Executive Summary / Key Takeaways

• Campbell's is strategically transforming its portfolio, leveraging the successful acquisition of Sovos Brands (Rao's) to drive growth in its Meals & Beverages segment, which is benefiting from sustained at-home cooking trends.
• The Snacks division faces heightened competitive pressures and category softness, necessitating focused innovation, strategic marketing, and price-pack architecture to achieve stabilization and margin recovery in fiscal 2026.
• Aggressive cost savings initiatives, with an increased target of $375 million by fiscal 2028, and robust productivity efforts are critical to offsetting significant tariff impacts and core inflation, bolstering profitability.
• The company is committed to disciplined capital allocation, including a 5% dividend increase in fiscal 2025, and aims to reduce its net debt to adjusted EBITDA leverage ratio to 3.0x by fiscal 2027.
• Strategic investments in digital transformation and supply chain optimization are enhancing operational efficiency and agility, forming a foundational competitive advantage in a dynamic consumer and regulatory environment.

A Legacy Reimagined for Modern Palates

The Campbell's Company, with a heritage stretching back to 1869, has long been a staple in American households, evolving into a prominent manufacturer and marketer of high-quality, branded food and beverage products. Operating through its Meals & Beverages and Snacks segments, Campbell's has embarked on a strategic transformation to optimize its portfolio and enhance operational efficiency. This journey has included significant M&A activity, such as the $2.90 billion acquisition of Sovos Brands in March 2024, which brought the rapidly growing Rao's brand into its Meals & Beverages segment. Concurrently, the company has divested non-core assets like the Emerald nuts, Pop Secret popcorn, and noosa yoghurt businesses, sharpening its focus on differentiated leadership brands.

Campbell's overarching strategy is built on four pillars: "Top Team," "Best Portfolio," "Winning Execution," and "Lasting Impact". This framework guides its efforts to cultivate a highly engaged culture, expand consumer-led innovations, advance retailer relationships, and optimize its manufacturing and distribution networks. The company's strategic responses are particularly critical in a dynamic industry landscape characterized by cautious consumer spending, a sustained preference for at-home cooking, and an increasing demand for value, health, wellness, and flavor-forward offerings. These trends present both opportunities, particularly for the Meals & Beverages segment, and challenges, especially within the more discretionary snacking categories.

Technological Edge and Innovation as Growth Catalysts

While not defined by a single product-specific technology, Campbell's is strategically investing in its digital and operational technology infrastructure to enhance agility, efficiency, and effectiveness across its enterprise. The appointment of a Chief Digital & Technology Officer in April 2025 underscores a commitment to accelerating digital tools and capabilities. A key operational technology initiative has been the successful integration of the Sovos Brands business into Campbell's existing SAP (SAP) Enterprise Resource Planning (ERP) system, completed by the end of Q3 fiscal 2025. This integration is expected to unlock additional back-office savings in IT, finance, and order management into fiscal 2026, directly contributing to the company's ambitious cost savings targets.

These technological advancements are foundational to "Winning Execution," one of Campbell's strategic pillars, by optimizing its manufacturing and distribution network and improving overall business processes. The company also maintains a comprehensive information security program, adhering to the National Institute of Standards and Technology (NIST) cybersecurity framework, to protect its systems and data. This includes dedicated internal teams, leveraging third-party experts, employee training, and routine testing, which are crucial for maintaining operational continuity and protecting valuable intellectual property in an environment of evolving cyber threats. These operational technology investments, while not consumer-facing, provide tangible benefits through enhanced supply chain productivity and cost mitigation, strengthening Campbell's competitive moat by enabling more efficient and responsive operations.

Innovation is a direct outcome of this strategic focus, contributing approximately 3% to net sales in fiscal 2025, with further increases expected. Successful product launches like Milano White Chocolate cookies, Kettle Brand Avocado Oil chips, and Swanson ramen broth demonstrate Campbell's ability to meet evolving consumer preferences for premiumization, health, and flavor exploration. The company is also proactively removing FD&C colors from its products, with a target for completion by the second half of fiscal 2026, aligning with consumer demand for cleaner labels.

Strategic Portfolio Evolution: Meals & Beverages Leading the Charge

The Meals & Beverages segment has emerged as a significant growth engine, with reported net sales increasing 15% in fiscal 2025 to $6.05 billion. This robust performance was primarily driven by the Sovos Brands acquisition, which contributed a 15-point benefit to sales. The segment's in-market consumption consistently outpaced the broader category in Q4 2025, with five of its eight leadership brands gaining or holding share. This momentum is fueled by the enduring trend of at-home cooking, which benefits Campbell's condensed cooking soups, broth, and Italian sauces.

