The Campbell’s Company (NasdaqGS:CPB) Q1 2026 Earnings Call December 09, 2025 08:00 AM ET Speaker1Good morning and welcome to The Campbell's Company First Quarter Fiscal 2026 Earnings Conference Call. Today's conference is being recorded. All lines will be muted during the presentation portion of the call, with an opportunity for questions and answers at the end. If you would like to ask a question, please press star one on your telephone keypad. I would now like to turn the call over to Rebecca Gardy, Chie ...

Core Viewpoint - McCormick & Company reported third-quarter earnings that exceeded analyst expectations, but shares fell due to concerns over rising costs and a reduced earnings outlook [1][7]. Financial Performance - Adjusted earnings per share for the third quarter were 85 cents, surpassing the consensus estimate of 81 cents [1]. - Quarterly sales reached $1.724 billion, exceeding the expected $1.713 billion [2]. - Net sales increased by 3% in the third quarter, aided by a 1% favorable currency impact [3]. - Consumer segment net sales rose by 4% year-over-year to $973 million, also benefiting from a 1% currency tailwind [3]. - Organic sales grew by 3%, driven by volume and product mix [4]. - Adjusted gross profit decreased by 0.6% year-over-year to $646.1 million, with adjusted gross margin falling by 120 basis points to 37.5% due to higher commodity costs and tariffs [5]. - Adjusted operating income rose to $294 million from $288 million, while adjusted operating margin decreased by 20 basis points to 17% [5]. - The company ended the quarter with cash and equivalents of $94.9 million, and operating cash flow for the nine months ending August 31, 2025, was $420.2 million, down from $463.2 million in the previous year [6]. Outlook - McCormick & Company revised its full-year 2025 adjusted EPS outlook to a range of $3.00–$3.05, down from $3.03–$3.08, compared to the consensus estimate of $3.04 [7]. - The company maintained its guidance for constant-currency net sales growth of 1%–3% [7]. - The CEO emphasized ongoing investments in growth plans and cost-saving initiatives to enhance resilience amid rising inflation from commodity costs and tariffs [7].

Fiscal 2026 Outlook Update - The company updated its fiscal year 2026 outlook, projecting organic net sales to decline by 6% to 4% for the enterprise and 4% to 2% for the beer business [11] - The company anticipates a reported operating income growth of 666% to 686%, but a comparable operating income decline of 11% to 9% [11] - Corporate expense is expected to be $225 million [11] - The company forecasts reported EPS of $10.77 to $11.07 and comparable EPS of $11.30 to $11.60 [11] - Operating cash flow is projected to be $2.5 billion to $2.6 billion, with free cash flow estimated at $1.3 billion to $1.4 billion [11] Market and Consumer Trends - Ongoing U S consumer demand headwinds are impacting the business, with employment in 4,000+ calorie jobs remaining pressured [12] - Consumer sentiment remains volatile and depressed [12, 13] - High-end beer buy rates are declining due to ongoing consumer headwinds [14, 15] - The company's beer brands have higher levels of exposure to the Hispanic consumer, who are showing elevated concern about personal finances and the socioeconomic environment [17, 18, 19, 20] - Hispanic consumer high-end beer buy rates are down more than the total consumer [21, 22] Business Execution - The company is gaining distribution, shelf space, and volume share across the country, with mid-single-digit percentage growth in points of distribution and approximately 30,000 Shopper First Shelf resets [24] - The company has achieved approximately $445 million in beer cost savings from fiscal year 2024 through Q1 fiscal year 2026 [25]

Financial Data and Key Metrics Changes - For Q4 2025, total revenue was $110.5 million, down from $126.6 million in Q4 2024, primarily due to decreased demand from two large customers [5] - Full fiscal year 2025 revenue was $467.9 million, compared to $566.9 million in fiscal year 2024, reflecting a significant decline [5] - Gross margin for Q4 2025 was 6.2%, and operating margin was negative 2.1%, compared to 7.2% and 1.0% respectively in Q4 2024 [5] - The net loss for Q4 2025 was $3.9 million or $0.36 per share, compared to a net loss of $2.0 million or $0.18 per share in Q4 2024 [8] - For the full fiscal year 2025, the net loss was $8.3 million or $0.77 per share, compared to a net loss of $2.8 million or $0.26 per share in fiscal year 2024 [8] Business Line Data and Key Metrics Changes - The company cut approximately 300 jobs in 2025, totaling an 800 headcount reduction for the fiscal year, to align costs with current demand [6] - Despite revenue reduction, gross margins increased year over year due to operational efficiencies and cost-saving initiatives [6] Market Data and Key Metrics Changes - The company reduced inventory by approximately $8 million or 7% year over year, reflecting strategic initiatives to align inventory with current revenue [10] - Total liabilities were reduced by $32.7 million or 14% from the previous year [10] Company Strategy and Development Direction - The company