CAMDEN, N.J. – Weakness in core business trends and increased advertising expenses spelled a slow start to the year for Campbell Soup Co., which reported a 30% drop in net earnings during the first quarter.
“I’m disappointed in Campbell’s first-quarter performance,” said Denise Morrison, president and chief executive officer. “While we anticipated a challenging first quarter, the impact from retailer inventory movements was greater than anticipated and accounted for more than half of the decline in organic sales. This was most acute in U.S. Soup, where retailer inventory movements lowered sales by approximately 4%, or two-thirds of the decline versus prior year. Significant shifts in our program timing and execution also pressured results, especially in U.S. Soup.”
For the first quarter ended Oct. 27, net earnings attributable to the company tumbled to $172 million, equal to 55c per share on the common stock, from $245 million, or 78c, during the same period of the prior year. Net sales dipped 2% to $2,156 million from $2,205 million.
A solid performance by Pepperidge Farm, strong growth in emerging markets and encouraging results from the international expansion of Campbell’s Global Baking and Snacking business with its acquisition of the Kelsen Group offset disappointing results in other businesses. Challenges continue for the U.S. Beverages and Australia businesses, where Campbell is implementing plans to improve performance.
For the U.S. Simple Meals segment, operating earnings declined 23% to $211 million, due to lower volumes, higher advertising expenses and expenses related to a recall for Plum Organics products. Segment sales dropped 4% to $860 million, reflecting negative impacts by movements in retailer inventory levels. Sales of Campbell’s condensed soups decreased 7%, sales of ready-to-serve soups declined 11%, and broth sales increased 3%.
Operating earnings for the Global Baking and Snacking division decreased 8% to $78 million, due to cost inflation and increased promotional spending. Sales for the segment increased 6% to $609 million, driven by increased sales of Pepperidge Farm products, solid gains in Goldfish snack crackers and a solid contribution from the Kelsen Group acquisition.
For the International Simple Meals and Beverages segment, operating earnings declined 39% to $20 million, due to lower volumes, lower selling prices and increased promotional spending. Sales decreased 13% to $129 million, reflecting lower volume and mix, lower selling prices and negative currency impact.
Operating income for the U.S. Beverages segment dropped to $24 million from $30 million in the prior year, primarily due to lower volumes. Segment sales declined 8% to $173 million, reflecting declines in V8 products.
The Bolthouse and Foodservice segment saw operating earnings drop to $29 million from $34 million last year, driven by cost inflation and increased advertising for Bolthouse Farms. Sales for the segment increased 2% to $330 million, offsetting food service declines that reflected the loss of a major restaurant customer last year.“Looking ahead, we have plans to drive meaningful growth across the business,” Ms. Morrison said. “We have a robust marketing program in the second and third quarters at the height of the soup season. We are accelerating innovation by moving up the launch of eight new soups. We expect strong performance from both Pepperidge Farm and Bolthouse Farms as we launch a stream of new products throughout the remainder of the year. Additionally, we will continue to take steps to increase productivity and reduce costs and reinvest these cost savings to drive growth. It will be a tougher road than we originally anticipated, but we believe the actions we are taking will strengthen our performance. We continue to believe that we are taking the right strategic steps to reshape Campbell and change our future growth trajectory.”