Despite this, CEO Mark Clouse told investment analysts Wednesday during the company’s fourth quarter earnings call that he is “confident that with our strong in-market momentum and the progress that we’ve made, we will successfully navigate through” to “unlock the full growth and value potential of this fantastic company going forward.”
This likely will translate to a relatively flat fiscal ’22 with net sales expected between -2% to 0%, and organic net sales between -1% and 1%.
A tale of two halves
While this may not appear overly optimistic at first blush, given the significant headwinds the company and other players in the food and beverage CPG space, at least one investment analyst questioned whether the “broader food group is maybe still not fully factoring in the full challenges ahead in guidance.”
In response, Clouse explained that next year “is going to be a little bit of a tale of two halves,” in which the first half will be significantly more challenging than the back half with expected "improvements … and overall momentum as we exit the year.”
He explained that he expects the labor shortage, which he described as “one of the toughest,” to continue to hamper production in the first half of fiscal ’22 as it did during the company’s recently closed fourth quarter.
“We’re running about two times our normal vacancy rates, and as a translation into what that means, think about it as round somewhere in the neighborhood of 6% of our positions that are open, either vacant or absent, and that is making it tougher to fully meet demand,” he said.
At the same time, inflationary pressures continue to rise and are expected to hit harder during the back half of the year, especially related to packaging supplies and transportation and less so from an ingredient-impact perspective.
“Steel prices have gone up significantly, we are expecting a tick up and inflation in the back half,” but the company also is working closely with suppliers to understand more in real-time what they are seeing so that Campbell can plan accordingly, Clouse said.
He added resin is another area where the company has seen some uptick in costs, but “we’ve covered that.”
As for transportation, Clouse acknowledged that ocean freight has experienced “more variability,” but he added that it will soon lap volatility experienced in fiscal ’21, which should help with comparables. He also noted that the company has strong contracts in place.
Another round of price increases could be on horizon
More broadly with regard to inflation and higher inputs, Clous said, “as we navigate through the balance of the year, I think you should expect us to continue to use the full toolbox to cover that, whether its some combination of promotion and trade spending, some price pack architecture that we’ve worked on, as well as the likelihood that there may be some places where we’re coming back with a second wave of pricing designed to match some very clearly in a very transparent way where we have some of these more explicit costs.”
Clouse added that while Campbell suffered some losses to less expensive competitors early in the pandemic while supplies were constrained, he feels “very good about the traction we’re getting relativel to the pricing actions that we put in place,” so far.
Additional pricing to cover higher inputs in ’22 likely will be in the mid-single digits, reflecting an anticipated increase in inflation in the high single-digits, he said. In addition, he noted, pricing that went into effect in 2021 should begin to provide relief in the back half of next year -- helping to end on a more positive note.
Household penetration reflects strong momentum
Finally, Clouse said, as COVID cases climb again, he expects at home consumption and consumer demand to remain elevated “for a while longer,” which should help the company maintain strong momentum and household penetration gains achieved in the past year and a half.
Indeed, household penetration and repeat rates were a bright spot in the company’s fourth quarter compared to pre-COVID levels. For example, condensed soup increased dollar share for the tenth consecutive quarter.
On the back of this strong momentum, Campbell reported organic net sales grew 3% on a 2-year compound annual growth basis. Year over year, net sales dropped 2% and organic net sales were comparable to last year. For the quarter, net sales fell 11% and organic net sales decreased 4%, which was expected as the company cycled past elevated demand from early in the pandemic. As a result, the company was able to surpass industry expectations.
