What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-12-08 compared with 2021-06-09 · 122 added, 275 removed, 168 unchanged (70% of the section changed)

8 unchanged sentences

We operate in a highly competitive industry and experience competition in all of our categories.

We completed the sale of our Kelsen business on September 23, 2019.

On December 23, 2019, we completed the sale of our Arnott’s business and certain other international operations, including the simple meals and shelf-stable beverages businesses in Australia and Asia Pacific (the Arnott’s and other international operations).

We have reflected the results of operations of the Kelsen business and the Arnott’s and other international operations (collectively referred to as Campbell International) as discontinued operations in the Consolidated Statements of Earnings.

These businesses were historically included in the Snacks reportable segment.

In addition, on October 11, 2019, we completed the sale of our European chips business.

The results of the European chips business through the date of sale were reflected in continuing operations within the Snacks reportable segment.

On May 3, 2021, subsequent to the end of the quarter, we completed the sale of our Plum baby food and snacks business, which is included in our Meals & Beverages reportable segment.

See Notes 3 and 6 to the Consolidated Financial Statements for additional information on these divestitures and reportable segments.

On May 3, 2021, we completed the sale of our Plum baby food and snacks business.

The results of the business through the date of sale were reflected in continuing operations within the Meals & Beverages reportable segment.

Beginning in 2022, the foodservice and Canadian business formerly in our Snacks segment is managed as part of the Meals & Beverages segment.

Segment results have been adjusted retrospectively to reflect this change.

Business Trends

We have been actively monitoring the impact of COVID-19 on all aspects of our business.

During the third quarter of 2021, we experienced a decrease in sales in both our Meals & Beverages and Snacks segments, primarily as a result of lapping the initial COVID-19-related elevated demand for our retail products during the year-ago period.

We anticipate that our fourth quarter 2021 sales will be lower than fourth quarter 2020 as we continue to lap the COVID-related elevated demand of the year-ago period, continue to transition out of the COVID-19 environment and lap the 53rd week in the year-ago quarter.

In the quarter, we experienced margin pressure from:

(i) higher than expected inflation, including escalating transportation costs, (ii) increased supply chain costs, reduced operating leverage and unfavorable mix as we transition from the unprecedented demand for our products resulting from COVID-19 in the year-ago period, and (iii) to a lesser extent, execution issues as we continue to advance our transformation agenda, primarily in Snacks.

Going forward, we expect to see inflation continue to be a headwind but expect it to be mitigated in 2022 by stronger productivity and price increases set to take effect in the first quarter of 2022.

However, we continue to monitor the dynamic nature of the current economic environment.

We also expect a decrease in costs related to COVID-19, a decrease in supply chain costs as we continue to recover our supply and service levels, and expect our execution issues will abate.

Although we expect the impacts of COVID-19 on our business to moderate in the fourth quarter and beyond there still remains uncertainty about the duration and extent of the impact from COVID-19, including the spread of COVID-19 variants.

We will continue to evaluate the extent to which COVID-19 will impact our business, consolidated results of operations and financial condition.

In February 2021, there was significant winter weather across most of the United States affecting both inbound and outbound supply and distribution.

We experienced operational disruptions at several of our manufacturing plants and distribution centers in areas of the country that were adversely impacted.

While we believe these storms resulted in incremental transportation costs during the later part of February and early part of March 2021, the weather did not have a material impact on our results of operations for the third quarter.

We have been actively monitoring the impact of the COVID-19 pandemic on all aspects of our business.

During the first quarter of 2022, we continued to experience elevated demand for our retail products, but net sales were lower than in the first quarter of 2021 due to cycling the retailer inventory recovery in the prior-year quarter and the impact of supply constraints which held back our ability to meet persistent elevated demand.

We anticipate that 2022 will continue to be a dynamic macroeconomic environment and we expect elevated levels of input cost inflation and a constrained labor market to persist throughout the remainder of 2022.

We anticipate that these headwinds will be partially mitigated by pricing actions that have either taken effect or are expected to take effect in the remaining part of the fiscal year, supply chain productivity improvements and cost saving initiatives, but we do not expect such benefits will fully offset the incremental costs in 2022.

Although we expect the impacts of the COVID-19 pandemic on our business to moderate in the second quarter and beyond there still remains uncertainty around the pandemic.

The ultimate impact depends on the severity and duration of the pandemic, including the emergence and spread of COVID-19 variants, the continued availability and effectiveness of vaccines and actions taken by government authorities, including the recent U.S.

vaccine mandate, and other third parties in response to the pandemic.

We will continue to evaluate the extent to which the COVID-19 pandemic will impact our business, consolidated results of operations and financial condition.

Summary of Results

This Summary of Results provides significant highlights from the discussion and analysis that follows.

• Net sales decreased 11% in 2021 to $1,984 million, primarily as a result of lapping increased demand of food purchases for at-home consumption at the onset of the COVID-19 pandemic in the prior-year quarter.

• Net sales decreased 4% in 2022 to $2,236 million due to volume declines and increased promotional spending, partially offset by favorable price and sales allowances.

Volumes declined as a result of cycling retailer inventory recovery in the prior-year quarter and supply pressures.

Promotional spending increased due in part to moderated levels in the prior-year quarter.

Net sales increased 2% in 2022 from $2,183 million in 2020, including a 2-point impact from divestitures.

• Gross profit, as a percent of sales, decreased to 32.3% in 2022 from 34.7% in the prior-year quarter.

The decrease was primarily due to higher cost inflation and other supply chain costs and unfavorable product mix, partially offset by the benefits from supply chain productivity improvements.

