Campbell profit surges, sales stumble in first quarter

by Monica Watrous
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Campbell Soup products
Campbell Soup's net income in the first quarter increased to $292 million, up from $194 million in the same period a year ago.

CAMDEN, N.J. — The outcome of the presidential election joins a growing list of factors already pressuring the food and beverage industry, including a shrinking middle class, major demographic shifts and changing consumer preferences, said Denise Morrison, president and chief executive officer of the Campbell Soup Co.

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

“There are many important issues the new administration will address that will impact the food industry, including tax policy, regulation, trade agreements, new leadership of the U.S.D.A. and F.D.A., as well as the upcoming farm bill,” Ms. Morrison said during a Nov. 22 earnings call with financial analysts. “Across the industry, top-line growth remains sluggish, particularly in center-store categories. Simultaneously, food deflation is pressuring both top and bottom lines and limiting pricing opportunities. This is driving a hypercompetitive environment for market share, along with a continued focus on cost-savings measures to deliver earnings.

“As we’ve seen, many food companies have reported flat to declining organic sales in their most recent quarters, and that pressure is not limited to manufacturers. Retailers, too, are taking actions to reposition themselves for growth through consolidation, management changes and increased investments in e-commerce.”

Campbell Fresh business unit
Organic sales decreased 1% in the quarter driven by declines in the Campbell Fresh business.

Within this context, Campbell Soup delivered a quarterly performance in line with expectations, Ms. Morrison said. Net income in the first quarter ended Oct. 30 increased to $292 million, equal to 95c per share on the common stock, up from $194 million, or 63c per share, in the same period a year ago. Sales during the first quarter fell 6% to $1,361 million from $1,448 million the year prior.

“We expanded gross margin and delivered adjusted EBIT and e.p.s. growth cycling a strong year-ago quarter,” she said. “Organic sales decreased 1% in the quarter driven by declines in our Campbell Fresh business, which we expected…

“Additionally, we remain on track to achieve our $300 million cost-savings goal by the end of fiscal 2018. Importantly, we are reinvesting across the business to drive top-line growth, including increased advertising support of Chunky soup and Pepperidge Farm Goldfish crackers, expanding our digital and e-commerce capabilities and funding long-term innovation initiatives.”

Chunky soup, Goldfish crackers
Campbell is investing in increased advertising support of Chunky soup and Goldfish crackers.

As part of the investments, the company plans to introduce reformulated products without artificial colors and soup cans with no Bisphenol A (B.P.A.) lining in the months ahead. The costs of theactions are expected to accelerate over the second half of the year, said Anthony DiSilvestro, senior vice-president and chief financial officer.

During the quarter, Americas Simple Meals and Beverages segment operating earnings increased 6% to $383 million, and sales were comparable to the prior year at $1.297 billion, as double-digit gains in Plum Organic products were offset by declines in V8 beverages. Sales of U.S. soups were flat with the year-ago period, reflecting growth in ready-to-serve soups and broths offset by modest declines in condensed soups.

“Looking ahead on soup, we continue to expect to deliver modest growth for the full year behind improved performance in Chunky, strong holiday plans for both condensed soups and broth and the upcoming launch of our Well Yes! (ready-to-serve) soup line,” Ms. Morrison said. “As we’ve previously stated, we do not expect V8 to grow in fiscal 2017. While we have more work ahead, I’m encouraged by the start to the year, especially in U.S. soup, and am confident in our plans.”

Goldfish crackers and Milano cookies, Pepperidge Farms
Strong performance of Goldfish crackers and Milano cookies drove sales for Pepperidge Farm.

Segment operating earnings of Global Biscuits and Snacks declined 2% to $112 million behind increased advertising expenses, as sales rose 3% to $671 million, driven by gains in Pepperidge Farm and strong performance of Goldfish crackers and Milano cookies.

“Our efforts to expand our health and well-being offerings are performing well,” Ms. Morrison said. “Both multigrain Goldfish and Goldfish made with organic wheat contributed to the sales gains…

“Looking ahead in the U.S., we are focused on driving growth in Goldfish, increasing innovation in cookies, including the relaunch of our Pepperidge Farm American Classic cookie line, and the new fresh bakery quality improvements to take hold in the market.”

Whole grain and organic Goldfish crackers, Pepperidge Farms
Both multigrain Goldfish and Goldfish made with organic wheat contributed to sales gains.

The Campbell Fresh unit had operating earnings of $1 million, down from $18 million in the comparable quarter, while sales declined 6% to $234 million. Both sales and earnings were negatively affected by continued supply constraints related to the voluntary recall of Bolthouse Farms Protein Plus drinks in June and lower carrots sales.

“While we are making progress, we clearly have more work ahead to get this division back to performing in line with its portfolio role of full-force growth,” Ms. Morrison said. “For the full year, we continue to expect Campbell Fresh sales to grow in the low single digits.”

Looking ahead, the company remains focused on strengthening its core business while driving long-term growth through a number of strategic imperatives, including transparency and sustainability, digital and e-commerce, health and well-being and snacking, Ms. Morrison said. Campbell Soup continues to expect to deliver full-year sales growth of flat to 1%, adjusted EBIT growth of 1% to 4% and adjusted earnings-per-share growth of 2% to 5%.

Bolthouse Protein Plus beverages, Campbell
Sales and earnings were negatively affected by the voluntary recall of Bolthouse Farms Protein Plus drinks.
 
“In summary, these unpredictable and uncertain times in which we live are marked by sweeping changes across the food industry landscape,” she said. “At Campbell, we are guided by our purpose, real food that matters for life's moments and focused on meeting the needs of our consumers, helping our customers grow their business and increasing shareholder value for our investors.” 
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