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Campbell Soup Company (CPB - Analyst Report) reported better-than-expected second-quarter fiscal 2014 results. The company’s adjusted earnings from continuing operations increased 19% year over year to 76 cents per share and handily beat the Zacks Consensus Estimate of 73 cents per share.

On a reported basis, earnings from continuing operations came in at 74 cents per share for the quarter rising over 37% from the year-ago quarter.

Notably, net earnings attributable to the company (including both continued and discontinued operations) came in $1.03 per share, up an impressive 72% year over year.

Net sales increased 6% to $2,281 million from the prior-year quarter and beat the Zacks Consensus Estimate of $2,265 million. Moreover, organic sales witnessed a year-over-year rise of 3%.

During the quarter, acquisitions contributed 5% while price and sales allowances contributed 2% to net sales, along with 2% contribution from volume and mix, partly offset by the negative impact of 1% for currency fluctuations and 2% for increase in promotional spending.

Adjusted gross margin of 35.7% declined 140 basis points (bps) from the prior-year quarter level of 37.1%, mainly due to inflation and an unfavorable product mix, partly offset by productivity enhancements measures and higher selling prices.

In the reported quarter, marketing and selling expenses decreased 3% year over year to $268 million. This was primarily due to lower advertising and consumer promotion expenses and reduced overhead and selling expenses, partly offset by addition of Kelsen Group and Plum Organics expenditure.

Adjusted earnings before interest and tax (EBIT) Increased 15% year over year to $374 million. Further, excluding Kelsen Group and Plum Organics results, adjusted EBIT rose 12% mainly due to reduced administrative expenses, increased organic sales and decline in marketing expenses, partly offset by a reduced gross margin.

Segment Analysis

U.S. Simple Meals: Second-quarter sales at this division increased 7% year over year to $894 million. This was mainly due to 4% rise in volume and mix as well as 2% increase price and sales allowances and 2% from the positive impact of Plum Organics acquisition, partially offset by increased promotional spending.

Sales of U.S. Soup grew 5% due to higher retailer inventory levels. Sales of ready-to-serve soup were flat compared with the year-ago period while sales of condensed soup rose 4%.

Broth sales increased 21%. Sales of U.S. Sauces increased 16% from the year-ago quarter. Also, if we exclude the impact of recent acquisitions, sales of U.S. Sauces grew 8% mainly due to Prego pasta sauce, Campbell’s Skillet Sauces and new Campbell’s Slow Cooker sauces.

During the quarter, operating income rose 12% year over year to $214 million, primarily due to improved productivity, and higher selling prices and reduced marketing expenses, partly offset by inflation as well as supply chain activities and associated costs.

U.S. Beverages: Sales at this division fell 3% year over year to $176 million due to a 2% decline in volume and mix as well as 1% fall in price and sales allowances. A sales decline in “V8" beverages cost dearly.

The segment’s operating income in the quarter declined 16% year over year to $31 million primarily due to inflation and supply chain activities and associated costs. These were partly offset by productivity enhancements and reduced administrative costs.

Global Baking and Snacking: This segment’s sales increased 14% to $639 million. Results primarily benefited from the Kelsen Group acquisition (16%), 1% rise in volume and mix and a 3% increase in price and sales allowances, offset by a negative impact of 4% from unfavorable currency exchange rates and 2% from higher promotional spending.

Moreover, segment operating income increased 19% year over year to $88 million, primarily due to the Kelsen buyout, higher selling prices and productivity enhancements, partly offset by rise in input costs and promotional spending.

International Simple Meals and Beverages: Sales of this segment fell 9% to $213 million, primarily due to a 7% negative impact of currency translation, 2% fall in price and sales allowances, partly offset by 2% increase in volume and mix and 1% from lower promotional expenses.  The segment witnessed sales decline in Latin America and Canada whereas Asia Pacific showed modest increase.

The segment’s operating income of $38 million was up 15% from the year-ago period mainly due to higher volume, lower selling expenses and productivity enhancements  in part offset by reduced selling prices and currency fluctuations.

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 $359 million, up 2% from the comparable year-ago quarter due to favorable product and volume mix.

Bolthouse Farms sales grew 6%, mainly on the back of double-digit gain in premium refrigerated beverages and salad dressings. These were partly offset by reduced sales in North America Foodservice.

Due to lower administrative costs and productivity enhancements, the segment’s operating income increased $6 million to $36 million.

FY14 Outlook

Campbell Soup maintained the guidance for fiscal 2014. The company expects sales from continuing operations to increase by 4%–5%. Adjusted earnings before interest and tax (EBIT) are projected to grow 4%–6%.

Moreover, the company expects adjusted earnings growth guidance range to be 2%–4%. The company continues to expect fiscal 2014 earnings to come in between $2.53 and $2.58 per share.

Other Stocks to Consider

Currently, Campbell Soup carries a Zacks Rank #4 (Sell). However, some better-ranked stocks in the food space include The Hain Celestial Group, Inc. (HAIN - Analyst Report), Diamond Foods, Inc. (DMND - Analyst Report) and Kraft Foods Group, Inc. (KRFT - Analyst Report). All of these carry a Zacks Rank #2 (Buy).

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