Campbell Soup profits fall, price increases on the way

Campbell Soup profits fall, price increases on the way

Rising production costs make it tough for classic soup company to turn a profit in Q3. Campbell will combat losses by raising condensed soup prices 5 percent in June.

Campbell Soup Company reported its results for the third quarter of fiscal 2012.

Third-Quarter Overview

  • Sales Even at $1.8 Billion; Excluding Currency, Sales Increased 1 Percent
  • Sales Gains in Global Baking and Snacking and U.S. Beverages, Offset by Declines in U.S. Simple Meals and International Simple Meals and Beverages
  • Adjusted EBIT Declined 13 Percent
  • EPS Benefited from a Lower Tax Rate
  • Confirmed Fiscal 2012 Guidance: Sales and Adjusted EBIT at Lower End of Range, Adjusted EPS at Upper End of Range

Net earnings for the quarter ended April 29, 2012, were $177 million, or $0.55 per share, compared with $187 million, or $0.57 per share, in the prior year. The current quarter's reported net earnings included charges associated with a restructuring program announced in June 2011. Excluding items impacting comparability, adjusted net earnings decreased 4 percent to $180 million, and adjusted net earnings per share decreased 2 percent to $0.56 in the current quarter. A detailed reconciliation of adjusted financial information to the reported information is included at the end of this news release.

Denise Morrison, Campbell's President and Chief Executive Officer, said, "We continued to advance our strategies to stabilize and then profitably grow North America soup and simple meals, expand our international presence and continue to drive growth in healthy beverages and baked snacks.

"Although overall sales trends are improving, we are not satisfied with our performance this quarter. As planned, we focused our marketing efforts on increasing advertising and consumerpromotion. We executed well in some businesses, delivering solid sales growth in U.S. Beverages, Pepperidge Farm and Canada. We did not execute as well in others."

Morrison concluded, "We remain committed to our three growth strategies. At Campbell, we are building a business for the long term through innovation, brand building and expansion into higher growth segments that connect with today's consumers. We have made solid progress reinvigorating our innovation pipeline, and customers have responded favorably to the new products we have planned for next year. With continued focus on our strategies, we plan to deliver sustainable profitable net sales growth that will create value for shareholders."

Fiscal 2012 guidance
As previously announced, Campbell expects net sales growth to be between 0 and 2 percent, a decline in adjusted EBIT of between (9) and (7) percent and a decline in adjusted EPS of between (7) and (5) percent, putting adjusted EPS in the range of $2.35 to $2.42, from the 2011 adjusted base of $2.54. Management expects to achieve this guidance range, with sales and adjusted EBIT near the lower end of the range and adjusted EPS, benefiting from a favorable tax rate, near the upper end of the range.

Third quarter results
For the third quarter, sales were $1.821 billion, comparable to a year ago. The sales were impacted by the following factors:

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

Third-Quarter Financial Details

  • Gross margin was 38.8 percent compared with 40.4 percent a year ago. The decrease in gross margin percentage was primarily due to cost inflation, increased promotional spending and unfavorable mix, partly offset by higher selling prices and productivity improvements.
  • Marketing and selling expenses increased 5 percent to $256 million compared with $243 million in the prior year, primarily due to higher advertising and consumer promotion expenses, partly offset by lower selling expenses. Advertising and consumer promotion expenses increased 13 percent, reflecting brand-building investments across most businesses.
  • Administrative expenses decreased $4 million to $144 million, primarily due to the benefit of cost savings from restructuring initiatives.
  • Earnings before interest and taxes (EBIT) were $264 million compared with $307 million in the prior-year quarter. Excluding items impacting comparability, adjusted EBIT in the current quarter was $268 million. Adjusted EBIT decreased 13 percent primarily due to the decline in gross margin percentage and higher advertising and consumer promotion expenses.
  • The tax rate in the quarter was 26.2 percent compared with 34.3 percent in the prior year due to lower taxes on foreign earnings in the current year.
  • Adjusted net earnings per share were $0.56 in the current quarter compared with net earnings per share of $0.57 in the prior-year quarter, a decrease of 2 percent. The decline reflected the lower EBIT, mostly offset by the impact of a lower tax rate and fewer shares outstanding.

Nine-Month Results
Net earnings for the first nine months were $647 million, or $2.01 per share, compared with $705 million, or $2.11 per share, in the year-ago period. Excluding items impacting comparability in the current-year period, adjusted net earnings declined 7 percent to $653 million and adjusted net earnings per share declined 4 percent to $2.03.

For the first nine months of fiscal 2012, sales were $6.094 billion, comparable to the year-ago period. The sales were impacted by the following factors:

  • Volume and mix subtracted 3 percent
  • Price and sales allowances added 4 percent
  • Increased promotional spending subtracted 1 percent

Nine-Month Financial Details

  • Gross margin was 38.9 percent compared with 40.3 percent a year ago. The decrease in gross margin percentage was primarily due to cost inflation and increased promotional spending, partly offset by higher selling prices and productivity improvements.
  • Marketing and selling expenses increased $3 million to $814 million, primarily due to higher advertising and consumer promotion expenses, partly offset by lower selling expense. Advertising and consumer promotion expenses increased 2 percent, reflecting brand-building investments across several businesses.
  • EBIT was $1.009billion compared with $1.110 billion in the prior year. Excluding items in the current year impacting comparability, adjusted EBIT declined 8 percent to $1.018 billion. The decrease was primarily due to the decline in gross margin percentage.
  • Cash flow from operations was $838 million compared with $858 million in the year-ago period. The decline reflected the impact of lower earnings, partly offset by lower cash payments associated with pension and other benefit plans.
  • Campbell repurchased 8.3 million shares for $272 million under its $1 billion strategic share repurchase program announced in June 2011 and the ongoing practice of buying back shares sufficient to offset those issued under incentive compensation plans.

 

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