Campbell Soup Quarter Sales Decline

20/11/07 Campbell Soup Company has reported earnings from continuing operations for the quarter ended October 28, 2007 of $270 million, compared to $269 million in the prior year. Earnings per share from continuing operations for the current quarter were $.70, compared to $.66 in the year-ago period, an increase of 6 percent, reflecting a lower average number of diluted shares outstanding due to the company's share repurchase programs. For the first quarter, sales increased 7 percent to $2.298 billion.

Douglas R. Conant, Campbell's President and Chief Executive Officer, said, "We are satisfied with our sales performance in the quarter, which was driven by solid overall volume growth. We are pleased with the performance of many businesses in our portfolio, including the strong top line growth in our baking and snacking business and our U.S. beverage business, which continued its strong growth trend. U.S. soup sales declined slightly compared to a very strong quarter a year ago when we launched our new line of lower sodium soups. U.S. soup results also were significantly impacted by an exceptionally warm autumn."

Conant continued, "Overall, the company's gross margins were negatively impacted in the quarter primarily due to higher cost inflation, which was not sufficiently offset by our pricing actions. We plan to improve our margin performance during the year through a combination of greater price realization and ongoing productivity improvements."

Conant concluded, "We remain confident in our products and plans for all of our businesses, including U.S. soup. As we head into the key consumption period for soup, I fully expect that our U.S. soup business will deliver better performance as the year progresses."

The company confirmed its previous fiscal 2008 guidance. Campbell expects its continuing operations to deliver sales growth in excess of its long-term target range of between 3 and 4 percent, due in part to a 53rd week of sales this fiscal year. The company also expects to deliver EBIT growth between 7 and 9 percent from the fiscal 2007 adjusted base of $1.250 billion and earnings per share growth from continuing operations between 5 and 7 percent from the fiscal 2007 adjusted base of $1.95, consistent with its long-term EPS growth target.

Gross margin decreased to 41.5 percent from 42.6 percent in the prior year. The decline was primarily due to cost inflation and higher promotional spending, partially offset by productivity gains and higher selling prices. Marketing and selling expenses increased $32 million to $348 million, primarily due to higher advertising expenses, currency, and higher selling expenses, principally in Godiva.

At the end of the quarter, total debt was $2.814 billion compared to $2.863 billion a year ago. Net debt, or total debt minus cash and cash equivalents, was $2.737 billion compared to $2.633 billion a year ago, an increase of $104 million. Cash flow from operations in the quarter was a source of $74 million as compared to a use in the prior year of $88 million. The prior year included a payment of $83 million to settle foreign currency hedges related to the company's divested U.K. and Ireland businesses. The current year benefited from a lower increase in working capital, principally accounts receivable and inventory. Administrative expenses increased $17 million to $152 million. The increase was primarily due to higher compensation and benefits costs, including those related to the company's North American business realignment announced in October, and currency.

The tax rate was 30.6 percent compared to 32.2 percent a year ago. The lower tax for the quarter was primarily driven by a tax rate reduction in Germany. For Fiscal 2008, Campbell expects a full-year tax rate of approximately 32 percent. During the first quarter, Campbell repurchased 2 million shares for $78 million under two programs: the three-year $600 million share repurchase plan announced in November 2005 and Campbell's ongoing practice of buying back shares sufficient to offset shares issued under incentive compensation plans.