Campbell’s warns of more trouble ahead as lackluster sales are the hallmark of Q4

01 Sep 2017 --- Shifting consumer preferences for food and changing shopping behaviors is biting into Campbell’s sales and profits as quarterly earnings are below estimations and the outlook for the soup giant remains difficult. 

Campbell’s continues its strategy to reshape the company’s portfolio and diversify through a series of acquisitions and deals focused on continued growth, but just like other packaged food companies, it’s feeling the pinch as consumers opt for healthier and organic alternatives. 

Posting fourth-quarter results this week, overall sales fell 1 percent, while soup sales fell 4 percent. And on top on this, the company’s share declined by around 7 percent.

“The operating environment for the packaged foods industry remains challenging due to shifting demographics, changing consumer preferences for food, the adoption of new shopping behaviors and the dynamic retailer landscape,” says Denise Morrison, Campbell’s President and CEO.

“In these times, sales growth remains a challenge. Despite multiple headwinds, we finished the year within our guidance and delivered another year of growth in adjusted EBIT and adjusted EPS.”

“In the fourth quarter, Global Biscuits and Snacks was soft on the top line but generated a solid double-digit earnings increase versus the year-ago quarter. Americas Simple Meals and Beverages continued to deliver against its portfolio role, with sales performance in line with the categories in which we compete and margin expansion.”

Morrison adds that while Campbell Fresh sales increased slightly, the bottom line was disappointing and the company expects to return to profitable growth going forward.

“In fiscal 2017, we have made progress in several key areas, including increasing our successful multi-year cost savings initiative to US$450 million by the end of fiscal 2020.”

“The pending acquisition of Pacific Foods will add a purpose-driven, real food brand with a solid track record of growth to our portfolio. Additionally, our new Campbell Fresh leadership team has taken steps to enhance our quality processes and address capacity constraints toward our objective of returning the division to growth.”

Fourth-quarter results
Sales decreased 1 percent to US$1.664 billion driven by a 1 percent decline in organic sales, reflecting lower volume.

Gross margin increased from 32.4 percent to 43.0 percent. Excluding items impacting comparability, adjusted gross margin increased 0.8 percentage points from 36.1 percent to 36.9 percent. The increase in adjusted gross margin was primarily driven by productivity improvements and the benefits from cost savings initiatives, partly offset by cost inflation and higher supply chain costs.

Marketing and selling expenses decreased 34 percent to US$143 million. Excluding items impacting comparability, adjusted marketing and selling expenses decreased 12 percent primarily due to lower advertising and consumer promotion expenses lapping marketing levels above historical levels in the prior-year quarter and the benefits from cost savings initiatives. 

Administrative expenses decreased 54 percent to US$86 million. Excluding items impacting comparability, adjusted administrative expenses decreased 5 percent primarily due to the benefits from cost savings initiatives.

The company reported EBIT of US$440 million as compared to a loss of US$37 million in the prior-year quarter. Excluding items impacting comparability, adjusted EBIT increased 11 percent to US$282 million, reflecting lower adjusted marketing and selling expenses, as well as a higher adjusted gross margin percentage, partially offset by lower sales.

Net interest expense decreased 18 percent to US$23 million. Excluding items impacting comparability in the current year, adjusted net interest expense increased US$1 million to US$29 million, reflecting higher average interest rates on the debt portfolio, partly offset by lower average levels of debt. 

The tax rate was 23.7 percent as compared to 24.6 percent in the prior year. Excluding items impacting comparability, the adjusted tax rate increased 0.8 percentage points to 37.2 percent.

The company reported EPS of US$1.04 in the quarter. Excluding items impacting comparability in both periods, adjusted EPS increased 13 percent to US$0.52 per share, compared with US$0.46 per share in the year-ago quarter.

Morrison concluded: “Looking ahead to fiscal 2018, we expect the operating environment to remain difficult. We will continue to position Campbell for long-term growth by managing costs aggressively and reinvesting a portion of those savings back in the business with a focus on our strategic imperatives of real food, digital and e-commerce, health and well-being, and snacking.”