Campbell Soup Boosts Cost Savings Target Amid Tariff Challenges

Campbell Soup reported its Q4 fiscal 2025 earnings on September 3, with organic net sales dropping 3% and adjusted EBIT declining 2% year-over-year, though slightly exceeding internal expectations. I was struck by management’s aggressive move to increase their enterprise cost savings target by a whopping 50% to $375 million by fiscal 2028. Meanwhile, their fiscal 2026 guidance projects a concerning 12%-18% drop in adjusted EPS, primarily due to tariff headwinds and rising input costs.

Ambitious Cost-Cutting Strategy

The company has dramatically ramped up its cost savings program from $250 million to $375 million by fiscal 2028, after already achieving $145 million in savings during fiscal 2025. They’re clearly pushing harder on efficiency, digital transformation, and spend management to protect their bottom line.

“Today, we are increasing our cost savings target to $375 million by the end of fiscal 2028, a 50% increase over the previous estimate,” said CFO Carrie Anderson during the earnings call.

I’m skeptical about whether this aggressive cost-cutting can be achieved without compromising product quality or innovation. While it gives them flexibility against inflation, the execution risks seem substantial if their integration efforts falter.

Tariffs Squeezing Margins

The tariff situation looks particularly grim for fiscal 2026. Campbell is facing tariffs amounting to approximately 4% of their cost of goods sold, with about 60% coming from Section 232 steel and aluminum tariffs affecting their soup can supply chain. The rest stems from global tariffs and Rao’s imports from Italy.

Management claims they’ll mitigate only 60% of these tariffs through various measures, but I wonder if that’s optimistic given the political climate. These persistent tariff-related costs will heavily burden Campbell’s margins, potentially forcing more price increases that could alienate already cautious consumers.

Brand Strength Amid Headwinds

One bright spot is Campbell’s brand portfolio performance. Their 16 leadership brands accounted for about 90% of total net sales in fiscal 2025, with meals and beverages gaining 0.2 share points despite overall softness in snacks. The Rao’s brand continues to shine with high single-digit growth.

CEO Mick Beekhuizen boasted, “Our stronghold in the Italian sauce category continues as Rao’s, which will soon become our fourth billion-dollar brand, and Prego hold the top two spots in dollar share.”

While their innovation contributed approximately 3% to consolidated net sales, I’m concerned that consumers’ ongoing price sensitivity might limit the effectiveness of these efforts in the coming quarters.

Challenging Outlook

The company’s guidance for fiscal 2026 is sobering - adjusted EBIT down 9%-13% and adjusted EPS down 12%-18%. With organic net sales expected to range from -1% to +1%, they’re essentially projecting stagnation. Capital expenditures are projected at 4% of net sales, with planned cost savings of approximately $70 million.

In my view, Campbell faces a difficult balancing act between protecting margins through cost-cutting while still investing enough in their brands to maintain market share in an increasingly competitive landscape dominated by private label alternatives.