Campbell: Baking + Snacking sales up 5% in Q3/2013

Third-Quarter Financial Details

• Gross margin was 35,7 percent compared with 38,8 percent a year ago. Excluding restructuring-related charges, adjusted gross margin in the current quarter was 36,7 percent. The decline in gross margin was mostly attributable to the acquisition of Bolthouse Farms, which operates with a lower gross margin structure.
• Marketing and selling expenses increased two percent to 262 million USD, compared with 256 million USD in the prior year. The increase was primarily driven by the impact of the addition of Bolthouse Farms expenses, higher spending to support the company´s innovation efforts and higher selling expenses, partially offset by lower advertising and consumer promotion expenses.
• Administrative expenses increased 28 million USD to 172 million USD, primarily due to the acquisition of Bolthouse Farms and higher incentive compensation costs.
• Ebit was 272 million USD compared with 264 million USD in the prior-year quarter. Excluding restructuring and restructuring-related charges, adjusted Ebit increased nine percent to 293 million USD. The acquisition of Bolthouse Farms contributed 17 million USD of Ebit in the current quarter. Excluding Bolthouse Farms´ operating results, adjusted Ebit increased three percent, primarily driven by sales growth, partly offset by higher administrative expenses and selling expenses.
• Net interest expense increased four million USD to 31 million USD, reflecting a higher debt level due to the acquisition of Bolthouse Farms, partially offset by lower interest rates.
• The tax rate in the quarter was 25,7 percent compared with 26,2 percent in the prior year. Excluding restructuring and restructuring-related charges, the current quarter´s adjusted tax rate was 26,3 percent compared to 26,1 percent in the prior year. The tax rate in both years benefited from lower taxes on foreign earnings.
• Adjusted net earnings for the quarter increased eight percent to 195 million USD. Adjusted net earnings per share were 0,62 USD in the current quarter compared with net earnings per share of 0,56 USD in the prior-year quarter, an increase of eleven percent.

Nine-Month Results

Net earnings for the first nine months were 616 million USD or 1,94 USD per share, compared with 647 million USD or 2,01 USD per share, in the year-ago period. Excluding restructuring, restructuring-related charges and acquisition transaction costs, adjusted net earnings increased six percent to 694 million USD. Adjusted net earnings per share increased eight percent to 2,19 USD. For the first nine months of fiscal 2013, sales were 6,763 billion USD, an increase of eleven percent from the year-ago period. The increase in sales for the period reflected the following factors:

Nine-Month Financial Details

• Gross margin was 36,0 percent compared with 38,9 percent a year ago. Excluding restructuring-related charges, adjusted gross margin in the first nine months was 37,2 percent. The decline in gross margin was primarily attributable to the acquisition of Bolthouse Farms. Excluding the acquisition, the impact of cost inflation and increased promotional spending were mostly offset by productivity improvements and the benefit of higher selling prices.
• Marketing and selling expenses decreased one million USD to 813 million USD. The decline was primarily due to lower marketing expenses, principally reductions in advertising and consumer promotion expenses, mostly offset by the impact of the addition of Bolthouse Farms expenses and an increase in selling expenses.
• Administrative expenses increased 65 million USD to 506 million USD, primarily due to the acquisition of Bolthouse Farms and higher compensation and benefit costs, including pension expenses.
• Ebit was 958 million USD compared with 1,009 billion USD in the prior year. Excluding restructuring, restructuring-related charges and acquisition transaction costs, adjusted Ebit rose six percent to 1,080 billion USD. Excluding Bolthouse Farms´ operating results, adjusted Ebit grew two percent, primarily driven by sales growth and lower marketing expenses, partially offset by higher administrative expenses, higher selling expenses and a lower gross margin percentage.
• Adjusted net earnings for the first nine months increased six percent to 694 million USD, as the impact of higher interest expense was offset by a lower tax rate. Adjusted net earnings per share were 2,19 USD in the first nine months compared with net earnings per share of 2,03 USD in the prior year, an increase of eight percent.
• Cash flow from operations was 864 million USD compared with 838 million USD in the prior year.
• Net debt rose to 3,8 billion USD, an increase of 1,426 billion USD, primarily due to funding the purchase of Bolthouse Farms.