In the current quarter, gross profit performance was impacted by pronounced inflation, the transition out of the COVID-19 environment and execution issues as we continue to advance our transformation agenda, primarily within Snacks.

• Earnings from continuing operations per share were $.54 in 2021, compared to $.55 a year ago.

The current quarter and prior-year quarter included expenses of $.03 and $.29 per share, respectively, from items impacting comparability as discussed below.

The decrease was primarily due to higher cost inflation, higher levels of promotional spending and unfavorable product mix, partially offset by the benefits of recent pricing actions and supply chain productivity improvements.

• Earnings per share from continuing operations were $.86 in 2022, compared to $1.02 a year ago.

The current quarter and prior-year quarter included expenses of $.03 per share and gains of $.01 per share, respectively, from items impacting comparability as discussed below.

Net Earnings attributable to Campbell Soup Company

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• We implemented several cost savings initiatives in recent years.

In the third quarter of 2021, we recorded a pre-tax restructuring charge of $2 million and implementation costs and other related costs of $11 million in Administrative expenses and $2 million in Cost of products sold (aggregate impact of $11 million after tax, or $.04 per share) related to these initiatives.

Year-to-date in 2021, we recorded a pre-tax restructuring charge of $21 million and implementation costs and other related costs of $21 million in Administrative expenses and $1 million in Cost of products sold (aggregate impact of $32 million after tax, or $.10 per share) related to these initiatives.

In the third quarter of 2020, we recorded implementation costs and other related costs of $10 million in Administrative expenses and $4 million in Cost of products sold (aggregate impact of $11 million after tax, or $.04 per share) related to these initiatives.

Year-to-date in 2020, we recorded a pre-tax restructuring charge of $10 million and implementation costs and other related costs of $31 million in Administrative expenses, $6 million in Cost of products sold, $2 million in Marketing and selling expenses, and $1 million in Research and development expenses (aggregate impact of $38 million after tax, or $.13 per share) related to these initiatives.

In the first quarter of 2022, we recorded implementation costs and other related costs of $2 million in Administrative expenses and $2 million in Cost of products sold (aggregate impact of $3 million after tax, or $.01 per share) related to these initiatives.

In the first quarter of 2021, we recorded Restructuring charges of $1 million and implementation costs and other related costs of $4 million in Administrative expenses and $1 million in Cost of products sold (aggregate impact of $5 million after tax, or $.02 per share) related to these initiatives.

See Note 6 to the Consolidated Financial Statements and "Restructuring Charges and Cost Savings Initiatives" for additional information;

• In the third quarter of 2021, we recognized pre-tax pension settlement gains in Other expenses / (income) of $4 million ($3 million after tax, or $.01 per share).

Year-to-date in 2021, we recognized pre-tax pension settlement gains in Other expenses / (income) of $38 million ($29 million after tax, or $.10 per share).

In the third quarter of 2020, we recognized pre-tax pension settlement charges in Other expenses / (income) of $54 million ($41 million after tax, or $.13 per share).

Year-to-date in 2020, we recognized pre-tax pension settlement charges in Other expenses / (income) of $43 million ($33 million after tax, or $.11 per share).

The settlements were associated with U.S.

and Canadian pension plans and resulted from the level of lump sum distributions from the plans' assets;

• Year-to-date in 2021, we recorded a $19 million ($.06 per share) deferred tax charge in connection with a legal entity reorganization as part of the continued integration of Snyder's-Lance, Inc.

(Snyder's-Lance);

• In the third quarter of 2020, we recorded a loss in Other expenses / (income) of $45 million ($35 million after tax, or $.12 per share) associated with the pending sale of our limited partnership in Acre Venture Partners, L.P.

• Year-to-date in 2020, we recorded a loss in Other expenses / (income) of $64 million ($41 million after tax, or $.13 per share) on the sale of our European chips business;

• Year-to-date in 2020, we recorded a loss in Interest expense of $75 million ($57 million after tax, or $.19 per share) on the extinguishment of debt.

Discontinued Operations

• Year-to-date in 2020, we recognized pre-tax net gains of $1,039 million ($1,000 million after tax, or $3.29 per share) associated with the sale of Campbell International.

• In the first quarter of 2022, we recognized actuarial losses in Other expenses / (income) of $6 million ($5 million after tax, or $.02 per share).

In the first quarter of 2021, we recognized actuarial gains in Other expenses / (income) of $4 million ($3 million after tax, or $.01 per share).

The actuarial gains and losses related to the remeasurements of a U.S.

and a Canadian pension plan.

These interim remeasurements were each due to lump sum distributions that exceeded or are expected to exceed service and interest costs resulting in settlement accounting for the plans;

• In the first quarter of 2022, we recognized losses in Cost of products sold of $3 million ($2 million after tax, or $.01 per share) associated with unrealized mark-to-market adjustments on outstanding undesignated commodity hedges.

In the first quarter of 2021, we recognized gains in Cost of products sold of $6 million ($5 million after tax, or $.02 per share) associated with unrealized mark-to-market adjustments on outstanding undesignated commodity hedges.

