New York: Campbell Soup Co posted a higher-than-expected quarterly profit as a promotional spending push led to increased sales in its key US soup market after two straight quarters of declines.
The world’s largest soup maker also said on Monday that it expected full-year earnings to come in at the high end of its previous forecast, keeping a cautious view in the face of uncertain consumer spending and global markets.
Campbell shares slipped nearly 1% in morning trading.
“It was a decent quarter, but they’re still facing a challenging environment,” said Morningstar analyst Erin Swanson, citing soft consumer spending and potential headwinds later this year from foreign exchange rates and higher commodity costs.
In Campbell’s third quarter ended on 2 May, profit dipped to $168 million, or 49 cents a share, from $174 million, or 49 cents a share, a year earlier.
Excluding one-time items, earnings were 54 cents a share, topping the analysts´ average estimate of 51 cents, according to Thomson Reuters.
Sales rose 6.9% to $1.80 billion, in line with the analysts’ average estimate, as results benefited from a 5% point lift from currency exchange rates.
The company, which also makes V8 juices and Pepperidge Farm cookies, said higher sales volume and a greater proportion of higher-priced items had boosted sales by 4% points. Increased spending on promotions subtracted 3% points.
Soup Sales Bubble Up
Even as the economic downturn has led consumers to eat more meals at home, Campbell saw US soup sales fall in its first and second quarters as shoppers sought out other “simple meals” like frozen foods.
But in the latest quarter, sales in the key US soup segment rose 2% as a volume gain of 5% offset the increased promotions.
Sales of Campbell’s condensed soups fell 1% as the promotions more than offset volume gains. Sales of ready-to-serve soups rose 4%, an improvement from the first half of the fiscal year, on strong volume gains for Chunky and Select Harvest canned products. Broth sales increased 9%.
Sales in Campbell’s beverage segment rose 13%, driven by increases of its V8 V-Fusion juices and Prego pasta sauces.
Improved sales of broth and pasta sauce are signs that consumers are still cooking at home as they try to save money in a sluggish economy.
Campbell spent less on advertising in the latest quarter, reallocating some of its spending to promotions.
Yet if commodity costs increase over the next few quarters, the company might have to pull back on that promotional spending, said Morningstar’s Swanson.
“Consumers have grown accustomed to buying on promotion,” Swanson said. “If promotional spending is ratcheted back, how do volumes respond?”
For the full year, Campbell said it expected sales to increase 2.5% to 3.5%, with adjusted earnings per share growth at the high end of its 9% to 11% forecast.
Campbell shares were down 25 cents, or 0.7%, at $35.23 on the New York Stock Exchange.