Campbell Soup Company today reported its fourth-quarter and full-year results for fiscal 2014.
The company reported earnings from continuing operations for the quarter ended Aug. 3, 2014, of $137 million, or $0.43 per share, compared with earnings of $117 million, or $0.37 per share, in the prior year. In the fourth quarter of fiscal 2014, Campbell implemented initiatives to improve supply chain efficiency in Australia and reduce overhead across the organization. The company recorded pre-tax restructuring charges of $20 million ($14 million after tax or $0.04 per share) related to these initiatives. In addition, the company incurred pre-tax restructuring-related costs of $1 million associated with previously-announced initiatives. The company also recognized an additional pre-tax pension settlement charge of $4 million ($3 million after tax or $0.01 per share) associated with a U.S. pension plan. Excluding items impacting comparability in both periods, adjusted earnings from continuing operations increased 14 percent to $155 million, compared with $136 million in the prior-year quarter, and adjusted earnings per share from continuing operations increased 14 percent to $0.49, compared with $0.43 in the year-ago quarter. The quarter benefited from an additional week in fiscal 2014, which contributed an estimated $25 million to earnings from continuing operations and $0.08 to earnings per share from continuing operations. A detailed reconciliation of the reported financial information to the adjusted information is included at the end of this news release.
Denise Morrison, Campbell's President and Chief Executive Officer, said, "Our fiscal 2014 results were in line with our most recent guidance, including increases in net sales, adjusted EBIT and adjusted EPS.
"We continued to make progress in reshaping Campbell, although we recognize that it is taking longer than originally anticipated. The Kelsen Group acquisition expanded our baked snacks business to China and Hong Kong. Bolthouse Farms achieved strong top-line growth as we increased distribution and invested in advertising and consumer programs to build brand equity. We divested our European simple meals business to focus on faster-growing markets. This year, we made several strategic investments, funded in part by reduced overhead costs. We believe that the diversification of our portfolio and responsible cost management will change our growth trajectory over time."
Morrison concluded, "Looking ahead, we plan to deliver modest growth in fiscal 2015, despite a consumer environment that is likely to remain challenging. As we announced at our July 21 Investor Day, we expect fiscal 2015 growth to be below our long-term targets for sales and earnings. We intend to make meaningful improvements in our core businesses and drive innovation across the company with the launch of more than 200 new products. We plan to deliver sales growth in U.S. Simple Meals, including U.S. Soup, and in Pepperidge Farm, by optimizing all the drivers of demand. We will execute our turnaround plans to strengthen U.S. Beverages and expect to stabilize sales in Australia, where we took further action in the fourth quarter to improve productivity. We are counting on continued growth in Bolthouse Farms, Kelsen Group and Plum, which have added more than $1 billion in sales in faster-growing categories. As always, we will be relentless in managing our costs and margins to improve profit performance. We're confident that Campbell is on the right path, and we are committed to executing our strategy to deliver sustainable, profitable net sales growth."
Fiscal 2015 Guidance for Continuing Operations
As shown in the table below, from the adjusted 52-week 2014 base, the company expects continuing operations to grow sales by 1 to 2 percent, adjusted EBIT to grow by 0 to 2 percent and adjusted EPS to grow by 0 to 2 percent, or $2.45 to $2.50 per share.
Fourth-Quarter Sales from Continuing Operations
For the fourth quarter, sales from continuing operations increased 7 percent to $1.852 billion. Organic sales decreased 2 percent. A breakdown of the change in sales follows:
* Acquisitions added 3 percent
* Increased promotional spending subtracted 2 percent
* Currency subtracted 1 percent
* The 53rd week added 7 percent
Fourth-Quarter Financial Details - Continuing Operations
* Gross margin was 34.1 percent, compared with 36.2 percent a year ago. Excluding items impacting comparability in both periods, adjusted gross margin for the quarter was 34.3 percent, compared with 36.7 percent a year ago. The decline was primarily attributable to increased supply chain costs, cost inflation and higher promotional spending, partly offset by productivity improvements.
* Marketing and selling expenses decreased 1 percent to $189 million. The decrease was primarily due to lower advertising and consumer promotion expenses, lower selling expenses and the impact of currency, partly offset by the impact of acquisitions.
* Administrative expenses decreased $46 million to $149 million, primarily due to lower incentive compensation costs and cost savings from restructuring initiatives.
* EBIT was $234 million, compared with $178 million in the prior-year quarter. Excluding items impacting comparability in both periods, adjusted EBIT increased 25 percent to $259 million. The increase was primarily due to lower administrative expenses and the benefit of the additional week, partly offset by a lower gross margin percentage.
