Why Campbell Soup Tastes Bitter


They say, if it ain't broke, don't fix it. But Campbell Soup (NYS: CPB) certainly needs to fix its bread-and-butter U.S. soup segment. Soon-to-be CEO Denise Morrison is looking to set things in order in an effort to correct slumping sales. The world's top soup maker has seen its U.S. soup sales decline for two straight years. However, things might soon change at the New Jersey-based company if Morrison has her way.

A little background
In an earlier article, I spoke about the strength of Campbell's baking and snacking segment, which was driving sales forward, and concluded that the stock was good buy since it was looking to rectify its slumping soup sales. That is exactly what Morrison is looking to do.

Campbell sells around 2 billion cans of soup each year. It has the highest market share in the U.S., serving almost 60% of the "wet soup" market. However, strong competition from the likes of Progresso from General Mills (NYS: GIS) and Healthy Choice from ConAgra (NYS: CAG) have been eating into sales and weighing on Campbell's margins.

In last 12 months, revenues from Campbell's U.S. soup, sauces, and beverages segment have fallen 4.3% to $3.54 billion. Since this segment contributes nearly 46% of its total revenues, the weakness has clearly weighed on Campbell's bottom line.

A pinch of salt
However, the real problem lies on the consumer side of the equation. Consumers' changing taste and waning demand for soup has really been the culprit here. Although Campbell launched a healthier, low-sodium range of soups to boost sales, things didn't really change.

Now, to boost sales, Campbell plans to launch 27 new soups by September. The company will rely less on price promotions to drive future sales. It also plans to splurge on its Prego and Pace sauces, driving those businesses with new products. There will be a focus on international expansion, tying up with companies in Asia and Latin America.

The Foolish bottom line
These changes coupled with rising input costs will definitely weigh on Campbell's margins and near-term profitability, so the outlook is not so great for this year. Accordingly, earnings are expected to fall by 6% in fiscal 2012. However, the changes Campbell is working on are for the long run and should likely pay dividends going forward.

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

Copyright © 1995 - 2011 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.