Packaged food and beverage company Campbell Soup (CPB) reported solid third quarter results Monday morning. Revenue, boosted by the acquisition of Bolthouse Farms, grew 15% year-over-year to $2.1 billion, modestly exceeding consensus estimates. Earnings per share were also a touch better than consensus expectations, increasing 11% year-over-year to $0.62 on an adjusted basis. Free cash flow year-to-date totaled $659 million, which is roughly equal to the tally during the same period a year ago.
For a company in a mostly mature business, Campbell posted solid results in its US Simple Meals segment, where sales rose 11% year-over-year to $627 million. Of all things to drive the growth, it was soup, which posted a 14% jump in US sales compared to a year ago. Although the company was undoubtedly helped by unseasonably cold weather that helped extend the "soup season," we think the business' fortunes have been lifted by consumers looking to save money, as well as the relative healthfulness of Campbell's products. CEO Denise Morrison elaborated on the firm's internal factors that were helping drive results, saying:
"For the most part, we delivered these results by doing what we said we would do in our Soup business, focusing relentlessly on improving our execution against the drivers of demand. We've improved product quality and packaging. We have more effective advertising and consumer promotion and better in-store merchandising. Our new product varieties have been well received by consumers. Our price realization has continued to work. Our Chunky soup franchise posted strong double-digit growth in the third quarter behind a number of brand-building initiatives, including increased promotional spending, introduction of new varieties, improvement in quality and a return to more impactful NFL-themed advertising."
We've noticed a variety of unique promotional packaging, as well as incremental updates on traditional cans. Without question, these moves have moved the needle for the company. Improvement in cost structure as well as the jump in sales helped drive a 30% increase in the segment's operating profit.
The International Simple Foods and Beverages business wasn't quite as strong, with sales growing only 2% year-over-year to $357 million. It goes without saying that the European consumer remains cautious due to a weak macroeconomic environment, but such has played into Campbell's strengths as volumes in the region increased. Currency fluctuations and poor Canadian sales failed to weigh on profit growth, as the segment's operating income increased 8% year-over-year to $40 million.
Campbell's Bolthouse acquisition did help boost sales, but the acquisition weighed on gross margins, which fell 210 basis points on an adjusted basis to 36.7%. Campbell's was in search of growth, which it received from Bolthouse, but we anticipate gross margins to be lower going forward. On the other side of the cost equation, the firm did a fantastic job managing marketing spending, which fell 150 basis points year-over-year to 12.5% of sales. The firm's established presence in soup and its famous Pepperidge Farm brand do not need a tremendous amount of marketing.
Looking ahead, the firm raised its earnings per share guidance to 6-7% growth from the previous outlook of 3-5%. Further, the company mentioned that sales growth would come in at the high-end of its 10-12% guidance range. Though we like the company's competitive position and the revitalization of the US soup business, we believe shares of Campbell Soup look fairly valued at this time. We do not intend to add the firm to the portfolio of our Best Ideas Newsletter at this time.