Campbell: Reports Q4 and Full-Year Results

Camden / NJ. (csc) Campbell Soup Company reported its fourth-quarter and full-year results for fiscal 2015. The reported results include charges related to cost savings initiatives, one less week compared to fiscal 2014 and the negative impact of currency translation. Fourth-quarter sales decreased nine percent, organic sales increased one percent. Fourth-quarter adjusted EPS from continuing operations increased five percent to 0.43 USD. Full-year sales decreased two percent, organic sales increased one percent. Full-year adjusted EPS from continuing operations of 2.46 USD was comparable to prior year. Campbell provides fiscal 2016 guidance within long-term growth targets announced in July.

Items Impacting Comparability

At the end of the news release is a detailed reconciliation of the reported financial information to the adjusted information, including the impact on earnings from charges in fiscal 2015 related to cost savings initiatives and the estimated impact of one less week that are discussed further below.

In fiscal 2015, the company incurred restructuring charges and implementation costs associated with the new organizational structure and cost reduction initiatives. The aggregate after-tax impact on EPS from these initiatives in the fourth-quarter and full-year results was 0.21 USD per share and 0.25 USD per share, respectively.

Fiscal 2014 included 53 weeks, with the extra week falling in the fourth quarter. As a result of one less week in fiscal 2015 compared to the prior year, sales for the fourth quarter were negatively impacted by approximately seven points and sales for the full year were negatively impacted by approximately two points. The estimated impact on EPS was 0.08 USD per share.

Denise Morrison, Campbell’s President and Chief Executive Officer, said, «We had a solid finish to the fiscal year considering the difficult operating environment, and delivered sales, adjusted Ebit and adjusted EPS within our most recent guidance. I am pleased with the fourth-quarter performance in U.S. Simple Meals as well as organic sales growth in the Bolthouse and Foodservice segment. For the year, four of the company’s five reporting segments posted organic sales gains. Global Baking and Snacking performed well this year as we made progress in stabilizing our business in Australia. I am particularly encouraged by the improvement in gross margin across the company in the back half of the year. We recognize that we have more work to do to drive sustainable, profitable growth».

«Fiscal 2015 was eventful for Campbell. We took important steps to lay the foundation for the future. We aligned our organization with our strategy by redesigning our enterprise structure and declaring clear portfolio roles for our three new divisions: Americas Simple Meals and Beverages, Global Biscuits and Snacks and Campbell Fresh. We established our Integrated Global Services organization to deliver shared services with greater efficiency and effectiveness. We delivered earlier-than-anticipated savings from our cost-reduction efforts and initiated plans for a zero-based budgeting process that will be of great value to Campbell going forward. Finally, we added another growth engine to our company as we bolstered our packaged fresh portfolio with the acquisition of Garden Fresh Gourmet».

Morrison concluded, «Looking ahead to fiscal 2016, we believe that our focus on driving growth, aggressively reducing costs and reinvesting a portion of the savings in the areas of our business with the greatest growth potential is the best way to create shareholder value».

Fourth-Quarter Results from Continuing Operations

Sales decreased nine percent to 1.693 billion USD primarily due to the impact of one less week compared to the year-ago quarter and the negative impact of currency translation. Organic sales increased one percent from higher selling prices and lower promotional spending, partly offset by lower volume.

Gross margin increased from 34.1 percent to 36.1 percent. Excluding items impacting comparability in the prior year, adjusted gross margin improved 1.8 percentage points. The increase in adjusted gross margin was due to productivity improvements, higher selling prices and lower promotional spending, partly offset by input cost inflation.

Marketing and selling expenses decreased seven percent to 176 million USD, primarily driven by the impact of currency translation and lower marketing overhead and selling expenses, partly offset by increased advertising and consumer promotion expenses. Administrative expenses increased 19 percent to 177 million USD, primarily driven by increased incentive compensation expense and 13 million USD of costs related to the implementation of the new organizational structure and cost reduction initiatives.

Adjusted Ebit increased five percent to 234 million USD, reflecting a higher gross margin percentage, partly offset by increased administrative expenses and the negative impact of currency translation.

Net interest expense decreased three million USD to 27 million USD, primarily driven by the impact of one less week compared to the year-ago quarter. The tax rate decreased 1.1 percentage points to 32.7 percent. Excluding items impacting comparability, the adjusted tax rate increased 0.8 percentage points to 34.8 percent.

Full-Year Results from Continuing Operations

Sales decreased two percent to 8.082 billion USD, primarily due to the negative impact of currency translation and one less week compared to the prior year, partly offset by higher selling prices and an increase in volume. Organic sales increased one percent with gains in four of the company’s five reportable segments.

Adjusted Ebit decreased two percent to 1.219 billion USD, reflecting an adjusted gross margin percentage decline of 0.7 points, the unfavorable impact of currency translation and higher incentive compensation expense, partly offset by volume gains and lower marketing expenses.

Net interest expense decreased 14 million USD to 105 million USD, reflecting lower levels of debt. The tax rate decreased 2.1 percentage points to 30.2 percent. Excluding items impacting comparability, the adjusted tax rate decreased 0.8 percentage points to 31.0 percent. The decrease was primarily due to the favorable resolution of an intercompany pricing agreement between the U.S. and Canada.