The items impacting comparability are summarized below:

Three Months Ended

May 2, 2021 April 26, 2020

(Millions, except per share amounts) Earnings

Earnings from continuing operations attributable to Campbell Soup Company $ 166 $ .54 $ 166 $ .55

Earnings (loss) from discontinued operations $ (6) $ (.02) $ 2 $ .01

Net earnings attributable to Campbell Soup Company (1)

$ 160 $ .52 $ 168 $ .55

Continuing operations:

Restructuring charges, implementation costs and other related costs $ (11) $ (.04) $ (11) $ (.04)

Pension settlement gains (charges) 3 .01 (41) (.13)

Investment losses — — (35) (.12)

Impact of items on Earnings from continuing operations $ (8) $ (.03) $ (87) $ (.29)

Nine Months Ended

May 2, 2021 April 26, 2020

October 31, 2021 November 1, 2020

(Millions, except per share amounts) Earnings

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Restructuring charges, implementation costs and other related costs $ (3) $ (.01) $ (5) $ (.02)

Pension settlement gains (charges) 29 .10 (33) (.11)

Deferred tax charge (19) (.06) — —

Investment losses — — (35) (.12)

Charges associated with divestiture — — (41) (.13)

Loss on debt extinguishment — — (57) (.19)

Pension actuarial gains (losses) (5) (.02) 3 .01

Commodity mark-to-market gains (losses) (2) (.01) 5 .02

Impact of items on Earnings from continuing operations (1)

$ (10) $ (.03) $ 3 $ .01

Discontinued operations:

Gains associated with divestitures $ — $ — $ 1,000 $ 3.29

Impact of items on Earnings from discontinued operations $ — $ — $ 1,000 $ 3.29

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Earnings from continuing operations were $261 million ($ .86 per share) in the current quarter, compared to $309 million ($ 1.02 per share) in the year-ago quarter.

After adjusting for items impacting comparability, earnings from continuing operations decreased reflecting sales volume declines and lower gross profit performance, partially offset by lower marketing and selling expenses.

Earnings from continuing operations were $720 million ($2.36 per share) in the nine-month period this year, compared to $506 million ($1.66 per share) in the year-ago period.

After adjusting for items impacting comparability, earnings from continuing operations increased reflecting lower interest expense, lower selling expenses, higher other income and sales volume gains, partially offset by lower gross profit performance and increased administrative expenses.

See "Discontinued Operations" for additional information.

THIRD-QUARTER DISCUSSION AND ANALYSIS

After adjusting for items impacting comparability, earnings from continuing operations decreased reflecting a lower gross profit performance, sales volume declines and higher administrative expenses, partially offset by lower marketing and selling expenses and a lower effective tax rate.

FIRST-QUARTER DISCUSSION AND ANALYSIS

An analysis of net sales by reportable segment follows:

Three Months Ended

(Millions) May 2, 2021 April 26, 2020 % Change

(Millions) October 31, 2021 November 1, 2020 % Change

Meals & Beverages $ 1,266 $ 1,363 (7)

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Price and sales allowances 4 4 4

Currency 1 — —

Decreased / (increased) promotional spending (1)

Divestiture (2) — (1)

(7)% (1)% (4)%

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(1) Represents revenue reductions from trade promotion and consumer coupon redemption programs.

(2) Sum of the individual amounts does not add due to rounding.

In Meals & Beverages, sales decreased 14% primarily due to declines across U.S.

retail products, including in U.S.

soup and Prego pasta sauces, as well as declines in foodservice and Canada.

Volume decreased in U.S.

retail driven by lapping increased demand of food purchases for at-home consumption at the onset of the COVID-19 pandemic in the prior-year quarter.

In Meals & Beverages, sales decreased 7%.

Excluding the impact from the divestiture of the Plum baby food and snacks business, sales decreased primarily due to declines across U.S.

retail products, including V8 beverages, Prego pasta sauces and U.S.

soup, as well as in Canada.

Volume decreased primarily due to cycling the retailer inventory recovery in the prior-year quarter and due to supply pressures.

Promotional spending increased relative to moderated levels in the prior-year quarter, partly offsetting the impact of recent price increases.

Sales of U.S.

soup decreased 21% due to volume declines in condensed soups, ready-to-serve soups and broth.

In Snacks, sales decreased 8% due to volume declines within our salty snacks portfolio, including Pop Secret popcorn, Cape Cod potato chips and Snyder's of Hanover pretzels, as well as in Lance sandwich crackers, partner brands and fresh bakery.

Volume declines were partially driven by lapping increased demand of food purchases for at-home consumption at the onset of the COVID-19 pandemic in the prior-year quarter.

soup decreased 2%, cycling a 21% increase in the first quarter of the prior year, due to volume declines in ready-to-serve soups and condensed soups, partially offset by gains in broth.

In Snacks, sales decreased 1% as volume declines and increased promotional spending relative to moderated levels in the prior-year quarter were partly offset by favorable price and sales allowances.

Declines in partner brands, in Pop Secret popcorn due to elevated demand in the prior-year quarter and in Late July snacks due to supply pressures were partially offset by gains in Goldfish crackers and Pepperidge Farm cookies.

Partner brands consist of third-party branded products that we sell.

Sales of our power brands increased 3%.

Gross profit, defined as Net sales less Cost of products sold, decreased by $91 million in 2022 from 2021.

As a percent of sales, gross profit was 32.3% in 2022 and 34.7% in 2021.

The 2.8 percentage-point decrease in gross profit percentage was due to the following factors:

The 240 basis-point decrease in gross profit margin was due to the following factors:

Margin Impact

Cost inflation, supply chain costs and other factors (1)

Price and sales allowances 0.1

Lower restructuring-related costs 0.1

Lower level of promotional spending 0.2

Higher level of promotional spending (130)

Productivity improvements 120

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(1) Includes an estimated positive margin impact of a 2.5 benefit from the change in mark-to-market adjustments on outstanding commodity hedges and 0.6 from the benefit of cost savings initiatives, which were more than offset by cost inflation and other factors, including a 1.1 impact from reduced operating leverage.

Marketing and Selling Expenses

Marketing and selling expenses as a percent of sales were 10.2% in 2021 compared to 10.7% in 2020.

Marketing and selling expenses decreased 15% in 2021 from 2020.

