Highlights From CPB's Q4 Conference Call: EPS Increased 10%; Sees FY11 Sales Up 2-3%

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September 3, 2010 3:30 PM EDT

This morning, Campbell Soup (NYSE: CPB) reported Q4 EPS of $0.33, 3 cents better than the analyst estimate of $0.30. Revenue for the quarter was $1.52 billion, which compares to the estimate of $1.60 billion. Shares are currently down $1.18 (-3.16%) at $36.14.

Highlights From CPB's Q4 Conference Call:

(President and CEO, Doug Conant) Our net earnings per share increased 10% for Q4 to 33 cents - Including a favorable tax rate in the impact of our share repurchase program.
Our healthy beverages business posted significant sales growth in Q4.
Our quarter's results brought us to an increase in net earnings per share for the fiscal year of 12%.
In a challenging environment, we delivered strong earnings growth overcoming softer than expected sales to finish slightly above the high end of our earnings range. And well above our long-term target.
I'm also pleased with our cash flow performance including more than $1 billion in cash flow from operations this year. Despite an extraordinarily high contribution to our pension fund.
We delivered those results while continuing to invest for long-term growth including spending on our IT infrastructure, wellness and nutrition innovation, and our work in the emerging markets.
We recognize that growing the top line is the key challenge for us and for the food industry as a whole. In order to deliver quality earnings growth in a sustainable way. As we enter our fiscal year 2011 I am confident that we have the programs and plans in place to address this challenge.
Our healthy beverages and snacks brand will be supported by stepped up marketing. We'll be leveraging advertising campaigns that have shown positive results.
We will also improve the competitiveness of our ready-to-serve soups through more consistent promotional activity commencing this fall.
Based on the year we just concluded and our plans for next year, we provided an earning guidance for fiscal 2011 today. Specifically, we expect net sales growth of 2% to 3%, EBIT growth of 4% to 5% and EPS growth of 5% to 7%.
In the near term, we will draw growth the same way successful food companies always have -- through focused product quality, innovation, strong marketing and competitive pricing.
Over the long term, we will leverage all of the assets that are at our disposal including our Elite brands in our core category, regional scale, world-class product technologies, financial strengths and organization excellence.
(Craig Owens) For the quarter, we reported net sales of $1,518,000,000 down 1% versus the quarter of 2009.
EBIT of $187 million for the quarter is down 6% versus a year ago.
To improve the price competitiveness primarily in North America, we increased our trade spending levels across several of our key businesses. Reflecting this increased promotional spending organic net sales decreased by 2%.
In Q4, our gross margin percentage decreased from 40.6%, a decrease of 20 basis points.
Higher advertising expenses this quarter increased our marketing and selling expenses by 6% from $209 million in 2009 to $221 million in 2010. Administrative expenses declined $17 million due to lower incentive compensation costs.
The tax rate declined significantly in Q4 by 9.1 points to 29.8%. The decrease in rate is primarily due to reduced taxes from a lower level of foreign dividends compared to a year ago.
In the U.S. soups, sauces and beverages segment sales decreased 1% primarily due to a decline in U.S. soup.
Beverage sales increased 12% driven by significant growth in the V8 vegetable juice and V8 Splash juice drinks. Operating earnings decreased to $139 million this quarter, from $148 million in the year ago quarter.
U.S. soup sales for the quarter decreased 5% with sales of both condensed and ready-to-serve soups declining 7% due to volume decline and increased promotional spending, broth sales increased 9%.
In baking and snacking organic sales were unchanged for the quarter as gains in the Indonesian biscuit business were offset by decline in Pepperidge Farm.
Sales in Arnott's were compare to believe a year ago as it was offset by increased promotional spending. The favorable impact of currency drove a 6% improvement in operating earnings.
Organic seams for the international soup, sauces and beverages segment declined 4%, primarily due to declines in Europe and Canada partly offset by gains in the Asia Pacific region.
Reflecting continued weakness in the food service sector organic sales decreased 9% in the North American segments. Earnings increased $3 million compared to the prior year, primarily reflecting our cost reduction -- reduction efforts.
