Campbell Soup Beats on Q2 Earnings, Retains FY15 View - Analyst Blog
Campbell Soup Company (CPB) reported better-than-expected second-quarter fiscal 2015 results, wherein both top and bottom lines surpassed the Zacks Consensus Estimate. Adjusted earnings from continuing operations of 66 cents per share came a penny ahead of the Zacks Consensus Estimate. However, earnings declined approximately 13% from 76 cents in the prior-year quarter.
Campbell Soup Company - Earnings Surprise | FindTheBest
Net sales fell 2% to $2,234 million in the quarter from $2,281 million in the prior-year quarter. Meanwhile, quarterly revenues surpassed the Zacks Consensus Estimate of $2,219 million. Sales in the quarter included a negative impact of 2% from foreign currency translations.
Organic sales remained flat with the prior-year period driven by 1% growth in volume and mix and 1% increase in prices, compensated by a 2% rise in promotional expenses.
Gross margin of 32.6% contracted 310 basis points (bps) from the prior-year quarter level, mainly due to cost inflation, increased promotional expenditure and higher supply chain costs, partly offset by productivity enhancements.
In the reported quarter, marketing and selling expenses decreased 10% year over year to $242 million, thanks to lower advertising and consumer promotion spending. Administrative expenses fell 1% to $140 million.
Adjusted earnings before interest and tax (EBIT) slipped 17% year over year to $312 million mainly due to lower gross margin and negative foreign currency impact, partly offset by reduced marketing costs.
Segment Analysis
U.S. Simple Meals: In the second quarter, sales at the division fell 3% year over year to $867 million, mainly owing to a decline in volume and mix coupled with higher promotional spending. During the quarter, sales for U.S. soup declined 6%, Campbell’s condensed soups fell 11% and broth sales dropped 4%, while ready-to-serve soup stayed flat and other simple meals grew 6%. Growth in other simple meals can be traced to the increased sales of Plum, Prego pasta sauces and Campbell’s dinner sauces.
Operating income plunged 21% year over year to $170 million, primarily driven by increased costs and higher supply chain expenses coupled with lower sales. This was partially offset by productivity enhancements and lower marketing expenses.
U.S. Beverages: Sales at the division dipped 4% year over year to $169 million due to a negative impact of unfavorable volume and mix and increased promotional spending, offset by an increase in price and sales allowances. During the quarter, sales gains in V8 Splash beverages were more than offset by a decline in V8 V-Fusion beverages.
The segment’s operating income fell 35% to $20 million from the year-ago period, primarily driven by increased promotional expenses, higher costs and increased supply chain expenses.
Global Baking and Snacking: The segment’s sales of $640 million remained flat with the prior-year quarter. The benefits from rise in volume and mix as well as pricing were offset by negative impact from unfavorable currency exchange rates and higher promotional spending.
Operating income increased 22% year over year to $107 million, primarily on the back of organic sales growth, lower marketing expenses and improved productivity, offset by cost inflation and negative currency impact.
International Simple Meals and Beverages: Sales of this segment fell 9% to $194 million, as the benefit from a rise in volume and mix were offset by negative currency translations, higher promotional expenses and accounting related costs. The segment witnessed sales decline in Latin America and Asia Pacific regions, while sales remained flat in Canada.
The segment’s operating income fell 32% year over year to $26 million mainly due to cost inflation, adverse impact of currency movements on input costs and negative currency translation effects.
Bolthouse and Foodservice: This segment consists of Bolthouse Farms and the North America Foodservice businesses. This division's quarterly sales were $364 million, up 1% from the comparable year-ago quarter, driven by favorable volume and mix, offset by negative currency translations. Volume gains reflected growth in Bolthouse Farms premium refrigerated beverages and salad dressings, and North America Foodservice, offset by lower Bolthouse Farms Carrots sales.
Further, the company’s operating income declined 28% year over year to $26 million due to gross margin contraction and increased administrative expenses.
Fiscal 2015 Outlook
Following the second-quarter results, the company retained its recently lowered guidance for fiscal 2015. The company now expects the rate of change in sales for fiscal 2015 to range between negative 1% and positive 1%.The sales guidance for the fiscal year reflects a 2 percentage point negative impact from foreign currency translations.
Further, adjusted EBIT is projected to decline in the 5% to 7% range, while adjusted earnings for the fiscal are expected to decline in the range of 3% to 5%. This results in fiscal 2015 earnings per share in the range of $2.32–$2.38.
Other Stocks to Consider
Currently, Campbell Soup carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the same industry include Flowers Foods Inc. (FLO) and SUPERVALU Inc. (SVU), both carrying a Zacks Rank #2 (Buy). Another stock worth considering in the related Food-Meat Products industry is Tyson Foods Inc. (TSN), which also carries a Zacks Rank #2.
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