Camden, NJ, February 17, 2006-Campbell Soup Company (NYSE: CPB) today reported net earnings increased to $254 million in the second quarter ended January 29, 2006 from $235 million in the prior year. Diluted earnings per share for the quarter were $.61, compared with $.57 in the year-ago period.
Beginning in fiscal year 2006, the company adopted a new accounting standard (SFAS 123R) that requires all stock-based compensation to be expensed. Had all stock-based compensation been expensed in the year-ago quarter, net earnings would have been $227 million and diluted earnings per share would have been $.55. After factoring in this item, earnings per share for the second quarter increased 11 percent. For the second quarter, net sales rose 3 percent to $2,281 million, reflecting the following factors:
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Volume and mix added 1 percent
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Price and sales allowances added 4 percent
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Currency subtracted 2 percent
The tax rate for the second quarter of fiscal year 2006 was 29.4 percent versus 31.7 percent in the prior-year quarter. The lower rate for the quarter was the result of the resolution of the 1996-1999 federal income tax audit.
Net sales were $4,391 million for the first half of fiscal year 2006, an increase of 2 percent compared with the year-ago period, reflecting the following factors:
For the first half of fiscal year 2006, the company reported net earnings of $556 million versus $465 million a year earlier and earnings per share of $1.34 versus $1.13 in the year-ago period.
The comparability of net earnings and earnings per share for the first six months was impacted by the following items:
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During the first quarter, the company recorded a non-cash tax benefit resulting from the favorable resolution of a U.S. tax contingency related to transactions involving government securities in a prior period. The aggregate non-cash impact of the settlement on net earnings was $60 million, or $.14 per share.
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During the first quarter, the company finalized its plan to repatriate earnings from non-U.S. subsidiaries under the provisions of the American Jobs Creation Act, and as a result, recorded incremental tax expense of $8 million, or $.02 per share.
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During the first quarter, the company changed the method of accounting for certain U.S. inventories from the LIFO method to the average cost method. The impact of the change for the first six months of fiscal year 2006 was reflected as a $13 million pre-tax gain. The impact on net earnings was $8 million, or $.02 per share.
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For the first six months of the prior year, earnings would have been $14 million or $.03 per share lower, had all stock-based compensation been expensed.
After factoring in these items for the first six months, adjusted net earnings would be $496 million compared to $451 million in the prior year, and adjusted earnings per share would be $1.20 compared to $1.09 in the prior year, an increase of 10 percent.
Cash flow from operations for the first half of fiscal year 2006 was $649 million versus $500 million in the year-ago period, an increase of 30 percent. In addition, the company repurchased 4.2 million shares at a cost of $127 million in the first half of fiscal year 2006 to offset the impact of dilution from shares issued under stock compensation plans and as part of the strategic repurchase plan announced in November 2005.
Douglas R. Conant, Campbell's President and Chief Executive Officer, said, "Our solid performance this quarter was consistent with our expectations. Our top-line growth was driven by strong increases across our U.S. soup business. Both our condensed portfolio and broth delivered good growth, while our ready-to-serve soups showed significant improvement following a weak first quarter.
"For the first six months, we are pleased with our earnings performance. We continued to improve our profit margins through pricing and productivity, which more than offset cost inflation, and enabled us to drive strong earnings growth in a challenging environment."
Conant continued, "From a strategic perspective, we continue to focus on long-term growth initiatives, including premium soups. One example is 'Campbell's Select Gold Label' soup in aseptic packaging, which we introduced in the U.S. this year and is off to a promising start. From an international perspective, we are not satisfied with our business performance – especially in Europe, most notably the U.K., where we face an increasingly challenging competitive environment."
Excluding the items previously noted that impact comparability, the company confirmed its fiscal 2006 guidance for earnings per share to increase between 5 and 7 percent from the adjusted fiscal year 2005 base of $1.64, which reflects the impact of expensing all stock-based compensation.
Summary of Fiscal 2006 Second Quarter Results By Segment
U.S. Soup, Sauces and Beverages
Sales for U.S. Soup, Sauces and Beverages were $1,018 million, a 6 percent increase compared with a year ago. Operating earnings increased to $242 million from $216 million in the year-ago quarter. Prior year earnings would have been $1 million lower had all stock-based compensation been expensed. Earnings increased due to higher prices and improved productivity, partially offset by cost inflation.
A breakdown of the change in sales follows:
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Volume and mix subtracted 1 percent
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Price and sales allowances added 6 percent
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Decreased promotional spending added 1 percent
U.S. soup sales for the quarter increased 7 percent, with condensed soup sales up 6 percent, ready-to-serve soup sales up 9 percent, and broth sales up 6 percent. For the first six months of fiscal year 2006, U.S. soup sales were up 1 percent, with condensed sales up 4 percent, ready-to-serve sales down 5 percent, and broth sales up 8 percent.
Further details of sales results for the quarter include the following:
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"Campbell's" condensed eating soups achieved solid sales growth in the quarter due to pricing, effective advertising, and continued growth of kid's varieties. "Campbell's" condensed cooking soup sales grew from pricing, strong sales performance throughout the important holiday season, and increased advertising. The condensed soup business continued to benefit from an increase in gravity-feed shelving systems, which are now installed in 14,700 stores compared to 11,000 at this time last year.
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Sales of ready-to-serve soups increased strongly in the second quarter, primarily due to pricing. "Campbell's Select" soup sales increased, driven by the introduction of restaurant-style "Campbell's Select Gold Label" soups. "Campbell's Chunky" soups also showed sales growth, benefiting from advertising and promotion linked to the NFL. Sales of ready-to-serve soups were adversely impacted by the discontinuation of "Campbell's Kitchen Classics" soups.
