Q2 2025 Earnings Summary
- Management remains confident in improving the Snacks division margins towards the 17% target, despite current short-term pressures. They believe the building blocks are in place, including network optimization and mix improvements, to achieve this goal.
- Expected sequential improvement in Snacks margins throughout the second half of the fiscal year, with margins recovering in Q3 and gradual improvement thereafter, driven by cost-saving initiatives and operational improvements.
- Strong growth expectations for Rao's brand, with management confident in achieving slightly above 10% pro forma year-over-year growth in fiscal '25, reinforcing their belief in Rao's becoming a $1 billion brand.
- Campbell Soup's Snacks division is facing significant challenges, with weaker-than-anticipated category recovery and increased competition leading to a reduction in the company's full-year organic net sales guidance to a range of down 2% to flat. Additionally, Snacks operating earnings decreased by 29% in Q2 due to higher marketing investments and lower gross profit margins. The company also lowered its Snacks margin outlook to about 13.5% for the full year, signaling ongoing profitability concerns in this segment. ,
- The company acknowledged that it may not achieve its previously stated 17% Snacks operating margin target by fiscal '27, indicating that the timeline for margin improvement in the Snacks division may be delayed due to current challenges. Management stated they need to make sequential progress and that the timing may be pushed back due to ongoing pressures.
- Potential impacts from impending tariffs on steel and aluminum imports could increase costs for Campbell Soup, particularly affecting tinplate steel used in cans and canola oil for chips. Additionally, retaliatory tariffs could affect Canadian exports, as Campbell produces soup in the U.S. and exports it to Canada. This evolving situation may add further pressure on costs and margins, and the company may need to consider pricing actions, potentially impacting demand.
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | +9% (from $2,456 million to $2,685 million ) | Total Revenue increased by 9% as strong performance in key segments helped drive growth; notably, gains in Meals & Beverages partly offset lower performance in Snacks, reflecting a continuation of positive trends seen in prior periods. |
Meals & Beverages Revenue | +21% (from $1,382 million to $1,679 million ) | Meals & Beverages revenue surged by 21% driven primarily by the strong impact of the Sovos Brands acquisition and organic improvements; this builds on momentum from previous periods and positions the segment for continued growth. |
Snacks Revenue | -6% (from $1,074 million to $1,006 million ) | Snacks revenue declined by 6% due to ongoing challenges such as deteriorating volume/mix and competitive pricing pressures, which further weighed on performance compared to the prior period where similar issues had already begun to emerge. |
Net Income | -15% (from $203 million to $173 million ) | Net Income dropped by 15% as margin pressures intensified, with higher interest expenses and one-off costs contributing to lower profitability relative to the previous period's stronger results. |
Basic EPS | -15% (from $0.68 to $0.58 ) | Basic EPS fell by nearly 15%, reflecting the reduction in net income compounded by increased expense pressures such as higher interest costs; this decline continues the negative trend observed in earlier periods. |
Depreciation & Amortization | -88% (from $96 million to $11 million ) | Depreciation and Amortization expenses dropped dramatically by 88% as the previous period’s figures included significant accelerated amortization charges—likely related to customer relationship intangibles—that were not repeated in the current quarter. |
Interest Expense | +91% (from $46 million to $88 million ) | Interest Expense nearly doubled with a 91% increase, primarily due to higher debt levels incurred from financing the Sovos Brands acquisition and refinancing $1.15 billion in bonds; this builds on earlier period trends where increased leverage began to impact expense ratios. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Reported Net Sales | FY 2025 | no prior guidance | increase 6% to 8% | no prior guidance |
Organic Net Sales | FY 2025 | no prior guidance | down 2% to flat | no prior guidance |
Adjusted EBIT Growth | FY 2025 | no prior guidance | grow 3% to 5% | no prior guidance |
Adjusted EPS | FY 2025 | no prior guidance | $2.95 to $3.05 | no prior guidance |
Net Interest Expense | FY 2025 | $340 million to $345 million | $325 million to $330 million | lowered |
Capital Expenditures | FY 2025 | no prior guidance | approximately 4.7% of net sales | no prior guidance |
Cost Savings | FY 2025 | $90 million | $90 million to $120 million | raised |
Adjusted Marketing and Selling Expense | FY 2025 | no prior guidance | targeted range of 9% to 10% of net sales | no prior guidance |
Sovos Brands Growth | FY 2025 | no prior guidance | slightly above 10%, up from earlier high single-digit growth | no prior guidance |
Impact of noosa Divestiture | FY 2025 | no prior guidance | approximately $0.01 dilutive to EPS | no prior guidance |
| Metric | Period | Guidance | Actual | Performance |
|---|---|---|---|---|
Organic Net Sales Growth (YoY) | Q2 2025 | "Relatively flat versus prior year" | Total revenue increased from 2,456In Q2 2024 to 2,685In Q2 2025 (≈ +9.3% YoY), used as a proxy | Beat |
Adjusted EPS | Q2 2025 | "Expected to be in the low $0.70 range" | Reported Basic EPS of 0.58(actual adjusted EPS not provided; using Basic EPS as the closest reference) | Missed |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Snacks Division Performance, Margin Targets, and Recovery | Discussed consistently in Q1 2025, Q4 2024, and Q3 2024 with detailed performance metrics, margin targets (around 17%), and expectations for sequential recovery despite short‐term pressures | Q2 2025 highlighted a 29% decline in operating earnings due to headwinds such as higher marketing investments and supply chain challenges, with an emphasis on sequential improvement and a continued long‐term target of 17% despite current underperformance | Performance has become more challenging in Q2 2025 while strategic focus on margin recovery remains unchanged, indicating a shift toward addressing tougher short‐term dynamics. |
