Campbell Reports Second-Quarter Fiscal 2023 Results

CAMDEN, N.J.–(BUSINESS WIRE)–Campbell Soup Company (NYSE:CPB) today reported results for its second-quarter fiscal 2023 ended January 29, 2023.

CEO Comments

“The momentum of our business continued as we delivered double-digit sales and earnings per share growth for a second consecutive quarter. While the top line benefited from favorable net price realization, we also continued to see strong brand health. This demonstrates our powerful connection with consumers, especially as they turn to our products for the value they need to navigate the current economic environment,” said Campbell’s President and CEO, Mark Clouse. “The second-quarter results were consistent with our expectations and driven by the teams’ focused execution and improved capabilities that are turning our supply chain into a competitive advantage. We are confident in our ability to deliver strong performance for the full year as reflected in our updated fiscal 2023 guidance.”

Note: A detailed reconciliation of the reported (GAAP) financial information to the adjusted financial information is included at the end of this news release.

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.

*Numbers may not add due to rounding.

Second-Quarter Results

Net sales in the quarter increased 12% versus the prior year to $2.5 billion. Organic net sales increased 13% as favorable inflation-driven net price realization was partially offset by volume / mix declines.

Gross profit increased to $759 million from $669 million in the prior year. As a percent of sales, gross profit margin was 30.5% compared to 30.3% in the prior year. Excluding items impacting comparability, adjusted gross profit increased to $763 million from $671 million. Excluding items impacting comparability, adjusted gross profit margin increased 30 basis points to 30.7% as favorable net price realization and supply chain productivity improvements were partially offset by continued cost inflation and higher other supply chain costs as well as unfavorable volume / mix.

Marketing and selling expenses increased 10% to $217 million and represented approximately 9% of net sales. The increase was driven by higher advertising and consumer promotion expense (A&C), which increased 17% versus moderated levels in the prior year, and higher selling expenses, partially offset by increased benefits from cost savings initiatives.

Administrative expenses increased 10% to $162 million. Excluding items impacting comparability, adjusted administrative expenses increased by $13 million, or 9%, to $157 million due to higher general administrative costs and inflation, higher benefit-related costs and higher incentive compensation, partially offset by lower expenses related to the settlement of certain legal claims.

Other expenses / (income) were $0 million compared to other income of $19 million in the prior year. Excluding items impacting comparability, adjusted other expenses were $6 million compared to adjusted other income of $9 million in the prior year primarily due to lower pension and postretirement benefit income this year.

As reported EBIT increased to $350 million from $323 million in the prior year. Excluding items impacting comparability, adjusted EBIT increased 14% compared to the prior year to $362 million primarily due to higher adjusted gross profit, partially offset by higher marketing and selling expenses, higher adjusted other expenses and higher adjusted administrative expenses.

Net interest expense was $45 million compared to $46 million in the prior year. The tax rate was 23.9% compared to 23.5% in the prior year. Excluding items impacting comparability, the adjusted tax rate increased 50 basis points to 24.0% compared to 23.5% in the prior year primarily due to the impact of state tax law changes in the prior year.

As reported EPS increased to $0.77 per share compared to $0.70 per share in the prior year. Excluding items impacting comparability, adjusted EPS increased $0.11, or 16%, to $0.80 per share compared to $0.69 per share in the prior year, primarily reflecting the increase in adjusted EBIT, partially offset by a higher adjusted effective tax rate.

First-Half Results

Net sales, both reported and organic, increased 14% versus the prior year to $5.1 billion driven by favorable inflation-driven net price realization, partially offset by volume / mix declines.

As reported EBIT increased 12% compared to the prior year to $786 million. Excluding items impacting comparability, adjusted EBIT increased 15% compared to the prior year to $812 million primarily due to higher adjusted gross profit, partially offset by higher marketing and selling expenses, higher adjusted other expenses and higher adjusted administrative expenses.

Net interest expense was $91 million compared to $93 million in the prior year. The tax rate was 23.9% compared to 21.9% in the prior year. Excluding items impacting comparability, the adjusted tax rate increased 190 basis points to 23.9% compared to 22.0% in the prior year, primarily due to the favorable resolution of several tax matters and the impact of state tax law changes in the prior year.

As reported EPS increased to $1.76 per share compared to $1.56 per share in the prior year. Excluding items impacting comparability, adjusted EPS increased $0.24, or 15% compared to the prior year, to $1.82 per share primarily reflecting the increase in adjusted EBIT, lower interest expense and a benefit in a reduction of the weighted average diluted shares outstanding, partially offset by a higher adjusted tax rate.

Cash flow from operations decreased from $766 million in the prior year to $732 million primarily due to changes in working capital, partially offset by higher cash earnings. Capital expenditures were $155 million compared to $129 million in the prior year. In line with the company’s commitment to return value to its shareholders, the company paid $226 million of cash dividends and repurchased common stock of approximately $66 million. At the end of the second quarter, the company had approximately $375 million remaining under the current $500 million strategic share repurchase program and approximately $106 million remaining under its $250 million anti-dilutive share repurchase program.

Cost Savings Program from Continuing Operations

In the second quarter, Campbell achieved $10 million of total savings under its multi-year cost savings program, inclusive of Snyder’s-Lance integration synergies, bringing total program-to-date cost savings to $870 million. Campbell remains on track to deliver savings of $1 billion by the end of fiscal 2025.

