Campbell Sales Decrease 2 Percent in Q1

26 Feb 2015 --- Campbell Soup Company has reported that Q2 sales decreased 2 percent to $2.234 billion, due to the negative impact of currency translation. Organic sales were comparable to the prior year with favorable volume and mix and higher selling prices, offset by increased promotional spending.

Gross margin declined 3.1 percentage points to 32.6 percent. The decrease in gross margin was due to cost inflation, higher supply chain costs and higher promotional spending, partly offset by productivity improvements.

Marketing and selling expenses decreased 10 percent to $242 million, primarily driven by lower advertising and consumer promotion expenses. Administrative expenses decreased 1 percent to $140 million.

Adjusted EBIT decreased 17 percent to $312 million, reflecting a lower gross margin percentage and the unfavorable impact of currency translation, partly offset by lower marketing expenses.

Net interest expense decreased $4 million to $25 million, reflecting lower levels of debt. The tax rate decreased 3.4 percentage points to 27.9 percent. Excluding items impacting comparability in the prior year, the adjusted tax rate decreased 3.1 percentage points. The decrease was primarily due to the favorable resolution of an intercompany pricing agreement between the U.S. and Canada.

Sales increased 1 percent to $4.489 billion, due to volume gains, partly offset by increased promotional spending and the negative impact of currency translation. Organic sales increased 2 percent with gains in four of the company’s five reportable segments.

Adjusted EBIT decreased 4 percent to $680 million, reflecting a lower gross margin percentage and the unfavorable impact of currency translation, partly offset by volume gains and lower marketing and administrative expenses.

Net interest expense decreased $9 million to $50 million, reflecting lower levels of debt. The tax rate decreased 2.8 percentage points to 30 percent. Excluding items impacting comparability in the prior year, the adjusted tax rate decreased 1.6 percentage points.

As previously announced, including an estimated 2-point negative impact from currency translation, Campbell expects a year-over-year change of -1 to +1 percent in sales; -7 to -5 percent in adjusted EBIT; and -5 to -3 percent in adjusted EPS, or $2.32 to $2.38 per share. This guidance is based on an adjusted 52-week 2014 base.

“This guidance assumes that pressure from input cost inflation and supply chain costs, although moderating, will continue through the back half of fiscal 2015 along with the currency headwinds,” said Anthony DiSilvestro, Senior Vice President and Chief Financial Officer.

Campbell’s President and Chief Executive Officer Denise Morrison said, “Our second-quarter organic sales were comparable to the year-ago period. Adjusted EBIT declined by double digits, reflecting disappointing gross margin performance in the quarter, and was below our expectations. Looking at the first half, we were encouraged by our 2 percent organic sales growth in a difficult operating environment. For the half, four of our five reporting segments achieved organic sales growth.

“Although we have robust plans in the second half to mitigate our gross margin issues, we don’t expect to offset the impact of the margin pressures that we experienced in the first half. Given our second-quarter performance and outlook for the remainder of the year, we lowered our full-year guidance on Feb. 12.

“Over the last three years, we’ve made solid progress advancing our dual mandate to strengthen the core business and at the same time expand into faster growing spaces; however, it has not been enough in this more challenged environment. After several months of careful study, we’ve announced a significant reorganization of our company creating three new divisions, each with clear portfolio roles. This new enterprise structure will enable us to allocate more resources to the areas that present the greatest growth opportunities and fund our growth with significant cost savings. We expect to generate annual cost savings of at least $200 million over a three-year period using a zero-based budgeting approach. We don’t anticipate significant savings from these efforts in the current fiscal year, but are confident that the important steps we are taking will unlock potential value over time.”