Campbell Soup Company (CPB)

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Campbell Soup Company (CPB)

F1Q2011 Earnings Call

November 23, 2011 10:00 am ET

Executives

Jennifer Driscoll – VP, IR

Doug Conant – President and Chief Executive Officer

Craig Owens – Senior Vice President, Chief Financial Officer and Chief Administrative Officer

Analysts

Andrew Lazar - Barclays Capital

Vincent Andrews - Morgan Stanley

Eric Katzman - Deutsche Bank

Alexia Howard - Sanford Bernstein

David Palmer – UBS

Terry Bivens – JPMorgan

Chris Growe - Stifel Nicolaus

Diane Geissler - Credit Agricole Securities

Akshay Jagdale – KeyBanc

Robert Moskow - Credit Suisse

Robert Dickerson - Consumer Edge Research

Bryan Spillane - Bank of America Merrill Lynch

Edward Aaron - RBC Capital Markets

Eric Serotta - Wells Fargo

Judy Hong - Goldman Sachs

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Campbell Soup's First Quarter 2011 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 will now turn the conference over to your host, Jennifer Driscoll, Vice President – Investor Relations. Please begin.

Jennifer Driscoll

Thank you, Mary. Good morning, everyone. Welcome to the Campbell Soup Company's First Quarter Earnings webcast. With me here in New Jersey today are Doug Conant, the President and CEO of Campbell; Craig Owens, Senior Vice President, CFO and Chief Administrative Officer; and Anthony DiSilvestro, Senior Vice President of Finance.

Doug and Craig will provide their perspectives on our performance for the quarter as well as our expectations for the full fiscal year. Following their remarks, we'll take questions from analysts and investors.

As usual, we've created slides to accompany our presentation. You'll find the slides posted on our website this morning at investor.campbellsoupcompany.com. Please keep in mind that our call is open to members of the media who are participating in listen-only mode.

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, which could be inaccurate and which inherently are subject to risks and uncertainties. Please refer to slide three in the presentation or to our 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 statements.

Our presentation today includes certain non-GAAP measures as defined by SEC rules, so we've provided a reconciliation of these measures to the most directly comparable GAAP measures as an appendix to the slides that accompany our presentation. These slides, including the appendix, can be found on our website.

Now, I give you our President and CEO, Doug Conant.

Douglas R. Conant

Thank you, Jennifer, and good morning. Happy Thanksgiving. This morning we reported earnings per share of $0.82. This result was consistent with the estimate we gave on November 10 when we adjusted our annual guidance.

At our Analyst Day last summer and in our Annual Report we gave a consumer view of our entire portfolio. We divided it into healthy beverages, baked snacks, and simple meals. We further divided simple meals into meal makers and meals. Within that framework, we delivered a strong performance in healthy beverages this quarter. We also delivered solid results at Pepperidge Farm, which comprises over half of our baked snacks business. In addition, sales of condensed cooking soup, the largest component of meal makers, rose this quarter. Growth in these businesses supported a 1 point quarterly gain in volume mix, an important improvement compared with minus 4 points in last year's first quarter.

With that as background, today I'll give you some perspective on the performance of our largest simple meals business, U.S. Soup. Then I'll focus on the softness in the ready-to-serve soups and condensed eating soups, since they are the primary drivers behind the recent guidance change. I'll also highlight the actions we're taking to improve our soup performance over the balance of the year.

As we discussed earlier in our earlier release, in the first quarter to improve our soup volume performance we stepped up our promotional profile, launched an umbrella advertising campaign, and improved our in-store merchandising. We saw pockets of strength, most notably our condensed cooking soups and our Healthy Request soup varieties, both of which delivered sales and volume increases in the quarter. However, our promotions did not deliver the planned volume increases in our ready-to-serve soups or our condensed eating soups.

The backdrop for the limited market response to our promotional activity in these two soup segments during the quarter reflects the difficult consumer environment, which as you know is pressuring volumes of other industry players. It also suggests an extraordinary competitive activity within the category. This competitive activity affected both our ready-to-serve soups and our condensed eating soups, as competition very aggressively promoted ready-to-serve soups in many cases at prices on parity with our condensed varieties. As reported earlier, we chose not to match some of this promotional activity. In my view, it simply was and is not in the best long-term interest of the category.

As we look forward to the balance of the year, we expect the second quarter to be extremely competitive, potentially comparable to the first quarter. While this will put pressure on our earnings, again, next quarter we will maintain a strong promotional program to protect our leadership position with consumers and to honor our customer commitments.

As we move in to the second half of our fiscal year, in anticipation of commodity cost inflation and to improve profitability, we expect to adjust our promotional programs to improve price realization and to begin rebalancing our marketing mix towards advertising and brand building. In addition, we will step up our investment in innovation to drive category growth. We'll cover more on these fronts at CAGNY in February.

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