The Campbell's Company reported third-quarter results that exceeded earnings expectations but missed revenue targets, prompting management to warn of elevated inflationary pressures in the first half of fiscal 2027. The packaged food maker cited inflation, tariffs, and weaker demand as key factors weighing on performance, with adjusted gross margins narrowing significantly due to supply chain expenses. Despite these challenges, the company reaffirmed its full-year earnings guidance and outlined cost-reduction initiatives to mitigate future headwinds.

Financial Performance and Margins

Adjusted earnings for the quarter were 50 cents a share, ahead of the Wall Street estimate of 48 cents. Revenue declined 4% year over year to $2.366 billion, missing analysts' expectations of $2.381 billion. The company attributed the revenue decline to lower volumes and an unfavorable product mix, which more than offset pricing gains.

Profitability metrics faced significant pressure. Adjusted gross profit fell 12% from a year earlier to $656 million, while adjusted gross margin narrowed 240 basis points to 27.7%. Campbell's cited inflationary pressures, tariff-related costs, and broader supply chain expenses as primary drivers. Adjusted EBIT dropped 24% to $274 million as lower gross profit weighed on results.

Cash Flow and Strategic Actions

For the first nine months of fiscal 2026, operating cash flow totaled $839 million, and capital expenditures were $297 million. The company ended the quarter with $402 million in cash and cash equivalents. Campbell's returned $380 million to shareholders year to date, primarily through dividends.

The company generated about $20 million in savings during the quarter, bringing cumulative savings under its fiscal 2028 cost-reduction program to $200 million. Management is targeting $375 million in total savings and expects those efforts to help offset tariff and inflationary pressures. Strategic measures include a targeted $100 million reduction in selling, general, and administrative expenses and an early retirement program. The company is also evaluating hybrid debt instruments to support its credit profile and stated it has no current plans to increase its dividend.

Segment Performance

The Meals & Beverages segment posted a 4% decline in reported and organic net sales, driven by a 5% unfavorable volume and mix impact. U.S. soup sales fell 8%, primarily due to weakness in the condensed and ready-to-serve categories. Operating earnings for the segment declined 16% as tariffs, cost inflation, supply chain pressures, and weaker volume reduced profitability.

The Snacks business reported a 4% decline in reported and organic sales, reflecting a 6% drop in volume and mix. Weakness in the salty snacks portfolio, including crackers and fresh bakery products, along with lower third-party and contract manufacturing sales, contributed to the decline. Snacks' operating earnings fell 32% because of higher input costs, tariffs, and an unfavorable sales mix.

Outlook and Future Guidance

Campbell's reaffirmed its fiscal 2026 adjusted earnings outlook of $2.15 to $2.25 a share, compared with the Wall Street consensus estimate of $2.17. Management expects a tariff refund benefit of 3 cents to 4 cents a share in the fourth quarter, though this gain is likely to be fully offset by higher fuel costs. The company indicated that the lower end of its annual sales guidance range is the more realistic outcome.

Looking ahead to fiscal 2027, the company anticipates inflationary headwinds of about 5% to 6%, driven by higher oil prices and other cost pressures. CFO Todd Cunfer stated during the earnings call that the first half of the fiscal year will face "pretty high" inflation, noting that lower oil prices would take time to flow through to commodities such as fertilizer and aluminum, as well as logistics costs. Management plans to address these challenges through productivity gains, cost-cutting initiatives, and selective pricing actions.