Indigestion Hits Top U.S. Food Firms
Demands for Healthier Offerings Squeeze Kraft, Kellogg, ConAgra and Campbell Soup
Kellogg Co. and other big U.S. food companies are reporting weaker earnings or outlooks as the difficulties of responding to America’s changing tastes hit their pocketbooks and executive suites. PHOTO: BLOOMBERG NEWS
Several top U.S. food makers served up grim financial news and disclosed leadership changes on Thursday, highlighting the industry’s struggle to adapt to shifting consumer tastes and global economic challenges.
The wave of bad news battered shares in Kellogg Co. and Kraft Foods Group Inc., which reported losses—in part on charges—for their latest quarters and hit Campbell Soup Co. and ConAgra Foods Inc., which lowered their earnings outlooks for their current fiscal years.
Kraft, which unexpectedly named a new chief executive two months ago, said several other top executives are leaving, including its chief financial officer and a senior research-and-development official. ConAgra named a replacement for Chief Executive Gary Rodkin, who had disclosed last year-amid ongoing struggles with its business—that he would leave this spring.
Kraft—the maker of Oscar Mayer deli meats, Maxwell House coffee and Velveeta cheese—said it hasn’t moved quickly enough to shift its business based on the changes in how Americans eat today.
“I don’t think Kraft has done as aggressive of a job in this regard as we need to,” John Cahill said on Thursday in his first public comments since taking over as CEO of the Northfield, Ill., company in December. Mr. Cahill, who also is chairman, said Kraft lost market share in 40% of its U.S. businesses last year and was flat in the rest, though its sales rose 2% last quarter to $4.7 billion. He said Kraft needs to improve the quality of its food and make its marketing spending and innovation more effective.
Kellogg, the largest maker of breakfast cereal, said persistent declines in U.S. cereal sales hurt its earnings in the latest quarter and contributed to its deteriorating revenue outlook as breakfast blues persist. The Battle Creek, Mich., maker of Frosted Flakes and Pop-Tarts posted a 7.7% drop in comparable U.S. morning-foods sales last quarter, while its U.S. snacks fell 3.1%.
“There is no one simple solution to the problem,” Chief Executive John Bryant said in an interview.
Kellogg said it now projects long-term annual revenue growth of 1% to 3%, excluding some items, compared with its previous view of 3% to 4%. Its shares fell 5% on Thursday.
Several of the companies said part of their financial woes flowed from the strong U.S. dollar, which makes overseas sales less valuable when converted to their home currency. That sentiment echoed comments on Wednesday from Mondelez International Inc., the maker of Oreo cookies and Cadbury chocolate, which said the weaker foreign currencies delivered a $149 million hit to its operating income in the fourth quarter.
Campbell on Thursday said currency gyrations were partly to blame for it lowering expectations for per-share earnings of between $2.32 and $2.38 for the year ending in August, versus its previous forecast for between $2.42 and $2.50. It also estimated sales for the period would be roughly flat. Camden, N.J.,-based Campbell is scheduled to report its quarterly results later this month.
Campbell also has said it may need to reshape its portfolio of brands, which range from its namesake soup to Pepperidge Farm snacks and V8 juice, in order to achieve long-term growth. The company acquired Bolthouse Farms juices and Plum Organics baby food in recent years, hoping to get a piece of the fresh-food pie. Last week, it announced a new line of organic soups.
Big packaged food companies have been wrestling for years with diminished demand for established products from consumers increasingly interested in items deemed healthier or more natural. Kraft and Campbell are in the midst of reorganizing their businesses to cut costs, and Kellogg and General Mills are closing factories and laying off employees in light of weaker demand for their food.
ConAgra, which makes Chef Boyardee canned foods and is the largest U.S. maker of foods for supermarket brands, said Sean Connolly will replace Mr. Rodkin atop the Omaha, Neb., company in April.
Mr. Connolly, who was CEO of Hillshire Brands Co. before its acquisition by Tyson FoodsInc. in August, takes on the difficult challenge of trying to fix a major acquisition gone wrong. ConAgra acquired private-label food maker Ralcorp two years ago and said Thursday the problems with that business—tough competition forcing it to drive down prices and customer-service issues—are one reason that it has lower earnings expectations for the year.
ConAgra said Thursday it expects comparable earnings of between $2.13 and $2.18 a share for the year ending in May. Previously, it expected a mid-single-digit percentage per share gain from the $2.17 reported last year.
