CAMDEN, NJ. — Sales within the Snacks business of Campbell Soup Co. fell 3% in its fiscal fourth quarter ended July 28, even as sales rose in the overall snacks category.
“We did see some competitive pressure in salty snacks that we are addressing with targeted plans in place in Q1,” said Mark Clouse, president and chief executive officer, in an Aug. 29 earnings call. “It's important to note, much of that share pressure is not a result of pricing or promotional activity, but rather new entrants into our elevated segments like Kettle potato chips or organic better-for-you tortilla chips.
Companywide, Camden-based Campbell Soup had net earnings of $567 million, equal to $1.90 per share on the common stock, down 34% from $858 million, or $2.87 per share, the previous fiscal year. Costs associated with acquisitions were 36¢ per diluted share, which compared with 1¢ in the previous fiscal year. Sales increased 3% to $9.64 billion from $9.36 billion, driven by the acquisition of Sovos Brands, Inc. Organic sales slipped 1% as unfavorable volume/mix partially was offset by a benefit from net price realization.
In the Snacks business, fiscal-year sales dropped 2% to $4.38 billion from $4.45 billion. Volume/mix was flat. A planned net pricing investment accounted for about half of an unfavorable net price realization of over 2%. Operating earnings increased 1% to $648 million from $640 million.
Among snack categories where Campbell Soup participates, 75% of the categories have returned to growth, Clouse said, adding the pretzel category was up 4% while the organic and natural tortillas category was up 5%.
New competitors arose in pretzels, potato chips and better-for-you tortillas, he said. In premium pretzels, Campbell Soup offers the Snyder’s of Hanover, Snack Factory and Goldfish brands.
“I’ve got all three brands that I can bring to bear in the defense with innovation,” Clouse said.
Campbell’s Snacks business reached an operating margin of about 15% in the fiscal year.
“We remain confident in our stated longer-term goal of 17% margins for Snacks,” Clouse said.
Fiscal-year sales within Campbell Soup’s Meals & Beverages unit rose 7% to $5.26 billion from $4.91 billion. Excluding the Sovos Brands acquisition, which included the Rao’s brand, organic sales increased 1%, driven by gains in US Soup, Foodservice and Prego pasta sauces, partially offset by declines in beverages. Operating earnings increased 9% to $974 million from $894 million.
Clouse said he was confident in the continued growth of Rao’s, which addresses different occasions and price points than Prego.
“Despite ranking as the No. 1 Italian sauce brand in terms of dollar share, Rao's has about 50% of the household penetration and 60% of the SKU assortment of Prego,” he said. “There is also a significant opportunity to continue to build brand awareness as the team readies new marketing and innovation for fiscal 2025.
“Additionally, the brand is growing share across all economic demographics and is thriving amongst millennial consumers. In fact, Rao’s is growing with millennials at a rate 2.8 times faster than the category. We are thrilled to see younger consumers embrace this ultra distinctive brand and believe this provides a strong foundation for us to build Rao’s into a household staple in the future.”
Clouse compared Rao’s to DiGiorno, which was known as an “incredibly expensive frozen pizza” when it launched in the 1990s, he said. When compared to delivery pizza, however, DiGiorno was more of a value. Rao’s, costing $8 to $9 for a jar, also is a value when compared to an Italian meal from a restaurant that may cost $30 or $40, Clouse said.
In soup, Swanson broth in the fourth quarter gained share as a private label supplier experienced supply constraints, Clouse said.
“It's important to note that although our share was helped by this dynamic, the category trends are also very healthy, up double digits, creating a great opportunity for Swanson to add new households,” he said.
In ready-to-serve soup, Campbell Soup is experiencing category pressure and consumers trading down to lower-priced brands.
“We expect both dynamics to improve as the weather changes and the role of ready-to-serve at lunch becomes more relevant,” Clouse said. “We are already seeing some stabilization and are confident about our robust pipeline of innovation and marketing across our Chunky, Pacific and Rao's brands.”
In the fourth quarter companywide, there was a net loss of $3 million compared with net earnings of $169 million, or 57¢ per share, in the same time of the previous year. Net sales increased 11% to $2.29 billion from $2.07 billion.
“While we remain vigilant as we head into fiscal '25, we have also never been more confident in the strength and long-term trajectory of our businesses,” Clouse said. “We remain steadfast in our view that consumer behavior will continue to normalize, and that we are uniquely positioned to deliver sustained and dependable growth with one of the best portfolios in all of food.”
In the 2025 fiscal year, Campbell Soup expects sales to increase 9% to 11% with organic sales flat to up 2%. Campbell Soup expects the divestiture of the Pop Secret business to reduce sales by about 1 percentage point, said Carrie Anderson, chief financial officer, adding the Sovos Brands portfolio long term is expected to have sales growth in the range of mid-single-digit percentages. Adjusted EPS is expected to increase 1% to 4%, or to a range of $3.12 to $3.22, which compares to adjusted EPS of $3.08 in fiscal 2024.
Inflation is expected in a range of low-single-digit percentages in fiscal 2025, Anderson said.
“I would say that we’re expecting a relatively slow bounce-back as it relates to snacking, a more kind of normalized meals and beverage and then a bit of a flip, as I said, in the back half, where you’ll see some headwinds from broth and perhaps a bit more normalized Meals and Beverage category and a more modest recovery on Snacks,” Clouse said.
