Campbell's Pepperidge Farm unit faces weakness in crackers.


CAMDEN, N.J. — The cracker category may be crumbling, according to the Campbell Soup Co. The company's Goldfish brand posted market share gains but declining sales during the first quarter. Higher sales of soups and continued momentum across Bolthouse Farms, Plum Organics and Kelsen brands lifted Campbell’s sales and earnings, but weakness in the Pepperidge Farm business, particularly in frozen items and crackers, remained.

“Our main challenge in this business is to restore growth in crackers,” said Denise Morrison, president and chief executive officer, during a Nov. 25 earnings call with financial analysts. “It is important to examine the total cracker category. For the past two years, dollar consumption growth trends have slowed in the category and were flat to declining in the quarter.

“We see several crucial drivers in this category deceleration.”

First, snacking preferences have shifted as consumers purchased crackers less frequently in favor of better-or-you or indulgent snacks. Weakness in the category also reflects a decline in advertising and innovation, Ms. Morrison said.

Goldfish has outpaced the category over the past three years, but performance during the quarter disappointed company executives.

“In the first quarter, despite growing consumption and share and outperforming the category, Goldfish sales declined due in part to cycling the distribution build of the launch of Goldfish Puffs,” Ms. Morrison said. “We are not satisfied with this performance given the brand's steady track record of growth over many years.”

Another weak spot in Campbell’s portfolio is the V8 brand, which posted lower sales as the shelf-stable beverage category remained under pressure.

“Our plans to revitalize our V8 platform are under way,” Ms. Morrison said. “The next step is the January launch of V8 Veggie Blends.

“We are optimistic about this launch as we plan to tap into the juicing trend by offering nutritious affordable juicing that is convenient for the consumer.”

Sales and earnings rose during Campbell's first quarter, but the company has lowered its guidance for the year on unanticipated currency headwinds.

A mixed picture

Net earnings attributable to the company for the first quarter ended Nov. 2 rose to $234 million, or 75c per share on the common stock, up 36% from $172 million, or 55c per share, in the comparable period. Higher-than-anticipated commodity and supply chain costs pressured gross margin performance during the quarter.

Net sales advanced to $2,255 million, a 4.2% increase over sales of $2,165 million for the year-ago quarter.

In the U.S. Simple Meals segment, Campbell posted net sales of $928 million, an 8% increase over the year-ago period driven by a 6% increase in soup sales and a 14% increase other simple meals, including Plum, Prego pasta sauces and Campbell’s dinner sauces. Segment operating earnings rose 15% to $242 million, reflecting volume gains, productivity improvements and lower marketing spend.

“Our U.S. soup performance benefited from a stronger seasonal sell-in and the timing of our quarter end relative to the Thanksgiving holiday,” Ms. Morrison said. “As we have stated, one of our strategic priorities is to expand our presence in the faster-growing premium soup segment, which represents roughly 10% of the wet soup category.

“We made good progress as we launched new Slow Kettle varieties in the quarter to drive the brand’s double-digit sales growth.”

Sales in the Global Baking and Snacking division advanced 3% to $627 million, reflecting flat growth in Pepperidge Farm products as volume gains for fresh bakery products and cookies were offset by higher promotional spending and declines in crackers and frozen items. Operating earnings for the segment grew 15% to $90 million.

Campbell’s U.S. Beverages segment posted a 3% decline in sales to $186 million, driven by decreased sales for V8 V-Fusion beverages and V8 vegetable juice that partly offset gains in V8 Splash drinks. Segment earnings rose 8% on reduced marketing expenses.

For Bolthouse and Food service, sales climbed 4% to $343 million, led by double-digit growth in Bolthouse Farms refrigerated beverages and salad dressings and comparable growth in North America food service. Segment earnings declined 24% to $22 million, reflecting a lower gross margin percentage.

Sales of International Simple Meals and Beverages dropped 2% to $189 million, and operating earnings fell 20% to $16 million, due to an increase in marketing and administrative costs and the negative impact of currency that were partly offset by volume gains.

Campbell has lowered its fiscal-year guidance as volatility in currency translation created unexpected headwinds during the quarter. The company now expects flat to 2% growth in sales and a 1% decline to 2% increase in adjusted earnings per share for the year.

“Looking ahead, although we face more challenging comparisons, we are confident about our plans for the year, which include driving continued growth in U.S. Simple Meals, continuing our turnaround in Australian biscuits, which moved in the right direction in the first quarter, restoring growth in Goldfish crackers and improving Pepperidge Farms top-line performance, revitalizing V8 to bring news to the shelf-stable juice category and delivering strong performance in Bolthouse Farms, Plum Organics and Kelsen,” Ms. Morrison said.