Campbell Soup(CPB) - 2025 Q1 - Quarterly Report

PART I - FINANCIAL INFORMATION Item 1. Financial Statements This section presents the unaudited consolidated financial statements of The Campbell's Company for the quarter ended October 27, 2024, including statements of earnings, comprehensive income, balance sheets, cash flows, and equity, along with detailed notes explaining the basis of presentation, significant accounting policies, recent acquisitions and divestitures, segment information, and other financial disclosures Consolidated Statements of Earnings Consolidated Statements of Earnings (Three Months Ended) | Metric (Millions, except per share) | October 27, 2024 | October 29, 2023 | | :---------------------------------- | :--------------- | :--------------- | | Net sales | $2,772 | $2,518 | | Total costs and expenses | $2,405 | $2,160 | | Earnings before interest and taxes | $367 | $358 | | Interest expense | $87 | $49 | | Interest income | $4 | $1 | | Earnings before taxes | $284 | $310 | | Taxes on earnings | $66 | $76 | | Net earnings | $218 | $234 | | Net earnings attributable to The Campbell's Company | $218 | $234 | | Per Share — Basic | $0.73 | $0.79 | | Per Share — Assuming Dilution | $0.72 | $0.78 | Consolidated Statements of Comprehensive Income Consolidated Statements of Comprehensive Income (Three Months Ended) | Metric (Millions) | October 27, 2024 | October 29, 2023 | | :----------------------------------------------------------------------------- | :--------------- | :--------------- | | Net earnings (loss) | $218 | $234 | | Other comprehensive income (loss): | | | | Foreign currency translation adjustments | $(2) | $(9) | | Cash-flow hedges: Unrealized gains (losses) arising during the period | $0 | $8 | | Cash-flow hedges: Reclassification adjustment for losses (gains) included in net earnings | $1 | $0 | | Pension and other postretirement benefits: Prior service credit arising during the period | $5 | $0 | | Other comprehensive income (loss) | $4 | $(3) | | Total comprehensive income (loss) | $222 | $231 | | Total comprehensive income (loss) attributable to The Campbell's Company | $222 | $231 | Consolidated Balance Sheets Consolidated Balance Sheets (Millions) | Asset/Liability Category | October 27, 2024 | July 28, 2024 | | :---------------------------------------- | :--------------- | :------------ | | Current Assets: | | | | Cash and cash equivalents | $808 | $108 | | Accounts receivable, net | $840 | $630 | | Inventories | $1,413 | $1,386 | | Other current assets | $76 | $66 | | Total current assets | $3,137 | $2,190 | | Plant assets, net of depreciation | $2,684 | $2,698 | | Goodwill | $5,056 | $5,077 | | Other intangible assets, net of amortization | $4,669 | $4,716 | | Other assets | $566 | $554 | | Total assets | $16,112 | $15,235 | | Current Liabilities: | | | | Short-term borrowings | $1,212 | $1,423 | | Accounts payable | $1,453 | $1,311 | | Accrued liabilities | $622 | $720 | | Dividends payable | $114 | $115 | | Accrued income taxes | $64 | $7 | | Total current liabilities | $3,465 | $3,576 | | Long-term debt | $6,705 | $5,761 | | Deferred taxes | $1,425 | $1,426 | | Other liabilities | $673 | $676 | | Total liabilities | $12,268 | $11,439 | | Total The Campbell's Company shareholders' equity | $3,842 | $3,794 | | Noncontrolling interests | $2 | $2 | | Total equity | $3,844 | $3,796 | | Total liabilities and equity | $16,112 | $15,235 | Consolidated Statements of Cash Flows Consolidated Statements of Cash Flows (Three Months Ended) | Cash Flow Category (Millions) | October 27, 2024 | October 29, 2023 | | :---------------------------------------- | :--------------- | :--------------- | | Net cash provided by operating activities | $225 | $174 | | Net cash used in investing activities | $(47) | $(137) | | Net cash provided by (used in) financing activities | $523 | $(135) | | Effect of exchange rate changes on cash | $(1) | $0 | | Net change in cash and cash equivalents | $700 | $(98) | | Cash and cash equivalents — beginning of period | $108 | $189 | | Cash and cash equivalents — end of period | $808 | $91 | Consolidated Statements of Equity Consolidated Statements of Equity (Selected Items, Millions) | Metric | Balance at July 28, 2024 | Net Earnings (Loss) | Other Comprehensive Income (Loss) | Dividends ($.37 per share) | Treasury Stock Purchased | Treasury Stock Issued | Balance at October 27, 2024 | | :---------------------------------------- | :----------------------- | :------------------ | :-------------------------------- | :------------------------- | :----------------------- | :-------------------- | :-------------------------- | | Capital Stock, Amount | $12 | | | | | | $12 | | Additional Paid-in Capital | $437 | | | | | $(44) | $393 | | Earnings Retained in the Business | $4,569 | $218 | | $(111) | | $(16) | $4,660 | | Capital Stock in Treasury, Amount | $(1,207) | | | | $(54) | $51 | $(1,210) | | Accumulated Other Comprehensive Income (Loss) | $(17) | | $4 | | | | $(13) | | Total The Campbell's