CAMDEN, N.J. — Weak demand for soup and V8 beverages and a carrot shortage contributed to a disappointing quarter for the Campbell Soup Co. Net earnings in the third quarter ended May 1 were $185 million, or 60c per share on the common stock, which compared with $179 million, or 58c per share, the year before. Net sales were $1,870 million, down from $1,900 million.
|Denise Morrison, president and c.e.o. of Campbell Soup|
“In the third quarter, our organic sales declined 2% which was below our expectations,” said Denise Morrison, president and chief executive officer, during a May 20 earnings call with financial analysts. “Key factors that led to the decline include softer-than-expected soup category performance, weakness in V8 beverages and product shortages in our Bolthouse Farms carrot business.”
Third-quarter adjusted EBIT declined but exceeded expectations, reflecting improved gross margin performance, Ms. Morrison said.
“The decline in adjusted EBIT was due to higher levels of planned spending including the increased marketing investments as well as higher incentive compensation cost and investments in long-term innovation,” Ms. Morrison said. “We expected that our adjusted EBIT performance would taper in the second half as we realized the benefits of our cost savings earlier, cycled improved gross margin from a year ago and implemented our plans to increase marketing investment in the second half.”
Campbell’s soup performance in the quarter was pressured by warmer weather, the impact from pricing actions and marketing execution issues on the company’s Chunky soup line. Meanwhile, broths, Slow Kettle and Campbell’s organic soup sales increased, and Campbell’s condensed soup gained share.
“Our issue, really, is (ready-to-serve soup),” Ms. Morrison said. “And I look at myself in the mirror on this one. It was bad execution on Chunky. We had lack of compelling advertising. We didn't leverage our partnership well with the NFL. We had a label issue in the first quarter which cost us sales.
“And the good news is that these are all execution issues within our control, and we are actively addressing them. So I believe that if we keep supporting this core business and we get our act together on Chunky we'll be in pretty good shape going forward.”
Campbell net earnings in the nine months ended May 1 were $644 million, or $2.08 per share, down from $649 million, or $2.07 per share, in the same period of the previous year. Net sales declined to $6,274 million from $6,389 million.
“Year to date, organic sales are down slightly 1% in what continues to be a very challenging consumer environment,” Ms. Morrison said. “We're clear eyed about the factors impacting our top line and the actions we need to take to address them. We can and we must do better on driving profitable net sales growth. Looking ahead to the fourth quarter and next fiscal year, we expect to grow organic sales.“Our year-to-date adjusted EBIT increase of plus 15% reflects our improved gross margin performance and the benefits of our $300 million cost-savings initiatives including our move to zero-based budgeting. As we focus on finishing the fiscal year, I feel good about the progress we're making, how we've performed year to date and our outlook for the full year.”