Campbell Soup CEO talks earnings, outlook, and the consumer

Campbell Soup Company (CPB) reported fiscal first-quarter adjusted earnings per share of $0.91, better than analysts had expected. Net organic sales, however, fell 1% from the prior year. In an interview with Yahoo Finance Executive Editor Brian Sozzi, Campbell Soup CEO Mark Clouse says a positive for him in the quarter was how the results were in line with the company's expectations, though he does admit volumes "are a still bit under strain." Clouse also explains how comparisons are tough given how strong the year-ago quarter was.

As to why the company reaffirmed its full-year outlook, Clouse says he is not anticipating a "radical change in consumer behavior or landscape" and that new innovations will help power sales. When it comes to the state of the consumer, Clouse explains that they are starting to see a divergence between lower income consumers and the middle-to-high income consumers. "Lower income households are really feeling pressure right now," Clouse says, but those with higher incomes are still "very resilient."

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Video Transcript

BRIAN SOZZI: All right. Campbell's Soup out with its latest quarter. Lots of focus on soup sales and also snack sales. Let's get right to Campbell's Soup CEO Mark Clouse. Mark, always great to get some time with you. Just a couple of days after Thanksgiving and some Pepperidge Farm stuffing on the table, I am sure.

So talk to me a little bit about this quarter. And I think a lot of investors are locked in on volumes. The volumes were under pressure. Why is that the case?

MARK CLOUSE: Well, first, let me just take a step back for a second and just say that I think part of what was quite positive in the quarter for us was the consistency and the alignment with our expectations, because, in many ways, I think that signals a grasp over what is going on in a relatively dynamic consumer environment.

So I think the first, you know, kind of takeaway for me from the quarter was, OK, good news. Even where there may be places where there's pressure, we're feeling good that we've got a good handle on what's going on. And then therefore, the plans and the program and even the outlook, we feel very consistent. It's why we affirmed the full year today.

I do think within the quarter, though, there were certainly some things that were positive and some challenges. You know, I would say that one of the things I reminded people today quite a bit about was the fact that we were lapping the best quarter, certainly, I'd had since I'd been here of a 15% growth rate. And it was a monster quarter, as it related to soup in particular.

So the fact that we were down 1% on sales after cycling 15 growth and a two-year run rate of 7, yeah, puts it in a little bit of different context. I do think volumes, though, as we continue to have a fair amount of pricing in our numbers right now, are still a bit under strain. And I think it was one of the reasons why I highlighted units and volume improvement in the Thanksgiving period over these last four weeks, because I know that's something that, as we progress through the year, that pricing wanes as far as contribution, we are anticipating volumes to improve. Not a hockey stick, but certainly a better stabilization and improvement.

BRIAN SOZZI: Mark, hang with me on this next question. So before this interview, I went to the Yahoo Finance home page. And you can clearly see gold prices at a near record high. Crypto is back above 42,000. And stocks are still at a record highs. Is that, I guess, euphoria in certain markets or investing in stocks, gold, whatever it is-- is that euphoria being seen in consumers? I'm trying to figure out is what we're seeing in markets is justified from the consumer in this country.

MARK CLOUSE: Yeah. You know what's interesting about that? I think part of what makes this moment complicated, and I would say to a certain degree unfortunate, is you are seeing some bifurcation in consumer attitudes and behaviors. And unfortunately, I think, in particular, the lower-income households are really feeling pressure right now.

And even though in the backdrop of some of the broader macroeconomic variables that may look a little bit more encouraging, I think in that particular consumer demographic, you're experiencing reductions in SNAP benefits. You're likely experiencing higher interest rates as it relates to debt or how it's relating to your mortgage. Housing costs in general higher. You might be paying your education loan as well.

And so as we think about servicing different contexts of consumers, it's really important that we maintain that affordability and that access and that we're providing solutions that for that lower-income household will really benefit from it. And it's even more pronounced. I think as a responsibility as we walk into this holiday period. Conversely, our more middle to upper-income households are continuing to be very resilient. A lot of our premium brands are actually doing very, very well. And so you do see a little bit of this segregation. And I think that's, unfortunately, causing a little bit of this tension in narrative between how do we really feel about the economy right now.

BRIAN SOZZI: And Mark, this consumer pressure that you're talking about, is that seen through the prism of the broth category? Broth, no pun intended, was warm. It was hot. It was a hot category. Are people buying broth using it to make meals that last an entire week, instead of going out and buying a can of condensed soup? That's still happening?

MARK CLOUSE: Yeah. That's very much still happening. I think consumers are really focused on trying to stretch those dollars and, in doing so, really stretch the meal occasion. And so we see products like our broth business, our condensed cooking, like cream of mushroom, cream of chicken, pasta sauces, these businesses are highly relevant right now as consumers are trying to do that. And conversely, we're seeing a bit more pressure on single serve, like our canned soup or like chunky soup, for example.

So part of what we're doing is continuing to drive the messaging and the communication around those stretchable categories while also trying to reposition and pivot a little bit on products like Chunky, that happens to have a very high protein delivery and that can be utilized in meal occasions a little differently that can also satisfy that need. So it is shaping a little bit what we're doing from a messaging and a communication. But that dynamic is very prevalent in many of our categories.

BRIAN SOZZI: So you certainly caught the attention, I think, of investors reaffirming your outlook. What is-- what changes in the back half of your fiscal year that you're growing again?

MARK CLOUSE: Yeah. I mean, the first thing I'd just say, Brian, is I think part of what we were able to help people understand today is that it's not as if we're anticipating this radical change in consumer behavior or landscape. What really is at work is, first and foremost, this foundation of what we're comparing to. You know, as I pointed out in the first quarter, although down 1%, we were cycling 15% growth. And that mid-teen growth rate was true for Q1 and Q2.

As we get to the back half, that will drop significantly as pricing wanes. And so therefore, the comps that we're going to be running against in Q3 and Q4 are far more manageable. And thus then even in a world where we're performing at a similar dynamic or level as we are now, already you're going to have improvement.

I think further to that, though, I would say that I feel better about our innovation funnel this year. I feel great about our marketing. You know, we've got big--

BRIAN SOZZI: You have Goldfish Crisp, right?

MARK CLOUSE: Yeah. Right behind me. I mean, how did that happen?

BRIAN SOZZI: Not sure.

MARK CLOUSE: But a-- but a big move for us in and another big extension and innovation on Goldfish. And I think the combination of the easier comps with a very strong and robust plan gives us great confidence that we can see what is relatively modest improvement in stabilization as we get to the back half of the year.

BRIAN SOZZI: Mark, maybe you can help us understand this one, why hasn't this Rao's deal closed yet? I know there was some time, but you mean to tell me that lawmakers really have problems with Campbell's Soup buying a pasta sauce company?

MARK CLOUSE: Well, you know, we all have to follow the process and the rules that are laid out. And so that's exactly what we're doing. I think it's been a very constructive conversation, a very collaborative process. We are certainly working hard to fulfill the requests of the FTC. And again, we feel great about this deal. We feel terrific on the outlook for closing. And you know, I think our focus is let's just get done what we need to get done and keep moving.

BRIAN SOZZI: I don't know what lawmakers are thinking, or maybe they're Rao's fans, and they're concerned about the recipe, which you're not changing, right?

MARK CLOUSE: I will not touch. I will not touch.

BRIAN SOZZI: All right. I just want to make sure-- I just want to make sure. All right. Mark Clouse, we'll leave it there, Campbell's Soup CEO. Happy holidays to you and yours. We'll talk to you soon.

MARK CLOUSE: Yeah. You, too, Brian. Have a great holiday. We'll see you soon.