The Campbell’s Company is optimistic about revitalizing its snacks division during the latter half of the fiscal year. The goal includes stabilizing margins by the fourth quarter, despite challenges faced in the second quarter.
During this period, the volume and mix within snacks declined at double the rate observed in Campbell’s meals and beverages sector. This decline was notably exacerbated by shipping delays attributed to severe snowstorms in January.
The salty snacks segment, which features products like Kettle and Snack Factory crisps and pretzels, experienced a loss of market share in the quarter ending February 1. The company attributed this to rising competition and “execution challenges” within the Pepperidge Farm fresh bakery segment.
On a follow-up call with analysts, concerns arose over a significant 390 basis-point margin drop in the snacks division to 7%. This was described as “alarming” and a “shock” by several participants on the call.
CEO Mick Beekhuizen emphasized the company’s commitment to addressing bakery challenges, enhancing competitive positioning in salty snacks, and implementing cost reductions to uphold margins while continuing brand investments. Finance chief Todd Cunfer specifically noted the margin decline as a “very poor performance,” indicating that a quarter of it stemmed from the bakery segment.
Cunfer further outlined that a 6% drop in net snack sales led to considerable deleveraging across their plant network. He remains cautiously optimistic about potential margin improvements in the third quarter but anticipates another 4% decrease in snacks for the second half.
Looking ahead to the fourth quarter, Beekhuizen expressed confidence in improved bakery performance, foreseeing a recovery in margins as the year concludes. However, he acknowledged that this recovery is “taking longer than anticipated,” with particular momentum behind the Goldfish crackers brand.
Beekhuizen’s focus includes maintaining Goldfish’s momentum, refining execution in fresh bakery, and enhancing competitiveness in their salty offerings. He highlighted three main priorities: improving competitiveness from a pricing perspective, ensuring effective market execution, and fostering innovation centered on premium, healthier options and flavor exploration.
Additionally, Campbell’s is extending its cost-saving initiative by an additional $100 million, contributing to a 2028 target of $375 million. So far, $180 million has been achieved, including $20 million in the second quarter.
Group organic sales declined by 3% in the three months leading to February 1 and were down 5% at a reported level of $2.56 billion. Snack revenue fell 6% organically to $914 million, while meals and beverages dropped 2% to $1.65 billion.
The January storms not only delayed shipments but also increased supply chain costs, which negatively impacted second-quarter net sales. Consequently, Campbell’s net income slipped by 16% for the quarter, with year-to-date losses reaching 13%. Adjusted EBIT saw a decline of 24%, whereas adjusted EPS dropped 31% to $0.51.
Consequently, the company now expects a decline in adjusted EBIT for the year ranging from 17% to 20%, a revision from the previous forecast of 9% to 13%. Adjusted EPS is projected to decrease between 23% and 26%, estimated at $2.15 to $2.25, down from an earlier forecast of 12% to 18%.
In light of the second-quarter results, Campbell’s has revised its projections for organic sales, adjusted EBIT, and adjusted EPS for fiscal 2026, ruling out any anticipated sales growth across the group.
This guidance does not account for potential disruptions stemming from the ongoing conflict in the Middle East. Cunfer noted that while the company is currently 85% hedged against commodity volatility, prolonged high oil prices could significantly impact their operations.
Looking forward, Cunfer stressed the possibility of needing to adjust pricing strategies or further streamline costs in response to prolonged disruptions in commodity markets.
As the food and beverage industry continues to evolve, Campbell’s approach highlights an awareness of food and drink business dynamics and emerging consumer trends.
