Campbell Beats Estimates

Campbell Soup Co. (CPB - Analyst Report) reported fourth-quarter earnings of 30 cents per share, which was above the Zacks Consensus Estimate of 26 cents. Earnings were also up 15.4% compared to the prior-year quarter. For the full year, profit was $2.22, up 10.4% versus fiscal 2008, primarily driven by effective pricing actions.

Quarterly net sales declined 10.9% year over year due to a 2% impact of volume and mix, 1% from increased promotional spending, 4% effect of currency translation and 2% from divestitures and acquisitions. These were partially offset by a 5% benefit from pricing. Organic sales rose 2% for the quarter driven by gains in US soups, US sauces and Canada, which were partially offset by declines in North America food service and U.S. beverages.

Sales of the US Soup, Sauces, and Beverages segment fell 3% year over year. US soup sales increased 7% driven by growth in condensed, RTS and broth. The sauce business also performed well, with double-digit sales growth in Prego pasta sauces and sales growth in Pace Mexican sauces. However, these were fully offset by lower Beverage sales due to drop in sales of V-8 vegetable juice, reflecting higher promotional spending and reduced volumes.

Sales of the Baking and Snacking segment shrank 13%, primarily on declines in the Pepperidge Farms cookies and cracker business, divestiture of certain salty snack food brands and unfavorable currency translation. This was partially offset by growth in the Arnott's branded business driven by gains in both chocolate and savory biscuits.

In the International Soups and Sauces business, sales contracted 120% due to declines in Europe primarily attributable to divestitures, the impact of currency and accounting of one fewer week. In Canada, sales fell due to the impact of currency and one less week accounted for the period. Sales in the Asia Pacific region also decreased due to the same reasons, partially offset by strength in Malaysia.

Gross margin for the quarter expanded 284 basis points (bps) to 41.6% versus 38.7% in the year-ago quarter as benefits of pricing and mix more than offset the effect of inflation. However, operating margin shrank 147 bps to 9.5% versus 11% in the comparable prior-year period, primarily related to higher administration expenses.

For fiscal 2009, cash and cash equivalents were $51 million and the company had a debt to capitalization ratio of 76%.

Based on the performance of fiscal 2009, management provided an outlook for fiscal 2010. Annual earnings are expected in the range of 5% and 7%. Management sees net sales growing in the 3% to 4% range. The guidance is consistent with the company’s long-term growth targets.

In addition, Campbell Soup plans to boost sales in fiscal 2010 through planned innovations in all three categories, especially soup. Moreover, management expects inflation to moderate between 1% and 3% for fiscal 2010.