CAMDEN, N.J.--(BUSINESS WIRE)--Campbell Soup Company reported its first-quarter results for fiscal 2017. Sales of $2.202 billion were comparable to the prior year as the favorable impact of currency translation was offset by the decline in organic sales. Organic sales decreased 1 percent driven by declines in Campbell Fresh, partly offset by gains in Global Biscuits and Snacks.
Gross margin increased from 34.3 percent to 38.2 percent. Excluding items impacting comparability, adjusted gross margin increased 1.2 points from 37.9 percent to 39.1 percent driven by gross margin expansion in Americas Simple Meals and Beverages. Overall, the increase in adjusted gross margin was primarily driven by productivity improvements and the benefits from cost savings initiatives, partly offset by cost inflation, and increased carrot and beverage supply chain costs within Campbell Fresh.
Marketing and selling expenses increased 1 percent to $228 million. Excluding items impacting comparability in the prior year, adjusted marketing and selling expenses increased 11 percent primarily due to higher advertising and consumer promotion expenses and higher selling expenses. Administrative expenses decreased 21 percent to $123 million. Excluding items impacting comparability, adjusted administrative expenses decreased 4 percent to $115 million primarily due to the benefits from cost savings initiatives, partly offset by inflation and investments in long-term innovation.
EBIT increased 45 percent to $457 million. Excluding items impacting comparability, adjusted EBIT increased 1 percent to $486 million reflecting a higher adjusted gross margin percentage and lower administrative expenses, partly offset by higher marketing and selling expenses.
Net interest expense was comparable to the prior year at $28 million reflecting higher average interest rates on the debt portfolio, offset by lower levels of debt. The tax rate decreased to 31.9 percent as compared with a tax rate of 32.4 percent in the prior year. Excluding items impacting comparability, the adjusted tax rate decreased 2 percentage points to 32.1 percent. The company adopted new accounting guidance for stock-based compensation in the first quarter of 2017. The decrease in the adjusted tax rate reflects the recognition of excess tax benefits in connection with stock-based compensation in accordance with this new accounting guidance.
Cash flow from operations decreased to $221 million from $244 million a year ago primarily due to lower cash earnings and higher working capital requirements.
CEO Comments
Denise Morrison, Campbell’s President and Chief Executive Officer, said, “Fiscal 2017 is off to a solid start relative to our expectations. We continue to execute against our strategic imperatives, reinvest in our business to stimulate topline growth and aggressively manage our costs. We delivered expanded gross margin, and adjusted EBIT and EPS growth cycling a strong year-ago quarter. As expected, organic sales were down slightly compared to the prior year, due to the performance of Campbell Fresh. Campbell Fresh continues to rebuild capacity for Bolthouse Farms Protein PLUS drinks following a voluntary recall last quarter, and remains focused on working to regain lost carrot customers over time with improved quality.
“Looking ahead, I remain optimistic about plans to accelerate growth with improving trends in U.S. soup and the upcoming launch of Well Yes! ready-to-serve soup, continued strong performance in Pepperidge Farm and a return to growth in Campbell Fresh. Our guidance for the year remains unchanged.”
Americas Simple Meals and Beverages
Sales were comparable to the prior year at $1.297 billion with gains in Plum products offset by declines in V8 beverages. Sales of U.S. soup were comparable to the prior year with gains in ready-to-serve soups and broth offset by modest declines in condensed soups.
Segment operating earnings increased 6 percent to $383 million. The increase was driven by a higher gross margin percentage, partly offset by increased marketing and selling expenses.
Global Biscuits and Snacks
Sales increased 3 percent to $671 million. Excluding the favorable impact of currency translation, segment sales increased 1 percent primarily driven by gains in Pepperidge Farm.
Segment operating earnings decreased 2 percent to $112 million. The decrease was primarily driven by increased advertising expenses, partly offset by the favorable impact of currency translation.
Campbell Fresh
Sales decreased 6 percent to $234 million primarily driven by lower sales of Bolthouse Farms refrigerated beverages and carrots, partly offset by gains in refrigerated soups.
Segment operating earnings decreased from $18 million to $1 million reflecting increased carrot and beverage supply chain costs, as well as lower sales volumes.
As anticipated, both sales and operating earnings of Campbell Fresh were negatively impacted by the continuation of supply constraints related to the voluntary recall of Bolthouse Farms Protein PLUS drinks in June 2016, as well as lower carrot sales as the division begins to recover from last fiscal year’s quality and execution issues. Full report.
