Campbell baking unit earnings, sales slow in quarter

by Eric Schroeder
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CAMDEN, N.J. — A slowdown in sales of Pepperidge Farm products weighed on operating earnings within the Global Baking and Snacking division of the Campbell Soup Co. in the third quarter of fiscal 2014. Earnings totaled $68 million in the quarter ended April 27, down 7% from $73 million in the same period a year ago.

Campbell said the decrease reflected higher promotional spending and cost inflation, partly offset by productivity improvements, higher selling prices and lower advertising expenses.

Sales fell 1% to $564 million from $568 million in the third quarter of fiscal 2013. Sales benefited from the acquisition of Kelsen Group, which contributed $17 million, or 3 percentage points, during the quarter. Price and sales allowances added 2 points, and volume and mix added 3 points. Promotional spending subtracted 5 points, and currency subtracted 4 points.

“Sales of Pepperidge Farm products decreased, driven by increased promotional spending partly offset by volume gains,” Campbell said. “In cookies and crackers, sales decreased due to declines in Pepperidge Farm cookies. Cracker sales were comparable to the prior year as gains in Goldfish snack crackers were offset by declines in adult cracker varieties.

“Sales of frozen products decreased, driven by volume declines. Sales of fresh bakery products increased, driven by volume gains in bread and rolls.

“Sales at Arnott’s decreased due to the negative impact of currency. Excluding the impact of currency, sales at Arnott’s rose as strong gains in Indonesia were partly offset by declines in Australia.”

For the nine months ended April 27, earnings in the segment totaled $234 million, up 1% from $232 million in the same period a year ago. Sales increased 6% to $1,812 million from $1,703 million.

Overall, Denise Morrison, president and chief executive officer, said Campbell delivered growth during the third quarter, but organic sales growth of 1% reflected mixed performance and fell short of the company’s expectations.

“Although I am encouraged by our 7% sales increase in U.S. Simple Meals, I am disappointed that our plans did not drive stronger sales results in U.S. Soup,” Ms. Morrison said. “We recognize that we were cycling a year-ago quarter when we delivered 14% growth in U.S. Soup. Despite an increase in the frequency of our promotional activity in the third quarter, we did not realize the anticipated lifts in a challenging consumer environment. Sales of U.S. Soup held steady versus the strong performance in the year-ago quarter. Within U.S. Soup, Swanson broth maintained strong momentum as consumers responded to our strong marketing and continued to cook more with broth.

“I am pleased with our double-digit sales gain in U.S. Sauces, including Prego, Pace and Campbell’s Skillet and Slow Cooker dinner sauces, with consumers using these products to prepare simple meals. I remain encouraged by the growing platform Bolthouse Farms provides us in the packaged fresh category with juices, salad dressings and carrots.

“We continue to address our challenges in U.S. Beverages and Australia. In both cases, our new leadership has plans to deliver better results.”

Net income in the third quarter at Campbell Soup was $184 million, equal to 58c per share on the common stock, up 2% from $181 million, or 57c per share, in the same period a year ago. Net sales for the third quarter were $1,970 million, up narrowly from $1,962 million.

For the first nine months of fiscal 2014, income increased 11% to $681 million, or $2.16 per share, from $616 million, or $1.94 per share. Net sales rose 1% to $6,416 million from $6,329 million.
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