Fitch Affirms Campbell's IDRs at 'A/F1'; Outlook Stable

CHICAGO--(BUSINESS WIRE)--Fitch Ratings has affirmed the long-term Issuer Default Rating (IDR) and senior unsecured debt ratings for Campbell Soup Company (Campbell's) at 'A'. Fitch has also affirmed Campbell's short-term IDR and commercial paper (CP) rating at 'F1'. The Rating Outlook is Stable. (See the full list of rating actions below.) Campbell's total debt was $2.8 billion at Aug. 1, 2010, which included $96 million of commercial paper (CP).

Campbell's ratings and Outlook are based on its significant cash flow generation, modest leverage, and the continuation of its balanced financial strategy. Campbell's overall profitability as measured by operating EBITDA margins is consistently among the best in the packaged food industry. The company has maintained its operating EBITDA margins in the 20%+ range over the past five years and improved margins in fiscal 2010 with very modest input cost inflation and improved productivity.

The ratings incorporate Campbell's leading position in the high margin soup category and the strength of its branded product portfolio, which focuses on simple meals, baked snacks and healthy beverages. The ratings also consider the mature and highly competitive nature of the soup category, which faced a very difficult year in fiscal 2010. Sales for the U.S. wet soup category declined in fiscal 2010, and Campbell's sales decline was slightly worse than the category. In contrast, private label soup sales increased. Campbell's U.S. soup sales declined 4% for the fiscal year ended Aug. 1, 2010 versus the prior year. The decline was driven primarily by both canned and microwavable ready-to-serve soups. Campbell's condensed cooking soup sales increased in fiscal 2010, benefiting from the shift toward eating more meals at home during the prolonged weak economic environment. Fitch expects this trend to continue in the near-term while unemployment remains high.

Campbell's leverage has remained stable for the past four fiscal years and its coverage has improved with lower interest rates. The company's credit metrics are in line with Fitch's expectations. For the fiscal year ended Aug. 1, 2010, total debt-to-operating EBITDA was 1.6 times (x), Funds from Operations adjusted leverage was 2.9x and operating EBITDA-to-gross interest expense was 14.6x. Free cash flow (cash flow from operations less capital expenditures and dividends) was $377 million for the year, down from $471 million in the prior year due to Campbell's $260 million voluntary pension plan contribution in fiscal 2010 partially offset by improvement in working capital. Fiscal 2011 free cash flow may be slightly higher than in fiscal 2010 due to lower voluntary pension plan contributions. Campbell's contributed $100 million to its U.S. pension plans in the fiscal first quarter of 2011 and expects to contribute approximately $43 million to its non-U.S. plans. Free cash flow, supplemented by modest borrowings, is expected to be used for share purchases and/or bolt-on acquisitions within core categories of simple meals, baked snacks and healthy beverages. As of Aug. 1, 2010, Campbell's had $550 million remaining on its $1.2 billion three-year share repurchase plan authorization through the end of fiscal 2011. Fitch expects that Campbell's will maintain its conservative financial strategy and keep credit metrics near the current range.

Campbell's liquidity at Aug. 1, 2010 was derived from $254 million in cash and cash equivalents, as well as a $1.5 billion revolving credit facility expiring in September 2011. The credit facility, which supported its commercial paper program, was unused except for $25 million of standby letters of credit. In September 2010, Campbell's replaced its $1.5 billion facility with $1.95 billion of new credit facilities, consisting of a $975 million 364-day revolving credit facility with a one-year term-out feature and a $975 million three-year facility that matures in September 2013. Campbell's next significant long-term debt maturity is $700 million 6.75% notes due Feb. 15, 2011. Fitch expects that the company is likely to refinance this maturing debt.

Fitch has affirmed the following ratings:

--Long-term Issuer Default Rating (IDR) at 'A';

--Senior unsecured debt at 'A';

--Senior unsecured credit facility at 'A';

--Short-term IDR at 'F1';

--Commercial paper (CP) at 'F1'.

Additional information is available at www.fitchratings.com.

Applicable Criteria and Related Research:

--'Corporate Rating Methodology' (Aug. 16, 2010);

--'Rating Packaged Food Companies' (May 12, 2010).

Applicable Criteria and Related Research:

Corporate Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=546646

Rating Packaged Food Companies - Sector Credit Factors

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=526525

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