CAMDEN, N.J. — The Campbell Soup Co. faced the same macroeconomic issues that have hindered its consumer packaged goods peers during its most recent quarter, but the company also was pressured by internal factors. Most notably, issues that challenged the company beyond soft soup sales and weaker-than-expected V8 sales included a lack of beverage processing capacity in its Campbell Fresh business unit.
Net income for the third quarter ended April 30 totaled $176 million, equal to 58c per share on the common stock, and a decline when compared to the same period of the previous year when the company earned $185 million, equal to 60c per share.
Sales for the quarter fell 1% to $1,853 million, which compared with $1,870 million the previous year.
|Denise M. Morrison, president and c.e.o. of Campbell Soup|
“The sales decline in the third quarter resulted from softer-than-expected soup sales, the ongoing capacity-related challenges in Campbell Fresh refrigerated beverages and weakness in V8 beverages,” said Denise M. Morrison, president and chief executive officer. “This more than offset the strong results from Global Biscuits and Snacks in the quarter.”
As a result of the challenging quarter, the company reduced its sales guidance, but raised the low end of its adjusted EBIT and adjusted earnings-per-share ranges.
“We now expect adjusted EBIT to increase 2% to 4% and adjusted e.p.s. to increase 3% to 5%,” Ms. Morrison said. “We expect that we’ll be able to offset the impact of lower sales with our ongoing cost-saving efforts, which are ahead of our expectations for the fiscal year.”
She said soup sales declined 4% during the quarter and have declined 1% year-to-date.
“Although soup performance improved throughout the quarter, we were unable to overcome the slow start in February,” Ms. Morrison said. “Sales of condensed soup and broth declined, while our ready-to-serve portfolio grew. Promotional activities in support of condensed soup did not generate the anticipated lifts, while the decline in broth was the result of continued competitive activity from private label.”
A number of factors are hindering the company’s beverage business. Ms. Morrison noted that two-thirds of Campbell’s shelf-stable juice portfolio, which consists of V8 100% Vegetable Juice, Veggie Blends and V8+Energy, is on trend. The other one-third, which includes such products as V8 Fusion and V8 Splash, are under pressure. She said the pressure is due to “category-wide consumer concerns about sugar.”
Campbell Fresh business unit sales fell 6% during the quarter, primarily due to production constraints that emanate from the June 2016 recall of its Protein Plus beverages.
“As expected, we still haven't returned to our original production levels,” Ms. Morrison said. “We’ve been able to fill orders for shelf stock. However, we have been unable to execute normal promotional activity across the fresh beverage portfolio. We expect continued capacity constraints through the fourth quarter as we fully operationalize our new line, and our co-packer starts production. We’ll begin increasing promotion activity toward the end of the fiscal fourth quarter and expect to ramp up to normal levels in the first quarter of fiscal 2018.”
A bright spot during the quarter for the company was its Global Biscuits and Snacks business unit. Sales increased 2% during the quarter to $623 million, and Ms. Morrison said EBIT rose 14%. The improved performance was associated with a sales increase of Pepperidge Farm products and Arnott’s Biscuits in the Asia Pacific region.
“Looking ahead to the fourth quarter, our plan calls for improved performance to finish the year as we cycle the Bolthouse Farms protein drink recall, last year’s carrot quality issues and a higher adjusted tax rate,” Ms. Morrison said. “Additionally, we expect Global Biscuits and Snacks to maintain its current momentum. We also plan to return to more normal marketing level versus the stepped-up levels of a year ago.“Finally, we’re on track to slightly exceed our multiyear $300 million cost savings target by the end of the fiscal, a year earlier than originally planned. And as we announced last quarter, we’re pursuing incremental cost savings of $150 million over the next few years.”