Campbell Soup Co. Reports 4 Percent Earnings Decline In Second Quarter

Campbell Soup Co. reported its results for the second quarter of fiscal 2011.

Net earnings for the quarter ended Jan. 30, 2011 were $239 million compared with $259 million in the prior year, a decrease of 8 percent. Net earnings per share were $0.71 in the current quarter compared with $0.74 in the prior period, a decrease of 4 percent.

Douglas R. Conant, Campbell's president and CEO, said in a prepared statement, "The overall competitive environment remains challenging throughout the food industry, particularly in the U.S. In U.S. soup, as planned in the second quarter, we maintained strong levels of advertising and promotional support to defend our consumer base. As a result of this support, externally measured consumer takeaway volume at retail in U.S. Soup grew during the quarter. However, our high levels of promotional spending in the quarter did not deliver planned sales lifts and negatively impacted margins. As we stated at the end of the first quarter, in the second half we will more heavily leverage advertising and brand building initiatives while reducing our reliance on trade promotions. We expect that improved price realization will lead to better profitability and strengthen our financial position in anticipation of higher cost inflation going forward.

"Baking and Snacking, our second largest segment, delivered top and bottom line growth in the quarter. This performance reflected our consistent innovation, compelling advertising and effective promotional activities."

Campbell anticipates continued competitive pressure in its U.S. soup, sauces and beverages segment in the second half of the year. Due to the intense competitive environment, the company expects its growth in the second half of the year will be at more modest rates than previously anticipated and will come largely in the fourth quarter.

Campbell revised its full-year fiscal 2011 guidance and now expects net sales to be between 1 and (1) percent, adjusted EBIT to decline between 3 and 5 percent and EPS to decline between 1 and 3 percent from the fiscal 2010 adjusted base of $2.47.

For the second quarter, sales decreased 1 percent to $2.127 billion. The decrease in sales for the quarter reflected the following factors:

• Increased promotional spending subtracted 2 percent;
• Currency added 1 percent.

Gross margin was 39.4 percent compared with 40.5 percent a year ago. The decrease in gross margin percentage was primarily due to increased promotional spending and cost inflation, partially offset by productivity improvements.

Marketing and selling expenses decreased to $291 million compared with $301 million in the prior year, reflecting reduced levels of advertising and lower selling expenses.

EBIT was $359 million compared with $391 million in the prior-year quarter. EBIT decreased 8 percent primarily due to increased promotional spending.

Campbell repurchased 12 million shares in the current quarter for $417 million under its strategic share repurchase program announced in June 2008 and the company's practice of buying back shares sufficient to offset those issued under incentive compensation plans.

Net earnings for the first half were $518 million, or $1.53 per share, compared with $563 million, or $1.61 per share, in the year-ago period. Net earnings per share decreased 5 percent.

For the first half of fiscal 2011, sales were $4.299 billion, a decrease of 1 percent from the year-ago period. The change in sales for the period reflected the following factors:

• Increased promotional spending subtracted 2 percent;
• Currency added 1 percent.

Gross margin was 40.3 percent compared with 41.2 percent a year ago. The decrease in gross margin percentage was primarily due to increased promotional spending and cost inflation, partly offset by productivity improvements and favorable mix.

Marketing and selling expenses decreased $17 million to $568 million, primarily due to lower selling expenses.