Company Shareholders' Equity | $3,796 | $218 | $4 | $(111) | $(54) | $(9) | $3,844 | Notes to Consolidated Financial Statements 1. Basis of Presentation and Significant Accounting Policies The financial statements are unaudited and reflect necessary adjustments for a fair statement of results, consistent with accounting policies from the prior annual report. The fiscal year 2025 will have 53 weeks, compared to 52 weeks in 2024 - The company's fiscal year ends on the Sunday nearest July 31. Fiscal year 2025 will have 53 weeks, while 2024 had 52 weeks[25] 2. Recent Accounting Pronouncements The company adopted FASB guidance on supplier finance programs in Q4 2023, with no material impact. It is currently evaluating new FASB guidance on reportable segment disclosures (effective FY2024/2025), income tax disclosures (effective FY2025), and disaggregated expense information (effective FY2026/2027) - Adopted FASB guidance on supplier finance programs in Q4 2023, with no material impact on financial statements[26] - Currently evaluating the impact of new FASB guidance on reportable segment disclosures (effective FY2024/2025), income tax disclosures (effective FY2025), and disaggregated expense information (effective FY2026/2027)[26] 3. Acquisition The company completed the acquisition of Sovos Brands, Inc. on March 12, 2024, for $2.899 billion, expanding its portfolio with brands like Rao's, Michael Angelo's, and noosa. The acquisition contributed $310 million to Net sales but resulted in a $3 million loss to Net earnings for the three-month period ended October 27, 2024, due to integration costs and debt interest - Acquired Sovos Brands, Inc. on March 12, 2024, for $2.899 billion, adding pasta sauces, dry pasta, soups, frozen entrées, frozen pizza, and yogurts (Rao's, Michael Angelo's, noosa) to its portfolio[28] Sovos Brands Acquisition - Total Consideration (Millions) | Category | Amount | | :------------------------------------------- | :----- | | Cash consideration paid to Sovos Brands shareholders | $2,307 | | Cash paid for share-based awards | $32 | | Cash paid for transaction costs | $32 | | Repayment of Sovos Brands existing indebtedness and accrued interest | $486 | | Total consideration | $2,899 | - The acquisition contributed $310 million to Net sales and a loss of $3 million to Net earnings for the three-month period ended October 27, 2024, including integration costs and interest expense[33] 4. Divestiture The company sold its Pop Secret popcorn business on August 26, 2024, for $70 million, recognizing a pre-tax loss of $25 million. The business had net sales of $9 million for the three-month period ended October 27, 2024, a significant decrease from $29 million in the prior year - Sold Pop Secret popcorn business on August 26, 2024, for $70 million, resulting in a pre-tax loss of $25 million[34] Pop Secret Net Sales (Millions) | Period | Net Sales | | :------------------------------------ | :-------- | | Three-month period ended Oct 27, 2024 | $9 | | Three-month period ended Oct 29, 2023 | $29 | 5. Accumulated Other Comprehensive Income (Loss) Accumulated other comprehensive income (loss) improved from $(17) million at July 28, 2024, to $(13) million at October 27, 2024, primarily due to a $5 million prior service credit arising from pension and postretirement benefits and a $1 million reclassification gain from cash-flow hedges Accumulated Other Comprehensive Income (Loss) (Millions) | Component | Balance at July 28, 2024 | Net Current-Period OCI (Loss) | Balance at October 27, 2024 | | :-------------------------------------- | :----------------------- | :---------------------------- | :-------------------------- | | Foreign Currency Translation Adjustments | $(10) | $(2) | $(12) | | Cash-Flow Hedges | $(9) | $1 | $(8) | | Pension and Postretirement Plan Adjustments | $2 | $5 | $7 | | Total Accumulated Comprehensive Income (Loss) | $(17) | $4 | $(13) | - A loss of $1 million is expected to be reclassified from OCI into earnings within the next 12 months[72] 6. Goodwill and Intangible Assets Goodwill decreased slightly to $5,056 million due to a $21 million divestiture of the Pop Secret business. Total net intangible assets were $4,669 million, with Rao's trademark valued at $1,470 million. Amortization expense for the quarter was $20 million, including $7 million of accelerated amortization due to lost contract manufacturing customers Goodwill Carrying Amount (Millions) | Segment | Net Balance at July 28, 2024 | Divestiture | Net Balance at October 27, 2024 | | :---------------- | :--------------------------- | :---------- | :------------------------------ | | Meals & Beverages | $2,102 | $0 | $2,102 | | Snacks | $2,975 | $(21) | $2,954 | | Total | $5,077 | $(21) | $5,056 | Intangible Assets (Millions) | Category | October 27, 2024 Net | July 28, 2024 Net | | :------------------------------------- | :------------------- | :---------------- | | Total amortizable intangible assets | $815 | $834 | | Total indefinite-lived trademarks | $3,854 | $3,882 | | Total net intangible assets | $4,669 | $4,716 | - Amortization expense was $20 million for the three-month period ended October 27, 2024, including $7 million of accelerated amortization on customer relationships due to the loss of certain contract manufacturing customers[41] 7. Segment Information The company operates in two reportable segments: Meals & Beverages and Snacks. Meals & Beverages net sales increased 22% due to the Sovos Brands acquisition, while Snacks net sales decreased 4% primarily due to declines in third-party brands and contract manufacturing. Overall net sales increased 10% to $2,772 million - Reportable segments are Meals & Beverages (soup, simple meals, beverages, including newly acquired Rao's, Michael Angelo's, noosa) and Snacks (cookies, crackers, pretzels, chips, and other salty snacks)[42][43] Net Sales by Reportable Segment (Millions) | Segment | October 27, 2024 | October 29, 2023 | % Change | | :---------------- | :--------------- | :--------------- | :------- | | Meals & Beverages | $1,706 | $1,404 | 22% | | Snacks | $1,066 | $1,114 | (4)% | | Total | $2,772 | $2,518 | 10% | Operating Earnings by Segment (Millions) | Segment | October 27, 2024 | October 29, 2023 | % Change | | :---------------- | :--------------- | :--------------- | :------- | | Meals & Beverages | $337 | $287 | 17% | | Snacks | $142 | $161 | (12)% | | Total Segment Operating Earnings | $479 | $448 | 7% | 8. Restructuring Charges, Cost Savings Initiatives and Other Optimization Initiatives The company is implementing 2025 cost savings initiatives, with estimated pre-tax costs of $190 million through 2028, expected to generate $250 million in annual savings by the end of 2028. For the three months ended October 27, 2024, $27 million in pre-tax charges were recognized. Additionally, an optimization initiative for the Snacks direct-store-delivery network is underway, with expected expenses of up to $115 million through 2029 - The company substantially completed multi-year cost savings initiatives and the Snyder's-Lance cost transformation program, generating approximately $950 million in pre-tax savings[122] - New 2025 cost savings initiatives were announced on September 10, 2024, targeting supply chain, manufacturing, IT infrastructure, and cost management, including Sovos Brands integration synergies[50][126] 2025 Cost Savings Initiatives - Pre-tax Charges (Three Months Ended October 27, 2024) | Category | Amount (Millions) | | :-------------------------------------- | :---------------- | | Restructuring charges | $6 | | Administrative expenses | $11 | | Cost of products sold | $8 | | Marketing and selling expenses | $1 | | Research and development expenses | $1 | | Total pre-tax charges | $27 | - Total estimated pre-tax costs for identified 2025 initiatives are approximately $190 million (72% Meals & Beverages, 12% Snacks, 16% Corporate), with $135 million expected cash expenditures and $215 million in capital expenditures through 2028. These initiatives are expected to generate annual ongoing savings of approximately $250 million by the end of 2028[52][127] - An initiative to improve the Snacks direct-store-delivery network began in Q2 2024, with expected expenses up to $115 million through 2029. $8 million in Marketing and selling expenses were incurred in the current quarter[54][129] 9. Earnings per Share (EPS) Basic EPS was $0.73 and diluted EPS was $0.72 for the three months ended October 27, 2024. The calculation includes the incremental effect of stock options and other share-based payment awards, excluding antidilutive effects Earnings Per Share (Three Months Ended) | Metric | October 27, 2024 | October 29, 2023 | | :---------------------------------------- | :--------------- | :--------------- | | Net earnings attributable to The Campbell's Company (Basic) | $0.73 | $0.79 | | Weighted average shares outstanding — basic | 298 million | 298 million | | Net earnings attributable to The Campbell's Company (Diluted) | $0.72 | $0.78 | | Weighted average shares outstanding — assuming dilution | 301 million | 299 million | 10. Pension and Postretirement Benefits Net periodic benefit expense for postretirement plans increased to $4 million in the current quarter from $2 million in the prior year, primarily due to an actuarial loss of $2 million related to a decrease in the discount rate. Pension plans showed a net periodic benefit income of $(2) million Net Periodic Benefit Expense (Income) (Millions) | Component | Pension (Oct 27, 2024) | Pension (Oct 29, 2023) | Postretirement (Oct 27, 2024) | Postretirement (Oct 29, 2023) | | :-------------------------------------- | :--------------------- | :--------------------- | :---------------------------- | :---------------------------- | | Service cost | $3 | $3 | $0 | $0 | | Interest cost | $15 | $16 | $2 | $2 | | Expected return on plan assets | $(20) | $(20) | $0 | $0 | | Actuarial losses (gains) | $0 | $0 | $2 | $0 | | Net periodic benefit expense (income) | $(2) | $(1) | $4 | $2 | - The actuarial loss in postretirement benefits for the three-month period ended October 27, 2024, was primarily due to a decrease in the discount rate used to determine the benefit obligation[57] 11. Leases Total lease costs increased to $116 million for the three months ended October 27, 2024, from $100 million in the prior year, driven by higher operating and variable lease costs. Operating lease ROU assets remained stable at $333 million, while finance lease ROU assets increased to $84 million Components of Lease Costs (Millions) | Lease Cost Category | October 27, 2024 | October 29, 2023 | | :---------------------------------- | :--------------- | :--------------- | | Operating lease cost | $29 | $24 | | Finance lease - amortization of ROU assets | $6 | $4 | | Finance lease - interest on lease liabilities | $1 | $0 | | Short-term lease cost | $15 | $19 | | Variable lease cost | $65 | $53 | | Total | $116 | $100 | Right-of-Use (ROU) Assets and Lease Liabilities (Millions) | Category | October 27, 2024 | July 28, 2024 | | :------------------------------------- | :--------------- | :------------ | | Operating Leases - ROU assets, net | $333 | $333 | | Operating Leases - Lease liabilities (current) | $92 | $90 | | Operating Leases - Lease liabilities (noncurrent) | $268 | $268 | | Finance Leases - ROU assets, net | $84 | $72 | | Finance Leases - Lease liabilities (current) | $29 | $25 | | Finance Leases - Lease liabilities (noncurrent) | $55 | $46 | 12. Short-term Borrowings and Long-term Debt The company issued $1.15 billion in senior unsecured notes in October 2024, with maturities in 2035 (4.75%) and 2054 (5.25%). Proceeds were used to repay $200 million of a term loan and a portion of commercial paper. The company intends to repay $1.15 billion of senior notes maturing in March 2025 using proceeds, cash on hand, and commercial paper - Issued $1.15 billion in senior unsecured notes on October 2, 2024: $800 million at 4.75% due March 23, 2035, and $350 million at 5.25% due October 13, 2054[61] - Used proceeds to repay $200 million of the 2022 Delayed Draw Term Loan Credit Agreement and a portion of outstanding commercial paper[61] - Plans to repay $1.15 billion of senior notes maturing in March 2025 using a portion of the new notes' proceeds, cash on hand, and commercial paper[61] 13. Financial Instruments The company uses derivative contracts (swaps, options, forwards, futures) to manage exposures to foreign currency, interest rates, and commodity prices, not for speculative purposes. Its largest customer accounted for 22% of consolidated net sales in 2024, and the top five customers accounted for 47%, indicating significant customer concentration risk - Manages market risks (foreign currency, interest rates, commodity prices) using derivative contracts (swaps, rate locks, options, forwards, commodity futures) for hedging, not speculation[62] - Largest customer accounted for approximately 22% of consolidated net sales in 2024; top five customers accounted for approximately 47%, highlighting concentration of credit risk[63] Fair Value of Derivative Instruments (Millions) | Category | October 27, 2024 | July 28, 2024 | | :------------------------------------- | :--------------- | :------------ | | Total asset derivatives | $7 | $11 | | Total liability derivatives | $11 | $16 | Effect of Derivative Instruments Not Designated as Hedges on Earnings (Millions) | Location of Loss (Gain) Recognized in Earnings | October 27, 2024 | October 29, 2023 | | :--------------------------------------------- | :--------------- | :--------------- | | Foreign exchange contracts (Cost of products sold) | $0 | $(1) | | Commodity contracts (Cost of products sold) | $(4) | $12 | | Deferred compensation contracts (Administrative expenses) | $(3) | $4 | | Total | $(7) | $15 | 14. Fair Value Measurements The company categorizes financial assets and liabilities using a three-level fair value hierarchy. As of October 27, 2024, total assets measured at fair value were $8 million, and total liabilities were $119 million, with most classified as Level 1 or Level 2. The fair value of short- and long-term debt was $7.623 billion, compared to a carrying value of $7.917 billion Assets Measured at Fair Value on a Recurring Basis (Millions) | Asset Category | Fair Value as of Oct 27, 2024 | Level 1 | Level 2 | Level 3 | | :------------------------------------- | :---------------------------- | :------ | :------ | :------ | | Foreign exchange contracts | $3 | $0 | $3 | $0 | | Commodity derivative contracts | $3 | $1 | $0 | $2 | | Deferred compensation derivative contracts | $1 | $0 | $1 | $0 | | Deferred compensation investments | $1 | $1 | $0 | $0 | | Total assets at fair value | $8 | $2 | $4 | $2 | Liabilities Measured at Fair Value on a Recurring Basis (Millions) | Liability Category | Fair Value as of Oct 27, 2024 | Level 1 | Level 2 | Level 3 | | :------------------------------------- | :---------------------------- | :------ | :------ | :------ | | Foreign exchange