Campbell Soup (NYSE:CPB) just closed out a fiscal year that management is likely thrilled to put behind it. The packaged foods specialist's earnings dove due to writedown charges associated with its struggling fresh foods business. Operating results have been weak lately, too, as both organic sales and profitability came in worse than expected in the fiscal fourth quarter.

Here's a big-picture look at how the headline results stacked up against the year-ago period:

 Metric

Q4 2018

Q4 2017

Year-Over-Year Change

Revenue

$2.2 billion

$1.7 billion

33%

EBIT

$289 million

$440 million

(34%)

Earnings per share

$0.31

$1.04

(70%)

Data source: Campbell Soup financial filing. EBIT = earnings before interest and taxes.

What happened with Campbell Soup this quarter?

Sales trends, after adjusting for recent acquisitions, worsened compared to the third quarter. Additionally, Campbell Soup's profitability took a big step lower as management revealed a new strategic plan that it hopes will begin to turn things around.

A bowl of soup on a table.

Image source: Getty Images.

Here are some of the highlights from the quarter: 

  • The 33% sales increase was entirely thanks to the company's acquisition of the Snyder's-Lance snack portfolio. Organic sales, on the other hand, fell 3%, compared to a flat result in the prior quarter. The main driver behind that slump was a 14% drop in soup sales that management blamed on competitive pressures.
  • The fresh food division posted a 1% sales decline as it continued to generate modest losses.
  • Ingredient costs again rose at a much a faster pace than pricing, which led to a sharp drop in profitability. Adjusted gross margin fell by nearly 6 percentage points to 30.6% of sales.
  • Cost cuts helped protect operating earnings, which inched higher by 2% to $306 million. However, net income dove due to rising expenses tied to the integration of the Synder's-Lance portfolio, significant restructuring costs, and interest payments associated with Campbell's $8 billion of debt liabilities. 

What management had to say

Executives said the latest numbers demonstrate that the company needs a new direction. "Fiscal 2018 was a challenging year for Campbell," interim CEO Keith McLoughlin said in a press release. "These results ... reinforce the need for the significant actions we announced this morning ... [that] [w]e believe ... will put us on a path to create sustainable shareholder value."

Specifically, McLoughlin and his team said they plan to sell Campbell Soup's international and fresh foods businesses so that they can focus on Campbell's core food franchises in North America. While considering more aggressive moves -- including the potential sale of the company -- management concluded that splitting off these product lines represented "the best path forward" for now.

Looking forward

Executives pointedly left the door open for additional aggressive strategic changes in the quarters to come, which means that a merger or buyout might still be the endgame for Campbell. For now, though, the company believes its portfolio changes, plus a round of more aggressive cost cuts, should result in organic sales growth of between 1% and 2% per year going forward, as adjusted earnings grow by between 7% and 9%.

In addition to aiming for its first annual organic sales gain in four years, Campbell's immediate financial priority will be to use proceeds from its divestitures to pay down the debt it accumulated to buy into the snack business. By 2021, executives hope to have Campbell Soup's leverage down to a more manageable three times adjusted earnings before interest, taxes, depreciation, and amortization.

Demitrios Kalogeropoulos has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.