Campbell Soup Co. posted a bigger-than-expected quarterly profit on Tuesday, after retailers stocked up on the company’s iconic red and white soup cans ahead of a price increase.
In addition, Campbell, which also makes Prego pasta sauce, V8 juice and Pepperidge Farm cookies, gave a profit forecast for the new fiscal year that was better than Wall Street expected.
Still, the company’s shares were only up slightly in noon trade, as gross margins fell under pressure from higher commodity costs and investors questioned how much Campbell needs to spend to promote products.
“We think that bulls on the name are focused mostly on the top line, which we understand, but the gross margin should not be overlooked,” said JP Morgan analyst Ken Goldman. “We believe Campbell remains a challenged company, one for which [earnings] growth is expected to be very low versus the group average.”
Mr. Goldman has an “underweight” rating on the stock.
After several winters when soup sales suffered from heavy discounting and a lack of innovation, Campbell and its new CEO are trying to improve performance with a range of new products, including Thai green curry skillet sauce and Swanson Flavor Boost concentrated broths.
CEO Denise Morrison, who has held the top job for just over a year, said retailers were responding favourably to the new products, but that it was still too early to say how consumers were reacting.
At an investor meeting in July, Campbell executives said the turnaround they are trying to implement was taking longer than expected because of a difficult market.
Their plan entails stabilizing and expanding Campbell’s North American soup and simple meals business, increasing the company’s international presence and expanding the drink and snack units.
Last month Campbell bought Bolthouse Farms, which sells baby carrots and juices. The company said on Tuesday that it had the financial flexibility to make another acquisition, but opportunities were few and far between.
PRICE INCREASES SPUR DEMAND
Net income was $127-million (U.S.), or 40 cents per share, in Campbell’s fiscal fourth quarter that ended on July 31, up from $100-million, or 31 cents per share, a year earlier.
Excluding costs from the acquisition, earnings were 41 cents per share, topping the analysts’ average estimate of 38 cents.
Sales were flat at $1.61-billion.
U.S. soup sales rose 9 per cent, fuelled by a 14-per-cent jump for condensed varieties. Company executives said retailers took on more inventory ahead of a 5-per cent price increase, and that sales in the current quarter could therefore be affected.
Ready-to-serve soup rose 1 per cent, while broth sales increased 4 per cent.
The company’s gross margin declined to 38.5 per cent from 39.8 per cent a year earlier, due to higher commodity costs and increased promotional spending, which was only partially offset by productivity improvements and higher prices.
Gross margin for fiscal 2013 is also expected to be down slightly, hurt by an expected 4-per-cent increase in the cost of goods.
Campbell forecast fiscal 2013 earnings of $2.51 to $2.57 per share, excluding special items. Analysts were expecting $2.52.
The outlook includes a boost of 5 cents to 7 cents per share from Bolthouse Farms, which is also expected to contribute about $750-million in 2013 sales.
Campbell forecast overall sales growth at 10 per cent to 12 per cent this year.
The company’s shares were up 17 cents, or 0.5 per cent, at $35.31 on the New York Stock Exchange in midday trade.