Campbell Soup Barely Beats

May.24.11 | About: Campbell Soup (CPB)

Campbell Soup Co. (NYSE:CPB) reported fiscal 2011 third-quarter adjusted earnings of 57 cents per share, beating the Zacks Consensus Estimate of 52 cents a share and year-ago results of 54 cents per share.

Campbell’s net sales during the quarter increased by 1.0% year over year to $1,813 million, marginally beating the Zacks Consensus Estimate of $1,811 million. The increase was primarily the result of a 2% spike in price and sales allowances and favorable currency translations of 2%, partially offset by a negative impact from volume and mix of 2%.

Segment Analysis

Sales at the U.S. Soup, Sauces and Beverages division fell 8% year over year to $778 million as sales of condensed, ready-to-serve soups, broth and beverage sales declined 2%, 15%, 2% and 9%, respectively.

Campbell’s Baking and Snacking segment posted a sharp growth of 10% year over year to $527 million, mainly due to favorable currency translations, increased volume and pricing, partially offset by higher promotional spending. The company witnessed higher sales of cookies and crackers, and a good performance at Pepperidge Farm.

The International Soups and Sauces segment also recorded a 7% sales growth to $354 million mainly due to higher sales in Europe, Asia-Pacific and Canada along with volume gains and favorable currency impact. However, the increase in segment sales was partially offset by increased promotional spending.

North America Foodservice division’s quarterly sales grew 5% year over year to $154 million. The increase was primarily attributable to higher volumes, decreased promotions and favorable foreign exchange rates, partially offset by a negative impact from pricing.

Operating Metrics

During the quarter, Campbell’s gross margin contracted 80 basis points (bps) to 40.4% from 41.2% in the year-ago period, primarily due to an increase in plant cost and cost inflation, partially offset by productivity improvements.

Operating income increased 1% to $307 million also due to decrease in selling and marketing expenses and administrative expenses coupled with a favorable impact from currency, partially offset by the decrease in gross margin and reduction in sales volumes.

Financials

Campbell ended the quarter with cash and cash equivalents of $449 million. Quarter-end long-term debt was $2.43 billion. Year to date, the company generated $858 million of cash from operations. The company bought back 20 million shares for a total cost of $696 million.

Guidance

Looking ahead, Campbell expects sales to decline-to-increase in a (1%) to 1% band in fiscal 2011. The company forecasts adjusted earnings for the fiscal to decline at a clip of 1% to 3%.

Campbell Soup is one of the world’s leading manufacturers of convenience food products. The company’s diversified portfolio of well-established brands -- including Campbell’s, Erasco, Liebig, Pepperidge Farm, V8, Pace, Prego, Swanson and Arnott’s -- offer a competitive edge, strengthening its well-established position in the market.

However, Campbell Soup operates in the highly competitive food industry and experiences worldwide competition in all of its principal products from such well-established rivals such as General Mills Inc. (NYSE:GIS), HJ Heinz Co. (HNZ) and Del Monte Foods Co. (DLM). Consequently, the company is under severe stress to maintain its operating performance

We currently have a short-term Zacks #3 Rank (Hold) rating and a long-term Neutral recommendation on the company.