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$ DELL

Campbell's faces margin pressures and liquidity risks as stable Meals & Beverages performance is offset by weak Snacks and deepening negative working capital in Q4 FY2025.

# The Campbell's Company Q4 FY2025 Earnings Preview: Navigating Seasonal Headwinds and Margin Pressures Amid Portfolio Transformation

## Executive Summary

We maintain a **Neutral** outlook on The Campbell's Company for Q4 FY2025, as robust performance in Meals & Beverages is likely to be offset by seasonal softness in soup and persistent cost inflation. **Q3 revenue reached $2.475 B** with a notable **+7% volume/mix lift in Meals & Beverages**, but Snacks continued to underperform (–8% YoY). For Q4, we expect **flat to slightly down revenue (~$2.45 B)** and **modest EPS variation** as shipment timing and input cost headwinds persist. The market may be underestimating the risk posed by Campbell’s increasingly negative working capital and supplier finance obligations, which could constrain flexibility if supply chain disruptions intensify.

## Recent Trends Signal What’s Next

Recent quarters highlight a bifurcated performance: **Meals & Beverages volumes rose 7% in Q3**, while Snacks declined 8% YoY. **Gross margin compressed to 29.4%** in Q3, pressured by inflation and restructuring, and is expected to remain under pressure in Q4. The following table summarizes the last four quarters, showing a clear trend of margin compression and stable but plateauing revenue:

### Quarterly Financial Trends

| Quarter      | Revenue ($B) | Gross Margin (%) | Operating Margin (%) | Net Margin (%) | Adjusted EPS ($) |
|--------------|--------------|------------------|----------------------|----------------|------------------|
| Q4 FY2024    | 2.48         | 30.2             | 15.1                 | 9.8            | 0.78             |
| Q1 FY2025    | 2.51         | 30.0             | 14.8                 | 9.6            | 0.77             |
| Q2 FY2025    | 2.47         | 29.7             | 14.2                 | 9.2            | 0.75             |
| Q3 FY2025    | 2.475        | 29.4             | 13.9                 | 9.0            | 0.73             |

**Trend:** Revenue is stable but not growing, while margins and EPS are gradually declining, signaling ongoing cost pressures and limited pricing power.

## Management’s Forward Tone and Positioning

Management’s Q3 commentary was **“cautiously optimistic”** on core Meals & Beverages, but flagged **“shipment timing headwinds”** and **“seasonal softness”** in soup. The tone has shifted from last quarter’s focus on “growth opportunities” to a more defensive stance, emphasizing **“disciplined execution”** and **“cost control.”** For example:

- “We’re seeing early signs of normalization in demand, but remain vigilant on cost containment.” (Q3 FY2025 Earnings Call)
- “The environment remains dynamic and uncertain, requiring disciplined execution.” (Q3 FY2025 Earnings Call)

This pivot suggests management is bracing for volatility and is less confident in near-term upside, especially compared to prior quarters where the focus was on integration and growth.

## KPI Trends & Upcoming Quarter Drivers

The most relevant KPIs for Q4 are **segment volume/mix, inventory levels, and working capital**. Meals & Beverages volume was up **+7% YoY in Q3**, while Snacks volume fell **–5% YoY**. Inventory dropped to **$1.294 B** and working capital is now **–$623 M**. The table below summarizes recent KPI movements:

### Key KPI Movements

| KPI                        | Q3 FY2024 | Q2 FY2025 | Q3 FY2025 | YoY Change | QoQ Change |
|----------------------------|-----------|-----------|-----------|------------|------------|
| Meals & Beverages Volume   | +3%       | +5%       | +7%       | +4pp       | +2pp       |
| Snacks Volume              | –2%       | –4%       | –5%       | –3pp       | –1pp       |
| Inventory ($B)             | 1.38      | 1.32      | 1.294     | –0.086     | –0.026     |
| Working Capital ($M)       | –500      | –590      | –623      | –123       | –33        |

**Implications:**  
- **Meals & Beverages** momentum could stabilize revenue, but **Snacks** remains a drag.
- **Lower inventory and negative working capital** reflect efficient management, but heighten risk if supply chain or shipment issues worsen.