contracts | $1 | $0 | $1 | $0 | | Commodity derivative contracts | $10 | $1 | $9 | $0 | | Deferred compensation obligation | $108 | $108 | $0 | $0 | | Total liabilities at fair value | $119 | $109| $10 | $0 | - The fair value of short- and long-term debt was $7.623 billion at October 27, 2024, compared to a carrying value of $7.917 billion[83] 15. Share Repurchases The Board approved a new anti-dilutive share repurchase program of up to $250 million in September 2024, replacing a prior program. During the three months ended October 27, 2024, the company repurchased 1.098 million shares for $54 million. As of October 27, 2024, $206 million remained available under the new anti-dilutive program and $301 million under the September 2021 strategic program - In September 2024, the Board authorized a new anti-dilutive share repurchase program of up to $250 million, replacing a previous program[84] Share Repurchase Activity (Three Months Ended October 27, 2024) | Period | Total Number of Shares Purchased | Average Price Paid Per Share | | :--------------- | :------------------------------- | :--------------------------- | | 9/2/24 - 9/30/24 | 770,000 | $50.44 | | 10/1/24 - 10/25/24 | 328,000 | $47.67 | | Total | 1,098,000 | $49.61 | - As of October 27, 2024, $206 million remained available under the September 2024 anti-dilutive program and $301 million under the September 2021 strategic program[84] 16. Stock-based Compensation Total pre-tax stock-based compensation expense was $19 million for the three months ended October 27, 2024, up from $17 million in the prior year. The company issued 1.721 million time-lapse restricted stock units (Replacement units) in connection with the Sovos Brands acquisition, with a total fair value of $74 million. Remaining unearned compensation for nonvested time-lapse and EPS performance restricted stock units is $98 million, to be amortized over 1.9 years Stock-based Compensation Expense (Millions) | Metric | October 27, 2024 | October 29, 2023 | | :------------------------------------- | :--------------- | :--------------- | | Total pre-tax stock-based compensation expense | $19 | $17 | | Tax-related benefits | $6 | $2 | - Issued 1.721 million time-lapse restricted stock units (Replacement units) with a total fair value of $74 million as part of the Sovos Brands acquisition[85] - Total remaining unearned compensation for nonvested time-lapse and EPS performance restricted stock units was $98 million as of October 27, 2024, with a weighted-average remaining service period of 1.9 years[90] 17. Commitments and Contingencies The company is involved in various legal and regulatory proceedings, including a Clean Water Act lawsuit concerning its Napoleon, Ohio wastewater treatment facility. While the outcome is uncertain, the company does not expect the ultimate costs to have a material adverse effect on its financial condition, results of operations, or cash flows - Facing lawsuits from the DOJ and environmental groups regarding alleged Clean Water Act violations at its Napoleon, Ohio wastewater treatment facility[94] - The company is taking actions to remediate exceedances and is in settlement discussions. It does not expect the ultimate costs to have a material adverse effect on its financial condition, results of operations, or cash flows[95][96] 18. Supplier Finance Program Obligations The company utilizes supplier finance programs to optimize payment terms, with outstanding obligations of approximately $269 million at October 27, 2024, up from $243 million at July 28, 2024. These obligations are included in Accounts payable and do not impact the company's direct financial relationship with financial institutions or involve pledged assets - Maintains supplier finance programs to optimize payment terms, with suppliers voluntarily selling payment obligations to financial institutions[98] Supplier Finance Program Obligations (Millions) | Metric | October 27, 2024 | July 28, 2024 | | :-------------------------------------- | :--------------- | :------------ | | Amounts outstanding under these programs | $269 | $243 | - The company has no economic interest in a supplier's decision to use these programs and has not pledged assets or provided guarantees[98] 19. Supplemental Financial Statement Data This section provides additional detail on inventories and other expenses. Inventories increased to $1,413 million, with raw materials up and finished products down. Other expenses increased to $43 million, primarily due to a $25 million loss on the Pop Secret sale and $7 million in accelerated amortization Inventories (Millions) | Inventory Category | October 27, 2024 | July 28, 2024 | | :--------------------------------- | :--------------- | :------------ | | Raw materials, containers and supplies | $466 | $376 | | Finished products | $947 | $1,010 | | Total Inventories | $1,413 | $1,386 | Other Expenses / (Income) (Millions) | Expense Item | October 27, 2024 | October 29, 2023 | | :----------------------------------------- | :--------------- | :--------------- | | Amortization