Rao's Brand and Sovos Brands Integration | Previous calls (Q1 2025, Q4 2024, Q3 2024) emphasized robust in‐market consumption growth, share gains, and significant contributions to overall growth, positioning Rao’s as a future billion‐dollar brand and integration as accretive to EPS | Q2 2025 maintained the strong growth narrative with continued share gains, steady pro forma organic growth, and increased cost savings through integration | The theme remains a key growth engine with consistently positive sentiment, though current period details reinforce its strategic role without major directional changes. |
Cost Savings, Operational Efficiency, and Network Optimization | Across Q1 2025, Q4 2024, and Q3 2024, the emphasis was on achieving significant cost savings (e.g., part of a $1 billion program), productivity improvements, and operational restructuring to offset inflation and drive efficiency | Q2 2025 raised full‐year cost savings expectations from $90 million to $120 million, with a focus on SG&A efficiency and further network optimization initiatives | There is an increased emphasis on aggressive cost savings and operational improvements in Q2 2025, reflecting a proactive response to headwinds. |
Competitive Pressures from New Entrants and Private Labels | Q1 2025, Q4 2024, and Q3 2024 consistently referenced pressure in the snacks, soup, and related segments, with companies taking steps through marketing and innovation to protect market share | In Q2 2025, competitive pressures are noted particularly in salty snacks and crackers, with private label recovery affecting broth brands; companies are implementing innovation and pricing strategies to counter these challenges | Competitive pressures remain a constant challenge; sentiment is cautious yet proactive, with strategies evolving to maintain market positions amid ongoing threats. |
Macroeconomic Risks, Pricing Challenges, and Consumer Confidence | Detailed in Q1 2025, Q4 2024, and Q3 2024 with discussions on inflation pressures, pricing investments, and cautious optimism around consumer recovery, while acknowledging dynamic economic conditions | Not mentioned in Q2 2025, suggesting a relative de‐emphasis or that these topics have stabilized enough to warrant less discussion in the current period | The absence of discussion in Q2 2025 may indicate that macroeconomic concerns are either improving or being overshadowed by more immediate operational challenges. |
Tariff and Trade Cost Pressures on Steel, Aluminum, and Packaging Materials | No mention in previous periods (Q1 2025, Q4 2024, Q3 2024) | Introduced in Q2 2025 with a focus on potential impacts from tariffs on tinplate steel and possible retaliatory measures, leading to discussions on mitigation strategies including pricing adjustments | A new emerging topic that adds uncertainty, highlighting potential external cost pressures; sentiment is cautious as the company monitors evolving trade risks. |
Meals & Beverages and Soup Business Recovery | Consistently emphasized in Q1 2025, Q4 2024, and Q3 2024 with strong performance metrics, recovery signs in soup (e.g., broth share growth) and strategic importance of the division through robust portfolio performance | Q2 2025 confirms a continued strategic focus with growth in the soup business (benefiting from at-home cooking trends) and stable performance in Meals & Beverages, with no sign of diminished emphasis | The positive recovery narrative remains steady; the focus and strategic importance of these segments persist with a consistent, optimistic tone. |
Reliance on Competitor Supply Constraints in the Broth Business | Discussed in Q1 2025, Q4 2024, and Q3 2024 as an opportunistic factor aiding brands like Swanson to grow share due to competitors’ supply issues, with expectations of normalization later | In Q2 2025, similar reliance is observed where slower private label recovery continues to benefit broth brands, although caution is expressed about the sustainability of these gains | The reliance on competitors’ supply constraints remains a steady factor; sentiment is cautiously optimistic yet aware that the advantage may erode as competitor conditions normalize. |
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Lower Profit Outlook and Snacks Recovery
Q: What's driving lower profit outlook and Snacks recovery plan?
A: Management explained that broader snacking categories, particularly cookies and crackers, didn't improve as expected, leading to a revised outlook reflecting the softer environment. The Snacks margin was lower than anticipated, and although sequential progress is expected, they now believe margins will be around 13.5% for the full year. The EPS guidance midpoint is down about $0.16, resulting in an EBIT reduction of approximately $80 million, with $60 million from the Snacks top-line reduction of about $200 million. Management expects Snacks top-line to stabilize by Q4, with sequential improvement starting in Q3. -
Snacks Margin Target and Confidence
Q: Can you still achieve the 17% Snacks margin target?
A: Management acknowledged that the Q2 margin level is not where it should be. They remain confident in the building blocks to improve Snacks margin, including network optimization and favorable mix from growth in leadership brands. While timing might be pushed back, they still believe in the positive trajectory toward the 17% margin target. The next six months will inform their plans going into fiscal '26. -
EPS Cadence in Back Half
Q: What gives confidence in even EPS between Q3 and Q4?
A: Management expects continued pressure on Snacks top-line and margins in Q3. In Q4, they anticipate benefits from lapping higher promotional investments from the prior year, which will help both top-line and bottom-line. These factors contribute to an expected relatively even EPS split between Q3 and Q4, excluding the 53rd week. -
Competitive Intensity and Goldfish Strategy
Q: Will you invest more in Goldfish amid competition?
A: Management recognizes increased competitive intensity in crackers and is focused on getting Goldfish back to growth. They plan to reassert the Goldfish proposition with proper promotional support and price-pack architecture to ensure attractive entry price points. While managing through laps of prior successful launches, they aim to maintain Goldfish margins by balancing investments with value to consumers. -
Tariff Impact on Costs
Q: How will tariffs affect steel can costs?
A: Management is closely monitoring the evolving tariff situation, including proposed steel and aluminum tariffs affecting imports from Canada. If implemented, tariffs could impact tinplate steel used in cans and canola oil used for chips. They are working with suppliers to mitigate potential impacts and may consider actions like pricing adjustments if tariffs persist. They remain focused on providing good value to consumers.