Sandwich bread sales under pressure at Pepperidge

by Josh Sosland
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Pepperidge Farm bread, Campbell Soup
Sandwich bread sales declined for the Campbell Soup Co. in the second quarter ended Jan. 29.

CAMDEN, N.J. – Sandwich bread sales declined while pressure on margins cut into operating income of the Global Biscuits and Snacks business of Campbell Soup Co. in the second quarter ended Jan. 29.

Operating income for the division, which includes Norwalk, Conn.-based Pepperidge Farm, Inc., was $135 million, down 4% from the same period in fiscal 2016. Sales were $680 million, unchanged.

“Excluding the favorable impact of currency translation, segment sales decreased 1% primarily driven by declines in Kelsen, primarily in the U.S., and Arnott’s biscuits, partly offset by gains in Pepperidge Farm,” Campbell Soup said. “Pepperidge Farm sales increased due to gains in Goldfish crackers and Pepperidge Farm cookies, partly offset by declines in fresh bakery and frozen products.”

Kelsens and Arnott's cookies, Campbell Soup
Segment sales decreased 1% driven by declines in Kelsen and Arnott’s biscuits.

Year-to-date operating income was $247 million in the Global Biscuits and Snacks business, down 3% from the first half of fiscal 2016. Sales were $1,351 million, up 1%.

Denise Morrison, president and chief executive officer, said she was not satisfied with Campbell Soup sales performance in the quarter, but said she was “encouraged” by results of a few Campbell businesses, including Pepperidge Farm snacks.

In a Feb. 17 conference call with investment analysts, Ms. Morrison, adding detail to the quarterly results of the Global Biscuits and Snacks business, said sandwich bread sales were under pressure. She said an additional drag on sales was a “decision to forgo some less profitable business with a large U.S. customer.”

Denise Morrison, Campbell
Denise Morrison, president and c.e.o. of Campbell Soup

“Pepperidge Farm delivered modest sales growth behind the continued strong performance of Goldfish crackers, as well as cookies, especially the Milano brand," she said. "Goldfish growth benefited from channel gains leveraging multiple pack sizes and innovative new products. Goldfish made with organic wheat is also attracting new millennial families to the brand. However, our fresh bakery sales declined as a result of intensified competitive activity, especially in the sandwich bread category.

“As a reminder, we’re cycling double-digit operating earnings growth this quarter, and we expect a strong back half as this division delivers both sales and margin growth.

“Looking ahead, we’re focused on driving continued growth in Goldfish and increasing innovation in cookies, especially the upcoming launch of our new Farmhouse line in April. These cookies leverage Pepperidge Farm’s baking heritage and deliver against our real food philosophy with great taste and simple ingredients. We’ll also continue to build the national roll-out of Tim Tam Biscuits in the U.S., following its recent launch in January.”

Pepperidge Farm Milano cookies, Campell Soup
Pepperidge Farm delivered modest sales growth behind the strong performance of the Milano brand.

In the second quarter ended Jan. 29, Campbell Soup net income was $205 million, or 33c per share on the common stock, down 61% from $414 million, or 85c per share, in the second quarter of the previous year. Net sales were $2,171 million, down 1% from $2,201 million in fiscal 2016. Adjusted earnings per share were up 5%.

In the six months ended Jan. 29, net income was $662 million, or $1.27 per share, down 9% from $729 million, or $1.47 per share, in the first half of fiscal 2016. Net sales were $4,373 million, down 1%. Adjusted earnings per share were up 5%.

In early activity Feb. 17 on the New York Stock Exchange, Campbell Soup shares slid 5%, trading at $59.28, down $3.27.
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