Campbell Soup(CPB) - 2024 Q2 - Quarterly Report

PART I - FINANCIAL INFORMATION Item 1. Financial Statements This section presents Campbell Soup Company's unaudited consolidated financial statements for the quarter ended January 28, 2024, covering earnings, comprehensive income, balance sheets, cash flows, and equity with detailed notes Consolidated Statements of Earnings Net sales for the three months ended January 28, 2024, decreased to $2.456 billion, with net earnings attributable to Campbell Soup Company declining to $203 million Consolidated Earnings Summary (in millions, except per share amounts) | Metric | Three Months Ended Jan 28, 2024 | Three Months Ended Jan 29, 2023 | Six Months Ended Jan 28, 2024 | Six Months Ended Jan 29, 2023 | | :--- | :--- | :--- | :--- | :--- | | Net Sales | $2,456 | $2,485 | $4,974 | $5,060 | | Earnings Before Interest and Taxes | $317 | $350 | $675 | $786 | | Net Earnings Attributable to Campbell Soup Company | $203 | $232 | $437 | $529 | | Diluted EPS | $0.68 | $0.77 | $1.46 | $1.76 | Consolidated Statements of Comprehensive Income Total comprehensive income for the three months ended January 28, 2024, was $186 million, primarily due to an other comprehensive loss Comprehensive Income Summary (in millions) | Metric | Three Months Ended Jan 28, 2024 | Three Months Ended Jan 29, 2023 | Six Months Ended Jan 28, 2024 | Six Months Ended Jan 29, 2023 | | :--- | :--- | :--- | :--- | :--- | | Net Earnings | $203 | $232 | $437 | $529 | | Other Comprehensive Income (Loss) | $(17) | $0 | $(20) | $(6) | | Total Comprehensive Income | $186 | $232 | $417 | $523 | Consolidated Balance Sheets Total assets increased to $12.106 billion as of January 28, 2024, while total liabilities decreased and total equity increased Balance Sheet Summary (in millions) | Metric | January 28, 2024 | July 30, 2023 | | :--- | :--- | :--- | | Total Current Assets | $2,070 | $2,061 | | Total Assets | $12,106 | $12,058 | | Total Current Liabilities | $2,056 | $2,222 | | Total Liabilities | $8,255 | $8,395 | | Total Equity | $3,851 | $3,663 | Consolidated Statements of Cash Flows Net cash provided by operating activities was $684 million for the six months ended January 28, 2024, with increased cash used in investing activities Six-Month Cash Flow Summary (in millions) | Metric | Six Months Ended Jan 28, 2024 | Six Months Ended Jan 29, 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $684 | $732 | | Net cash used in investing activities | $(256) | $(158) | | Net cash used in financing activities | $(448) | $(525) | | Net change in cash and cash equivalents | $(20) | $49 | Consolidated Statements of Equity Total equity increased to $3.851 billion by January 28, 2024, driven by net earnings partially offset by dividends and other comprehensive loss - Key drivers for the change in equity during the six-month period ended January 28, 2024, include net earnings of $437 million, offset by dividends of $223 million, treasury stock purchases of $29 million, and an other comprehensive loss of $20 million[11] Notes to Consolidated Financial Statements This section details accounting policies, segment performance, restructuring, financial instruments, the pending Sovos Brands acquisition, and recent accounting pronouncements - The company's fiscal year ends on the Sunday nearest July 31, which is July 28, 2024. The accounting policies used are substantially consistent with the Annual Report on Form 10-K for the year ended July 30, 2023[24] - The company is evaluating the impact of new FASB guidance on segment disclosures, income tax disclosures, and supplier finance programs[61] - On August 7, 2023, the company entered into a merger agreement to acquire Sovos Brands for approximately $2.7 billion. The transaction is expected to close the week of March 11, 2024, following substantial compliance with the FTC's Second Request[104] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial performance for Q2 and H1 fiscal 2024, highlighting sales decline, gross margin improvement, cost pressures, segment performance, liquidity, and the Sovos Brands acquisition - The company experienced a moderate amount of input cost inflation in the first half of 2024 and expects modest pressures to continue[106] Q2 2024 Key Results Summary | Metric | Q2 2024 | Q2 2023 | Change | | :--- | :--- | :--- | :--- | | Net Sales | $2.456B | $2.485B | -1% | | Gross Profit Margin | 31.6% | 30.5% | +110 bps | | EPS | $0.68 | $0.77 | -11.7% | - The pending acquisition of Sovos Brands for an enterprise value of approximately $2.7 billion is expected to close the week of March 11, 2024. The company intends to finance the acquisition with new debt[105][127] Second-Quarter Discussion and Analysis Q2 2024 net sales decreased 1% to $2.456 billion due to volume/mix, while gross profit margin improved by 110 basis points from productivity and pricing Q2 2024 Net Sales Change vs. Q2 2023 | Component | Meals & Beverages | Snacks | Total | | :--- | :--- | :--- | :--- | | Volume/mix | (2)% | (2)% | (2)% | | Net price realization | 0% | 3% | 1% | | Divestiture | 