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Campbell Reports First Quarter Results: Earnings Per Share of $.73 Includes $.14 Gain From Tax Settlement; Adjusted Earnings Per Share Increase 7 Percent; Company Announces $600 Million Share Repurchase Plan

Posted on: Monday, 21 November 2005, 09:00 CST

Campbell Soup Company (NYSE:CPB) today reported net earnings increased to $302 million in the first quarter ended October 30, 2005 versus $230 million in the prior year. Diluted earnings per share for the quarter were $.73, compared with $.56 in the year-ago period. These results included several items that impact the comparability of results this quarter with a year ago.

The company also announced that its Board of Directors has authorized the purchase of up to $600 million of company stock on the open market or through privately negotiated transactions through the end of fiscal 2008. In addition, the company will continue to purchase shares, under separate authorization, as part of its practice of buying back shares sufficient to offset shares issued under incentive compensation plans.

Beginning in fiscal 2006, the company adopted a new accounting standard (SFAS 123R) that requires all stock-based compensation to be expensed. Had all stock-based compensation been expensed in the year-ago quarter, net earnings would have been $224 million and diluted earnings per share would have been $.54. For the full fiscal year 2005, diluted earnings per share would have been $1.64.

Net earnings and earnings per share in the first quarter of fiscal 2006 were impacted by the following items:

-- The company recorded a non-cash tax benefit of $47 million

resulting from the favorable resolution of a U.S. tax

contingency related to transactions involving government

securities in a prior period. In addition, the company reduced

interest expense and accrued interest payable by $21 million

and adjusted deferred tax expense by $8 million ($13 million

after tax). The aggregate non-cash impact of the settlement on

net earnings was $60 million, or $.14 per share.

-- The company finalized its plan to repatriate earnings from

non-U.S. subsidiaries under the provisions of the American

Jobs Creation Act, and as a result, recorded incremental tax

expense of $8 million, or $.02 per share, associated with

one-time incremental dividends of $225 million. This

incremental dividend is in addition to $200 million that was

provided for in fiscal year 2005, raising the total dividends

to be repatriated under the American Jobs Creation Act to $425

million.

-- The company changed the method of accounting for certain U.S.

inventories from the LIFO method to the average cost method.

The impact of the change to this preferable method of

accounting resulted in a $13 million pre-tax gain. The impact

on net earnings was $8 million, or $.02 per share. Prior

periods were not restated since the impact of the change on

previously issued financial statements was not considered

material.

After adjusting for these items, net earnings would have been $242 million in the first quarter of fiscal 2006 and $224 million in the year-ago period, an increase of 8 percent. Earnings per share would have been $.58 in the first quarter of fiscal 2006 and $.54 in the year-ago period, an increase of 7 percent.

For the first quarter, sales rose 1 percent to $2,110 million, following a strong year-ago quarter when sales increased 10 percent. Sales for the quarter reflect the following factors:

-- Volume and mix subtracted 3 percent

-- Price and sales allowances added 4 percent

-- Increased promotional spending subtracted 1 percent

-- Currency added 1 percent

Douglas R. Conant, Campbell's President and Chief Executive Officer, said, "Our plan to drive quality growth is on track. This quarter, although our ready-to-serve soup sales were significantly weaker due to a change in our pricing and promotional activity from a year ago, we continued to improve our profit margin while laying the foundation for driving top-line growth for the balance of the year, consistent with our goal. I am confident in the plans we have in place to drive growth across our portfolio, including U.S. Soup. The $600 million share repurchase program we announced today leverages our strong cash flow generation and reflects the confidence we have in our long-term growth prospects."

Excluding the gain of $.14 related to the favorable tax settlement, and other items affecting comparability, the company confirmed its fiscal 2006 guidance for earnings per share to increase between 5 and 7 percent from the adjusted fiscal year 2005 base of $1.64.