is focusing on expanding its manufacturing footprint in the U.S. and Vietnam, with plans to invest over $28 million in a new facility in Arkansas [17] - The strategy includes enhancing production capabilities and mitigating tariff impacts by diversifying manufacturing locations [19] - The company anticipates that by the end of fiscal 2026, approximately half of its manufacturing will occur in the U.S. and Vietnam [19] Management's Comments on Operating Environment and Future Outlook - Management acknowledged a challenging year due to reduced demand and tariff uncertainties but expressed optimism about future growth driven by new programs and operational efficiencies [13][26] - The company is not providing forward-looking guidance due to uncertainties in product ramp-up timing [13] Other Important Information - Cash flow from operations was $18.9 million for fiscal year 2025, up from $13.8 million in fiscal year 2024, indicating two consecutive years of positive cash flow [11] - The company is investing selectively in production equipment and automation to prepare for growth [12] Q&A Session Summary Question: What is the range of sizes for the new wins in the quarter? - The new wins were predominantly around $5 million, with potential for a data processing contract to exceed $20 million [29] Question: How is the Vietnam medical device manufacturing capability being developed? - The company is certified to build medical products in Vietnam and expects to start a program in fiscal 2026, anticipating additional opportunities [32] Question: What is driving the increase in new program bids? - Cost reductions and improved global footprint have opened up opportunities, alongside pent-up demand for U.S. manufacturing [36][37] Question: Can you explain the reduction in accounts receivable? - The reduction was primarily due to decreased revenue and improved collection efforts, with no factoring involved [41][42] Question: What is the potential size of the manufacturing services contract with the data processor OEM? - The contract is expected to generate $20 million in revenue, which is significant due to its potential margin improvement [48][49] Question: How do you see Mexico operations growing in fiscal 2026? - Recent program wins are expected to drive growth in Mexico, leveraging the USMCA agreement for tariff mitigation [56] Question: What are the expectations for gross margin in fiscal 2026? - The company aims to improve gross margins and expects incremental gross margins of 15% to 20% as revenue increases [59][61]

Financial Data and Key Metrics Changes - The company reported record high net sales, gross profit, and operating income for fiscal year 2025, with consolidated net sales growing 5% to $475.4 million in the fourth quarter [6][10] - Gross profit increased by 8.7% to $106.1 million, with gross margin expanding by 70 basis points [12][14] - Fourth quarter diluted earnings per share decreased by 6.3% to $1.18, impacted by restructuring and impairment charges [14][15] Business Line Data and Key Metrics Changes - In the retail segment, net sales increased by 3.1% to $241.6 million, driven by growth from licensing and own brands [6][7] - The frozen dinner roll category saw a combined growth of 52.4% for Sister Schubert's and Texas Roadhouse brands, increasing market share to 63.8% [8] - In the food service segment, net sales improved by 1.4%, although sales volume declined by 1.7% [9] Market Data and Key Metrics Changes - Circana scanner data indicated a 5.5% increase in sales dollars and volume for branded products [8] - The frozen garlic bread category saw New York Bakery brand sales grow by 10%, leading to a market share increase to 43.3% [8] - Chick-fil-A sauce sales grew by 17.2%, with market share up 30 basis points [8] Company Strategy and Development Direction - The company aims to accelerate core business growth, simplify the supply chain, and expand through focused M&A and strategic licensing [20] - New product launches are planned for the upcoming year, including Texas Roadhouse dinner rolls shipping nationally [21] - The company is focused on integrating the newly acquired Atlanta facility into its manufacturing network [22] Management's Comments on Operating Environment and Future Outlook - Management expressed cautious optimism regarding consumer behavior, anticipating modest tailwinds if inflation remains in check [56] - The food service segment is expected to improve sequentially, while retail growth is anticipated from new product introductions [58][60] - Input costs are expected to see modest inflation, which the company plans to offset through pricing and cost savings programs [22] Other Important Information - The company reported a 6% increase in quarterly cash dividends, maintaining a strong financial position with a debt-free balance sheet and $161.5 million in cash [17] - Restructuring and impairment charges totaled $5.1 million, primarily related to the closure of a sauce and dressing facility [13][66] Q&A Session Summary Question: Expectations around food service industry traffic and innovation - Management noted that the food service industry is seeing modest