Campbell Soup Balances RAO’S Strength With Snacks Woes
Campbell Soup Company ((CPB)) has held its Q2 earnings call. Read on for the main highlights of the call.
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Campbell Soup’s latest earnings call painted a split story of resilience and strain. Meals & Beverages, led by RAO’S sauces and cooking-focused soups, delivered solid growth and innovation momentum. Yet the Snacks division weighed on sentiment with falling sales, compressed margins, and operational missteps that will take several quarters to fully unwind.
RAO’S Fuels Growth in Meals & Beverages
RAO’S remained the standout growth engine, with in‑market consumption climbing 14.5% in Q2. Management is targeting high‑single‑digit growth for the brand for the full year, underscoring RAO’S central role in offsetting softness elsewhere in the portfolio.
Broth and Cooking Soups Extend the Momentum
The broth business, including Pacific, posted healthy gains with Pacific delivering double‑digit growth. More than half of condensed soup sales now come from cooking and ingredient uses, and new Campbell’s condensed sauces launching in June are expected to add incremental volume.
Cookie Innovation Keeps the Sweet Side Growing
Cookies have logged four straight quarters of growth, powered by Milano innovation and new Chessmen varieties. These launches are helping the company earn broader shelf space and distribution, reinforcing cookies as a bright spot within the overall snacks portfolio.
Goldfish: High-Margin Anchor for Snacks Recovery
Goldfish continued to show momentum in the first half and is highlighted as the highest‑margin product in the Snacks segment. Management expects stepped‑up Goldfish activity to be an important lever in rebuilding Snacks margins in Q4 as mix and scale improve.
Discipline on Cash, Costs, and Capex
To preserve cash and strengthen the balance sheet, Campbell cut planned capex by $50 million and rolled out a $100 million overhead cost‑reduction plan over the next couple of years. The company is prioritizing debt reduction over share repurchases, keeping the dividend but pausing any increases.
Hedging and Tariff Lapses Offer Margin Relief
Roughly 85% of key commodities, including diesel, resins, and aluminum, are hedged, limiting near‑term cost volatility. Management also expects to benefit in Q4 as prior tariff‑related costs roll off, giving a modest year‑over‑year tailwind to margins.
Snacks Sales Slide Adds Top-Line Pressure
Snacks net sales fell about 6% in Q2, a notable drag against the healthier Meals & Beverages performance. The company now expects Snacks revenue to remain under pressure, declining roughly 4% over the second half with a similar impact in Q3 and Q4.
Snacks Margins Hit Hard by Deleverage and Spend
Segment margin in Snacks dropped to about 7% in Q2, a steep 390‑basis‑point compression versus last year. Management attributed roughly a quarter of the hit to Fresh Bakery execution issues and the rest to volume deleverage and higher marketing and SG&A investments.
Fresh Bakery Disruptions Weigh on Availability
Fresh Bakery operations suffered manufacturing and distribution disruptions, which were worsened by January winter storms and led to on‑shelf stock gaps. These headwinds are expected to linger into Q3, with a more normalized performance targeted for Q4.
Intense Chip Competition Forces Tactical Moves
The salty chips category is facing aggressive competitive activity and price pressure, eroding Campbell’s position. Management is responding with more precise promotions, selective permanent price resets, and price‑pack architecture changes, but warned that regaining share will be a gradual process.
Capacity Investments Now a Margin Drag
Previous capacity expansions, including roughly $100 million invested to expand Goldfish production in Richmond, are now creating fixed‑cost deleverage as volumes lag expectations. These underutilized assets are magnifying the impact of weaker Snacks volumes on segment profitability.
Earnings Cadence Under Pressure in the Near Term
Management signaled a muted earnings trajectory, guiding Q3 EPS to be roughly in line with Q2. A more meaningful improvement is anticipated in Q4, with the company aiming to deliver about $0.90 of EPS for the back half of the year at the midpoint of guidance.
Capital Allocation Tightens as Deleveraging Takes Priority
Campbell will remain highly constrained in capital deployment, with no share buybacks planned, including anti‑dilutive repurchases. The company faces a near‑term payment of around $140 million to $150 million for the La Regina acquisition while targeting leverage near 3x and maintaining, but not raising, its dividend.
Guidance: Gradual Snacks Recovery and Measured Earnings Rebound
Looking ahead, management expects Snacks sales to be down around 4% in the second half, with modest margin improvement in Q3 and a more notable rebound in Q4 as tariffs lap, Sovos ERP issues ease, and advertising normalizes. Meals & Beverages should benefit from positive pricing even as consumption is seen flattish, with RAO’S sustaining high‑single‑digit annual growth and the company working toward roughly $0.90 in back‑half EPS while tightening capex and cutting overhead.
Campbell’s earnings call revealed a company leaning on strong brands and disciplined cash management to navigate a difficult Snacks reset. Investors will watch whether RAO’S, broths, cookies, and Goldfish can offset fresh bakery and chips headwinds, and whether promised Q4 margin repair marks the start of a more durable recovery in both sales and profitability.
