Campbell Soup Company (CPB) has a rich history dating back to 1869 when it was founded in Camden, New Jersey. Over the past century and a half, the company has evolved from a small canned soup producer to a diversified food and beverage conglomerate with a portfolio of iconic brands. Campbell's impressive growth trajectory has been marked by strategic acquisitions, innovative product development, and a relentless focus on adapting to shifting consumer preferences.

Financials

In the fiscal year ended July 31, 2024, Campbell's reported revenue of $9.64 billion, a 3% increase from the prior year. Net income for the period came in at $567 million, with diluted earnings per share of $1.91. The company maintained a solid financial position, generating $1.19 billion in operating cash flow and $668 million in free cash flow during the year.

For the fourth quarter of fiscal 2024, Campbell's revenue grew 6% year-over-year to $2.37 billion, driven by a 7-point benefit from the Sovos Brands acquisition. However, net income for the quarter declined to a loss of $3 million, primarily due to costs associated with the Sovos Brands acquisition. Operating cash flow for Q4 was $288 million, while free cash flow stood at $147 million, both showing declines from the previous year.

Campbell's financial structure remains solid, with a debt-to-equity ratio of 1.874 and $108 million in cash on hand as of the end of fiscal 2024. The company entered into a $1.85 billion revolving credit facility in April 2024, which remained undrawn at the end of Q4. The current ratio stands at 0.612, while the quick ratio is 0.225, indicating a tight but manageable liquidity position.

Business Segments

Campbell's business is comprised of two reportable segments: Meals & Beverages and Snacks. The Meals & Beverages division, which accounted for 57% of total revenue in fiscal 2024, includes the company's iconic soup brands, such as Campbell's, Swanson, and Pacific Foods, as well as other product lines like Prego pasta sauces, V8 beverages, and the recently acquired Rao's pasta sauces. This segment also encompasses simple meals and beverage products sold in retail and foodservice channels in the U.S. and Canada.

The Snacks division, representing the remaining 43% of revenue, houses a portfolio of beloved brands including Goldfish crackers, Pepperidge Farm cookies and baked goods, and Kettle Brand potato chips. This segment also includes Snyder's of Hanover pretzels, Lance sandwich crackers, Cape Cod potato chips, Late July snacks, Snack Factory pretzel crisps, and other snacking products sold in retail channels in the U.S. Additionally, the Snacks segment manages the retail business in Latin America.

Company History

Campbell's journey began in 1869 when fruit merchant Joseph Campbell and icebox inventor Abraham Anderson started a canning company in Camden, New Jersey. Initially focusing on canned tomatoes, vegetables, jellies, and meat products, the company introduced its first canned soup - Tomato Soup - in 1904, marking a significant milestone in its history. This innovation propelled Campbell's growth, leading to the introduction of popular varieties like Cream of Mushroom and Chicken Noodle in the 1930s. During this period, the company also expanded into other food categories such as peanut butter, crackers, and juices.

The 1980s and 1990s presented challenges for Campbell's as consumer preferences shifted towards fresher, healthier foods. In response, the company acquired brands like Pepperidge Farm, Godiva Chocolatier, and Vlasic Pickles to diversify its portfolio. However, this strategy had mixed results, leading Campbell's to divest some non-core brands in the 2000s to refocus on its core soup and snack businesses.

In recent years, Campbell's has continued its strategic expansion, particularly in the snack food category. The acquisition of Snyder's-Lance in the 2010s significantly bolstered the company's presence in this fast-growing segment. Alongside these acquisitions, Campbell's has maintained a strong focus on innovation, introducing new varieties of its classic soup and sauce brands to meet evolving consumer tastes.

Recent Developments

Over the past several years, Campbell's has navigated a shifting consumer landscape, characterized by evolving dietary preferences, the rise of e-commerce, and changing shopping behaviors accelerated by the COVID-19 pandemic. The company has responded to these challenges by investing in its core brands, pursuing strategic acquisitions, and optimizing its operations to enhance profitability.

