Portfolio of snacks improves Campbell Soup performance.
Campbell Soup Co. exceeded expectations in its third-quarter financial results thanks to gains in its Global Biscuits and Snacks division.
Mark A. Clouse, president and chief executive officer, stated, “This quarter’s results exceeded our expectations, making it the third consecutive quarter that we met or exceeded our outlook.” Additionally, I’m happy to observe that profitability trends are getting better, thanks to increases in gross margin over time. Our U.S. Snacks portfolio helped us sustainably increase sales growth in Global Biscuits and Snacks during the quarter. The company’s Pepperidge Farm growth trends are maintained, along with enhancements to the Snyder’s-Lance portfolio.
Even if the segment’s earnings and gross margin are steadily improving, he stated that there is still work to be done in the meals and beverages area. In late January, Mr. Clouse became the chief executive officer of Campbell Soup.
Compared to the third quarter of last year, when net income was $73 million, or 24c per share, Campbell Soup’s net income in the third quarter ended April 28 was $131 million, or 44c per share on the common stock. The third quarter of fiscal 2018 saw net sales of $2,178 million, a 16% increase from $1,878 million.
Campbell Soup increased its prediction for fiscal 2019 adjusted profits per share to $2.50 to $2.55 per share, up 2c to 5c from its most recent guidance, in light of the better-than-expected performance.
The quarterly earnings delighted investors. On June 5, shares of Campbell Soup finished at $41.93 on the New York Stock Exchange, up $3.60 or 10% a share. As recently as February, Campbell Soup shares were trading for less than $33.
The 17-point boost from the acquisition of Snyder’s-Lance, which was finalized in March 2018, was reflected in the 16% gain in sales. Organic sales remained unchanged, with decreases in Meals and Beverages more than offsetting increases in Global Biscuits and Snacks. The Snyder’s-Lance acquisition of Campbell Soup reached its one-year anniversary during the quarter, and the company will now be included in comparisons of organic sales growth.
The company’s adjusted EBIT dropped 2% to $316 million, and its adjusted profits per share decreased 5% from the same period in 2018.
The Global Biscuits and Snacks company’s operating income increased to $139 million in the third quarter of 2018 from $121 million, a 15% increase. Sales increased by 37% to $1,154 million.
The segment’s operating income was lower than in the third quarter of fiscal 2018 when Snyder’s-Lance’s contribution was excluded. This was due to growing administrative costs and cost inflation, which were somewhat offset by the gains from supply chain productivity initiatives. With Snyder’s-Lance excluded, sales increased by 1%.
This performance, according to Campbell Soup, “reflects continued solid growth in Pepperidge Farm, driven by consumption gains in Goldfish crackers and Pepperidge Farm fresh bakery products, offset partly by declines in the international biscuits and snacks operating segment.”
Operating income for Meals and Beverages was $207 million, a 5% decrease from $218 million in the same period the previous year. Sales decreased by 1% to $1,024 million from $1,033 million.
The same variables that were hurting the Global Biscuits and Snacks market also put pressure on profitability. The organic sales for the previous year remained almost the same.The firm stated, “Decreases in V8 beverages and Prego pasta sauces in the U.S. offset solid performance in Canada.” Sales were positively impacted by one point as a result of the implementation of new revenue recognition accounting guidelines. Sales of soup in the United States were similar to the previous year due to moderating drops in condensed and ready-to-serve soups and increases in broth.
In a June 5 conference call with investment analysts, Mr. Clouse outlined positive developments in the company’s soup division. Despite the quarter’s flat sales, the company increased its market share despite a 2.6% decline in category sales overall. In comparison to the previous two quarters, when the category fell by 5.5%, the category statistic represented an improvement.
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“We are effectively carrying out our fiscal ’19 soup plans, which are centered on enhancing the core competencies of the company, such as marketing, pricing and promotion, and innovation,” Mr. Clouse stated. This will lay a strong basis on which we can later expand. The team’s efforts to stabilize the condensed soup portfolio and enhance trends with important retail partners are particularly encouraging.
Campbell Soup declared in April that a deal to sell its Bolthouse Farms division had been struck. The company has started reporting Campbell Fresh as discontinued operations as a result of the impending sale and the subsequently concluded divestitures of the Garden Fresh Gourmet and U.S. refrigerated soup businesses during the quarter. In the third quarter, the ceased business’s adjusted EBIT was $7 million, as opposed to a $13 million negative EBIT in the previous year. Sales decreased by 15% to $210 million.
On the conference call, Anthony P. DiSilvestro, senior vice president and chief financial officer, talked about the tensions between the US and its trading partners.
Positively, the company profited from the decision made by the Trump administration in May to remove tariffs that had been in place for a year on imports of steel and aluminum from Canada and Mexico. Less than half of the steel that the corporation uses to make its cans comes from Canada. The company will be spared a $20 million negative impact by avoiding retaliatory duties on soup exported to Canada, he added.
The prospect of additional tariffs imposed by the Trump administration on Mexico due to that country’s handling of the migrant situation is a cause for concern moving forward.
“For our U.S. business, we source some ingredients and packaging items from Mexico, not a lot, and that could potentially have an impact of $2 million to $4 million,” Mr. DiSilvestro stated.
Campbell Soup’s net income for the nine months ended April 28 was $550 million, or $1.83 per share, a 20% decrease from $690 million, or $2.29. Sales increased by 24% to $7,129 million from $5,743 million.Adjusted EBIT decreased by 1% to $1.1 billion for the nine-month period, which was indicative of weak base business. Adjusted net profit was $2.13, a 19% decrease.