Business

Campbell makes its case to quash a takeover plot, but still can't sell enough soup

Posted November 20, 2018 9:11 a.m. EST

— Campbell Soup wants shareholders to believe it knows what's best for the company. But as it fends off attacks from an activist investor trying to upend management, Campbell is still struggling to sell a key product: Soup.

The company has been embroiled in a battle with Daniel Loeb's hedge fund Third Point for control. Campbell said Tuesday that soup sales fell by 6% in the three months ending in October, not including sales from Pacific Foods. Ready-to-serve and condensed soups dragged overall soup sales down, offsetting growth in broth sales.

Campbell (CPB) blamed the declines on competition from other soup makers and an increase in promotional spending.

It's part of a trend for Campbell, which has been having a hard time selling its signature soup. Loeb has noticed. Third Point laid out a specific plan to improve Campbell last month, pointing out where it believes the company has fallen short.

On Tuesday, Campbell said it's pleased with the company's progress.

"During the quarter we started to see improved trends in US soup," interim CEO Keith McLoughlin said in a statement, adding that V8 sales have been growing and that Campbell's snack business is performing well. Net sales for the quarter grew 25% to $2.7 billion thanks to the company's acquisition of Snyder's-Lance and Pacific Foods.

The company conducted a full operational review last summer in the wake of poor sales and the abrupt departure of its former CEO. At its conclusion, the company decided to sell its fresh and international businesses and focus on snacks, meals and beverages to improve the company.

"We are on track with our plans and are encouraged by the progress we are making," McLoughlin said on Tuesday. Shareholders seemed to agree with the rosy take: the company's stock jumped about 4% before the bell.

Tuesday's earnings come at an important time for the company. Next week, shareholders will vote on whether to keep the company's current leadership in place, or accept Third Point's plan to replace 5 of the 12 board members.

Third Point points to Campbell's recent poor performance as evidence that the current leadership isn't working. Campbell's core products "seem tired and out-of-date," Third Point has said, adding that the company has failed to innovate flavors for its classic products, and still uses "hard-to-pronounce and obscure sounding ingredients" like hydrolyzed soy protein and glutamate in those products. Plus, Campbell is charging too much for the same old soups while losing market share, Third Point said.

The soup company fired back at the time, saying the plan was "riddled with inaccuracies, half-truths, simple generalizations, and vague recommendations." Campbell's board says it believes in its own turnaround plan.

It's a difficult battle for Third Point.

About 41% of the company is controlled by descendants of the founding family, who have vowed to support the current leaders. Third Point and its supporters hold only about 10%.

Last week, proxy adviser Institutional Shareholder Service said shareholders should vote for all five of Third Point's board nominees. Glass Lewis, another important proxy adviser, lent support to three of the five.

Support from proxy advisory firms, third parties that advise investors on which side is best positioned to increase shareholder value, will likely help sway some investors in Third Point's favor.

"Winning ISS approval is a big step for Mr. Loeb," said Charles Elson, director of the center for corporate governance at the University of Delaware, at the time. "That being said, he still has to overcome the hurdle" of the family controlled shares.