Moody's Downgrades Campbell Soup on Weak Earnings and High Leverage

Moody's Ratings has downgraded The Campbell's Company's credit rating to Baa3 from Baa2, signaling concerns over the company's financial health amid weak earnings and high debt. The agency also lowered Campbell's commercial paper rating to Prime-3 from Prime-2 and maintained a negative outlook on the company.

Rationale for the Downgrade

The downgrade reflects a combination of poor operating results in fiscal 2026 and the expectation of further declines in revenue and profit in fiscal 2027, according to Moody's. The ratings agency highlighted the company's elevated financial leverage as a key factor in its decision.

Key metrics noted by Moody's include:

• Moody’s-adjusted leverage increased to approximately 4.9x at the end of fiscal 2026.
• Leverage is expected to worsen in the first quarter of fiscal 2027 before settling at or slightly above 4.0x by the end of the fiscal year.
• This elevated leverage persists despite a 36% reduction in the company's dividend.

Impact of Acquisitions and Headwinds

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Campbell's financial flexibility has been strained by recent strategic moves. The $2.7 billion acquisition of Sovos Brands in March 2024 significantly increased its debt load. More recently, a $146 million cash-funded investment for a 49% stake in La Regina, a key supplier to its Sovos brand, further added to its debt during a period of operational weakness.

The negative outlook reflects the risk that Campbell's turnaround plan may take longer than anticipated to execute successfully. The company is also grappling with significant cost pressures, including 5%-6% commodity inflation and double-digit logistics inflation expected in fiscal 2027. In response, Campbell's has initiated a new $500 million efficiency program and reduced its workforce by 13%.

Company Strengths

Despite the downgrade, Moody's acknowledged several of Campbell's underlying strengths. The Baa3 rating is supported by the company's strong brand equities, including Pepperidge Farms, and its leading market share in the U.S. canned soup category. While this category is in decline, it remains highly profitable for the company.