Campbell Soup Company (CPB)

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Campbell Soup Company (CPB)

F2Q10 (Qtr End 01/31/10) Earnings Call Transcript

February 22, 2010 10:00 am ET

Executives

Jennifer Driscoll - VP, IR

Doug Conant - President and CEO

Craig Owens - SVP, CFO and Chief Administrative Officer

Anthony DiSilvestro - VP and Controller

Analysts

Alexia Howard – Sanford Bernstein

Eric Katzman – Deutsche Bank

Andrew Lazar – Barclays

Terry Bivens – J.P. Morgan

Ed Aaron – RBC Capital Markets

Chris Growe – Stifel Nicolaus

David Palmer – UBS

Vincent Andrews – Morgan Stanley

David Driscoll – Citi Investment

Eric Serotta – Consumer Edge Research

Bryan Spillane – Bank of America

Presentation

Operator

Good day, ladies and gentlemen. And welcome to Campbell Soup second quarter 2010 earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. (Operator Instructions) As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host today, Jennifer Driscoll, Vice President, Investor Relations. Please begin.

Jennifer Driscoll

Thank you, Shawn. Good morning, everyone. And welcome to the Campbell’s second quarter earnings webcast. With me here today are Doug Conant, President and CEO; Craig Owens, CFO and Chief Administrative Officer; and Anthony DiSilvestro, Vice President and Controller. Doug and Craig are the primary speakers for today's call, while all three leaders will actively participate in our Q&A session here with me.

Doug Conant will begin our call with his perspective on the quarter and the first half, including a discussion of our U.S. soup performance. Then Craig will provide comments on our financial results for the quarter and the first half, as well as, our outlook for the full fiscal year. Following their remarks, we'll take questions from investors and analysts.

Similar to last quarter, we have created slides to accompany our presentation. You’ll find those posted on our website this morning. As a matter of policy our conference calls are open to all interested investors. Members of the media are listening to the call as well.

As a reminder, our presentation today includes certain forward-looking statements that reflect the company's current expectations about future plans and performance. These forward-looking statements rely on a number of assumptions and estimates that could be inaccurate and which inherently are subject to risks and uncertainties.

Please refer to slide three in the presentation or to the company's most recent Form 10-K and subsequent SEC filings for a list of the factors that could cause our actual results to vary materially from those anticipated or expressed in any forward-looking statement.

Our presentation also includes certain non-GAAP measures, as defined by SEC rules. We've provided a reconciliation of those measures to the most directly comparable GAAP measures, as an appendix to the slides accompanying our presentation. These slides, including the appendix can be found on our website this morning.

And with that, I give you our CEO, Doug Conant.

Doug Conant

Good morning. Thanks, Jennifer. And thanks to all of you on the phone or the webcast for joining Campbell's second quarter conference call. I’d like to start with some broad observations about our performance in the second quarter and first half, and then I'll discuss our U.S. soup performance in more detail.

This morning, we reported that earnings per share increased 16% for the second quarter, a solid performance overall. The quarter included strong cost management, productivity gains and favorable currency. In particular, our Baking and Snacking, and International Soup, Sauces and Beverages segment improved our earnings performance.

In the first half, adjusted earnings per share were up 14%, despite a very difficult operating environment for the half, we've increased margins, boosted EBIT and improved cash flow. We did all of this while continuing to advance our strategic initiatives, such as our SAP implementation in Asia-Pacific, a variety of important health and wellness innovations, and the expansion of our efforts in emerging markets.

And while we're satisfied with our earnings performance clearly our focus remains on the volume and sales profile of our U.S. soup business, as we have lapped a strong prior year performance. This quarter, despite improved volume in condensed soup, we had an 8% decline in net sales of U.S. soup due to an 18% decline in ready-to-serve soup, primarily driven by our Chunky brand. I'll talk more about that in just a minute.

To win in this environment, particularly in the simple meal category, where we compete with soup, we need to bring to market very competitive price value propositions in each of our three key businesses, condensed, broth and ready-to-serve.

On the positive side, we delivered solid performances in condensed and broth with very competitive propositions, and we'll continue to support these brands in the second half. Next year, we're going to build on the success by aiming our innovations squarely at our condensed soup business.

As I mentioned last week, firing up our condensed soup business is a broad initiative, spanning improve product and expansion our health offerings, contemporary new labels, a change in marketing and enhanced shopping experience. This initiative is perfectly in step with the current consumer focus on value.

Meanwhile, our price value proposition in ready-to-serve soup this quarter was obviously less affected. We saw the impact of intense competitive activity in the broader simple meals category in a quarter when our own promotional spending in ready-to-serve was reduced versus the prior year. Our long-term confidence in ready-to-serve soup is as strong as ever.

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