Campbell Outlines Strategies for Growth

On Jul 21, 2016

Camden-based Campbell Soup Company outlined its strategies to unlock its purpose, potential and performance. Led by President and Chief Executive Officer Denise Morrison, executives detailed plans to strengthen Campbell’s business through four strategic imperatives: Elevate trust through real food, transparency and sustainability; build digital and e-commerce capabilities; continue to diversify Campbell’s portfolio in health and well-being with fresh, organic and healthful foods; and expand Campbell’s presence in developing markets.

Morrison said, “Over the last five years, we’ve taken a number of bold steps to reposition the company for not just profitable, but sustainable growth. Our progress has been methodical. We’ve improved our company and shifted our center of gravity. But we have higher aspirations for the food we make, the role we play in people’s lives and improving our growth trajectory. That’s why it’s necessary to continue to relentlessly improve ourselves, our food, our business and our culture to further differentiate Campbell and to forge a meaningful and lasting place in the lives of new generations of consumers.”

Defining the Future of Real Food, Elevating Transparency

Campbell outlined how its real food philosophy is changing how it thinks and acts about its food, helping to restore consumers’ connection to food and supporting the company’s goal to set the standard for transparency in the food industry. “We believe real food should be made with recognizable, desirable ingredients from plants or animals. It should be responsibly crafted using ethical sourcing and sustainable practices that safeguard natural resources. Lastly, it should always be delicious, safe and available at a fair price—all three without compromise,” said Morrison.

Mark Alexander, President – Americas Simple Meals and Beverages, discussed a fundamental shift in how the company thinks about its food and the way it operates. Campbell has developed a scorecard called Campbell’s Real Food Index to track progress against its ingredient commitments, such as plans to remove artificial colors and flavors from its North American products by the end of 2018. The Index can be found on www.whatsinmyfood.com.

Campbell also said it will use only antibiotic-free chicken in its products, a shift that will be implemented over the next few years.

Alexander said, “We have defined our real food philosophy and laid out a plan to evolve our portfolio over time. This will not be a straightforward journey, or an easy one, but we are resolutely committed to it.”

Health and Well-being

The company discussed expanding its offerings in the faster-growing health and well-being space with a focus on key growth areas such as packaged fresh innovation and expanding organic and clean label offerings in center store.

Jeff Dunn, President – Campbell Fresh, outlined plans to drive growth in the division’s core businesses in produce and deli with juices, dressings, soups and salsa, as well as expand into new parts of the store. Campbell is investing in a rapid innovation process to develop new Campbell Fresh products with the speed and flexibility of a startup. The first product from this effort, Bolthouse Farms Plant Protein Milk, is a non dairy milk. Developed in a few short months, it is designed to tap into the alternative milks that have transformed the dairy category over the past few years. Bolthouse Farms Plant Protein Milk is made with 100 percent pea protein and will launch in mid-fiscal 2017 in the dairy section of the grocery store.

Expand Presence in Developing Markets

Luca Mignini, President – Global Biscuits and Snacks, highlighted Campbell’s strategy to capture a bigger piece of the growing snacks market by expanding its brand footprint across faster-growing channels and geographies, particularly in Asia. The Global Biscuits and Snacks division will aim to increase the frequency and penetration of its iconic brands in their home markets – Goldfish in the U.S.,Kjeldsens in China and Tim Tam in Australia – while introducing and expanding into new geographies.

In China, Campbell intends to increase marketing efforts behind its Kjeldsens brand in its key markets of Shanghai and Guangdong province while expanding its distribution in key regions in the East, and adding distributors in the South. The company plans to build its e-commerce capabilities in China to extend the Kjeldsens brand of butter cookies as well as to launch Tim Tam biscuits and Goldfishsnack crackers.

Mignini also outlined efforts in the U.S. to support the momentum of the Goldfish cracker business by building on the launch of GoldfishMade with Organic Wheat crackers, and to extend the national roll out of Tim Tam biscuits nationwide. The company plans to expand itsPepperidge Farm premium breads and rolls into additional West Coast markets, following the first Western U.S. launch of its bakery products in the Phoenix, Arizona, market earlier this year.

Increasing Digital

Morrison highlighted how the company has shifted advertising spend to digital and mobile platforms. In fiscal 2016, nearly 40 percent of Campbell’s advertising dollars were spent on digital compared to 19 percent in fiscal 2015.

Financial Update

Senior Vice President and Chief Financial Officer Anthony DiSilvestro discussed progress on cost savings initiatives, key drivers for fiscal 2017 performance, long-term growth targets and fiscal 2016 guidance.

Revised Fiscal 2016 Sales Guidance

Campbell lowered its outlook for net sales while maintaining its previous guidance ranges for adjusted Earnings Before Interest and Taxes (EBIT) and adjusted Earnings Per Share (EPS). Campbell now expects net sales to decline by -2 percent to -1 percent compared to the previous range of -1 percent to 0 percent. The revised net sales guidance reflects the impact of the recent recall of Bolthouse Farms protein drinks and the related production outage, as well as the impact of a major carrot customer moving to a dual source arrangement. This net sales guidance includes a 1-point benefit from the acquisition of Garden Fresh Gourmet and a 2-point negative impact from currency translation.

The company continues to expect adjusted EBIT to grow 11 to 13 percent and adjusted EPS to grow 11 to 13 percent, or $2.93 to $3.00 per share.

A reconciliation of the adjusted 2015 financial information to the reported information is included at the end of this news release.

Cost Savings Initiatives and Cash Flow

Campbell continues to expect its current cost savings initiatives to deliver $300 million in annual savings by fiscal 2018. This cost savings goal is incremental to the company’s ongoing supply chain productivity program. Campbell expects to generate approximately $1.3 billion in cash flow from operations in fiscal 2016.

Key Drivers for Fiscal 2017

Looking ahead to fiscal 2017, with cost savings and productivity gains exceeding inflation, Campbell expects its adjusted gross margin percentage to increase slightly. While inflation in core ingredient and packaging inputs has moderated, the company is forecasting a total cost of products sold (COPS) inflation of approximately 2 percent including higher wage and benefit costs and the adverse impact of a stronger dollar on the input costs of its international businesses. Campbell will continue to target supply chain productivity gains equal to 3 percent of COPS. Under its cost savings initiatives, Campbell expects to deliver incremental savings of approximately $50 million in fiscal 2017. The company also anticipates increased strategic share repurchases, unless cash is needed to help fund future external development.

Campbell plans to provide fiscal 2017 guidance when it reports fourth-quarter and full-year fiscal 2016 results on Sept. 1, 2016.

Long-Term Growth Targets

Campbell reiterated its long-term targets for organic sales and earnings. The company is targeting long-term organic sales growth of 1 to 3 percent. Excluding currency translation, the company is targeting adjusted EBIT growth of 4 to 6 percent and adjusted EPS growth of 5 to 7 percent.

 

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