By Aaron Back

Campbell's retiring chief executive leaves his successor a company in a much stronger position than he found it. But the entire food industry now faces a difficult environment with several pitfalls ahead, many of them potentially emanating from the Trump administration.

After a successful tenure of nearly six years, CEO Mark Clouse is departing to become president of the National Football League's Washington Commanders. In many ways the organization he will join isn't unlike the one he is leaving: stabilized and turned around after many difficult years, but with work remaining to reach soaring heights.

Campbell's namesake soup business was in free fall when Clouse joined in early 2019, losing share to upstart brands and private-label competitors with an aging, neglected product line. Clouse overhauled it, improving everything from ingredients to packaging while also navigating the disruptions and inflation of the postpandemic period.

The company's results for its first fiscal quarter, unveiled late Tuesday alongside the CEO switch, underscore both the improved position of that business and some of the remaining difficulties for the entire company.

In the quarter ending Oct. 27, soup retail sales rose 1% from a year earlier, gaining market share for the third consecutive quarter, according to a company presentation. But companywide organic sales, which strip out currency and merger impacts, declined 1% from a year earlier. Organic sales were flat in meals and beverages, which includes soup, and down 2% in snacks, which includes Goldfish crackers and Kettle potato chips.

These organic figures exclude the recently acquired Sovos Brands with its rapidly growing Rao's pasta sauces. But the lackluster performance of the core business is still a concern to investors: Campbell shares declined 6.2% on Wednesday.

Of particular note is that pricing was weak, detracting 1 percentage point from organic sales across the board. Clouse indicated on a conference call that this is in-line with what he expects for the full fiscal year. Consumers appear fed up with years of cumulative price increases in grocery aisles, leaving packaged food companies little choice but to step up promotions to maintain volumes.

This is the key difficulty facing incoming CEO Mick Beekhuizen, who has been president of the meals and beverages division since 2019. What could make things even harder is if there is a new wave of cost pressures on the industry. This isn't a foregone conclusion, but it would be the likely result of Trump's promised policies, including across-the-board import tariffs and a crackdown on immigrant labor, the latter of which would affect farms that produce food ingredients. In the current consumer environment, it would be much harder than in recent years to pass on price increases to shoppers, meaning there would have to be either cost cuts or lower profit margins for packaged-food companies.

Of course, not all potential Trump policies would be negative. Lower corporate taxes, for instance, might provide a boost to margins, and stimulative economic policies generally could help drive sales. But there is also the wild card of Health and Human Services nominee Robert Kennedy Jr. and his harsh views on processed food.

All in all, it looks like a difficult time to take the helm of any American food company. Managing an NFL franchise might be easy by comparison.

Write to Aaron Back at aaron.back@wsj.com

(END) Dow Jones Newswires

December 05, 2024 06:30 ET (11:30 GMT)

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