A Winter Of Discontent
Even though Campbell got more aggressive with promotions for the fiscal second quarter, and the weather should have helped, none of it seemed to matter to the top line. Overall revenue declined 1% as reported and missed the average estimate. Sales in the U.S. soup, sauce and beverage category fell 4% as reported, as did international sales. The baking/snacking business was a solid bright spot with 8% revenue growth, but as this unit contributes less than a quarter of the company's total revenue the outperformance only helps the company a little bit.
As sales fell short, so too did the company's profitability. Gross margin fell more than a point on the higher promotional activity. Although marketing and selling expenses declined a bit (the "promotional activity" impacted the sales and gross profit lines), earnings were nevertheless down 8%. Making matters worse, earnings quality was not great - though the company appeared to miss estimates by only a penny, Campbell paid less in taxes than analysts had forecasted, so results were actually worse on a relative basis.
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2 comments:
One theory is that emerging markets like Russia and China consume minimal amounts of canned soup currently and thus represent major new markets for CPB and GIS's Progresso. This may seem reasonable but I remember reading stories about the difficulty Kraft's Nabisco division had with customizing the Oreo to appeal to Chinese tastes. The Chinese version sounds more like a Drake's Devil Dog than a Nabisco Oreo. The emerging market consumers may love things like Coke and Disney movies, but food seems to have deeper cultural roots and what tastes good to one culture tastes like crap to another (or, one fella's meat is another fella's "yuch".) Emerging markets may end up being a bridge too far for some companies, although supposedly Unilever and Nestle are doing OK at this.
Very true. I have yet to meet a Japanese person who likes (or even tolerates) cottage cheese.
I don't know if canned soup will ever really catch on in some of these markets ... I don't really recall it much in Japan, and they have no problem with canned foods (beverages especially).
So yeah, it seems like going global with food is tricky business.
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