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Campbell Reports Lackluster Q1 Results

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Campbell Soup Company (CPB - Free Report) reported disappointing first-quarter fiscal 2014 results with adjusted earnings from continuing operations declining 21% year over year to 66 cents per share. Moreover, the earnings of this high-quality foods and simple meals manufacturer was much lower than the Zacks Consensus Estimate of 87 cents per share.

On a reported basis, earnings from continuing operations came in at 57 cents per share for the quarter as against 73 cents in the year-ago comparable quarter. The company’s bottom-line results were primarily battered by the late Thanksgiving holiday, weakness in core business categories, higher marketing expenses and recall of Plum Organics pouch products.

Net sales fell 2% to $2,165 million from the prior-year quarter and missed the Zacks Consensus Estimate of $2,307 million. Moreover, organic sales witnessed a year-over-year decline of 4% primarily due to a negative impact of movements in retailer inventory level due to a late Thanksgiving holiday. This resulted in a shift in shipments to the second quarter of fiscal 2014.

During the quarter, acquisitions contributed 4% while price and sales allowances contributed 1% to net sales. However, these were offset by 4% decline in volume and mix and the negative impact of 1% for each increase in promotional spending and currency fluctuation.

Adjusted gross margin of 36.0% declined 220 basis points (bps) from the prior-year quarter level of 38.2%, mainly due to acquisitions, product recalls of Plum Organics and an unfavorable mix. Moreover, in dollar terms, adjusted gross profit declined 7% year over year to $779 million.

In the reported quarter, marketing and selling expenses increased 11% year over year to $261 million. This was primarily due to higher advertising and consumer promotion expenses related to product launches and promotion of the Bolthouse Farms brand.

Adjusted operating income decreased 20% year over year to $337 million, mainly due to lower sales, increased advertising expenses, negative impact from Plum Organics product recalls and reduced gross profit.

Segment Analysis

U.S. Simple Meals: First-quarter sales at this division decreased 4% year over year to $860 million. This was mainly due to 6% decline in volume and mix as well as higher promotional spending, partially offset by increased price and sales allowances and positive impact from the acquisition of Plum Organics.

Sales of U.S. Soup declined 6% due to higher retailer inventory levels. Sales of ready-to-serve soup and condensed soup fell 11% and 7%, respectively, while Broth sales increased 3%. Sales of U.S. Sauces increased 4% from the year-ago quarter. However, if we exclude the impact of recent acquisitions, sales of U.S. Sauces declined 4%.

During the quarter, operating income fell 23% year over year to $211 million, primarily due to lower volumes, rise in advertisement and promotional expenses as well as negative impact from Plum Organics product recalls, partially offset by higher selling prices and improved productivity.

U.S. Beverages: Sales at this division fell 8% year over year to $173 million due to a 9% decline in volume and mix as well as 1% fall in price and sales allowances, partly offset by decline of 2% in promotional spending. Sales decline in “V8" and “V8 V-Fusion” juices and juice beverages as well as “V8 Splash” juice led to the fall.

The segment’s operating income in the quarter declined 20.0% year over year to $24 million primarily due to lower volumes.

Global Baking and Snacking: This segment’s sales increased 6% to $609 million. Results primarily benefited from the Kelsen Group acquisition and a 2% rise in price and sales allowances, offset by a negative impact of 3% from unfavorable currency exchange rates and 2% from higher promotional spending.

However, segment operating income declined 8% year over year to $78 million, primarily due to rise in input costs and promotional spending, partly offset by higher selling prices.

International Simple Meals and Beverages: Sales of this segment fell 13% to $193 million, primarily due to a 3% decrease in volume and mix, 5% negative impact of currency translation, 2% fall in price and sales allowances and 2% due to rise in promotional spending. The segment witnessed sales decline in every region.

The segment’s operating income of $20 million was down 39% from the year-ago period mainly due to lower volume, reduced selling prices and higher promotional spending.

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 $330 million, down 2% from the comparable year-ago quarter.

Due to higher input costs and increased advertising expenses for Bolthouse Farms, the segment’s operating income fell $5 million to $29 million.

FY14 Outlook

Disappointed with its first-quarter results, Campbell Soup lowered the guidance for fiscal 2014. The company now expects sales from continuing operations to increase by 4%–5% versus 5%–6% forecasted earlier. Adjusted earnings before interest and tax (EBIT) is projected to grow by 4%–6% compared with its earlier guidance of 5%–7%.

Moreover, the company lowered its adjusted earnings growth guidance range to 2%–4% from 3%–5% forecasted earlier. The company now expects 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 #3 (Hold). Other stocks performing well in the food space include Omega Protein Corp. , Pinnacle Foods Inc. (PF - Free Report) and The J. M. Smucker Co. (SJM - Free Report) . While Omega carries a Zacks Rank #1 (Strong Buy), both Pinnacle and J. M. Smucker have a Zacks Rank #2 (Buy).

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