On May 22, the Campden, New Jersey-based American canned soup major, Campbell Soup Company (CPB, Financial) popularly called Campbell’s, surprised Wall street with a higher-than-expected quarterly profit although the sales figures were not so promising. The canned soup and related food Products Company is facing challenging times as consumers all over the world are avoiding canned soup. With diversifications in organic foods and baby products, the Soup giant is adapting to its difficult transition from a prominent canned soup producer to a health food products company with major cost-cutting initiatives and a somewhat low profile in the publicity arena. In spite of dipping sales, Campbell maintained its performance with last year’s standards by posting the adjusted profits for this quarter at 62 cents per share and slightly lower quarterly earnings of $182 million as compared to $184 million last year. These better-than-expected results higher than the 52 cents per share earning predicted by analysts boosted the fortunes of Campbell stock which closed at $47.91.
Campbell’s profile
Started in 1869 in a partnership between a fruit merchant and an icebox maker, to produce canned tomatoes, vegetables, soups, minced meats, condiments and jellies, the Campbell soup company rose from strength to strength and currently sell an assortment of products in 120 countries. The company was at its zenith in the 1950s to 1970s under the leadership of William Beverly Murphy and emerged as the biggest soup producer in the United States. In this phase, the company opened to public as well as expanded its assortment of products to include Godiva's chocolates, breads, cookies and crackers from Pepperidge Farm, gravies and pastas from Franco-American and Prego pasta sauce in its baked snacks division, with V8 vegetable juices and Swanson broths making up its health beverages section in addition to the simple meals division of a wide range of condensed and ready-to-serve soups was the chief product range as well. But rising need for healthier alternatives have not bode well with net sales falling to $1.9 billion by 3.6% and sales of soups in the U.S. suffering a 10% decrease with the ready-to-serve soup sales crashing by a vicious 18%. The simple meals division also saw a fall in sales of 6% to stand at $630 million with a 2% fall in the global sales of baked products to $555 million.
Presenting the quarterly report, Campbell Chief Executive Denise Morrison announced a slight increase in gross margin from 34.3% last year to currently stand at 35.9% in the face of tough foreign currency conversion and feeble U.S. soup business attributing its aggressive cost cutting plan and a $11 million worth restructuring plan for this face saving performance. In February 15, the company had revealed an extensive economizing plan aimed at cutting annual costs by $200 million. Campbell has also undertaken initiatives to augment its brand by acquiring Plum Organics baby food and Bolthouse Farms juices in the last few years, and ushered in a fresh line of organic soups earlier this month to appeal to the discerning consumers.
Campbell’s challenge
Even with the wide-ranging improvement plan and emphasis on newer products line, analysts consider the situation grim for Campbell’s and predict a 20% fall in profits for the current quarter which started in May. Until market trends settle, they rate Campbell stock as “hold,” with the 18-month average price target estimated at $43.83 per share, almost 8% lower than the current stock value.
Our take
The 150-year-old erstwhile Soup now Organic food company expects to end the grim year with per share earnings around $2.38 in July 15 as it deals with shrinking sales, falling demands, altering consumer trends, escalating ingredient costs and gaining acceptance of new offerings in a sensitive market where competitors like frozen food giant ConAgra food owned, Healthy choice and Progresso soup are also trying to recapture consumer interest. With encouraging growth in Prego pasta sauces and Plum Organics driven mostly by gains in Australia and Indonesia and healthier profit margins if currency conversion impacts were excluded, Campbell has some reason to rejoice but still has a long way to go in its bid to get out of the veritable soup.