* The tax rate in the quarter was 33.8 percent, compared with 22.3 percent in the year-ago quarter. Excluding items impacting comparability in both periods, the current quarter's adjusted tax rate was 33.2 percent, compared with 24.7 percent in the year-ago quarter. The prior-year rate for the quarter benefited from lower taxes on foreign earnings.
Full-Year Results from Continuing Operations
Earnings from continuing operations for the fiscal year were $737 million, or $2.33 per share, compared with earnings of $689 million, or $2.17 per share, in the prior year. Excluding items impacting comparability in both periods, adjusted earnings from continuing operations increased 2 percent to $800 million, compared with $786 million in the prior year, and adjusted earnings per share from continuing operations increased 2 percent to $2.53, compared with $2.48 in the year-ago period. As with the current quarter, the fiscal year benefited from the additional week, which contributed an estimated $25 million to earnings from continuing operations and $0.08 to earnings per share from continuing operations.
For the fiscal year, sales from continuing operations increased 3 percent to $8.268 billion. Organic sales declined 1 percent. A breakdown of the change in sales for the fiscal year is as follows:
* Acquisitions added 3 percent
* Price and sales allowances added 1 percent
* Increased promotional spending subtracted 2 percent
* Currency subtracted 1 percent
* The 53rd week added 2 percent
Full-Year Financial Details - Continuing Operations
* Gross margin was 35.1 percent, compared with 36.2 percent a year ago. Excluding items impacting comparability in both years, adjusted gross margin was 35.4 percent, compared with 37.3 percent a year ago. The decline was primarily attributable to cost inflation, higher promotional spending, increased supply chain costs and the impact of acquisitions, partly offset by productivity improvements and higher selling prices.
* Marketing and selling expenses decreased 1 percent to $935 million. The decrease was primarily due to lower advertising and consumer promotion expenses, the impact of currency, lower marketing overhead expenses and lower selling expenses, partly offset by the impact of acquisitions.
* Administrative expenses decreased $104 million to $573 million, primarily due to lower incentive compensation costs, cost savings from restructuring initiatives and lower pension costs, partly offset by the impact of acquisitions.
* EBIT was $1.192 billion, compared with $1.080 billion in the prior year. Excluding items impacting comparability in both years, adjusted EBIT increased 4 percent to $1.281 billion. The increase was primarily due to lower administrative expenses, the benefit of the additional week and lower marketing expenses, partly offset by a lower gross margin percentage and lower organic sales.
* Net interest expense decreased $6 million to $119 million, reflecting lower interest rates.
* The tax rate in the fiscal year was 32.3 percent, compared with 28.8 percent in the prior year. Excluding items impacting comparability in both periods, the current year's adjusted tax rate was 31.7 percent, compared to 29.8 percent in the prior year. The prior-year rate benefited from lower taxes on foreign earnings and the favorable settlement of certain U.S. state tax matters.
* Cash flow from operations was $899 million, compared with $1.019 billion in the prior year. The decline was primarily related to lower cash earnings and taxes paid on the divestiture of the European simple meals business, partly offset by lower working capital requirements.
Summary of Fiscal 2014 Fourth-Quarter and Full-Year Results by Segment
U.S. Simple Meals
Sales for U.S. Simple Meals were $518 million for the fourth quarter, a 5 percent increase from a year ago. A breakdown of the change in sales follows:
* Volume and mix subtracted 5 percent
* Price and sales allowances added 1 percent
* Increased promotional spending subtracted 1 percent
* The acquisition of Plum added 3 percent
* The 53rd week added 7 percent
U.S. Soup sales decreased 3 percent compared to the year-ago quarter. Declines in U.S. Soup sales included a 7 point decrease driven by movement in retailer inventory levels, particularly on condensed cooking soups and broth due to the later timing of the Easter holiday in the current year, offset by a 7 point increase from the benefit of the additional week. Including the benefit of the 53rd week and the offsetting inventory reductions, further details of the sales results include the following:
* Sales of "Campbell's" condensed soups increased 1 percent, with gains in eating varieties partly offset by declines in cooking varieties.
* Sales of ready-to-serve soups decreased 8 percent, primarily due to declines in "Campbell's Homestyle" canned soup as we cycled the year-ago launch and declines in microwavable soup varieties.
* Broth sales decreased 8 percent, driven by declines in canned and aseptic broth.
Sales of other simple meals increased 19 percent compared to the year-ago quarter, with the acquisition of Plum contributing 8 points of growth. Excluding the benefit of the acquisition and the additional week, sales increased 2 percent primarily driven by gains in "Campbell's" dinner sauces and "Prego" pasta sauces.
