- In order to improve shareholder value and reduce debt, Campbell Soup announced the planned sale of its Fresh division, which includes Bolthouse Farms and Garden Fresh Gourmet, as well as its international brands, including Arnott's and the Kelsen Group, according to a company statement. In fiscal year 2018, sales from these segments was about $2.1 billion.
- Sales in the last quarter increased by 33%, up to $2.2 billion, but that reflects a 36-point benefit from the acquisitions of Snyder’s-Lance and Pacific Foods, according to the company's latest earnings report. Organic sales declined 3%, mostly from decreases in the America's Simple Meals and Beverages line.
- Campbell's debt has ticked up to nearly $9.9 billion — up from $3.5 billion a year ago. Earnings per share tumbled to 31 cents from $1.05 a year ago, and the soup and snacking giant missed estimates by $20 million. "This is a tough end to a difficult year," Interim President and CEO Keith McLoughlin said on an earnings call Thursday morning.
Everyone knew that things were tough for Campbell Soup, and a lot is riding on the earnings and divestments announced today. Campbell Soup had been seeing sales and profits drop, leading to the abrupt resignation of former CEO Denise Morrison in May, and the announcement of the strategic portfolio review that is leading to the divestitures of the Fresh division and international brands. Earlier this month, it was announced that activist investor Daniel Loeb took a $300 million stake in the company with 5.6% of its shares, and has been agitating for big changes. For its part, Campbell deferred to today's announcement, saying it would make its moves as it announced its earnings.
What is clear from this morning's call is that Campbell Soup is in dire need of something dramatic.
Soup sales — excluding the newly acquired Pacific Foods — decreased 14% in the quarter, mainly because of declines in the condensed and ready-to-serve soups and broth under brands including Campbell's, Swanson and Chunky. Including Pacific Foods, the decline was only 1%, reaching $789 million.
In the Global Biscuits and Snacks, organic sales — minus the boost from the $4.9 billion purchase of Snyder's Lance — stayed relatively flat. Gains that might have been seen through Pepperidge Farms cookies were offset by declines in Arnott's sales in Indonesia and Goldfish crackers, which were driven by a voluntary recall of the crackers. Snyder's-Lance helped the segment's sales grow 87%, and provided a 45-point benefit to operating earnings in the segment.
The Fresh division had a sales increase of 1%, but posted an operating loss of $7 million in the quarter, as opposed to an $8 million loss in the previous year. The quarter was just another chapter in the saga of problems for the division. Since Campbell purchased Bolthouse Farms in 2012, this division has been more of a source of headaches than anything else for the company. Bad weather and execution problems led to perpetual disappointments and a failure for the division to deliver on its promise to supercharge Campbell's performance in the better-for-you space. In Thursday morning's earnings call, McLoughlin cited the issues Campbell Soup had faced with trying to be both a CPG business and an agricultural company.
"Simply put, we lost focus," he said.
The divestments and other strategic changes are targeted to produce $945 million in cost savings by fiscal year 2022. Some of the strategic changes are in place, with a new chief operating officer and a new head of the soup division. The CEO search is ongoing, though there were no updates to share on Thursday.
With the divestments, the company sees itself as a "new Campbell," McLoughlin said on the earnings call. Chief Financial Officer Anthony DiSilvestro said on the call that the company will be significantly different, focusing on the fast-growing snacking segment and Campbell's core power brands. McLoughlin did not mince words when talking about the company's problems — too many initiatives, too many markets, too many strategies, too much focus on M&A for growth, too little focus on building and strengthening existing power brands. He said that the company has many strengths, one of which is the ability to execute on cost savings and make the necessary changes.
Outlooks for 2019 were revised downward, which are a nod to the company's plan to make next year a tough transitional one.
But is this enough? Some analysts think it won't be enough to satisfy Loeb. He had pushed for a full-company sale, something that McLoughlin played down as an option in an interview with Reuters.
As far as other investors go, the end result is unclear. In morning trading Thursday, Campbell Soup's stock was down in the neighborhood of 1%, showing that markets may be waiting more for Loeb — or to see if the Fresh divestiture will bear fruit.