Campbell increases profits despite falling sales
been helped by strong soup prices and a favorable tax settlement,
canceling out a decline in soup sales.
The company's quarterly earnings increased to $302 million, compared to $230 million the previous year. For the first quarter, sales rose just one percent to $2.1 billion.
"Our plan to drive quality growth is on track," said Douglas R. Conant, Campbell's president.
"This quarter, although our ready-to-serve soup sales were significantly weaker due to a change in our pricing and promotional activity from a year ago, we continued to improve our profit margin while laying the foundation for driving top-line growth for the balance of the year, consistent with our goal."
The company recorded a non-cash tax benefit of $47 million resulting from the favorable resolution of a US tax contingency related to transactions involving government securities in a prior period. In addition, the company reduced interest expense and accrued interest payable by $21 million and adjusted deferred tax expense by $8 million.
However, overall soup sales for the quarter actually declined by six percent. This decline was felt most strongly in the ready-to-serve soup segment, which recorded a 17 percent decline for the quarter versus a year ago when sales were up 18 percent.
Sales for US soup, sauces and beverages were $970 million, a two percent decrease compared with a year ago.
Price increases help to explain declining sales. Campbell Soup announced several increases at the start of the year on selected soups to help compensate for higher packaging and raw material costs. These increases represented an approximate 4.8 per cent weighted average price increase across Campbell's US Soup, Sauces and Beverages segment.
Sales for the firm's baking and snacking segment on the other hand were $458 million, a two percent increase compared with a year ago. Operating earnings were $50 million compared with $46 million in the prior-year period.
And international soup and sauce sales were $420 million, a one percent increase compared with the year-ago period, due to currency.
Campbell also announced that its board of directors has authorized the purchase of up to $600 million of company stock on the open market or through privately negotiated transactions through the end of fiscal 2008."The $600 million share repurchase program leverages our strong cash flow generation and reflects the confidence we have in our long-term growth prospects," said Conant.
The company said that it plans to continue to purchase shares, under separate authorization, as part of its practice of buying back shares sufficient to offset shares issued under incentive compensation plans. The company also finalized its plan to repatriate earnings from non-US subsidiaries under the provisions of the American Jobs Creation Act, and as a result, recorded incremental tax expense of $8 million, associated with one-time incremental dividends of $225 million.
This incremental dividend is in addition to $200 million that was provided for in fiscal year 2005, raising the total dividends to be repatriated under the American Jobs Creation Act to $425 million.
Campbell Soup Company is a global manufacturer and marketer of high quality soup, sauce, beverage, biscuit, confectionery and prepared food products with nearly $7 billion in annual sales and a portfolio of more than 20 market-leading brands.