One of Campbell's major strategic moves was the $2.9 billion acquisition of Sovos Brands in March 2024. Sovos, a fast-growing consumer packaged goods company, brought a stable of premium brands, including the highly successful Rao's pasta sauce line, to Campbell's Meals & Beverages division. The integration of Sovos has been a key priority, with the company reporting $10 million in cost synergies captured in fiscal 2024 and expecting an additional $70 million in synergies in the coming year.

In the Snacks division, Campbell's has faced some challenges in recent quarters as the category recovery has unfolded at a slower pace than expected. However, the company has remained focused on strengthening its portfolio of elevated snack brands, such as Kettle and Cape Cod, through innovation and increased marketing investment. Despite near-term headwinds, Campbell's is confident in its ability to drive sustained growth in Snacks, targeting operating margins of approximately 17% in the long term.

The third quarter of fiscal 2024 saw improvements in Campbell's gross profit margin, which increased to 30.9% from 30.0% in the prior year quarter. This improvement was primarily due to productivity enhancements, lower costs from cost savings initiatives, and mark-to-market gains on commodity hedges, partially offset by higher cost inflation. Segment operating earnings in Q3 increased by 10%, with Meals & Beverages up 26% and Snacks down 7%. The increase in Meals & Beverages was attributed to the Sovos Brands acquisition, higher gross profit, and lower marketing and selling expenses, while the decrease in Snacks was driven by lower gross profit margins.

Outlook

Looking ahead, Campbell's has provided guidance for fiscal 2025 that reflects a balanced approach to navigating the evolving consumer landscape. The company expects reported net sales to increase 9-11%, including a full 12 months of net sales contribution from Sovos Brands and the loss of 11 months of net sales from the divestiture of Pop Secret. Organic net sales growth is projected in the range of 0-2%, reflecting the variability in the pace of consumer recovery.

Adjusted EBIT is expected to grow 9-11%, while adjusted earnings per share is anticipated to rise 1-4%, reaching a range of $3.12 to $3.22. This guidance includes a $0.04 impact from the Pop Secret divestiture, with Sovos Brands expected to be approximately neutral to adjusted EPS in fiscal 2025.

Campbell's expects full-year core inflation to be in the low-single digit range, consistent with fiscal 2024. Productivity improvements are projected to be approximately 3%, and enterprise cost savings are expected to reach around $70 million, including $10 million in Sovos integration synergies. Adjusted marketing and selling expenses as a percent of net sales are anticipated to return to the targeted range of 9% to 10%.

For the Snacks division, operating margins are expected to be modestly above fiscal 2024 levels, while Meals & Beverages operating margins are projected to be slightly lower, reflecting the mix impact of the Sovos acquisition. Capital expenditures for fiscal 2025 are expected to be approximately 5% of net sales.

Industry Trends

The packaged food industry, in which Campbell's operates, has seen a compound annual growth rate (CAGR) of around 5% over the past three years. This growth has been driven by changing consumer preferences, increased demand for convenience foods, and the impact of the COVID-19 pandemic on eating habits. Campbell's strategic focus on its core soup and snack categories, along with its expansion into premium and healthier options, aligns well with these industry trends.

Conclusion

Campbell's commitment to innovation, brand-building, and operational excellence has positioned the company well to capitalize on emerging consumer trends. With a steadfast focus on its core strengths, strategic acquisitions, and ongoing cost optimization initiatives, Campbell Soup Company is poised to deliver sustainable growth and value for its shareholders in the years ahead. The company's strong presence in both the Meals & Beverages and Snacks segments, coupled with its recent acquisition of Sovos Brands, provides a diverse portfolio that can adapt to changing consumer preferences and market conditions. As Campbell's continues to navigate the evolving landscape of the food industry, its rich history, iconic brands, and strategic initiatives form a solid foundation for future success.