The Fly in Campbell's Soup

The world's largest soup maker, Campbell Soup (NYS: CPB) , has been trying hard to turn around its declining soup business. This year, it planned to invest heavily in advertising and promotion to help push up sales but decided to put it off until later in the quarter, which more closely relates to "soup season." This decision helped Campbell's better-than-expected profits in its first quarter of the year, though profits still fell 5% from a year ago. Let's dive in.

Ain't tasty no more!
Revenue for the quarter fell slightly to $2.16 billion compared with the same period last year. Food producers have been hit by high input costs, which have forced them to raise prices of their products. Plus, with shoppers cringing at spending more since the financial crisis, sales have taken a hit.

Another major problem facing Campbell's is an overall decline in soup consumption. Higher prices have certainly been a contributing force to the decline. To add to this, Campbell's is facing stiff competition from General Mills' (NYS: GIS) Progresso, and ConAgra's (NYS: CAG) Healthy Choice. The combination has resulted in Campbell's U.S. soup sales being down 4% during the quarter.

General, selling, and administrative expenses fell 3% for the quarter from a year ago. This helped Campbell's record a profit of $265 million, 5% lower than what it had posted in the year-ago quarter. Campbell's under its new CEO, Denise Morrison, plans to spend almost $100 million in the new financial year on marketing and new product development efforts. It started the advertising blitzkrieg in September to coincide with peak soup season. Campbell's is hoping these efforts pay off, or else it runs the risk of higher costs and expenses eating into its profits.

Spice it up, baby
For Campbell's to bounce back, it needs to first and foremost fix its struggling soup business. Campbell's has been investing in spicing up its soups by trying to make them more appealing to current tastes. It has come up with a new range -- Slow Kettle soups with more chic flavors, which include portobello mushroom and Madeira bisque.    

A couple of things went well, like the positive response Pepperidge Farm and Goldfish crackers received, which drove global baking sales 4% higher. Last quarter, Campbell's highlighted its plans to have a stronger international foothold by making additions to its range of products in overseas markets. In European markets, it will look to bolster its existing meal maker offerings. Campbell's will also look to penetrate more deeply into markets in Australia, New Zealand, and Canada.

But Campbell's really must hope for a turnaround in its U.S. soup business. While international emphasis is good, the United States is still Campbell's largest market by far. Also, a pronounced increase in Europe may be difficult as the debt crisis continues to cast uncertainty.

At the very least, it will be an exciting show to watch. See if the company's efforts pay off -- click here to add Campbell's to My Watchlist, a totally free Motley Fool service to bring you all our relevant news about your favorite companies.

At the time this article was published Fool contributor Shubh Datta doesn't own any shares in the companies listed 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.

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