Campbell: Reports Q4 and Full-Year 2016 Results

Camden / NJ. (csc) Campbell Soup Company reported its fourth-quarter and full-year results for fiscal 2016 and announced a 12 percent increase in its quarterly dividend. Highlights:

• Fourth-Quarter As Reported Sales Comparable to Prior Year, Organic Sales Decreased 1 Percent
• Fourth-Quarter As Reported Earnings Per Share (EPS) Loss of 0.26 USD, Fourth-Quarter Adjusted EPS of 0.46 USD Decreased 6 Percent
• Full-Year As Reported Sales and Organic Sales Decreased 1 Percent
• Full-Year As Reported EPS of 1.81 USD Decreased 15 Percent, Adjusted EPS of 2.94 USD Increased 11 Percent
• Full-Year Cash Flow From Operations Increased to 1.463 Billion USD from 1.182 Billion USD
• Campbell Provides Fiscal 2017 Guidance

Three Months Ended

Twelve Months Ended

(USD in millions, except per share)

July 31, 2016

August 02, 2015

% Change

July 31, 2016

August 02, 2015

% Change

Net Sales

As Reported (GAAP)

USD 1’687

USD 1’693

-%

USD 7’961

USD 8’082

(1)%

Organic

(1)%

(1)%

Earnings (Loss) Before Interest and Taxes

As Reported (GAAP)

USD (37)

USD 43

n/m

USD 960

USD 1’054

(9)%

Adjusted

USD 253

USD 259

(2)%

USD 1’467

USD 1’316

11%

Diluted Earnings (Loss) Per Share

As Reported (GAAP)

USD (0.26)

USD 0.05

n/m

USD 1.81

USD 2.13

(15)%

Adjusted

USD 0.46

USD 0.49

(6)%

USD 2.94

USD 2.65

11%

n/m – not meaningful

CEO Comments

Denise Morrison, Campbell’s President and Chief Executive Officer, said, «We finished the year in line with our guidance, including strong profit performance. However, I am not pleased with the results of our fourth quarter. The performance of our Campbell Fresh business, driven predominantly by execution issues, is disappointing. We have taken and are taking steps designed to ensure the business performs to its potential. We remain confident in our Campbell Fresh strategy and its ability to deliver long-term growth consistent with its portfolio role, as the business remains well-positioned to capitalize on the health and well-being consumer trend. For the year, Americas Simple Meals and Beverages and Global Biscuits and Snacks delivered significant margin expansion, driving double-digit profit growth. Despite the difficult quarter, we delivered adjusted EPS growth of 11 percent for the year».

Morrison concluded, «While we have made progress, we recognize we need to deliver sales growth – and it remains a top priority. Reflecting its confidence in our long-term growth prospects and strong profit performance this year, the Board declared a 12 percent increase in our quarterly dividend today».

Items Impacting Comparability

The Company reported a loss of 0.26 USD per share in the fourth quarter. The current quarter results reflect a pre-tax non-cash impairment charge of 141 million USD, or 0.41 USD per share, to reduce the carrying value of the intangible assets of the Bolthouse Farms carrot and carrot ingredients reporting unit. The current quarter also included pre-tax pension and postretirement mark-to-market losses of 138 million USD, or 0.29 USD per share, and pre-tax charges related to cost savings initiatives of 11 million USD, or 0.02 USD per share. The prior-year quarter included pre-tax pension and postretirement mark-to-market losses of 110 million USD, or 0.22 USD per share, and pre-tax charges related to the implementation of the new organizational structure and cost savings initiatives of 106 million USD, or 0.21 USD per share. Excluding items impacting comparability in both periods, adjusted EPS decreased 6 percent to 0.46 USD per share, compared with 0.49 USD per share in the year-ago quarter.

Fourth-Quarter Results

Sales of 1.687 billion USD were comparable to prior year as the benefit from the acquisition of Garden Fresh Gourmet was offset by the decline in organic sales and the adverse impact of currency translation. Organic sales decreased 1 percent primarily driven by Campbell Fresh, reflecting declines in carrots and carrot ingredients, as well as the impact from the voluntary recall announced on June 22 of Bolthouse Farms Protein PLUS drinks. The estimated negative impact on net sales in the fourth quarter related to the recall and related production outages was approximately one percentage point.

Gross margin decreased from 33.2 percent to 32.4 percent. Excluding items impacting comparability, adjusted gross margin decreased 0.9 points. The decrease in adjusted gross margin was primarily driven by increased promotional spending, inflation, the impact of the Bolthouse Farms recall and related production outages, as well as higher carrot costs, partly offset by productivity improvements.

Marketing and selling expenses increased 14 percent to 216 million USD. Excluding items impacting comparability, adjusted marketing and selling expenses increased 14 percent to 196 million USD primarily due to higher advertising and consumer promotion expenses. Administrative expenses decreased 4 percent to 185 million USD. Excluding items impacting comparability, adjusted administrative expenses decreased 19 percent to 128 million USD primarily due to lower incentive compensation costs and the benefits from cost savings initiatives.

As reported Ebit was a loss of 37 million USD, reflecting the non-cash impairment charge, pension and postretirement mark-to-market losses and charges associated with cost savings initiatives as previously mentioned. Excluding items impacting comparability, adjusted Ebit decreased 2 percent to 253 million USD reflecting higher advertising and consumer promotion expenses and a lower adjusted gross margin percentage, partly offset by lower administrative expenses.

Net interest expense increased 1 million USD to 28 million USD reflecting higher average interest rates on the debt portfolio, partly offset by lower levels of debt. The tax rate increased to 24.6 percent as compared with a tax rate of 6.3 percent in the prior year. Excluding items impacting comparability, the adjusted tax rate increased 2.3 percentage points to 36.4 percent. The increase in the adjusted tax rate reflects a 13 million USD correction for deferred taxes, most of which related to the third quarter of fiscal 2016. This was partly offset by the geographic mix of earnings.

