Campbell Soup (CPB)
Q2 2011 Earnings Call
February 18, 2011 10:00 am ET
B. Owens - Chief Administrative Officer, Chief Financial Officer and Senior Vice President
Jennifer Driscoll - Vice President of Investor Relations
Douglas Conant - Chief Executive Officer, President, Director and Member of Finance & Corporate Development Committee
Denise Morrison - Chief Operating Officer, Executive Vice President and Director
Judy Hong - Goldman Sachs Group Inc.
Andrew Lazar - Barclays Capital
Alexia Howard - Bernstein Research
Christopher Growe - Stifel, Nicolaus & Co., Inc.
Terry Bivens - JP Morgan Chase & Co
Priya Ohri-Gupta - Lehman
Eric Serotta - Wells Fargo Securities, LLC
Eric Katzman - Deutsche Bank AG
Robert Moskow - Crédit Suisse AG
Bryan Spillane - BofA Merrill Lynch
Edward Aaron - RBC Capital Markets, LLC
Adam Josephson - KeyBanc
David Palmer - UBS Investment Bank
David Driscoll - Citigroup Inc
Previous Statements by CPB
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Thank you, Mary. Good morning, everyone. Welcome to Campbell Soup Company's second quarter earnings webcast. With me here in New Jersey today are Doug Conant, our President and CEO; Denise Morrison, our Chief Operating Officer; Craig Owens, Senior Vice President, CFO and Chief Administrative Officer; and Anthony DiSilvestro, Senior Vice President of Finance.
Doug and Craig today will provide the perspective on the performance for the quarter as well as our expectations for the full fiscal year of 2011. Following their remarks, all of us will 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 this call is open to members of the media who are participating in listen-only mode.
As a reminder, our presentation today, Slide 3, include 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. Please refer to that slide 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 in any forward-looking statements.
I'd like to remind you as well that our presentation contains certain non-GAAP measures as defined by SEC rules. In an appendix to our slides, we've provided a reconciliation of those measures to the most directly comparable GAAP measures. The slides as well our earnings release and selected quarterly financial data can be found on our website.
Last, we'd like to remind you that we're hosting a presentation and luncheon featuring Campbell products at the Consumer Analyst Group of New York event next week. Our presentation begins promptly at 10:30, Eastern Standard Time, on Wednesday, February 23. We hope you will join us either via webcast or better yet live in Boca Raton.
And with that, I give you our President and CEO, Doug Conant.
Good morning. This morning we reported earnings per share of $0.71, a 4% decline. For the first half, we delivered earnings per share of $1.53, a 5% decline. Sales declined 1% for the quarter and the first half. Our results for the first half, combined with a more muted outlook for the balance of the year, gave rise to the change in annual guidance that we provided in this morning's news release.
Today, I'll be focusing my remarks on our largest segment, U.S. Soup, Sauces and Beverages. That having been said, as Craig will highlight later, I would point out that year-to-date, our other three segments all reported operating income growth. In the second quarter, similar to the first, we continued to protect our U.S. Soup consumer base by maintaining a strong advertising and promotional profile in the face of a very challenging environment. As a result, in measured retail channels, wet soup consumer takeaway volume growth rose meaningfully, outpacing the average gains in other Simple Meals during the period. However, also similar to the first quarter, our increased promotions in the second quarter were costly as we strive to maintain our competitive profile and honored our customer commitments. This promotional spending pressured our gross margin rate, again similar to the first quarter, and negatively impacted our EBIT performance.
Before I turn to the second half outlook, let me comment briefly on our Sauces brands, Prego Pasta Sauce and Pace Mexican sauce. Prego and Pace are large, profitable brands for us. For many years, they have been profitable growth engines as well. More recently, private label and value brands have made inroads in Sauces. As a result, our Sauces performance in the second quarter was highly pressured.
We expect intense competitive pressures in U.S. Soup, Sauces and Beverages to remain in the back half of this fiscal year. This challenging environment for the balance of the year gave rise to the change in our annual guidance that we announced this morning. That having been said, we currently expect improved sales, EBIT and EPS performance in the second half of our year. Later in our presentation, Craig will elaborate a bit more fully on our plans to improve profitability, including increasing price realization and expanding our margins in preparation for higher inflation in fiscal 2012. So I won't go into that now.