Campbell Soup (CPB 39.49, -0.50, -1.25%) opened lower by 4.2% but
spent early trade mitigating those losses after reporting mixed results and
providing an update on divestiture plans.
The food processing company reported above-consensus fourth quarter earnings of $0.25/share on revenue, which jumped 33.4% year/year to $2.22 bln but was shy of expectations.
Campbell Soup issued weaker than expected earnings and revenue guidance for the upcoming fiscal year, priming the market for earnings between $2.45/share and $2.53/share while revenue is expected between $9.98 bln and $10.10 bln.
The company announced that after conducting a strategic review, it has decided to sell its fresh food business as well as its international business, which together generated circa $2.1 bln in net sales in FY18; brands affiliated with these businesses include Bolthouse Farms, Arnott's, and Kelsen. This means the company intends to refocus on its Campbell Snacks and Campbell Meals and Beverages businesses in the core North American market. If the divestitures occur as planned, Campbell expects that earnings for fiscal 2019 will be between $2.40/share and $2.50/share while revenue is expected between $7.93 bln and $8.05 bln.
Returning to fourth quarter results, the company's entire revenue growth rate was owed to benefits associated with recent acquisitions of Snyder's-Lance and Pacific Foods. Organic sales fell 3% due to weakness in Americas Simple Meals and Beverages.
Adjusted gross margin weakened to 30.6% from 36.2%. Recent acquisitions reduced the gross margin rate by three percentage points while the remaining decline was owed to cost inflation and higher supply chain costs, recall costs, unfavorable mix, and higher promotional spending. The headwinds were partially offset by improved productivity and benefits from cost savings initiatives.
Looking at the segment breakdown, Americas Simple Meals and Beverages sales declined 1.0% to $789 mln while organic sales fell 6%, principally due to declines in the U.S. soup business and Canada operations. Segment operating earnings fell 21% to $155 mln due to weaker gross margins.
Global Biscuits and Snacks sales jumped 87.2% to $1.20 bln. Organic sales, excluding the benefit from the Snyder's-Lance acquisition, were little changed year/year. Segment operating earnings grew 42.3% to $158 mln. The entire growth rate was owed to the Snyder's-Lance acquisition.
In the Campbell Fresh business, which is to be a subject of the aforementioned divestiture, revenue grew 1.3% to $228 mln due to higher sales of Garden Fresh Gourmet and carrot ingredients, which were partially offset by lower sales of Bolthouse Farms beverages. The segment reported an operating loss of $7 mln, a slight improvement from a loss of $8 mln one year ago.
- OUR VIEW
- LEARNING CENTER