Campbell Soup Co. Reports 6 Percent Earnings Gain In Third Quarter

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

Net earnings for the quarter ended May 1, 2011, were $187 million, or $0.57 per share, compared with $168 million, or $0.49 per share, in the prior year. Excluding items impacting comparability in the prior year, net earnings per share increased 6 percent in the current quarter from adjusted net earnings per share of $0.54 in the prior period. The prior year quarter's reported net earnings included adjustments related to a completed restructuring program and a deferred tax expense related to the enactment of U.S. health care legislation in March 2010. A detailed reconciliation of the prior-year adjusted financial information to the reported information is included at the end of this news release.

Denise Morrison, Campbell's chief operating officer, said in a prepared statement, "This quarter we reported a modest increase in sales and EBIT and a significant improvement in earnings per share growth, with three of our four reporting segments contributing to this performance. While we are encouraged by our progress, we are not satisfied with this performance and clearly have more work to do.

"After heavy discounting in U.S. soup during the first half, we began shifting our marketing investments in the third quarter toward brand building initiatives. Over time we anticipate that these efforts, combined with accelerated and targeted innovation, will improve price realization and strengthen brand equity. Sales of our beverage products softened this quarter compared to very strong results a year ago. We have a pipeline of healthy beverage innovations to build on our track record of growth. In Baking and Snacking, our second-largest segment, we continued to deliver strong performance with double-digit sales increases and strong bottom-line results this quarter."

Morrison concluded, "We remain focused on our plans to stabilize and then profitably grow net sales, and we are stepping up our game across the company with plans that include innovation, brand marketing excellence, superior consumer insights and relentless cost management."

For the third quarter, sales increased 1 percent to $1.813 billion. The increase in sales for the quarter reflected the following factors:

  • Volume and mix subtracted 2 percent;
  • Price and sales allowances added 1 percent;
  • Currency added 2 percent.

Gross margin was 40.4 percent compared with 41.2 percent a year ago. The decrease in gross margin percentage was primarily due to cost inflation and higher plant costs, partially offset by productivity improvements.

Marketing and selling expenses decreased to $243 million compared with $252 million in the prior year, primarily due to lower advertising and consumer promotion expenses, and lower selling expenses, partially offset by the impact of currency.

Administrative expenses decreased $8 million to $148 million, primarily due to lower incentive compensation costs.

EBIT was $307 million compared with $292 million in the prior-year quarter. Excluding items impacting comparability, adjusted EBIT in the prior-year quarter was $304 million. Adjusted EBIT increased 1 percent primarily due to lower selling and marketing expenses, lower administrative expenses and the favorable impact of currency, partially offset by the decline in gross margin percentage and lower sales volumes.

Net earnings per share were $0.57 in the current quarter compared with adjusted net earnings per share of $0.54 in the prior-year quarter, an increase of 6 percent. EPS benefited from lower weighted average diluted shares outstanding.

Net earnings for the first nine months were $705 million, or $2.11 per share, compared with $731 million, or $2.09 per share, in the year-ago period. Excluding items impacting comparability, net earnings declined 6 percent compared to adjusted net earnings of $749 million, and net earnings per share declined 1 percent versus an adjusted $2.14 per share in the prior year.

For the first nine months of fiscal 2011, sales were $6.112 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 cost inflation and higher plant costs, and increased promotional spending, partially offset by productivity improvements and favorable mix.

    Marketing and selling expenses decreased $26 million to $811 million, primarily due to lower selling expenses which benefited from cost-saving initiatives.

    Administrative expenses increased $4 million to $442 million, primarily due to higher pension and benefit costs, information systems related costs, costs associated with the new headquarters facility and currency, partially offset by lower compensation expenses.

    EBIT was $1.110 billion compared with $1.161 billion in the prior year. Excluding items impacting comparability, adjusted EBIT in the prior year was $1.173 billion. Adjusted EBIT decreased 5 percent primarily due to the decline in gross margin percentage and lower sales, partially offset by lower marketing and selling expenses and favorable currency.

    Cash flow from operations was $858 million compared with $859 million in the year-ago period. The current-year cash flow reflected higher working capital requirements offset by the benefit of lower pension contributions.

    Year to date, Campbell repurchased 20 million shares for $696 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.

    Sales for U.S. soup, sauces and beverages were $778 million for the third quarter, a decrease of 8 percent compared to the year-ago period. The decline in sales was due to volume and mix.

    U.S. soup sales declined 7 percent in the quarter. Sales volumes were negatively impacted by reduced promotional spending as the company transitioned to higher promoted price points at retail. Sales, primarily of ready-to-serve varieties, were also negatively impacted by fluctuations in customer inventories.

    Sales of "Campbell's" condensed soups decreased 2 percent, as declines in eating varieties were partly offset by gains in cooking varieties. Sales of cooking varieties rose in the quarter driven by strong performance around the Easter holiday.

