Campbell Soup Company (CPB) reported mixed results for the fourth quarter fiscal 2014, wherein its bottom-line results met but the top-line lagged the Zacks Consensus Estimate. The company’s adjusted earnings from continuing operations for the fourth quarter increased approximately 14% year over year to 49 cents per share and came in-line with the Zacks Consensus Estimate.
On a reported basis, earnings from continuing operations came in at 43 cents per share for the quarter, rising over 16% from the year-ago quarter. Notably, net earnings attributable to the company (including both continued and discontinued operations) came in 43 cents per share as against a loss of 50 cents in year-ago comparable quarter.
Net sales increased 7% to $1,852 million in the quarter compared with $1,723 million in the prior-year quarter. However, quarterly revenues fell short of the Zacks Consensus Estimate of $1,868 million. Organic sales witnessed a year-over-year decline of 2%.
During the quarter, acquisitions and an additional week in the fiscal calendar contributed 3% and 7%, respectively, to total sales growth, partly offset by the negative impact of 1% from currency fluctuations and 2% from increase in promotional spending.
Adjusted gross margin of 34.3% declined 240 basis points (bps) from the prior-year quarter level of 36.7%, mainly due to inflation, increased promotional expenditure and higher supply chain costs, partly offset by productivity enhancement measures.
In the reported quarter, marketing and selling expenses decreased 1% year over year to $189 million primarily due to lower advertising, selling and consumer promotion expenses, partly offset by acquisition impact.
Adjusted earnings before interest and tax (EBIT) Increased 25% year over year to $259 million, mainly due to reduced administrative expenses and positive impact from an additional week, partly offset by reduced gross margin.
Segment Analysis
U.S. Simple Meals: Fourth-quarter sales at this division increased 5% year over year to $518 million. This was mainly due to a 1% increase in price and sales allowances, 3% growth from the positive impact of Plum Organics acquisition, and 7% growth contributed by an additional week, partially offset by 1% increase in promotional spending and a 5% decline in volume and mix.
Sales of ready-to-serve soup declined 8%, while Campbell’s condensed soup witnessed a marginal growth of 1%. Broth sales decreased 8%. Sales of other simple meals increased 19% from the year-ago quarter. Also, excluding the impact of Plum Organics acquisition and an additional week, sales of other simple meals grew 2%, mainly due to increased sales of the Prego pasta sauce and Campbell’s dinner sauces.
During the quarter, operating income rose 4% year over year to $114 million, primarily driven by lower administrative and marketing expenses as well as an additional week, these were partially offset by weak sales performance at U.S. Soup and reduced gross margin.
U.S. Beverages: Sales at this division grew 6% year over year to $184 million due to an increase of 1% in price and sales allowances, a positive impact of 1% from lower promotional spending and a benefit of 7% from an additional week, which were partially offset by a 3% negative impact from unfavorable volume and mix.
The segment’s operating income in the quarter jumped over twofold to $43 million from the year-ago level of $20 million primarily driven by reduction in administrative, marketing and selling expenses as well as benefit from an additional week in the quarter.
Global Baking and Snacking: This segment’s sales increased 10% to $628 million. The benefit of 6% from acquisition of the Kelsen Group, 3% rise in volume and 7% from an additional week, were partially offset by a negative impact of 1% from unfavorable currency exchange rates and 5% from higher promotional spending.
The segment’s operating income increased 17% year over year to $98 million, primarily due to lower advertising expenses and benefits from an additional week, which were partly offset by reduced gross margin.
International Simple Meals and Beverages: Sales of this segment inched up 1% to $188 million, as the benefit of 8% from an additional week and 1% rise in price and allowances were partially offset by a negative impact of 3% from currency translation, 1% from higher promotional expenses, and 4% from accounting related costs in Mexico. The segment witnessed sales decline in Latin America, Asia Pacific and Canada.
The segment’s operating income for the quarter jumped 50% year over year to $21 million mainly driven higher gross margin and benefit from an additional week.
Bolthouse and Foodservice: This segment comprises Bolthouse Farms and the North America Foodservice businesses. This division's quarterly sales were $334 million, up 11% from the comparable year-ago quarter, driven by favorable product and volume mix of 5% and 8%, respectively, and positive impact from an additional week, partially offset by a 1% negative impact from currency translation and 1% from increased promotional spending.
Further, driven by lower administrative expenses and benefit from additional week, the company’s operating income for the quarter increased 16% year over year to $29 million.
Fiscal 2014 – A Synopsis
Campbell’s total sales for the fiscal came in at $8,268 million, up 3% from the fiscal 2013 figure of $8,052 million. However, it fell short of the Zacks Consensus Estimate of $8,283 million. Although, adjusted earnings of $2.53 per share from continuing operation were in-line with the Zacks Consensus Estimate and 2% higher than the previous fiscal earnings of $2.48.
FY15 Outlook Initiated
After concluding fiscal 2014, the company has initiated its fiscal 2015 guidance. Campbell expects that the sales for fiscal 2015 to grow in the range of 1%–2%. Further, adjusted earnings before income taxes are anticipated to grow in the band of flat to 2%.
Adjusted earnings for the fiscal is expected to grow in the range of flat to 2% or $2.45–2.50 per share. Currently, the Zacks Consensus Estimate is pegged at $2.60 per share.
Other Stocks to Consider
Currently, Campbell Soup carries a Zacks Rank #3 (Hold). Some other better-ranked stocks in the same industry include The Hain Celestial Group, Inc. (HAIN), Pinnacle Foods Inc. (PF) and ConAgra Foods, Inc. (CAG), all carrying a Zacks Rank #2 (Buy).
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