Key Takeaways from Campbell Soup's Fiscal 1Q16 Results
New reportable segments
In fiscal 2016, Campbell Soup (CPB) formed three new divisions. The company started reporting operating results for the three new segments that are Americas Simple Meals and Beverages, Global Biscuits and Snacks, and Campbell Fresh. The details of the segments are provided in the last article of this series.
The company mentioned in its press release that it modified the process of allocating pension and post-retirement benefits costs to its reportable segments in fiscal 2016. Only the service cost related to plans is now assigned to these segments. The other components of expense, such as interest cost, recognized actuarial gains, as well as expected return on assets and losses, are part of unallocated corporate expenses and are excluded from segment operating results. The fiscal 2015 results have been adjusted retrospectively to reflect these changes. This accounting change will have no impact on cash flow. The periodic mark-to-market adjustment will be reflected as an item impacting comparability and is excluded from adjusted results.
Campbell’s management stated, “We began fiscal 2016 after successfully implementing a number of changes to align our enterprise structure with our strategy. Most significant among those changes were the formation of three new divisions with clear portfolio roles and the roll-out of a major cost savings initiative that included streamlining our organization, the launch of an Integrated Global Services organization and initiating zero-based budgeting. In addition, we have revised our reporting segments to reflect our new structure.”
Americas Simple Meals and Beverages
This segment reported operating earnings of $363 million, a rise of 19% compared to fiscal 1Q15. A greater price realization and improved supply chain performance along with lower marketing and selling expenses improved the gross margin percentage compared to fiscal 1Q15. This higher gross margin percentage drove the rise in segment operating earnings.
Global Biscuits and Snacks
This segment delivered operating earnings of $114 million, a rise of 16% compared to 1Q15. A higher gross margin percentage, lower selling expenses, and volume gains, partly offset by the negative effect of currency translation, led to the rise in operating income.
This segment showed a rise in operating earnings of $9 million in fiscal 1Q16 and reported $18 million compared to fiscal 1Q15. A higher gross margin percentage along with the impact of the acquisition contributed to the rise in operating earnings.
Campbell’s competitors in the industry include Keurig Green Mountain (GMCR), ConAgra Foods (CAG), and Flowers Foods (FLO). They reported gross margins of 34.7%, 25.1%, and 47.6%, respectively, for their last reported quarters. The iShares S&P MidCap 400 Index Fund (IJH) and the iShares S&P MidCap 400 Value ETF (IJJ) invest 0.29% and 0.61% of their portfolios, respectively, in the FLO stock as of November 25.
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