Summary of Fiscal 2006 First Quarter Results by Segment

U.S. Soup, Sauces and Beverages

Sales for U.S. Soup, Sauces and Beverages were $970 million, a 2 percent decrease compared with a year ago. The change in sales reflects the following factors:

-- Volume and mix subtracted 7 percent

-- Price and sales allowances added 5 percent

Operating earnings were $288 million compared with $275 million in the prior-year period. Earnings for the first quarter of this year included an $8 million benefit from the change in the method of accounting for inventory. Prior-year earnings would have been $1 million lower had all stock-based compensation been expensed. Operating earnings were driven by higher selling prices and productivity gains, which more than offset the impact of lower sales and cost inflation.

Soup sales for the quarter declined 6 percent, driven by the following:

-- Sales of "Campbell's" condensed soups increased 1 percent

following a strong year-ago quarter that delivered 10 percent

growth. Both eating and cooking varieties delivered gains in

this year's quarter. The condensed soup segment continues to

benefit from the gravity-feed shelving systems which are now

installed in more than 14,000 grocery stores and the

continuation of more effective advertising.

-- Sales of ready-to-serve soups declined 17 percent for the

quarter versus year ago when sales were up 18 percent.

"Campbell's Chunky" soups in cans were a primary driver of the

decline as the business was adversely affected by a change in

promotional activity in comparison to the year-ago period in

which aggressive discounting drove significantly higher

volume. In addition, the discontinuance of "Campbell's Kitchen

Classics" soups contributed to the declines in ready-to-serve

soups. "Campbell's Select" soup sales increased in the quarter

driven by the introduction of "Campbell's Select Gold Label"

soups, which use aseptic technology.

-- Sales of microwaveable soups increased in the quarter driven

by the introduction of "Campbell's" Red and White

ready-to-serve Chicken Noodle, Tomato, and Vegetable soups in

bowls.

-- Sales of "Swanson" broth increased 9 percent for the quarter.

Volume gains were achieved behind the continued growth in

cooking usage and consumers' growing preference for

aseptically-packaged broth.

Highlights of this segment's other businesses include:

-- "V8" vegetable juice recorded a double-digit sales increase as

the business benefited from new and more effective

advertising. "Campbell's" tomato juice sales also increased,

while sales of "V8 Splash" juice beverages declined.

-- "Campbell's Chunky" chili canned sales declined in comparison

to a year ago when the product line was introduced. This was

partially offset by sales from the launch of new microwaveable

bowls.

-- "Campbell's SpaghettiOs" pasta sales increased as consumers

continue to respond positively to the transition from the

"Franco-American" brand to the "Campbell's" brand supported by

new advertising.

-- "Prego" pasta sauce sales declined for the quarter due to high

levels of competitive activity in the category.

-- Sales of "Pace" Mexican sauces increased for the quarter

driven by a new and more effective advertising campaign.

Baking and Snacking

Sales for Baking and Snacking were $458 million, a 2 percent increase compared with a year ago.

A breakdown of the change in sales follows:

-- Volume and mix subtracted 2 percent

-- Price and sales allowances added 3 percent

-- Increased promotional spending subtracted 1 percent

-- Currency added 2 percent

Operating earnings were $50 million compared with $46 million in the prior-year period. Earnings for the first quarter of this year included a $5 million benefit from the change in the method of accounting for inventory. Prior-year earnings would have been $2 million lower had all stock-based compensation been expensed. Operating earnings for the quarter were also driven by higher earnings at Arnott's and favorable currency, which were partially offset by declines at Pepperidge Farm due to a higher level of marketing expenses in support of the launch of the new "Pepperidge Farm Whims" poppable snacks.

Further details of sales results include the following:

-- Pepperidge Farm sales grew as fresh bakery and cookies and

cracker sales increased, more than offsetting declines in its

frozen business.

-- Sales growth of "Pepperidge Farm" fresh bread and bakery

products was driven by breakfast and sandwich items,

highlighted by the continued success of English muffins, whole

grain and "Farmhouse" breads, and sandwich rolls.

