This week you are required to submit a case study analysis. Your paper analysis should be between 3 – 5 pages, not counting the title and reference page. No submission should be fewer than 1050 words.
Include a clear and concise introduction.
Format your case study assignment paper so that the three questions asked below are clearly defined. Double space your work, cite your work, limit quotes, and edit your work well for spelling, grammar, and punctuation errors. If you use any quotes, you must increase the length of your paper to compensate. Make sure you have two additional references other than the text and use citations.
This case study analysis will be based on the 34 cases (Part 5) in your textbook. (do not use Robin Hood – case 1)
CAMPBELL: IS THE SOUP STILL SIMMERING?*
Change was stirring at Campbell Soup. Denise Morrison, who formerly headed the company’s North American soup business, has taken over as CEO. The change at the top for the company received a lukewarm response from investors, who were watching to see what drastic changes Morrison might have in store. Analysts suggested that Campbell may have missed an opportunity by picking insider Denise Morrison to lead the world’s largest soup maker instead of bringing in outside talent to revive sales.1
By 2013 with Morrison at the helm, The Campbell Soup Company had launched more than 50 new products, including 32 new soups. This number was way up from only 3 in 2010 and 2011. Morrison also shocked experts with the $1.55 billion buyout of California juice-and-carrot seller Bolthouse Farms, the largest acquisition in Campbell’s history.2 Despite the revitalization of their product line, however, the company still failed to accomplish an impressive comeback. Midyear 2012 financials indicated that profit slipped by 5 percent in the latest quarter, which the company attributed to an increase in marketing expenditures to revive soup sales.
Company Background
Probably known best for its red-and-white soup cans, The Campbell Soup Company was founded in 1869 by Abram Anderson and Joseph Campbell as a canning and preserving business. Over 140 years later, Campbell offers a whole lot more than just soup in a can. Today the company, headquartered in Camden, New Jersey, competitively operates in five segments: U.S. Simple Meals, Global Baking and Snacking, International Simple Meals and Beverages, U.S. Beverages, and North America Foodservice (see Exhibit 1).
In 2013 Campbell’s products were sold in over 100 countries around the world, and the company had operations in the United States, Canada, Mexico, Australia, Belgium, China, France, Germany, Indonesia, Malaysia, and Sweden (see Exhibit 2).3
The company was pursuing strategies designed to expand the availability of its products in existing markets and to capitalize on opportunities in emerging channels and markets around the globe. As a first step, Campbell Soup Company, synonymous with the all-American kitchen for 125 years, acquired in 1994 Pace Foods Ltd., the world’s largest producer of Mexican sauces. Mr. Weise, CFO at that time, said that a major motivation for the purchase was to diversify Campbell and to extend the Pace brand to other products. In addition, he said, the company saw a strong potential for Pace products internationally. Campbell also saw an overlap with its raw-materials purchasing operations, since peppers, onion, and tomatoes were already used in the company’s soups, V8, barbecue sauce, and pasta sauces.4 To help reduce some of the price volatility for ingredients, the company used various commodity risk management tools for a number of its ingredients and commodities, such as natural gas, heating oil, wheat, soybean oil, cocoa, aluminum, and corn.5
*This case study was prepared by Professors Alan B. Eisner and Dan Baugher of Pace University; and Professor Helaine J. Korn of Baruch College, City University of New York. The purpose of the case is to stimulate class discussion rather than to illustrate effective or ineffective handling of a business situation. Copyright © 2013 Alan B. Eisner.
EXHIBIT 1 Sales by Segment
Go to library tab in Connect to access Case Financials.
| A | B | C | D | D | E | |
| 1 | Sales by Segment | |||||
| 2 | % Change | |||||
| 3 | 2012 | 2011 | 2010 | 2012/2011 | 2011/2010 | |
| 4 | (Millions) | |||||
| 5 | U.S. Simple Meals | $ 2,726 | $ 2,751 | $ 2,938 | (1) | (6) |
| 6 | Global Banking and Snacking | 2,193 | 2,156 | 1,975 | 2 | 9 |
| 7 | International Simple Meals and Beverages | 1,404 | 1,463 | 1,423 | (4) | 3 |
| 8 | U.S. Beverages | 774 | 759 | 762 | 2 | — |
| 9 | North America Foodservice | 610 | 590 | 578 | 3 | 2 |
| 10 | $ 7,707 | $ 7,719 | $ 7,676 | — | 1 |
Source: The Campbell Soup Company, Annual Report, 2012.
Campbell Soup, a leading food producer in the United States, had a presence in approximately 85 percent of U.S. households. However, in recent years, the company faced a slowdown in its soup sales, as consumers were seeking
C236
EXHIBIT 2 Campbell’s Principal Manufacturing Facilities
out more convenient meal options, such as ready meals and dining out. In order to compete more effectively, especially against General Mills’ Progresso brand, Campbell had undertaken various efforts to improve the quality and convenience of its products.
| Principal Manufacturing Facilities | ||
| Inside the U.S. | ||
| California | New Jersey | South Carolina |
| Dixon (USSM/USB) | South Plainfield (USSM/USB) | Aiken (GBS) |
| Sacramento (USSM/USB/ISMB) | East Brunswick (GBS) | Texas |
| Stockton (USSM/USB) | North Carolina | Paris (USSM/USB/1SMB) |
| Connecticut | Maxton (USSM/ISMB) | Utah |
| Bloomfield (GBS) | Ohio | Richmond (GBS) |
| Florida | Napoleon (USSM/USB/NAFS/lSMB) | Washington |
| Lakeland (GBS) | Everett (NAFS) | |
| Illinois | Willard (GBS) | Wisconsin |
| Downers Grove (GBS) | Pennsylvania | Milwaukee (USSM) |
| Denver (GBS) | ||
| Downingtown (GBS/NAFS) | ||
| Outside the U.S. | ||
| Australia | China | Indonesia |
| Huntingwood (GBS) | Xiamen (ISMB) | Jawa Barat (GBS) |
| Marleston (GBS) | Canada | Malaysia |
| Shepparton (ISMB) | Toronto (USSM/ISMB/NAFS) | Selangor Darul Ehsan (ISMB) |
| Virginia (GBS) | France | Mexico |
| Belgium | LePontet (ISMB) | Villagran (ISMB) |
| Puurs (ISMB) | Germany | Sweden |
| Luebeck (ISMB) | Kristianstadt (ISMB) |
Source: The Campbell Soup Company, Annual Report, 2012.
