High-quality foods and simple meals manufacturer, Campbell Soup Company (CPB) recently reported fourth-quarter and fiscal 2012 financial results and provided fiscal 2013 outlook. Quarterly adjusted earnings per share came in at 41 cents and surpassed the Zacks Consensus Estimate of 38 cents. However, the quarter’s results witnessed a decline of 5% from 43 cents reported in the comparable prior-year quarter.
During the reported quarter, net sales came in at $1,613 million compared with $1,607 million in the prior-year quarter, and beat the Zacks Consensus Estimate of $1,596 million. Benefit from the 3% spike in price and sales allowances, as well as a 3% rise in volume and mix were fully offset by negative impact from 3%increase in promotional spending along with 3% currency fluctuations.
Higher input costs and promotional expenses, dragged down gross margin rate to 38.5%, a contraction of 130 basis points from the prior-year quarter level of 39.8%, partially offset by increased selling prices and productivity enhancement.
In the quarter, marketing and selling expenses grew 5% to $206 million mainly due to increased advertising and promotional expenses, increased selling expenses and rise in expenses to fund innovative ideas, partially offset by a decline in currency.
Adjusted operating incomedeclined 10% to $208 million compared with $232 million in the prior-year quarter, while adjusted operating margin contracted 150 basis points to 12.9% from 14.4% reported in the previous-year period. The fall was attributable to lower gross margin, increase in marketing costs, partially offset by sales volume growth.
FY12 Synopsis
Campbell’s fiscal 2012 earnings per share came in at $2.44, beating the Zacks Consensus Estimate of $2.40. However, earnings declined 3.9% year over year from $2.54 reported for the fiscal 2011. Net sales for 2012 remained almost flat year over year at $7,707 million, beating the Zacks Consensus Estimate of $7,699 million.
Segment Analysis
U.S. Simple Meals: Fourth quarter sales at this division grew 7% year over year to $461 million, driven by a rise of 4% in volume and mix and 3% increase in price and sales allowances. Sales of U.S. Soup jumped 9% as sales of condensed soups increased 14% and sales of ready-to-serve soups inched up 1%. An increase of 4% was witnessed in U.S. Sauces mainly due to volume growth due to increased advertising and promotions.
During the quarter, operating income grew 3% to $104 million compared with $101 million in the year-ago quarter, primarily driven by sales growth in U.S. Soups and Sauces, partially offset by increased promotional and advertisement expenses along with a fall in gross margin.
U.S. Beverages: Sales at this division rose 3% year over year to $181 million, due to rise in volume and mix. U.S Beverages witnessed double-digit growth in “V8” Splash and benefited from “V8” V-Fusion categories, whereas “V8” vegetable juice declined on a year over year basis.
However, higher marketing costs along with fall in gross margin led to a year-over-year decline of 16.7% in segment’s operating income to $25 million from $30 million reported in the prior-year quarter.
Global Baking and Snacking: This segment’s sales crept down 1% to $556 million. The results primarily suffered due to 5% rise in advertisement and promotion expenses along with 3% negative impact from currency fluctuations partially offset by a 4% rise in price and allowances and a 3% positive impact from volume and mix.
However, input cost and promotional expenditure led to a 10% decline in segment’s operating income to $83 million compared with $92 million in the prior-year quarter, partially offset by increased selling prices and productivity enhancements.
International Simple Meals and Beverages: Sales of this segment came down 7% to $294 million, primarily due 4% rise in promotional spending and 8% negative impact from currency translation. This was partially offset by 4% increase in price and sales allowance coupled with 2% rise in volume and mix.
Region wise, Canada witnessed a decline mainly due to weak beverage sales and adverse effect of currency translation. Excluding the adverse effect of currency translation in Europe, increase in sales in France was offset by soft sales in Germany, whereas in Asia Pacific region, higher sales in Japan and Malaysia was offset by a fall in Australian soup.
Moreover, input cost and promotional expenditure resulted in decline of 37.5% in the segment’s operating income to $15 million from $24 million in the year-ago period, partially offset by increased selling price.
North America Foodservice: This division's quarterly sales dropped 3% year over year to $121 million. Benefit from price and sales allowances and favorable volume and mix were fully offset by rise of 5% promotional expenses and a 1% negative impact from currency fluctuations.
Operating income in the quarter fell $6 million to $10 million mainly due to higher input cost and increased promotional expenditure, partially offset by increased selling price and productivity enhancements.
FY13 Outlook
Based on better-than-expected fourth-quarter and fiscal 2012 results, Campbell provided fiscal 2013 guidance, targeting sales growth in the 10% to 12% range. The company shared its adjusted earnings per share guidance of $2.51 to $2.57, reflecting an increase of 3% to 5% from 2012 earnings per share of $2.44. Adjusted operating income is anticipated to increase in the 4% to 6% range.
Campbell Soup operates in a highly competitive food industry and experiences worldwide competition in all its principal products from such well-established rivals as General Mills Inc. (GIS) and H. J. Heinz Co. (HNZ).
Currently, Campbell Soup retains Zacks #3 Rank, implying a short-term ‘Hold’ rating for the next 1-3 months. Moreover, we maintain our long-term ‘Neutral’ recommendation on the stock.
CAMPBELL SOUP (CPB): Free Stock Analysis Report
GENL MILLS (GIS): Free Stock Analysis Report
HEINZ (HJ) CO (HNZ): Free Stock Analysis Report
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