-- "Pepperidge Farm" cookies and cracker sales increased,

primarily due to solid performance of "Pepperidge Farm"

Chocolate Chunk cookies, as well as gains in distinctive

crackers. Sales of "Pepperidge Farm Goldfish" snack crackers

were up slightly in the quarter.

-- Arnott's sales increased versus a year ago due to favorable

currency and gains on Arnott's two biggest icon brands,

"Shapes" and "Tim Tams," which was aided by the strong

performance of new "Tim Tam" Balls.

International Soup and Sauces

Sales for International Soup and Sauces were $420 million, a 1 percent increase compared with the year-ago period, due to currency.

Operating earnings were flat at $55 million. Prior year earnings would have been $1 million lower had all stock-based compensation been expensed. Operating earnings growth in Canada and currency gains were offset by declines in Europe and Latin America.

Further details of sales results include the following:

-- Sales in Europe declined during the first quarter due to

weakness in the U.K. business and the unfavorable impact of

currency.

-- In Asia Pacific, sales increased significantly driven by

continued growth in soup and beverages in Australia.

Highlights for the quarter include the launch of "V8 Plus"

beverages and expanded distribution of microwaveable soups.

-- The Canadian business delivered strong sales results driven by

gains across condensed and ready-to-serve soups and broth.

"Campbell's Soup at Hand" was successfully introduced in the

quarter. Favorable currency also contributed to sales gains.

Other

The balance of the portfolio includes the Godiva Chocolatier business worldwide and the Away From Home business in the U.S. and Canada.

Sales grew 13 percent to $262 million compared with the same period a year ago.

A breakdown of the change in sales follows:

-- Volume and mix added 10 percent

-- Price and sales allowances added 3 percent

Operating earnings were $26 million compared with $22 million in the prior-year period. Prior year earnings would have been $1 million lower had all stock-based compensation been expensed. Operating earnings growth was also driven by strong sales growth and margin improvements in the Away From Home business.

Further details include the following:

-- Godiva Chocolatier sales grew at a double-digit rate, driven

by solid performance in both the U.S. and international

markets. North America same-store retail sales increased 10

percent in the quarter. In the U.S., new "Chocolixir"

beverages and "Godiva Platinum," a new chocolate collection,

delivered strong results. In Japan, the introduction of

"Godiva Platinum" and refurbished boutique stores contributed

to sales gains.

-- Away From Home sales continued to grow, driven by double-digit

growth in refrigerated soups marketed through retail deli

programs. Solid gains in both frozen and canned soups and

bakery products sold through the Away From Home channels also

contributed to growth.

Non-GAAP Financial Information

A reconciliation of the adjusted fiscal 2006 and 2005 financial information to the reported financial information is attached to this release and can also be found on the company's website at www.campbellsoupcompany.com in the "Investor Center" section.

Conference Call

The company will host a conference call to discuss these results on November 21 at 10:00 a.m. Eastern Standard Time. U.S. participants may access the call at 1-888-791-1856 and non-U.S. participants at 1-773-756-4600. Participants should call at least five minutes prior to the starting time. The passcode is "Campbell Soup" and the conference leader is Len Griehs. The call will also be broadcast live over the Internet at www.campbellsoupcompany.com and can be accessed by clicking on the "Webcast" banner. A recording of the call will be available approximately two hours after it is completed through midnight November 25, 2005 at 1-866-428-3803 or 1-203-369-0904.

Forward-Looking Statements

This release contains "forward-looking statements" which reflect the company's current expectations about its future plans and performance, including statements concerning the impact of marketing investments and strategies, pricing, new product introductions and innovation, cost-saving initiatives and quality improvement on sales, earnings and margins. These forward-looking statements rely on a number of assumptions and estimates which could be inaccurate and which are subject to risks and uncertainties. Actual results could vary materially from those anticipated or expressed in any forward-looking statement made by the company. Please refer to the company's most recent Form 10-K and subsequent filings for a further discussion of these risks and uncertainties. The company disclaims any obligation or intent to update the forward-looking statements in order to reflect events or circumstances after the date of this release.

