Campbell Soup Co. Reports Decline In Fourth Quarter Earnings, Gain In Sales For Fiscal 2011

Campbell Soup Co. reported results for the fourth quarter and fiscal year 2011.

In the fourth quarter, sales increased 6 percent to $1.607 billion; excluding currency, organic sales increased 1 percent.

Net earnings for the quarter ended July 31, 2011, were $100 million, or $0.31 per share, compared with $113 million, or $0.33 per share, in the prior year. The current quarter’s reported net earnings included charges associated with previously announced restructuring initiatives. Excluding these charges, adjusted net earnings increased 25 percent to $141 million, and adjusted net earnings per share increased 30 percent to $0.43 in the current quarter.

Denise Morrison, Campbell’s president and CEO, said in a prepared statement, “Our fourth-quarter results were slightly better than expected. Our global baking and snacking segment delivered strong performance with double-digit top- and bottom-line growth in the quarter. We also continued to make progress on our efforts to stabilize U.S. Simple Meals. But we have more work to do. As expected, lower promotional spending contributed to improved soup profits despite anticipated volume declines. We’re confident that rebalancing our marketing investments toward consumer-focused brand building activities and developing a more robust innovation pipeline is the right approach to restore profitable growth over time. Sales of U.S. beverages declined slightly in the quarter, compared to 12-percent growth a year ago. Significant cost inflation and increased promotional spending depressed beverage profits in the quarter.”

Morrison concluded, “We’re pleased to be finishing a very difficult fiscal year with some positive momentum and a new strategic direction. Fiscal 2012 will be a year of transition, as we build the foundation for a new Campbell with a renewed focus on meeting consumers’ needs. Implementing our new strategic framework will require substantial investment as we extend brand and product platforms through more consistent innovation in Simple Meals, baked snacks and healthy beverages, reinvigorate consumer marketing activities and drive international expansion in priority markets. Our team is beginning to implement these strategies, and the company is energized by this change in direction.” For the fourth quarter, sales increased 6 percent to $1.607 billion. The increase in sales for the quarter reflected the following factors:

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

In the fourth quarter:

  • Gross margin was 39.8 percent compared with 40.4 percent a year ago. The decline in gross margin percentage was primarily due to cost inflation and unfavorable mix, partly offset by productivity improvements, higher selling prices and reduced promotional spending.
  • Marketing and selling expenses decreased 11 percent to $196 million compared with $221 million in the prior year, primarily due to lower advertising expenditures.
  • Administrative expenses increased $3 million to $170 million, primarily due to the impact of currency.
  • Earnings before interest and taxes (EBIT) were $169 million compared with $187 million in the prior-year quarter. Excluding items impacting comparability, adjusted EBIT in the current quarter was $232 million. Adjusted EBIT increased 24 percent primarily due to earnings gains in international simple meals and beverages, North America foodservice and global baking and snacking, and the favorable impact of currency.
  • Adjusted net earnings per share were $0.43 in the current quarter compared with net earnings per share of $0.33 in the prior-year quarter, an increase of 30 percent. Earnings per share also benefited from fewer outstanding shares reflecting the impact of the company’s share repurchase programs.

For the full year, sales increased 1 percent to $7.719 billion, global baking and snacking sales increased 9 percent, and U.S. Simple Meals sales decreased 6 percent.

Net earnings for the fiscal year were $805 million, or $2.42 per share, compared with $844 million, or $2.42 per share, in the year-ago period. Excluding items impacting comparability in both periods, adjusted net earnings declined 2 percent to $846 million compared to adjusted net earnings of $862 million, and adjusted net earnings per share increased 3 percent to $2.54 in the current year versus an adjusted $2.47 per share in the prior year.

Sales for the fiscal year were $7.719 billion, an increase of 1 percent from the prior year. The change in sales for the year reflected the following factors:

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

For the full year:

  • Gross margin was 40.2 percent compared with 41.0 percent a year ago. The decline in gross margin percentage was primarily due to cost inflation as well as higher plant costs, and increased promotional spending, partly offset by productivity improvements and higher selling prices.
  • Marketing and selling expenses declined 5 percent to $1.007 billion, primarily due to lower advertising and lower selling expense, partly offset by the impact of currency.
  • Administrative expenses increased $7 million to $612 million, primarily due to the impact of currency.
  • EBIT was $1.279 billion compared with $1.348 billion in the prior year. Excluding items impacting comparability in both periods, adjusted EBIT declined 1 percent to $1.342 billion compared to adjusted EBIT of $1.360 billion. The decrease was primarily due to lower earnings in U.S. Simple Meals and U.S. beverages, partly offset by gains across the balance of the portfolio and the favorable impact of currency.
  • Cash flow from operations was $1.142 billion compared with $1.057 billion in the year-ago period. The current-year cash flow reflected the benefit of lower pension contributions and higher cash earnings, partly offset by higher working capital requirements.
  • In fiscal 2011, Campbell repurchased 21 million shares for $728 million under its June 2008 strategic share repurchase program and its practice of buying back shares sufficient to offset those issued under incentive compensation plans. The June 2008 strategic share repurchase program was completed during the fourth quarter of fiscal 2011. In June 2011, Campbell announced that its Board of Directors authorized a new share repurchase program, with no expiration date, to purchase up to $1 billion of its outstanding shares.

Sales for U.S. Simple Meals were $431 million for the fourth quarter, a decrease of 8 percent compared to the year-ago period. Volume and mix subtracted 11 percent. Decreased promotional spending added 3 percent.

