Fitch Ratings: affirms Campbell’s Outlook stable

Camden / NJ. (bw) Fitch Ratings has affirmed the long-term Issuer Default Rating (IDR) and senior unsecured debt ratings for Campbell Soup Company at ‘A’. Fitch has also affirmed Campbell´s short-term IDR and commercial paper (CP) rating at ‘F1’. The Rating Outlook is Stable. Campbell´s total debt was 2,8 billion USD at August 01, 2010, which included 96 million USD of commercial paper (CP).

Campbell´s ratings and Outlook are based on its significant cash flow generation, modest leverage, and the continuation of its balanced financial strategy. Campbell´s overall profitability as measured by operating Ebitda margins is consistently among the best in the packaged food industry. The company has maintained its operating Ebitda margins in the 20 percent+ range over the past five years and improved margins in fiscal 2010 with very modest input cost inflation and improved productivity.

The ratings incorporate Campbell´s leading position in the high margin soup category and the strength of its branded product portfolio, which focuses on simple meals, baked snacks and healthy beverages. The ratings also consider the mature and highly competitive nature of the soup category, which faced a very difficult year in fiscal 2010. Sales for the U.S. wet soup category declined in fiscal 2010, and Campbell´s sales decline was slightly worse than the category. In contrast, private label soup sales increased. Campbell´s U.S. soup sales declined four percent for the fiscal year ended August 01, 2010 versus the prior year. The decline was driven primarily by both canned and microwavable ready-to-serve soups. Campbell´s condensed cooking soup sales increased in fiscal 2010, benefiting from the shift toward eating more meals at home during the prolonged weak economic environment. Fitch expects this trend to continue in the near-term while unemployment remains high.

Campbell´s leverage has remained stable for the past four fiscal years and its coverage has improved with lower interest rates. The company´s credit metrics are in line with Fitch´s expectations. For the fiscal year ended August 01, 2010, total debt-to-operating Ebitda was 1,6 times, Funds from Operations adjusted leverage was 2,9 times and operating Ebitda-to-gross interest expense was 14,6 times. Free cash flow (cash flow from operations less capital expenditures and dividends) was 377 million USD for the year, down from 471 million USD in the prior year due to Campbell´s 260 million USD voluntary pension plan contribution in fiscal 2010 partially offset by improvement in working capital. Fiscal 2011 free cash flow may be slightly higher than in fiscal 2010 due to lower voluntary pension plan contributions. Campbell´s contributed 100 million USD to its U.S. pension plans in the fiscal first quarter of 2011 and expects to contribute approximately 43 million USD to its non-U.S. plans. Free cash flow, supplemented by modest borrowings, is expected to be used for share purchases and/or bolt-on acquisitions within core categories of simple meals, baked snacks and healthy beverages. As of August 01, 2010, Campbell´s had 550 million USD remaining on its 1,2 billion USD three-year share repurchase plan authorization through the end of fiscal 2011. Fitch expects that Campbell´s will maintain its conservative financial strategy and keep credit metrics near the current range.

Campbell´s liquidity at August 01, 2010 was derived from 254 million USD in cash and cash equivalents, as well as a 1,5 billion USD revolving credit facility expiring in September 2011. The credit facility, which supported its commercial paper program, was unused except for 25 million USD of standby letters of credit. In September 2010, Campbell´s replaced its 1,5 billion USD facility with 1,95 billion USD of new credit facilities, consisting of a 975 million USD 364-day revolving credit facility with a one-year term-out feature and a 975 million USD three-year facility that matures in September 2013. Campbell´s next significant long-term debt maturity is 700 million USD 6,75 percent notes due February 15, 2011. Fitch expects that the company is likely to refinance this maturing debt.