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Campbell Soup Gets Squeezed
Sunday, September 30, 2018

Campbell Soup just filed its annual report for its fiscal year ending July 31. If you want a glimpse into all the business issues currently vexing large businesses, pull up a computer screen and take a gander.

First are the financials, which were less than spectacular. Yes, revenue did rise 10 percent to $8.69 billion, but cost of goods sold rose 18.2 percent, marketing costs rose 5.5 percent, and administrative costs rose 18.9 percent. Throw in some restructuring charges and other expenses, and Campbell ended up with total costs rising almost $2 billion last year. Earnings before tax and interest landed at $469 million, two-thirds lower than 2017 numbers. Ugh.

Snoops that we are around here, we were especially interested in that spike in the costs of goods sold. Soup comes in cans, which are made of steel and aluminum. The Trump Administration is currently taxing steel and aluminum as part of its trade war. So we wondered — are those import taxes part of Campbell’s woes?

We visited our Interactive Disclosure viewer to see what Campbell had to say. We discovered a litany of disclosures in the Management Discussion & Analysis that hits pretty much every headache a large business might suffer today.

First Campbell talked about customer concentration generally, and how that consolidation is putting the squeeze on manufacturers of things like soups:

In 2018, U.S. soup sales declined primarily due to a key customer’s different promotional approach for soup. We expect consolidations among retailers will continue to create large and sophisticated customers that may further this trend… In addition, although e-commerce represents only a small percentage of total food sales, we anticipate it will continue to grow rapidly.

Bummer, but what about all those local retailers still fighting the good fight?

At the same time, new and existing retailers continue to grow and promote store brands that compete with branded products.

Sorry to hear that. But we came here to ask about steel and aluminum tariffs, Campbell. What can you tell us about that?

The cost of distribution has increased due to a significant rise in transportation and logistics costs, driven by excess demand, reduced availability and higher fuel costs. In addition, certain ingredients and packaging required for the manufacture of our products, including steel, have been or may be impacted by new or recently proposed tariffs. We expect these cost pressures to continue in 2019.

That’s tough, because those tariffs and higher energy prices aren’t likely to go away any time soon. What about trying to streamline operations? Would that help?

In connection with our transition to our new U.S. warehouse optimization model, we are also experiencing significantly higher than expected cost increases and shipment delays associated with the startup of our Findlay, Ohio distribution facility. The Findlay facility, operated by a third-party logistics service provider, serves as the Midwest hub for distribution of Campbell’s soups, Swanson broth, V8 beverages and Pace, Prego and Plum products.

Geez. Next you’re probably going to tell us Hurricane Florence dropped the whammy on you, too.

In September, our Maxton, North Carolina manufacturing and distribution capabilities were negatively impacted by flooding associated with Hurricane Florence. We expect the collective impact of these cost increases, shipment delays and weather-related issues to have a negative impact on our results of operations for the first quarter ending October 28, 2018.

Oh for pete’s sake, Campbell. We give up. Best of luck to you and we look forward to reading your earnings release in early November.


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