U.S. soup sales declined 9 percent in the quarter. Sales volumes were negatively impacted by reduced promotional spending and higher selling prices as the company continued to transition to improved price realization. Soup sales, especially condensed varieties, were also negatively impacted by unfavorable movements in customer inventory levels.

Sales of “Campbell’s” condensed soups decreased 10 percent, with declines in both eating and cooking varieties.

Sales of ready-to-serve soups decreased 5 percent, reflecting declines in “Select Harvest” canned soups and microwavable soups.

Broth sales declined 11 percent.

Sales of “Prego” pasta sauce declined due to continued competitive merchandising and competitive new items. Sales of “Pace” Mexican sauce declined largely due to share losses to private label.

Operating earnings were $101 million compared with $97 million in the prior-year period. The increase in operating earnings was primarily due to lower marketing and selling expenses and an increase in gross margin percentage, partially offset by lower sales volumes.

For the full year, U.S. Simple Meals sales decreased 6 percent to $2.751 billion. A breakdown of the change in sales follows:

  • Volume and mix subtracted 5 percent.
  • Increased promotional spending subtracted 1 percent

For the full year, U.S. soup sales declined 6 percent reflecting a 9-percent decrease in ready-to-serve soups and a 4-percent decrease in condensed soups. Sales of broth decreased 1 percent. Sales of “Prego” pasta sauce and “Pace” Mexican sauce both declined.

Operating earnings were $657 million compared with $737 million in the year-ago period, a decrease of 11 percent. The decline in operating earnings was primarily due to lower sales and a reduced gross margin percentage partly offset by lower marketing and selling expenses.

Sales for U.S. beverages were $176 million for the fourth quarter, down 1 percent compared to the year-ago period. A breakdown of the change in sales follows: Volume and mix added 3 percent; Price and sales allowances subtracted 1 percent; Increased promotional spending subtracted 3 percent.

Beverage sales declined slightly compared to strong growth in the year-ago period in which sales increased 12 percent. Sales of “V8” vegetable juice declined due to increased competitive activity, while sales of “V8 V-Fusion” juice and “V8 Splash” juice drinks increased. Sales of “V8 V-Fusion” juice benefited from the launch of “V-Fusion + Tea,” several new flavor varieties and 8-ounce slim cans.

Operating earnings declined 29 percent to $30 million compared with $42 million in the year-ago period. The decrease in operating earnings was primarily due to significant cost inflation, particularly ingredients and packaging costs, and increased promotional spending in response to increased competitive activity, partly offset by productivity improvements.

For the full year, sales for U.S. Beverages were $759 million, comparable to the prior year. A breakdown of the change in sales follows: Volume and mix added 2 percent; Increased promotional spending subtracted 2 percent.

Sales of “V8 Splash” juice drinks and “V8 V-Fusion” juice increased, while sales of “V8” vegetable juice declined. Operating earnings were $182 million compared with $206 million in the prior year. Earnings decreased 12 percent primarily due to increased promotional spending.

Sales for global baking and snacking were $559 million in the fourth quarter, an increase of 17 percent from a year ago. A breakdown of the change in sales follows: Volume and mix added 3 percent. Price and sales allowances added 5 percent. Increased promotional spending subtracted 1 percent. Currency added 10 percent.

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

In cookies and crackers, sales increases were fueled by solid gains in “Goldfish” snack crackers, the launch of “Milano Melts” cookies and growth in “Chocolate Chunk Crispy” cookies. Sales of fresh bakery products were comparable to the prior year. Sales of frozen products increased, driven by gains in Garlic Toast and the launch of Artisan Stone Baked rolls.

Sales at Arnott’s increased due to currency and sales gains in savory crackers, led by “Shapes,” and “Tim Tam” chocolate biscuits.

Operating earnings rose to $92 million compared with $73 million in the prior-year period, an increase of 26 percent. The increase in operating earnings was primarily due to growth at Arnott’s and the favorable impact of currency, partially offset by a decline at Pepperidge Farm.

For the full year, sales increased 9 percent to $2.156 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 5 percent

Operating earnings grew 10 percent to $355 million compared with $322 million in the prior year. The increase in operating earnings was primarily due to the impact of currency and volume-driven growth at both Pepperidge Farm and Arnott’s.

Sales for International Simple Meals and Beverages were $316 million for the fourth quarter, an increase of 12 percent compared with a year ago. A breakdown of the change in sales follows: Volume and mix subtracted 3 percent. Price and sales allowances added 1 percent. Decreased promotional spending added 2 percent. Currency added 12 percent.

Sales for North America foodservice were $125 million for the fourth quarter, an increase of 10 percent compared with a year ago. A breakdown of the change in sales follows: Volume and mix added 1 percent. Price and sales allowances subtracted 1 percent. Decreased promotional spending added 8 percent. Currency added 2 percent.

Operating earnings increased to $16 million from $3 million. The increase in operating earnings was primarily driven by reduced promotional spending and productivity improvements.

For the full year, sales increased to $590 million from $578 million. A breakdown of the change in sales follows: Volume and mix subtracted 1 percent. Decreased promotional spending added 2 percent. Currency added 1 percent.

Operating earnings increased 49 percent to $82 million compared with $55 million in the year-ago period. The increase in operating earnings was primarily driven by reduced promotional spending, productivity improvements in excess of inflation and lower administrative expenses.

 

 

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