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01/11 03:34
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
The earnings call reveals several concerns: declining soup and snacks performance, margin pressures from tariffs, and a negative EPS outlook for fiscal '26. Despite some positive developments like Rao's growth and cost-saving initiatives, the overall sentiment is weighed down by declining margins, tariff impacts, and unclear guidance on mitigating these issues. The Q&A section highlights analysts' concerns over tariff mitigation sustainability and productivity savings risks. The lack of aggressive pricing to offset tariffs and unclear management responses further contribute to a negative sentiment.
In-market consumption Declined 1% year-over-year in Q4. Organic net sales declined 3%, primarily due to favorable shipment timing in Q3 reversing in Q4. Excludes a 7-point positive impact from the additional week and a 3-point negative impact from divestitures (Pop Secret and noosa).
Net sales (Q4) Increased 1% year-over-year. Adjusted EBIT and adjusted EPS both decreased 2% year-over-year.
Net sales (Full year) Grew 6% year-over-year, primarily due to the Sovos acquisition. Adjusted EBIT increased 2%. Full-year volume declined 1%, but pro forma year-over-year volume would have been flat if Sovos was owned for the full period. Adjusted EPS was $2.97, including a $0.02 impact from tariffs.
Meals & Beverages leadership brands Consumption increased 1% in Q4 and 2% for the full year. Gained 0.2 share points in Q4. Growth driven by condensed cooking soups, broth, and Italian sauces. Swanson share eased in Q4 due to promotional timing shifts.
Snacks leadership brands Consumption declined 2% in Q4. Pepperidge Farm held share, and Snack Factory grew share by 0.7 points. Sequential improvement in net sales and in-market consumption for Kettle and Late July brands.
Soup portfolio Dollar-share declined by 0.8 points in Q4 due to the discontinuation of the Well Yes! brand. Broth consumption grew 7%, driven by increased usage per buyer and private label service challenges. Condensed portfolio saw its seventh consecutive quarter of dollar share growth.
Italian sauce portfolio Dollar consumption grew 4% in Q4, outpacing the category's 2% growth. Rao's consumption returned to high single-digit growth, and Prego consumption was flat. Rao's grew dollar share by 1.2 points.
Snacks portfolio Consumption declined 2% in Q4. Milano White Chocolate innovation drove a 27% increase in Milano dollar consumption, lifting overall Pepperidge Farm cookies consumption by 3%. Goldfish showed sequential improvements in dollar consumption and share performance.
Adjusted gross profit margin (Q4) Declined 90 basis points to 30.5%, driven by higher cost inflation and tariffs (30-basis point impact). Partially offset by supply chain productivity improvements and favorable net price realization.
Operating cash flow (Full year) Generated $1.13 billion, slightly lower than the prior year due to changes in working capital and tariff mitigation strategies. Capital expenditures were $426 million, 18% lower than the prior year.
Innovation contribution: Innovation contributed approximately 3% to net sales in fiscal '25, with products like avocado oil Kettle Brand Chips, Pacific flavored bone broths, and Pepperidge Farm Milano White Chocolate cookies driving growth.
FD&C color removal: Campbell's will no longer produce food or beverages with FD&C colors starting in the second half of fiscal '26.
New product launches: Introduced Swanson's first-ever ramen broth and expanded Pacific flavored bone broth offerings with new flavors.
Category comparison changes: Starting fiscal '26, Cape Cod and Kettle Brand will be compared against the total potato chip category, and Late July against the total tortilla chip category, to better reflect market positioning.
Italian sauce growth: Rao's brand grew dollar share by 1.2 points in Q4, with high single-digit consumption growth, and is on track to become a billion-dollar brand.
Cost savings initiatives: Delivered $145 million in cost savings in fiscal '25 and increased the target to $375 million by fiscal '28.
Tariff mitigation: Mitigation strategies are expected to offset 60% of the 4% cost of products sold impact from tariffs in fiscal '26.
Growth Office establishment: Focused on consumer insights, integrated marketing, innovation, and revenue growth management to drive enterprise-wide growth.
Digital transformation: Investing in digital transformation to enhance agility, efficiency, and effectiveness.
Tariff Impact: The company anticipates a significant impact from tariffs in fiscal 2026, projected at approximately 4% of the cost of products sold. Despite mitigation efforts, tariffs remain a headwind to earnings.
