Campbell: reports FY 2015 second quarter results

Camden / NJ. (csc) Campbell Soup Company reported its results for the second quarter of fiscal 2015. President and Chief Executive Officer Denise Morrison said: «Our second-quarter organic sales were comparable to the year-ago period. Adjusted Ebit declined by double digits, reflecting disappointing gross margin performance in the quarter, and was below our expectations. Looking at the first half, we were encouraged by our two percent organic sales growth in a difficult operating environment. For the half, four of our five reporting segments achieved organic sales growth».

«Although we have robust plans in the second half to mitigate our gross margin issues, we do not expect to offset the impact of the margin pressures that we experienced in the first half. Given our second-quarter performance and outlook for the remainder of the year, we lowered our full-year guidance on February 12».

«Over the last three years, we have made solid progress advancing our dual mandate to strengthen the core business and at the same time expand into faster growing spaces; however, it has not been enough in this more challenged environment. After several months of careful study, we have announced a significant reorganization of our company creating three new divisions, each with clear portfolio roles. This new enterprise structure will enable us to allocate more resources to the areas that present the greatest growth opportunities and fund our growth with significant cost savings. We expect to generate annual cost savings of at least 200 million USD over a three-year period using a zero-based budgeting approach. We do not anticipate significant savings from these efforts in the current fiscal year, but are confident that the important steps we are taking will unlock potential value over time».

Second-Quarter Results from Continuing Operations

Sales decreased two percent to 2.234 billion USD, due to the negative impact of currency translation. Organic sales were comparable to the prior year with favorable volume and mix and higher selling prices, offset by increased promotional spending.

Gross margin declined 3.1 percentage points to 32.6 percent. The decrease in gross margin was due to cost inflation, higher supply chain costs and higher promotional spending, partly offset by productivity improvements.

Marketing and selling expenses decreased ten percent to 242 million USD, primarily driven by lower advertising and consumer promotion expenses. Administrative expenses decreased one percent to 140 million USD.

Adjusted Ebit decreased 17 percent to 312 million USD, reflecting a lower gross margin percentage and the unfavorable impact of currency translation, partly offset by lower marketing expenses.

Net interest expense decreased four million USD to 25 million USD, reflecting lower levels of debt. The tax rate decreased 3.4 percentage points to 27.9 percent. Excluding items impacting comparability in the prior year, the adjusted tax rate decreased 3.1 percentage points. The decrease was primarily due to the favorable resolution of an inter-company pricing agreement between the U.S. and Canada.

First-Half Results from Continuing Operations

Sales increased one percent to 4.489 billion USD, due to volume gains, partly offset by increased promotional spending and the negative impact of currency translation. Organic sales increased two percent with gains in four of the company´s five reportable segments.

Adjusted Ebit decreased four percent to 680 million USD, reflecting a lower gross margin percentage and the unfavorable impact of currency translation, partly offset by volume gains and lower marketing and administrative expenses.

Net interest expense decreased nine million USD to 50 million USD, reflecting lower levels of debt. The tax rate decreased 2.8 percentage points to 30 percent. Excluding items impacting comparability in the prior year, the adjusted tax rate decreased 1.6 percentage points.

Fiscal 2015 Guidance for Continuing Operations

As previously announced, including an estimated two-point negative impact from currency translation, Campbell expects a year-over-year change of minus one to plus one percent in sales; minus seven to minus five percent in adjusted Ebit; and minus five to minus three percent in adjusted EPS, or 2.32 USD to 2.38 USD per share. This guidance is based on an adjusted 52-week 2014 base.

«This guidance assumes that pressure from input cost inflation and supply chain costs, although moderating, will continue through the back half of fiscal 2015 along with the currency headwinds», said Anthony DiSilvestro, Senior Vice President and Chief Financial Officer.

Operating Review: U.S. Simple Meals

Sales decreased three percent in the quarter to 867 million USD. Following a strong first quarter, U.S. soup sales decreased six percent, primarily due to movements in retailer inventory levels, including the earlier holiday shipments that benefited the prior quarter. Sales decreased eleven percent in Campbell´s condensed soups and four percent in broth, while sales of ready-to-serve soups were comparable to the prior year. U.S. soup sales in the first half were comparable to the prior year. Sales of other simple meals rose six percent in the quarter, driven by growth in Plum, Prego pasta sauces and Campbell´s dinner sauces. Segment operating earnings decreased 21 percent in the quarter to 170 million USD. Lower operating earnings reflected cost inflation and higher supply chain costs, as well as sales declines, partly offset by productivity improvements and lower marketing expenses. For the first half, operating earnings decreased three percent.

Operating Review: Global Baking and Snacking

Sales of 640 million USD in the quarter were comparable to the prior year. Sales of Pepperidge Farm products increased as volume gains were partly offset by higher promotional spending. Within Pepperidge Farm, sales gains in crackers, fresh bakery products and cookies were partly offset by sales declines in frozen products and stuffing. Arnott´s sales increased as volume gains in Indonesia and Australia, along with higher selling prices, were partly offset by the negative impact of currency translation and higher promotional spending. Kelsen sales decreased primarily due to the timing of the quarter in relation to the Chinese New Year. Segment operating earnings increased 22 percent to 107 million USD. Higher operating earnings reflected organic sales growth, lower marketing expenses and productivity improvements, partly offset by cost inflation and the negative impact of currency translation.

Operating Review: International Simple Meals and Beverages

Sales declined nine percent in the quarter to 194 million USD. Excluding the seven-point negative impact of currency translation, sales declined in Latin America and the Asia Pacific region while sales in Canada were comparable to the prior year. Segment operating earnings decreased 32 percent to 26 million USD, primarily due to cost inflation, the adverse impact of currency movements on input costs and the negative impact of currency translation.

Operating Review: U.S. Beverages

Sales decreased four percent in the quarter to 169 million USD. Declines in V8 V-Fusion beverages were partly offset by gains in V8 Splash beverages. Segment operating earnings decreased 35 percent to 20 million USD, primarily due to increased promotional spending, cost inflation and higher supply chain costs.

Operating Review: Bolthouse and Foodservice

Sales increased one percent in the quarter to 364 million USD, reflecting growth in Bolthouse Farms premium refrigerated beverages and salad dressings and North America Foodservice, partly offset by declines in Bolthouse Farms carrots. Segment operating earnings declined 28 percent to 26 million USD, reflecting a lower gross margin percentage, including the adverse weather impact on carrot costs, and higher administrative expenses.