10-Q: Campbell's Q1 Earnings Decline Amid Sales Dip, Tariffs

The Campbell's Company reported a 3% net sales decrease and lower earnings per share for the first quarter, impacted by unfavorable volume/mix and tariffs.

Summary

• Net sales decreased 3% to $2.677 billion for the three months ended November 2, 2025, compared to $2.772 billion in the prior-year quarter.
• Net earnings attributable to The Campbell's Company were $194 million ($.65 per share), down from $218 million ($.72 per share) in the prior-year quarter.
• Gross profit margin declined to 29.6% from 31.3% in the prior-year quarter, primarily due to cost inflation, supply chain costs, and the gross impact of tariffs.
• Operating earnings decreased 12% to $336 million from $367 million in the prior-year quarter.
• The estimated net impact of tariffs was approximately $.04 per share in the current quarter.
• The company is implementing cost savings initiatives with total estimated pre-tax costs of approximately $230 million through 2028, expecting annual ongoing savings of approximately $375 million by the end of 2028.
• A pending acquisition of 49% equity interest in La Regina di San Marzano di Antonio Romano S.p.A. and La Regina Atlantica, LLC (La Regina) for $286 million was announced on December 8, 2025; La Regina produces Rao's tomato-based pasta sauces.

Sentiment

Score: 4

Explanation: While the company is actively managing costs and making strategic acquisitions, the core financial performance (sales, earnings, gross margin) declined significantly year-over-year, driven by persistent inflation and tariffs. The outlook for volumes remains uncertain.

Positives

• Favorable net price realization partially offset declines in net sales.
• Supply chain productivity improvements partially mitigated the impact of cost inflation and tariffs on gross profit margin.
• The company expects to generate annual ongoing savings of approximately $375 million by the end of 2028 from its cost savings initiatives.
• Total program-to-date pre-tax savings of $160 million have been generated as of November 2, 2025.
• Interest expense decreased to $81 million from $87 million due to lower debt levels.
• The company extended the maturity date of its $1.85 billion revolving credit facility to April 16, 2030, and it remains largely unused, providing strong liquidity.
• The acquisition of a 49% stake in La Regina, a key supplier for Rao's sauces, could strengthen the supply chain and brand control.

Negatives

• Net sales decreased 3% to $2.677 billion, primarily due to unfavorable volume/mix and divestitures.
• Net earnings attributable to The Campbell's Company decreased to $194 million ($.65 per share) from $218 million ($.72 per share) in the prior-year quarter.
• Gross profit margin declined by 170 basis points to 29.6% from 31.3%, primarily due to cost inflation, supply chain costs, and the gross impact of tariffs (estimated 200 basis points negative impact).
• Operating earnings decreased 12% to $336 million from $367 million.
• Meals & Beverages operating earnings decreased 13%, and Snacks operating earnings decreased 10%.
• The company incurred $18 million in pre-tax charges related to cost savings initiatives in the current quarter, with total estimated pre-tax costs of $230 million through 2028.
• Litigation expenses increased to $10 million in the current quarter from $1 million in the prior-year quarter, related to the Plum business and other matters.
• The effective tax rate increased to 24.2% from 23.2%, primarily due to excess tax benefits in the prior year and shortfalls in the current year associated with stock-based compensation awards.
• The company faces a lawsuit from the DOJ and environmental groups concerning alleged Clean Water Act violations at its Napoleon, Ohio wastewater treatment facility.