of intangible assets | $20 | $17 | | Net periodic benefit expense (income) other than service cost | $(1) | $(2) | | Costs associated with acquisition | $0 | $9 | | Loss on sale of business | $25 | $0 | | Transition services fees | $(1) | $(2) | | Other | $0 | $2 | | Total Other expenses / (income) | $43 | $24 | 20. Subsequent Event In November 2024, the company entered an agreement to sell its noosa yoghurt business for $200 million, subject to customary adjustments and regulatory approval. This business was acquired as part of Sovos Brands and had net sales of $68 million in 2024 - Entered an agreement in November 2024 to sell the noosa yoghurt business for $200 million, subject to customary adjustments and regulatory approval[101] - The noosa yoghurt business, acquired with Sovos Brands, had net sales of $68 million in 2024[101] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial performance and condition for the quarter ended October 27, 2024. It highlights a 10% increase in net sales, primarily driven by the Sovos Brands acquisition, and discusses the impact of various factors on gross profit, operating expenses, and net earnings. The company also details ongoing cost savings initiatives, liquidity, and capital resources OVERVIEW - The company changed its name from 'Campbell Soup Company' to 'The Campbell's Company' effective November 19, 2024[105] - Net sales increased 10% to $2.772 billion, primarily due to a 12-point benefit from the Sovos Brands acquisition[105] - Gross profit as a percent of sales remained at 31.3%, benefiting from supply chain productivity and mark-to-market adjustments, offset by cost inflation and unfavorable net price realization[105] - Diluted EPS decreased to $0.72 from $0.78 in the prior-year quarter, impacted by various comparability items including cost savings initiatives, divestiture losses, and acquisition costs[105][109] Impact of Items on Net Earnings Attributable to The Campbell's Company (Millions, except per share) | Item Impacting Comparability | October 27, 2024 Earnings Impact | October 27, 2024 EPS Impact | October 29, 2023 Earnings Impact | October 29, 2023 EPS Impact | | :-------------------------------------------- | :------------------------------- | :-------------------------- | :------------------------------- | :-------------------------- | | Costs associated with cost savings and optimization initiatives | $(27) | $(0.09) | $(10) | $(0.03) | | Commodity mark-to-market gains (losses) | $3 | $0.01 | $(11) | $(0.04) | | Accelerated amortization | $(5) | $(0.02) | $(5) | $(0.02) | | Cybersecurity incident recoveries (costs) | $1 | $0.00 | $(2) | $(0.01) | | Certain litigation expenses | $(1) | $0.00 | $(2) | $(0.01) | | Postretirement actuarial losses | $(1) | $0.00 | $0 | $0.00 | | Charges associated with divestiture | $(19) | $(0.06) | $0 | $0.00 | | Costs associated with acquisition | $0 | $0.00 | $(8) | $(0.03) | | Total Impact of items on Net earnings | $(49) | $(0.16) | $(38) | $(0.13) | FIRST-QUARTER DISCUSSION AND ANALYSIS Sales Net Sales by Reportable Segment (% Change) | Segment | Volume/mix | Net price realization | Divestiture | Acquisition | Total % Change | | :---------------- | :--------- | :-------------------- | :---------- | :---------- | :------------- | | Meals & Beverages | 1% | (1)% | — | 22% | 22% |\ | Snacks | (1)% | (1)% | (2)% | — | (4)% | - Meals & Beverages sales increased 22%, primarily due to the Sovos Brands acquisition. Excluding the acquisition, sales were comparable, with gains in Prego pasta sauces, Canada, and foodservice offset by declines in U.S. soup[110] - Snacks sales decreased 4%, impacted by volume/mix declines and lower net price realization, and the divestiture of the Pop Secret popcorn business[112] Gross Profit - Gross profit increased by $79 million, and as a percent of sales, remained flat at 31.3% for both periods[112] Gross Profit Margin Performance Impact (Basis Points) | Factor | Margin Impact | | :-------------------------------------------- | :------------ | | Productivity improvements | 150 | | Volume/mix | 20 | | Net price realization | (80) | | Impact of acquisition | (60) | | Higher costs associated with cost savings initiatives | (20) | | Cost inflation, supply chain costs and other factors | (10) | | Total | 0 | Marketing and Selling Expenses - Marketing and selling expenses increased 13% (from $222 million to $250 million), primarily due to the Sovos Brands acquisition (approximately 12 points) and higher costs from cost savings and optimization initiatives (approximately 3 points)[8][112] Administrative Expenses - Administrative expenses increased 11% (from $158 million to $175 million), driven by higher general administrative costs and inflation (7 points), the acquisition impact (5 points), and cost savings initiatives (4 points), partially offset by benefits from cost savings initiatives (4 points)[8][112] Other Expenses / (Income) - Other expenses increased to $43 million from $24 million, primarily due to a $25 million loss on the Pop Secret sale, $7 million in accelerated amortization, and a $2 million postretirement actuarial loss[8][112] Operating Earnings - Total segment operating earnings increased 7% to $479 million[114] - Meals & Beverages operating earnings increased 17% due to the Sovos Brands acquisition and lower marketing/selling expenses[117] - Snacks operating earnings decreased 12% due to lower gross profit, impacted by cost inflation and unfavorable net price realization[117] - Corporate expense increased to $(106) million from $(88) million, including costs for cost savings initiatives, Pop Secret sale loss, accelerated amortization, and postretirement actuarial loss[114][117] Interest Expense - Interest expense increased to $87 million from $49 million, primarily due to higher levels of debt[8][118] Taxes on Earnings - The effective tax rate decreased to 23.2% from 24.5%, mainly due to excess tax benefits from stock-based compensation awards[119] Restructuring Charges, Cost Savings Initiatives and Other Optimization Initiatives Multi-year Cost Savings Initiatives and Snyder's-Lance, Inc. (Snyder's-Lance) Cost Transformation Program and Integration Continuing Operations - The company substantially completed multi-year cost savings initiatives and the Snyder's-Lance cost transformation program by July 28, 2024, generating total pre-tax savings of approximately $950 million[122] Pre-tax Charges for Multi-year Cost Savings Initiatives (Three Months Ended October 29, 2023) | Category | Amount (Millions) | | :-------------------------------------- | :---------------- | | Restructuring charges | $2 | | Administrative expenses | $5 | | Cost of products sold | $3 | | Marketing and selling expenses | $2 | | Research and development expenses | $1 | | Total pre-tax charges | $13 | Sovos Brands Integration Initiatives - In 2024, $21 million in Restructuring charges were recorded for severance related to Sovos Brands integration, generating $10 million in pre-tax savings[123] - Sovos Brands integration initiatives were incorporated into the 2025 cost savings initiatives[123] 2025 Cost Savings Initiatives - New 2025 cost savings initiatives were announced on September 10, 2024, focusing on supply chain, manufacturing, IT infrastructure, and cost management, including Sovos Brands integration synergies[126] 2025 Cost Savings Initiatives - Pre-tax Charges (Three Months Ended October 27, 2024) | Category | Amount (Millions) | | :-------------------------------------- | :---------------- | | Restructuring charges | $6 | | Administrative expenses | $11 | | Cost of products sold | $8 | | Marketing and selling expenses | $1 | | Research and development expenses | $1 | | Total pre-tax charges | $27 | - Total estimated pre-tax costs for identified actions are approximately $190 million through 2028, with expected annual ongoing savings of approximately $250 million by the end of 2028[127] Other Optimization Initiatives - An initiative to improve the Snacks direct-store-delivery route-to-market network began in Q2 2024, with expected expenses up to $115 million through 2029[129] - $8 million in Marketing and selling expenses were incurred in the three-month period ended October 27, 2024, related to this initiative[129] LIQUIDITY AND CAPITAL RESOURCES The company's liquidity is supported by cash flows from operations, borrowings, and credit facilities. Cash flows from operations increased to $225 million. The company had negative working capital of $328 million, reflecting a focus on lowering core working capital. Capital expenditures were $110 million, with an expected total of $500 million for 2025. Dividends increased by 5% to $0.39 per share, payable January 27, 2025 - Cash flows from operations increased to $225 million in 2025 from $174 million in 2024, driven by changes in working capital and higher cash earnings[130] - Negative working capital of $328 million as of October 27, 2024, down from $1.386 billion at July 28, 2024, due to a focus on lowering core working capital requirements[130] - Capital expenditures were $110 million in 2025, with an expected total of approximately $500 million for the full fiscal year 2025[130] - The Board approved a 5% increase in the regular quarterly dividend from $0.37 to $0.39 per share, payable January 27, 2025[132] - The company entered into a Five-Year Credit Agreement for an unsecured, senior revolving credit facility of $1.85 billion, which remained largely unused as of October 27, 2024[132] CRITICAL ACCOUNTING ESTIMATES The company's critical accounting estimates, which involve significant judgments and assumptions affecting reported financial amounts, are consistent with those described in its 2024 Annual Report on Form 10-K - Critical accounting estimates are consistent with those applied in the 2024 Annual Report on Form 10-K, involving significant estimates, judgments, and assumptions[134] RECENT ACCOUNTING PRONOUNCEMENTS Information on recent accounting pronouncements