Camden / NJ. (csc) Campbell Soup Company reported its third-quarter results for fiscal 2016. As reported sales and organic sales decreased 2 percent. As reported earnings before interest and taxes (Ebit) decreased 6 percent, as reported Earnings per share (EPS) of 0.59 USD increased 4 percent. Adjusted Ebit decreased 5 percent. Adjusted EPS of 0.65 USD decreased 2 percent. Campbell raises adjusted EPS guidance range, now expects adjusted EPS growth of plus 11 to plus 13 percent, or 2.93 USD to 3.00 USD per share.
| Three Months Ended | Nine Months Ended | |||||||||||
| (USD in millions, except per share) | May 01, 2016 | May 03, 2015 | % Change | May 01, 2016 | May 03, 2015 | % Change | ||||||
| Net Sales | ||||||||||||
| As Reported (GAAP) | USD 1’870 | USD 1’900 | (2)% | USD 6’274 | USD 6’389 | (2)% | ||||||
| Organic | (2)% | (1)% | ||||||||||
| Earnings Before Interest and Taxes | ||||||||||||
| As Reported (GAAP) | USD 268 | USD 285 | (6)% | USD 997 | USD 1’011 | (1)% | ||||||
| Adjusted | USD 312 | USD 329 | (5)% | USD 1’214 | USD 1’055 | 15% | ||||||
| Diluted Earnings Per Share | ||||||||||||
| As Reported (GAAP) | USD 0.59 | USD 0.57 | 4% | USD 2.07 | USD 2.07 | -% | ||||||
| Adjusted | USD 0.65 | USD 0.66 | (2)% | USD 2.48 | USD 2.15 | 15% | ||||||
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CEO Comments
Denise Morrison, Campbell’s President and Chief Executive Officer, said, «Despite what continues to be a very challenging consumer environment, Campbell remains focused on becoming a leaner, more effective and efficient company. We’re unsatisfied with our third-quarter organic sales growth, which was largely due to a weaker U.S. soup season, some challenges in V8 beverages and a weather-related disruption to our fresh carrot supply. Importantly, we understand the factors affecting our top-line performance and are addressing them. Year-to-date organic sales are down slightly. We expect organic sales to grow in the fourth quarter and next fiscal year, behind more robust innovation and marketing. Third-quarter adjusted Ebit declined, but was better than expected. Our year-to-date adjusted Ebit increase of 15 percent reflects our improved gross margin performance and the benefits of our three-year cost savings program and organization redesign. Today we updated our guidance, raising our outlook for adjusted EPS. We continue to stay focused on driving sustainable, profitable net sales growth and creating shareholder value».
Third-Quarter Results
Sales decreased 2 percent to 1.870 billion USD driven by a decline in organic sales and the adverse impact of currency translation, partly offset by the benefit from the acquisition of Garden Fresh Gourmet. Organic sales decreased 2 percent driven by lower volume and higher promotional spending, partly offset by higher selling prices.
Gross margin decreased from 35.9 percent to 35.3 percent. Excluding items impacting comparability, adjusted gross margin increased 0.4 points. The increase in adjusted gross margin was primarily driven by productivity improvements and higher selling prices, partially offset by higher supply chain costs and inflation, as well as higher promotional spending. The increase in supply chain costs was primarily driven by higher carrot costs in the quarter due to the adverse impact of weather conditions on crop yields.
Marketing and selling expenses increased 7 percent to 228 million USD. Excluding items impacting comparability, adjusted marketing and selling expenses increased 5 percent to 219 million USD primarily due to higher advertising and consumer promotion expenses. Administrative expenses increased 8 percent to 154 million USD. Excluding items impacting comparability, adjusted administrative expenses increased 4 percent to 132 million USD primarily due to higher incentive compensation costs, as well as inflation, an increase in costs to support long-term innovation and the acquisition of Garden Fresh Gourmet, partly offset by the benefits from cost savings initiatives.
