Campbell Earnings Say: 'No Soup for You'

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Whenever a CEO begins her opening statements in an earnings release with "I'm disappointed," brace yourself for a painful read. CEO Denise Morrison of Campbell Soup Company delivered more broth and less meat with the results. How does this stack up against peers Mondelez International and General Mills ?

Campbell Soup Company reported its fiscal first-quarter 2014 results on Nov. 19. Sales were down 2%. Organic sales were down 4%. Adjusted earnings before interest and taxes took a 20% dive. 

The company blamed the poor results on inventory and timing problems, brand weakness, ineffective marketing investments, and a product recall. Campbell even blamed the late Thanksgiving holiday. It lowered its guidance as a result. Though much of it was expected, it was worse than the company anticipated. 

To address the shortfall going forward, Morrison gave a vague, long-winded plan that included "a robust marketing program" and "accelerating innovation." It sounds like something the company should have been doing all along anyway. Lowering guidance indicates that the company isn't overly confident in its turnaround plans.

Conference call
Management should be commended, though, for admitting its mistakes. On the conference call, Morrison immediately took responsibility. She stated, "I want to start by saying that I'm disappointed with our first quarter results, which failed to meet our expectations and yours. I own this, and so does our entire management team." 

She further explained that a number of retailers reduced their soup inventory levels in response to a "weak consumer environment." Did things suddenly change so quickly across both its customer base and the economy that Campbell couldn't see it coming? If you believe Morrison, then yes. The problem with that perception is that it arouses concern over the reliability of Campbell's 2014 guidance, considering the assumption that the company can't even see one quarter ahead. During the Q&A session, Jason English of Goldman Sachs pointed this out. He stated, "In the context of the first-quarter shortfall, it is -- it's difficult to see the clear path to your full-year guidance."

On the flip side, Morrison offered one encouraging, positive tidbit. She stated, "Our total U.S. soup gross sales are up 8% month-to-date in November from the prior year." Then again, she already mentioned the calendar shift for Thanksgiving delaying October sales, so November rise may be simply that carryover.

Share buyback program
Campbell had previous suspended its share buyback program in 2012. It would have been encouraging if the company restarted that, considering the share price is down. Instead, CFO Craig Owens mentioned that the buyback program would stay suspended while the company chooses to pay down debt to offset dilution from equity compensation. This is not exactly confidence-inspiring.

General Mills and Mondelez International
Other food companies haven't made any mention of this inventory problem.  On Nov. 20 when General Mills reaffirmed its fiscal 2014 guidance, it made no such mention of "inventory timing" issues that Campbell Soup claimed.  In fact, General Mills expects to see a climb in sales, operating profit, and EPS.  

For Mondelez International, it's a similar situation.  When it reported its results on Nov. 6, Mondelez International did reference the "challenging macroeconomic conditions."  However, there was no mention of inventory timing problems, and it was able to rise above any challenges.  Revenue increased 1.8% and adjusted EPS was up 15.5%. 

Foolish final thoughts
On the plus side for Campbell Soup, as long as retailers don't reduce their inventory to zero (which is highly unlikely), thin stockpiles of inventory don't have any long-term consequences. In fact, in the big picture, it means nothing. Ultimately it's the consumer buying soup that will most directly affect sales and profits long term. Still, Owens believes "some" of the inventory overhang has been worked off, but "some" means not all yet. There may be more pain ahead for investors with the next quarter. Until we get more information about how the turnaround is going, I say, "No soup for you."

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The article Campbell Earnings Say: 'No Soup for You' originally appeared on

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