Campbell Soup Co. raises prices, reinforces workforce as it braces for ‘tough’ quarter, but ‘solid’ full-year
“Like many of our competitors and customers, we face supply chain pressures, particularly around labor constraints and transportation capacity, and our net sales reflect those pressures,” CEO Mark Clouse told investment analysts Dec. 8 during the company’s first quarter earnings call.
He added the company’s 4% net sales drop to $2.24bn in the quarter ending Oct. 31 over the same period last year also was “driven by the expected lapping of prior year retailer inventory replenishment,” and supply constraints.
While the larger than expected drop caused sales to come in below analysts’ expectations of $2.28bn, according to Refinitiv IBES data, Clouse noted they were stronger than last quarter – up 2% -- and organic sales are up 5% on a two-year basis.
Despite this dip, and persistent headwinds related to the macroenvironment that will continue to pressure the business in Q2, Clouse described the first quarter as “solid” and the company reaffirmed its full year guidance, including net sales expected of minus 1% to plus 1%, and adjusted earnings per share of minus 4% to flat.
Additional price increases set for January
Many of the pressures that dragged down sales and squeezed margins in the first quarter have continued in the second quarter, but Clouse said he is optimistic about the second half of the year – noting the company’s progress offsetting inflation through pricing and other mitigation strategies, and alleviating supply chain pressures.
Inflation and other factors negatively impacted Campbell to the tune of 470 basis points in the quarter, the majority of which was driven by cost increases as overall input prices on a rate basis increased approximately 6%, CFO Mick Beekhuizen told analysts.
He explained inflation hit Campbell hardest across ingredients, packaging, labor, warehousing and logistics, but the company was able to cushion the blow with previously announced price increases that went into effect in the prior quarter.
Another round of increases is slated to go into effect next month and will be evident on the shelf by the third quarter, Clouse said.
‘Strong, persistent consumer demand’
Campbell is able to pull off multiple rounds of price hikes in part because consumption continues to climb – up 2% over last year and 9% from the year before – “signaling strong, persistent consumer demand,” Clouse said.
This is particularly true within Campbell’s core soup segment, where Clouse said it retained household penetration, share in the quarter and its expanded consumer base despite consumer mobility increasing, returning competition – especially from private label – and inflation driven higher price points.
Rebuilding the workforce
Clouse is also optimistic that Campbell’s performance will improve in the back half of the year in part because the company is making strides rebuilding its workforce, which should ease production and share pressure impacting some brands.
“Labor and supply challenges are impacting certain brands to a greater extent than others, creating some short-term share and consumption pressures,” Clouse said.
Specifically, he called out the negative impact on snack brands, including Lance Crackers, Late July, Snyder’s of Hanover Pretzels and some cookies in the quarter.
“To address labor challenges in our network, we have taken specific action,” including job fairs for facilities in Paris and Oklahoma, “and see early signs of improvement, such as increased on-boarding, lower absenteeism and improved retention,” Clouse said.
Beekhuizen qualified that the company’s vacancy rates are down about 30% from a month ago, and those should continue to drop more completely in the second half of the year.
As such, Clouse said, “we’ve seen a recent uptick in volume produced across the plants, and we expect to begin to rebuild our inventories in the second quarter, but not fully recover until the second half.”
Ultimately, Clouse said, these actions, combined with other “enterprise cost savings” paint a “fairly positive outlook and one that we think will help us really build momentum into the back half as we exit the year.”
