More Sales Declines, Lukewarm Reports from Food Companies

Feb. 17, 2016
Consumer Analysts Group of New York meeting day 2 features apologetic Campbell, Kellogg, Smucker and McCormick, celebratory Hain Celestial.

In the second day of the Consumer Analysts Group of New York (CAGNY) meetings today (Feb. 17), the microphone was passed to food companies that suffered declines in both sales and earnings in 2015 – at least for the first two presenters. Yesterday's report featured companies that had sales declines but profit increases.

Both Campbell Soup and Kellogg Co. ended 2015 down in both sales and earnings. Campbell predicts 2016 will see a slight sales decline (zero to -1 percent) but an increase in earnings, while Kellogg foresees a 2016 sales increase of 1-3 percent and operating profit up 4-6 percent.

J.M. Smucker, McCormick and Hain Celestial were the other food companies pitching to the financial analysts today.

Campbell Soup

Denise Morrison, Campbell's president/CEO, said her company has been reorganized into three business units, one of them truly new. Americas Simple Meals & Beverages includes the soup, Prego, Plum Organics, skillet sauces and traditional V8 drinks and accounts for 55 percent of sales. Global Biscuits and Snacks combines Pepperidge Farm and the European Kjelsen business for 33 percent. New is the Campbell Fresh unit, with Bolthouse products in fresh vegetables, juice drinks and now salad dressings plus the recent Garden Fresh acquisition (hummus and salsa) and some refrigerated high-end soups. That accounts for just 12 percent but has the highest growth potential.

Morrison also acknowledged the company's bold January move to support mandatory, national labeling of genetically modified organisms (GMOs). The company even added to its SpaghettiOs label the statement "partially produced with genetic engineering." "Everyone knows the majority of consumers want GMO labeling," she said. "The time has come."

Another current theme is the creation of a venture capital fund to invest in small start-up food companies. Morrison said Campbell has created Acre Venture Partners L.P. and funded it with $125 million. It will be independent of Campbell and managed by outsiders, although Campbell is its sole limited partner. (See story here)


Thanks in part (but not entirely) to a weak fourth quarter, Kellogg reported 2015 sales of $13.5 billion, down 7.2 percent from 2014. Its "comparable net income attributable to Kellogg Co." for the year was $1.26 billion, off 8.4 percent. But CFO Ron Dissinger predicted upticks in both those scores for 2016.

CEO John Bryant seemed to say a number of products were not adequately tended to last year. The company's overall cereal sales declined in 2015, along with the industry-wide category, but were up in the first 12 weeks of 2016. Special K, in particular, had been in decline until ramped-up marketing that included the introduction of the Red Berries variety. Kashi "will return to growth" in 2016 with an emphasis on its plant-based nutrition. The granola bar business suffered. And the Morning Star brand, which has been flat, will be repositioned from a meat substitute portfolio to one based on "vegetarian cuisine," with new products Veggie Bowls made with organic, non-GMO vegan ingredients.

Just as Campbell moves away from dependency on soup, Kellogg is migrating from breakfast cereal to snacks, with 50 percent of sales now in that latter category, more sales than are in cereal.

J.M. Smucker

At last year's CAGNY meeting, Smucker was just getting the Big Heart Pet Brands acquisition under its belt. Now that transformational acquisition is tucked in and being consolidated. Big Heart's San Francisco headquarters will be retained but the Pittsburgh office will be closed by the end of this year. The southern California R&D center has been relocated to Smucker offices in Orrville, Ohio, and redundant sales offices also are being consolidated.

Smucker ended 2015 with sales up just 1.5 percent (to $5.7 billion) and profit down 40 percent (to $345 million). But improvements in both were promised for 2016.

Big Heart gives Smucker three distinct product categories: pet food, coffee (via its 2008 purchase of Folgers from Procter & Gamble) and consumer foods – they're nearly equal thirds of company sales.

On the investment front, Smucker bought an unspecified minority stake in tea company Numi Inc., which includes a license to manufacture and market tea products under development. Mark Smucker, president of consumer and natural foods, said it aligns with the company's desire to invest in startups.

CEO Richard Smucker said 10 percent of 2016 sales will come from products launched in the past three years.

McCormick & Co.

The recently released Dietary Guidelines for Americans should be a boon to the fortunes of McCormick & Co., said President/CEO Lawrence Kurzius. The guidelines recommend "shift food choice to reduce sodium intake … flavoring foods with herbs and spices instead of salt," he said.
Kurzius just took over the CEO role from longtime leader Alan Wilson on Feb. 1.

The company continues to enjoy its position as the world's leading spice dealer, but it's working to bring more products to more consumers and to take more of its products to higher values through premiumization and blending. China is now McCormick's second biggest market, behind only the U.S.

Like the others above, McCormick had a so-so 2015, with sales up a scant 1 percent to $4.3 billion and income down 8 percent to $402 million.

Hain Celestial Group

With 99 percent of its products non-GMO, 40 percent organic and 71 percent with 13 or fewer ingredients, Hain Celestial thinks it's well positioned for current trends. John Carroll, executive vice president and CEO of North America, also noted 32 percent of Hain's customers are millennials, compared to 25 percent for all CPG companies.

Hain continues on a nice growth trajectory. Its 2015 fiscal year, which ended last June 30, saw sales increase 25 percent to $2.7 billion and income rise 20 percent to $168 million.

Recent acquisition Tilda, a marketer of jasmine rice, took the company deeper into the U.K. and into India for the first time. "Project Terra," just getting under way, will free up $100 million over the next three years to be reinvested in brand-building and to increase household penetration.

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