Bolthouse Farms Carrots
Denise Morrison said said bad decisions were what led to the issues in the company’s carrot business.

CAMDEN, N.J. — Poor performance in its carrot business and a food safety recall prompted the Campbell Soup Co. to restructure its Campbell Fresh business unit. The poor performance led the company to take a $141 million, or 41c per share, non-cash impairment charge on its Bolthouse Farms carrot and carrot ingredient business during the fourth quarter, ended July 31.

“ … Our results this quarter certainly did not meet my expectations,” said Denise Morrison, president and chief executive officer, Sept. 1 in a conference call with securities analysts to discuss fourth-quarter and fiscal 2016 financial results. “I am particularly unhappy with the short-term executional issues that have led to the poor performance in Campbell Fresh, both for the quarter and for the year.”

As a result, the president of Bolthouse Farms and several senior managers are no longer with the company, Ms. Morrison said, and the business unit has been restructured.

Denise Morrison, Campbell
Denise Morrison, president and chief executive officer of Campbell Soup Co.

“Now we have three operating units reporting directly to Jeff (Dunn, president of Campbell Fresh): C.P.G., which integrates Bolthouse Farms’ beverages and salad dressings with Garden Fresh Gourmet salsa, hummus and chips along with fresh soups; Farms, which consists of carrots and carrot ingredients; and the long-term innovation unit,” Ms. Morrison said.

During the quarter, the company recorded a loss of $81 million compared with earnings of $17 million, equal to 5c per share on the common stock, the year before. Sales for the quarter were flat at $1,687 million versus $1,693 million the year prior.

The two issues that affected the Campbell Fresh business unit’s performance were a recall during the fourth quarter involving the Bolthouse Farms Protein PLUS beverage due to spoilage issues and The company’s carrot business.

“Our examination into the recall identified our manufacturing equipment and process as the primary cause of the spoilage,” Ms. Morrison said. “We have corrected these problems, rigorously tested the product and started shipping again. However, production has not returned to the pre-recall levels due to new operating procedures that we have put in place, including an enhanced test and release protocol to ensure the product meets our high quality standards.”

As a result, prior to the recall a typical production run for the products would have been 72 hours and now it has been reduced to 24 hours. The shorter production runs significantly reduce capacity.

“We are examining various ways to increase capacity, including commissioning other production lines, but we currently anticipate these will take time to implement and expect that supply will be impacted through the end of the calendar year 2016,” Ms. Morrison said.

Bolthouse Farm Protein Plus Recall
The company recalled Bolthouse Farms Protein PLUS beverages due to spoilage issues.

She said bad decisions were what led to the issues in the company’s carrot business. In July, the company noted it was experiencing weather-related issues and was having a problem with a customer related to the carrot business.

“As we reviewed these issues further, we learned the problems were rooted in several decisions that had compounded one on another and therefore were broader than we understood at the time,” she said. “Specifically, there were some planting, harvesting and commercial decisions made earlier in the calendar year that exacerbated the weather problems. This led our Farms operation to harvest carrots prematurely in an attempt to meet customer demand. Ultimately this resulted in a spring crop that yielded smaller carrots, which led to customer dissatisfaction and an additional loss of business.”

Ms. Morrison added that the business is recovering, but it will take time to regain the lost business, and she said fiscal 2017 carrot sales are expected to be comparable to fiscal 2016.

“Our plans call for C-Fresh sales to be down slightly in the first half and return to growth consistent with its portfolio role in the second half,” she said. “Putting it all together, we expect sales growth to be in the low-single-digits for fiscal 2017 …”

For fiscal 2016, Campbell Soup net income fell to $563 million, or $1.82 per share, from $666 million, or $2.13 per share, for fiscal 2015.

Sales for the year fell slightly to $7,961 million from $8,082 million the year prior.

Anthony DiSilvestro, Campbell
Anthony DiSilvestro, chief financial officer of Campbell Soup Co.

The Campbell Fresh business unit saw its sales rise 5% during the year to $1,017 million and operating income fall 2% to $60 million. The company’s largest business unit, Americas Simple Meals and Beverages saw fiscal 2016 sales fall 2% to $4,380 million and its operating income rose 13% to $1,069 million. Global Biscuits and Snacks experienced a 3% sales decline to $2,564 million during the year and its operating income rose 10% to $422 million.

Looking ahead to fiscal 2017, the company was cautious in its outlook.

“The company expects sales to grow by zero to 1%, adjusted EBIT to grow by 1% to 4%, and adjusted e.p.s. to grow by 2% to 5%, or $3 to $3.09 per share,” said Anthony DiSilvestro, chief financial officer. “This guidance assumes, based on current exchange rates, that the impact from currency translation will be nominal. While not to the level of our long-term sales growth target of 1% to 3%, sales performance is expected to improve relative to 2016 as we address those businesses which have underperformed.”