Campbell’s: Q2 Earnings ‘Right Where Expected,’ Readies For Sovos Deal Close
On the eve of closing on its acquisition of Sovos Brands, Campbell Soup Company released its second-quarter 2024 earnings this morning showing sequential volume improvements, slightly lower sales and margin growth.
Net sales were $2.4 billion, a -1% decline for the year-ago period. Adjusted EBIT increased 1% to $364 million. Adjusted gross profit margin for the quarter was 31.4%.
“While it is true that category trends have slowed over the last year, I’m encouraged by a variety of stabilizing consumer indicators like consumer sentiment, household penetration and average categories purchased,” Campbell’s president and CEO Mark Clouse said in prepared remarks. “However, we are also continuing to see economic pressure impacting select categories and certain consumer demographics. While we expect these trends to improve over time, we’re certainly not there yet.”
As a result of continued inflationary pressure, Campbell’s initiated its final pricing increase of 1% during the quarter to combat the economic headwinds. EVP and CFO Carrie Anderson announced the company“did not expect net pricing to be a material driver of net sales growth” in the back half of the year highlighting the company’s emphasis on supply chain productivity and promotional support to drive margin growth.
The food giant maintained its FY2024 guidance anticipating net sales to be between -0.5% to +1.5% and adjusted EBIT between 3% to 5%.
The addition of Sovos Brands (Rao’s, Michael Angelo’s and Noosa Yogurt) is expected to lift the company’s Meals & Beverages division, which posted a -4% organic sales dip during the quarter.
Along with the addition to Meals & Beverages, company leadership reiterated its optimistic focus on the Snacks portfolio which, on a two-year compound annual growth rate (CAGR), reported organic net sales up 8%. Operating earnings in the category were $161 million in Q2, a 7% increase from the same period the previous year.
Goldfish remains the foundational brand for Campbell’s Snacks division. The iconic fish-shaped crackers have now officially crossed the $1 billion net sales marker, the company reported on the call. Net sales for Goldfish were up 6% compared to Q2 2023 with dollar consumption rates elevated 4%. The company said its latest Goldfish Crisps innovation has already exceeded expectations in early tracking of the product.
Campbell’s remains committed to its continued investment in restructuring its Snacks distribution network, which it has been scaling with new DSD partnerships and a combo strategy in about 20% of its delivery routes. Clouse admitted that the initiative is “more exciting to us than the outside world,” but the key has been to build a model where distributors can deliver to two parts of the store in one delivery.
It all comes down to scale, Clouse said. “To make it the win-win that we want it to be is to maximize in-store execution while [making] the economics of drop sizes being substantial enough that it makes these routes attractive.”
In response to a question about the possibility of splitting Campbell’s into two separate companies — Snacks and Meals & Beverages — Clouse said there are no plans at the moment. Though, he did leave room open for an economic split potentially in the future, saying that it would need to come from “a position of strength.”
“We will always look and evaluate, but right now I feel like all roads lead through executing and delivering on this vision that we have both of the divisions,” he said.
