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Campbell Q3 Earnings Beat Ests, Revs Miss

Zacks Equity Research

Campbell Soup Company (CPB) reported mixed results for the third quarter of fiscal 2014, wherein its bottom-line result surpassed but the top-line lagged the Zacks Consensus Estimate. The company’s adjusted earnings from continuing operations increased approximately 7% year over year to 62 cents per share handily beating the Zacks Consensus Estimate of 59 cents.

On a reported basis, earnings from continuing operations came in at 58 cents per share for the quarter rising over 9% from the year-ago quarter. Notably, net earnings attributable to the company (including both continued and discontinued operations) came in 58 cents per share, a penny higher than the year-ago comparable quarter.

Net sales increased marginally to $1,973 million in the quarter compared with $1,962 million in the prior-year quarter. Organic sales witnessed a year-over-year rise of 1%. However, quarterly revenues fell short of the Zacks Consensus Estimate of $2,010 million.

During the quarter, acquisitions, price and sales allowances, and volume and mix contributed 2% each, partly offset by the negative impact of 2% from currency fluctuations and 3% from increase in promotional spending.

Adjusted gross margin of 35.2% declined 180 basis points (bps) from the prior-year quarter level of 37.0%, mainly due to inflation, acquisition impact, increased promotional expenditure and higher supply chain costs, partly offset by productivity enhancement measures and higher selling prices.

In the reported quarter, marketing and selling expenses decreased 11% year over year to $217 million primarily due to lower advertising and consumer promotion expenses.

Adjusted earnings before interest and tax (:EBIT) Increased 12% year over year to $310 million mainly due to reduced administrative and marketing expenses, partly offset by reduced gross margin.

Segment Analysis

U.S. Simple Meals: Third-quarter sales at this division increased 7% year over year to $672 million. This was mainly due to 4% rise in volume and mix, 2% increase in price and sales allowances and 4% growth due to the positive impact of Plum Organics acquisition, partially offset by increased promotional spending.

Sales of ready-to-serve soup and Campbell’s condensed soup declined 1% and 3%, respectively. However, Broth sales increased 14%. Sales of U.S. Sauces increased 25% from the year-ago quarter. Also, excluding the impact of Plum Organics acquisition, sales of U.S. Sauces grew 11% mainly due to increased sales of the Prego pasta sauce, Campbell’s dinner sauces and new Pace Mexican sauces.

During the quarter, operating income rose 12% year over year to $175 million, primarily driven by lower administrative and marketing expenses which were partially offset by reduced gross margin.

U.S. Beverages: Sales at this division fell 4% year over year to $190 million due to unfavorable volume and mix. A sales decline in “V8 V-Fusion” and “V8 Splash” beverages cost dearly.

The segment’s operating income in the quarter declined 12% year over year to $29 million primarily due to inflation and supply chain activities and marketing costs. These were partly offset by productivity enhancements and reduced administrative costs.

Global Baking and Snacking: This segment’s sales decreased 1% to $564 million. The benefit of 3% from acquisition of the Kelsen Group, 3% rise in volume and mix and a 2% increase in price and sales allowances, were more than offset by a negative impact of 4% from unfavorable currency exchange rates and 5% from higher promotional spending.

The segment’s operating income decreased 7% year over year to $68 million, primarily due to inflation and increased promotional expenses, partly offset by higher selling prices, lower advertising expenses and productivity enhancements.

International Simple Meals and Beverages: Sales of this segment fell 17% to $186 million, primarily due to a negative impact of 7% from currency translation, 6% from unfavorable volume and mix, 1% from higher promotional expenses, and 3% from accounting related costs in Mexico. The segment witnessed sales decline in Latin America, Asia Pacific and Canada.

The segment’s operating income of $27 million was down 4% from the year-ago period mainly due to decreased volume partially offset by lower selling and administrative expenses.

Bolthouse and Foodservice: This segment comprises Bolthouse Farms and the North America Foodservice businesses. This division's quarterly sales were $358 million, up 4% from the comparable year-ago quarter due to favorable product and volume mix of 5% and 1% positive impact from price and sales allowances.

Bolthouse Farms sales grew 6%, mainly on the back of double-digit gain in premium refrigerated beverages and salad dressings.

However, due to cost inflation and increased promotional expenditure the segment’s operating income decreased 15% year over year $23 million.

FY14 Outlook

Due to continued pressure from cost inflation and unfavorable foreign currency translations, the company has revised its sales guidance for fiscal 2014. It expects sales from continuing operations to increase 3% as against the previous projected range of 4%–5%.

Further, adjusted EBIT growth rate are now projected to remain at the lower-end of the earlier guidance range of 4%–6%.

Similarly, Campbell expects adjusted earnings growth to be at the lower-end of previously projected range of 2%–4% or $2.53–$2.58 per share. Currently, the Zacks Consensus Estimate for the fiscal is pegged at $2.53 per share.

Other Stocks to Consider

Currently, Campbell Soup carries a Zacks Rank #2 (Buy). Some other stocks which carry similar rank in the food space include The Hain Celestial Group, Inc. (HAIN), Pinnacle Foods Inc. (PF) and B&G Foods Inc. (BGS).

Read the Full Research Report on CPB
Read the Full Research Report on PF
Read the Full Research Report on HAIN
Read the Full Research Report on BGS

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