The decrease was primarily due to lower advertising and consumer promotion expense (approximately 7 percentage points);

lower incentive compensation (approximately 4 percentage points);

lower selling expenses (approximately 3 percentage points);

and increased benefits from cost savings initiatives (approximately 2 percentage points).

The decrease in advertising and consumer promotion expense was primarily due to a reduction of spend in Meals & Beverages, primarily U.S.

Administrative Expenses

Administrative expenses as a percent of sales were 7.7% in 2021 compared to 6.9% in 2020.

Administrative expenses decreased 1% in 2021 from 2020.

The decrease was primarily due to lower incentive compensation (approximately 12 percentage points), partially offset by higher benefit-related costs (approximately 11 percentage points).

Other Expenses / (Income)

Other income was $23 million in 2021 compared to other expenses of $81 million in 2020.

Other income in 2021 included pension settlement gains of $4 million.

Other expenses in 2020 included pension settlement charges of $54 million and a loss of $45 million on Acre.

Operating Earnings

Segment operating earnings decreased 33% in 2021 from 2020.

An analysis of operating earnings by segment follows:

Three Months Ended

(Millions) May 2, 2021 April 26, 2020 % Change

Meals & Beverages $ 179 $ 275 (35)

Snacks 109 154 (29)

Corporate (14) (156)

Restructuring charges (1)

Earnings before interest and taxes $ 272 $ 273

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(1) See Note 7 to the Consolidated Financial Statements for additional information on restructuring charges.

Operating earnings from Meals & Beverages decreased 35%.

The decrease was primarily due to sales volume declines and lower gross profit performance, partially offset by lower marketing and selling expenses.

Gross profit performance was impacted by higher cost inflation and other supply chain costs, reduced operating leverage and unfavorable mix, partially offset by the benefits of supply chain productivity improvements.

Operating earnings from Snacks decreased 29%.

The decrease was primarily due to lower gross profit performance and sales volume declines, partially offset by lower marketing and selling expenses and lower administrative expenses.

Gross profit performance was impacted by higher cost inflation and other supply chain costs, reduced operating leverage and unfavorable product mix, partially offset by the benefits of supply chain productivity improvements.

Corporate in 2021 included costs of $13 million related to costs savings initiatives and pension settlement gains of $4 million.

Corporate in 2020 included pension settlement charges of $54 million, a loss of $45 million on Acre and costs of $14 million related to cost savings initiatives.

Excluding these amounts, the remaining decrease in expenses was primarily due to mark-to-market gains on outstanding commodity hedges in the current period compared to losses in the prior year, partially offset by higher administrative expenses.

Interest Expense

Interest expense decreased to $53 million in 2021 from $55 million in 2020, primarily due to lower levels of debt.

Taxes on Earnings

The effective tax rate was 24.2% in 2021 and 23.9% in 2020.

The increase in the effective tax rate was primarily due to state tax law changes.

NINE-MONTH DISCUSSION AND ANALYSIS

An analysis of net sales by reportable segment follows:

Nine Months Ended

(Millions) May 2, 2021 April 26, 2020 % Change

Meals & Beverages $ 3,681 $ 3,628 1

Snacks 2,922 2,955 (1)

$ 6,603 $ 6,583 —

An analysis of percent change of net sales by reportable segment follows:

Meals & Beverages (2)

Volume and mix —% (2)% (1)%

Price and sales allowances 320

(Increased) /decreased promotional spending (1)

Divestiture — (1) —

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(1) Represents revenue reductions from trade promotion and consumer coupon redemption programs.

(2) Sum of the individual amounts does not add due to rounding.

In Meals & Beverages, sales increased 1% primarily due to gains in U.S.

soup and V8 beverages, partially offset by declines in foodservice.

Volume increased in U.S.

retail driven by COVID-19, with increased demand of food purchases for at-home consumption in the first half of 2021.

Foodservice sales were negatively impacted by shifts in consumer behavior and continued COVID-19 related restrictions.

Sales of U.S.

soup increased 4% due to volume gains in condensed soups, broth and ready-to-serve soups and moderated promotional spending.

In Snacks, sales decreased 1% reflecting a 1-point negative impact from the sale of the European chips business.

Excluding the divestiture, sales were comparable driven by volume declines mostly offset by lower levels of promotional spending.

Declines in Lance sandwich crackers and partner brands were mostly offset by gains in salty snacks, including Late July snacks and Kettle Brand potato chips, and fresh bakery products.

Gross profit, defined as Net sales less Cost of products sold, decreased by $28 million in 2021 from 2020.

As a percent of sales, gross profit was 33.7% in 2021 and 34.2% in 2020.

The 0.5 percentage-point decrease in gross profit percentage was due to the following factors:

Margin Impact

Cost inflation, supply chain costs and other factors (1)

Price and sales allowances (0.2)

Lower restructuring-related costs 0.1

Lower level of promotional spending 0.9

Productivity improvements 1.5

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(1) Includes an estimated positive margin impact of a 0.9 benefit from the change in mark-to-market adjustments on outstanding commodity hedges and 0.4 from the benefit of cost savings initiatives, which were more than offset by cost inflation and other factors, including the impact of COVID-19.

(1) Includes an estimated positive margin impact of 30 basis points from the benefit of cost savings initiatives, which was more than offset by cost inflation and other factors, including a 40 basis-point impact from the change in unrealized mark-to-market adjustments on outstanding undesignated commodity hedges.

Marketing and Selling Expenses

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Marketing and selling expenses decreased 18% in 2022 from 2021.

