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Campbell (CPB) Grapples With Weak Soup Unit & High Costs
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Like most players in the U.S. food space, performance of Campbell Soup Company (CPB - Free Report) is also plagued by high costs. Moreover, dismal segments (particularly the soups business) are limiting growth prospects. Let’s take a closer look at the aspects that have made matters distasteful for Campbell and whether it is making efforts to tide over the headwinds.
Weak Segments Pose Hurdles
Of late, Campbell is witnessing softness across U.S. Soup and Canadian businesses. In fact, in fourth-quarter fiscal 2018, U.S. Soup sales tumbled 14% due to lower sales of condensed soups, broth and ready-to-serve soups. This downside was caused by intense competition and reduced promotional activities. Weakness in the category also led to a 6% drop in the Americas Simple Meals and Beverages unit organic sales in the said period.
Though the company is undertaking efforts to improve trends in the U.S. Soup business, it is likely to decline in fiscal 2019. Apart from this, management also expects Campbell Fresh sales to be hurt by the termination of two key private-label refrigerated soup deals. Thanks to such headwinds, management expects organic sales to fall in fiscal 2019.
High Costs: A Major Roadblock
Campbell witnesses strained margins for a while, primarily due to rising input costs. During the fourth quarter, the company witnessed input cost inflation in categories such as dairy, steel cans, meat and resins along with greater-than-expected rise in transportation and logistics expenses. Also, adverse portfolio mix and pricing weighed on gross margin in the fourth quarter. In fact, gross margin softness as well as higher adjusted marketing and selling expenses weighed on Campbell’s EBIT margin in the said period.
Management expects fiscal 2019 gross margin to decline nearly 2 percentage points on account of cost inflation and unfavorable mix related to the acquired businesses. Notably, management expects cost inflation to remain high and range between 4% and 5% stemming from the aforementioned drivers along with tariff impacts. Apart from Campbell, food companies like Lamb Weston (LW - Free Report) , TreeHouse Foods (THS - Free Report) and General Mills (GIS - Free Report) have been grappling with higher input costs.
Can Efforts Aid a Turnaround?
In a bid to improve matters, Campbell has been employing strategic review of its portfolio. Markedly, the company plans to focus on two separate businesses in the key North American market — Campbell Snacks as well as Campbell Meals and Beverages. Further, the company plans to divest some of the non-key businesses. Banking on a more focused portfolio and other efforts to curtail costs, management raised cost-savings target for 2022 by approximately $150 million to $945 million. In addition to these, the company continues to make strategic acquisitions.
While such efforts are impressive, they are yet to completely offset the aforementioned headwinds. In fact, management expects profitability in fiscal 2019 to be hurt by the anticipated reduction in organic sales, soft gross margin due to cost inflation and increased incentive compensation. Apart from these, bottom-line performance is also likely to be marred by higher interest expenses and adoption of new revenue accounting standard. Bearing such aspects in mind, we are less hopeful regarding a turnaround in this food company’s performance.
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Campbell (CPB) Grapples With Weak Soup Unit & High Costs
Like most players in the U.S. food space, performance of Campbell Soup Company (CPB - Free Report) is also plagued by high costs. Moreover, dismal segments (particularly the soups business) are limiting growth prospects. Let’s take a closer look at the aspects that have made matters distasteful for Campbell and whether it is making efforts to tide over the headwinds.
Weak Segments Pose Hurdles
Of late, Campbell is witnessing softness across U.S. Soup and Canadian businesses. In fact, in fourth-quarter fiscal 2018, U.S. Soup sales tumbled 14% due to lower sales of condensed soups, broth and ready-to-serve soups. This downside was caused by intense competition and reduced promotional activities. Weakness in the category also led to a 6% drop in the Americas Simple Meals and Beverages unit organic sales in the said period.
Though the company is undertaking efforts to improve trends in the U.S. Soup business, it is likely to decline in fiscal 2019. Apart from this, management also expects Campbell Fresh sales to be hurt by the termination of two key private-label refrigerated soup deals. Thanks to such headwinds, management expects organic sales to fall in fiscal 2019.
High Costs: A Major Roadblock
Campbell witnesses strained margins for a while, primarily due to rising input costs. During the fourth quarter, the company witnessed input cost inflation in categories such as dairy, steel cans, meat and resins along with greater-than-expected rise in transportation and logistics expenses. Also, adverse portfolio mix and pricing weighed on gross margin in the fourth quarter. In fact, gross margin softness as well as higher adjusted marketing and selling expenses weighed on Campbell’s EBIT margin in the said period.
Management expects fiscal 2019 gross margin to decline nearly 2 percentage points on account of cost inflation and unfavorable mix related to the acquired businesses. Notably, management expects cost inflation to remain high and range between 4% and 5% stemming from the aforementioned drivers along with tariff impacts. Apart from Campbell, food companies like Lamb Weston (LW - Free Report) , TreeHouse Foods (THS - Free Report) and General Mills (GIS - Free Report) have been grappling with higher input costs.
Can Efforts Aid a Turnaround?
In a bid to improve matters, Campbell has been employing strategic review of its portfolio. Markedly, the company plans to focus on two separate businesses in the key North American market — Campbell Snacks as well as Campbell Meals and Beverages. Further, the company plans to divest some of the non-key businesses. Banking on a more focused portfolio and other efforts to curtail costs, management raised cost-savings target for 2022 by approximately $150 million to $945 million. In addition to these, the company continues to make strategic acquisitions.
While such efforts are impressive, they are yet to completely offset the aforementioned headwinds. In fact, management expects profitability in fiscal 2019 to be hurt by the anticipated reduction in organic sales, soft gross margin due to cost inflation and increased incentive compensation. Apart from these, bottom-line performance is also likely to be marred by higher interest expenses and adoption of new revenue accounting standard. Bearing such aspects in mind, we are less hopeful regarding a turnaround in this food company’s performance.
5 Medical Stocks to Buy Now
Zacks names 5 companies poised to ride a medical breakthrough that is targeting cures for leukemia, AIDS, muscular dystrophy, hemophilia, and other conditions.
New products in this field are already generating substantial revenue and even more wondrous treatments are in the pipeline. Early investors could realize exceptional profits.
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