Campbell's Beats, Raises Guidance

Campbell Soup Co. (CPB - Analyst Report) reported fiscal first-quarter earnings of 87 cents per share, which was above the Zacks Consensus Estimate of 81 cents. Quarterly earnings were up 14.5% compared to the prior-year quarter.

Quarterly net sales declined 2.1% year over year due to a negative impact of 4% from volume and mix and 1% from increased promotional spending, partially offset by positive contributions of 2% from price and allowances and 1% from currency translation. Gross margin for the quarter expanded 170 basis points (bps) to 41.9% versus 40.2% in the year-ago quarter, reflecting productivity improvements and pricing benefits.

Sales of the US Soup, Sauces and Beverages segment decreased 5% year over year. US soup sales fell 3%, driven by sales declines in condensed, RTS and broth. Prego pasta sauce and Pace Mexican sales dropped due to competitive pressures, while beverage sales declined due to weak sales of V-8 vegetable juice.

Sales of the Baking and Snacking segment were up 4%, driven by growth in the Arnott's branded business, led by higher biscuits sales. Pepperidge Farm sales were similar to the year-ago level as increased sales in bakery business were offset by lower sales in the cookies and cracker business.

In the International Soups and Sauces business, sales contracted 2% due to declines in Europe, primarily attributable to divestitures and lower sales in Germany. In Canada, sales increased due to gain in soups and favorable impact of currency. Sales in the Asia-Pacific region also increased, led by strength in Malaysia, Hong Kong and Australia along with the favorable currency impact.

Sales in the North American Foodservice business declined 2% year over year due to continued weakness in the food service sector. Price and sales allowances benefits were more than offset by unfavorable volume and mix.

Based on its performance in the first quarter, Campbell raised its guidance for fiscal 2010. The company now expects net sales growth of 4%-5%, as compared to its previous guidance of 3%-4% growth. Annual earnings growth is expected in the range of 9% and 11%. Earlier, the company provided earnings growth guidance of 5% to 7%. The guidance is consistent with the company’s long-term growth targets.

We hold a Neutral recommendation on Campbell shares.

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