Ebit decreased 6 percent to 268 million USD. Excluding items impacting comparability, adjusted Ebit decreased 5 percent to 312 million USD reflecting higher advertising and consumer promotion expenses, higher administrative expenses and lower volumes, partly offset by a higher gross margin percentage.
Net interest expense of 28 million USD was comparable to the prior year. The tax rate decreased 7.5 percentage points to 22.9 percent. Excluding items impacting comparability, the adjusted tax rate decreased 3.1 percentage points to 28.5 percent primarily due to lower taxes on foreign earnings, partly offset by the geographic mix of earnings.
Nine-Month Results
Sales decreased 2 percent to 6.274 billion USD driven by the adverse impact of currency translation and a decline in organic sales, partly offset by the benefit from the acquisition of Garden Fresh Gourmet. Organic sales decreased 1 percent driven by lower volume, partly offset by higher selling prices.
Ebit decreased 1 percent to 997 million USD. Excluding items impacting comparability, adjusted Ebit increased 15 percent to 1.214 billion USD reflecting a higher adjusted gross margin percentage and the benefits from cost savings initiatives, partly offset by higher incentive compensation costs, the adverse impact of currency translation and volume declines.
Net interest expense increased 5 million USD to 83 million USD reflecting higher average interest rates on the debt portfolio. The tax rate decreased 0.9 percentage points to 29.5 percent. Excluding items impacting comparability, the adjusted tax rate increased 1.0 percentage point to 31.8 percent. This increase was primarily due to the geographic mix of earnings, and lapping the favorable resolution of an intercompany pricing agreement between the U.S. and Canada in the prior year, partly offset by lower taxes on foreign earnings.
Cash flow from operations increased to 1.183 billion USD from 971 million USD a year ago primarily due to higher cash earnings and lower working capital requirements.
Fiscal 2016 Guidance
Campbell has updated its fiscal 2016 guidance. Campbell expects sales to change by -1 to 0 percent (unchanged from previous guidance); adjusted Ebit to grow by 11 to 13 percent (previously 10 to 13 percent); and adjusted EPS to grow by 11 to 13 percent (previously 9 to 12 percent), or 2.93 USD to 3.00 USD per share. This guidance includes an estimated 2 percentage-point negative impact from currency translation, as well as the impact of the Garden Fresh Gourmet acquisition.
| (USD in millions, except per share) | Fiscal 2015 Results | Estimated Currency Translation Impact | Garden Fresh Gourmet Acquisition | Revised 2016 Guidance | ||||
| Net Sales | USD 8’082 | -2 pts | +1 pt | -1 to 0% | ||||
| Adjusted Ebit | USD 1’316* | -2 pts | +1 pt | +11 to +13%** | ||||
| Adjusted EPS | USD 2.65* | -2 pts -0.06 USD | ? | +11 to +13%** 2.93 to 3.00 USD** |
* Adjusted – see non-GAAP reconciliation.
** A non-GAAP reconciliation is not provided for 2016 guidance since certain items are not estimable, such as pension and postretirement benefit mark-to-market adjustments, and these items are not considered to be part of the company’s ongoing business results.
Segment Operating Review
An analysis of net sales and operating earnings by reportable segment follows:
Three Month Ended May 01, 2016
| (USD in millions) | Americas Simple Meals and Beverages | Global Biscuits and Snacks | Campbell Fresh | Total | ||||
| Net Sales, as Reported | USD 999 | USD 608 | USD 263 | USD 1’870 | ||||
| Volume and Mix | (2)% | -% | (2)% | (2)% | ||||
| Price and Sales Allowances | 1% | 1% | -% | 1% | ||||
| Promotional Spending | (1)% | (2)% | (2)% | (1)% | ||||
| Organic Net Sales | (2)% | (1)% | (4)% | (2)% | ||||
| Currency | (1)% | (2)% | -% | (1)% | ||||
| Acquisitions | -% | -% | 10% | 1% | ||||
| % Change versus Prior Year | (3)% | (2)%* | 6% | (2)% | ||||
| Segment Operating Earnings | USD 225 | USD 86 | USD 13 | |||||
| % Change versus Prior Year | 1% | (8)% | (28)% |
* Numbers do not add due to rounding.