    Sales of ready-to-serve soups decreased 15 percent, reflecting declines in both canned and microwavable soups.

    Broth sales declined 2 percent.

    Beverage sales decreased 9 percent for the quarter, compared to strong growth in the year-ago period in which sales increased 13 percent. Beverage sales were negatively impacted by lower advertising and increased competitive activity. Sales of "V8" vegetable juice and "V8 V-Fusion" juice declined, while sales of "V8 Splash" juice drinks increased.

    Sales of "Prego" pasta sauce declined due to continued competitive activity, including merchandising and new items. Sales of "Pace" Mexican sauce declined significantly, largely due to continued private label distribution gains.

    Operating earnings were $193 million compared with $214 million in the prior-year period. The decrease in operating earnings was primarily due to lower sales volume, cost inflation and higher plant costs, partly offset by productivity improvements and lower selling and marketing expenses.

    For the first nine months, U.S. soup, sauces and beverages sales decreased 5 percent to $2.903 billion. A breakdown of the change in sales follows:

    • Volume and mix subtracted 3 percent;
    • Increased promotional spending subtracted 2 percent.

    For the first nine months, U.S. soup sales declined 5 percent due to a 10-percent decrease in ready-to-serve soups and a 3-percent decrease in condensed soups. Sales of broth increased 1 percent. Beverage sales were comparable to a year ago as gains in "V8 Splash" juice drinks and "V8 V-Fusion" juice were offset by declines in "V8" vegetable juice. Sales of "Prego" pasta sauce and "Pace" Mexican sauce both declined.

    Operating earnings were $708 million compared with $804 million in the year-ago period. The decrease in operating earnings was due to increased promotional spending, cost inflation and lower sales volume, partly offset by productivity improvements.

    Sales for baking and snacking were $527 million in the third quarter, an increase of 10 percent from a year ago. A breakdown of the change in sales follows:

    • Volume and mix added 4 percent;
    • Price and sales allowances added 2 percent;
    • Increased promotional spending subtracted 1 percent;
    • Currency added 5 percent.

    Sales at Pepperidge Farm increased, reflecting higher selling prices and volume gains.

    In cookies and crackers, sales increases were driven by solid gains in "Goldfish" snack crackers and the launch of "Milano Melts" cookies.

    Sales growth in bakery products was driven by gains in whole grain and Swirl breads.

    Sales of frozen products increased double digits, fueled by the launch of Artisan Stone Baked rolls.

    Sales at Arnott's increased due to currency and sales gains in savory crackers led by "Shapes," "Cruskits" and "Vita-Weat," along with growth in "Tim Tam" chocolate cookies and in "Tiny Teddy" sweet varieties.

    Operating earnings rose to $82 million compared with $76 million in the prior-year period. The increase in operating earnings was primarily due to the impact of currency and growth at Pepperidge Farm.

    For the first nine months, sales increased 7 percent to $1.597 billion. A breakdown of the change in sales follows:

    • Volume and mix added 3 percent;
    • Price and sales allowances added 2 percent;
    • Increased promotional spending subtracted 1 percent;
    • Currency added 3 percent.

    Operating earnings grew to $263 million compared with $249 million in the year-ago period. The increase in operating earnings was primarily due to the impact of currency and volume-driven growth at Pepperidge Farm, partly offset by lower earnings at Arnott's in local currency.

    Sales for International soup, sauces and beverages were $354 million for the third quarter, an increase of 7 percent compared with a year ago. The change in sales reflected the following factors:

    • Volume and mix added 1 percent;
    • Price and sales allowances added 2 percent;
    • Increased promotional spending subtracted 2 percent;
    • Currency added 6 percent.

    Excluding the impact of currency, higher sales in the Asia Pacific region were partly offset by lower sales in Canada.

    Sales for North America foodservice were $154 million for the third quarter, an increase of 5 percent compared with a year ago. A breakdown of the change in sales follows:

    • Volume and mix added 3 percent;
    • Price and sales allowances subtracted 1 percent;
    • Decreased promotional spending added 2 percent;
    • Currency added 1 percent.

    Sales increased primarily due to volume-driven gains in refrigerated soup and improvements in the foodservice sector.

    Operating earnings increased to $22 million compared with an operating loss of $3 million in the prior period. The prior-year quarter included a $12 million restructuring charge. The remaining increase in operating earnings was primarily driven by lower administrative and selling expenses, reduced promotional spending and productivity improvements in excess of inflation.

    For the first nine months, sales increased to $465 million from $464 million. A breakdown of the change in sales follows:

    • Volume and mix subtracted 1 percent;
    • Currency added 1 percent.

    Operating earnings were $66 million compared with $40 million in the year-ago period. The prior year included a $12 million restructuring charge. The remaining increase in operating earnings was primarily driven by productivity improvements and lower administrative and selling expenses.

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