Campbell Soup Company experienced massive growth across its brands portfolio in its third quarter, CEO Mark Clouse states.
Campbell Reports Third-Quarter Results: Prioritizing the Safety of Our Employees and Meeting the Needs of Customers, Consumers and Communities During the Pandemic
June 03, 2020 07:00 AM EDT/ CAMDEN, N.J.--(BUSINESS WIRE)--Campbell Soup Company (NYSE:CPB) today reported its third-quarter results for fiscal 2020.
CEO Comments
Mark Clouse, Campbell’s President and CEO, stated, “Since the onset of the COVID-19 pandemic, we have simplified our mission to keep our people safe, while meeting the urgent need for food and supporting the communities in which we operate. I am incredibly proud of how the entire Campbell organization has mobilized and want to thank our team, especially those on the front lines, for continuing to step up to ensure our food is readily available across North America.
“In the quarter, we experienced unprecedented broad-based demand across our brands as consumers sought food that delivered comfort, quality and value. This demand resulted in double-digit increases in organic sales, adjusted EBIT and adjusted EPS. In addition, Campbell’s products were purchased by millions of new households, with total company household penetration increasing over 6 percentage points in the quarter compared to the third quarter of fiscal 2019.”
Items Impacting Comparability for Continuing Operations
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.
Third-Quarter Results from Continuing Operations
Net sales increased 15% to $2.24 billion. Organic net sales, which exclude the impact from the divested European chips business, increased 17% from the prior year driven by favorable volume in both Meals & Beverages and Snacks reflecting increased demand for at-home food consumption with the stay-at-home mandate.
Gross margin increased from 33.5% to 34.5%. Excluding items impacting comparability, adjusted gross margin increased 100 basis points to 34.7% driven by favorable product mix and improved operating leverage, as well as the benefits from supply chain productivity improvements and cost savings initiatives, offset partly by cost inflation and other supply chain costs, including mark-to-market losses on outstanding commodity hedges, driven primarily by diesel hedges, and costs related to COVID-19.
Marketing and selling expenses increased 11% to $239 million. Excluding items impacting comparability in the prior year, adjusted marketing and selling expenses increased 12%, driven primarily by increased investments in advertising and consumer promotion expenses and higher incentive compensation accruals, offset partly by the benefit of cost savings initiatives. Administrative expenses increased 3% to $154 million. Excluding items impacting comparability, adjusted administrative expenses increased 4%, primarily reflecting higher incentive compensation accruals, as well as higher general administration costs and inflation and investments in information technology, offset partly by the benefits from cost savings initiatives and lower benefits costs.
Other expenses were $81 million as compared to $20 million in the prior year. Excluding items impacting comparability, adjusted other income was $18 million compared to $8 million in the prior year.
As reported EBIT increased 11% to $273 million. Excluding items impacting comparability, adjusted EBIT increased 31% to $386 million as higher sales volumes and improved gross margin performance were offset partly by increased marketing investment.
Net interest expense was $55 million compared to $89 million in the prior year reflecting lower levels of debt. The tax rate was 23.9% as compared to 21.2% in the prior year. Excluding items impacting comparability, the adjusted tax rate increased 210 basis points to 23.6%.
The company reported EPS of $0.55 per share. Excluding items impacting comparability, adjusted EPS increased 57% to $0.83 per share, reflecting an increase in adjusted EBIT and lower net interest expense.
Nine-Month Results from Continuing Operations
Net sales increased 4% to $6.58 billion. Organic net sales, which exclude the impact from the sale of the European chips business, increased 5% from the prior year driven by gains in both Meals & Beverages and Snacks.
As reported EBIT increased 5% to $940 million. Excluding items impacting comparability, adjusted EBIT increased 13% to $1.14 billion reflecting higher sales volume, improved gross margin performance and higher adjusted other income, offset partly by increased marketing investment.
Net interest expense was $281 million compared to $270 million in the prior year reflecting a loss on the extinguishment of debt. Excluding items impacting comparability in the current year, adjusted net interest expense decreased 24% from the prior year to $206 million reflecting lower levels of debt. The tax rate was 23.2% as compared to 23.5% in the prior year. Excluding items impacting comparability, the adjusted tax rate increased 80 basis points from 23.3% to 24.1%.
The company reported EPS of $1.66 per share. Excluding items impacting comparability, adjusted EPS increased 24% to $2.34 per share reflecting the increase in adjusted EBIT and lower adjusted net interest expense.
Cash flows from operations were $1.13 billion compared to $1.15 billion in the prior year due primarily to changes in working capital, offset partly by increased cash earnings. Total debt was reduced by $1.78 billion during the first nine months of fiscal 2020 primarily due to successful deleveraging in the second quarter following the completion of the company’s previously announced divestiture plan. Year-to-date capital investments were $220 million compared to $274 million in the prior year reflecting delays in certain projects impacted by the current operating environment. In line with the company’s commitment to returning value to shareholders, during the first nine months of fiscal 2020, the company paid $320 million of cash dividends reflecting the quarterly dividend rate of $0.35 per share.
Campbell Raises Fiscal 2020 Guidance
As a result of our performance in the third quarter, which was significantly impacted by the increase in demand of our products amidst the COVID-19 pandemic, and our current outlook for continued demand for our products, we are raising our fiscal 2020 outlook for net sales, adjusted EBIT and adjusted EPS as shown in the table below. Although the effect of the COVID-19 pandemic on our sales, adjusted EBIT and adjusted EPS cannot be predicted with certainty, this revised outlook reflects our current expectation of trends through the balance of the fiscal 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 two points of net sales, adjusted EBIT and adjusted EPS. The outlook for organic net sales excludes the negative impact from the sale of the European chips business along with the estimated contribution of the 53rd week.
