Campbell Soup Company (CPB – Analyst Report) has made an encouraging start to fiscal 2015, with better-than-expected first-quarter results. The company’s adjusted earnings from continuing operations for the quarter increased approximately 12% year over year to 74 cents per share and came a penny ahead of the Zacks Consensus Estimate.

On a reported basis, too, the company’s earnings of 74 cents per share represents an increase of 30% from 57 cents earned a year ago.

Net sales increased 4% to $2,255 million in the quarter from $2,165 million in the prior-year quarter. Quarterly revenues also surpassed the Zacks Consensus Estimate of $2,222 million. Organic sales grew 5% year over year. During the quarter, volume and mix contributed 6% to total sales growth, partly offset by the negative impact of 1% each from currency fluctuations and higher promotional spending.

Adjusted gross margin of 34.7% declined 130 basis points (bps) from the prior-year quarter level of 36%, mainly due to cost inflation, increased promotional expenditure and higher supply chain costs, partly offset by productivity enhancements, favorable mix and benefits of lapping last year’s Plum recall.

In the reported quarter, marketing and selling expenses decreased 5% year over year to $247 million thanks to lower advertising and consumer promotion expenses. Administrative expenses fell 9% to $135 million on the back of lower long-term incentive compensation costs and cost savings related to prior-year restructuring initiatives.

Adjusted earnings before interest and tax (EBIT) increased 9% year over year to $368 million mainly attributable to the benefit of the absence of last year’s Plum recall and reduced administrative and marketing expenses, partly offset by reduced gross margin.

Segment Analysis

U.S. Simple Meals: First-quarter sales at this division increased 8% year over year to $928 million. This was mainly attributable to an increase in volume and mix. Sales for U.S. soup and Campbell’s condensed soups rose 6% each, broth sales soared 17%, ready-to-serve soup stayed flat and other simple meals grew 14%. Growth in other simple meals can be traced to increased sales of Plum, Prego pasta sauces and Campbell’s dinner sauces

Operating income rose 15% year over year to $242 million, primarily driven by volume growth, enhanced productivity and lower administrative and marketing expenses, partially offset by cost inflation and increased supply chain costs.

U.S. Beverages: Sales at this division dipped 3% year over year to $168 million due to a 2% negative impact from both unfavorable volume and mix and increased promotional spending, offset by a 1% increase in price and sales allowances. Sales gains in V8 Splash beverages were more than offset by a decline in V8 V-Fusion beverages and V8 vegetable juice.

The segment’s operating income in the quarter jumped 8% to $26 million from the year-ago period primarily driven by lower marketing expenses, offset by gross margin contraction and volume declines.

Global Baking and Snacking: This segment’s sales increased 3% to $627 million. The benefit of a 6% rise in volume and mix due to increased Arnott’s sales in Australia and Indonesia were offset by a negative impact of 1% from unfavorable currency exchange rates and 3% from higher promotional spending.

The segment’s operating income increased 15% year over year to $90 million, primarily due to volume gains, improved productivity and absence of purchase accounting adjustment related to last year’s Kelsen acquisition, offset by increased promotional expenses.

International Simple Meals and Beverages: Sales of this segment fell 2% to $189 million, as the benefit of a 6% rise in volume and mix were partially offset by a negative impact of 5% from currency translation, 1% from higher promotional expenses and 2% from accounting related costs. The segment witnessed sales decline in Latin America that fully offset the sales gain in the Asia Pacific and Canada.

The segment’s operating income fell 20% year over year to $16 million mainly due to higher marketing and administrative expenses and negative currency effects, marginally offset by volume increases.

Bolthouse and Foodservice: This segment comprises Bolthouse Farms and the North America Foodservice businesses. This division’s quarterly sales were $343 million, up 4% from the comparable year-ago quarter, driven by favorable volume and mix of 4%. Volume gains reflected double-digit growth in Bolthouse Farms’ premium refrigerated beverages and salad dressings. Sales in North America Foodservice remained flat with the prior-year quarter.

Further, the company’s operating income for the quarter declined 24% year over year to $22 million due to gross margin contraction that was partly offset by lower administrative expenses and volume gains along with lesser advertising expenses for the Bolthouse Farms brand.

FY15 Outlook

Despite concluding first-quarter fiscal 2015 strongly, the company reduced the low-end of its fiscal 2015 sales, adjusted EBIT and adjusted earnings per share guidance mainly to reflect the negative impact from currency translation. However, the company retained its organic growth guidance.

Campbell now expects fiscal 2015 sales growth to range between flat and up 2% instead of the previous forecast of 1%–2% growth. Further, adjusted EBIT is projected in the range of -1% to 2% growth compared with growth of flat to 2% guided earlier.

Adjusted earnings for the fiscal are expected in the range of -1% to 2% growth compared with the previous forecast of flat to up 2%. This implies earnings per share in the range of $2.42–$2.50 compared with $2.45–$2.50 guided earlier. Currently, the Zacks Consensus Estimate is pegged at $2.47 per share.

Other Stocks to Consider

Currently, Campbell Soup carries a Zacks Rank #4 (Sell). Some better-ranked stocks in the same industry include The Hain Celestial Group, Inc. (HAIN – Analyst Report), Medifast Inc. (MED – Snapshot Report) and ConAgra Foods, Inc. (CAG – Analyst Report), all of which carry a Zacks Rank #2 (Buy).

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