Campbell: Reports Second-Quarter Results

Camden / NJ. (csc) Campbell Soup Company reported its second-quarter results for fiscal 2016. Sales Decreased 1 Percent, Organic Sales Comparable to Prior Year. Adjusted Earnings Before Interest and Taxes (Ebit) Increased 26 Percent. Adjusted Earnings Per Share (EPS) of 0.87 USD Increased 23 Percent. As Reported Ebit Increased 23 Percent, As Reported EPS of 0.85 USD Increased 20 Percent.

	Three Months Ended			Six Months Ended
(USD in millions, except per share)	January 31, 2016	February 01, 2015	Change	January 31, 2016	February 01, 2015	Change
Net Sales
As Reported (GAAP)	2’201 mio. USD	2’234 mio. USD	(1) %	4’404 mio. USD	4’489 mio. USD	(2) %
Organic			– %			– %
Earnings Before Interest and Taxes
As Reported (GAAP)	414 mio. USD	337 mio. USD	23 %	729 mio. USD	726 mio. USD	– %
Adjusted	423 mio. USD	337 mio. USD	26 %	902 mio. USD	726 mio. USD	24 %
Diluted Earnings Per Share
As Reported (GAAP)	0.85 mio. USD	0.71 mio. USD	20 %	1.47 mio. USD	1.50 mio. USD	(2) %
Adjusted	0.87 mio. USD	0.71 mio. USD	23 %	1.82 mio. USD	1.50 mio. USD	21 %

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CEO Comments

Denise Morrison, Campbell’s President and Chief Executive Officer, said, «We’re pleased with our results this quarter, especially our strong profit performance across all three segments. The highlight of the quarter was our continued gross margin expansion, which reflects improvements in productivity, net price realization and improved supply chain execution. Our three-year cost savings program is also performing better than anticipated, and we have raised our 2018 target to 300 million USD».

«Organic sales for the quarter were comparable to prior year, a bit below our expectation. While our Global Biscuits and Snacks division stands out for delivering both organic sales growth and strong profit growth in the quarter, we’re making investments in all the divisions toward our objective of accelerating sales growth over time».

«Over the last 12 months, we’ve implemented significant changes to the company, including aligning our enterprise structure with our strategy, creating clear portfolio roles for our divisions and undertaking our major cost savings initiative. I feel very good about the progress we’ve made, however, we are aware that we have more work to do. We’re now better positioned to execute our strategies and to invest in the areas of our business that hold the greatest potential».

Second-Quarter Results

Sales decreased 1 percent to 2.201 billion USD driven by lower volume and the adverse impact of currency translation, partly offset by higher selling prices, the benefit from the acquisition of Garden Fresh Gourmet and lower promotional spending. Organic sales were comparable to the prior year with gains in Global Biscuits and Snacks offset by declines in Americas Simple Meals and Beverages.

Gross margin increased from 33.3 percent to 37.2 percent. Excluding items impacting comparability in the current year, adjusted gross margin improved 4 percentage points. The increase in adjusted gross margin was primarily driven by productivity improvements, higher selling prices, lower promotional spending and improved supply chain performance.

Marketing and selling expenses decreased 7 percent to 223 million USD. Excluding items impacting comparability in the current year, adjusted marketing and selling expenses decreased 5 percent to 226 million USD primarily due to the benefits from cost savings initiatives, partly offset by higher advertising and consumer promotion expenses. Administrative expenses increased 8 percent to 146 million USD. Excluding items impacting comparability in the current year, adjusted administrative expenses increased 6 percent to 143 million USD primarily due to higher incentive compensation costs compared to the prior year, partly offset by the benefits from cost savings initiatives.

Ebit increased 23 percent to 414 million USD. Excluding items impacting comparability in the current year, adjusted Ebit increased 26 percent to 423 million USD reflecting a higher adjusted gross margin percentage and the benefits from cost savings initiatives, partly offset by higher incentive compensation costs, the adverse impact of currency translation and volume declines.

Net interest expense increased 2 million USD to 27 million USD reflecting higher average interest rates on the debt portfolio. The tax rate increased 2.7 percentage points to 31.5 percent. Excluding items impacting comparability in the current year, the adjusted tax rate increased 2.8 percentage points to 31.6 percent primarily due to lapping the favorable resolution of an intercompany pricing agreement between the U.S. and Canada in the prior year.

First-Half Results

Sales decreased 2 percent to 4.404 billion USD driven by the adverse impact of currency translation and lower volume, partly offset by higher selling prices, the benefit from the acquisition of Garden Fresh Gourmet and lower promotional spending. Organic sales were comparable to the prior year with gains in Global Biscuits and Snacks offset by declines in Americas Simple Meals and Beverages and Campbell Fresh.

Ebit of 729 million USD was comparable to the prior year. The first-half results were negatively impacted by mark-to-market losses associated with the interim remeasurement of certain U.S. pension plans as well as charges incurred related to cost savings initiatives. Excluding items impacting comparability in the current year, adjusted Ebit increased 24 percent to 902 million USD reflecting a higher adjusted gross margin percentage, the benefits from cost savings initiatives and lower advertising and consumer promotion expenses, partly offset by the adverse impact of currency translation, higher incentive compensation costs and volume declines.

Net interest expense increased 5 million USD to 55 million USD reflecting higher average interest rates on the debt portfolio. The tax rate increased 1.4 percentage points to 31.9 percent. Excluding items impacting comparability in the current year, the adjusted tax rate increased 2.4 percentage points to 32.9 percent.

