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High-quality foods and simple meals manufacturer, Campbell Soup Company (CPB - Analyst Report) reported robust second-quarter 2013 financial results. Quarterly adjusted earnings per share increased 9% year over year to 70 cents and surpassed the Zacks Consensus Estimate of 66 cents.

Net sales increased 10.5% to $2,333 million from $2,112 million in the prior-year quarter. Moreover, it inched above the Zacks Consensus Estimate of $2,330 million. During the quarter, sales benefited from the acquisition of Bolthouse Farms that contributed 9% to sales, as well as a 2% rise in price and sales allowances, partially offset by negative impact from 1% increase in promotional spending.

Adjusted gross margin rate of 36.8%, contracted of 160 basis points from the prior-year quarter level of 38.4%, mainly due to the acquisition of Bolthouse Farms, which has a low gross margin structure. In dollar terms, however, gross profits rose 6% year over year to $859 million.

In the quarter, marketing and selling expenses remained flat at $297 million mainly as increased advertising and promotional expenses in the U.S. Soup business were counterbalanced by increase in innovation related costs, escalated selling expenses and expenses related to Bolthouse Farms.

Adjusted operating income rose 5% to $349 million compared with $332 million in the prior-year quarter, attributed to lower marketing costs, partly offset by elevated selling expenses and R&D costs. However, adjusted operating margin contracted 70 basis points to 15.0% from 15.7% reported in the previous-year period.

Segment Analysis

U.S. Simple Meals: Second quarter sales at this division inched up 1% year over year to $833 million, driven by a 2% increase in price and sales allowances offset by 1% decline in volume and mix. Sales of U.S. Soup inched up 1% as sales of ready-to-serve soups grew 8% and condensed soups inched up 1%, while sales of broth declined 12%. Sales of U.S. Sauces were flat compared to last year.

During the quarter, operating income grew 10% to $191 million compared with $174 million in the year-ago quarter, primarily driven by earnings growth in U.S. Soups, partially offset declined in U.S. Sauces. Further, gains from productivity improvements, higher selling prices, and lower marketing costs were offset by lesser volumes and cost inflation.

U.S. Beverages: Sales at this division dipped 3% year over year to $182 million due to decline in volume and mix. Sales declines in “V8” vegetable juice and “V8 V-Fusion” beverages, slightly offset by a rise in “V8 Splash” juice beverages led to the fall.

However, lower advertising expenses and productivity improvements more than offset by volume declines and cost inflation, resulted in an 8.8% increase in operating profits compared to last year at $37 million.

Global Baking and Snacking: This segment’s sales increased 7% to $561 million. The results primarily gained from a 6% rise in volume and mix and 1% increase in price and sales allowances, offset by the 1% negative impact of increased promotion expenses and 1% currency effects.

Segment operating income rose by $3 million to $74 million compared with $71 million in the prior-year quarter, due to strong performance at Pepperidge Farm, offset by lower earnings in Arnott’s. Moreover, results gained from improved volumes and productivity at the segment, offset by higher promotional spending and cost inflation.

International Simple Meals and Beverages: Sales of this segment inched up 1% to $405 million, primarily due to 1% increase in volume and mix and 2% rise in price and sales volumes, offset in part by 3% negative impact from promotional spending and 1% from currency translation. Region wise, higher sales in Latin America and Canada were partially offset by declines in the Asia Pacific region.

However, the segment’s operating income of $54 million was down 6.9% from $58 million in the year-ago period led by the weak performance in Canada.

Bolthouse and Foodservice: This segment comprises of Bolthouse Farms business, which was acquired on Aug. 6, 2012, and the North America Foodservice business. This division's quarterly sales rose 103% to $352 million from $173 million reported for the North American business last year.

During the quarter, Bolthouse contributed $195 million to segment sales, while sales at North America Foodservices declined 10%. The decline in North American Foodservice was due to lower frozen and soup sales, due to the loss of a major restaurant customer.

Operating income rose by $2 million to $30 million mainly due to the acquisition of Bolthouse Farms, offset by lower earnings in North America Foodservice.

FY13 Outlook

Campbell reiterated its fiscal 2013 guidance, targeting sales growth in the 10% to 12% range. The company also maintained its adjusted earnings per share guidance of $2.51 to $2.57.

Adjusted operating income is anticipated to increase in the 4% to 6% range. Further, in fiscal 2013, Campbell expects Bolthouse Farms to contribute approximately $750 million to sales and add 5 cents to 7 cents per share to adjusted earnings per share.

Currently, Campbell Soup retains Zacks Rank #2 (Buy). Other stocks performing well in the food space include Chiquita Brands International Inc. (CQB - Snapshot Report), Flowers Foods Inc. (FLO - Snapshot Report) and J&J Snack Foods Corp. (JJSF - Snapshot Report), all of which hold a Zacks Rank #1 (Strong Buy).

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