Reporting Segments

Beginning in fiscal year 2005, Campbell Soup Company earnings results are reported for the following segments:

U.S. Soup, Sauces and Beverages includes the following retail businesses: "Campbell's" brand condensed and ready-to-serve soups, "Swanson" broth and canned poultry businesses, "Prego" pasta sauce, "Pace" Mexican sauce, "Campbell's Chunky" chili, "Campbell's" canned pasta, gravies and beans, "Campbell's Supper Bakes" meal kits, "V8" vegetable juices, "V8 Splash" juice beverages, and "Campbell's" tomato juice.

Baking and Snacking includes the following businesses: "Pepperidge Farm" cookies, crackers, breads and frozen products in U.S. retail, "Arnott's" biscuits in Australia and Asia Pacific, and "Arnott's" salty snacks in Australia.

International Soup and Sauces includes the soup, sauce and beverage businesses outside of the United States, including Canada, Europe, Mexico, Latin America, and the Asia Pacific region.

Other includes the Godiva Chocolatier business worldwide and the Away From Home business in the U.S. and Canada.

About Campbell Soup Company

Campbell Soup Company is a global manufacturer and marketer of high quality simple meals, including soup, baked snacks, vegetable-based beverages, and premium chocolate products.

Founded in 1869, the company has a portfolio of more than 20 market-leading brands, including "Campbell's,""Pepperidge Farm,""Arnott's,""V8," and "Godiva." For more information on the company, visit Campbell's website at www.campbellsoupcompany.com. CAMPBELL SOUP COMPANY CONSOLIDATED STATEMENTS OF EARNINGS (unaudited) (millions, except per share amounts) THREE MONTHS ENDED ------------------ October October 30, 2005 31, 2004 ------------ ------------ Net sales $ 2,110 $ 2,091 ------------ ------------ Costs and expenses Cost of products sold 1,228 1,245 Marketing and selling expenses 320 314 Administrative expenses 138 129 Research and development expenses 24 20 Other expenses / (income) (1) 2 ------------ ------------ Total costs and expenses 1,709 1,710 ------------ ------------ Earnings before interest and taxes 401 381 Interest, net 26 44 ------------ ------------ Earnings before taxes 375 337 Taxes on earnings 73 107 ------------ ------------ Net earnings $ 302 $ 230 ============ ============ Per share - basic Net earnings $ .74 $ .56 ============ ============ Dividends $ .18 $ .17 ============ ============ Weighted average shares outstanding - basic 409 409 ============ ============ Per share - assuming dilution Net earnings $ .73 $ .56 ============ ============ Weighted average shares outstanding - assuming dilution 414 412 ============ ============ The company adopted SFAS 123R in fiscal 2006 which requires that all stock-based awards be expensed. Had compensation expense been recognized in fiscal 2005 for all stock-based awards, an additional pre-tax expense of $10 would have been recognized. Net earnings would have been $224 and diluted earnings per share would have been $.54. The 2005 pre-tax incremental compensation expense would have been recognized as follows on the Consolidated Statements of Earnings: Cost of products sold - $1; Marketing and selling - $3; Administrative - $5; and Research and development - $1. In fiscal 2006, the company changed the method of accounting for certain U.S. inventories from the LIFO method to the average cost method. The impact of the change was reflected as a one-time non-cash pre-tax benefit of $13 ($8 after tax or $.02 per share). In fiscal 2006, the company recorded a non-cash tax benefit of $47 resulting from the favorable resolution of a U.S. tax contingency related to a prior period. In addition, the company reduced interest expense and accrued interest payable by $21 and adjusted deferred tax expense by $8 ($13 after tax). The aggregate non-cash impact of the settlement on net earnings