The decrease was primarily due to increased benefits from cost savings initiatives (approximately 3 percentage points);

lower incentive compensation (approximately 2 percentage points);

lower selling expenses (approximately 1 percentage point) and lower costs related to marketing overhead (approximately 1 percentage point), partially offset by higher advertising and consumer promotion expense (approximately 1 percentage point).

The increase in advertising and consumer promotion expense was primarily in Snacks.

The decrease was primarily due to lower advertising and consumer promotion expense (approximately 15 points) and lower selling expenses (approximately 3 points).

The decrease in advertising and consumer promotion expense was due in part to supply constraints.

Administrative Expenses

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Administrative expenses increased 11% in 2022 from 2021.

The increase was primarily due to higher benefit-related costs (approximately 8 percentage points) and higher general administrative costs and inflation (approximately 4 percentage points), partially offset by lower incentive compensation (approximately 4 percentage points);

increased benefits from cost savings initiatives (approximately 2 percentage points) and lower costs associated with cost savings initiatives (approximately 2 percentage points).

The increase was primarily due to expenses related to the settlement of certain legal claims (approximately 11 points) and higher general administrative costs (approximately 4 points), partially offset by increased benefits from cost savings initiatives (approximately 4 points).

Other Expenses / (Income)

Other income was $86 million in 2021 compared to other expenses of $115 million in 2020.

Other expenses / (income) included pension settlement gains of $38 million in 2021 and pension settlement charges of $43 million in 2020.

Other expenses in 2020 also included a loss of $64 million on the sale of the European chips business and a loss of $45 million on Acre.

Excluding these amounts, the remaining increase in other income was primarily due to an increase in transition services fees this year, partially offset by lower net periodic benefit income.

Other income was $1 million in 2022 compared to other income of $18 million in 2021.

Other income in 2022 included pension actuarial losses of $6 million.

Other income in 2021 included pension actuarial gains of $4 million.

Excluding these amounts, the remaining decrease in other income was primarily due to income from transition services fees in the prior year.

Operating Earnings

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An analysis of operating earnings by segment follows:

Nine Months Ended

(Millions) May 2, 2021 April 26, 2020 % Change

Three Months Ended

(Millions) October 31, 2021 November 1, 2020 % Change

Meals & Beverages $ 280 $ 337 (17)

Snacks 128 135 (5)

1,162 1,214 (4)

Corporate (7) (264)

Corporate income (expense) (32) (10)

Restructuring charges (1)

3 unchanged sentences

Operating earnings from Meals & Beverages decreased 17%.

The decrease was primarily due to lower gross profit performance, partially offset by sales volume gains.

Gross profit performance was impacted by higher cost inflation and other supply chain costs, as well as higher sales allowances, partially offset by the benefits of supply chain productivity improvements and lower levels of promotional activity.

The decrease was primarily due to lower gross profit performance and sales volume declines, partially offset by lower marketing and selling expenses.

Gross profit performance was impacted by higher cost inflation, higher levels of promotional spending, higher other supply chain costs and unfavorable product mix, partially offset by the benefits of recent pricing actions and supply chain productivity improvements.

Operating earnings from Snacks decreased 5%.

The decrease was primarily due to lower gross profit performance and sales volume declines, partially offset by lower selling expenses.

Gross profit performance was impacted by higher cost inflation and other supply chain costs, including COVID-19 related costs, and unfavorable product mix, partially offset by the benefits of supply chain productivity improvements as well as lower levels of promotional spending.

Corporate in 2021 included costs of $22 million related to costs savings initiatives and pension settlement gains of $38 million.

Corporate in 2020 included a loss of $64 million from the sale of the European chips business, a loss of $45 million on Acre, pension settlement charges of $43 million and costs of $40 million related to cost savings initiatives.

Excluding these amounts, the remaining decrease in expenses was primarily due to mark-to-market gains on outstanding commodity hedges in the current period compared to losses in the prior year.

The decrease was driven by higher administrative expenses due to the settlement of certain legal claims and a slightly lower gross profit performance, partially offset by lower marketing and selling expenses.

Gross profit performance was impacted by higher cost inflation, unfavorable product mix and higher levels of promotional spending, largely offset by the benefits of recent pricing actions, supply chain productivity improvements and cost savings initiatives as well as lower other supply chain costs.

Corporate expense in 2022 included pension actuarial losses of $6 million, costs of $4 million related to costs savings initiatives and unrealized mark-to-market losses on outstanding undesignated commodity hedges of $3 million.

Corporate expense in 2021 included costs of $5 million related to cost savings initiatives, pension actuarial gains of $4 million and unrealized mark-to-market gains on outstanding undesignated commodity hedges of $6 million.

Interest Expense

Interest expense decreased to $163 million in 2021 from $284 million in 2020.

The decrease in interest expense was due to a loss on extinguishment of debt of $75 million in the prior year and lower levels of debt.

Interest expense decreased to $47 million in 2022 from $55 million in 2021, primarily due to lower levels of debt.

Taxes on Earnings

The effective tax rate was 20.7% in 2022 and 23.9% in 2021.

The increase in the effective tax rate was primarily due to a $19 million deferred tax charge recognized in the second quarter of 2021 in connection with a legal entity reorganization as part of the continued integration of Snyder's-Lance and a $23 million tax benefit on the $64 million loss on the sale of the European chips business in the prior year.

The decrease in the effective tax rate was primarily due to the favorable resolution of several tax matters in 2022.

Restructuring Charges and Cost Savings Initiatives

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Beginning in fiscal 2015, we implemented initiatives to reduce costs and to streamline our organizational structure.

In recent years, we expanded these initiatives by further optimizing our supply chain and manufacturing networks, including closing our manufacturing facility in Toronto, Ontario, as well as our information technology infrastructure.

