Innovation results 'mixed' for Campbell

by Jeff Gelski
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Campbell chunky soup
Problems with a Chunky soup label contributed to a decline in soup sales for Campbell.

CAMDEN, N.J. – The Campbell Soup Co. has cut costs successfully, but growing soup sales remains a concern. The Camden-based company has increased its 2018 savings target to $300 million, up from $200 million set when Campbell Soup introduced the program a year ago, Denise Morrison, president and chief executive officer, said in a Feb. 25 earnings call to discuss second-quarter earnings.

Soup sales fell 4% in the quarter ended Jan. 31 when compared to the second quarter of the previous year. Pricing actions, problems with a Chunky label and warmer weather all had an effect. Declines in ready-to-serve soups were offset partly by gains in both broth and condensed soup. Ms. Morrison added that the entire wet soup category declined 3% for the 13 weeks ended Jan. 31.

Denise Morrison, Campbell
Morrison, president and c.e.o. of Campbell

“As we discussed back in the first quarter, we began taking steps to increase our net price realization through a combination of pricing actions and implementing more balanced promotion plans to support our business,” Ms. Morrison said. “As anticipated, these price realization activities had a negative impact on volume, but it was a necessary step to address the historical lack of price realization in (ready-to-serve soup) and strategically important for our entire soup portfolio.”

With Chunky, a promotion on-pack label confused consumers, she said.

“Finally, weather is not something we control, and it's certainly not the main reason for the decline in our soup business, but we believe the unusually warm winter had a negative impact on the entire category in the first half,” she said.

Campbell soups
Campbell's soup sales fell 4% in the quarter ended Jan. 31 when compared to the second quarter of the previous year.

In the second quarter, Campbell Soup Co. posted net earnings of $265 million, equal to 85c per share on the common stock, which was up 19% from $222 million, or 71c per share, in the second quarter of the previous year. Net sales of $2,201 million were down 1% from $2,234 million.

Ms. Morrison was more positive about the savings program.

“Through a combination of our organization redesign, the creation of our integrated global services group, headcount reductions, more stringent policies and the implementation of zero-based budgeting, Campbell is becoming a leaner, more effective and more efficient company,” she said.

Campbell Soup will continue to invest a portion of the savings into its businesses, based on their portfolio roles and longer-term growth opportunities, she said.

“For instance, we plan to make several investments in the second half of the year in the areas of new product development and support for several of our key brands,” Ms. Morrison said. “Additionally, we are building new capabilities in areas such as e-commerce.”

V8 Fusion juices, Campbell
Campbell's sales of U.S. beverages decreased primarily due to declines in V8 V-Fusion beverages.

The soup business belongs to the Americas Simple Meals and Beverages segment of Campbell Soup Co. The segment in the second quarter had operating earnings of $290 million, up 22%. Sales of $1,237 million were down 3%. Within the segment, sales of U.S. beverages decreased primarily due to declines in V8 V-Fusion beverages. Gains in Plum Organics, Prego pasta sauces and Pace Mexican sauces drove sales of other U.S. simple meals.

“Overall, our innovation results are mixed,” Ms. Morrison said. “On the plus side, Campbell's Dinner Sauces platform and Slow Kettle soups continue to grow and are over indexing with millennials. Campbell's organic soup line is meeting expectations and helping us (to) expand our health and well-being options in the center store.”

In the beverage business, Campbell is pleased with V8 Veggie Blends and V8 Plus Energy, she said. The Plum Organics brand continues to build loyalty with millennial parents.

“Now, let's look at what's not working as well,” Ms. Morrison said. “Pace and Prego ready meals and Campbell's Fresh-Brewed Soups in K-Cups are performing below expectations, and we're taking steps to evaluate the root cause and course correct.

Campbell K Cups
Campbell's Fresh-Brewed Soups in K-Cups are performing below expectations, according to Ms. Morrison.

“Additionally, we've discontinued the V8 Protein line. Our key learning was that these shakes and bars were not differentiated enough to succeed in a crowded and competitive space.”

In the Global Biscuits and Snacks segment, operating earnings of $141 million were up 23%. Sales of $682 million in the second quarter were down 2%. Excluding the negative impact of currency translation, second-quarter sales in Global Biscuits and Snacks were up 2%.

Within the Campbell Fresh segment, operating earnings of $21 million were up 62% in the second quarter while sales of $282 million were up 10%. Excluding the impact from the Garden Fresh Gourmet acquisition, sales were comparable to the same time period of the previous year.

For the six-month period ended Jan. 31, Campbell Soup Co. had net earnings of $459 million, or $1.48 per share, which was down 2% from $470 million, or $1.50 per share, in the same time period of the previous year. Net sales of $4,404 million were down 2% from $4,489 million in the previous year’s second quarter.

For fiscal-year 2016 Campbell Soup continues to expect sales to range from a 1% decrease to flat compared to the previous year. Adjusted EBIT is forecast to be up 10% to 13%, and adjusted e.p.s. is forecast to be up 9% to 12%, or in a range of $2.88 to $2.96.
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