HNZ H.J. Heinz Company

High-quality foods and simple meals manufacturer, Campbell Soup Company (CPB) reported robust third-quarter 2013 financial results. Quarterly adjusted earnings per share increased approximately 11% year over year to 62 cents and surpassed the Zacks Consensus Estimate of 56 cents.

Net sales increased 15% to $2,094 million from $1,821 million in the prior-year quarter. Moreover, it came ahead the Zacks Consensus Estimate of $2,040 million. During the quarter, Bolthouse Farms contributed 11%, volume and mix added 5%, and price and sales allowances contributed 1% to overall sales growth. However, these were partially offset by the negative impact of the 2% increase in promotional spending.

Adjusted gross margin of 36.7% declined 210 basis points from the prior-year quarter level of 38.8%, mainly due to the acquisition of Bolthouse Farms, which has a low gross margin structure. However, in dollar terms, adjusted gross profit rose 9% year over year to $768 million.

In the reported quarter, marketing and selling expenses inched up 2% to $262 million. This was primarily due to higher innovation related costs, escalated selling expenses and expenses related to Bolthouse Farms, which were counterbalanced by reduced advertising and promotional expenses.

Adjusted operating income rose 9% to $293 million compared with $268 million in the prior-year quarter, attributed to improved sales and gross profit, partly offset by elevated selling expenses and administrative costs. However, adjusted operating margin contracted 70 basis points to 14.0% from 14.7% reported in the previous-year period.

Segment Analysis

U.S. Simple Meals: Third-quarter sales at this division increased 11% year over year to $627 million. This was mainly due to an 11% rise in volume and mix, and a 2% improvement in price and sales allowances. However, this was partially offset by the negative impact of a 2% rise in promotional spending. Sales of U.S. Soup grew 14% as sales of ready-to-serve soups grew 18% and condensed soups increased 11%, while sales of broth surged 18%. Sales of U.S. Sauces increased 3% compared with the year-ago quarter.

During the quarter, operating income grew 30% to $156 million compared with $120 million in the year-ago quarter, primarily driven increased volumes, productivity improvements and higher selling prices, partially offset by higher promotional spending.

U.S. Beverages: Sales at this division dipped 5% year over year to $198 million due to a decline in volume and mix, increased promotional spending, and lower price and sales allowances. Sales declines in “V8” vegetable juice led to the fall.

The segment’s operating income in the quarter declined 26.7% to $33 million primarily due to lower volume, increased cost and higher promotional spending, partially offset by productivity improvements.

Global Baking and Snacking: This segment’s sales increased 5% to $568 million. The results primarily gained from a 5% rise in volume and mix, and 1% increase in price and sales allowances, offset by the 1% negative impact of unfavorable currency exchange rates.

Segment operating income remained flat year over year at $73 million, as benefits from increased sales were fully offset by higher marketing and administrative costs.

International Simple Meals and Beverages: Sales of this segment inched up 2% to $357 million, primarily due to a 4% increase in volume and mix, and 1% rise in price and sales volumes. However, it was partially offset by the negative impact of 2% from promotional spending and 1% from currency translation. Region wise, higher sales in Latin America, Europe and Asia-Pacific were partially offset by a decline in Canada.

The segment’s operating income of $40 million was up 8.1% from $37 million in the year-ago period led by the strong performance in Europe.

Bolthouse and Foodservice: This segment comprises Bolthouse Farms business, which was acquired on Aug 6, 2012, and the North America Foodservice business. This division's quarterly sales were $344 million.

During the quarter, Bolthouse contributed $205 million to segment sales, while sales at North America Foodservices declined 10%. The decline in North American Foodservice was due to lower frozen soup sales due to the loss of a major restaurant customer.

Operating income rose by $7 million to $27 million mainly due to the acquisition of Bolthouse Farms, offset by lower earnings in North America Foodservice.

FY13 Outlook

Bolstered by better-than-expected quarterly results, Campbell has raised its fiscal 2013 adjusted earnings per share guidance range to $2.58–$2.62 from $2.51–$2.57 expected earlier. Further, the company anticipates that its sales for fiscal 2013 will reach the higher-end of the previously forecasted range of 10%–12%. Moreover, adjusted EBIT for fiscal 2013 will likely be at the higher-end of the company’s earlier guidance range of 4%–6%.

Further, in fiscal 2013, Campbell expects Bolthouse Farms to contribute approximately $750 million to sales and add about 6 cents per share to adjusted earnings.

Currently, Campbell Soup retains Zacks Rank #2 (Buy). Other stocks performing well in the food space include Annie’s, Inc. (BNNY), H.J. Heinz Co. (HNZ) and J&J Snack Foods Corp. (JJSF), all of which hold a Zacks Rank #2 (Buy).

 
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