Campbell profit eases 4% in quarter, sales rise 8%

by Eric Schroeder
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CAMDEN, N.J. — Net income in the first quarter ended Oct. 29 at Campbell Soup Co. eased to $291 million, equal to 74c per share on the common stock, down 4% from $302 million, or 74c per share, in the same quarter a year ago. The year-over-year decline primarily was attributed to a return to a more normal tax bill following a one-time break in the first quarter of fiscal 2006.

Earnings from discontinued operations in the quarter were $22 million, which compared with $16 million in the year-ago period.

Net sales for the quarter rose 8% to $2,153 million. Price and sales allowances added two percentage points to sales while volume and mix added four points and reduced promotional spending and currency each contributed one point.

"We achieved strong first-quarter results across our key strategic growth platforms of simple meals and baked snacks," said Douglas R. Conant, president and chief executive officer. "Within simple meals, our U.S. soup business delivered strong growth across all formats — condensed, ready-to-serve and broth. Given our strategic emphasis on wellness, we are encouraged by the introduction of our new lower sodium soups, featuring natural sea salt. Although this initiative is in its early stages, consumer trial has been solid and initial shipments have exceeded our expectations. We will have a better sense of the incremental impact of this effort as the year progresses.

"Within baked snacks, we achieved strong growth in our Pepperidge Farm bakery and cookies and crackers businesses, as well as solid gains in Arnott’s biscuit business in Australia. Additionally, our beverage business continued its strong growth trend, driven by the innovative V8 V-Fusion juice beverages and V8 vegetable juices."

Operating earnings for U.S. Soups, Sauces and Beverages were $322 million, an increase of 12% from $288 million in the same period last year. Sales were $1,052 million, up 8% from last year.

Sales of Campbell’s condensed soup rose 7% behind increased advertising and effective back-to-school merchandising. Ready-to-serve soup sales rose 15%, driven by the strong performance of Campbell’s Select and Campbell’s Chunky soups, which benefited from strong consumer trial of seven new Campbell’s Healthy Request lower sodium varieties.

Swanson broth sales grew 8%, driven by continued growth in aseptically-packaged broth.

V8 vegetable juice, and especially V8 V-Fusion, helped drive a double-digit gain in beverage sales. Prego pasta sauce sales declined during the quarter due to the timing of promotional activity, while Pace Mexican sauce again posted solid gains.

A double-digit sales gain at Pepperidge Farm helped spur a 36% improvement in earnings within the Baking and Snacking division of the Campbell Soup Co. Operating income in the first quarter was $68 million, up from $50 million in the same period last year. Results in the prior year included a $5 million gain from the change in the method of accounting for inventory.

Sales also were up, climbing 6% to $484 million, compared with $458 million in the same period last year.

Pepperidge Farm sales grew in the quarter driven by gains in each of its businesses — bakery, cookies and crackers, and frozen.

The company said its bakery business was boosted by continued growth of fresh bread, driven in large part by the popularity of whole grain varieties.

"In the cookies and crackers business, double-digit sales gains were driven by significant growth of Goldfish crackers, due to effective promotional activity and new 100-calorie packs," the company said. "Expanded distribution of single-serve products in convenience and drugstore channels, along with gains in Milano cookies, also contributed to growth."

In its Arnott’s business, sales fell slightly as solid gains in the biscuit business were offset by declines in the snack foods business and the unfavorable impact of currency.

Mr. Conant confirmed Campbell’s fiscal 2007 guidance for earnings per share from continuing operations to increase between 5% and 7% from the adjusted pro forma fiscal year 2006 base of $1.73.

During the quarter, Campbell completed its previously announced program to use $620 million of the proceeds from the sale of its U.K. and Ireland businesses to repurchase shares. In total, the company purchased 19.9 million shares for $751 million during the first quarter.

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