USSM – U.S. Simple Meals
GBS – Global Baking and Snacking
ISMB – International Simple Meals and Beverages
USB – U.S. Beverages
NAFS – North America Foodservice
out more convenient meal options, such as ready meals and dining out. In order to compete more effectively, especially against General Mills’ Progresso brand, Campbell had undertaken various efforts to improve the quality and convenience of its products.
China and Russia
For the longest time, consumption of soup in Russia and China has far exceeded that of the United States, but in both countries, nearly all of the soup was homemade. Within the past few years, however, with the launch of products tailored to the local tastes, trends, and eating habits, Campbell presumed that it had the chance to lead the soup commercialization in Russia and China. “We have an unrivaled understanding of consumers’ soup consumption behavior and innovative technology capabilities within the Simple Meals category. The products we developed are designed to serve as a base for the soups and other meals Russian and Chinese consumers prepare at home.”6 For about three years, in both Russia and China, Campbell sent their marketing teams to study the local markets. The main focus was on how Russians and Chinese eat soup and how Campbell can offer something new. As a result Campbell came up with a production line specifically created for the local Russian market, called “Domashnaya Klassika.” It was a stock base for soups that contains pieces of mushrooms, beef, or chicken. Based on this broth, the main traditional Russian soup recipes could be prepared.
C237
But after just four short years, Campbell pulled out of the Russian market, after thinking it would be a simmering new location for them. In June 2011, Campbell’s chief operating officer and newly elected CEO Denise Morrison said results in Russia fell below what the company had expected. “We believe that opportunities currently under exploration in other emerging markets, notably China, offer stronger prospects for driving profitable growth within an acceptable time frame,” Morrison said. When the company entered Russia in September 2007, they knew that it would be challenging to persuade a country of homemade soup eaters to adopt ready-made soups. When Campbell initially researched the overseas markets, they learned that Russians eat soup more than five times a week, on average, compared with once a week by Americans.7 This meant that both the quality and sentiment of the soup meant a great deal to the consumers—something that Campbell may have underestimated.
As for China, after Campbell infiltrated the market a few years prior, in 2013 CEO Denise Morrison was quoted by the Global Entrepreneur as saying, “The Chinese market consumes roughly 300 billion servings of soup a year, compared with only 14 billion servings in the US.”8 When entering the Chinese market, Campbell determined that if the company could capture at least 3 percent of the at-home consumption, the size of the business would equal that of the U.S. “The numbers blow your hair back,” said Larry S. McWilliams, president of Campbell’s international group.9 While they have successfully entered the market, it has yet to be seen whether they have the right offerings in place to capture such a market share, or whether China’s homemade-soup culture would be as disinclined to change as Russia’s was.
U.S. Soup Revitalization
In September 2010, Campbell launched its first-ever umbrella advertising campaign to support all of its U.S. soup brands with the slogan “It’s amazing what soup can do,” highlighting the convenience and health benefits of canned soup. The new campaign supported Campbell’s condensed soups, Campbell’s Chunky soups, Campbell’s Healthy Request soups, and Campbell’s Select Harvest soups, as well as soups sold in microwaveable bowls and cups under these brands.10 Despite other departments flourishing, the soup division continued to struggle.
Campbell Soup Co. has begun moving attention away from reducing salt in its products to focusing more on “taste adventure” as its U.S. soup business has turned cold. Campbell Soup was one of the first large U.S. packaged-food makers to focus heavily on decreasing sodium across its product line. The salt-reduction push was one of the company’s biggest initiatives of the past decade. “The company had pursued reducing sodium levels and other nutritional health initiatives partly to prepare for expected nutritional labeling changes in the U.S. But amid the attention on salt-cutting, management focused less on other consumer needs, such as better tastes and exciting varieties,” said former CEO Douglas Conant. “I think we’ve addressed the sodium issue in a very satisfactory way. The challenge for us now is to create some taste adventure.”11
Yet with Campbell reinventing its product offering and revitalizing its soup line, CEO Douglas Conant decided that his work was done and it was time to retire. He stepped down as CEO in July 2011 at the age of 60. Since then, Denise Morrison, formerly president of the North America Soup division has taken over the reins as chief executive. At the time of her promotion, many were hesitant to accept her as the best candidate for the position. After all, the soup division, which had been her responsibility, had been losing steam and encountering declining sales under her tenure. Yet the company reinforced their confidence in her to do the job, and Morrison assured everyone that changes were on their way and a shift in focus was in the works. Morrison said that Campbell would bring both the “taste and adventure” back to their soups, with a new and expanded product line offering unique new flavors and “adding the taste back” by doing away with their sodium reduction.
