Chart displaying Campbell's first quarter results
The Campbell Soup Co.'s first quarter results by segment, in millions

CAMDEN, N.J. — An improvement in adjusted profit margins has prompted Campbell Soup Co. to raise earnings guidance for fiscal 2016, even as the company’s reported earnings in the first quarter slumped. Adjusted sales were flat.

Net income at Campbell Soup in the first quarter was $194 million, equal to 63c per share on the common stock, down 22% from $248 million, or 79c per share, in the first quarter of fiscal 2015. Net sales were $2,203 million, down 2.3% from the first quarter last year.

A new accounting method for the company’s defined benefit pension and postretirement plans, in which gains and losses are being marked to market, lopped 26c per share from the company’s first-quarter earnings.

Earnings before interest and taxes, as reported, were $315 million in the first quarter, versus $389 million in the same period last year.  Adjusted for the pension accounting (costing $128 million) and restructuring charges ($36 million), EBIT was $479 million in the first quarter, up 23%. Similarly, gross margins fell to 34.3% from 35.3%, but actually widened by 2.6 percentage points, adjusted for the special items.

“The increase in adjusted gross margin was driven by productivity improvements, higher selling prices, improved supply chain performance and lower promotional spending, partly offset by cost inflation,” the company said.

Campbell Soup Co. products, V8 Fusion, Goldfish crackers, Camobell's chicken noodle soup
Campbell reported that some of its products sold well during the quarter, like Golfish and condensed soup, while products like V8 V-Fusion struggled.

While quarterly sales were down more than 2%, organic sales were comparable to a year ago, excluding the effects of currency fluctuations. Higher selling prices and reduced promotional spending during the quarter were offset by volume declines.

“We’re encouraged by our first-quarter performance,” the company said. “While organic sales for the quarter were comparable to a solid prior year, we recognize that we have more work ahead to improve our growth trajectory. I am particularly pleased that we delivered a third consecutive quarter of adjusted gross margin expansion with improved execution in our supply chain. We drove strong adjusted EBIT and e.p.s. performance across the company. Given an improved margin outlook for the year, we raised guidance for adjusted EBIT and e.p.s., while we lowered sales guidance to reflect increased currency headwinds.

“We began fiscal 2016 after successfully implementing a number of changes to align our enterprise structure with our strategy. Most significant among those changes were the formation of three new divisions with clear portfolio roles and the roll-out of a major cost savings initiative that included streamlining our organization, the launch of an Integrated Global Services organization and initiating zero-based budgeting. In addition, we have revised our reporting segments to reflect our new structure. We have made clear and meaningful progress and commence the new fiscal year better positioned to execute against our strategic imperatives.”

In its revised guidance, Campbell Soup is projecting full-year sales to be unchanged to down 1% (versus previous guidance of unchanged to up 1%); adjusted EBIT and e.p.s. to grow by 4% to 7% (previously, up 3% to 5%). Included in the guidance are the impact of currency translation (estimated at a negative 3 percentage points) as well as the impact of the Garden Fresh Gourmet acquisition in June.

During the quarter, soup sales were down with ready-to-serve soups and broth slipping and condensed soup enjoying gains. Beverage sales lost ground, mostly because of sales of V8 V-Fusion, partly offset by gains in V8 Splash. Simple meals sales increased.

In Global Biscuits and Snacks, Goldfish crackers, fresh bakery and frozen products enjoyed sales gains while cookies slipped.

In Campbell Fresh, sales were down when Garden Fresh Gourmet is excluded, pressured by declines in carrot ingredients, fresh carrots and refrigerated soup.