Rao's pasta sauces, a jewel in the Sovos acquisition, returned to high single-digit consumption growth in Q4 2025 and is on track to become Campbell's fourth billion-dollar brand. Management expects Rao's to achieve pro forma growth slightly above 10% for fiscal 2025, settling into a mid-to-high single-digit range long-term. Rao's strong brand equity, particularly its appeal to millennial households (adoption surging at more than twice the category's pace), and its compelling value proposition against mainstream Italian takeout, highlight substantial runway for expansion despite reaching only half as many households as Prego. This strategic positioning allows Rao's to source volume from a significantly larger addressable market across a broad range of consumer income levels.

Within the soup portfolio, the condensed segment achieved its seventh consecutive quarter of dollar share growth in Q4 2025, driven by cooking soups. The broth category also demonstrated strong performance, growing 7% in consumption in Q4 2025, benefiting from increased usage and slower-than-anticipated private label recovery. While ready-to-serve soups faced category headwinds and increased competitive promotional intensity, brands like Chunky, Pacific, and Rao's gained share.

In the competitive landscape, Campbell's Meals & Beverages segment, particularly with its soup and sauce offerings, holds a strong position against rivals like Kraft Heinz (KHC) and General Mills (GIS) due to its deep brand heritage and specialized focus on everyday meal solutions. While KHC and GIS offer broader portfolios, Campbell's benefits from strong customer loyalty in North American markets for comfort foods and convenience. The company's operational execution in beverage lines, such as V8, also contributes to its cost control advantages.

Snacks Segment: Adapting to Evolving Consumer Demands

The Snacks segment experienced a 4% decrease in reported net sales in fiscal 2025 to $4.20 billion, reflecting a challenging operating environment. Organic net sales declined 2% in Q4 2025, driven by decreases in third-party partner brands, contract manufacturing, Goldfish crackers, Snyder's of Hanover pretzels, Lance sandwich crackers, fresh bakery, and Pepperidge Farm cookies. The segment's operating earnings decreased 14% in fiscal 2025, primarily due to lower gross profit and higher marketing and selling expenses.

The snacking categories have faced persistent softness and increased competitive intensity, with consumers making more intentional and discretionary choices. About two-thirds of the in-market consumption decline in Q3 2025 was attributed to worsening aggregate categories, with the remaining one-third due to Campbell's in-market performance. Despite these headwinds, the segment showed sequential improvement in net sales and in-market consumption in Q4 2025, with Pepperidge Farm holding share and Snack Factory growing share by 0.7 points. The Milano White Chocolate innovation, for instance, drove a 27% increase in Milano dollar consumption, demonstrating the power of targeted innovation.

Campbell's is actively addressing the challenges in Snacks through a multi-pronged approach. This includes focusing on core relevancy for brands like Goldfish through marketing support, strategic promotional activity, and optimizing price-pack architecture, particularly for the critical back-to-school season. New product introductions like Snack Factory's Pop 'Ems and Bites are expanding into the pretzel aisle, offering unique munchable and big flavor additions. The company is also strategically expanding accessibility and enhanced value across its Snacks portfolio by introducing new pack sizes and price points, such as single-serve multi-packs for Pepperidge Farm cookies and smaller Goldfish packs.

In the competitive snack arena, Campbell's brands like Cape Cod, Kettle Brand, and Late July have gained market share against broader potato and tortilla chip categories, positioning them well in advantageous subcategories. While the segment faces pressure from new entrants and private label offerings, particularly in cookies and pretzels, Campbell's aims to remain disciplined on pricing while increasing advertising and innovation. Competitors like Kellanova (K) and PepsiCo (PEP) have strong snack portfolios, but Campbell's differentiated offerings in better-for-you segments and its focus on premiumization provide a distinct competitive edge.

Financial Discipline and Operational Excellence: Fueling Future Growth

Campbell's reported net sales of $10.25 billion in fiscal 2025, a 6% increase year-over-year, primarily driven by the Sovos Brands acquisition and the benefit of a 53rd week. However, organic net sales for the full year declined 1%. Gross profit as a percentage of sales decreased to 30.40% in 2025 from 30.80% in 2024, primarily due to higher cost inflation, other supply chain costs, and unfavorable net price realization, partially offset by supply chain productivity improvements. The company's adjusted EBIT increased 2% for the full year, while adjusted EPS was $2.97.