Full-Year Results

Sales decreased 1 percent to 7.961 billion USD driven by the adverse impact of currency translation and a decline in organic sales, partly offset by the benefit from the acquisition of Garden Fresh Gourmet. Organic sales decreased 1 percent driven by lower volume, partly offset by higher selling prices.

Ebit decreased 9 percent to 960 million USD. Excluding items impacting comparability, adjusted Ebit increased 11 percent to 1.467 billion USD reflecting a higher adjusted gross margin percentage and the benefits from cost savings initiatives, partly offset by the adverse impact of currency translation, higher incentive compensation costs, and volume declines.

Net interest expense increased 6 million USD to 111 million USD reflecting higher average interest rates on the debt portfolio, partly offset by lower levels of debt. The tax rate increased 3.9 percentage points to 33.7 percent. Excluding items impacting comparability, the adjusted tax rate increased 1.2 percentage points to 32.6 percent. This increase was primarily due to lapping the favorable resolution of an intercompany pricing agreement between the U.S. and Canada in the prior year.

Cash flow from operations increased to 1.463 billion USD from 1.182 billion USD a year ago primarily due to higher cash earnings and lower working capital requirements.

Company Announces Quarterly Dividend Increase

Campbell announced that the company’s Board of Directors has approved an increase in its quarterly dividend from 0.312 USD per share to 0.35 USD per share, an increase of 12 percent. The quarterly dividend is payable Oct. 31, 2016, to shareholders of record at the close of business Oct. 12, 2016.

Fiscal 2017 Guidance

Campbell expects sales to increase by 0 to 1 percent, adjusted Ebit to increase by 1 to 4 percent, and adjusted EPS to increase by 2 to 5 percent, or 3.00 USD to 3.09 USD per share. This guidance assumes the impact from currency translation will be nominal. A non-GAAP reconciliation is not provided for 2017 guidance since certain items are not estimable, such as pension and postretirement mark-to-market adjustments, and these items are not considered to be part of the company’s ongoing business results.

Segment Operating Review

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

Three Months Ended July 31, 2016

(USD in millions)		Americas Simple Meals and Beverages		Global Biscuits and Snacks		Campbell Fresh		Total
Net Sales, as Reported		USD 842		USD 622		USD 223		USD 1’687
Volume and Mix		2%		3%		(10)%		1%
Price and Sales Allowances		-%		1%		-%		-%
Promotional Spending		(1)%		(2)%		(2)%		(2)%
Organic Net Sales		-%*		2%		(12)%		(1)%
Currency		-%		(1)%		-%		(1)%
Acquisitions		-%		-%		7%		1%
% Change versus Prior Year		-%		1%		(5)%		-%*
Segment Operating Earnings		USD 191		USD 81		USD 8
% Change versus Prior Year		4%		5%		(62)%

(*) Numbers do not add due to rounding.

Twelve Months Ended July 31, 2016

(USD in millions)		Americas Simple Meals and Beverages		Global Biscuits and Snacks		Campbell Fresh		Total
Net Sales, as Reported		USD 4’380		USD 2’564		USD 1’017		USD 7’961
Volume and Mix		(2)%		1%		(3)%		(1)%
Price and Sales Allowances		1%		1%		-%		1%
Promotional Spending		-%		-%		(1)%		-%
Organic Net Sales		(1)%		1%*		(4)%		(1)%*
Currency		(1)%		(4)%		-%		(2)%
Acquisitions		-%		-%		10%		1%
% Change versus Prior Year		(2)%		(3)%		5%*		(1)%*
Segment Operating Earnings		USD 1’069		USD 422		USD 60
% Change versus Prior Year		13%		10%		(2)%

(*) Numbers do not add due to rounding.

Americas Simple Meals and Beverages

Sales in the quarter were comparable to the prior year at 842 million USD driven by gains in Prego pasta sauces and Plum products, partly offset by declines in V8 beverages and soup. U.S. soup sales decreased 2 percent driven by declines in ready-to-serve soups, partly offset by increases in broth. Segment operating earnings increased 4 percent to 191 million USD. The increase was primarily driven by a higher gross margin percentage, partly offset by increased marketing and selling expenses.

Global Biscuits and Snacks

Sales increased 1 percent in the quarter to 622 million USD. Excluding the negative impact of currency translation, segment sales increased 2 percent primarily driven by gains in Pepperidge Farm Goldfish crackers and Arnott’s biscuits. Segment operating earnings increased 5 percent to 81 million USD as the benefit from lower administrative expenses was partly offset by a lower gross margin percentage.

Campbell Fresh

Sales decreased 5 percent in the quarter to 223 million USD. Excluding the impact from the acquisition of Garden Fresh Gourmet, segment sales declined 12 percent reflecting lower sales in carrots and carrot ingredients, as well as in Bolthouse Farms premium refrigerated beverages, partly offset by gains in fresh soup and Bolthouse Farms salad dressings. Segment operating earnings decreased 62 percent to 8 million USD. The decrease in operating earnings was primarily driven by the adverse impact of the voluntary recall on Bolthouse Farms Protein PLUS drinks and related production outages, as well as higher carrot costs and lower sales in carrots and carrot ingredients. The decrease was partly offset by lower administrative expenses.

Unallocated Corporate Expenses

Unallocated corporate expenses for the quarter were 318 million USD compared to 145 million USD in the prior year. The increase in expenses reflects the impact of the non-cash impairment charge, pension and postretirement mark-to-market losses and charges related to cost savings initiatives as previously mentioned. The remaining increase in expenses was primarily due to losses on open commodity hedges.