Campbell Soup to keep expanding in emerging markets such as Russia and China; pace investments to be in line with slumping worldwide economy
December 9, 2008
– Campbell Soup Co.'s top executives said Tuesday the company will continue to support its market-leading brands in the U.S. but also keep expanding in emerging markets like Russia and China.
But the soup maker said it will pace its investments in those emerging markets to be in line with the slumping worldwide economy, which is making both consumers and creditors tight with their spending.
President and Chief Executive Douglas R. Conant told analysts at a meeting Tuesday that Russia and China represent about half the world's soup consumption, and the venerable soup maker is laying the ground work to take the top slots in those markets.
"We have an opportunity to establish a pre-eminent position in both markets," he said at the meeting that was Webcast online.
The Camden, N.J.-based company, which reported its fiscal first-quarter earnings late last month, is seeing strong sales of its soups in the U.S. to cash-strapped consumers, but Campbell Soup could be hurt by currency translations as the U.S. dollar gains strength.
The company said a 3 percent rise in sales was watered down by commodity-hedging losses in the quarter, sending profits down 3.7 percent. Analysts say more consumers are buying soup as they look to stretch their grocery budget.
Conant said the company expects to be able to manage the currency headwinds. Companies with large portions of their business overseas are hurt as the U.S. dollar gains strength and other currencies weaken. He also said the company will work through the high costs it has seen for key ingredients like corn, and price increases taken in the past year will help pad margins.
Food makers have been hampered by input costs which reached record highs over the summer. The prices have since moderated, but some food companies have been losing money on hedges they placed before input prices tapered off. Food companies have also been raising their prices to offset the high input costs but they can't raise prices too much without deterring some consumers, so their margins are still squeezed.
Food companies have been benefiting as more consumers eat more from the grocery store, rather than in restaurants. But with that comes the risk of consumers trading down to private-label foods, which typically cost less than their branded counterparts.
Company executives said they were not worried about competition from private labels or stores' price-cutting. They said typically it is the third, fourth and fifth best-selling brands in the market that get hurt from private-label competition, while market leaders like Campbell are stable.
Chief Financial Officer Craig Owens said the company hasn't seen big slowdowns in spending in emerging markets, which he said is a small part of Campbell's business. He said the company is committed to long-term growth there, but it will keep an eye on the economy and adjust its plans accordingly.
"Our intention is to continue our work there but to stay flexible and continue to watch those markets and be prepared to pace our investments," he said.
Shares of Campbell fell 78 cents, or 2.6 percent, to close at $29.08 on Tuesday. Earlier in the session shares set a fresh 52-week low of $28.87, off 29 percent from its 52-week peak of $40.85.
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