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Campbell Soup Chief Financial Officer Anthony DiSilvestro has attempted to capitalize on anti-Trump sentiments and pro-free trade push back against the Trump Administration’s steel and aluminum tariffs after it announced “unacceptable results.” Commerce Secretary Wilbur Ross rejected DiSilvestro’s assertion. Ross pointed out the fact there is about 2.6 cents in a soup can, so a 25% increase in steel prices would translate into a 0.6 cent increase on a item that costs around $1.99. Although some might argue there are variations in the cost of Campbell’s products, which means a 0.6 could cut deeper into Campbell’s profit than what might be expected, and there might be multiplier effects from the steel tariff, it would appear Campbell’s representative was simply deflecting blame for the company’s poor performance onto government. Such a political move may seem like a minor deal, but it is common and harmful to government and business. Where most anti-Trump and pro-free trade factions are inclined to side with Campbell’s arguments, while Trump supporters are inclined to side with whatever the Administration asserts, a basic analysis of Cambpell’s performance suggests tariffs have had and are going to have a minor impact on Campbell’s profits. Given increases in shipping costs are a major driver of unexpected cost increases, with fuel prices expected to rise, Trump’s tariff may even encourage Campbell and other companies to streamline their logistics and source more locally, which are healthier practices in the long-term for the economy and these businesses. Pressure from major retailers, including Wal-Mart, to lower prices have also squeezed Campbell’s earnings. Because costs grow exponentially, i.e. a small company make a dollar for every two dollars spent while a larger company may make a cent for every dollar spent, shrinking profit margins are alarming, but Campbell is still a profitable business, but not as profitable as it expected to be.
The announcement of CEO Denise Morrison, which came just before the earnings releases, certainly does more to justify a perceived political motivation on behalf of DiSilvestro. Recognizing Campbell is struggling due to losses associated with its Campbell Fresh division, which can be attributed to a lack of consumer demand and issues with carrot sourcing, it would seem Campbell is truly just trying to blame the Trump Administration for something it had nothing to do with. The practice of obsessing over quarterly results and expecting perpetual profit grow is, unfortunately, a major issue that leads businesses to often make ill-advised, short-term decisions that hurt their long-term viability and profitability. Simply buying acquisitions without a solid vision for the future of the overall company and the potential for losses in a division is also a bad business practice. Tech giant Yahoo succumbed to the very same mismanagement style espoused by Morrison under the leadership of Marissa Mayer. With that in mind, government did play a role in Campbell’s missed earnings reports. The Saudi-Russia oil deal is, after all, helping to prop up energy prices while the Fed’s decision to raise interest rates resulted in increased interests costs. It is clear that Campbell is suffering from the randomness of nature, poor business decisions on the behalf of its leadership, and, yes, government policies that are harmful to businesses. The Fed’s moves to increase interest rates are, however, probably the most sound policy decisions when it comes to promoting the overall health of the economy. From the perspective of those who believe the US needs to rebalance trade relationships, Trump’s tariffs may well be sound economic policy. Simply because a particular set of policies hurt a major business or industry does not mean those policies represent bad government. All people and businesses that feel government action is causing them harm should voice their views. Stoking anti-government sentiments to simply distract investors and customers from the fundamental issues driving a company’s lackluster performance and one’s own bad decisions only serves to elicit emotional backlash against public policies. Government suffers enough from the dysfunction caused by special interests legislation. Stirring up controversy to simply avoid taking responsibility for one’s mismanagement of a business only makes it harder to foster proper government, which hurts everyone and every business. When healthcare providers, insurance companies, and employer sponsors of health insurance, for example, used Obamacare as an excuse to justify their resistance to change, price increases, and reduced coverage, they only managed to create greater confusion and economic issues that undermined constructive changes to America’s healthcare system. Furthermore, individuals and companies, which use policy changes as smokescreens demonstrate an inability to take responsibility and to confront issues with problem solving. Someone who avoids responsibility cannot, after all, be an effective or respected manager and leader. Simply blaming governments also sows animosity between public officials and business leaders, which makes it harder for socially responsible businesses to have a constructive impact on public policies. Both business and government work on relationships, so bad relationships tend to lead to bad business and bad government. Blaming government, especially when government is not to blame and government policies are supported by key demographics, also creates PR liabilities and the prospects of major blowback. Consequently, it is better to simply avoiding blaming government or anyone else when it comes to poor business performance, even if policy shifts are responsible. Such impacts should be addressed without vilifying government.
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April 2020
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