was $60, or $.14 per share. During the quarter, an incremental tax expense of $8 (or $.02 per share) was recorded related to repatriated earnings from non-U.S. subsidiaries under the provision of the American Jobs Creation Act. CAMPBELL SOUP COMPANY CONSOLIDATED SUPPLEMENTAL SCHEDULE OF SALES AND EARNINGS (unaudited) (millions, except per share amounts) THREE MONTHS ENDED ------------------ October October Percent Sales 30, 2005 31, 2004 Change ----- -------- -------- ------- Contributions: U.S. Soup, Sauces and Beverages $ 970 $ 994 -2% Baking and Snacking 458 449 2% International Soup and Sauces 420 416 1% Other 262 232 13% -------- -------- Total sales $ 2,110 $ 2,091 1% ======== ======== Earnings -------- Contributions: U.S. Soup, Sauces and Beverages $ 288 $ 275 5% Baking and Snacking 50 46 9% International Soup and Sauces 55 55 0% Other 26 22 18% -------- -------- Total operating earnings 419 398 5% Unallocated corporate expenses (18) (17) -------- -------- Earnings before interest and taxes 401 381 5% Interest, net (26) (44) Taxes on earnings (73) (107) -------- -------- Net earnings $ 302 $ 230 31% ======== ======== Net earnings per share - assuming dilution $ .73 $ .56 30% ======== ======== The company adopted SFAS 123R in fiscal 2006 which requires that all stock-based awards be expensed. Had compensation expense been recognized in fiscal 2005 for all stock-based awards, an additional pre-tax expense of $10 would have been recognized. Net earnings would have been $224 and diluted earnings per share would have been $.54. The 2005 pre-tax incremental compensation expense would have been recognized as follows: U.S. Soup, Sauces and Beverages - $1; Baking and Snacking - $2; International Soup and Sauces - $1; Other - $1; and Unallocated Corporate - $5. In fiscal 2006, the company changed the method of accounting for certain U.S. inventories from the LIFO method to the average cost method. The impact of the change was reflected as a one-time non-cash pre-tax benefit of $13 ($8 after tax or $.02 per share). The pre-tax benefit is reflected as follows: U.S. Soup, Sauces and Beverages - $8 and Baking and Snacking - $5. In fiscal 2006, the company recorded a non-cash tax benefit of $47 resulting from the favorable resolution of a U.S. tax contingency related to a prior period. In addition, the company reduced interest expense and accrued interest payable by $21 and adjusted deferred tax expense by $8 ($13 after tax). The aggregate non-cash impact of the settlement on net earnings was $60, or $.14 per share. During the quarter, an incremental tax expense of $8 (or $.02 per share) was recorded related to repatriated earnings from non-U.S. subsidiaries under the provision of the American Jobs Creation Act. CAMPBELL SOUP COMPANY CONSOLIDATED BALANCE SHEETS (unaudited) (millions) October October 30, 2005 31, 2004 ---------- ---------- Current assets $ 1,910 $ 1,857 Plant assets, net 1,957 1,916 Intangible assets, net 3,006 3,103 Other assets 291 340 ---------- ---------- Total assets $ 7,164 $ 7,216 ========== ========== Current liabilities $ 2,438 $ 2,590 Long-term debt 2,225 2,565 Nonpension postretirement benefits 278 295 Other liabilities 710 649 Shareowners' equity 1,513 1,117 ---------- ---------- Total liabilities and shareowners' equity $ 7,164 $ 7,216 ========== ========== Total debt $ 2,976 $ 3,457 ========== ========== Cash and cash equivalents $ 45 $ 44 ========== ==========

Reconciliation of GAAP and Non-GAAP Financial Measures

Campbell Soup Company uses certain "non-GAAP" financial measures as defined by the Securities and Exchange Commission in certain communications. These "non-GAAP" financial measures are measures of performance not defined by accounting principles generally accepted in the United States and should be considered in addition to, not in lieu of, GAAP reported measures.