Firm Structure and Management
Campbell Soup was controlled by the descendants of John T. Dorrance, the chemist who invented condensed soup more than a century ago. In struggling times, the Dorrance family faced agonizing decisions: Should they sell the Campbell Soup Company, which had been in the family’s hands for three generations? Should they hire new management to revive flagging sales of its chicken noodle and tomato soups and Pepperidge Farm cookies? Or should Campbell perhaps become an acquirer itself? The company went public in 1954 when William Murphy was the president and CEO. Dorrance family members continue to hold a large portion of the shares. After CEO David W. Johnson left Campbell in 1998, the company started to weaken and lose customers,12 until Douglas R. Conant became CEO and transformed Campbell into one of the food industry’s best performers.
Douglas R. Conant became CEO and director of Campbell Soup Co. in January 2001. Mr. Conant entered the Campbell’s team with an extensive background in the processed and packaged food industry. He spent 10 years with General Mills Inc., filled top management positions in marketing and strategy at Kraft Foods, and served as president of Nabisco Foods Company. Mr. Conant worked toward a goal of implementing the Campbell’s mission of “building the world’s most extraordinary food company by nourishing people’s lives everywhere, every day.”13 He was confident that the company possessed the people, the products, the capabilities, and the plans in place to actualize that mission.
Under Mr. Conant’s direction, Campbell made many reforms through investments in improving product quality, packaging, and marketing. He worked to create a company
C238
characterized by innovation. During his tenure, the company improved its financial profile, upgraded its supply chain system, developed a more positive relationship with its customers, and enhanced employee engagement. Starting in 2005, Mr. Conant focused on winning in both the marketplace and the workplace. His efforts produced an increase in net sales from $7.1 billion in fiscal 2005 to $7.67 billion in fiscal 2010.14
The main targets for investment for Mr. Conant, following the divestiture of many other brands, included simple meals, baked snacks, and vegetable-based beverages. In 2010, the baking and snacking segments sales increased 7 percent, primarily due to currency. Pepperidge Farm sales were comparable to a year earlier, as the additional sales from the acquisition of Ecce Panis, Inc., and volume gains were offset by increased promotional spending. Some of the reasons for this growth were the brand’s positioning, advertising investments, and some improvements and additions in the distribution system. Mr. Conant also secured an agreement with Coca-Cola North America and Coca-Cola Enterprises Inc. for distribution of Campbell’s refrigerated single-serve beverages in the U.S. and Canada through the Coca-Cola bottler network.15
In fiscal 2010, the company continued its focus on delivering superior long-term total shareowner returns by executing the following seven key strategies:16
• Grow its icon brands within simple meals, baked snacks, and healthy beverages;
• Deliver higher levels of consumer satisfaction through superior innovation focused on wellness while providing good value, quality, and convenience;
• Make its products more broadly available and relevant in existing and new markets, consumer segments, and eating occasions;
• Strengthen its business through outside partnerships and acquisitions;
• Increase margins by improving price realization and company-wide total cost management;
• Improve overall organizational excellence, diversity, and engagement; and
• Advance a powerful commitment to sustainability and corporate social responsibility.
Another major focus for Mr. Conant and the Campbell Company was care for their customers’ wellness needs, overall product quality, and product convenience. Some of the main considerations regarding wellness with the U.S. market were obesity and high blood pressure. For example, in fiscal 2011, building on the success of the V8 V-Fusion juice offerings, the company planned to introduce a number of new V8 V-Fusion Plus Tea products. In the baked snacks category, the company planned to continue upgrading the health credentials of its cracker (or savory biscuit) offerings. Responding to consumers’ value-oriented focus,
Campbell’s condensed soups were relaunched with a new contemporary packaging design and an upgrade to the company’s gravity-fed shelving system.17
6n 2011, after 10 years leading the company, Conant decided to retire at the age of 60. His successor, Denise Morrison, had worked for Conant for quite some time, not just at Campbell but at Nabisco as well earlier in their careers. On her first day as CEO in August 2011, she was set on employing a new vision for the company: “Stabilize the soup and simple meals businesses, expand internationally, grow faster in healthy beverages and baked snacks—and add back the salt.”18 With the younger generation now making up an increasingly large percentage of the population, Morrison knew that they had to change in order to increase their appeal. At that time, the U.S. population included 80 million people between the ages of 18 and 34, approximately 25 percent of the population. Early on in her role as chief executive, Morrison dispatched Campbell’s employees to hipster hubs—including Austin, Texas, Portland, Oregon, London, and Paris—to find out what these potential customers wanted.19
In order to build employee engagement, Campbell provided manager training across the organization. It is just one part of the curriculum at Campbell University, the company’s internal employee learning and development program. Exemplary managers have also built strong engagement among their teams through consistent action planning. The company emphasized employees’ innovation capabilities, leadership behavior, workplace flexibility, and wellness.
Challenges Ahead
In her new role, Morrison said she planned to “accelerate the rate of innovation” at the company. Morrison planned to grow the company’s brands through a combination of more healthy food and beverage offerings, global expansion, and the use of technology to woo younger consumers. While “innovation” isn’t a term typically associated with the food-processing industry, Morrison said that innovation was a key to the company’s future success. As an example, she cited Campbell’s development of an iPhone application that provided consumers with its Campbell’s Kitchen recipes. The company’s marketing team devised the plan as a way to appeal to technologically savvy, millennial generation consumers, Morrison said.20
Yet more than a year into her governance, analysts still had a lukewarm response about Morrison taking over. They still expressed their doubt about whether Morrison was the right choice over some new blood as a CEO replacement.