improvement, with casual dining focusing on value and QSRs beginning to stabilize [25][26] Question: Visibility into soybean oil pricing and its impact - Management acknowledged soybean oil's significance in their commodity basket, indicating that current market conditions do not pose a near-term headwind [31][35] Question: G&A spending and its components - The increase in G&A spending was attributed to marketing investments, Atlanta facility integration costs, and legal expenses, with expectations to grow in line with inflation [41][44] Question: Cost savings outlook for fiscal year 2026 - Management highlighted successful cost-saving initiatives in fiscal year 2025 and anticipated further savings from the network reset due to facility closures [48][49] Question: Impact of consumer environment on retail and food service businesses - Management expressed optimism about potential consumer spending increases if inflation remains controlled, with expectations for low single-digit growth in retail and a flat profile in food service [56][60]

Financial Data and Key Metrics Changes - For the first quarter, sales were $131.8 million, down 1.9% from $134.4 million last year, or down 1% on a constant currency basis [5][16] - Adjusted operating income decreased to $870,000 from $2.1 million last year [5][20] - Adjusted earnings per share were $0.08, down slightly from $0.09 last year [6][20] - Cash at the end of the quarter was $203.1 million, compared to $225.4 million at the same period last year [21] Business Line Data and Key Metrics Changes - U.S. sales decreased by 1.6%, while international sales decreased by 2.2%, or 0.7% on a constant currency basis [7][17] - Licensed brands saw strong growth with sales improving by high single digits [9] - The Movado brand refresh is progressing, with new collections receiving strong consumer responses [7] Market Data and Key Metrics Changes - The retail environment remains uncertain, impacting consumer behavior, particularly in the U.S. and Europe [25][27] - The company is experiencing pockets of growth in certain markets while facing challenges in others [25] Company Strategy and Development Direction - The company is focused on product innovation and delivering value to consumers despite a challenging retail environment [6][12] - There is an emphasis on managing costs and rationalizing expense infrastructure to improve financial performance [28] - The company is monitoring the tariff landscape and plans to implement selective price increases to mitigate cost increases [22] Management Comments on Operating Environment and Future Outlook - Management acknowledges the impact of macroeconomic uncertainties and tariff-related challenges on consumer spending [12][31] - The company is not providing a fiscal 2026 outlook due to ongoing uncertainties [22] - There is a focus on delivering quality and value, with positive signs in women's watch collections and men's jewelry offerings [13] Other Important Information - The company has a strong balance sheet with no debt and a cash position that allows for continued dividend payments [6][30] - Unrealized losses due to currency fluctuations were noted, with management indicating that these will only be realized when paid [32][33] Q&A Session Summary Question: Sales momentum and trends - Management noted that sales vary by market and brand, with some growth and some challenges, but they are satisfied with current sales levels [25] Question: Impact of tariffs on consumer behavior - Management indicated that the journey to improve sales is a long-term strategy, with renewed interest from younger consumers in new products [26][27] Question: Alignment of earnings per share and cash dividend - Management expressed confidence in improving operating cash flow and strengthening the balance sheet in the second half of the year [30] Question: Unrealized loss in foreign exchange - Management clarified that the unrealized loss was due to a decline in the U.S. Dollar and will only be realized when paid [32][33]

Financial Data and Key Metrics Changes - For the first quarter, sales were $131.8 million, down 1.9% from $134.4 million last year, or down 1% on a constant currency basis [5][15] - Adjusted operating income decreased to $870,000 from $2.1 million last year [5][18] - Adjusted earnings per share were $0.08, down from $0.09 last year [6][18] - Cash at the end of the quarter was $203.1 million, compared to $225.4 million at the same time last year [19] Business Line Data and Key Metrics Changes - U.S. sales decreased by 1.6%, while international sales were down 2.2%, or 0.7% on a constant currency basis [7][16] - Licensed brands saw strong growth with sales improving by high single digits [8] - Movado brand refresh initiatives, including new product introductions, have received a strong consumer response [7] Market Data and Key Metrics Changes - The retail environment remains uncertain, impacting consumer behavior, particularly in the U.S. and Europe [24] - The outlet division saw an improved trend with sales down only 1.7%, continuing into the second quarter [10] Company Strategy and Development Direction - The company is focused on