Turning now to the full year fiscal results, reported net sales increased 1% with organic net sales down 2%, primarily due to declines in the U.S. soup, sauce and beverage segment.
EBIT of $1,360,000,000 is up 7% versus a year ago, primarily due to improved gross margin and favorable currency.
Administrative expenses increased by 2% from $591 million in 2009 to $605 million.
For the full year. In the U.S. soup, sauces and beverages segment sales decreased 2% reflecting a decline in U.S. soup partly offset by gains in beverages.
For the full year U.S. soup sales increased 4%. Beverage sales increased 4%. Sales of ready-to-serve soup declined 9%, Broth sales increased 3%
Campbell's dollar share web soup was 63.6% reflect a modest 40 basis point decline driven by ready-to-serve soup. We gained dollar share in the condensed soup in both condensed soup and broth, and we realized growth in total volume share for the company for the fiscal year.
All other branded players have a -- had a collective share of 24%.
Looking ahead we expect capital expenditures in 2011 to be approximately $311 million for the fiscal year.
In fiscal 2010 we repurchased 14 million shares at a total cost of $472 million under our strategic share repurchase program authorized in June 2008 and buying back shares sufficient to offset those issued under incentive compensation plans.
Net debt ended the year at $2,526,000,000, a decrease of $47 million.
We anticipate a continuation of the challenging economic environment with high unemployment, low consumer performance and value-focused consumer shopping behavior. We expect growth in net sales of 2% to 3% primarily volume driven for the full fiscal year 2011.
We expect growth and adjusted EBIT that at 4% to 5% which reflects an increase of 40% or $70 million in the U.S. pension expense and forecasted inflation in cost of sales of 2% to 3%.
Our projected 2011 growth rates in sales and EBIT are 1% below our long-term targets. We expect adjusted earnings per share growth of 5% to 7% consistent with our long-term growth target.
(Q&A) Obviously it's a tough environment and, Doug, you have -- you've kind of noted -- you have told us that, and the data indicates it and thank you also for providing the market share data and the category trends. I think that's helpful. But I guess what I wanted to understand was the -- Craig, you went into a little bit with the marketing spending, how that was kind of down for the year and you were forced to kind of shift from advertising to promotion. But as the year progressed, did you just feel that, you know, the portfolio -- particularly in soup -- wasn't I guess positioned with the consumer and that that's why you really didn't aggressively try to push advertising and get the consumer to really, you know, stay interested in the category? I mean, maybe you could just talk a little bit about, you know, the dynamics of that decision versus the consumer as the year progressed and kind of how that affects your view into 2011. (A) Eric, let me try that on. Basically, what we learned in the first half of the year -- relearned, we have known it before -- that there are two moments of truth. The first moment of truth is when they're in store making purchasing decisions and the second moment of truth is when they actually prepare and consume the product. What we have learned in first half was that we needed to be sufficiently competitive and hit the right price points and manage price gaps smartly, relative to other competitors in soup and more broadly in simple meals. And so over the course of the year, we focused on making sure we were competitive in that first moment of truth. Statement, we did maintain over the year advertising and actually improved our GRP's versus the target. So we felt we had the right balance. It was a tough year. Quite frankly, we -- we never were able to fully overcome the second quarter's short fall. Came back with a solid third quarter and as we got into the fourth quarter, we found our customers really wanted to focus their inventory build into the late -- late in the summer in order to minimize their working capital before we started our advertising and promotion which really kicks off in a big way, actually on September 6. So that's how we managed the year. I'm very bullish about our ability to perform in this coming year. -- to we understand the pricing environment, and we're competing at this level, not trying to adjust in midseason. We are very well aligned with the customers now, the customers are more prepared to deal with the environment we're operating in. So I'm very bullish about our ability to perform and starting in the first quarter.