Summary by Segment: U.S. Simple Meals

Sales for U.S. Simple Meals were 627 million USD for the third quarter, an increase of eleven percent compared with the year-ago period. A breakdown of the change in sales follows:

U.S. Soup sales increased 14 percent compared to the year-ago quarter.

• Sales of «Campbell´s» condensed soups increased eleven percent, driven by double-digit volume gains in eating varieties. Sales of cooking varieties increased slightly.
• Sales of ready-to-serve soups increased 18 percent, primarily driven by significant volume gains in «Campbell´s Chunky» canned soups and the benefit of new items, including «Campbell´s Go» soups.
• Broth sales increased 18 percent, primarily driven by double-digit gains in aseptic broth.

Sales of U.S. Sauces increased three percent versus the prior-year quarter driven by gains in «Prego» pasta sauce and «Pace» Mexican sauce, partially offset by lower sales in «Campbell´s» canned pasta. Sales benefited from the introduction of «Campbell´s» Skillet Sauces.
U.S. Simple Meals operating earnings increased 30 percent to 156 million USD, compared with 120 million USD in the prior-year period. Operating earnings increased driven by higher volumes, increased selling prices and productivity improvements, partly offset by increased promotional spending. The increase in operating earnings was fuelled by strong earnings gains in U.S. Soup, partly offset by a decline in U.S. Sauces.

For the first nine months, sales for U.S. Simple Meals grew four percent to 2,356 billion USD. A breakdown of the change in sales follows:

U.S. Soup sales rose five percent with gains across all product segments. Sales of ready-to-serve soups increased nine percent, while sales of condensed soups increased two percent and sales of broth increased three percent.

U.S. Simple Meals operating earnings were 621 million USD in the nine months compared with 554 million USD in the year-ago period, an increase of twelve percent. Higher selling prices, productivity savings and lower marketing expenses were partly offset by cost inflation and increased promotional spending. The improvement in operating earnings was driven by solid gains in U.S. Soup, partly offset by a decline in U.S. Sauces.

Summary by Segment: Global Baking and Snacking

Sales for Global Baking and Snacking were 568 million USD for the third quarter, an increase of five percent from a year ago. The rise in sales reflected the following factors:

Further details of sales results included the following:

• Sales of «Pepperidge Farm» products increased, primarily driven by volume gains.
  • In cookies and crackers, sales increases were driven by strong gains in both «Goldfish» snack crackers and «Pepperidge Farm» cookies.
  • Sales of fresh bakery products increased double-digits versus the prior year, driven by volume gains.
• Sales at Arnott´s increased primarily driven by growth in Australia and gains in Indonesia, partially offset by the negative impact of currency. Sales growth in Australia was driven by increases in savoury crackers and sweet cookie varieties.

Operating earnings for the quarter were 73 million USD, comparable to the prior year. Operating earnings reflected the benefit of higher sales offset by increased marketing expenses and administrative costs.

For the first nine months, sales increased four percent to 1,703 billion USD. A breakdown of the change in sales follows:

Operating earnings in the first nine months were 232 million USD, comparable to the prior year, reflecting growth in Pepperidge Farm and the favourable impact of currency, offset by lower earnings in Arnott´s.

Summary by Segment: International Simple Meals and Beverages

Sales for International Simple Meals and Beverages were 357 million USD for the third quarter, an increase of two percent from a year ago. The sales gain reflected the following factors:

Excluding the impact of currency, higher sales in Europe, Latin America and the Asia Pacific region were partially offset by declines in Canada.

• In Europe, sales increased primarily driven by volume gains in Germany, France and Belgium, partially offset by lower export sales.
• In the Asia Pacific region, excluding the impact of currency, sales increased primarily driven by growth in Malaysia, Hong Kong and Japan, partially offset by sales declines in Australia.
• In Canada, sales decreased primarily due to declines in soup and beverages and the negative impact of currency, partially offset by sales gains in «Pepperidge Farm» crackers.

Operating earnings were 40 million USD compared with 37 million USD in the year-ago period. The increase in operating earnings was primarily due to higher earnings in Europe.