Risks

• Declines or volatility in financial markets, deteriorating economic conditions, and impacts of new or changed governmental laws, regulations, and policies.
• Risks associated with imposed and threatened tariffs by the U.S. and reciprocal tariffs by its trading partners.
• Risks related to the availability of, and cost inflation in, supply chain inputs, including labor, raw materials, commodities, packaging, and transportation, including those related to tariffs.
• Disruptions in or inefficiencies to the supply chain and/or operations, including reliance on key contract manufacturer and supplier relationships.
• Ability to execute on and realize expected benefits from strategy, including sales growth and/or market share maintenance in snacks, soups, sauces, and beverages.
• Impact of strong competitive responses to efforts to leverage brand power with product innovation, promotional programs, and new advertising.
• Risks associated with trade and consumer acceptance of product improvements, shelving initiatives, new products, and pricing and promotional strategies.
• Changes in consumer demand for products and favorable perception of brands.
• The risk that the cost savings and any other synergies from the Sovos Brands transaction may not be fully realized or may take longer or cost more to be realized than expected.
• Risks related to the La Regina transaction, including that the conditions to the completion of the transaction may not be satisfied, any regulatory approvals required for the transaction may not be obtained on the schedule or terms expected, the closing of the transaction may not occur or be delayed, and benefits from the transaction may not be fully realized or may take longer or cost more to be realized than expected.
• Ability to realize projected cost savings and benefits from cost savings initiatives and the integration of recent acquisitions.
• Risks related to the effectiveness of hedging activities and ability to respond to volatility in commodity prices.
• Ability to manage changes to organizational structure and/or business processes, including selling, distribution, manufacturing, and information management systems or processes.
• Changing inventory management practices by certain key customers.
• A changing customer landscape, with value and e-commerce retailers expanding market presence, while certain key customers maintain significance.
• Product quality and safety issues, including recalls and product liabilities.
• The possible disruption to the independent contractor distribution models used by certain of our businesses, including as a result of litigation or regulatory actions affecting their independent contractor classification.
• Uncertainties of litigation and regulatory actions against the company.
• A disruption, failure, or security breach of the company's or its vendors' information technology systems, including ransomware attacks.
• Impairment to goodwill or other intangible assets.
• Ability to protect intellectual property rights.
• Increased liabilities and costs related to defined benefit pension plans.
• Ability to attract and retain key talent.
• Goals and initiatives related to, and the impacts of, climate change, including from weather-related events.
• The costs, disruption, and diversion of management's attention associated with activist investors.
• Indebtedness and ability to pay such indebtedness.
• Unforeseen business disruptions or other impacts due to political instability, civil disobedience, terrorism, geopolitical conflicts, extreme weather conditions, natural disasters, pandemics or other outbreaks of disease or other calamities.

Future Outlook

The company anticipates continued supply chain productivity and benefits from cost savings initiatives to mitigate input costs in 2026. While consumer trends are expected to evolve and volumes to improve over time, shifting consumer behaviors may continue to negatively impact volumes throughout 2026. Management will continue to evaluate the macroeconomic environment and take actions to mitigate its impact. The company expects to incur approximately $230 million in pre-tax costs for cost savings initiatives through 2028, aiming for $375 million in annual ongoing savings by the end of 2028. Capital expenditures are projected to be around $370 million in 2026. Foreseeable liquidity and capital resource requirements are expected to be met through anticipated cash flows from operations, borrowings, and cash reserves. The acquisition of La Regina is pending and expected to close by June 8, 2026, subject to conditions.

Management Comments

• "Our industry continues to navigate a dynamic operating and regulatory environment driven by commodity cost volatility, supply chain pressures, tariffs and shifting global trade policies, evolving consumer purchasing and spending patterns and other economic uncertainties."
• "Through the first quarter, we experienced significantly elevated input cost inflation and other supply chain costs, primarily driven by the impacts of tariffs."
• "We anticipate continued supply chain productivity and benefits from cost savings initiatives to mitigate some of these costs in 2026."
• "We expect consumer trends to continue to evolve and our volumes to improve over time; however, shifting consumer behaviors may continue to negatively impact our volumes throughout 2026."
• "We will continue to evaluate the evolving macroeconomic environment and take actions to mitigate the impact on our business, consolidated results of operations and financial condition."
• "We do not expect that the ultimate costs to resolve this matter [Clean Water Act lawsuit] will have a material adverse effect on our financial condition, results of operations, or cash flows."
• "While the potential future charges could be material in a particular quarter or annual period, based on information currently known by us, we do not believe any such charges are likely to have a material adverse effect on our consolidated results of operations or financial condition."

Industry Context

The company operates in a highly competitive industry, facing broad challenges common to the consumer packaged goods sector, including commodity cost volatility, supply chain pressures, tariffs, and evolving consumer purchasing patterns. Its focus on cost savings and supply chain optimization reflects industry-wide efforts to enhance efficiency and mitigate inflationary pressures. Strategic portfolio adjustments, such as the divestitures of Pop Secret and noosa yoghurt and the acquisition of a stake in La Regina, align with a broader industry trend of focusing on core brands and strengthening supply chain control. The acknowledgment of a changing customer landscape, with the expansion of value and e-commerce retailers, underscores the ongoing transformation of retail channels impacting the entire sector.

