Campbell Soup Co. is optimistic input-cost inflation will moderate in the back half of its fiscal year but still has a fourth pricing round in the locker.
Only three months into Campbell’s new financial year, the US soups, snacks and meals maker has raised its outlook for sales and profits after what president and CEO Mark Clouse described as a “strong” first quarter.
Both reported and organic sales were up 15% at US$2.6bn following a third batch of price increases across the portfolio in July, with Campbell poised to initiate another in the second half of the new financial year that began on 1 August. However, that will be “very targeted”, Clouse said.
While input-cost inflation is expected to persist throughout fiscal 2023, the Kettle crisps brand owner anticipates an easing from double-digits to the single-figure area in the second half of the year. Core or gross inflation is likely to average in the low-teens range across the 12 months, CFO Mick Beekhuizen said.
On the back of 18% input-cost pressures in the first quarter, Beekhuizen explained on a post-results call: “We’re expecting double-digit inflation in the first half but then we’d cut over into the new calendar year and certain contracts reset. And of course, then you start to comp higher inflation levels from this past year.
“Then in the second half of the year, as a result, we expect more of the high-single-digit-type of inflation. In the second half, you start to see that inflation is starting to moderate, however, still inflationary.”
Clouse added Campbell’s outlook still includes the expectation of a “pretty volatile environment” but with price increases moving more into line with core inflation around low single-digits. Elasticity, meanwhile, has remained “below historical levels”, he said, reiterating his comments made in September.
“I think it will be closer in Q2,” Clouse explained during the Q&A session. “It’s really then the back half where you start to see the significant impact of a year-ago pricing and the incremental contribution from pricing would be significantly lower as we get into Q3 and Q4.”
Campbell’s retailer negotiations
Asked for some insight into price negotiations with retailers, Clouse emphasised the “tail-end” of the pricing wave.
“As we’ve navigated through this last couple of years of elevated inflation, the level of transparency and almost the mechanical nature of understanding [and] the validity of pricing actions, has become a muscle that has really been built well, I think, on both sides of the table,” he responded.
“It’s really much more about the dialogue of where are our costs [and] how did those reflect what we’re suggesting on price. I do think that the sensitivity around ensuring that we’re doing everything possible to support the brands and the categories we’re in, maintaining affordability for consumers in this tough environment, is certainly top of mind for both us and the retailer as we work together.”
First-quarter EBIT rose 16% to $436m and was up 15% on an adjusted basis at $449m. The full-year target for the latter has now been raised from 1-5% growth to 6.5%, Campbell said in its revised outlook.
Organic sales, which climbed 2% in the previous financial year, are expected to grow 7-9%, compared to a previous estimate of 4-6%.
Adjusted earnings per share are predicted in a range of $2.90-$3.00, up from $2.85-$2.95. The new range represents an increase of 2-5% from the prior 12 months versus the initial estimate of flat to up 4%.
Clouse said the first-quarter performance reflected “the continued strength of our portfolio and our successful efforts to substantially mitigate significant inflation through a combination of pricing and productivity improvements”.
He added: “We recognise it’s still early in our fiscal year and the environment does remain challenging. But given the strength of the first-quarter performance, the health of our brands and our consistent execution, we’ve increased our guidance to reflect our current outlook.”
