Campbell Soup’s Comeback Needs These Key Ingredients

(Bloomberg Opinion) -- Campbell Soup Co.’s third-quarter earnings report offered investors reason to believe that perhaps the worst is over for a company that’s been through a year of major upheaval.

The canned soup and packaged-food giant raised its earnings guidance and recorded adjusted earnings per share that exceeded estimates. A bright spot for Campbell was the global biscuits and snacks division, where organic sales rose a respectable 1% from a year earlier, thanks to strength from brands such as Pepperidge Farms and Goldfish. But the long-term challenges still plainly showed themselves as well.

Organic sales at Campbell’s meals and beverages division were flat, reflecting sagging results at its V8 beverage and Prego pasta-sauce businesses in the U.S. market, as well as declines in condensed and ready-to-serve soups. Sluggishness here isn’t encouraging, given that the unit remains the largest contributor to operating earnings.

Campbell executives, including new CEO Mark Clouse, are due to unveil more detailed turnaround plans at an investor day event next week. Based on the positive market reaction to Wednesday’s earnings (Campbell’s stock surged as much as 10% on the news), shareholders seem willing to give management the benefit of the doubt. Is it warranted? I know I would feel much more comfortable about the company’s prospects if they could answer these three key questions:

HOW ARE YOU GOING TO REHEAT SOUP? Campbell faces a tough enough task in trying to figure out how to ignite interest in this shelf-stable item at a time when fresh foods are perceived as being healthiest. The company also needs to figure out how to stop ceding market share in this category. Private-label soup brands are coming on strong, and Campbell clearly hasn’t had an effective response. I hope to hear that the company will invest more resources in marketing its soup to differentiate its lines from the store brands. And while I know Campbell has tried packaging innovations in the past to appeal to new shoppers (remember the pouches?), it’s worth exploring again whether presenting these products in a new way might help encourage people to try them.  

ARE YOU DONE WITH  DEALMAKING? Mercifully, Campbell has found buyers for all of the pieces of its deeply troubled fresh-foods business. It has also pledged to sell off its international biscuits business, which includes Arnott’s and Kelsen. But then what? Bloomberg Intelligence analyst Diana Rosero-Pena has suggested, for example, that it could ditch its beverage business. I can see the case for that. In remarks on an investor call Wednesday morning, Clouse made clear that getting the international-biscuit sale done is the first priority in this area. But I’ll be listening closely next week for any hint that the portfolio reshaping might not stop there.

WHAT ABOUT  INNOVATION? For years, much of the packaged-food world has been focused on protecting profits with measures such as zero-based budgeting and cost-cutting programs. But the massive writedown earlier this year at Kraft Heinz Co. served as a blaring reminder to investors of how this approach can only take the industry so far. Across the board, packaged-food companies badly need new, exciting products that embrace and reflect current dining trends. I want to hear specifics from Clouse about how Campbell is going to develop a pipeline of compelling products. Will he focus on broadening existing brands, or creating new ones? How will the teams be structured to focus on this work, and does Campbell currently have the right talent to get it done? Will there be added investment into new product creation, and over what timeline?

The answers to these questions will tell us much about whether Clouse is just trying to keep Campbell from dying, or whether he’s trying to give it a second life.

To contact the editor responsible for this story: Beth Williams at bewilliams@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Sarah Halzack is a Bloomberg Opinion columnist covering the consumer and retail industries. She was previously a national retail reporter for the Washington Post.

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