Inflation took a big bite out of Campbell Soup Co.’s fiscal third-quarter profits, and is expected to keep eating away at earnings for a “sustained” period.
While the soups, snacks and simple meals seller’s Chief Executive Mark Clouse said Wednesday that he was “confident” that inflation can be addressed, through pricing actions and continued sales momentum, he said there is enough uncertainty to hold off before providing a more detailed outlook.
“I would be remiss not to say, though, that inflation is a little bit of a moving target right now,” Clouse said, according to a transcript of the post-earnings conference call with analysts. “And so, although I feel great about what we’re doing, I think I kind of want to wait for the next quarter to see kind of where we’re landing on a couple of the variables and a couple of the commodities.”
Clouse’s comments came after the company reported early Wednesday fiscal third-quarter results, in which profit and sales fell more than Wall Street expectations and the full-year outlook was cut, as inflation and rising supply chain costs weighed on results.
dropped 6.1% in afternoon trading Wednesday, enough to make it the second-biggest decliner in the S&P 500. It recovered a bit on Thursday morning.
“We did face a significant inflationary environment in the quarter, as well as shorter-term increases in supply-chain costs,” Clouse said. “We anticipated the vast majority of these drivers, but in certain areas the pressures intensified, especially around inflation and some of the transitional costs moving out of the COVID-19 environment.
He said some of the supply chain headwinds were shorter term as they were caused by the Texas winter storms and the closure of the company’s Paris, Texas facility for two weeks. Regarding inflation, however, Chief Financial Officer Mick Beekhuizen said his expectation is for “sustained inflationary pressures through the remainder of the year.”
“In the fourth quarter, we expect more pronounced inflationary pressures to negatively impact margins, while pricing actions take hold in the beginning of fiscal 2022,” Beekhuizen said.
In the third quarter, gross margin decreased to 31.7% from 34.5%, with CEO Clouse saying inflation and supply chain cost increases caused about a third of the gross margin erosion. Based on the current FactSet consensus for sales and cost of sales, the current expectation for fiscal fourth-quarter gross margin is 35.3%.