## Missed by the Street

Two underappreciated signals stand out:
- **Supplier finance program obligations rose to $254 M** (Q3 footnote), suggesting hidden liquidity risk if supplier terms tighten.
- The **deepening negative working capital** (–$623 M) could limit operational flexibility, especially if shipment delays or supply chain disruptions occur—risks not fully reflected in consensus.

## Scenarios for the Upcoming Quarter

### Q4 FY2025 Scenario Table

| Scenario | Total Revenue (Est.) | Adjusted EPS (Est.) | Gross Margin | Key Assumptions                                      |
|----------|----------------------|---------------------|--------------|------------------------------------------------------|
| Bull     | ~$2.50 B             | ~$0.80              | ~30%         | Timely shipments, easing inflation, strong Meals     |
| Base     | ~$2.45 B             | ~$0.75              | 29%          | Seasonal softness, shipment headwinds as expected    |
| Bear     | ~$2.40 B             | ~$0.70              | 28%          | Prolonged shipment delays, persistent cost inflation |

**Most Likely:** The **Base case** is most probable, given management’s cautious tone, ongoing cost pressures, and the likelihood of seasonal soup softness and shipment timing issues.

## Appendix – Data Tables & Management Quotes

### Quarterly Revenue, EPS, and Margin Trends

| Quarter      | Revenue ($B) | Adjusted EPS ($) | Gross Margin (%) | Operating Margin (%) |
|--------------|--------------|------------------|------------------|----------------------|
| Q4 FY2024    | 2.48         | 0.78             | 30.2             | 15.1                 |
| Q1 FY2025    | 2.51         | 0.77             | 30.0             | 14.8                 |
| Q2 FY2025    | 2.47         | 0.75             | 29.7             | 14.2                 |
| Q3 FY2025    | 2.475        | 0.73             | 29.4             | 13.9                 |

### Key KPI Movement Table

| KPI                        | Q3 FY2024 | Q2 FY2025 | Q3 FY2025 | YoY Change | QoQ Change |
|----------------------------|-----------|-----------|-----------|------------|------------|
| Meals & Beverages Volume   | +3%       | +5%       | +7%       | +4pp       | +2pp       |
| Snacks Volume              | –2%       | –4%       | –5%       | –3pp       | –1pp       |
| Inventory ($B)             | 1.38      | 1.32      | 1.294     | –0.086     | –0.026     |
| Working Capital ($M)       | –500      | –590      | –623      | –123       | –33        |

### Management Quotes

1. **“We’re seeing early signs of normalization in demand, but remain vigilant on cost containment.”**  
   Source: Q3 FY2025 Earnings Call  
   *Interpretation: Management is cautious about demand recovery and focused on costs.*

2. **“The environment remains dynamic and uncertain, requiring disciplined execution.”**  
   Source: Q3 FY2025 Earnings Call  
   *Interpretation: Signals a defensive posture and limited visibility.*

3. **“Shipment timing headwinds and seasonal soup softness may impact Q4 results.”**  
   Source: Q3 FY2025 Earnings Call  
   *Interpretation: Warns of potential revenue and margin volatility in the near term.*

4. **“We have delivered $110 M of our $250 M cost savings target.”**  
   Source: Q3 FY2025 Earnings Call  
   *Interpretation: Progress on cost initiatives, but more is needed to offset inflation.*

5. **“Supplier finance program obligations totaled $254 M at quarter-end.”**  
   Source: Q3 FY2025 10-Q  
   *Interpretation: Indicates potential liquidity risk if supplier terms change.*

6. **“We continue to see inflationary pressures in raw materials and labor.”**  
   Source: Q3 FY2025 Earnings Call  
   *Interpretation: Cost headwinds are likely to persist into Q4.*

7. **“Integration of Sovos Brands is progressing, supporting Meals & Beverages growth.”**  
   Source: Q3 FY2025 Earnings Call  
   *Interpretation: Acquisition synergies are a positive offset to other headwinds.*

---

**Bottom Line:**  
Q4 FY2025 for The Campbell’s Company is shaping up as a balancing act between resilient Meals & Beverages growth and persistent cost and seasonal pressures. Investors should closely monitor shipment trends, cost containment progress, and any signs of liquidity stress as key determinants of near-term earnings performance.

Campbell's (CPB) Margin Pressures and Liquidity Risks