Gross margin improved
Campbell Soup (CPB) reported strong margin growth during the quarter. The negative impact from sales deleverages and input cost inflation more than offset productivity and costs saving. In fiscal 4Q17, the company’s adjusted gross margin rose by 80 basis points to 36.9%. Supply chain productivity and cost reductions more than offset the negative impact of higher carrot costs, supply chain constraints in beverages, and expenses related to quality enhancements.
In comparison, other food manufacturing giants including General Mills (GIS), Conagra Brands (CAG), Kellogg (K), and Kraft Heinz (KHC) also managed to report improved margins despite lower sales. Food manufacturers are focusing on cost-reduction techniques and generating incremental productivity savings through portfolio restructuring, adoption of zero-based budgeting, and supply chain reinvention to generate higher savings that boost their margins.
EBIT margin expanded
Campbell Soup’s adjusted EBIT (earnings before interest and tax) margin expanded by 190 basis points to 16.9% during the reported quarter. The higher gross margin and lower adjusted selling and marketing costs supplemented the margin’s growth.
By segments, the Americas Simple Meals and Beverages segment’s operating margins rose 4% YoY (year-over-year). Lower administrative, advertising, and promotion expenses more than offset the negative impact of lower volumes. Meanwhile, the Global Biscuits and Snacks segment’s operating income rose 35%. Higher gross margins and lower costs drove most of the growth.
In contrast, the Campbell Fresh segment’s operating income was hit by lower sales, an unfavorable mix, and higher carrot costs. Capacity constraints and increased administrative expenses also dented the margins.
Outlook remains soft
Despite anticipating higher productivity and costs saving, Campbell Soup’s management expects its adjusted EBIT to rise 1% or fall 1% in fiscal 2018. Lower volumes in the key segments and increased input costs will likely take a toll on the company’s profitability in the coming quarters.