Campbell Soup Shares Drop On Wilted Fresh Food Sales

February 17, 2017, 3:15 PM UTC

Campbell Soup CEO Denise Morrison’s bet on healthy foods is continuing to drag down the soup maker.

On Friday, the Big Food maker posted disappointing fiscal second-quarter quarterly sales, as results were again hurt by the company’s Campbell Fresh division. Sales for that business tumbled 8% to $260 million due to lower sales of carrots, Bolthouse Farms refrigerated beverages, and Garden Fresh Gourmet. Campbell Soup had previously warned that the business was facing challenges but had hoped sales for the current fiscal year would return to growth. Morrison said Campbell now expects sales for the fresher foods unit will decline for the year.

“Let’s be real, I’m not satisfied with our overall sales performance in the quarter,” Morrison told analysts during a conference call. “Our performance over the last year in fresh has been disappointing.”

Total sales slipped 1% to $2.17 billion, worse than Wall Street’s projection of $2.22 billion. Wall Street investors sent shares about 6% lower on Friday.

Campbell’s Fresh division was built by Morrison as a way to compete in the consumer-driven trend to eat more healthier and fresh foods. Morrison claims that 80% of consumers say they are trying to eat healthier, so she and others believe it is important to get more products on the perimeter of the grocery store where fresher foods are stocked. Campbell and many other Big Food makers traditionally have stocked foods in the center of the store, where the company’s soups, Goldfish and Prego brands are found.

The company bulked up on fresh foods via acquisitions, including the company’s $1.55 billion takeover for healthy juice maker Bolthouse Farms in 2012 and the $231 million deal for Garden Fresh Gourmet in 2015. The soup maker bought those brands to boost sales, but both are posting sales declines.

Bolthouse Farms has been stung by some capacity constraints. Garden Fresh Gourmet, meanwhile, was a Midwestern brand and Campbell had acquired it with the hope it could expand the brand nationally. But Morrison explained that Campbell didn’t differentiate recipes to meet the taste profiles that consumers wanted in other regions of the country. As a result, Garden Fresh failed to be an attractive brand to those newer customers. She promised that new recipes and new packaging for the Garden Fresh brand would be better received.

The problems Campbell has reported with some of the newer brands it has acquired points to the challenges that Big Food manufacturers face when they acquire smaller, fast-growing startup brands with the hope that a big boost in distribution and marketing can result in stellar growth. It isn’t always that simple: Sometimes there are issues with the packaging, the recipes, or even issues with management and culture when Big Food tries to incorporate a startup founder and their team into the fold.

Campbell is trying to address this by reshuffling the management team of Campbell Fresh to be a mix of legacy Bolthouse Farms employees and some in-house talent from Campbell. The division is now being led by Campbell insider Ed Carolan, who took the helm last year.

Campbell’s carrot business has also been problematic. There were quality issues last year and more recently, Campbell’s carrot harvesting in California has been hurt by poor weather conditions in California. “Fresh food is more perishable and therefore more fragile,” Morrison said. “There is no roof over the carrot fields. The business has been much more volatile than expected.” She added that more work needed to be done to correct how Campbell sources carrots.

Despite all the woes, Morrison told investors Campbell would remain committed to the category and also future potential acquisitions within that space.

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