The decline had been expected, but the company lowered its expectations for the second time in the past three months for the full 2011 fiscal year, saying that it expects net sales to be essentially flat, and earnings per share to decline between 1 and 3 percent, as its increased promotional spending failed to boost profits. Previously the company had said it expected full year earnings per share to be up by 2 to 4 percent, between $2.52 and $2.57. The revised guidance is for a per-share profit of between $2.40 and $2.45.
For the quarter ended January 30, the company reported profits of $239m, compared to $259m for the prior-year period. Sales for the quarter were $2.13bn, down 1 percent from $2.15bn for the same quarter last year.
The company’s president and CEO Douglas Conant said: "The overall competitive environment remains challenging throughout the food industry, particularly in the US. In US Soup, as planned in the second quarter, we maintained strong levels of advertising and promotional support to defend our consumer base. As a result of this support, externally measured consumer takeaway volume at retail in US Soup grew during the quarter. However, our high levels of promotional spending in the quarter did not deliver planned sales lifts and negatively impacted margins.”
The company sold a higher volume of soup during the quarter, but its added promotional spending countered the gain.
“As we stated at the end of the first quarter, in the second half we will more heavily leverage advertising and brand building initiatives while reducing our reliance on trade promotions. We expect that improved price realization will lead to better profitability and strengthen our financial position in anticipation of higher cost inflation going forward,” Conant said.