Campbell reports struggles with Bolthouse Farms, Garden Fresh

Earns Campbell Soup-17022017-0001
Campbell Soup Co's shares were trading lower Friday after the company announced it had written down two of its fresh divisions.

For the second time in less than six months, Campbell Soup Co. has written down the value of businesses it is banking on for the growth that its staple canned soups cannot provide, the Camden company said Friday.

The noncash impairment charges totaling $212 million reflected a realization that the Bolthouse Farms fresh carrots business and Garden Fresh Gourmet, which produces fresh salsa, chips, and other dips, are not meeting the expectations built into the prices Campbell paid for them.

In midafternoon trading, Campbell's shares were down nearly 7 percent, to $58.28, following the report of a 1 percent decline in quarterly revenue, to $2.17 billion. Net income was $101 million, down 62 percent.

Despite the problems, Denise Morrison, Campbell's chief executive, told analysts on a conference call that the company remained committed to the businesses it refers to as Campbell Fresh because those products, sold around the perimeter of supermarkets, are still growing faster than products shelved in the shrinking center of the stores.

"We've had some execution issues this year and weather issues in the agricultural part. That's been unfortunate, but that does not sway us from our long-term strategic vision to really build a fresh-food platform for Campbell," Morrison said in response to an analyst's question about whether Campbell would keep the businesses, particularly the business of growing carrots.

A $147 million write-down of the Bolthouse carrots business is the second since Campbell paid $1.55 billion for the Bakersfield, Calif., company in 2012. Last September, Campbell announced a $141 million write-down. The two charges amount to 18.6 percent of the purchase price.

Garden Fresh is a more recent acquisition. Campbell paid $232 million for the Michigan company in 2015. The $65 million impairment charge on Garden Fresh announced Friday wiped out more than a quarter of the price.

"The traits that made Garden Fresh Gourmet an attractive acquisition target, the small authentic brand with a compelling story, have also presented some obstacles," Morrison said.

Garden Fresh was harder to integrate than expected because it had very little infrastructure. A plan to expand distribution beyond the Midwest stumbled.

"It became apparent that we did not have the differentiated recipes and taste profiles that would be accepted by consumers in other parts of the country. We now have the recipes to pursue expanded distribution," she said.

Campbell had a few bright spots. U.S. soup sales climbed. Goldfish crackers also did well.

Plus, Campbell said it would meet a cost-cutting target of $300 million in the current fiscal year, a year ahead of schedule. Encouraged by that success, Campbell set a new target of trimming a cumulative total of $450 million in annual expenses by 2020.

Such cost-cutting is popular among food giants of late, driven in part by the strategy of Warren Buffett and his Brazilian partner, 3G Capital. Buffett and 3G teamed up to buy H.J. Heinz Co. in 2013 and then took over Kraft in 2015 to form Kraft Heinz, each time aggressively cutting costs.

Kraft Heinz's current target, European food giant Unilever, rebuffed a $143 billion bid, Kraft Heinz said Friday.