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Campbell Soup has a soup problem

MarketWatch logo MarketWatch 9/1/2017 Ciara Linnane
© Provided by Dow Jones & Company, Inc.

Shares of Campbell Soup Co. slid more than 6% Thursday after earnings fell short of estimates, with the company posting an 11th straight revenue decline as it struggles with changing consumer behavior.

The stock (CPB) fell to its lowest level since September of 2015 to lead S&P 500 decliners, and pulled other food stocks lower in sympathy.

“The operating environment for the packaged foods industry remains challenging due to shifting demographics, changing consumer preferences for food, the adoption of new shopping behaviors and the dynamic retailer landscape,” Chief Executive Denise Morrison said in a statement. “In these times, sales growth remains a challenge.”

On the company’s earnings call, the CEO said the emergence of new players, new store formats and evolving business models were a challenge. She cited as examples Amazon.com Inc.’s (AMZN) acquisition of Whole Foods, which closed this week, as well as the expansion of both Lidl and Aldi in the U.S. market.

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“Several variables are at play including value players expanding their presence in the U.S., the growth of store brands and the explosion of e-commerce and meal delivery services disrupting the market,” she told analysts, according to a FactSet transcript. “We expect conditions to remain hyper competitive for the foreseeable future.”

U.S. soup sales fell 1% in fiscal 2017, but the outlook is less promising. Morrison said the company has been unable to reach agreement with a large customer on a promotional program for soup and as a result, it expects soup sales to decline in fiscal 2018.

“Looking ahead to fiscal 2018, we expect the operating environment to remain difficult,” she said. “We will continue to position Campbell for long-term growth by managing costs aggressively and re-investing a portion of those savings back in the business with a focus on our strategic imperatives of real food, digital and e-commerce, health and well-being, and snacking.”

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The Camden, N.J. -based company said it had net income of $318 million, or $1.04 a share, in the quarter, after a loss of $81 million, or 26 cents a share, in the year-earlier period. Adjusted per-share earnings came to 52 cents, below the FactSet consensus of 55 cents.

Sales edged down to $1.664 billion from $1.687 billion, also below the FactSet consensus of $1.690 billion.

The company is now expecting fiscal 2018 sales to range from down 2% to flat. Adjusted EPS is expected to be flat to up 2%, or range from $3.04 to $3.11. The FactSet consensus for sales indicates growth of about 7%, while the EPS consensus is $3.05.

Morrison said sales of global biscuits and snacks were soft in the quarter, but generated a double-digit earnings increase. Americas Simple Meals and Beverages were “in line with the categories in which we compete”, while Campbell Fresh sales rose slightly.

Campbell Fresh, which includes Bolthouse Farms beverages, salad dressings and carrots, Garden Fresh Gourmet salsa, hummus and dips and fresh soup, had a disappointing quarter, said Morrison, but she is encouraged by progress made in addressing execution issues. The division has been hurt in recent quarters by weak carrot growing seasons, a recall of protein drinks and capacity constraints.

Morrison said the company is still expecting the division to return to profitable growth in fiscal 2018.

The company is working to collaborate with key customers on merchandising and improving data-driven shopper insights. It has also set up a distinct digital e-commerce business to address pure play and omni-channel opportunities.

“Make no mistakes. These shifts are accelerating and converging, and they’re having a dramatic impact on Campbell and across the industry,” she said.

Elsewhere in the food sector, Mondelez International Inc. (MDLZ) shares slide 1.7%, Kraft Heinz Co. (KHC) was down 1.5%, Archer-Daniels Midland Co. (ADM) was down 1.3%, Conagra Brands Inc. (CAG) fell 0.8% and General Mills Inc. (GIS) was down 0.3%.

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The PowerShares Dynamic Food & Beverages Portfolio exchange-traded fund (PBJ) was flat, but is down 4.4% in 2017, while the S&P 500 (SPX) has gained 10%.

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