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Campbell Soup Company Fiscal Q4 and 2015: In Search of Growth

By Eric Volkman - Sep 10, 2015 at 5:32PM

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The company reports an unexciting quarter more or less in line with analyst expectations.

The soup wasn't particularly hot for the fourth quarter and fiscal 2015 results from Campbell Soup (CPB 0.65%) last week. Although the company was profitable for both periods, neither was a great improvement over its predecessor.

The company has struggled to keep itself relevant in a market that's increasingly demanding fresher and healthier food. Let's see if recent developments in the company indicate a successful move in this direction.

A flat taste
For the quarter, net sales came in at just under $1.69 billion, a 9% drop from the year-ago quarter. The adjusted bottom line was 5% higher, at $234 million, or $0.43 per diluted share. Those numbers were almost exactly in line with analyst expectations. Collectively, Wall Street was expecting $1.69 billion on the top line and per share adjusted profit of $0.42.

All divisions of the company saw a decline, including U.S. simple meals (down by 3% to $505 million) and global baking and snacking (12%, to $553 million). The currency impact of the stronger dollar negatively affected international sales as well.

For the full year, net sales amounted to nearly $8.1 billion, with adjusted net income coming in at $1.2 billion ($2.46 per share). Both represented a 2% year-over-year decline.

It doesn't seem like those numbers will jump significantly higher in the near future. The company proffered guidance for fiscal 2016 that counts on net sales being flat to 1% higher on a year-over-year basis. It also believes adjusted EPS will grow by 3% to 5%.

Organically inclined
Campbell Soup isn't doing poorly -- a 15% annual net profit margin is certainly an accomplishment. The problem is, the company isn't moving the needle sufficiently on the top and bottom lines. Over the past decade, the former has risen by just 10%, with net income falling by almost the same percentage. Meanwhile, the S&P 500 has advanced by more than 50% across that span of time.

To its credit, the company is well aware that its product selection -- dominated as it is by old-line packaged goods such as its famous selection of canned soups -- is ripe for updating.

During the quarter, Campbell Soup spent $231 million to acquire Garden Fresh Gourmet. Its new asset makes the country's top refrigerated salsa and also hummus, various types of dips, and tortilla chips. It proudly touts the natural ingredients and processes that go into the products ("we start with whole corn -- not just corn flour -- and we grind it into a mash using real volcanic stone").

Garden Fresh Gourmet's offerings will be housed in Campbell Fresh, a new natural foods division the company recently created. The unit will be anchored by Bolthouse Farms, a company it acquired in 2012 for $1.55 billion. But Bolthouse Farms hasn't helped lift sales to any great extent, while Garden Fresh Gourmet will be only a drop in the bucket for the new owner -- its annual sales total roughly $100 million.

Going organic
Campbell Fresh is part of a recently announced general strategic plan aimed at tilting the company in a more natural/organic direction.

Other measures include greater disclosure about how the company's products are made, a reduction in non-organic ingredients (including the phasing out of artificial colors and flavors from all of its U.S. products by the end of fiscal 2018), and more extensive use of organics.

It's a move that makes a lot of sense. Thing is, Campbell Soup hasn't yet managed to warm up growth with the fresh/organic assets it already owns. So investors have some justification for being skeptical about this new effort. We'll see if the company can prove them wrong.

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