The Campbell Soup Co. struggled during the second quarter of fiscal 2018. The business faced challenges in its Americas Simple Meals and Campbell’s Fresh businesses.
“This was a difficult quarter for the company,” said Denise Morrison, president and chief executive officer, during a conference call with analysts on Feb. 16. “Our performance was below our expectations. Organic sales declined 2%, driven primarily by ongoing disappointing results in U.S. soup and Campbell Fresh. Adjusted EBIT decreased 4%.”
On ongoing issue with a “key customer,” as Ms. Morrison said, pushed soup business sales down 7% during the quarter. Campbell Fresh sales fell 1% as the business struggled to gain traction in the market for super premium beverages and volatility in the market for fresh carrots.
The poor performance of Campbell Fresh prompted the company to take a $75 million impairment charge against the Bolthouse Farms carrot and carrot ingredients business.
“While sales of carrot and carrot ingredients increased 3% in the quarter, the yield issue we experienced earlier in the year extended into the second quarter,” Ms. Morrison said. “As we discussed in November, our carrot crops were negatively impacted by adverse weather, which resulted in extremely low yields and caused us to place customers on allocation. We came off allocation in December as planned, but the lingering effects of this issue drove higher carrot costs and impacted profit in the second quarter.”
To address weakness in its super premium beverage business Campbell Soup plans to introduce a spate of new products this spring. The goal of the new products will be to deliver functional benefits to consumers at an affordable price point, Ms. Morrison said.
“Our competitive advantage in V8 is that we are vegetable-based,” she said. “And in our 100% Vegetable Juice and in our V8 +Energy, which is powered by green tea, we actually have performed pretty well.
“It’s where we’ve had the combination of fruit and vegetable, which is higher in sugar, that we’ve been affected. And in the super premium segment of the Fresh business, we have now realized there is the same shift going on. And that’s why we’ve been very proactive in anticipating that shift and are able to launch a pretty extensive line of great taste, being reduced sugar with functional benefit beverages.”
A bright spot for the company during the quarter was its Global Biscuits and Snacks division. Sales for the quarter rose 4% to $726 million on strength in Pepperidge Farm and Kelsen businesses.
“Overall, I feel good about our performance in Global Biscuits and Snacks, and I’m confident that this team will continue to drive our core business while integrating Snyder’s-Lance into Campbell,” Ms. Morrison said. “We now expect to complete the Snyder’s-Lance transaction by the end of the first calendar quarter.”
Net income for the quarter ended Jan. 28 totaled $285 million, equal to 95c per share on the common stock, an increase compared with the same period of the previous year when earnings totaled $101 million, or 33c.
Sales for the quarter ticked up to $2,180 million from $2,171 million the previous year.
A key item affecting net income comparability includes a net tax benefit of $124 million from the Tax Cuts and Jobs Act passed in Dec. 2017.
“Despite challenges in the quarter, we’ve made significant progress toward our long-term strategy to transform Campbell’s portfolio in the faster-growing spaces of health and well-being and snacking,” Ms. Morrison said. “In particular, the pending Snyder’s-Lance acquisition will be the largest acquisition in our history. Snacking is a category we know extremely well, and the acquisition complements Pepperidge Farm, which has been one of our best long-term performing businesses. We're confident that the Snyder’s-Lance acquisition will deliver significant shareholder value.”