is detailed in Note 2 to the Consolidated Financial Statements - Refer to Note 2 for details on recent accounting pronouncements[135] FORWARD-LOOKING STATEMENTS This section contains forward-looking statements reflecting current expectations and plans, which are subject to various risks and uncertainties. Key factors that could cause actual results to differ materially include integration risks from the Sovos Brands acquisition, supply chain disruptions, commodity cost volatility, competitive responses, and the ability to realize cost savings - Forward-looking statements are subject to risks including integration challenges and unrealized synergies from the Sovos Brands acquisition[136] - Risks include availability and cost inflation of supply chain inputs (labor, raw materials, commodities, packaging, transportation), and the ability to execute strategy and realize benefits from cost savings initiatives[136] - Other significant risks include competitive responses, changes in consumer demand, supply chain disruptions, effectiveness of hedging activities, and potential impairment to goodwill or other intangible assets[136][138] Item 3. Quantitative and Qualitative Disclosure About Market Risk Information regarding the company's exposure to market risk is incorporated by reference from Item 7A of its 2024 Annual Report on Form 10-K - Market risk disclosures are incorporated by reference from Item 7A of the 2024 Annual Report on Form 10-K[139] Item 4. Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of October 27, 2024. There were no material changes in internal control over financial reporting during the quarter - Disclosure controls and procedures were evaluated and deemed effective as of October 27, 2024[140] - No material changes in internal control over financial reporting occurred during the quarter ended October 27, 2024[141] a. Evaluation of Disclosure Controls and Procedure - The President and CEO and the Executive Vice President and CFO concluded that disclosure controls and procedures were effective as of October 27, 2024[140] b. Changes in Internal Control - No changes in internal control over financial reporting materially affected, or are likely to materially affect, such internal control during the quarter ended October 27, 2024[141] PART II - OTHER INFORMATION Item 1. Legal Proceedings Information regarding reportable legal proceedings is incorporated by reference from Note 17 to the Consolidated Financial Statements - Legal proceedings information is contained in Note 17 to the Consolidated Financial Statements[143] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds During the three months ended October 27, 2024, the company repurchased 1.098 million shares at an average price of $49.61 per share, totaling $54 million, under its anti-dilutive share repurchase programs. As of October 27, 2024, $206 million remained available under the September 2024 program and $301 million under the September 2021 program Share Repurchase Activity (Three Months Ended October 27, 2024) | Period | Total Number of Shares Purchased | Average Price Paid Per Share | | :--------------- | :------------------------------- | :--------------------------- | | 9/2/24 - 9/30/24 | 770,000 | $50.44 | | 10/1/24-10/25/24 | 328,000 | $47.67 | | Total | 1,098,000 | $49.61 | - As of October 27, 2024, approximately $206 million remained available under the September 2024 anti-dilutive share repurchase program and approximately $301 million under the September 2021 strategic share repurchase program[146] Item 5. Other Information No directors or officers adopted or terminated any Rule 10b5-1 trading arrangements during the quarter ended October 27, 2024 - No directors or officers adopted or terminated Rule 10b5-1 trading arrangements during the quarter[147] Item 6. Exhibits The Index to Exhibits, which lists all documents filed as exhibits to this report, is incorporated by reference - The Index to Exhibits is incorporated by reference into this Report[148] INDEX TO EXHIBITS This section provides a comprehensive list of all exhibits filed with the Form 10-Q, including corporate governance documents, debt instruments, incentive plans, certifications, and XBRL-related documents - Includes Restated Certificate of Incorporation, By-Laws, Forms of 2035 and 2054 Notes, Long-Term Incentive Plan Agreements, Supplemental Retirement Plan, Non-Employee Director Fees, and various certifications[151] - Contains Inline XBRL documents (Instance, Schema, Calculation, Definition, Label, Presentation Linkbase Documents) and the cover page formatted in Inline XBRL[151] SIGNATURES The report is duly signed on behalf of The Campbell's Company by Carrie L. Anderson, Executive Vice President and Chief Financial Officer, and Stanley Polomski, Senior Vice President and Controller, as of December 4, 2024 - The report is signed by Carrie L. Anderson, Executive Vice President and Chief Financial Officer, and Stanley Polomski, Senior Vice President and Controller, on December 4, 2024[154]