To counter inflationary pressures and tariff impacts, Campbell's has intensified its focus on cost savings and productivity. The company increased its target for annual ongoing savings from its PEEK program to approximately $375 million by the end of fiscal 2028, a 50% increase over the previous estimate. These initiatives span network optimization, integration synergies (from Sovos), technology and organization effectiveness, and indirect spend management. Productivity initiatives are planned at approximately 5% of the cost of products sold for fiscal 2026, including tariff mitigation actions.

Liquidity remains robust, with cash flows from operations at $1.13 billion in fiscal 2025. Despite negative working capital of $674 million as of August 3, 2025, driven by efforts to optimize supplier payment terms, the company expects to meet its future requirements through operating cash flows and various borrowings. Capital expenditures were $426 million in 2025 and are projected at approximately 4% of net sales for fiscal 2026. Campbell's maintains a disciplined capital allocation strategy, returning $459 million in dividends (including a 5% increase) and $62 million in share repurchases in fiscal 2025. The net debt to adjusted EBITDA leverage ratio improved to 3.6 times at fiscal year-end 2025, with a goal to return to 3.0 times by fiscal 2027.

Outlook and Risks: A Path Through Uncertainty

Campbell's fiscal 2026 guidance reflects a balanced approach to a dynamic environment. The company anticipates full-year reported net sales to be down 2% to flat, with organic net sales ranging from down 1% to up 1%. Adjusted EBIT is projected to decline 9% to 13%, and adjusted EPS is expected to be down 12% to 18%. These figures include a 1% reduction to net sales and adjusted EBIT, and a $0.04 dilution to adjusted EPS, due to the Noosa and Pop Secret divestitures.

A significant headwind for fiscal 2026 adjusted EPS, accounting for approximately two-thirds of the year-over-year decline at the midpoint, is the estimated net tariff impact. Gross tariffs are projected at approximately 4% of the cost of products sold, with 60% related to Section 232 steel and aluminum tariffs, impacting the Meals & Beverages segment (e.g., tinplate for cans). Campbell's aims to mitigate approximately 60% of this impact through inventory management, supplier collaboration, alternative sourcing, productivity, cost savings, and surgical pricing actions. The remaining one-third of the EPS decline is attributed to base business changes, including increased marketing and selling investment (9% to 10% of net sales) and a normalization of fiscal 2025's one-time benefits, such as incentive compensation, which is expected to be a three-point headwind to adjusted EBIT. Core inflation, excluding tariffs, is anticipated to be in the low single-digit range.

The outlook for the Snacks business is for stabilization in the second half of fiscal 2026, driven by incremental brand support and innovation. Meals & Beverages is expected to maintain momentum, benefiting from at-home cooking trends and continued growth in Rao's.

Key risks include the ongoing volatility of global macroeconomic conditions, which could impact consumer spending and demand. Changes in global trade policies and the uncertain extent and duration of tariffs pose a continuous threat to input costs and profitability. Supply chain disruptions, the inability to fully realize cost savings from strategic initiatives, and maintaining favorable brand perception in a competitive landscape are also critical challenges. Furthermore, the company faces risks related to cybersecurity breaches, attracting and retaining talent, and evolving legal and regulatory requirements, including those concerning food ingredients (e.g., FDA's call to phase out synthetic dyes) and environmental matters. Geopolitical conflicts also present a risk of supply disruptions and increased costs.

Conclusion

Campbell's is executing a disciplined strategic transformation, leveraging its iconic brand portfolio and operational strengths to drive growth amidst a complex macroeconomic backdrop. The successful integration and continued strong performance of Rao's underscore the efficacy of its "Best Portfolio" strategy, particularly as at-home cooking trends bolster the Meals & Beverages segment. While the Snacks division faces significant competitive and consumer-driven headwinds, Campbell's is deploying targeted innovation, marketing, and price-pack strategies to stabilize performance and drive future growth. The company's aggressive pursuit of cost savings and productivity, coupled with proactive tariff mitigation efforts and strategic digital investments, are crucial for defending profitability and enhancing operational agility. Despite near-term earnings pressure from tariffs and increased investments, Campbell's commitment to disciplined capital allocation and its strong cash flow generation provide a solid foundation. The company's ability to adapt its portfolio, optimize operations through technology, and effectively manage external pressures will be paramount in realizing its long-term sustainable value creation goals, making it a compelling consideration for discerning investors.