0% | (1)% | (1)% | | Total Change | (2)% | 0% | (1)% | - The 110 basis-point increase in gross profit margin was primarily driven by productivity improvements (+220 bps) and net price realization (+100 bps), which were partially offset by cost inflation and other supply chain costs (-230 bps)[113] - Snacks segment operating earnings increased 7% to $161 million, driven by higher gross profit. Meals & Beverages operating earnings decreased 1% to $247 million due to lower gross profit[115] Six-Month Discussion and Analysis For the first six months of fiscal 2024, net sales decreased 2% to $4.974 billion, with gross profit margin remaining nearly flat Six-Month 2024 Net Sales Change vs. 2023 | Component | Meals & Beverages | Snacks | Total | | :--- | :--- | :--- | :--- | | Volume/mix | (4)% | (3)% | (3)% | | Net price realization | 1% | 4% | 2% | | Divestiture | 0% | (1)% | (1)% | | Total Change | (3)% | 0% | (2)% | - Meals & Beverages operating earnings decreased 8% due to lower gross profit, while Snacks operating earnings increased 6% due to higher gross profit, partially offset by higher marketing and selling expenses[120] Restructuring Charges, Cost Savings Initiatives and Other Optimization Initiatives The company continues multi-year cost savings initiatives, with $840 million in charges recognized and a target of $1 billion in annual savings by 2025 Pre-Tax Charges for Cost Savings Initiatives (in millions) | Expense Category | Three Months Ended Jan 28, 2024 | Six Months Ended Jan 28, 2024 | Recognized as of Jan 28, 2024 | | :--- | :--- | :--- | :--- | | Total pre-tax charges | $36 | $49 | $840 | - The company expects the initiatives to generate annual ongoing savings of approximately $1 billion by the end of 2025. Program-to-date savings are $915 million[130] - A new initiative to improve the Snacks direct-store-delivery network began in Q2 2024, with expected expenses up to $115 million through 2029[125] Liquidity and Capital Resources The company generated $684 million in cash from operations in H1 2024, maintaining a $1.85 billion revolving credit facility and securing a new $2 billion term loan for the Sovos Brands acquisition - Cash from operations was $684 million in H1 2024, down from $732 million in H1 2023, primarily due to lower cash earnings[126] - The company repurchased 707 thousand shares for $29 million in H1 2024. As of January 28, 2024, $75 million remained under the June 2021 anti-dilutive program and $301 million under the September 2021 strategic program[127] - A $2 billion delayed single draw term loan credit agreement was entered into on October 10, 2023, to be used for the acquisition of Sovos Brands. It remained unused at the end of the quarter[127] Item 3. Quantitative and Qualitative Disclosure About Market Risk The company's market risk exposures are consistent with prior disclosures, including $1 billion in forward-starting interest rate swaps with a $23 million fair value loss - The company entered into forward starting interest rate swaps with a notional value of $1 billion to hedge interest rate risk on an anticipated debt issuance. As of January 28, 2024, these swaps had a fair value loss of $23 million[139] Item 4. Controls and Procedures Management concluded disclosure controls and procedures were effective as of January 28, 2024, with no material changes in internal control over financial reporting - The President and Chief Executive Officer and the Executive Vice President and Chief Financial Officer concluded that the company's disclosure controls and procedures are effective as of January 28, 2024[140] - No material changes were made to the company's internal control over financial reporting during the quarter ended January 28, 2024[141] PART II - OTHER INFORMATION Item 1. Legal Proceedings Information on legal proceedings is detailed in Note 15 to the Consolidated Financial Statements, with no current proceedings expected to have a material adverse effect - Details on legal proceedings are incorporated by reference from Note 15 of the Consolidated Financial Statements[143] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds During Q2 2024, the company repurchased 27,335 shares at an average price of $43.86 per share under publicly announced programs Share Repurchase Activity (Q2 2024) | Period | Total Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | 10/30/23 - 1/26/24 | 27,335 | $43.86 | - The company has two active share repurchase programs: a $250 million anti-dilutive program (June 2021) and a $500 million strategic program (September 2021)[145] Item 5. Other Information No directors or officers adopted or terminated any Rule 10b5-1 trading plans or non-Rule 10b5-1 trading arrangements during the quarter - No directors or officers adopted or terminated a Rule 10b5-1 trading plan during the quarter[147] Item 6. Exhibits This section lists exhibits filed with the Form 10-Q, including CEO and CFO certifications and Inline XBRL documents - The exhibits include certifications from CEO Mark A. Clouse and CFO Carrie L. Anderson, as well as Inline XBRL data files[148]