On March 26, 2018, we completed the acquisition of Snyder's-Lance.

Over the years, we expanded these initiatives by further optimizing our supply chain and manufacturing networks, including closing our manufacturing facility in Toronto, Ontario, as well as our information technology infrastructure.

On March 26, 2018, we completed the acquisition of Snyder's-Lance, Inc.

(Snyder's-Lance).

Prior to the acquisition, Snyder's-Lance launched a cost transformation program following a comprehensive review of its operations with the goal of significantly improving its financial performance.

We continue to implement this program.

In addition, we have identified opportunities for additional cost synergies as we integrate Snyder's-Lance.

Cost estimates, as well as timing for certain activities, are continuing to be developed.

A summary of the pre-tax charges recorded in Earnings from continuing operations related to these initiatives is as follows:

Three Months Ended Nine Months Ended

We continued to implement this program and identified opportunities for additional cost synergies as we integrated Snyder's-Lance.

A summary of charges recorded in Earnings from continuing operations related to these initiatives is as follows:

Three Months Ended

(Millions, except per share amounts)

May 2, 2021 April 26, 2020 May 2, 2021 April 26, 2020 Recognized as of May 2, 2021

October 31, 2021 November 1, 2020 Recognized as of October 31, 2021

Restructuring charges $ — $ 1 $ 259

6 unchanged sentences

Per share impact $ .01 $ .02

A summary of the pre-tax costs in Earnings from discontinued operations associated with these initiatives is as follows:

(Millions) Recognized as of May 2, 2021

Severance pay and benefits

Implementation costs and other related costs

As of April 28, 2019, we incurred substantially all of the costs for actions associated with discontinued operations.

All of the costs were cash expenditures.

A summary of the pre-tax costs in Earnings from continuing operations associated with these initiatives is as follows:

(Millions) Recognized as of May 2, 2021

(Millions) Recognized as of October 31, 2021

Severance pay and benefits

1 unchanged sentence

Implementation costs and other related costs

The total estimated pre-tax costs for actions associated with continuing operations that have been identified are approximately $700 million to $730 million.

This estimate will be updated as costs for the expanded initiatives are developed.

We expect the costs for actions associated with continuing operations that have been identified to date to consist of the following:

approximately $220 million to $225 million in severance pay and benefits;

The total estimated pre-tax costs for actions associated with continuing operations are approximately $ 715 million to $ 730 million.

The majority of the remaining costs will be incurred in 2022.

We expect the costs for actions associated with continuing operations to consist of the following:

approximately $ 225 million in severance pay and benefits;

approximately $ 85 million in asset impairment and accelerated depreciation;

4 unchanged sentences

and Corporate - approximately 24 %.

Of the aggregate $700 million to $730 million of pre-tax costs associated with continuing operations identified to date, we expect approximately $600 million to $630 million will be cash expenditures.

In addition, we expect to invest approximately $430 million in capital expenditures through 2022, of which we invested $382 million as of May 2, 2021.

The capital expenditures primarily relate to a U.S.

warehouse optimization project, improvement of quality, safety and cost structure across the Snyder’s-Lance manufacturing network, implementation of our existing SAP enterprise-resource planning system for Snyder's-Lance, transition of production of the Toronto manufacturing facility to our U.S.

Of the aggregate $ 715 million to $ 730 million of pre-tax costs associated with continuing operations, we expect approximately $ 615 million to $ 630 million will be cash expenditures.

In addition, we expect to invest approximately $ 450 million in capital expenditures through 2022, of which we invested $ 415 million as of October 31, 2021.

The capital expenditures primarily relate to improvement of quality, safety and cost structure across the Snyder’s-Lance manufacturing network, a U.S.

warehouse optimization project, implementation of our existing SAP enterprise-resource planning system for Snyder's-Lance, transition of production of the Toronto manufacturing facility to our U.S.

thermal plants, optimization of information technology infrastructure and applications, and optimization of the Snyder’s-Lance warehouse and distribution network.

We expect to incur the costs for the actions associated with continuing operations that have been identified to date through 2022 and to fund the costs through cash flows from operations and short-term borrowings.

We expect the initiatives for actions associated with continuing operations that have been identified to date to generate pre-tax savings of approximately $800 million in 2021, and once all phases are implemented, to generate annual ongoing savings of

approximately $850 million by the end of 2022.

In the nine-month period ended May 2, 2021, we generated an additional $55 million of pre-tax savings.

We expect to fund the costs through cash flows from operations and short-term borrowings.

We expect the initiatives for actions associated with continuing operations, once all phases are implemented, to generate annual ongoing savings of approximately $850 million by the end of 2022.

In the three-month period ended October 31, 2021, we generated an additional $15 million of pre-tax savings.

The annual pre-tax savings associated with continuing operations generated were as follows:

(Millions) August 2, 2020 July 28, 2019 July 29, 2018 July 30, 2017 July 31, 2016 August 2, 2015

(Millions) August 1, 2021 August 2, 2020 July 28, 2019 July 29, 2018 July 30, 2017 July 31, 2016 August 2, 2015

Total pre-tax savings $ 805 $ 725 $ 560 $ 395 $ 325 $ 215 $ 85

The initiatives for actions associated with discontinued operations generated pre-tax savings of over $90 million in 2019 and $60 million in 2018.

Segment operating results do not include restructuring charges, implementation costs and other related costs because we evaluate segment performance excluding such charges.

A summary of the pre-tax costs in Earnings from continuing operations associated with segments is as follows:

(Millions) Three Months Ended Nine Months

Ended Costs Incurred to Date

October 31, 2021

(Millions) Three Months Ended Costs Incurred to Date

Meals & Beverages $ 1 $ 224

Snacks 13 39 290

Corporate — 172

Total $ 4 $ 698

Discontinued Operations

We completed the sale of our Kelsen business on September 23, 2019, for $322 million.