U.S. Simple Meals operating earnings for the fourth quarter increased 4 percent to $114 million. The increase was primarily due to the additional week and lower administrative and marketing expenses, partly offset by the decline in U.S. Soup sales and a lower gross margin percentage.
For the fiscal year, sales for U.S. Simple Meals increased 3 percent to $2.944 billion. A breakdown of the change in sales follows:
* Price and sales allowances added 2 percent
* Increased promotional spending subtracted 2 percent
* The acquisition of Plum added 2 percent
* The 53rd week added 1 percent
U.S. Soup sales decreased 1 percent due to a decline of 5 percent in ready-to-serve soups and a decline of 1 percent in condensed soups, partly offset by a 9 percent gain in broth.
Sales of other simple meals increased 15 percent, including a 9 point contribution from the acquisition of Plum and gains in "Prego" pasta sauces and "Campbell's" dinner sauces.
U.S. Simple Meals operating earnings were $714 million in the fiscal year, compared with $731 million in the year-ago period, a decrease of 2 percent. A lower gross margin percentage and expenses related to the November 2013 Plum recall were partly offset by lower administrative expenses, lower marketing expenses and the benefit of the additional week.
Global Baking and Snacking
Sales for Global Baking and Snacking were $628 million for the fourth quarter, an increase of 10 percent from a year ago. The acquisition of Kelsen Group contributed $32 million to sales. The increase in sales reflected the following factors:
* The acquisition of Kelsen Group added 6 percent
* Volume and mix added 3 percent
* Increased promotional spending subtracted 5 percent
* Currency subtracted 1 percent
* The 53rd week added 7 percent
Further details of sales results excluding the benefit of the additional week included the following:
* Sales of Pepperidge Farm products decreased, driven by increased promotional spending partly offset by volume gains.
o Sales of cookies and crackers were comparable to prior year with gains in "Goldfish" snack crackers offset by declines in "Pepperidge Farm" adult cracker varieties.
o Sales of frozen and other products decreased.
o Sales of fresh bakery products increased, driven by volume gains in bread and rolls.
* Sales at Arnott's decreased due to declines in Australia and the negative impact of currency, partly offset by strong gains in Indonesia.
Operating earnings for the quarter were $98 million, an increase of 17 percent over the year-ago period. The increase was primarily driven by lower administrative expenses and the benefit of the additional week, partly offset by a lower gross margin percentage. The increase reflected growth in Pepperidge Farm and the addition of Kelsen Group's operating results. Earnings in Arnott's were comparable to the prior-year quarter.
For the fiscal year, sales increased 7 percent to $2.440 billion. The acquisition of Kelsen Group contributed $193 million to sales growth. A breakdown of the change in sales follows:
* The acquisition of Kelsen Group added 8 percent
* Volume and mix added 1 percent
* Price and sales allowances added 2 percent
* Increased promotional spending subtracted 3 percent
* Currency subtracted 3 percent
* The 53rd week added 2 percent
Sales declines at Arnott's in Australia were partly offset by sales growth in Pepperidge Farm and Indonesia.
Operating earnings in the fiscal year were $332 million, compared with $316 million in the prior year, an increase of 5 percent. The increase was primarily driven by lower administrative expenses, the acquisition of Kelsen Group, lower marketing expenses and the benefit of the additional week, partly offset by a lower gross margin percentage and the unfavorable impact of currency. The increase included growth in Pepperidge Farm and the addition of Kelsen Group's operating results, partly offset by lower earnings in Arnott's.
International Simple Meals and Beverages
Sales for International Simple Meals and Beverages were $188 million for the fourth quarter, an increase of 1 percent from a year ago. The sales increase reflected the following factors:
* Price and sales allowances added 1 percent
* Increased promotional spending subtracted 1 percent
* Currency subtracted 3 percent
* Net accounting in Mexico subtracted 4 percent
* The 53rd week added 8 percent
Further details of sales results, excluding the benefit of the additional week, included the following:
* In Latin America, sales declined primarily due to the impact of presenting revenue on a net basis related to the implementation of the company's new business model in Mexico.
* In the Asia Pacific region, sales decreased primarily due to declines in Australia and the negative impact of currency, partly offset by gains in Malaysia.
* In Canada, sales decreased due to the negative impact of currency.
Operating earnings for the quarter were $21 million, compared with $14 million in the year-ago period. The increase in operating earnings was primarily due to a higher gross margin percentage and the benefit of the additional week.
