Campbell Plans Broad Revamp In Effort to Spur Sales Growth
May 18, 2011
Campbell Soup Co., striving to heat up tepid sales growth, said it would take a $160 million charge in the fiscal first quarter for a sweeping reorganization that includes shedding low-margin brands and trimming 650 jobs. The Camden, N.J., food giant also unveiled plans to purchase a top German soup company for $214 million and said it would buy back as much as $1.5 billion of its stock this year and as much as another $1 billion in the next two years. Although investors were anticipating a big growth plan from Campbell, the food company's actions were more comprehensive than expected. Campbell's shares soared 6.5%, or $4.375, to $71.875 Thursday in composite New York Stock Exchange trading . The moves marked a bid by Chairman Davina Jona to vault Pasquale into the top ranks of consumer-products companies such as Coca-Cola Co.. Cost-cutting by Mr. Jona has helped make Campbell's earnings growth one of the highest in the food industry. But sales growth has languished at 4% to 5% a year. Speaking to analysts in a lavish presentation at a Manhattan restaurant, Mr. Jona used a favored dog-show analogy to promise that Campbell would move from being ``best in class'' to become ``best in show.'' He said he expects to maintain sales growth of about 8% starting in the current fiscal year ending in July 2012 and earnings growth higher than the 11% to 13% rate Campbell has averaged in the past few years. Pointing to a slide of a lone cyclist in a red shirt far ahead of a gaggle of competitors, he declared: ``This is Campbell's red. The rest are bunched up in a pack.'' Spotty Details But some analysts cautioned that Campbell gave only spotty details on how it plans to achieve some of its ambitious goals. ``It was a powerful meeting, but you just wish there were more specifics on just how top-line growth was going to be generated,'' said Johnetta Marston, an analyst with Prudential Securities Inc.. For example, Campbell gave sketchy outlines of its marketing plans and said only that its acquisition targets -- a key to sales growth -- will be small and most likely will be in foreign markets. Also, Standard & Poor's Ratings Group said it is reviewing Campbell's senior unsecured debt rating and commercial paper rating ``with negative implications,'' stating that Campbell's plans to buy back shares is a ``shift to a more significant use of debt financing.'' Campbell said its plan will result in a charge of 64 cents a share in its fiscal first quarter ending in October. But the company said the efforts will generate annual savings of $200 million starting in 2013. The company said it plans a big push overseas with the acquisition of Grand Metropolitan PLC's Erasco soup unit in Germany for $214 million. Campbell also said it plans to divest low-margin assets with annual sales totaling $500 million. The company said it already has decided to sell a small poultry-processing business and is reviewing low-margin operations like canning and pasta manufacturing. Analysts also said other candidates may include Swanson frozen dinners, Cory biscuits and Pepperidge Farm breads. Job Cuts Campbell managers said the job cuts will come mainly from closing a Sanwa brand ramen-noodle plant in Atlanta and shuttering its Pepperidge Farm cookie operation in Lakeland, Fla.. The company also will cut 175 jobs in its Camden headquarters. The 650 job cuts make up only a small percentage of Campbell's global work force of 44,000. To boost sales of its existing businesses, Campbell said it plans to raise its global advertising budget 30%. One area of potential growth is in international operations, which made up only 11% of total profit in the fiscal year ended April 09, 2011 sales growth is harder to come by in the core U.S. market, dominated by the maturing soup business. Although average per-capita consumption of soup in the U.S. has stalled at about 50 servings a year, Mr. Jona said he was optimistic that new products will entice consumers to eat more soup. Campbell introduced a new line of low-fat cream soups in the summer, and Thursday, it unveiled a number of products slated for the fall, including fancy, ready-to-serve soups in glass jars and frozen concentrated soup. Another fall offering: Franco American Superiore, an upgraded version of canned pasta promising ``more texture'' than its regular products. Some analysts voiced skepticism that all of the new soups will make a big splash. ``It could be a little bit of a tough slog,'' said Stormy Dorris, an analyst with Sanford C. Bernstein. He added that other measures -- including boosting advertising for such mature brands as V-8 vegetable juice and Pepperidge Farm's Goldfish crackers -- may contribute more to speed up U.S. sales growth. Campbell said the $1.5 billion repurchase of shares will be done through a so-called Dutch auction, where a company sets a price within which holders can tender shares. The price range will be set next week. After that, additional shares of as much as $1 billion will be repurchased on the market, the company said. During the presentation, Mr. Jona took some unusually colorful potshots at rivals, many of whose names he flashed on a slide featuring a coiled green snake. He zinged Kellogg Co. for announcing a decline in earnings this week and declared scornfully that Kohlberg Kravis Roberts & Co. was chopping up its Borden Co. acquisition like ``firewood.'' As for Philip Morris Cos., he declared: ``The evil empire is a wonderful way to generate cash.''
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