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Campbell warns on '02
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July 27, 2001: 4:44 p.m. ET
Increased spending on marketing, capital improvements, R&D to cut EPS
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NEW YORK (CNNfn) - Campbell Soup Co. warned Friday about earnings in its coming fiscal year, unveiled a sweeping restructuring aimed at reviving its flagging soup brand and slashed its dividend by 30 percent.
The world's biggest soup maker has been steadily losing market share to rivals that stake the advertising for their ready-to-eat brands on health claims.
Campbell (CPB: down $0.75 to $27.01, Research, Estimates), which also makes Pepperidge Farm baked goods, Godiva chocolates and Prego pasta sauces, said it is confident it will meet earnings per share figures for the current fiscal year, which ends this weekend, but warned it now expects earnings of $1.30 a share for fiscal 2002, compared with Wall Street forecasts of $1.40 a share on average, according to First Call.
The Camden, N.J.-based company cut its annual dividend to 63 cents a share from 90 cents in what it called a move to improve cash flow.
Campbell stock fell 74 cents to $27.02 in early afternoon trading.
"The urgent need for transformation of our business is clear and compelling," CEO Douglas Conant said. "We have stumbled in the marketplace, weakened our connection with consumers and disappointed investors."
Conant told analysts during a meeting in New York Friday that the company is on track for 5 percent sales growth in the U.S. soup business, but acknowledged that Campbell alienated consumers by slashing advertising and pricing its soups too high relative to rival's brands.
"In our quest for ambitious EPS targets we simply pushed the envelope too far in pricing. We did not do enough to keep ahead in the quality race and let competitors begin to close the gap," Conant told analysts.
He said the company plans to be more competitive in pricing and that it expects to double the consumption of its Chunky soups by 2004 and improve the taste of its 75 condensed soup varieties.
Conant said the company's restructuring plan calls for achieving 3 to 4 percent annual sales growth with annual earnings per share growth of 8 percent starting in fiscal 2003. That would be a significant jump from the average 1.3 percent annual sales growth of recent years, according to analysts.
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Campbell's said it would improve the quality of its condensed soups (Source: Campbell's Soup) | |
The company plans to raise marketing spending by15 percent, or $200 million, chiefly for its core "red and white" soup brands, to phase in new lids on canned soups, and test a new line of portable, or "sipping soups."
The company also plans to spend raise capital spending in fiscal 2002 by $100 million to $300 million for expanding manufacturing and improving quality.
Campbell also plans to grow its international soup and food brands, many of which consist of top brands in Europe acquired earlier this year from Unilever.
"We just haven't used our knowledge to full advantage. We have been slow to innovate. We have not kept pace with competitive quality moves, and we have been inconsistent in our advertising messages and spending. Change is underway," Conant said.
Wall Street had been anticipating a restructuring since Conant assumed the top spot at Campbell earlier this year.
"It was roughly in line with what I'm looking for," said Credit Suisse First Boston Analyst David Nelson, who has maintained a sell rating on Campbell's since last spring. "They lowered the boom. They're talking about doing all the right things, but there wasn't a lot of detail. It's going to be a long drawn out recovery, but it still doesn't make me want to run out and buy the stock."
The market for condensed soup has been sliding as consumers have found it less convenient to crack open a can with an opener, add water and boil, rather than simply pull a pop top and heat, as with ready-to-eat soups.
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Consumers also have been switching from condensed brands to others that are perceived to be healthier.
Analysts questioned Campbell's strategy for hanging on to the condensed business when the market seems clearly to be shifting away, but Conant reiterated his pledge to revitalize the 132-year-old company's core condensed soup business by improving the taste and quality and stepping up advertising.
"I believe condensed can be stabilized," Conant said. 
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Campbell Soup
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