Industry Overview
The U.S. packaged-food industry recorded faster current value growth in 2011 than it did in 2010. This was mainly due to a rise in commodity prices. In retail volume, many categories saw slower growth rates in 2011 because Americans began to eat out more often again. This followed a couple
C239
of years when cooking at home had become a more popular alternative in response to the recession and the sharp rise in commodity prices in 2008.21
After years of expansions and acquisitions, U.S. packaged-food companies were beginning to downsize. In August 2011, Kraft Foods announced that it would split into two companies: a globally focused biscuits and confectionery enterprise and a domestically focused cheese, chilled processed meats, and ready meals firm. After purchasing Post cereals from Kraft in 2008, Ralcorp Holdings spun off its Post cereals business (Post Holdings Inc.) in
February 2012.22
Though supermarkets are the main retail channel for buying packaged food, other competitors were gaining traction by offering lower prices or more convenience. The recession forced shoppers to consider alternative retail channels as they looked for ways to save money. A big beneficiary of this consumer trend was the discounters, which carried fewer items and national brands than supermarkets, but offered lower prices in return. For example, dollar store chains Dollar General and Family Dollar expanded their food selections to increase their appeal. Drugstore chains CVS and Walgreens expanded their food selections as well, especially in urban areas, to leverage their locations as a factor of convenience. Mass merchandiser Target continued to expand its PFresh initiative, featuring fresh produce, frozen food, dairy products, and dry groceries.23
The increasing availability of refrigeration and other kinds of storage space in homes also influenced the demand for packaged goods in emerging markets. However, for consumers that lacked the ability to preserve and keep larger quantities, U.S. companies could look to sell smaller packages, with portions that could be consumed more quickly (see Exhibit 3).24
Competition
Campbell operated in the highly competitive food industry and experienced worldwide competition for all of its principal products. The principal areas of competition were brand recognition, quality, price, advertising, promotion, convenience, and service. (See Exhibits 4 and 5.)
EXHIBIT 3 Leading U.S. Agricultural Export Destinations by Value ($U.S.)
| Country | FY2011 | Country | FY2010 | Country | FY2009 |
| World Total | 136,345,469,276 | World Total | 115,819,693,004 | World Total | 98,453,932,724 |
| 1 Canada | 18,995,659,417 | China | 17,518,959,730 | Canada | 15,725,928,221 |
| 2 China | 18,854,574,658 | Canada | 16,899,145,556 | China | 13,109.277,879 |
| 3 Mexico | 18,367,159,650 | Mexico | 14,597,605,581 | Mexico | 12,932,472,425 |
| 4 Japan | 14,068,721,548 | Japan | 11,796,680,216 | Japan | 11,072,298,525 |
| 5 European Union-27 | 9,633,991,765 | European Union-27 | 8,905,886,686 | European Union-27 | 7,445,376,506 |
| 6 Korea, South | 6,967,248,482 | South Korea | 5,306,946,009 | South Korea | 3,917,446,373 |
| 7 Taiwan | 3,624,411,002 | Taiwan | 3,189,133,579 | Taiwan | 2,987,918,761 |
| 8 Hong Kong | 3,316,378,112 | Hong Kong | 2,804,204,719 | Hong Kong | 2,008,298,022 |
| 9 Indonesia | 2,819,883,352 | Indonesia | 2,245,054,162 | Indonesia | 1,795,793,891 |
| 10 Turkey | 2,459,216,286 | Egypt | 2,095,483,910 | Turkey | 1,499,310,396 |
| 11 Russia | 1,240,784,552 | Turkey | 2,095,298,970 | Russia | 1,429,212,510 |
| 12 Egypt | 2,508,272,080 | Philippines | 1,634,683,503 | Egypt | 1,354,340,940 |
| 13 Philippines | 2,111,018,616 | Vietnam | 1,312,330,378 | Philippines | 1,293,688,911 |
| 14 Thailand | 1,344,769,702 | Thailand | 1,152,620,558 | Thailand | 1,045,913,021 |
| 15 Venezuela | 1,218,145,973 | Russia | 1,132,531,846 | Venezuela | 954,584,559 |
Source: U.S. Economic Research Service, United States Department of Agriculture, 2012, www.ers.usda.gov/data-products/foreign-agricultural-trade-of-the-united-states-(fatus)/calendar-year.aspx.
Nestlé
Nestlé was the world’s number one food company in terms of sales, the world leader in coffee (Nescafé), one of the world’s largest bottled water (Perrier) makers, and a top player in the pet food business (Ralston Purina). Its most well-known global brands included Buitoni, Friskies, Maggi, Nescafé, Nestea, and Nestlé. The company
C240
owned Gerber Products, Jenny Craig, about 75 percent of Alcon Inc. (ophthalmic drugs, contact-lens solutions, and equipment for ocular surgery), and almost 28 percent of L’Oréal.25 In July 2007 it purchased Novartis Medical Nutrition, and in August 2007 it purchased the Gerber business from Sandoz Ltd., with the goal of becoming a nutritional powerhouse. Furthermore, by adding Gerber baby foods to its baby formula business, Nestlé became a major player in the U.S. baby food sector.
EXHIBIT 4 Campbell’s Competitors by Market Capitalization and Financials
| Direct Competitor Comparison | |||||
| CPB | GIS | HNZ | MDLZ | Industry | |
| Market Cap: | 14.11B | 31.39B | 23.21B | 53.58B | 8.16B |
| Employees: | 17,870 | 35,000 | 32,200 | 110,000 | 5.80K |
| Qtrly Rev Growth (yoy): | 0.11 | 0.08 | 0.02 | N/A | 0.52 |
| Revenue (ttm): | 8.10B | 17.43B | 11.69B | 35.02B | 17.43B |
| Gross Margin (ttm): | 0.38 | 0.37 | 0.36 | 0.37 | 0.33 |
| EBITDA (ttm): | 1.68B | 3.50B | 2.03B | 5.35B | 3.50B |
| Operating Margin (ttm): | 0.16 | 0.17 | 0.14 | 0.12 | 0.14 |
| Net Income (ttm): | 737.00M | 1.81B | 1.04B | 1.54B | N/A |
| EPS (ttm): | 2.34 | 2.73 | 3.07 | 1.69 | 2.32 |
| P/E (ttm): | 19.23 | 17.84 | 23.59 | 17.81 | 23.68 |
| PEG (5 yr expected): | 3.08 | 2.28 | 3.08 | 1.55 | 2.28 |
| P/S (ttm): | 1.75 | 1.80 | 1.98 | 1.53 | 2.02 |
CPB = Campbell Soup Co.