Comparison to Industry Standards

• The filing does not provide specific comparable company data or industry benchmarks to assess results against global standards, making direct comparisons difficult.
• The reported gross profit margin decline of 170 basis points to 29.6% is a significant drop, and its competitiveness would depend on how this compares to industry averages and direct competitors in the current inflationary environment, which is not detailed in the filing.
• Challenges such as commodity cost volatility, supply chain pressures, and tariffs are widely impacting the consumer packaged goods industry, suggesting the company is navigating similar macroeconomic headwinds as its peers.

Legal Proceedings

• Lawsuits filed by the United States Department of Justice (DOJ) and National Education Law Center (on behalf of Environment America and Lake Erie Waterkeeper) in the U.S. District Court for the Northern District of Ohio – Western Division.
• Allegations concern violations of the Clean Water Act related to alleged contaminant discharges from the Napoleon, Ohio wastewater treatment facility in excess of permit limits.
• The company is taking actions to remediate the exceedances and is in settlement discussions with the DOJ and private environmental groups.
• Management does not expect the ultimate costs to resolve this matter to have a material adverse effect on financial condition, results of operations, or cash flows.
• Litigation expenses related to the Plum baby food and snacks business (divested May 3, 2021) and certain other litigation matters were $10 million in Q1 2026, up from $1 million in Q1 2025.

Stakeholder Impact

• Shareholders: Lower net earnings and EPS, and a decline in gross profit margin could negatively impact investor sentiment and share price. Ongoing share repurchase programs aim to offset dilution and return value. Dividends of $.39 per share were declared.
• Employees: Cost savings initiatives involve restructuring, which may lead to job reductions or reassignments.
• Customers: Unfavorable volume/mix suggests declining demand for some products. The Snacks direct-store-delivery network optimization aims to improve effectiveness, potentially benefiting customer service in the long run.
• Suppliers: The supplier finance program allows suppliers to sell payment obligations to financial institutions, potentially improving their liquidity, while the company extends payment terms. The La Regina acquisition will deepen the relationship with a critical supplier.
• Creditors: Lower debt levels and an extended revolving credit facility indicate a stable liquidity position, which is positive for creditors. The company is in compliance with debt covenants.
• Regulatory Bodies/Public: The Clean Water Act lawsuit highlights environmental compliance issues, which could lead to fines and reputational damage.

Next Steps

• Continue to implement cost savings initiatives through 2028, aiming for $375 million in annual ongoing savings.
• Execute the Snacks direct-store-delivery route-to-market network optimization program through 2029.
• Evaluate the evolving macroeconomic environment and take actions to mitigate its impact.
• Complete the acquisition of 49% equity interest in La Regina, subject to customary closing conditions, by June 8, 2026 (or extended date).
• Repay and/or refinance $400 million senior notes maturing in March 2026.
• Continue settlement discussions and remediation actions for the Clean Water Act lawsuit concerning the Napoleon, Ohio wastewater treatment facility.
• Evaluate the impact of new FASB guidance on income tax disclosures (effective after Dec 15, 2024), expense disclosures (effective after Dec 15, 2026), internal-use software (effective after Dec 15, 2027), hedge accounting (effective after Dec 15, 2026), and government grants (effective after Dec 15, 2028).
• Pay a regular quarterly dividend of $.39 per share on February 2, 2026, to shareholders of record on January 8, 2026.

Key Dates

Recommendation

The company faces significant headwinds from declining sales volumes, cost inflation, and tariffs, leading to a notable drop in gross profit margin and earnings per share. While management is actively pursuing cost savings initiatives and strategic acquisitions (La Regina) to improve long-term performance and supply chain resilience, the immediate financial results are concerning. The ongoing legal proceedings and uncertain consumer behavior throughout 2026 add to the risk. A 'Hold' recommendation is appropriate as the company navigates these challenges, with potential for improvement from strategic initiatives balanced against current operational pressures. Investors should monitor the execution of cost savings, integration of La Regina, and trends in consumer demand and input costs.

Keywords

Consumer staples, Packaged food, Snacks, Beverages, Soup, Tariffs, Cost inflation, Supply chain, M&A, Divestitures, Capital expenditures, Share repurchase, Corporate governance, SEC filing, 10-Q, Campbell's, CPB, Financial results, Earnings, Gross profit, Operating income, Debt, Liquidity, Risk management, Derivatives, Stock-based compensation, Legal proceedings, Environmental