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The convenience soup platform achieved double digit growth with "Campbell's Chunky" and "Campbell's Select" soups in microwaveable bowls and "Campbell's Soup at Hand" sippable soups all performing well. The introduction of "Campbell's" Chicken Noodle, Tomato, and Vegetable soups in microwaveable bowls also added to sales growth.
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"Swanson" broth sales grew, driven by consumer preference for aseptically-packaged broth and strong holiday merchandising activity.
Highlights of this segment's other businesses include:
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"V8" vegetable juice recorded a double-digit sales increase as the brand benefited from increased distribution in non-grocery channels and the growth of single-serve varieties. A new beverage, "V8 V-Fusion," a 100 percent juice beverage that provides a full serving of vegetables plus a full serving of fruit, was launched during the quarter and received strong trade acceptance.
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"Prego" pasta sauce sales increased due to pricing and improved marketing effectiveness.
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"Pace" Mexican sauce sales also increased.
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"Campbell's Chunky" chili sales declined due to difficult comparisons against the introductory marketing activity a year ago, although "Campbell's Chunky" chili in microwaveable bowls performed well.
For the first half of fiscal 2006, sales increased 2 percent to $1,988 million. Operating earnings increased to $530 million from $491 million in the year-ago period. Earnings in the prior-year period would have been $2 million lower had all stock-based compensation been expensed. Earnings for the first half of this year included an $8 million benefit from a change in the method of accounting for inventory. Earnings increased due to higher prices and productivity gains, partially offset by inflation and lower volume.
Baking and Snacking
Sales for Baking and Snacking were $429 million, a 1 percent decrease compared with a year ago. Operating earnings declined to $40 million from $47 million in the year-ago quarter. Prior-year earnings would have been $2 million lower had all stock-based compensation been expensed. Earnings were impacted by declines in the biscuit business in Indonesia due to a more challenging economic environment, as well as declines in the Snackfoods business in Australia due to a significant increase in competitive activity.
A breakdown of the change in sales follows:
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Volume and mix subtracted 1 percent
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Price and sales allowances added 2 percent
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Increased promotional spending subtracted 1 percent
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Currency subtracted 1 percent
Further details of sales results include the following:
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Pepperidge Farm bakery sales grew in the quarter driven by whole grain breads, muffins, and bagels, as well as strong demand for stuffing during the holidays.
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Sales of Pepperidge Farm cookies and crackers increased in the quarter. Sales gains by "Pepperidge Farm Goldfish" snack crackers were partially offset by declines in "Milano" and Mini cookies. "Pepperidge Farm Whims," a line of poppable snacks introduced at the beginning of the fiscal year, has not performed up to expectations.
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Pepperidge Farm frozen bakery sales increased slightly, driven by pastries, garlic toast, and the introduction of new artisan breads.
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Arnott's sales declined, primarily due to currency and weak private label sales, which more than offset sales gains in the branded biscuit business.
For the first half of fiscal 2006, sales increased 1 percent to $887 million.
Operating earnings declined to $90 million from $93 million in the year-ago period. Earnings in the year-ago period would have been $4 million lower had all stock-based compensation been expensed. Earnings for the first half of this year included a $5 million benefit from a change in the method of accounting for inventory. Earnings were impacted primarily due to declines in the biscuit business in Indonesia.
International Soup and Sauces
Sales for International Soup and Sauces were $483 million, a 4 percent decline compared with the second quarter of fiscal 2005. Operating earnings increased to $81 million from $70 million in the year-ago quarter. Prior year earnings would have been $1 million lower had all stock-based compensation been expensed. Earnings increased primarily due to the strong market performance in Canada and lower marketing spending in Europe, partially offset by currency.
A breakdown of the change in sales follows:
Further details of sales results include the following:
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Sales in Europe decreased, primarily due to currency. Higher volumes of aseptically packaged soup and instant dry soups in France and aseptically packaged soup in Belgium were offset by weakness in the U.K. business.
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In Canada, sales grew double digits, driven by strong performances in ready-to-serve soup, including "Campbell's Soup at Hand," which was introduced this fiscal year, and by the favorable impact of currency.
For the first half of fiscal 2006, sales decreased 2 percent to $903 million. Operating earnings increased to $136 million from $125 million in the year-ago period. Earnings in the year-ago period would have been $2 million lower had all stock-based compensation been expensed. Earnings increased primarily due to the strong market performance in Canada and lower marketing spending in Europe, partially offset by the unfavorable impact of currency.
Other
The balance of the portfolio includes the Godiva Chocolatier business worldwide and the Away From Home business in the U.S. and Canada.
Sales increased 6 percent to $351 million compared with the same period a year ago. Operating earnings declined to $69 million from $72 million in the year-ago quarter. Prior-year earnings would have been $2 million lower had all stock-based compensation been expensed. The earnings decline was primarily due to higher expenses and the unfavorable impact of currency at Godiva, which offset gains in the Away From Home business.
A breakdown of the change in sales follows:
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Volume and mix added 5 percent
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Price and sales allowances added 2 percent
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Currency subtracted 1 percent
Further details include the following:
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Godiva Chocolatier sales rose as a result of strong retail and direct sales channel performance in North America.
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Away From Home sales grew significantly due to the continued growth of refrigerated soups sold in grocery deli departments and strong frozen soup sales to business and industry.
For the first half of fiscal 2006, sales increased 9 percent to $613 million. Operating earnings increased to $95 million from $94 million in the year-ago period. Earnings in the year-ago period would have been $3 million lower had all stock-based compensation been expensed. Earnings increased primarily due to sales growth in the Away From Home business, partially offset by increased expenses and the unfavorable impact of currency at Godiva.