Campbell Soup Co posted a higher-than-expected quarterly profit as U.S. soup sales rose for the first time in three quarters, but the gain was fueled by increased promotions the company expects to continue.
Despite beating earnings expectations, shares of the world's largest soup maker edged lower on Monday as the company also left intact a full-year forecast that indicated the fourth quarter might disappoint some analysts.
For the full year, Campbell said it expected sales to increase 2.5 to 3.5 percent, with adjusted earnings per share growth at the high end of its 9 to 11 percent forecast.
The current fourth quarter will likely include higher sales and some expenses related to a relaunch of Campbell's condensed soups, the company said. The fourth quarter is typically the least important as people eat less soup in warmer weather.
U.S. soup sales rose 2 percent in Campbell's third quarter, ended on May 2, after falling in the first and second quarters. The company said it stepped up spending on promotions, offering retailers special lower prices and increasing the frequency of those promotions.
In the weakened economy Campbell has been battling growth from lower-priced private-label soup competitors and companies that make other simple meals like frozen foods.
Our main take-aways are that volume results this quarter are encouraging but that we still have work to do, said Campbell Chief Executive Doug Conant.
Moving forward, Conant said the company plans to compete vigorously with other branded and private label soup makers, and at a level that the competition would find challenging.
In the 52 weeks through April 18, Campbell said it had a 63.4 percent share of the U.S. soup market.
Private label's share grew to 12 percent, with sales by that segment up 6.7 percent while Campbell's fell 3.6 percent.
PROMOTIONS DRIVE SALES GAIN
Third-quarter 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 I/B/E/S.
Sales rose 6.9 percent to $1.80 billion, in line with the analysts' average estimate, as results benefited from a 5 percentage-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 percentage points. Increased spending on promotions subtracted 3 percentage points.
Even as the economic downturn has led consumers to eat more meals at home, Campbell saw U.S. 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 U.S. soup segment rose as a 5 percent volume gain offset the increased promotions.
Sales of Campbell's condensed soups fell 1 percent as the promotions more than offset volume gains. Sales of ready-to-serve soups rose 4 percent, 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 percent.
Sales in Campbell's beverage segment rose 13 percent, 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.
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.
Yet if commodity costs increase over the next few quarters, the company might have to pull back on its promotional spending, she said.
Consumers have grown accustomed to buying on promotion, Swanson said. If promotional spending is ratcheted back, how do volumes respond?
Campbell shares were down 10 cents, or 0.3 percent, at $35.38 on the New York Stock Exchange around midday.
(Additional reporting by Brad Dorfman in Chicago; Editing by Lisa Von Ahn and Matthew Lewis)