For the first nine months, sales were 1,116 billion USD, an increase of one percent. A breakdown of the change in sales follows:

Excluding the impact of currency, sales increased in the Asia Pacific region, Latin America and Europe.

Operating earnings were 141 million USD, rising two percent from 138 million USD in the prior year, reflecting earnings gains in the Asia Pacific region and Latin America, partially offset by declines in Europe and Canada.

Summary by Segment: U.S. Beverages

Sales for U.S. Beverages were 198 million USD for the third quarter, a decrease of five percent compared to the year-ago period. A breakdown of the change in sales follows:

Operating earnings for the quarter were 33 million USD compared with 45 million USD in the prior year. The decrease in operating earnings was primarily due to lower volume on 100 percent juice varieties, cost inflation and increased promotional spending, partly offset by productivity improvements.

For the first nine months, sales decreased four percent to 569 million USD. A breakdown of the change in sales follows:

Sales of «V8» vegetable juice and «V8 V-Fusion» beverages declined, while sales of «V8 Splash» beverages increased.

Operating earnings in the first nine months decreased to 100 million USD from 109 million USD due to volume declines on 100 percent juice varieties, cost inflation and increased promotional spending, partly offset by productivity improvements and lower marketing expenses.

Summary by Segment: Bolthouse and Foodservice

Sales for Bolthouse and Foodservice were 344 million USD for the third quarter, with the acquisition of Bolthouse Farms contributing 205 million USD. Sales in North America Foodservice declined ten percent compared with a year ago. A breakdown of the change in North America Foodservice sales follows:

North America Foodservice sales decreased primarily due to declines in frozen soup, reflecting the loss of a major restaurant customer.

Operating earnings increased by seven million USD to 27 million USD, reflecting the acquisition of Bolthouse Farms, which contributed 17 million USD, partially offset by lower earnings in North America Foodservice.

For the first nine months, sales were 1,019 billion USD, with the acquisition of Bolthouse Farms contributing 571 million USD. North America Foodservice sales declined nine percent to 448 million USD. A breakdown of the change in North America Foodservice sales follows:

Operating earnings for the first nine months were 91 million USD compared with 75 million USD in the year-ago period. The increase in operating earnings was primarily due to the acquisition of Bolthouse Farms, which contributed 46 million USD, offset by lower earnings in North America Foodservice.

Unallocated Corporate Expenses

Unallocated corporate expenses for the quarter were 56 million USD compared with 27 million USD a year ago. The current quarter included 20 million USD of restructuring-related costs. Unallocated corporate expenses for the first nine months were 196 million USD compared with 90 million USD in the prior year. The current year included 81 million USD of restructuring-related costs and ten million USD of transaction costs related to the Bolthouse Farms acquisition. The balance of the increase for the current quarter and first nine months is primarily due to higher incentive compensation costs.

Reporting Segments

U.S. Simple Meals aggregates the U.S. Soup and U.S. Sauces businesses. The U.S. Soup business includes the following products: «Campbell´s» condensed and ready-to-serve soups and «Swanson» broth and stocks. The U.S. Sauces business includes «Prego» pasta sauce, «Pace» Mexican sauce, «Swanson» canned poultry, «Campbell´s» canned pasta, gravies and beans.

Baking and Snacking aggregates the following: «Pepperidge Farm» cookies, crackers, breads and frozen products in U.S. retail; and «Arnott´s» biscuits in Australia and Asia Pacific.

International Simple Meals and Beverages aggregates the following: soup, sauce and beverage products outside of the United States, including Europe, Latin America, Asia Pacific, China and the retail business in Canada.

U.S. Beverages represents the following products: «V8» vegetable juices, «V8 V-Fusion» juices and juice beverages, «V8 Splash» juice beverages and «Campbell´s» tomato juice.

Bolthouse and Foodservice includes the Bolthouse Farms and North America Foodservice businesses. Bolthouse Farms consists of the following products: super-premium refrigerated beverages, refrigerated salad dressings and carrot products, including fresh carrots, juice concentrate and fiber. North America Foodservice represents the distribution of products such as soup, specialty entrees, beverage products, other prepared foods and «Pepperidge Farm» products through various food service channels in the United States and Canada.