We also completed the Arnott's and other international operations on December 23, 2019, for $2,286 million.

The purchase price was subject to certain post-closing adjustments, which resulted in $4 million of additional proceeds in the third quarter of 2020.

B eginning in the fourth quarter of 2019, we have reflected the results of operations of the Kelsen business and the Arnott’s and other international operations, or Campbell International, as discontinued operations in the Consolidated Statements of Earnings for all periods presented.

These businesses were historically included in the Snacks reportable segment.

Results of Campbell International in 2020 were as follows:

April 26, 2020

(Millions) Nine Months Ended

Net sales $ 359

Earnings before taxes from operations $ 53

Taxes on earnings from operations 17

Gain on sales of businesses / costs associated with selling the businesses 1,039

Tax expense on sales of businesses / costs associated with selling the businesses 39

Earnings from discontinued operations $ 1,036

In the third quarter of 2021, we recognized a $6 million Loss from discontinued operations due to tax expense from return-to-provision adjustments related to the sales of the businesses.

Through April 28, 2019, we incurred pre-tax charges of $ 23 million in Earnings from discontinued operations consisting of $ 19 million of severance pay and benefits and $ 4 million of implementation costs and other related costs.

All of the costs were cash expenditures.

Expanded Initiatives in 2022

We continue to pursue cost savings initiatives by further optimizing our supply chain and manufacturing network and through effective cost management.

We are pursuing additional initiatives that will generate incremental annual ongoing savings of approximately $150 million by the end of 2025.

With these expanded initiatives, we expect to generate cumulative annual pre-tax savings of approximately $1 billion by the end of 2025.

Cost estimates will be updated as the expanded initiatives are developed.

LIQUIDITY AND CAPITAL RESOURCES

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We generated cash flows from operations of $288 million in 2022, compared to $180 million in 2021.

The decline in 2021 was primarily due to changes in working capital, principally lower accrued liabilities and a significant increase in accounts payable in the prior year.

The increase in 2022 was primarily due to changes in working capital, principally accounts payable and accrued liabilities, partially offset by lower cash earnings.

Current assets are less than current liabilities as a result of our level of current maturities of long-term debt and short-term borrowings and our focus to lower core working capital requirements.

We had negative working capital of $112 million as of May 2, 2021, and $690 million as of August 2, 2020.

Total debt maturing within one year was $204 million as of May 2, 2021, and $1,202 million as of August 2, 2020.

We had negative working capital of $462 million as of October 31, 2021, and $119 million as of August 1, 2021.

Total debt maturing within one year was $480 million as of October - 31, 2021, and $48 million as of August 1, 2021.

Capital expenditures were $69 million in 2022 and $74 million in 2021.

The decline was due to capital expenditures associated with discontinued operations in 2020.

Capital expenditures are expected to total approximately $300 million in 2022.

Capital expenditures in the nine-months of 2021 included the implementation of our existing SAP enterprise-resource planning

system for Snyder's-Lance, chip capacity expansion projects, a Milano cookie capacity expansion project, and a Goldfish cracker capacity expansion project.

Pepperidge Farm and Snyder’s-Lance have a direct-store-delivery distribution model that uses independent contractor distributors.

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The purchase and sale proceeds of the routes are reflected in investing activities.

We completed the sale of our Kelsen business on September 23, 2019, for $322 million.

On September 30, 2019, we repaid $399 million of our senior unsecured term loan facility using net proceeds from the Kelsen sale and the issuance of commercial paper.

In addition, on October 11, 2019, we completed the sale of our European chips business for £63 million, or $77 million.

We completed the sale of the Arnott’s and other international operations on December 23, 2019, for $2,286 million.

The purchase price was subject to certain post-closing adjustments, which resulted in $4 million of additional proceeds in the third quarter of 2020.

We used the net proceeds from the sale to reduce our debt through a series of actions.

On December 31, 2019, we repaid the $100 million outstanding balance on our senior unsecured term loan facility.

On January 22, 2020, we completed the redemption of all $500 million outstanding aggregate principal amount of our 4.25% Senior Notes due 2021.

On January 24, 2020, we settled tender offers to purchase $1,200 million in aggregate principal amount of certain unsecured debt, comprising $329 million of 3.30% Senior Notes due 2021, $634 million of 3.65% Senior Notes due 2023, and $237 million of 3.80% Senior Notes due 2043.

Except for the $237 million of 3.80% Senior Notes due 2043, the Senior Notes settled under the tender offer were issued in connection with our acquisition of Snyder’s-Lance.

The consideration for the redemption and the tender offers was $1,765 million, including $65 million of premium.

We recognized a loss of $75 million (including $65 million of premium, fees and other costs paid with the tender offers and unamortized debt issuance costs), which was recorded in Interest expense in the Consolidated Statement of Earnings.

In addition, we paid accrued and unpaid interest on the purchased notes through the dates of settlement.

The net divestiture proceeds remaining after these debt reduction activities were used to reduce commercial paper borrowings.

Dividend payments were $116 million in 2022 and $108 million in 2021.

The regular quarterly dividends paid on our capital stock were $.35 per share in each the first and second quarter of 2021 and in each quarter of 2020.

The regular quarterly dividends paid on our capital stock were $.37 per share in the third quarter of 2021.

On March 4, 2021, the Board of Directors declared a regular quarterly dividend of $.37 per share payable on May 3, 2021 to shareholders of record at the close of business on April 8, 2021.

