Cost inflation, promotional spending bog down baking unit at Campbell

by Eric Schroeder
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CAMDEN, N.J. — Operating earnings within the Global Baking and Snacking division of the Campbell Soup Co. totaled $78 million in the first quarter ended Oct. 27, down 8% from $85 million in the same period a year ago.

Campbell said the decrease reflected cost inflation and increased promotional spending, partly offset by higher selling prices. The decline also was attributed to lower earnings in Arnott’s and the unfavorable impact of currency, partly offset by gains in Pepperidge Farm.

Sales rose 6% to $609 million, which compared with $574 million in the first quarter of fiscal 2013. Sales benefited from the acquisition of Kelsen Group, which contributed $52 million during the quarter, or 9 percentage points. Price and sales allowances added 2 points, while promotional spending subtracted 2 points and currency subtracted 3 points.

“Sales of Pepperidge Farm products increased, driven by higher selling prices and volume gains, partially offset by increased promotional spending,” Campbell said. “In cookies and crackers, sales increases were driven by solid gains in Goldfish snack crackers, partly offset by declines in adult varieties. Sales of cookies were comparable to the prior year.

“Sales of fresh bakery products increased versus the prior year driven by volume gains in bread and rolls, partly offset by a decline in stuffing.

“Sales at Arnott’s decreased primarily due to the negative impact of currency and sales declines in Australia, partially offset by strong gains in Indonesia.”

Overall, Denise Morrison, president and chief executive officer, said she was “disappointed” with Campbell’s first-quarter performance, but remained optimistic in the company’s ability to improve over the remaining three quarters of fiscal 2014.

“Looking ahead, we have plans to drive meaningful growth across the business,” Ms. Morrison said. “We have a robust marketing program in the second and third quarters at the height of the soup season. We are accelerating innovation by moving up the launch of eight new soups. We expect strong performance from both Pepperidge Farm and Bolthouse Farms as we launch a stream of new products throughout the remainder of the year. Additionally, we will continue to take steps to increase productivity and reduce costs and reinvest these cost savings to drive growth. It will be a tougher road than we originally anticipated, but we believe the actions we are taking will strengthen our performance. We continue to believe that we are taking the right strategic steps to reshape Campbell and change our future growth trajectory.”

 Net income in the first quarter at Campbell Soup was $172 million, equal to 54c per share on the common stock, down 30% from $245 million, or 78c per share, in the same period a year ago. Net sales for the first quarter were $2,165 million, down from $2,205 million.

The sluggish first-quarter results led Campbell to lower its fiscal 2014 guidance for continuing operations to a range of $2.53 to $2.58 per share, down from $2.58 to $2.62.
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