USA – Campbell Soup Company has announced a 7% drop in sales in its second quarter with low sales blamed for the dispute between the company and a key customer Walmart.
Organic sales decreased 2% with a drop in Campbell’s shares due to a decrease in demand for Campbell soups.
“This was a disappointing quarter, driven by continued challenges in U.S. soup and Campbell Fresh.
The decline in organic sales was largely due to the performance of Americas Simple Meals and Beverages, where U.S. soup sales decreased by 7% based on the key customer issue we discussed last quarter.
We are making progress with this customer and expect sales declines in soup to moderate in the second half,” said Denise Morrison, Campbell’s President and Chief Executive Officer.
Despite the challenges it has faced in the US soup market, a drop in sales to US$2.18billion could be linked to the company’s endless struggles in an attempt to revive and expand the fresh food business, especially inability to pick up in the premium juice brand.
Favorable impact of currency translation and a boost from acquisition of Pacific Foods was counteracted by poor performance in the organic sales primarily due to lower volumes.
Despite carrying out productivity improvements and cost saving initiatives, the company registered a 2.3% decrease in growth margin was attributed to cost inflation and higher supply chain costs.
In 2017, Campbell embarked on lowering advertising and consumer promotion expenses plus other cost-saving initiatives, decreasing marketing and selling expenses by 5% to US$228 million.
However, these efforts were offset by investments in e-commerce, increased administrative expenses which increased by 175 to US$165 million and other expenses totalling to US$70 million.
In first-half results, sales decreased 1% to US$4.341 billion following a 2% decline in organic sales due to lower volumes while cash flow from operations decreased to US$660 million from US$667 million.
The company managed US$20 million in savings through the multi-year cost savings program.
4% increase in the quarter for the global biscuits and snacks was driven by favorable impact of currency translation, increase in organic sales particularly gains in Pepperidge Farm Snacks, Goldfish crackers range and Kelsen cookies in China.
“Bright spots in the quarter included the sales performance of Global Biscuits and Snacks, particularly Pepperidge Farm and Kelsen, as well as our multi-year cost savings initiative.
We have identified additional savings opportunities and are increasing our savings target to $500 million by the end of fiscal 2020,” added Morrison.
This was offset by a decrease in sales for the Campbell fresh and Americas simple Meals and Beverages due to decline in US soup and V8 beverages and sales declines in Bouthouse Farms for Campbell Fresh.
Campbell has reviewed its 2018 guidance considering the impact of Pacific Foods acquisition and the Tax Cuts and Jobs Act, expecting a +1 or -1% change in sales or US$3.10 to US$3.17 per share.
Morrison noted that they were expecting their beverage innovation plans to drive improved beverage performance in the second half and they were committed to returning the business to profitable growth.