On May 25, 2021, the Board of Directors declared a regular quarterly dividend of $.37 per share payable on August 2, 2021 to shareholders of record at the close of business on July 14, 2021.

We suspended our share repurchases as of the second quarter of 2018.

In June 2021, the Board authorized a new anti-dilutive share repurchase program of up to $250 million (June 2021 program) to offset the impact of dilution from shares issued under our stock compensation programs.

The regular quarterly dividend paid on our capital stock was $.37 per share in the first quarter of 2022 and $.35 per share in the first quarter of 2021.

On December 1, 2021, the Board of Directors declared a regular quarterly dividend of $.37 per share payable on January 31, 2022 to shareholders of record at the close of business on January 6, 2022.

In June 2021, the Board authorized an anti-dilutive share repurchase program of up to $250 million (June 2021 program) to offset the impact of dilution from shares issued under our stock compensation programs.

The June 2021 program has no expiration date, but it may be suspended or discontinued at any time.

Repurchases under the anti-dilutive program may be made in open-market or privately negotiated transactions.

See Note 13 to the Consolidated Financial Statements for additional information.

On April 24, 2020, we issued senior unsecured notes in an aggregate principal amount of $1,000 million, consisting of $500 million aggregate principal amount of notes bearing interest at a fixed rate of 2.375% per annum, due April 24, 2030, and $500 million aggregate principal amount of notes bearing interest at a fixed rate of 3.125% per annum, due April 24, 2050.

On May 1, 2020, we used $300 million of the net proceeds to repay $300 million of borrowings outstanding under our revolving credit facility.

In March 2021, we repaid the 3.30% $321 million notes and floating rate $400 million notes.

The repayments were funded with available cash.

In May 2021, after the end of the quarter, we repaid our 8.875% $200 million notes.

In August 2019, we repaid and terminated the AUD $335 million, or $227 million, balance outstanding under our single-draw syndicated facility.

The repayment was funded through the issuance of commercial paper.

As of May 2, 2021, we had $204 million of short-term borrowings due within one year, none of which was comprised of commercial paper borrowings.

As of May 2, 2021, we issued $36 million of standby letters of credit.

On November 2, 2020, we entered into a committed revolving credit facility totaling $1,850 million that matures on November 2, 2023.

The facility remained unused at May 2, 2021, except for $1 million of standby letters of credit that we issued under it.

In September 2021, the Board approved a new strategic share repurchase program of up to $500 million (September 2021 program).

The September 2021 program has no expiration date, but it may be suspended or discontinued at any time.

Repurchases under the September 2021 program may be made in open-market or privately negotiated transactions.

The September 2021 program replaced the prior $1,500 million program, which our Board approved in March 2017 and has been cancelled.

We repurchased approximately 1.5 million shares at a cost of $63 million in 2022.

Of this amount, $38 million was used to repurchase shares pursuant to our June 2021 program and $25 million was used to repurchase shares pursuant to our September 2021 program.

As of October 31, 2021, approximately $176 million remained available under the June 2021 program and approximately $475 million remained available under the September 2021 program.

See Note 12 to the Consolidated Financial Statements and “Unregistered Sales of Equity Securities and Use of Proceeds” for additional information.

As of October 31, 2021, we had $480 million of short-term borrowings due within one year, $15 million of which was comprised of commercial paper borrowings.

As of October 31, 2021, we issued $32 million of standby letters of credit.

On November 2, 2020, we entered into a committed revolving credit facility totaling $1,850 million scheduled to mature on November 2, 2023.

On September 27, 2021, we replaced the current facility with a new $1,850 million committed revolving facility that matures on September 27, 2026.

The facility remained unused at October 31, 2021, except for $1 million of standby letters of credit that we issued under it.

The facility contains customary covenants, including a financial covenant with respect to a minimum consolidated interest coverage ratio of consolidated adjusted EBITDA to consolidated interest expense (as each is defined in the credit facility) of not less than 3.25:1.00, measured quarterly, and customary events of default for credit facilities of this type.

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• impacts of, and associated responses to the COVID-19 pandemic on our business, suppliers, customers, consumers and employees;

• our ability to execute on and realize the expected benefits from our strategy, including growing sales in snacks and maintaining our market share position in soup;

• our ability to execute on and realize the expected benefits from our strategy, including growing sales in snacks and growing/maintaining our market share position in soup;

• the impact of strong competitive responses to our efforts to leverage brand power with product innovation, promotional programs and new advertising;

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• our ability to realize projected cost savings and benefits from cost savings initiatives and the integration of recent acquisitions;

• disruptions in or inefficiencies to our supply chain and/or operations including the impacts of the COVID-19 pandemic, as well as fluctuations in the supply of and inflation in energy and raw and packaging materials cost;

• disruptions in or inefficiencies to our supply chain and/or operations including the impacts of the COVID-19 pandemic;

• the risks related to the availability of, and cost inflation in, supply chain inputs, including labor, raw materials, commodities, packaging and transportation;

• risks related to the effectiveness of our hedging activities and our ability to respond to volatility in commodity prices;

• our ability to manage changes to our organizational structure and/or business processes, including selling, distribution, manufacturing and information management systems or processes;

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• our ability to attract and retain key talent;

• goals and initiatives related to, and the impacts of, climate change, including from weather-related events;

• negative changes and volatility in financial and credit markets, deteriorating economic conditions and other external factors, including changes in laws and regulations;

• unforeseen business disruptions in one or more of our markets due to political instability, civil disobedience, terrorism, armed hostilities, extreme weather conditions, natural disasters, pandemics or other calamities.

This discussion of uncertainties is by no means exhaustive but is designed to highlight important factors that may impact our outlook.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis