Campbell Soup Hit by a Double Whammy

Finding it hard to strike a balance between rising commodity costs and sluggish U.S. soup sales, food maker Campbell Soup (NYSE: CPB  ) saw its profits fall by 5%. Like I've said before, the problem that Campbell's has faced for a while is the changing tastes of U.S. consumers. While the soup maker is trying to win over customers, it has also been forced to raise prices to combat rising commodity costs. Talk about being stuck between a rock and a hard place.

This has been a problem for food makers all around. Recently, General Mills (NYSE: GIS  ) announced that, as part of a restructuring strategy, it would be eliminating 850 jobs. The company will look to use the savings from the job cuts to try to drive growth in its packaged food business.

Quarter in detail
Coming back to Campbell's, sales in its U.S. simple meals segment declined by 2% whereas U.S. soup sales fell by 3%. This decline was offset by a good performance in its global baking and snacking wing -- in which sales rose by 3%. This was helped by higher sales from its Pepperidge Farm products, which includes the effect of higher selling prices. Total revenue remained more or less unchanged from the year-ago period at $1.8 billion.

Sales were affected by both higher prices as well as more promotional spending. Advertising and consumer promotions costs rose by 13% this quarter. The combined effect of sluggish sales, higher food costs, as well as an increase in advertising and promotional expenses led to Campbell's operating margin declining to 15% from 20% in the year ago period. Margins, for these food makers, have taken a beating this quarter. Peer H.J. Heinz (NYSE: HNZ  ) recently saw its fourth-quarter profits fall by 22% while its operating margin was up a hair to 13.6% from 13.4% in the year-ago period.

Consumer at the helm            
I had earlier spoken about three main strategies that CEO Denise Morrison had outlined to take the company forward. The strategies entailed growing its North America soup and simple meals business profitably, boosting growth of its healthy beverages and baked snack business, and building on its international presence. As part of this strategy, Campbell's has adopted a very consumer-centric approach and is looking to innovate and create products to suit the palates of consumers. Morrison said, "Our overarching goal is to delight consumers with tasty, affordable, nourishing, convenient food and do it their way." 

Campbell's believes that brand expansion may do the trick. Expect more innovative products to come your way from this soup maker as it looks to revive its flailing sales. We should still remember the fact that Campbell's is in the midst of a transformation. Its strategies should also help the company grow in the future.

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Shubh Datta doesn't own any shares in the companies mentioned above. Motley Fool newsletter services have recommended buying shares of H.J. Heinz. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


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