Note: A detailed reconciliation of the reported net sales to organic net sales is included at the end of this news release.
Nine Month Ended May 01, 2016
| (USD in millions) | Americas Simple Meals and Beverages | Global Biscuits and Snacks | Campbell Fresh | Total | ||||
| Net Sales, as Reported | USD 3’538 | USD 1’942 | USD 794 | USD 6’274 | ||||
| Volume and Mix | (3)% | -% | (1)% | (2)% | ||||
| Price and Sales Allowances | 2% | 1% | -% | 1% | ||||
| Promotional Spending | -% | -% | (1)% | -% | ||||
| Organic Net Sales | (1)% | 1% | (2)% | (1)% | ||||
| Currency | (1)% | (5)% | -% | (2)% | ||||
| Acquisitions | -% | -% | 10% | 1% | ||||
| % Change versus Prior Year | (3)%* | (4)% | 8% | (2)% | ||||
| Segment Operating Earnings | USD 878 | USD 341 | USD 52 | |||||
| % Change versus Prior Year | 15% | 11% | 30% |
* Numbers do not add due to rounding.
Note: A detailed reconciliation of the reported net sales to organic net sales is included at the end of this news release.
Americas Simple Meals and Beverages
Sales decreased 3 percent in the quarter to 999 million USD. Excluding the negative impact of currency translation, segment sales decreased 2 percent driven by declines in soup and V8 beverages, partly offset by gains in Prego pasta sauces and Plum products. U.S. soup sales decreased 5 percent driven by declines in ready-to-serve and condensed soups, partly offset by gains in broth. Segment operating earnings increased 1 percent to 225 million USD. The increase was primarily driven by a higher gross margin percentage, partly offset by lower volumes and increased marketing and selling expenses.
Global Biscuits and Snacks
Sales decreased 2 percent in the quarter to 608 million USD. Excluding the negative impact of currency translation, segment sales decreased 1 percent driven by declines in Kelsen, partly offset by gains in Pepperidge Farm Goldfish crackers, and soups and beverages in Australia. Excluding the negative impact of currency translation, sales of Arnott’s biscuits were comparable to the prior year with gains in Indonesia offset by declines in sweet biscuit varieties in Australia. Segment operating earnings declined 8 percent to 86 million USD. The decrease was primarily driven by higher incentive compensation costs and the negative impact of currency translation.
Campbell Fresh
Sales increased 6 percent in the quarter to 263 million USD. Excluding the impact from the acquisition of Garden Fresh Gourmet, segment sales declined 4 percent reflecting lower sales in carrots, partly offset by gains in Bolthouse Farms premium refrigerated beverages and salad dressings. Segment operating earnings decreased 28 percent to 13 million USD. The decrease in operating earnings was primarily driven by higher carrot costs, partly offset by productivity improvements. Sales and costs of carrots were negatively impacted in the quarter by the adverse impact of weather conditions on crop yields.
Unallocated Corporate Expenses
Unallocated corporate expenses for the quarter were 54 million USD compared to 40 million USD in the prior year. The current quarter included 54 million USD of charges related to a pension benefit mark-to-market adjustment and 13 million USD of charges related to the implementation of the new organizational structure and cost savings initiatives. The current quarter also included a 25 million USD gain from the settlement of a claim related to the Kelsen acquisition. The prior-year quarter included 26 million USD of charges related to a pension and postretirement benefit mark-to-market adjustment and 9 million USD of charges related to the implementation of the new organizational structure and cost savings initiatives. The remaining increase in expenses was primarily related to higher incentive compensation costs.
