Campbell Soup's 4Q Earnings Beat Est
High-quality foods and simple meals manufacturer, Campbell Soup Company (CPB) reported fiscal fourth-quarter and full-year 2013 financial results. Quarterly adjusted earnings per share rose approximately 10.0% year over year to 45 cents and surpassed the Zacks Consensus Estimate of 42 cents.
Net sales increased over 13.0% to $1,723 million from the prior-year quarter. However, it came below the Zacks Consensus Estimate of $1,830 million. During the quarter, acquisitions contributed 13%, volume and mix added 1%, and price and sales allowances contributed 1% to net sales. However, these were partially offset by the negative impact of the 1% for each increase in promotional spending and currency fluctuation.
Adjusted gross margin of 36.7% declined 230 basis points (bps) from the prior-year quarter level of 39.0%, mainly due to the acquisition of Bolthouse Farms, which has a low gross margin structure. However, in dollar terms, adjusted gross profit rose 7% year over year to $633 million.
In the reported quarter, marketing and selling expenses remained flat year over year at $191 million. This was primarily due to reduced advertising and consumer promotion expenses offset by costs related to Bolthouse Farms acquisition.
Adjusted operating income also remained flat year over year at $208 million, mainly due to contribution from acquisitions, offset by elevated administrative costs. However, adjusted operating margin contracted 160 basis points to 12.1% from 13.7% reported in the previous-year period.
Segment Analysis
U.S. Simple Meals: Fourth-quarter sales at this division increased 7% year over year to $493 million. This was mainly due to a 5% rise in volume and mix, acquisition of Plum Organics that led to an improvement of 3% and 2% in price and sales allowances, respectively. However, this was partially offset by the negative impact of a 3% rise in promotional spending.
Sales of U.S. Soup grew 4% as sales of ready-to-serve soups grew 9% and sales of broth surged 13%, while condensed soups’ sales remained flat. Sales of U.S. Sauces increased 12% from the year-ago quarter.
During the quarter, operating income grew 6% year over year to $110 million, primarily driven by increased volumes and productivity enhancements, partially offset by higher promotional spending and administrative expenses.
U.S. Beverages: Sales at this division dipped 4% year over year to $173 million due to a 4% decline in volume and mix, and 1% fall in price and sales allowances, partly offset by decline of 1% in promotional spending. Sales declines in “V8" and V8 V-Fusion” juices and juice beverages, and “V8 Splash” juice led to the fall.
The segment’s operating income in the quarter declined 20.0% year over year to $20 million primarily due to cost inflation, partly offset by productivity enhancements.
Global Baking and Snacking: This segment’s sales increased 3% to $570 million. The results primarily gained from a 4% rise in volume and mix, and 3% increase in price and sales allowances, offset a negative impact of 2% from unfavorable currency exchange rates and 2% from higher promotional spending.
Segment operating income inched up 1% year over year at $84 million, as benefits from increased sales were partly offset by higher administrative costs and lower gross margin.
International Simple Meals and Beverages: Sales of this segment fell 7% to $187 million, primarily due to a 4% decrease in volume and mix, 2% negative impact of currency translation and 1% fall in price and sales allowances. Region-wise, lower sales in Latin America and Asia-Pacific were partially offset by higher sales in Canada.
The segment’s operating income of $14 million was down 22.2% from the year-ago period mainly due to reduced earnings from the Asia Pacific region and Mexico.
Bolthouse and Foodservice: This segment comprises Bolthouse Farms business, which was acquired on Aug 6, 2012, and the North America Foodservice business. This division's quarterly sales were $300 million.
During the quarter, Bolthouse contributed $185 million to segment sales, while sales at North America Foodservices declined 5% year over year. The decline in North American Foodservice was due to lower frozen soup sales due to the loss of a primary restaurant customer.
Operating income rose by $15 million to $25 million, mainly due to the purchase of Bolthouse Farms, offset by reduced earnings in North America Foodservice.
Fiscal 2013 in Brief
For fiscal 2013, Campbell soup reported adjusted earnings per share of $2.64, an 8.0% increase year over year. Moreover, it surpassed the Zacks Consensus Estimate of $2.61.
Net sales increased over 12.2% to $8,052 million from the past year. However, it came below the Zacks Consensus Estimate of $8,597 million. During the year, acquisitions contributed 11%, volume and mix 1%, and price and sales allowances contributed 2% to net sales. However, these were partially offset by the negative impact of the 1% increase in promotional spending.
FY14 Outlook
For fiscal 2014, Campbell Soup expects sales from continuing operations to augment by 5-6%. Adjusted operating income is anticipated to rise by 5-7% and adjusted earnings per share to increase 3-5%. The company anticipates acquisitions to add nearly $300 million to sales growth, 1% to operating income growth and about 2 cents to earnings per share.
Pertaining to the new business model in Mexico, reported sales and costs of product sold will be lowered by nearly $40 million.
Currently, Campbell Soup carries a Zacks Rank #3 (Hold). Other stocks performing well in the food space include Boulder Brands, Inc. (BDBD), Kraft Foods Group, Inc. (KRFT) and Dole Food Company Inc. (DOLE). All these carry a Zacks Rank #2 (Buy).
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