Cash flow from operations increased to 727 million USD from 584 million USD a year ago, primarily due to higher cash earnings and lower working capital requirements.

Fiscal 2016 Guidance

As previously announced and shown in the table below, Campbell expects a year-over-year change of -1 to 0 percent in sales; +10 to +13 percent in adjusted Ebit; and +9 to +12 percent in adjusted EPS, or 2.88 USD to 2.96 USD per share. This guidance includes an estimated 2 percentage-point negative impact from currency translation, as well as the impact of the Garden Fresh Gourmet acquisition.

(USD in millions, except per share)	Fiscal 2015 Results	Estimated Currency Translation Impact	Garden Fresh Gourmet Acquisition	2016 Guidance
Net Sales	8’082 mio. USD	-2 pts	+1 pt	-1 to 0 %
Adjusted Ebit	1’316 mio. USD	-2 pts	+1 pt	+10 to +13 %
Adjusted EPS	2.65 mio. USD	-2 pts -0.06 mio. USD	?	+9 to +12 % 2.88 mio. USD to 2.96 mio. USD

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Segment Operating Review – An analysis of net sales and operating earnings by reportable segment follows:
Three Months Ended January 31, 2016 (USD in millions)
	Americas Simple Meals and Beverages	Global Biscuits and Snacks	Campbell Fresh	Total
Net Sales, as Reported	1’237 mio. USD	682 mio. USD	282 mio. USD	2’201 mio. USD
Volume and Mix	(4) %	– %	– %	(2) %
Price and Sales Allowances	2 %	1 %	– %	1 %
Promotional Spending	1 %	1 %	– %	1 %
Organic Net Sales	(1) %	2 %	– %	– %
Currency	(2) %	(5) %	– %	(2) %
Acquisitions	– %	– %	10 %	1 %
Percent Change versus Prior Year	(3) %	(3) %	10 %	(1) %
Segment Operating Earnings	290 mio. USD	141 mio. USD	21 mio. USD
Percent Change versus Prior Year	22 %	23 %	62 %
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Six Months Ended January 31, 2016
(USD in millions)	Americas Simple Meals and Beverages	Global Biscuits and Snacks	Campbell Fresh	Total
Net Sales, as Reported	2’539 mio. USD	1’334 mio. USD	531 mio. USD	4’404 mio. USD
Volume and Mix	(4) %	– %	(1) %	(2) %
Price and Sales Allowances	2 %	1 %	– %	1 %
Promotional Spending	1 %	1 %	– %	1 %
Organic Net Sales	(1) %	2 %	(1) %	– %
Currency	(2) %	(6) %	– %	(3) %
Acquisitions	– %	– %	10 %	1 %
Percent Change versus Prior Year	(3) %	(4) %	9 %	(2) %
Segment Operating Earnings	653 mio. USD	255 mio. USD	39 mio. USD
Percent Change versus Prior Year	20 %	20 %	77 %

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Americas Simple Meals and Beverages

Sales decreased 3 percent in the quarter to 1.237 billion USD. Excluding the negative impact of currency translation, segment sales decreased 1 percent. U.S. soup sales decreased 4 percent driven by declines in ready-to-serve soups, partly offset by gains in broth and condensed soup. Sales of U.S. beverages decreased primarily due to declines in V8 V-Fusion beverages. Sales of other U.S. simple meals increased driven by gains in Plum, Prego pasta sauces and Pace Mexican sauces. Excluding the negative impact of currency translation, sales in Canada decreased driven by declines in soup.

Segment operating earnings increased 22 percent to 290 million USD. The increase was primarily driven by a higher gross margin percentage, benefiting from increased net price realization, productivity improvements and improved supply chain performance compared to the prior-year quarter.

Global Biscuits and Snacks

Sales decreased 3 percent in the quarter to 682 million USD. Excluding the negative impact of currency translation, segment sales increased 2 percent. Sales of Pepperidge Farm products increased with gains in fresh bakery, frozen products and cookies. In Asia Pacific, excluding the negative impact of currency translation, Arnott’s sales gains in Australia from Tim Tam biscuits were partly offset by declines in Indonesia.

Segment operating earnings increased 23 percent to 141 million USD. The increase was primarily driven by a higher gross margin percentage, benefiting from increased net price realization and productivity improvements, partly offset by the negative impact of currency translation and higher marketing expense.

Campbell Fresh

Sales increased 10 percent in the quarter to 282 million USD. Excluding the impact from the acquisition of Garden Fresh Gourmet, segment sales were comparable to the prior year reflecting gains in Bolthouse Farms premium refrigerated beverages and salad dressings offset by declines in carrot ingredients.

Segment operating earnings increased 62 percent to 21 million USD, resulting in a 2 percentage-point increase in operating margin. The increase in operating earnings was primarily driven by a higher gross margin percentage, benefiting from improved supply chain performance, productivity improvements and the favorable mix impact from growth in higher-margin refrigerated beverages.

Unallocated Corporate Expenses

Unallocated corporate expenses for the quarter were 29 million USD compared to 28 million USD in the prior year. The current quarter included 7 million USD of pre-tax charges associated with Campbell’s initiatives to implement a new enterprise design, to reduce costs and to streamline its organizational structure. The current quarter also included a 7 million USD pre-tax gain related to a pension benefit mark-to-market adjustment.