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Soup growth returns at Campbell, but CEO points to work ahead

Campbell Soup Co.'s namesake business returned to growth during the company's fiscal fourth quarter, a potential indication that its early efforts to turn around the soup business are bearing fruit.

U.S. sales of soup rose 3% during the three months to July 28, the first time sales for the segment grew since the second quarter of 2017. Rising sales of ready-to-serve and condensed soups powered the increase even as sales of broth declined.

The increases came largely as a result of adjusting existing product lines at retailers instead of introducing new items, President and CEO Mark Clouse told analysts during an Aug. 30 call to discuss the company's quarterly and annual results.

"Although we're light on innovation, the things that we're doing are working well," Clouse said.

The sales increase marks progress for Clouse and Campbell. In 2018, the food company faced pressure from activist hedge fund Third Point LLC, which ultimately got two seats for its nominees to Campbell's board through an agreement with the company. Updating Campbell's line of soups to meet consumer tastes was one of the actions that Third Point said was necessary to improve results at the company.

Clouse has headed Campbell since January, having previously served in executive roles at Pinnacle Foods Inc. and Mondelez International Inc.

The food company expects adjusted EPS to grow between 9% and 11%. Campbell expects sales to increase between 1% and 3% during its 2020 fiscal year and adjusted EBIT to expand by 2% to 4%. The projections include the benefit of an extra week in the 2020 fiscal year as compared to 2019.

The CEO told analysts Aug. 30 that Campbell's soup business is still in the early stages of its transformation. Soup consumption typically increases in the U.S. during the colder months, setting up the holiday season and the early part of 2020 as an even more intense trial for the adjustments that Campbell has made so far, Clouse said.

Campbell is also planning changes to its product lines for its 2020 and 2021 fiscal years, including adding new ingredients and reducing the time it takes for some products to reach a simmer on a stove.

Pricing could see some adjustment, too. The company has lowered prices too much on some of its products, such as Campbell's Chunky soups, Clouse said. Instead, the company should focus price cuts on categories like broth, where Campbell is competing with private label products made for retailers, he said.

Going into 2020, Campbell will also "better prioritize select partners" within the part of its Snyder's-Lance snacking business focused on regional brands as well as labels that Campbell distributes but does not own, Clouse said. He did not confirm whether that could include divesting some brands.

Proceeds from the company's sales of its international and fresh businesses will allow Campbell to pay off debt, taking the food company closer to its long-term leverage ratio of 3x, Senior Vice President and CFO Anthony DiSilvestro told analysts.