Campbell Sales Down 4% in Q2

Campbell remains well positioned during this economic downturn due to the focused and value-oriented nature of our portfolio, the relative vitality of the categories in which we compete and our position within those categories. Despite broad economic challenges, we are optimistic about the second half of the year.

24/02/09 Campbell Soup Company reported net earnings for the quarter ended February 1, 2009 of $233 million, or $0.64 per share, compared to $274 million, or $0.71 per share, in the prior year. The fiscal 2009 reported net earnings included charges associated with previously announced restructuring initiatives, the impact of unrealized losses on the company's commodity hedging activities and a tax adjustment related to the divestiture of the Godiva business. Excluding all items impacting comparability, adjusted net earnings were $234 million in the current quarter compared to adjusted net earnings of $266 million in the prior year's quarter. Adjusted net earnings per share were $0.65 in the current quarter compared to adjusted net earnings per share of $0.69 in the prior year's quarter. Reflecting strengthening of the U.S. dollar, adjusted net earnings per share for the quarter were negatively impacted by $0.04 due to currency translation.

For the second quarter, sales declined 4 percent to $2.122 billion. The decline in sales reflects the following factors:

* Volume and mix subtracted 3 percent
* Price and sales allowances added 9 percent
* Increased promotional spending subtracted 3 percent
* Currency subtracted 5 percent
* Divestitures subtracted 2 percent

Douglas R. Conant, Campbell's President and Chief Executive Officer, said, "For the first half, we delivered strong sales growth in our key value-oriented businesses, including U.S. soup and sauces. U.S. soup sales increased 8 percent with growth in all formats: condensed, ready-to-serve and broth. As planned, we invested in our U.S. soup portfolio and supported three major new product introductions. Beyond soup, other parts of our portfolio, such as beverages and premium breads, continued to grow but at slower rates during these difficult economic times. Overall, the categories in which we compete are growing, and our businesses are performing well within those categories.

"In the second quarter, we maintained momentum in our U.S. soup business, building on very strong sales in the first quarter. Our product innovations in ready-to-serve soups and effective marketing of our condensed portfolio have resonated with consumers as they eat more meals at home. We remain encouraged by the successful launches of 'Campbell's Select Harvest' and 'Campbell's' 'V8' ready-to-serve soups and 'Swanson' stock. 'Prego' and 'Pace' sauces also benefited from consumers eating more meals at home."

Conant continued, "Overall, we are pleased with our performance in the quarter, especially considering that currency negatively impacted results and major retailers significantly reduced inventory levels. While these inventory reductions have impacted our U.S soup, sauces and beverages businesses, encouragingly consumer takeaway has outpaced sales growth. Campbell's portfolio continues to provide great value, quality and convenience, and consumer response to our products remained strong.

"As expected, our adjusted gross margin trend performance improved on a quarter-to-quarter basis, and we expect that to continue for the balance of the fiscal year."

Conant concluded, "Campbell remains well positioned during this economic downturn due to the focused and value-oriented nature of our portfolio, the relative vitality of the categories in which we compete and our position within those categories. Despite broad economic challenges, we are optimistic about the second half of the year."

First Half Results

Net earnings for the first half were $493 million, or $1.35 per share, compared to $544 million, or $1.41 per share, in the year-ago period. Excluding items impacting comparability, adjusted net earnings were $515 million compared to $536 million in the year-ago period. Adjusted net earnings per share were $1.41 in the current period compared to $1.39 in the prior period, an increase of 1 percent. Adjusted net earnings per share growth benefited from a decline in average diluted shares outstanding due to repurchases utilizing the net proceeds from the Godiva divestiture and Campbell's strategic share repurchase programs. In the first half of 2009, adjusted net earnings per share were negatively impacted by $0.05 due to currency translation.

For the first half of fiscal 2009, sales were $4.372 billion, a decrease of 1 percent. The change in sales for the period reflects the following factors:

* Volume and mix subtracted 1 percent
* Price and sales allowances added 8 percent
* Increased promotional spending subtracted 3 percent
* Currency subtracted 3 percent
* Divestitures subtracted 2 percent

