing and selling expenses and lower administrative expenses. The voluntary product recall had a negative 2-point impact on segment sales and a negative 14-point impact on operating earnings.
Campbell Fresh: Sales in the quarter increased 1 percent to USD 228 million driven primarily by higher sales of Garden Fresh Gourmet and carrot ingredients, partly offset by declines in Bolthouse Farms refrigerated beverages. Segment operating loss was USD 7 million compared to a loss of USD 8 million in the prior year.
Corporate in the fourth quarter of fiscal 2018 included pension and postretirement mark-to-market and curtailment gains of USD 122 million, non-cash impairment charges of USD 54 million related to the Plum trademark, charges related to cost savings initiatives of USD 46 million, and transaction and integration costs of USD 11 million related to the acquisition of Snyder’s-Lance. Corporate in the fourth quarter of fiscal 2017 included pension and postretirement mark-to-market gains of USD 198 million and charges related to cost savings initiatives of USD 22 million. The remaining increase in expenses primarily reflects losses on open commodity contracts as compared to gains in the year-ago quarter.
Cost Savings Program
In the fourth quarter of fiscal 2018, Campbell achieved USD 30 million in savings under its multi-year cost savings program, bringing total program-to-date savings to USD 420 million. Based on the strategic actions announced separately this morning following the comprehensive Board-led strategy and portfolio review, as well as the identification of additional savings opportunities, Campbell has increased the annualized savings target to USD 650 million by the end of fiscal 2022 from USD 500 million by fiscal 2020. These actions bring Campbell’s expected total savings targets, including the expected Snyder’s-Lance savings of USD 295 million, to USD 945 million.