Campbell's Wet Noodles

Despite CEO Morrison's ambitious projections, earnings are disappointing

Dale F. Morrison loves to rally the troops at Campbell Soup Co. His advice: Set "big, hairy, audacious goals." Morrison certainly did. Analysts say he was aiming for long-term sales growth between 8% and 10% and increases in earnings per share in the low to mid-teens.

At least for now, those goals are too big and hairy even for Morrison, a former PepsiCo Inc. marketing executive who moved into the top spot at Campbell in 1997. On Jan. 11, Campbell announced that soup consumption would be lower than expected and earnings for the fiscal year, ending Aug. 1, 1999, would likely come in 18 cents to 23 cents per share below the $2.13 Wall Street was projecting. Hating to be disappointed, the market knocked 13% off the stock price in one day, to 45 3/8. Morrison was not available for comment.

Campbell is hardly the only food company with indigestion these days. Others, including Kellogg Co. and RJR Nabisco Inc., have had to shave earnings forecasts in the last six months as well. The common thread is mature markets and virtually no room to hike prices. Prudential Securities analyst John M. McMillin says the 13 food companies he follows are generating sales growth of just 3% annually.

Morrison's big mistake, say analysts, was in thinking he could buck that trend. "They aren't the first [food company] with a headache," says McMillin. "But they said they were better than everybody else."

MEAGER. Meanwhile, trying for 4% to 5% growth in soup consumption, Morrison upped Campbell's marketing budget an estimated 10%, to $800 million annually. But with such warm weather late last year, Campbell says U.S. soup consumption will be up a meager 1% to 2% for the company's current fiscal year.

A Campbell spokesman says the company isn't giving up on its long-term goals. And a change in how the company promotes to retailers could save $100 million annually. But Goldman, Sachs & Co. analyst Nomi Ghez says the key to its success is to stop overpromising. "They can have a good business even if soup grows only 1%," says Ghez. McMillin, however, thinks Campbell should consider linking up with another food company, perhaps Best Foods.

Morrison has more to worry about than Wall Street. Descendants of John T. Dorrance, the inventor of condensed soup, own more than 50% of Campbell stock. And, although Campbell director Philip E. Lippincott says there are no signs they want a new strategy, the Dorrance heirs have forced changes in the past. In 1990, they helped bring in Morrison's predecessor, David W. Johnson, who still serves as chairman. He developed a close relationship with them and pushed profits up mostly by cost-cutting. Morrison has had less time to cultivate family ties and little success boosting profits through top-line growth. That gives him a clear--if hairy--goal to shoot for.

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