Campbell Soup’s big bet on fresh food is wilting.
The Big Food maker on Thursday reported fiscal fourth-quarter sales and earnings results that missed Wall Street’s expectations, as results were hurt by particularly bruising sales for the company’s Campbell Fresh division. Sales in the fresh business slumped 12% in the quarter when excluding sales derived from Garden Fresh Gourmet, which Campbell bought for $231 million in 2015. The division, which includes the Bolthouse Farms, was hurt by a recall and poor yields for carrot crops over the summer.
“This performance is unacceptable,” CEO Denise Morrison told investors. “I expect far more from the Campbell Fresh business.”
Investors seemed to agree. They sent Campbell’s (CPB) shares down 5% on Thursday.
Morrison spent much of her prepared remarks addressing the woes Campbell Fresh faced throughout the most recent fiscal year. The division is strategically important to Campbell as it represents the company’s investments in foods and brands that are deemed fresher by consumers, more on-trend as legacy brands like the namesake soups face some perception issues when it comes to freshness and quality. Campbell Fresh focuses on eight categories today: fresh carrots, beverages, salad dressings, salsa, hummus, dips, chips, and soup.
The division represents about $1 billion in revenue, or 13% of Campbell’s total sales, so any weakness is big enough to be felt at the overall top line.
The problems Campbell Fresh faced included the following:
- Bolthouse Farms recall. Campbell recalled 3.8 million bottles of Bolthouse Farms Protein Plus beverages this summer due to possible spoilage. In the wake of that move, Campbell put new operating procedures into place to ensure the new outgoing products met high safety standards. Unfortunately, production run times were changed in the aftermath, hurting Campbell’s capacity.
- Carrot troubles. Without getting too wonky, Campbell’s farming partners made several decisions earlier this year that led to a spring crop that yielded smaller-than-planned carrots, resulting in some lost business. Encouragingly, Morrison said that the size of the carrots that Campbell is now harvesting has vastly improved.
Morrison has been very vocal about Campbell’s moves to stay attuned to shifting consumer trends, aggressively pursuing takeovers to better position the soup maker. It paid $1.55 billion for healthy juice maker Bolthouse Farms in 2012 and scooped up baby food maker Plum Organics a year later. Her vision was highlighted in Fortune’s 2015 cover story “The war on big food,” which addressed how Big Food makers are aiming to navigate sweeping changes in how consumers shop at the grocery store.
The bet on fresh makes sense strategically because consumers are increasingly seeking out foods that they deem healthy, especially foods that are marketed as “fresh” or “organic.” Nearly 80% of American consumers say they are trying to eat “more fresh foods.” Millennials are more interested in eating healthier than older generations, so there’s a generational shift at play as well.
But Campbell’s latest results indicate that there are growing pains when pursuing a Big Food transformation. To that end, Morrison disclosed on Thursday that Campbell would shake up some corporate management. Several senior managers were no longer with the company, including Bolthouse Farms President Scott LaPorta. Campbell Fresh will still be led by Jeff Dunn, who will oversee a team that added more staff to the senior finance, human resources, and sales executive roles.
In the first half of the new fiscal year, the new team is mandated to take steps to stabilize the business, Morrison explained. They will be expected to improve Campbell’s execution, increase capacity as the company rebounds from the Bolthouse Farms recall, and stabilize the carrot business.
Putting it all together, Campbell’s sees sales growth for Campbell Fresh to be in the low single digits for fiscal 2017. Sales will be “slightly down” in the first six months of the fiscal year before rebounding as a turnaround takes root.
“While disappointed in the near term performance of C-Fresh, I remain confident in the strategy we are pursuing, the package fresh platform we’re building, and the growth potential of this business,” Morrison said.
