Campbell's Q4 2025 Earnings Call: Tariff Mitigation and Snacks Recovery Clash in Key Contradictions

The above is the analysis of the conflicting points in this earnings call

Date of Call: None provided

Financials Results

• Revenue: Reported net sales up 1% YOY; organic net sales down 3% YOY (ex-53rd week), with +7 pts from the additional week and -3 pts from divestitures.
• EPS: $0.62 adjusted EPS, down 2% YOY; +$0.06 from 53rd week, approximately -$0.02 from tariffs, and approximately -$0.02 from divestitures.
• Gross Margin: 30.5% adjusted gross margin, down 90 bps YOY (including ~30 bps tariff impact).
• Operating Margin: Adjusted EBIT margin down 50 bps YOY (including ~30 bps tariff impact); Snacks operating margin 14.2%, down 30 bps.

Guidance:

• FY26 reported net sales expected down 2% to flat (incl. ~1% divestiture headwind).
• FY26 organic net sales down 1% to up 1%; Meals & Beverages momentum; Snacks stabilizes in 2H; modest positive pricing.
• Adjusted EBIT down 9%–13%; adjusted EPS down 12%–18%; ~2/3 of EPS decline from net tariffs.
• Gross tariffs ~4% of COGS; ~60% from Section 232; assume IPEA remains; ~60% mitigation via inventory, supplier collaboration, sourcing, productivity, targeted pricing.
• Marketing & selling at 9%–10% of net sales; core inflation ex-tariffs low single digit.
• Productivity ~5% of COGS; ~$70M cost savings in FY26; enterprise cost savings target to $375M by FY28.
• Net interest $320–$325M; tax rate ~24%; capex ~4% of net sales.

Business Commentary:

• Financial Performance and Guidance:
• Campbell Soup Company reported a 4% decline in adjusted EPS for fiscal 2026, driven by an estimated net tariff impact and increased marketing expenses.

• The company's fiscal 2026 guidance reflects anticipated tariff impacts and increased marketing investments to support its brand portfolio.

• Meals and Beverages and Snacks Performance:

• Meals and Beverages in-market consumption grew 1% in Q4, while snacks saw a 2% decline, with overall consumption for leadership brands stable.

• The growth in Meals and Beverages was fueled by at-home cooking and product innovation, whereas snacks faced ongoing category headwinds.

• Tariff Mitigation and Cost Savings:

• Campbell Soup Company plans to mitigate approximately 60% of the fiscal 2026 tariff impact through various cost management initiatives.

• The company is intensifying its cost savings program, aiming for $375 million in savings by the end of fiscal 2028.

• Innovation and Brand Support:

• Recent innovation contributed approximately 3% to net sales in fiscal 2025, with plans to increase this momentum through continued investment.
• Marketing support is targeted to increase to 9% to 10% of net sales in fiscal 2026, focusing on brand awareness and product innovation.

Sentiment Analysis:

• Q4 slightly ahead of expectations, but adjusted EBIT and EPS both down 2% YOY. Management guides FY26 adjusted EBIT down 9%–13% and EPS down 12%–18%, with tariffs a significant headwind (~4% of COGS; ~2/3 of EPS decline). Snacks expected to stabilize only in the second half, and margins face ~150 bps pressure at the midpoint despite increased marketing and productivity efforts.

Q&A:

• Question from Peter Galbo (Bank of America): Could you detail drivers pushing FY26 outlook to the high/low ends and discuss quarterly/half phasing, especially Q1?
  Response: Top line organic -1% to +1% with M&B momentum and H2 Snacks stabilization; modest positive pricing; EPS decline mainly tariffs; Q1 sequentially better than Q4 but still pressured; margin pressure (~150 bps) fairly even through the year.

• Question from Tom Palmer (JPMorgan): What underpins the expected Snacks stabilization in 2H and is it category vs. company actions? Also, where will margin pressure hit more by segment?
  Response: Snacking occasions remain; stabilization driven by increased brand support, innovation, price-pack work, and better execution; expect improvement through the year with H2 stabilization; tariff-driven margin pressure will be greater in Meals & Beverages.

• Question from Robert Moskow (TD Cowen): Why not take more aggressive pricing to offset steel/aluminum tariffs, and why was Q4 tariff EPS impact $0.02 vs. prior $0.03–$0.05?
  Response: Using surgical pricing alongside inventory management, supplier collaboration, and productivity to offset tariffs; soup is affected by Section 232; Q4 impact was lower mainly due to inventory management actions.

• Question from Michael Lavery (Piper Sandler): How sustainable is inventory management as mitigation and what about alternate sourcing (tinplate, Rao’s)? Also, can you push cost savings without harming capabilities?
  Response: Mitigation continues via inventory and supplier collaboration; no U.S. tinplate capacity—imports face 50% tariff; Rao’s remains largely Italy-made with limited U.S. flexibility; rest-of-world IPEA mitigated via vetted alternatives; elevated savings achievable via Sovos integration, network, IT, and procurement without undermining capabilities (targeting ~5% productivity).

• Question from Jim Salera (Stephens): With household penetration flat/slightly up, how will you lift buy rate/mix, and what’s the plan/phase for Rao’s?
  Response: Increase buy rate via higher marketing, innovation, price-pack architecture, and wider distribution; Rao’s has penetration upside and is targeted for mid-to-high single-digit growth, with quarterly choppiness from promo shifts and lapping ERP timing.