Overview of company's operations
Campbell's Soup is still facing headwinds in the United States and Australia. It projected that it will be near the low end of its 2012 guidance sales and adjusted EBIT. It will likely be near the high end of its 2012 guidance for adjusted EPS. Longer term, it believes it is making positive changes to drive long-term growth.
Campbell's Soup has three main growth strategies: (1) stabilize and grow North America Soup and Simple Meals, (2) expand its international presence; and (3) continue growth in healthy beverages and baked snacks.
Campbell's Soup was not happy with the performance of its U.S. Soup division and expects to make adjustments on its execution in that division, including possible innovations and further evaluating the drivers of demand. Campbell's market share in soup declined 2.3 points to 59.6%. The change was a result of ready-to-serve soup and market share gains by private labels. It expects continued inflation in soup input costs next year, although at a more moderate level (still exceeding 3 percent) than last year. It will be taking a 5 percent list price increase in June of 2012 for condensed soup. It believes the list price increase on ready-to-serve soup this year was enough and that increasing price on the ready-to-serve line next year would not be productive. It believes there is still pricing power on its condensed line.
The U.S. Simple Meals business is meeting Campbell Soup's profit expectations but it has not yet delivered revenue growth.
In beverages, the shelf stable juice trend is still weak, but Campbell's beverages have been gaining market share. The beverage market will still remain very competitive.
Campbell's is struggling in Australia, finding the consumer environment and the consumer to be difficult.
In Q3, Campbell's Soup increased its brand-building efforts across most of its businesses by increasing advertising and promotions by 13%. It is on track to spend $100 million by July for building its brand and innovating new products. Some of that money, though, was not spent on advertising, and instead was spent on trade promotions due to competitive issues.
This year, the advertising has worked better on condensed soup, rather than ready to serve. The advertising on ready to serve was not as differentiating as Campbell's Soup thought it would be
Campbell's Soup has 52 new products going to market that it will start to ship in the fourth quarter. This is double the rate of last year. The new products are focused on the preferences of the Millennials and therefore most will fall in the ready to serve category.
Markets
Campbell's Soup noted that consumers are still pressured financially, especially in developed markets. Both the number of trips to the store and the amount spent per trip are down.
Financials
Total sales grew 1 percent versus the same quarter last year. Beverages increased by 5 percent, as a result of new products and market share gains. V8 Splash had double digit growth. Global baking and snacking increased 2 percent, with the Pepperidge Farm brand (including double digit growth in Goldfish crackers) as the leading contributor to sales. The Simple Meals division declined two percent, and U.S. Simple Meals declined 14 percent, although within that segment, Prego sales increased by 3 percent. Within the Simple Meals category, organic sales grew 2 percent,North America Foodservice sales were flat and U.S. Soup declined by 3 percent. Campbell's Soup expects net sales growth of between 0% and 2% for fiscal year 2012.
Net sales were flat from the same quarter last year. Campbell's Soup had 3 points of price increases, but this was offset by 2 points of promotional expenses and 1 point of decrease in volume. Most of the price increases were in the U.S. Soup and Baking and Snacking segments. Most of the increased promotional spending was in the Baking and Snacking segment.
After eliminating the impact of restructuring charges, operating earnings decreased 13% in Q3. The decline was primarily due to cost inflation, increased marketing investment and lower sales volume. The declined was partly offset by higher selling prices and productivity improvements.
Gross margin was 38.8% in Q3, a decline of 160 basis points and was below the company's earlier expectations due to increased promotional expense in the Baking and Snacking segment. Campbell's Soup expects its gross margin to decline a total of 100 basis points for the fiscal year 2012.
Advertising and promotion expenses increased by 13%. Half of the increase was for advertising in the U.S. Simple Meals segment.
Adjusted earnings per share were $0.56 in Q3, a 2% decline. Campbell's Soup expects adjusted EPS for 2012 to be between $2.35 and $2.42, a decline of 5 to 7%.
Cash flow from operations was $838 million. During the first 3 quarters of the fiscalyear, Campbell's Soup repurchased 8.3 million shares at a cost of $272 million.
Net debt was $2.4 billion, a decrease of $282 million.
The full transcript of the earnings conference call can be found on Seeking Alpha at the following link:
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