The world's largest soup maker Campbell Soup Co. (CPB) on Monday posted higher profit for the first quarter, reflecting improved gross margins as well as lower costs and expenses. Further, the company raised its fiscal 2010 guidance citing quarterly performance and outlook for the remainder of the year, including currency.
The Camden, New Jersey-based company's first-quarter net income was $304 million or $0.87 per share, compared to $260 million or $0.70 per share in the year-ago quarter.
In the first quarter of 2009, the company recognized in cost of products sold $26 million of unrealized losses on the fair value of open commodity futures contracts. The company also recorded expenses of $7 million in cost of products sold related to the initiatives announced to improve operational efficiency and long-term profitability.
On an adjusted basis, net income advanced 8% to $304 million from $281 million in the comparable quarter of the previous year. Adjusted per share earnings grew 14% to $0.87 from $0.76 per share in the three months ended November 2, 2008.
On average, 15 analysts polled by Thomson Reuters expected the company to post earnings of $0.81 per share. Analysts' estimates typically exclude special items.
The company noted that it adopted and retrospectively applied new accounting guidance related to the calculation of earnings per share in the most recent quarter. The retrospective application of these provisions resulted in a reduction of net earnings per share of $0.01 for both the first quarter and the full year.
Meanwhile, net sales for the latest quarter declined 2% to $2.20 billion from $2.25 billion in the previous year, and fell shy of the $2.28 billion revenue consensus estimate of ten analysts polled by Thomson Reuters.
Douglas Conant, President and Chief Executive Officer of Campbell, said, "We feel good about our performance in the first quarter as we delivered solid earnings growth across all of our key businesses. We're especially pleased with the significant improvement in our gross margin, driven by increased productivity in our supply chain. Our U.S. Soup business faced difficult top-line comparisons with last year's first quarter when sales increased 12 percent."
The company's U.S. Soup, Sauces and Beverages segment contributed sales of $1.140 billion, down 5% from the previous year's sales of $1.198 billion. During the recent quarter, sales of "Campbell's" condensed soups dropped 1% following 14% growth a year ago. Sales of ready-to-serve soups decreased 7%. Declines in "Campbell's Select Harvest" canned soups and double-digit declines in soups in microwavable bowls and cups were partly offset by gains in "Campbell's Chunky" canned soups.
Meanwhile, earnings at the U.S. Soup, Sauces and Beverages segment rose to $331 million from $314 million in the same quarter of last year, due to an improvement in gross margin percentage and lower marketing expenses, partially offset by lower sales.
Baking and Snacking sales advanced 4% to $530 million from $509 million a year earlier. Segment earnings grew to $100 million from $83 million in the comparable quarter of the previous year, fueled by margin-driven growth in both Arnott's and Pepperidge Farm and the favorable impact of currency.
Sales of International Soup, Sauces and Beverages totaled $374 million, a decline of 2%, compared to $380 million in the previous year, while segment earnings rose to $44 million from $38 million in the first quarter of 2008, led by growth in Canada and the Asia Pacific region and the favorable impact of currency.
North America Foodservice generated first-quarter sales of $159 million, compared to $163 million in the year-ago quarter, a decrease of 2%. Segment earnings increased to $26 million from $11 million reported in the corresponding period of the previous year, primarily due to an improved gross margin percentage, reflecting productivity improvements, including benefits of closing the company's Listowel, Ontario, Canada plant, and lower administrative costs.
Campbell's gross margin was 41.9%, compared to 38.7% a year ago, primarily due to productivity improvements and pricing, net of promotional spending, in excess of cost inflation. Marketing and selling expenses fell to $284 million from $307 million last year, reflecting a reduction in media rates and a shift to trade promotion. Administrative expenses also dropped to $133 million from $140 million in the prior year, reflecting cost reduction efforts and lower incentive compensation costs, partly offset by higher pension expense.
Total costs and expenses decreased to $1.73 billion from $1.85 billion incurred in the comparable quarter of the previous year.
Based on the quarterly results and its outlook for the remainder of the year, including currency, Campbell Soup lifted its fiscal 2010 forecast, currently expecting adjusted earnings per share growth of 9% - 11%, versus its original estimate of 5% - 7%, and 2009 adjusted base of $2.21.
The company now sees full year sales growth of 4% - 5%, and adjusted earnings before interest and taxes or EBIT growth of 6% to 7%, up from its original guidance of 3% - 4% for sales and 5% - 6% for EBIT.
Among Campbell Soup's rivals, the Minneapolis, Minnesota-based packaged food supplier General Mills Inc. (GIS) posted higher profit for the first quarter that totaled $420.6 million or $1.25 per share, compared to $278.5 million or $0.79 per share in the year-ago quarter. Net sales improved 0.6% to $3.52 billion from the previous year's $3.49 billion.
For fiscal 2010, the company increased its earnings forecast to $4.40 - $4.45 per share, excluding any impact from mark-to-market effects. Earlier, General Mills expected earnings between $4.20 and $4.25 per share, excluding any mark-to-market impact.
Another peer, the Pittsburgh, Pennsylvania-based ketchup, sauces and soup maker H. J. Heinz Co. (HNZ) reported first-quarter net income of $212.56 million or $0.67 per share, down from the prior-year's $228.96 million or $0.72 per share, as unfavorable currency effects drove down sales to $2.47 billion from $2.58 billion in the comparable quarter of the previous year. Further, Heinz continues to expect fiscal 2010 earnings per share growth in a range of 5%-8% and sales growth of 4%-6% on a constant currency basis.
Campbell Soup shares, which have been trading between $24.63 and $37.33 in the past 52 weeks, are currently trading at $34.19, up 7 cents or 0.21%.
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