Full-Year Fiscal 2023 Guidance

Campbell is raising its full-year fiscal 2023 net sales outlook and raising the midpoint of its adjusted EBIT and adjusted EPS outlook from the guidance provided on December 7, 2022. The higher revenue expectations reflect the strength of Campbell’s brands with price elasticities remaining favorable to historical norms and continued strong supply chain execution.

Updated adjusted EBIT and adjusted EPS guidance reflect planned investment to sustain momentum and value for consumers, as well as higher year-over-year estimated pension and post retirement headwinds.

Fiscal year 2023 pre-tax pension and post-retirement benefit income is now expected to be lower by approximately $45 million, or $0.12 per share, compared to the prior year. This represents approximately 3.5% of adjusted EBIT growth and approximately 4% of adjusted EPS growth, a 50-basis point increase from previous estimates as a result of interim remeasurements. The plans continue to be well-funded.

The full-year fiscal 2023 guidance is set forth in the table below:

* 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 fiscal 2023 guidance as the company is unable to reasonably estimate the full-year financial impact of items such as actuarial gains or losses on pension and postretirement plans because these impacts are dependent on future changes in market conditions. The inability to predict the amount and timing of these future items makes a detailed reconciliation of these forward-looking financial measures impracticable.

Segment Operating Review

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

*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.

*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.

Meals & Beverages

Net sales increased 10%. Organic net sales increased 11% in the quarter primarily due to increases in U.S. retail products, including U.S. soup, Prego pasta sauces and Pace Mexican sauces, as well as gains in foodservice. Favorable net price realization was partially offset by modest volume / mix declines. Sales of U.S. soup increased 7% primarily due to increases in ready-to-serve soups and condensed soups.

Operating earnings in the quarter increased 17% primarily due to higher gross profit, partially offset by higher marketing and selling expenses. Gross profit margin increased slightly due to the impact of favorable net price realization and supply chain productivity improvements, partially offset by higher cost inflation and other supply chain costs and unfavorable volume / mix.

Snacks

Net sales, both reported and organic, increased 15% driven by sales of power brands, which were up 20%. Sales growth was driven by increases in cookies and crackers, primarily Goldfish crackers and Pepperidge Farm cookies, and in salty snacks, primarily Snyder’s of Hanover pretzels, Snack Factory pretzel crisps, and Kettle Brand potato chips. Sales benefited from favorable net price realization and volume / mix increases lapping significant supply constraints in the prior year.

Operating earnings in the quarter increased 24% primarily due to higher gross profit, partially offset by higher marketing and selling expenses. Gross profit margin increased due to the impact of favorable net price realization and supply chain productivity improvements, partially offset by higher cost inflation and other supply chain costs.

Corporate

Corporate expense was $40 million in the second quarter of fiscal 2023 compared to $11 million in the prior year. Corporate expense in the current quarter included costs of $5 million related to cost savings initiatives, unrealized mark-to-market losses on outstanding undesignated commodity hedges of $4 million and pension actuarial gains of $6 million. Corporate expense in the second quarter of fiscal 2022 included costs of $5 million related to cost savings initiatives and pension actuarial gains of $10 million. After factoring in these items, the remaining increase in Corporate expense was primarily due to lower pension and postretirement benefit income and higher administrative expenses.

Reportable Segments

Campbell Soup Company earnings results are reported as follows:

Meals & Beverages, which consists of our soup, simple meals and beverage products in retail and foodservice in U.S. and Canada. The segment includes the following products: Campbell’s condensed and ready-to-serve soups; Swanson broth and stocks; Pacific Foods broth, soups and non-dairy beverages; Prego pasta sauces; Pace Mexican sauces; Campbell’s gravies, pasta, beans and dinner sauces; Swanson canned poultry; V8 juices and beverages; and Campbell’s tomato juice. The segment also includes snacking products in foodservice and Canada.

Snacks, which consists of Pepperidge Farm cookies*, crackers, fresh bakery and frozen products, including Goldfish crackers*, Snyder’s of Hanover pretzels*, Lance sandwich crackers*, Cape Cod potato chips*, Kettle Brand potato chips*, Late July snacks*, Snack Factory pretzel crisps*, Pop Secret popcorn, Emerald nuts, and other snacking products in retail in the U.S. We refer to the * brands as our “power brands.” The segment also includes the retail business in Latin America.

About Campbell Soup Company

For more than 150 years, Campbell (NYSE:CPB) has been connecting people through food they love. Generations of consumers have trusted Campbell to provide delicious and affordable food and beverages. Headquartered in Camden, N.J. since 1869, Campbell generated fiscal 2022 net sales of nearly $8.6 billion. Our portfolio includes iconic brands such as Campbell’s, Cape Cod, Goldfish, Kettle Brand, Lance, Late July, Milano, Pace, Pacific Foods, Pepperidge Farm, Prego, Snyder’s of Hanover, Swanson and V8. Campbell has a heritage of giving back and acting as a good steward of the environment. The company is a member of the Standard & Poor’s 500 as well as the FTSE4Good and Bloomberg Gender-Equality Indices. For more information, visit www.campbellsoupcompany.com or follow company news on Twitter via @CampbellSoupCo.