Camden, New Jersey-based Campbell Soup Company today reported a 23% decrease in diluted earnings per share for the Q2 ended 27 January 2002.
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Net sales in the Q2 increased 3% to US$1.8bn, driven by the flat base volume and mix, promotions, currency exchange rates, and the European dry soup and sauces acquisitions, which were completed in the Q4.
Comparatively, for the quarter wet soup shipments were down 6% in the US and up 4% in international markets, resulting in a 3% worldwide decline. Net earnings were US$203m. Excluding the impact of the Australian reconfiguration, net earnings were US$206m, down 24% year on year. The lower earnings were a result of the following: lower US wet soup shipments; the planned significant increase in marketing investments across the portfolio; and the continued softness in Godiva’s performance due to the events of 11 September and the weak US economy. The lower earnings were partially offset by favourable short-term interest rates. Total marketing investment for the quarter was up 17% before the impact of currency and the European acquisition.
For the first half of fiscal year 2002, net sales increased 6% to US$3.5bn, driven by the same factors as for Q2. For the half, wet soup shipments compared to one year ago were even for the US and up 7% in international, resulting in a 2% worldwide increase. Net earnings for the H1 were US$374m. Excluding the impact of the Australian reconfiguration, net earnings were US$380m, down 20% year on year.
Douglas R. Conant, president and CEO, said: “We are continuing to execute the transformation plan we launched last July. We are making strategic investments in consumer marketing, product quality, innovation, infrastructure and our people to put Campbell back on a sustainable growth track.
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By GlobalData“However, in our largest business, US soup, strong shipments in the Q1 driven by planned marketing investments and a modest increase in pantry stock following 11 September, have been offset in the Q2 by lower shipments, linked principally to warm weather and the unwinding of the first quarter build in pantry stock. More specifically, while our ready-to-serve brands such as `Campbell’s Chunky’ and `Campbell’s Select’ continued to exhibit positive momentum, our condensed soups had a much weaker quarter. Although we are not satisfied with this performance, we are confident that as our transformation plan unfolds, we will revitalize this important franchise.
“Beyond US soup, several businesses including Pepperidge Farm, Arnotts and US `Prego’ and `Pace’ sauce businesses have delivered positive sales performances this year. We are continuing to lay the groundwork across the entire portfolio to realize the full potential of our businesses.”
For the fiscal year, the company is maintaining its previous earnings estimate of about US$1.30 per share, excluding the impact of the Australian reconfiguration. For the Q3, it expects diluted earnings per share to be between US$.21-US$.24, excluding the impact of the Australian reconfiguration.
In addition, the company reported:
Free cash flow for the H1 of US$430m versus US$682m a year ago, reflecting the increased marketing investment and recovery of working capital levels from a historical low as of 29 July 2001. Debt of US$3.8bn increased from US$3.2bn a year ago, but was down from US$4bn at the end of fiscal year 2001. The debt level was significantly impacted by the European acquisition that closed in the Q4 of fiscal year 2001.
A summary of fiscal year 2002 second quarter results by segment follows:
North America Soup and Away From Home
Sales for the quarter decreased 5% or US$40m to US$812m due to a 6% decrease in US soup shipments. Operating earnings were US$216m, down 27%, resulting from lower volumes in condensed soup and the company’s previously announced plans to significantly increase marketing investments.
For the quarter, shipments of condensed soup decreased 13%, shipments of ready-to-serve soup increased 1% and shipments of “Swanson” broth increased 3%.
For the half, shipments of condensed soup decreased 7%, shipments of ready-to-serve soup increased 9% and shipments of “Swanson” broth increased 5%. Quality improvements in “Campbell’s Chunky” and “Campbell’s Select” soups helped lead the ready-to-serve increases.
For the quarter, shipments of eating soups decreased 8 percent and shipments of cooking soups decreased 5%. For the half, shipments of both eating and cooking soups declined less than 1%. Canada had strong sales results for the quarter and the first half.
North America Sauces and Beverages
Sales for the quarter increased 2% to US$319m. Operating earnings decreased 27% to US$65m. The earnings decline was driven by a planned increase in marketing for “Prego” Italian sauces, “Pace” Mexican sauces and “V8” vegetable juice.
Shipments of Prego Italian sauces increased, led primarily by the new Prego pasta bake sauce. Shipments of Pace Mexican sauces increased as a result of strong promotional support with sampling and coupons and increased television and radio advertising. Shipments of “Franco-American” canned pastas decreased as a result of competitive trade promotion programs. Shipments of V8 vegetable juice increased as a result of the first television advertising in three years. Shipments of V8 Splash juice beverages declined.
Biscuits and Confectionery
Biscuits and Confectionery sales for the quarter increased 1% to US$428m. Excluding the impact of currency, sales increased 2%. Volume growth at Arnotts and Pepperidge Farm was offset by lower sales at Godiva, principally in the US. Operating earnings declined 10% to US$80m, excluding the impact of the Australian manufacturing reconfiguration. Excluding the impact of currency, operating earnings declined 8%. This decrease resulted from a planned increase in marketing investments and the decline in sales and earnings at Godiva.
Pepperidge Farm delivered solid sales performance across its portfolio with increased shipments and share growth in all strategic categories – cookies, crackers, breads and frozen products. New products, including “Giant Goldfish” sandwich crackers and “Dessert Bliss” cookies performed well. “Farmhouse” breads delivered a positive performance and new varieties of “Pepperidge Farm” Texas toast helped increase frozen product sales. Total sales of Goldfish products were up.
Godiva Chocolatier’s sales and earnings were negatively impacted by weaknesses in the US economy and the events of 11 September, which reduced sales at retail outlets such as airport duty-free stores and resort-destination stores.
Arnotts in Australia reported increased sales driven by new “Rix” rice chips and “Rice Shapes”, as well as new premium “Emporio” biscuits.
International Soup and Sauces
International Soup and Sauces sales for the quarter increased by 53% to US$251m year on year. Operating earnings increased by 47% to US$28m. These results were principally driven by the European acquisition. Excluding the impact of the European acquisition and currency, sales decreased 3% and operating earnings declined 31% as a result of planned increases in marketing investments to drive long-term growth.
In Europe, base sales were down slightly versus a year earlier. Sales softness in the UK across soup and sauces was partially offset by growth of “Liebig” soups in France. On the innovation front, full distribution in France of Liebig DeliSoup for children was achieved and the new “Homepride” stir fry sauces in the UK performed well. The newly acquired European dry soup and sauces business is meeting expectations despite some initially weak marketplace performance.
In Asia Pacific, progress continues to be made on the soup and broths business in Australia as consumer purchases of “Campbell’s” soups outperformed the category.
