CHICAGO (Reuters) - Consumers looking for relief from rising food prices are not likely to see any price cuts soon from Campbell Soup Co (CPB.N), which is still dealing with high commodity costs under previously set contracts.
Sales of the world’s largest soup maker have been helped by consumers eating more at home, and the company sees little need to cut prices, especially while margins remain under pressure, CEO Douglas Conant said at the Reuters Food and Agriculture Summit in Chicago.
“Quite frankly, sales are growing, our marketplace presence is growing, consumer purchases are actually growing faster than sales,” Conant said. “Clearly we’re having a good year, we’ve had the best year in soup that I’ve experienced in my nine years here.”
“So it’s not likely we’re going to be reducing prices in the near term.”
But Conant also said that strategy could change if commodity prices come down and margins improve.
Like many food companies, Campbell locks in some costs for grains and other ingredients through commodity hedges. The company hedged some commodities when prices were at historic highs last year and those hedges run until July, Conant said.
“As those hedges come off and if our margins start to turn around, then we’ll reconsider that, but that’s premature to talk about,” Conant said about the possibility of lowering prices.
“We’re hopeful our margins will improve in the second half but for the full year, at best they’ll be flat,” Conant said. “So we won’t recover everything we lost in the first half.”
Total sales fell 4 percent in the fiscal second quarter which ended February 1, in part because retailers cut down on purchases from the company in order to reduce inventories and partly because of the impact of the stronger dollar.
The “destocking,” which Conant said he had never seen before, is likely to continue to pressure sales for several months, he said. But Conant said he expected the impact to be less than in the second quarter.
“One percent or so, you have to be prepared to lose,” he said of the current impact from destocking. That compares with a 3 percent impact on sales as a result of destocking in the second quarter.
While some food company executives have said they expect the destocking issue to be worked out in the early part of 2009, Conant’s view is that the process could take a bit longer.
Conant said the amount of inventory retailers will hold at warehouses will decline modestly over the next year. “I think we’ll hit a new (lower) level in the next six months.”
A big risk for Campbell from low store inventories is that some items will sell out, and the company will miss sales, but Conant said so far Campbell has not been “profoundly affected” from “out-of-stocks”.
The recession has led consumers to eat more meals at home, but Conant said the foods people eat at home do not change much.
“What I’ve discovered in good times and bad times is that consumer behavior changes very slowly,” Conant said. “There’s a drift toward simple meals and better-value foods, but it’s simply a drift.”
In general, customers are focusing on value as they try to save money. Campbell is seeing that impact more in its V8 juice business and Pepperidge Farm snacks and baking business, Conant said.
One strategy the company has adopted is to offer some Pepperidge Farm bread loaves with smaller slices as a way to save money.
Campbell shares were up 66 cents or 2.5 percent at $27.59 on the New York Stock Exchange on Monday afternoon.
Reporting by Brad Dorfman, editing by Matthew Lewis