GIS = General Mills, Inc.
HNZ = HJ Heinz Co.
MDLZ = Mondelez International, Inc. (formerly Kraft)
Industry = Processed & Packaged Goods
Source: Yahoo Finance, finance.yahoo.com.
EXHIBIT 5 Campbell Soup Top Competitors Stock Prices
Source: Retrieved on April 9, 2013, from finance.yahoo.com/.
General Mills
General Mills was the U.S. number 2 cereal maker behind Kellogg, fighting for the top spot on a consistent basis. Its brands included Cheerios, Chex, Total, Kix, and Wheaties. General Mills was also a brand leader in flour (Gold Medal), baking mixes (Betty Crocker, Bisquick), dinner mixes (Hamburger Helper), fruit snacks (Fruit RollUps), grain snacks (Chex Mix, Pop Secret), and yogurt (Colombo, Go-Gurt, and Yoplait). In 2001 it acquired
C241
Pillsbury from Diageo and doubled the company’s size, making General Mills one of the world’s largest food companies. Although most of its sales came from the United States, General Mills was trying to grow the reach and position of its brands around the world.26
Kraft Foods
The newly independent company was spun off by Mondelez International (formerly Kraft Foods Inc.), dividing the North American grocery from the global snacks business in 2012. Kraft Foods Group was the fourth-largest consumer packaged-food and beverage company in North America. Its most popular brands included Kraft cheeses, beverages (Maxwell House coffee, Kool-Aid drinks), convenient meals (Oscar Mayer meats and Kraft mac’n cheese), grocery fare (Cool Whip, Shake N’ Bake), and nuts (Planters). While Mondelez was focused on growth overseas, Kraft Foods Group was looking to resuscitate its business in North America.27
Heinz Company
H. J. Heinz had thousands of products. Heinz products enjoyed first or second place by market share in more than 50 countries. One of the world’s largest food producers, Heinz produced ketchup, condiments, sauces, frozen foods, beans, pasta meals, infant food, and other processed food products. Its flagship product was ketchup, and the company dominated the U.S. ketchup market. Its leading brands included Heinz ketchup, Lea & Perrins sauces, Ore-Ida frozen potatoes, Boston Market, T.G.I. Friday’s, and Weight Watchers foods. In 2013 Heinz agreed to be acquired by Berkshire Hathaway and 3G Capital.28
Financials
Campbell Soup Company net earnings were $774 million ($2.41 per share) in 2012, compared to $805 million ($2.42 per share) in 2011. After adjusting for items affecting comparability, net earnings decreased, primarily due to a decline in gross margin percentage partially offset by a lower effective tax rate. Marketing and selling expenses as a percentage of sales were 13.2 percent in 2012, 13.0 percent in 2011, and 13.8 percent in 2010. Marketing and selling expenses increased 1 percent in 2012 from 2011. The increase was primarily due to higher advertising and consumer promotion expenses and higher other marketing expenses, partly offset by lower selling. Advertising and consumer promotion expenses increased 3 percent in 2012 from 2011, reflecting brand-building investments across many key brands.29 (See Exhibits 6, 7, and 8.)
Earnings from the U.S. Simple Meals division in 2012 and 2011 were comparable, as gains in U.S. Soup were mostly offset by declines in U.S. Sauces. For the segment, higher selling prices, productivity improvements, and lower promotional spending were mostly offset by lower volumes and cost inflation. Earnings from Global Baking and Snacking decreased 11 percent in 2012 versus 2011 primarily due to cost inflation, increased promotional spending, and higher advertising expense, partly offset by higher selling prices and productivity improvements. Promotional spending was increased to support the businesses. Earnings from International Simple Meals and Beverages decreased 17 percent in 2012 versus 2011. The decrease in operating earnings was primarily due to lower earnings in the Asia Pacific region and Canada and increased costs associated with the company’s market expansion in China. Earnings from U.S. Beverages decreased 26 percent primarily due to cost inflation, increased promotional spending, and advertising expense, partly offset by productivity improvements. Earnings from North America Foodservice increased 4 percent due to higher selling prices and productivity improvements, partially offset by cost inflation.30 The company’s capital stock was listed on the New York Stock Exchange and has authorized 560 million shares of capital stock with $.0375 par value. In 2012 the company repurchased 13 million shares at a cost of $412 million.31 (See Exhibit 9 for stock prices for two years through April 8, 2013,).
With regard to financials, Morrison stated:
Fiscal 2012 was a year of investment for Campbell. We stated at the outset that we would accept lower operating profits to fund investments in brand-building and accelerated innovation across our portfolio. Our investment spending contributed to a decline in adjusted earnings per share of 4 percent to $2.44 in fiscal 2012, compared with adjusted EPS of $2.54 the previous year…. [W]e also had some significant shortfalls in fiscal 2012…. In our U.S. Soup business, our condensed soups and broths performed in line with our expectations, but our ready-to-serve soups did not…. Our advertising campaign, while effective across the soup portfolio, was less effective for our ready-to-serve soup business.32
Similarly, in the beverages business, Campbell’s sales were steady, but increased costs were up, wearing away margins. Also, the bakery division, including Pepperidge Farm, faced aggressive competition, industry consolidation, and heavy price discounting.