Fiscal 2016 Guidance for Continuing Operations

As shown in the table below, the company expects sales to grow by 0 to one percent, adjusted Ebit to grow by three to five percent and adjusted EPS to grow by three to five percent, or 2.53 USD to 2.58 USD per share. This guidance includes the impact of currency translation, which is estimated to have a two percentage point negative impact, as well as the impact of the Garden Fresh Gourmet acquisition.

To provide better transparency, the company intends to adopt mark-to-market pension and post-retirement benefit accounting (MTM) in the first quarter of fiscal 2016 and recast historical results. This change eliminates the deferral and subsequent amortization of historic actuarial gains and losses, which instead will be recognized immediately in earnings as of the measurement date, typically year end. The periodic MTM adjustment will be reflected as an item impacting comparability and therefore excluded from adjusted results. The 2016 guidance does not reflect the impact of the anticipated accounting change, however, 2016 growth rates are not expected to change from the recasted 2015 base.

U.S. Simple Meals

Sales decreased three percent in the quarter to 505 million USD. Organic sales for the segment increased four percent. U.S. soup sales decreased two percent reflecting the impact of one less week, which subtracted seven points, partly offset by movements in retailer inventory levels and higher selling prices. Sales decreased four percent in Campbell’s Condensed soups and three percent in ready-to-serve soups, while sales of broth increased eleven percent. Excluding the impact of one less week, sales of other simple meals increased driven by strong growth in Prego pasta sauces. Segment operating earnings increased four percent to 118 million USD. The increase was primarily driven by organic sales gains and lower selling expenses, partly offset by the impact of one less week.

Global Baking and Snacking

Sales decreased twelve percent in the quarter to 553 million USD. Organic sales for the segment increased one percent driven by gains in Pepperidge Farm and Arnott’s, partly offset by declines in Kelsen. Excluding the impact of one less week, sales of Pepperidge Farm products increased as sales gains in fresh bakery, Goldfish crackers and Pepperidge Farm frozen products were partly offset by declines in cookies. Excluding the negative impact of currency translation and one less week, Arnott’s sales increased as gains in Australia were partly offset by declines in Indonesia. Segment operating earnings decreased 26 percent to 73 million USD. Lower operating earnings reflected the impact of one less week, increases in marketing and administrative expenses, the negative impact of currency translation and impairment charges to minor trademarks, partly offset by a higher gross margin percentage.

International Simple Meals and Beverages

Sales declined 24 percent in the quarter to 142 million USD. Organic sales for the segment decreased five percent due to declines in Canada and Australia. Segment operating earnings decreased 48 percent to eleven million USD, primarily due to lower volume, including the impact of one less week, as well as the negative impact of currency translation.

U.S. Beverages

Sales decreased ten percent in the quarter to 165 million USD. Organic sales decreased four percent as declines in V8 V-Fusion beverages were partly offset by gains in V8 vegetable juices. Segment operating earnings decreased 23 percent to 33 million USD, primarily due to sales declines, including the impact of one less week.

Bolthouse and Foodservice

Sales decreased two percent in the quarter to 328 million USD, including a 3-point benefit from the acquisition of Garden Fresh Gourmet. Organic sales for the segment increased four percent reflecting volume gains in Bolthouse Farms refrigerated beverages and salad dressings and in North America Foodservice, partly offset by declines in Bolthouse Farms carrots. Segment operating earnings were 28 million USD compared to 29 million USD in the year-ago quarter.

Cost Savings Initiatives

In fiscal 2015, the company incurred charges associated with its initiatives to implement a new enterprise design that better aligns with its strategy, to reduce costs and to streamline its organizational structure. In the fourth quarter of fiscal 2015, the company recorded pre-tax restructuring charges of 93 million USD related to these initiatives. The company also incurred pre-tax charges of 13 million USD recorded in Unallocated corporate expenses related to the implementation of these initiatives. The aggregate after-tax impact of the restructuring charges and implementation costs was 67 million USD, or 0.21 USD per share. For the full year, the company recorded pre-tax restructuring charges of 102 million USD related to these initiatives. The company also incurred pre-tax charges of 22 million USD recorded in Unallocated corporate expenses related to the implementation of these initiatives. The aggregate after-tax impact of restructuring charges and implementation costs was 78 million USD, or 0.25 USD per share.

Unallocated Corporate Expenses

Unallocated corporate expenses for the quarter were 42 million USD compared to 51 million USD a year ago. The current quarter included 13 million USD of pre-tax charges related to the implementation of the new organizational structure and cost reduction initiatives. The prior-year quarter included a pension settlement charge of four million USD associated with a U.S. pension plan and one million USD of restructuring-related costs. The remaining decrease in expenses is primarily related to lower losses on open commodity hedges compared to the year-ago quarter.

Cash Flow from Operations

Cash flow from operations for the fiscal year was 1.182 billion USD compared to 899 million USD a year ago, primarily due to lower working capital requirements, taxes paid in 2014 on the divestiture of the European simple meals business and lower pension contributions in 2015 (Image: pexels.com).