Second Quarter Financial Details

* Gross margin was 39.4 percent compared to 40.1 percent a year ago. The current year included $8 million of costs related to initiatives to improve operational efficiency and long-term profitability. After adjusting for this item, gross margin percentage for the quarter was 39.8 percent. The decline in gross margin percentage was primarily due to cost inflation and increased promotional spending, partly offset by higher selling prices and productivity improvements.
* Marketing and selling expenses decreased to $315 million due to the impact of currency, partly offset by higher advertising mainly in the U.S. soup and sauces businesses.
* Excluding items impacting comparability, earnings before interest and taxes were $363 million as compared to $400 million in the prior-year quarter, a reduction of 9 percent. Five percentage points of this decline were due to the unfavorable impact of currency translation. The balance of the decline was due to higher advertising and lower gross margin.
* At the end of the quarter, net debt, or total debt minus cash and cash equivalents, was $2.631 billion compared to $2.661 billion a year ago, a decrease of $30 million.
* Net interest expense declined to $25 million, compared to $42 million in the prior year due to the significant decline in the company's short-term borrowing costs.

First Half Financial Details

* Marketing and selling expenses increased $7 million to $622 million due to higher advertising expenses mainly due to product launches in the U.S. soup business, partially offset by the impact of currency and lower selling expenses. In the first half, Campbell introduced "Campbell's Select Harvest" and "Campbell's" "V8" ready-to-serve soups and "Swanson" stock.
* Excluding items impacting comparability, earnings before interest and taxes were $795 million as compared to $828 million in the prior year, a decrease of 4 percent. Three percentage points of the decline were due to the unfavorable impact of currency translation.
* Average diluted shares outstanding declined to 364 million from 387 million primarily due to repurchases utilizing net proceeds from the divestiture of the Godiva business and Campbell's strategic share repurchase programs.
* During the first half, Campbell repurchased 9 million shares for $295 million under its June 2008 strategic share repurchase program and the company's ongoing practice of buying back shares sufficient to offset shares issued under incentive compensation plans.

Summary of Fiscal 2009 Second Quarter and First Half Results by Segment

U.S. Soup, Sauces and Beverages

Sales for U.S. Soup, Sauces and Beverages were $1.128 billion, an increase of 3 percent compared to a year ago. The change in sales reflects the following factors:

* Volume and mix subtracted 3 percent
* Price and sales allowances added 10 percent
* Increased promotional spending subtracted 4 percent

U.S. soup sales, especially condensed varieties, were negatively impacted by significant reductions in retailer inventory levels. Total soup sales for the quarter increased 4 percent, driven by the following:

* Sales of "Campbell's" condensed soups increased 1 percent with gains in cooking varieties as consumers ate more meals at home.
* Sales of ready-to-serve soups increased 7 percent due to the successful launches of "Campbell's Select Harvest" and "Campbell's" "V8" soups and gains in "Campbell's Chunky" canned soups. These gains were partially offset by declines in sales of Campbell's convenience platform, which includes soup in microwavable bowls and cups.
* Broth sales increased 3 percent due to the successful introduction of "Swanson" cooking stock, partially offset by increased promotional spending in response to competitive activity.

Further details of the sales results of this segment's other businesses include:

* Beverage sales increased slightly following double-digit growth a year ago. The increase was driven by the continued strong performance of "V8 V-Fusion" juice and growth in "V8 Splash" juice drinks, partially offset by declines in "V8" vegetable juice and "Campbell's" tomato juice.
* "Prego" pasta sauce sales increased and sales of "Pace" Mexican sauces were unchanged. Sales of both products were significantly impacted by reductions in retailer inventory levels. Growth in consumer takeaway of these products remained strong driven by "Prego" Heart Smart varieties and "Pace" specialty salsas.

Operating earnings were $270 million compared to $286 million in the prior-year period. The decrease in operating earnings was due to costs, including advertising associated with the introduction of new products in the U.S. soup business, partially offset by increased sales.

For the first half, U.S. Soup, Sauces and Beverages sales increased 6 percent to $2.326 billion. A breakdown of the change in sales follows:

* Price and sales allowances added 9 percent
* Increased promotional spending subtracted 3 percent

For the first half, soup sales increased 8 percent:

* Sales of condensed soup increased 8 percent with gains in both eating and cooking varieties.
* Sales of ready-to-serve soup increased 7 percent due to the successful launches of "Campbell's Select Harvest" and "Campbell's" "V8" soups.
* Broth sales increased 13 percent due to the continued growth of the base business and the successful introduction of "Swanson" cooking stock.

Operating earnings were $584 million compared to $595 million in the year-ago period. The decrease in operating earnings was due to an inflation-driven decline in gross margin percentage and higher levels of marketing for new product launches, partially offset by higher sales.