Sustainability
The Campbell Soup Company was named to the Dow Jones Sustainability Indexes (DJSI) for the second year in a row in 2010 and to the DJSI World Index for the first time. This independent ranking recognized the company’s strategic and management approach to delivering economic, environmental, and social performance. Launched in 1999, the DJSI tracked the financial performance of leading sustainability-driven companies worldwide. In selecting the top performers in each business sector, DJSI reviewed companies on several general and industry-specific topics related to economic, environmental, and social dimensions. These included corporate governance, environmental policy, climate strategy, human capital development,
C242
and labor practices. Campbell included sustainability and corporate social responsibility as one of its seven core business strategies.33 In 2012 Campbell’s Napoleon, Ohio, plant implemented a new renewable energy initiative, anchored by 24,000 new solar panels. The 60-acre, 9.8-megawatt solar power system was expected to supply 15 percent of the plant’s electricity while reducing CO2 emissions by 250,000 metric tons over 20 years.34
EXHIBIT 6 Campbell Balance Sheet
Go to library tab in Connect to access Case Financials.
| A | B | C | D | |
| 1 | Campbell Balance Sheet | |||
| 2 | Period Ending | Jul 28, 2012 | Jul 30, 2011 | Jul 31, 2010 |
| 3 | Assets | |||
| 4 | Current Assets | |||
| 5 | Cash And Cash Equivalents | 335,000 | 484,000 | 254,000 |
| 6 | Short Term Investments | – | – | – |
| 7 | Net Receivables | 553,000 | 560,000 | 512,000 |
| 8 | Inventory | 714,000 | 767,000 | 724,000 |
| 9 | Other Current Assets | 169,000 | 152,000 | 197,000 |
| 10 | Total Current Assets | 1,771,000 | 1,963,000 | 1,687,000 |
| 11 | Long Term Investments | – | – | – |
| 12 | Property Plant and Equipment | 2,127,000 | 2,103,000 | 2,051,000 |
| 13 | Goodwill | 2,013,000 | 2,133,000 | 1,919,000 |
| 14 | Intangible Assets | 496,000 | 527,000 | 509,000 |
| 15 | Accumulated Amortization | – | – | – |
| 16 | Other Assets | 123,000 | 136,000 | 110,000 |
| 17 | Deferred Long Term Asset Charges | – | – | – |
| 18 | Total Assets | 6,530,000 | 6,862,000 | 6,276,000 |
| 19 | Liabilities | |||
| 20 | Current Liabilities | |||
| 21 | Accounts Payable | 1,284,000 | 1,332,000 | 1,230,000 |
| 22 | Short/Current Long Term Debt | 786,000 | 657,000 | 835,000 |
| 23 | Other Current Liabilities | – | – | – |
| 24 | Total Current Liabilities | 2,070,000 | 1,989,000 | 2,065,000 |
| 25 | Long Term Debt | 2,004,000 | 2,427,000 | 1,945,000 |
| 26 | Other Liabilities | 1,260,000 | 983,000 | 1,079,000 |
| 27 | Deferred Long Term Liability Charges | 298,000 | 367,000 | 258,000 |
| 28 | Minority Interest | – | 8,000 | 3,000 |
| 29 | Negative Goodwill | – | – | – |
| 30 | Total Liabilities | 5,632,000 | 5,774,000 | 5,350,000 |
| 31 | Stockholders’ Equity | |||
| 32 | Misc Stocks Options Warrants | – | – | – |
| 33 | Redeemable Preferred Stock | – | – | – |
| 34 | Preferred Stock | – | – | – |
| 35 | Common Stock | 20,000 | 20,000 | 20,000 |
| 36 | Retained Earnings | 9,584,000 | 9,185,000 | 8,760,000 |
| 37 | Treasury Stock | (8,259,000) | (8,021,000) | (7,459,000) |
| 38 | Capital Surplus | 329,000 | 331,000 | 341,000 |
| 39 | Other Stockholder Equity | (776,000) | (427,000) | (736,000) |
| 40 | Total Stockholder Equity | 898,000 | 1,088,000 | 926,000 |
| 41 | Net Tangible Assets | (1,611,000) | 1,572,000 | (1,502,000) |
Source: Yahoo Finance.
Additionally, during 2011 and 2012, nearly 2,000 Campbell employees volunteered an average of 20,000 hours annually at more than 200 nonprofit organizations. Supported by local farmers and Campbell, the Food Bank of South Jersey was earning revenue for hunger relief from sales of Just Peachy salsa. The salsa was created from excess peaches from New Jersey and was manufactured and labeled by employee volunteers at Campbell’s plant in Camden.35
What’s Next?
A new food-rating system, the Affordable Nutrition Index (ANI), that analyzes both nutrition and the cost value of food, might make it easier for consumers to find budget-friendly, nutritious foods. Dark-colored vegetables, certain fruits, and vegetable soups were among the most affordable, nutritious foods. “In today’s economy, more people are making food choices based solely on cost, so it’s important to guide them on ways to get nutritious options without hurting their wallets,” said Adam Drewnowski,
C243
PhD, professor at the University of Washington. “It is important to identify a wide range of affordable, nutritious choices that can help people build a balanced diet that fits their lifestyle and budget.”36
EXHIBIT 7 Campbell Income Statement
Go to library tab in Connect to access Case Financials.
