Campbell Soup Company (NYSE:CPB) Q1 2018 Earnings Conference Call Transcript

Nov 21, 2017 • 08:30 am ET

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Campbell Soup Company (NYSE:CPB) Q1 2018 Earnings Conference Call Transcript

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Presentation
Operator
Operator

Good day, ladies and gentlemen, and welcome to Campbell Soup First Quarter Fiscal 2018 Earnings Conference Call. (Operator Instructions)

I would now like to turn the conference over to Ken Gosnell, VP, Finance Strategy and IR. Please go ahead.

Executive
Ken Gosnell

Thank you, Candace. Good morning, everyone. Welcome to the first quarter earnings call for Campbell Soup's fiscal 2018. With me here in New Jersey are Denise Morrison, President and CEO; and Anthony DiSilvestro, CFO. As usual, we've created slides to accompany our earnings presentation.

You will find the slides posted on your website this morning at investor.campbellsoupcompany.com. This call is open to the media who participate in listen-only mode.

(Forward-Looking Cautionary Statements)

In the first quarter of fiscal 2018, the company adopted new accounting guidance that changes the presentation of net periodic pension cost and net periodic postretirement benefit cost. Certain amounts in the prior year were reclassified to conform to the current year presentation. The reclassifications did not impact EBIT. Also beginning in fiscal 2018, the business in Latin America is managed as part of the Global Biscuits and

Snacks segment rather than the Americas Simple Meals and Beverages segment as in prior years. Prior period segment results have been adjusted retrospectively to reflect this change. An 8-K will be filed on December 8, along with our 10-Q, which will recast historical quarterly and annual financial information reflecting both of these changes.

With that, let me turn the call over to Denise.

Executive
Denise Morrison

Thanks, Ken. Good morning, and welcome, everyone, to our first quarter call. Today, we'll discuss our results in the quarter, our updated outlook for the remainder of fiscal 2018 and the actions we're taking to improve our performance and to position Campbell for long-term growth.

When we last spoke in September, we outlined our expectations for fiscal 2018 and indicated that we anticipated a challenging first half. However, the first quarter was weaker than we expected, particularly for our US Soup business.

In the quarter, our organic sales declined 2%, driven primarily by declines in US Soup. Adjusted EBIT declined 14%. There were several factors that contributed to this performance.

First, in September, we discussed how a key customer's different promotional approach to the soup category would negatively impact our US Soup business in fiscal 2018. This had a larger impact on sales than originally anticipated primarily due to a lower seasonal inventory build compared to a year ago. The dialogue with this key customer remains open and I'm very optimistic that we will reach a positive resolution.

Second, unfavorable weather negatively impacted carrot crop yields and led to supply constraints and higher-than-expected costs. As a result, we placed customers on allocation in the quarter. We expect to be off allocation by December.

And finally, the hurricane recovery efforts in Florida and Texas resulted in higher-than-expected supply chain costs due to the surge in demand for transportation and logistics. We'll be impacted by this in the near term but the cost impact will moderate over time.

As a result