The impact of changes in accounting methods and certain tax matters on financial information are as follows: (1) In fiscal 2006, the company changed the method of determining the cost of certain U.S. inventories from the LIFO method to the average cost method. As a result, the company recorded a $13 million pre-tax, $8 million after tax, benefit from the change in accounting method. Prior periods were not restated since the impact on previously issued financial statements was not considered material. (2) In fiscal 2006, the company adopted SFAS 123R which requires that all stock-based compensation be expensed based on the fair value of the awards. In fiscal 2005, the company did not recognize compensation expense for stock options under previous accounting guidelines. This adjustment reflects the pro forma impact had all stock-based awards been expensed. (3) In fiscal 2006, the company recorded a non-cash tax benefit of $47 million resulting from the favorable resolution of a U.S. tax contingency related to a prior period. In addition, the company reduced interest expense and accrued interest payable by $21 million and adjusted deferred tax expense by $8 million ($13 million after tax). The aggregate non-cash impact of the settlement on net earnings was $60 million, or $.14 per share. (4) In fiscal 2006, the company recorded incremental tax expense of $8 million associated with the repatriation of earnings under the American Jobs Creation Act.

The table below reconciles financial information, presented in accordance with GAAP, to financial information excluding the impact of changes in accounting methods and certain tax matters: First Quarter ----------------- Oct. 30, Oct. 31, % 2005 2004 Change -------- -------- ------ Earnings before interest and taxes, as reported $ 401 $ 381 Deduct: Impact of change in inventory accounting method (1) (13) - Deduct: Impact had all stock-based awards been expensed under SFAS 123R (2) - (10) --------- -------- Adjusted Earnings before interest and taxes $ 388 $ 371 --------- -------- Interest, net, as reported $ 26 $ 44 Add: Reduction in interest expense related to the favorable resolution of tax contingency (3) 21 - --------- -------- Adjusted Interest, net $ 47 $ 44 --------- -------- Adjusted Earnings before taxes $ 341 $ 327 4% --------- -------- Taxes on earnings, as reported $ 73 $ 107 Deduct: Tax impact of change in inventory accounting method (1) (5) - Deduct: Tax impact had all stock-based awards been expensed under SFAS 123R (2) - (4) Add: Adjustment to tax expense related to the favorable resolution of tax contingency (3) 39 - Deduct: Incremental tax recorded for earnings to be repatriated under the American Jobs Creation Act (4) (8) - --------- -------- Adjusted Taxes on earnings $ 99 $ 103 --------- -------- Adjusted effective income tax rate 29.0% 31.5% Net earnings, as reported $ 302 $ 230 Deduct: Impact of change in inventory accounting method (1) (8) - Deduct: Impact had all stock-based awards been expensed under SFAS 123R (2) - (6) Deduct: Net adjustment to taxes and interest expense related to the favorable resolution of tax contingency (3) (60) - Add: Incremental tax recorded for earnings to be repatriated under the American Jobs Creation Act (4) 8 - --------- -------- Adjusted Net earnings $ 242 $ 224 8% ========= ======== Earnings per share, as reported $ 0.73 $ 0.56 Deduct: Impact of change in inventory accounting method (1) (0.02) - Deduct: Impact had all stock-based awards been expensed under SFAS 123R (2) - (0.02) Deduct: Net adjustment to taxes and interest expense related to the favorable resolution of tax contingency (3) (0.14) - Add: Incremental tax recorded for earnings to be repatriated under the American Jobs Creation Act (4) 0.02 - --------- -------- Adjusted Earnings per share* $ 0.58 $ 0.54 7% ========= ======== * The sum of the individual per share amounts does not equal net earnings per share due to rounding. The company believes that financial information excluding certain changes in accounting methods and certain other transactions not considered to be part of the ongoing business improves the comparability of year-to-year results. Consequently, the company believes that investors may be able to better understand its earnings results if these transactions are excluded from the results.

Source: Business Wire

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