| A | B | C | D | |
| 1 | Campbell Income Statement | |||
| 2 | Period Ending | Jul 28, 2012 | Jul 30, 2011 | Jul 31, 2010 |
| 3 | Total Revenue | 7,707,000 | 7,719,000 | 7,676,000 |
| 4 | Cost of Revenue | 4,715,000 | 4,616,000 | 4,526,000 |
| 5 | Gross Profit | 2,992,000 | 3,103,000 | 3,150,000 |
| 6 | Operating Expenses | |||
| 7 | Research Development | 125,000 | 129,000 | 123,000 |
| 8 | Selling General and Administrative | 1,645,000 | 1,632,000 | 1,667,000 |
| 9 | Non Recurring | 10,000 | 63,000 | 12,000 |
| 10 | Others | – | – | – |
| 11 | Total Operating Expenses | – | – | – |
| 12 | Operating Income or Loss | 1,212,000 | 1,279,000 | 1,348,000 |
| 13 | Income from Continuing Operations | |||
| 14 | Total Other Income/Expenses Net | 8,000 | 11,000 | 6,000 |
| 15 | Earnings Before Interest And Taxes | 1,220,000 | 1,290,000 | 1,354,000 |
| 16 | Interest Expense | 114,000 | 122,000 | 112,000 |
| 17 | Income Before Tax | 1,106,000 | 1,168,000 | 1,242,000 |
| 18 | Income Tax Expense | 342,000 | 366,000 | 398,000 |
| 19 | Minority Interest | 10,000 | 3,000 | – |
| 20 | Net Income From Continuing Ops | 774,000 | 805,000 | 844,000 |
| 21 | Non-recurring Events | |||
| 22 | Discontinued Operations | – | – | – |
| 23 | Extraordinary Items | – | – | – |
| 24 | Effect Of Accounting Changes | – | – | – |
| 25 | Other Items | – | – | – |
| 26 | Net Income | 774,000 | 805,000 | 844,000 |
Source: Yahoo Finance.
As for Campbell, their advertising campaign failed to assist them in gaining the expected traction in the ready-to-serve soup business. They planed to correct this in 2013 with a new NFL-themed Chunky soup campaign, which they felt confident would grab the attention of consumers. They also planned to continue to reinvent their product offerings, particularly in the soup division, by adding back the salt and going for a “taste adventure” by introducing new flavors into what many would consider a rather ordinary product line. But if the economy continues to improve, will Campbell’s name still resonate with American consumers or will consumers venture back to restaurants? Will Campbell’s soup simmer to perfection or will the company be in hot water?
ENDNOTES
1. Boyle, M. 2010. Campbell CEO pick may be lost chance, analysts say. BusinessWeek, September 29, www.businessweek.com/news/2010-09-29/campbell-ceo-pick-may-be-lost-chance-analysts-say.html
2. Goudreau, Jenna. 2012. Kicking The Can: Campbell’s CEO Bets On Soup-In-A-Bag For 20-Somethings. Forbes.com. December 6. www.forbes.com/sites/jennagoudreau/2012/12/06/kicking-the-can-campbells-ceo-bets-on-soup-in-a-bag-for-20-somethings
3. Campbells. 2013. Our Company. www.campbellsoupcompany.com/around_the_world.asp.
4. Collins, G. 1994. Campbell Soup takes the big plunge into salsa. New York Times, November 29: D1.
5. Campbell Soup Co. Published 2010. 2009 Annual Report
6. Campbell Soup Co. Published 2008. 2007 Annual Report
7. Wall Street Journal. 2011. Campbell Soup to Exit Russia, June 29. online.wsj.com/article/SB10001424052702304447804576414202460491210.html.
8. Want China Times. 2013. Campbell Soup aims to break into Chinese market through chef endorsements. March 6. www.wantchinatimes.com/news-subclass-cnt.aspx?id=20130306000016&cid=1102
9. Boyle, M. 2009. Campbell’s: Not about to let the soup cool. BusinessWeek, September 17.
10. News Release. 2010. Campbell launches “It’s Amazing What Soup Can Do” ad campaign to promote Campbell’s U.S. soup brands. September 7. investor.campbellsoupcompany.com/phoenix.zhtml?c=88650&p=irol-newsArticle&ID=1467644.
11. Brat, I., & Ziobro, P. 2010. Campbell to put new focus on taste. Wall Street Journal, November 24. online.wsj.com/article/0,,SB10001424052748704369304575632342839464532,00.html
12. Abelson, Reed. 2000. The first family of soup, feeling the squeeze; Should it sell or try to go it alone? New York Times, July 30. http://www.nytimes.com/2000/07/30/business/first-family-soup-feeling-squeeze-should-it-sell-try-go-it-alone.html?pagewanted=all&src=pm
13. Campbell Soup Co. Published 2008. 2007 Annual Report.
14. Campbell Soup Co. Published 2011. 2010. Annual Report
15. Press Release. 2007. The Coca-Cola Company, Campbell Soup Company and Coca-Cola Enterprises sign agreement for distribution of Campbell’s beverage portfolio. investor.shareholder.com/campbell/releasedetail.cfm?ReleaseID=247903