Baking and Snacking

Sales for Baking and Snacking were $440 million, a decrease of 10 percent from a year ago. A breakdown of the change in sales follows:

* Volume and mix subtracted 1 percent
* Price and sales allowances added 9 percent
* Increased promotional spending subtracted 2 percent
* Currency subtracted 8 percent
* Divestitures subtracted 8 percent

Further details of sales results include the following:

* Sales of Pepperidge Farm products increased driven by gains in the cookies and crackers and bakery businesses.
o In the cookies and crackers business, sales increases were driven by double-digit gains in "Goldfish" snack crackers and in "Milano" cookies, as well as the introduction of Baked Naturals, an adult savory snack cracker.
o The bakery business also delivered solid sales growth behind whole-grain and Swirl breads.
* On a reported basis, Arnott's sales declined due to the divestiture of certain salty snack foods brands in May 2008 and the unfavorable impact of currency. Excluding these factors, sales increased due to growth in all segments: savory, chocolate and sweet.
* Sales of biscuits in Indonesia grew strongly.

Operating earnings were $53 million compared with $68 million in the prior-year period. The decrease in operating earnings was due to a decline in Pepperidge Farm and the unfavorable impact of currency, partially offset by significant growth in Arnott's. The current quarter included $2 million in accelerated depreciation and other exit costs related to the previously announced restructuring initiative.

For the first half, sales decreased 7 percent to $949 million. A breakdown in the change in sales follows:

* Volume and mix subtracted 1 percent
* Price and sales allowances added 9 percent
* Increased promotional spending subtracted 2 percent
* Currency subtracted 5 percent
* Divestitures subtracted 8 percent

Operating earnings were $136 million compared to $140 million in the year-ago period. The decrease in operating earnings was due to the unfavorable impact of currency. Excluding currency, significant growth in Arnott's was partly offset by a decline in Pepperidge Farm. The current period included $2 million in accelerated depreciation and other exit costs related to the previously announced restructuring initiative.

International Soup, Sauces and Beverages

Sales for International Soup, Sauces and Beverages were $391 million, a decrease of 15 percent compared to a year ago. The change in sales reflects the following factors:

* Volume and mix subtracted 5 percent
* Price and sales allowances added 5 percent
* Decreased promotional spending added 1 percent
* Currency subtracted 13 percent
* Divestitures subtracted 3 percent

Excluding the unfavorable impact of currency, further details of sales results include the following:

* In Europe, sales declined primarily due to the divestiture of the company's French sauce and mayonnaise business in September 2008 and lower sales in Germany.
* In Asia Pacific, sales increased primarily due to gains in the Australian soup business and Malaysia.
* In Canada, sales increased due to gains in the soup business.

Operating earnings decreased to $50 million from $61 million a year ago due to the impact of currency. Excluding the impact of currency, operating earnings increased in Europe, reflecting the benefit of cost savings initiatives, and in Canada, primarily offset by the cost to establish businesses in Russia and China.

For the first half, sales decreased 9 percent to $771 million. A breakdown of the change in sales follows:

* Volume and mix subtracted 2 percent
* Price and sales allowances added 4 percent
* Increased promotional spending subtracted 1 percent
* Currency subtracted 8 percent
* Divestitures subtracted 2 percent

Excluding the impact of currency and divestitures, sales increased due to gains in Asia Pacific and Canada, partially offset by a decline in Europe.

Operating earnings were $88 million compared to $112 million in the year-ago period. The decrease in operating earnings was due to the cost to establish businesses in Russia and China and the unfavorable impact of currency, partially offset by gains in Europe and Asia Pacific.

North America Foodservice

Sales were $163 million, a decrease of 7 percent compared to a year ago. A breakdown of the change in sales follows:

* Volume and mix subtracted 9 percent
* Price and sales allowances added 6 percent
* Increased promotional spending subtracted 1 percent
* Currency subtracted 3 percent

Sales were significantly impacted by weakness in the food service sector.

Operating earnings were $10 million compared to $20 million in the prior period. The current quarter included $6 million in accelerated depreciation and other exit costs related to the previously announced restructuring initiative. The remaining decline in operating earnings was primarily due to lower volumes.

For the first half, sales were $326 million compared to $342 million in the year-ago period. A breakdown of the change in sales follows:

* Volume and mix subtracted 8 percent
* Price and sales allowances added 6 percent
* Increased promotional spending subtracted 1 percent
* Currency subtracted 2 percent

Operating earnings were $21 million compared to $44 million in the prior period. The current period included $13 million in accelerated depreciation and other exit costs related to the previously announced restructuring initiative. The remaining decline in operating earnings was primarily due to lower volumes.