Iconic soup and snack food company Campbell's (CPB -3.39%) reported mixed fiscal 2025 second-quarter earnings on Wednesday, March 5. The highlight was a 9% rise in net sales to $2.68 billion, largely attributed to its acquisition of Sovos Brands. This acquisition offset some underlying challenges. The quarter exceeded expectations in terms of sales volume, and adjusted earnings per share (EPS) of $0.74, topped consensus expectations of $0.72 but fell 8% year over year, affected by increased interest expenses.
Overall, the company showed growth and potential, but profitability battled operational costs. The company also lowered full-year guidance.
| Metric | Q2 2025 | Analysts' Estimate | Q2 2024 | Change (YOY) |
|---|---|---|---|---|
| Adjusted EPS | $0.74 | $0.72 | $0.80 | (8%) |
| Net sales | $2.68 billion | $2.74 billion | $2.5 billion | 9% |
| Adj. EBIT | $372 million | N/A | $364 million | 2% |
| Operating margin | 30.4% | N/A | 31.4% | (1 pp) |
Source: Campbell's. Note: Analyst consensus estimates for the quarter provided by FactSet. YOY = Year over year. EBIT = Earnings before interest and taxes.
Business Overview and Recent Focus
Campbell's is well-known for its wide range of products stretching from soups and sauces to snacks. Its brand strength lies in names like Pace, Prego, and Goldfish, which contribute significantly to its market position. The recent acquisition of Sovos Brands, which includes high-profile brands like Rao's, has expanded its premium product offerings. This move plays a crucial role in boosting Campbell's revenue and market share.
The company has focused on enhancing its product portfolio and brand equity as key success factors. The introduction of new brands and the expansion into premium market segments through acquisitions support this strategic direction. Efficiency in supply chain management and cost control also remain critical focuses, aimed at sustaining profitability amidst rising commodity prices and distribution costs.
NASDAQ: CPB
Key Data Points
Quarterly Highlights and Financial Performance
The fiscal 2025 second quarter underscored Campbell's strategic focus on acquisitions, with net sales climbing to $2.68 billion largely thanks to contributions from Sovos Brands. However, organic sales declined by 2%, pointing to challenges in the core business. Despite these challenges, adjusted EBIT increased slightly by 2% to $372 million, demonstrating the positive financial impact of acquisitions, albeit partially offset by a decrease in base business performance. The decline in adjusted EPS, down 8% to $0.74, was influenced mainly by increased net interest expenses, reflecting costs tied to recent acquisitions.
During the quarter, Campbell's faced a narrowing operating margin, which fell to 30.4% compared to 31.4% last year. This was largely due to ongoing cost inflation and supply chain disruptions impacting production expenses. The company also highlighted its concentration risk, with significant revenue reliant on major retailers such as Walmart. This concentration could affect its bargaining power and profitability if these relationships shift negatively.
The benefits of integrating Sovos Brands became evident with enhanced product lines, particularly in the premium product space. Nonetheless, the impact of supply chain disruptions and cost inflation remains a central concern affecting profit margins. The company's focus on health and wellness trends aligned through strategic brand acquisitions, indicating a consistent approach to adapt to market demands.
Looking Ahead
Campbell's management lowered its full-year 2025 guidance indicating challenges. It now projects net sales growth between 6% and 8% (down from the Dec. 3, 2024, guidance of 9% to 11% growth), and anticipates its adjusted EPS to fall in the range of $2.95 to $3.05 for fiscal 2025 (down from prior guidance of $3.12-$3.22). This guidance reflects a blend of strategic expectations and ongoing operational adjustments needed to balance growth with cost management.
Investors and analysts should watch closely how Campbell's manages its supply chain and operational costs moving forward. The company’s ability to further harness the benefits of its acquisitions, while addressing margin pressures, will be critical. Innovations and expansions in product offerings, particularly in health-driven and eco-conscious segments, are expected to be focal areas as the company steers through fiscal 2025.
