First quarter result were less than impressive, and Credit Suisse downgraded the company's shares to underperforming, noting promotional spending didn’t help in boost U.S. soup sales. Campbell Soup Company (CPB) has now announced a change in strategy: shifting attention away from reducing salt in its products to focus more on taste and other qualities as its U.S. soup business has turned cold.
New Strategy: Add Salt To Taste
Campbell had been one of the first large U.S. packaged-food makers to focus heavily on decreasing sodium across its product line, but with lower than expected quarter results, the company has announced it's going to focus more on taste than on sodium reduction. The company’s Chief Executive, Douglas Conant, who is stepping down at the end of the company's fiscal year in July, said the company had pursued that and other nutritional health initiatives partly to prepare for voluntary or regulatory front-of-package nutritional labeling rules he expects in the U.S., but admitted that the attention on salt cutting caused management to focus less on other consumer needs, such as better tastes and exciting varieties.
First Quarter Result Highlights
Net earnings for the quarter ended Oct. 31, 2010, were $279 million, or $0.82 per share, compared with $304 million, or $0.87 per share, in the prior year. Gross margin was 41.2 percent, compared with 41.9 percent a year ago. The decrease in gross margin percentage was primarily due to increased promotional spending and cost inflation, partially offset by productivity improvements and favorable mix. Cash flow from operations was a use of $29 million compared to a use of $36 million in the year-ago period.
U.S. Soup, Sauces and Beverages
Sales for U.S. Soup, Sauces and Beverages were $1.103 billion for the first quarter, a decrease of 3 percent compared with a year ago. The change in sales was due to increased promotional spending.
For the quarter, U.S. Soup sales decreased 5 percent.
Sales of condensed soups decreased 1 percent. Sales of condensed cooking varieties rose driven by increased advertising and promotional activity. Sales of eating varieties declined as the business was negatively impacted by promotional discounting in the ready-to-serve segment. The company's baking and snacking segment sold more food and raised its prices, helping to boost sales 3%.
Company executives said they expect to see pressure on Campbell's profit margins from continued discounting in the fiscal second quarter. To counter that, the company said it would shift more resources to advertising from promotions.
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