Campbell beats expectations for revenue, adjusted profit
New CEO says soup-and-snack maker faces ‘some immediate challenges’
Campbell Soup Co. made progress in its effort to reignite growth after a tumultuous year. The food maker said on Wednesday that comparable sales were flat in the latest quarter as gains for Pepperidge Farm Goldfish crackers offset continued weakness in condensed-soup sales. However, Campbell’s gross profit margin slipped as it spent more on promotions for its brands and faced higher costs for transporting products.
“We are dealing with some immediate challenges, which we are addressing head on,” said Chief Executive Mark Clouse, who joined Campbell at the beginning of this year.
Shares of Campbell rose 3.8% in early trading Wednesday as net sales of
$2.71 billion and adjusted earnings of 77 cents a share for its fiscal second quarter beat analysts’ expectations, according to FactSet.
Campbell and J.M. Smucker Co.’s earnings this week showed that they fared better at the end of last year than Kraft Heinz Co., which stunned investors last week when it reported that spending money on brands to boost sales hurt its profit margin, and it wrote down the value of some key brands by $15.4 billion.
Like Kraft Heinz’s, Campbell’s business has eroded over the years as new brands challenge grocery mainstays by offering fresher, natural ingredients.
Campbell chased this trend for several years, acquiring refrigerated-food brands like Bolthouse Farms and organic foods like Plum baby food. The strategy backfired, ultimately leading to Campbell’s decision last year to sell its fresh-food brands and focus on soup and snacks. In the latest quarter, Campbell wrote down the value of its fresh-food business again by $346 million. The missteps brought on pressure last year from activist investor Third Point LLC, which initially aimed to replace Campbell’s entire board of directors and explore a sale of the company. In November, Campbell and Third Point reached a settlement in which the activist firm was able to add two new members to an expanded board.
Mr. Clouse, who was previously CEO of Pinnacle Foods, is now tasked with carrying out the turnaround of Campbell’s legacy soup business and integrating its newly acquired snacks business.
Campbell’s U.S. soup sales began showing signs of improvement last fall, after suffering from double-digit declines the prior year. Comparable sales were flat in the recent quarter, though retail consumption fell 5%. Mr. Clouse said that increasing the value proposition and improving marketing and innovation will help.
Last year, Campbell bought Snyder’s-Lance pretzels and nuts, increasing its presence in the snack aisle. Campbell said Wednesday its U.S. snacks benefited from new items like Pepperidge Farm Farmhouse rolls and a new line of Goldfish called Epic Crunch.
Campbell is also in the midst of a cost-cutting initiative aimed at stripping away an additional $150 million in annual spending over several years. In the latest quarter, it reduced its marketing and research-and- development expenses, overall cutting $50 million and helping to offset higher supply-chain costs.
Campbell on Tuesday said it found a buyer for its Garden Fresh salsa brand: an affiliate of Fountain of Health USA. Campbell bought the brand in 2015 for $231 million, planning to expand it as part of a bigger fresh-food business. The sale paves the way for Campbell to sell its larger fresh-food business, Bolthouse Farms carrots and juices, which has been on the market for several months. Former Bolthouse Farms CEO Jeff Dunn was in talks to buy it with the help of other investors.