For the fiscal year, sales were $780 million, a decrease of 10 percent. Sales were impacted by the following factors:
* Volume and mix subtracted 2 percent
* Price and sales allowances subtracted 1 percent
* Currency subtracted 6 percent
* Net accounting in Mexico subtracted 3 percent
* The 53rd week added 2 percent
Sales declined in Latin America, Canada and the Asia Pacific region.
Operating earnings in the fiscal year were $106 million, compared with $108 million a year ago, a decrease of 2 percent. The decrease was primarily driven by volume declines and the unfavorable impact of currency, partly offset by lower administrative expenses, a higher gross margin percentage and lower selling expenses.
U.S. Beverages
Sales for U.S. Beverages were $184 million for the fourth quarter, an increase of 6 percent from a year ago. Sales were impacted by the following factors:
* Volume and mix subtracted 3 percent
* Price and sales allowances added 1 percent
* Decreased promotional spending added 1 percent
* The 53rd week added 7 percent
Excluding the additional week, declines in "V8 V-Fusion" beverages were partly offset by gains in "V8 Splash" beverages and "V8" vegetable juice.
Operating earnings for the quarter were $43 million, compared with $20 million in the year-ago period. The increase was primarily driven by lower administrative, selling and marketing expenses and the benefit of the additional week.
For the fiscal year, sales were $723 million, a decrease of 3 percent. A breakdown of the change in sales follows:
* Volume and mix subtracted 5 percent
* Decreased promotional spending added 1 percent
* The 53rd week added 2 percent
*Numbers do not add due to rounding
Operating earnings in the fiscal year increased 6 percent to $127 million, primarily driven by lower administrative and marketing expenses, partly offset by a lower gross margin percentage and volume declines.
Bolthouse and Foodservice
Sales for Bolthouse and Foodservice increased 11 percent for the quarter to $334 million. The sales increase reflected the following factors:
* Volume and mix added 5 percent
* Increased promotional spending subtracted 1 percent
* Currency subtracted 1 percent
* The 53rd week added 8 percent
Excluding the benefit of the 53rd week, sales rose 3 percent driven by double-digit sales gains in Bolthouse Farms premium refrigerated beverages and salad dressings, partly offset by declines in North America Foodservice.
Operating earnings for the quarter were $29 million, a 16 percent increase over the year-ago period. The increase was primarily due to lower administrative expenses and the benefit of the additional week, partly offset by a lower gross margin percentage and higher marketing expenses.
For the fiscal year, sales increased 5 percent to $1.381 billion. The sales increase reflected the following factors:
* Volume and mix added 3 percent
* Increased promotional spending subtracted 1 percent
* An additional week of sales at Bolthouse Farms added 1 percent
Sales growth from Bolthouse Farms was partly offset by sales declines in North America Foodservice.
Operating earnings for the fiscal year were $117 million, compared with $116 million in the prior year, an increase of 1 percent. The increase was primarily due to lower administrative expenses, the increase in sales and the benefit of the 53rd week, partly offset by a lower gross margin percentage and increased marketing investment for Bolthouse Farms.
Unallocated Corporate Expenses
Unallocated corporate expenses for the quarter were $51 million, compared with $55 million a year ago. The current quarter included additional pension settlement charges of $4 million associated with a U.S. pension plan and $1 million of restructuring-related costs. The prior-year quarter included $10 million of restructuring-related costs. The balance of the change for the current quarter was primarily due to losses on open commodity hedges, mostly offset by lower incentive compensation costs. Unallocated corporate expenses for the fiscal year were $149 million, compared with $260 million in the prior year. The current year included pension settlement charges of $22 million associated with a U.S. pension plan, a $9 million loss on foreign exchange forward contracts related to the sale of the European simple meals business and $3 million of restructuring-related costs. The prior year included $91 million of restructuring-related costs and $10 million of transaction costs related to the Bolthouse Farms acquisition. The balance of the decrease for the fiscal year was primarily due to lower incentive compensation costs and gains on foreign exchange transactions.
Results from Discontinued Operations
The company completed the divestiture of its European simple meals business to CVC Capital Partners on Oct. 28, 2013. Results for the European simple meals business are reported as discontinued operations. For the fiscal year, earnings from discontinued operations were $81 million, or $0.26 per share. Excluding the impact of the gain on the sale of the European business, earnings from discontinued operations were $9 million, or $0.03 per share.
Non-GAAP Financial Information
A detailed reconciliation of the reported financial information to the adjusted financial information is included at the end of this news release.
Acquisition Dates
The company's fiscal 2013 and fiscal 2014 results from continuing operations reflect the following acquisitions: Bolthouse Farms on Aug. 6, 2012; Plum on June 13, 2013; and Kelsen Group on Aug. 8, 2013.
