Campbell’s Turnaround Has Reached Full Boil

Campell on Wednesday unveiled results for the quarter ended Oct. 30 that were strong across the board. Organic sales, which strip out merger and currency impacts, jumped 15% from a year earlier. That compared with analyst estimates of 9.6%, according to Visible Alpha, and was a sharp acceleration from 6% growth the prior quarter. 

Clearly, higher prices that the company had pushed through by the start of the quarter—the third such wave of price increases since August of 2021 in response to cost inflation—more than offset declines in volume. The company said that elasticities, or the degree to which consumers reduce their purchases in response to price hikes, were less than it expected in the quarter.

Organic sales growth was 15% for both the meals and beverages segment, which includes Campbell’s namesake soups, and the snacks segment, which includes things like Kettle chips and Pepperidge Farm cookies. Adjusted gross margins ticked up from the prior quarter and declined only slightly from a year earlier. And the company raised guidance for sales and earnings per share for its full fiscal year through July. It now expects organic sales growth of 7% to 9% for the period, up from a forecast given just three months earlier of 4%-to-6% growth. 

Campbell shares rose nearly 5% late Wednesday morning. They were already up 22% this year, making them one of the best-performing food stocks in a strong year for the category. The S&P 500 was down 17% over the same period. 

During times of inflation or other economic stress, it is normal for consumers to turn more to cooking at home and value-tier products like condensed soup. History also suggests that small indulgences like chips and cookies have been resilient during economic downturns. 

But there is a bit more than that going on here. Campbell’s success in pushing through wave after wave of price increases wouldn’t have been possible without the work Mr. Clouse has done since taking over in January of 2019 to renovate its brands and improve their image with consumers. 

In condensed soups, this has included redesigning the can labels to give them a more modern look, removing out-of-favor ingredients like high-fructose corn syrup and adding more appealing ones such as fresh cream. In the “Chunky” line of ready-to-eat soups, it also has included a new line of spicy soups, and a marketing campaign aimed at young men through things like social media and Madden videogames. 

The lesson is an old one for food companies but one they seem to need to relearn every so often: Constant investment and reinvention is needed to keep brands resilient and relevant to consumers. 

The battle against inflation isn’t over. The company said Wednesday that its internal measure of its core cost inflation came to 18% in the October quarter, accelerating from 15% the prior quarter. In response, it is already planning a fourth wave of “selective” price increases that will take effect later this fiscal year.

The risk is that price hikes will eventually start to take a bigger bite out of sales, but Campbell’s recent track record suggests it can handle the challenge.

Write to Aaron Back at aaron.back@wsj.com