16. Campbell Soup Co.Published 2011. 2010. Annual Report.
17. Ibid.
C244
EXHIBIT 8 Campbell’s Key Ratios
| Valuation Measures | |
| Market Cap (intraday)5: | 14.17B |
| Enterprise Value (Apr 9, 2013)3: | 18.16B |
| Trailing P/E (ttm, intraday): | 19.30 |
| Forward P/E (fye Jul 29, 2014)1: | 16.64 |
| PEG Ratio (5 yr expected)1: | 3.08 |
| Price/Sales (ttm): | 1.75 |
| Price/Book (mrq): | 12.19 |
| Enterprise Value/Revenue (ttm)3: | 2.24 |
| Enterprise Value/EBITDA (ttm)6: | 10.83 |
| Financial Highlights | |
| Fiscal Year | |
| Fiscal Year Ends: | Jul 28 |
| Most Recent Quarter (mrq): | Jan 27, 2013 |
| Profitability | |
| Profit Margin (ttm): | 9.12% |
| Operating Margin (ttm): | 16.32% |
| Management Effectiveness | |
| Retum on Assets (ttm): | 10.83% |
| Return on Equity (ttm): | 62.08% |
| Income Statement | |
| Revenue (ttm): | 8.10B |
| Revenue Per Share (ttm): | 25.77 |
| Qtrly Revenue Growth (yoy): | 10.50% |
| Gross Profit (ttm): | 2.99B |
| EBITDA (ttm)6: | 1.68B |
| Net Income Avl to Common (ttm): | 737.00M |
| Diluted EPS (ttm): | 2.34 |
| Qtrly Earnings Growth (yoy): | -7.30% |
| Balance Sheet | |
| Total Cash (mrq): | 416.00M |
| Total Cash Per Share (mrq): | 1.32 |
| Total Debt (mrq): | 4.51B |
| Total Debt/Equity (mrq): | 390.39 |
| Current Retio (mrq): | 0.78 |
| Book Value Per Share (mrq): | 3.71 |
| Trading Information | |
| Stock Price History | |
| Beta: | 0.21 |
| 52-Week Change3: | 36.90% |
| S&P500 52-Week Change3: | 15.05% |
| 52-Week High (Apr 2, 2013)3: | 46.45 |
| 52-Week Low (Jun 13, 2012)3: | 31.32 |
| 50-Day Moving Average3: | 42.46 |
| 200-Day Moving Average3: | 37.57 |
| Share Statistics | |
| Avg Vol (3 month)3: | 1,983,630 |
| Avg Vol (10 day)3: | 2,439,200 |
| Shares Outstanding5: | 314.17M |
| Float: | 161.12M |
| % Held by Insiders1: | 43.64% |
| % Held by Institutions1: | 44.50% |
| Shares Short (as of Mar 15, 2013)3: | 12.63M |
| Short Ratio (as of Mar 15, 2013)3: | 5.40 |
| Short % of Float (as of Mar 15, 2013)3: | 7.30% |
| Shares Short (prior month)3: | 14.92M |
| Dividends & Splits | |
| Forward Annual Dividend Rate4: | 1.16 |
| Forward Annual Dividend Yield4: | 2.60% |
| Trailing Annual Dividend Yield3: | 1.16 |
| Trailing Annual Dividend Yield3: | 2.60% |
| 5 Year Average Dividend Yield4: | 3.20% |
| Payout Ratio4: | 62.00% |
| Dividend Date3: | Dec 27, 2012 |
| Ex-Dividend Date4: | Dec 12, 2012 |
| Last Split Factor (new per old]2: | 2:1 |
| Lest Split Date3: | Mar 18, 1997 |
Source: Retrieved from http://finance.yahoo.com/q/ks?s=CPB+Key+Statistics.
EXHIBIT 9 Campbell’s stock prices
Source: Yahoo Finance, as of April 8, 2013.
C245
18. Goudreau, Jenna. 2012. Kicking The Can: Campbell’s CEO Bets On Soup-In-A-Bag For 20-Somethings. Forbes.com. December 6. www.forbes.com/sites/jennagoudreau/2012/12/06/kicking-the-can-campbells-ceo-bets-on-soup-in-a-bag-for-20-somethings/
19. Ibid.
20. Katz, Jonathan. 2010. Campbell Soup cooking up a new recipe? Industry Week. December 15. http://www.industryweek.com/companies-amp-executives/iw-50-profile-campbell-soup-cooking-new-recipe
21. PRNewswire. 2012. U.S. Packaged Food Market – Consumers Seek out Ethnic & Bold Flavours – New Industry Report. PRNewswire, March 12. www.prnewswire.com/news-releases/us-packaged-food-market—consumers-seek-out-ethnic-bold-flavours—new-industry-report-142292805.html
22. ReportsnReports. 2013. Packaged Food in the US.April. www.reportsnreports.com/reports/150486-packaged-food-in-the-us.html.
23. Ibid.
24. Graves, T., & Kwon E. Y. 2009. Standard and Poor’s Foods and Nonalcoholic Beverages Industry Report. July.
25. Hoovers. Accessed April 2013. Company Profiles: Nestle. www.hoovers.com/company-information/cs/company-profile.Nestle_SA.6a719827106be6ff.html.
26. Hoovers. Accessed April 2013. Company Profiles: General Mills. www.hoovers.com/company-information/cs/company-profile.General_Mills_Inc.a90ba57dc8f51a65.html
27. Hoovers. Accessed April 2013. Company Profiles: Kraft Foods. www.hoovers.com/company-information/cs/company-profile.Kraft_Foods_Group_Inc.43af8ed4b4ae51f2.html
28. Hoovers. Accessed April 2013. Company Profiles: H.J. Heinz Company. www.hoovers.com/company-information/cs/company-profile.H_J_Heinz_Company.1696a42275f81d38.html.
29. Campbell Soup Co. Published 2013. 2012. Annual Report
30. Campbell Soup Co. Published 2013. 2012. Annual Report.
31. Campbell Soup Co. Published 2013. 2012. Annual Report.
32. Campbell Soup Co. Published 2013. 2012. Annual Report.
33. News Release. 2010. Campbell Soup company named to Dow Jones Sustainability Indexes. investor.campbellsoupcompany.com/phoenix.zhtml?c=88650&p=irol-newsArticle&ID=1471159.
34. Campbell Soup Co. Published 2013. 2012. Annual Report.
35. Ibid.
36. SupermarketNews. 2009. New affordable nutrition index is first measurement tool to evaluate affordable nutrition. October 19. supermarketnews.com/company/campbell/archives/1009-nutrition-index/.