managing controllables and operating with flexibility while delivering innovation and value [12] - Strategic initiatives include product innovation and cost savings measures, such as reducing marketing expenditures [5][17] - The company is rationalizing its expense infrastructure to improve financial performance [26] Management Comments on Operating Environment and Future Outlook - Management noted that the current economic environment and tariff-related uncertainties have impacted consumer discretionary spending [11][20] - The company is not providing a fiscal 2026 outlook due to macroeconomic uncertainties [20] - There is resilience in the category with young consumers embracing trend-forward watches and jewelry [12] Other Important Information - The company recorded approximately $1.6 million of other non-operating income, primarily from interest earned on its global cash position [18] - Unrealized losses due to currency fluctuations were noted, with management indicating that these will only be realized when paid [30][31] Q&A Session Summary Question: Insights on sales momentum and trends - Management indicated that sales vary by market and brand, with pockets of growth and challenges, but they are satisfied with current sales levels [23] Question: Impact of tariffs on consumer behavior - Management acknowledged that discretionary purchases are challenged and emphasized the importance of delivering value to consumers [24][25] Question: Alignment of earnings per share and cash dividend - Management highlighted a strong balance sheet and expected improved operating cash flow in the second half of the year [28] Question: Unrealized loss in foreign exchange - Management explained that the unrealized loss was due to a decline in the U.S. Dollar and will be mitigated in future quarters [30][31]

Financial Data and Key Metrics Changes - The company anticipates a sharp sales deceleration in Q4, primarily due to a strategic cleanup in the Prestige division rather than worsening market conditions [6][7] - The Consumer Beauty division is expected to continue experiencing a mid-single-digit decline in the cosmetics category globally [8][7] - The company is focused on maintaining gross margin despite the challenges in the Consumer Beauty segment [24][39] Business Line Data and Key Metrics Changes - The Prestige fragrance category continues to grow at a mid-single-digit rate, particularly strong in the U.S. and most European markets, while facing challenges in China [12][14] - The Consumer Beauty division shows diverging trends, with color cosmetics under pressure while mass fragrances are growing at high single digits [18][19] - The company is reallocating resources to support mass fragrances, which are more profitable compared to color cosmetics [21][22] Market Data and Key Metrics Changes - Retailers are tightening inventory management, leading to a disconnect between sell-in and sell-out trends, particularly in the U.S. [46][70] - The mass market is experiencing a low single-digit decline, with color cosmetics negatively impacted while mass fragrances are performing well [94][96] Company Strategy and Development Direction - The company is implementing a "glocalization" strategy, empowering regional teams to make decisions that cater to local market dynamics [49][50] - A focus on innovation and strategic revenue management is being emphasized to navigate the current market challenges [39][56] - The company is committed to improving EBITDA margins through structural changes and ongoing productivity initiatives [86][84] Management's Comments on Operating Environment and Future Outlook - Management acknowledges the current macroeconomic uncertainties but remains optimistic about gradual improvement in sales trends throughout fiscal 2026 [27][28] - The company is confident in the resilience of the beauty market and its ability to adapt to changing consumer preferences and competitive pressures [100][101] Other Important Information - The company is facing tariff impacts, particularly in Prestige Fragrance, but has taken proactive measures to mitigate these effects [34][35] - A mid-single-digit price increase is planned for the Prestige portfolio, with expectations of inelastic demand [38][74] Q&A Session Summary Question: Q4 sales outlook and consumer demand - Management clarified that the anticipated sales deceleration is due to strategic actions in the Prestige division rather than a decline in market conditions [6][7] Question: Growth sustainability in the prestige fragrance category - Management believes mid-single-digit growth in the U.S. and Europe is sustainable, driven by increased penetration among younger consumers [12][14] Question: Consumer Beauty business and profitability - The company is focusing on increasing profitability in the Consumer Beauty division by reallocating resources and emphasizing mass fragrances [18][21] Question: FY '26 phasing and sales trends - Management expects continued declines in H1 but anticipates gradual improvement throughout the year [27][28] Question: Tariff impact and pricing strategy - The company is implementing pricing strategies to offset tariff