Consumer Spending Behavior: Consumers remain cautious and intentional with their spending, seeking value through at-home cooking and premium experiences. This behavior creates challenges in driving growth in certain product categories.
Snacks Business Performance: The Snacks division faces headwinds, with consumption declining by 2% in Q4 and share losses in parts of the portfolio. Competitive pressures and category trends are impacting performance.
Supply Chain Costs: Higher cost inflation and other supply chain costs, including a 30-basis point impact from tariffs, have negatively affected gross profit margins.
Divestitures: The divestitures of Pop Secret and noosa have contributed to a 3-point negative impact on organic net sales in Q4 and are expected to reduce reported net sales and adjusted EBIT in fiscal 2026.
Ready-to-Serve Soup Category: Declines in ready-to-serve soup consumption were driven by category headwinds, increased competitive promotional intensity, and the discontinuation of the Well Yes! brand.
Interest Expense: Higher interest expenses have negatively impacted adjusted EPS, contributing to a 4% decline in fiscal 2025.
Marketing and Selling Expenses: Increased marketing and selling expenses, including a 12% rise in advertising and consumer promotion, have added pressure to operating margins.
Competitive Pressures in Snacks: Competitive promotional intensity in the snacks category has led to share losses in pretzels, chips, and crackers, despite some sequential improvements.
Regulatory and Economic Uncertainty: Ongoing uncertainties around global tariffs and economic conditions pose risks to cost management and financial performance.
Fiscal 2026 Guidance: Campbell's expects a more significant impact from tariffs, projected at approximately 4% of cost of products sold. Despite this, the company plans to mitigate approximately 60% of this impact through inventory management, supplier collaboration, alternative sourcing, productivity, and cost savings. Full-year reported net sales are expected to be down 2% to flat, with organic net sales expected to range from down 1% to up 1%. Adjusted EBIT is projected to decline 9% to 13%, and adjusted EPS is expected to decrease 12% to 18%. The company plans to increase marketing and selling investments to 9%-10% of net sales and expects core inflation, excluding tariffs, to be in the low single-digit range. Capital expenditures are projected to be approximately 4% of net sales.
Cost Savings Initiatives: Campbell's has increased its cost savings target to $375 million by the end of fiscal 2028, a 50% increase over the previous estimate. The company plans to focus on network optimization, integration synergies, technology and organization effectiveness, and indirect spend management. Fiscal 2025 delivered approximately $145 million in cost savings, with $70 million expected in fiscal 2026.
Marketing and Innovation Investments: The company plans to increase marketing support and new product innovation across its leadership brands in fiscal 2026. This includes maintaining momentum in Meals & Beverages by investing in brands aligned with the growing at-home cooking trend and reigniting the Goldfish brand with incremental investment.
Snacks Business Stabilization: Campbell's expects stabilization in its Snacks business in the second half of fiscal 2026, with modest positive net price contribution compared to fiscal 2025. The company plans to focus on innovation and marketing to drive growth in this segment.
Meals & Beverages Division: The company plans to maintain momentum in this division by investing in brands aligned with the growing at-home cooking trend. This includes leveraging consumer preferences for elevated experiences, flavor exploration, and health and wellness.
Dividends Paid: $459 million of dividends paid, including a 5% dividend increase effective in the third quarter of fiscal '25.
Share Repurchases: $62 million in share repurchases during the year.
The earnings call reveals a decline in net sales for both Meals & Beverages and Snacks, driven by unfavorable volume/mix, despite favorable pricing. The Q&A highlights ongoing challenges in the Snacks segment and pressure on margins due to inflation and tariffs. While there are efforts to stabilize the Snacks segment and innovate, the guidance indicates declining EBIT and EPS. The La Regina acquisition is positive but not enough to offset broader concerns. Overall, the sentiment is negative, with potential stock price decline due to weak financial performance and guidance.
The earnings call reveals several concerns: declining soup and snacks performance, margin pressures from tariffs, and a negative EPS outlook for fiscal '26. Despite some positive developments like Rao's growth and cost-saving initiatives, the overall sentiment is weighed down by declining margins, tariff impacts, and unclear guidance on mitigating these issues. The Q&A section highlights analysts' concerns over tariff mitigation sustainability and productivity savings risks. The lack of aggressive pricing to offset tariffs and unclear management responses further contribute to a negative sentiment.
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