impacts, with a focus on maintaining gross margins [34][38] Question: Retailer replenishment and inventory management - Retailers are tightening inventory, leading to a new pattern of low inventory levels, which the company is actively managing [46][70] Question: Organizational changes in the U.S. - The company is empowering regional teams to enhance agility and responsiveness to local market conditions [49][50] Question: Cost savings initiatives and structural changes - Management emphasized that the cost-saving measures are structural and aimed at optimizing the organization for current market volatility [55][86] Question: Current market conditions for prestige vs. consumer beauty - The prestige division is seeing stable growth, while the consumer beauty segment is facing challenges, particularly in color cosmetics [90][94]

Financial Data and Key Metrics Changes - The company anticipates a sharp sales deceleration in Q4, primarily due to a strategic cleanup in the Prestige division rather than worsening market conditions [5][6] - The Consumer Beauty division is expected to continue experiencing a mid-single-digit decline in the cosmetics category globally [6][7] - The company reported a high single-digit decline in sales, which could have been a low single-digit decline without the cleanup efforts [7] Business Line Data and Key Metrics Changes - The Prestige fragrance category continues to grow at a mid-single-digit rate, particularly strong in the U.S. and most European markets [10][12] - The Consumer Beauty division shows diverging trends, with color cosmetics under pressure while mass fragrances are growing at high single digits [16][19] - The company is reallocating resources to focus on more profitable mass fragrances while still supporting color cosmetics [19][20] Market Data and Key Metrics Changes - The U.S. market is experiencing significant pressure in color cosmetics, while mass fragrances are performing well [19][92] - Retailers are tightening inventory management, impacting both the Consumer Beauty and Prestige divisions [42][70] - The company sees a normalization in the Prestige division, with growth in fragrances but continued pressure in color cosmetics [88][90] Company Strategy and Development Direction - The company is focusing on cleaning up the baseline in the Prestige division to stimulate demand and prepare for a strong pipeline of innovation in fiscal 2026 [6][7] - There is a strategic shift towards prioritizing mass fragrances due to their higher profitability compared to color cosmetics [19][20] - The company is implementing organizational changes to enhance agility and responsiveness to local market conditions [45][46] Management's Comments on Operating Environment and Future Outlook - Management remains cautious about the operating environment, expecting some sales decline in the first half of fiscal 2026 but gradual improvement later in the year [25][26] - The company is confident in its ability to manage tariff impacts and is taking proactive measures to mitigate risks [34][36] - Management emphasizes the resilience of the beauty industry and the company's strong fundamentals despite current challenges [98] Other Important Information - The company is implementing mid-single-digit price increases in the Prestige category to offset costs, with expectations of inelastic demand [36][72] - The company is actively evaluating its brand portfolio and may exit underperforming brands [63][64] Q&A Session Summary Question: Q4 sales outlook and consumer demand - Management clarified that the anticipated sales deceleration is not due to worsening market conditions but rather a strategic cleanup in the Prestige division [5][6] Question: Growth sustainability in the prestige fragrance category - Management believes mid-single-digit growth in the U.S. is sustainable, driven by increased penetration among new consumer segments [10][12] Question: Consumer Beauty business profitability and potential brand exits - Management is focused on increasing profitability in the Consumer Beauty division and is evaluating the future of brands like CoverGirl [15][19] Question: Impact of tariffs and pricing strategies - Management indicated that tariff impacts are expected to be more significant in fiscal 2026, with proactive measures already in place [34][36] Question: Retailer inventory management trends - Management noted that retailers are tightening inventory, which is affecting both divisions, and they are working to reconcile sell-in and sell-out trends [42][70] Question: Organizational changes and agility - Management discussed the restructuring aimed at enhancing local decision-making and agility in response to market dynamics [45][46] Question: Cost savings initiatives and their impact on the bottom line - Management confirmed that the cost savings initiatives are structural and aimed at creating headroom for investment in brand growth [81][84] Question: Current market conditions for prestige versus consumer beauty - Management observed that the prestige fragrance market continues to grow, while the Consumer Beauty segment is facing challenges, particularly in color cosmetics [88][92]