Campbell Soup Co. Q4
Conference Call
A Fool Conference Call Synopsis*
By Jeff Fischer ([email protected])
Campbell Soup Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CPB)") else Response.Write("(NYSE: CPB)") end if %>
Campbell Place
Camden, NJ 08103
http://www.campbellsoup.com
ALEXANDRIA, VA (Sept. 8, 1998) /FOOLWIRE/ -- Management opened the company's fourth quarter conference call by stating, "This was another good year." The company is delivering consistent earnings growth in a volatile market, and it is now focused on a stronger line of products than ever before. For Campbell, 1999 is beginning with a superior brand profile and a financial profile that bodes well for the future.
Consolidated Results. During the fourth quarter of fiscal 1998, sales for the newly restructured Campbell business rose 5% before the impact of currencies (namely, the Australian and Canadian dollar). Earnings from continuing operations rose 14% and earnings per share grew 15% to $0.38 per share (excluding the gain from a sale). For the quarter, sales were $1.299 billion and earnings from continuing operations were $182 million, up from $155 million.
For the year, sales grew 1%, to $6.696 billion. Sales were up 7% before the impact of currencies. Gross margins reached a record 53% vs. a recent 51% record, with the improvement coming from better cost control and with a one point improvement due to pricing. The year's operating margins grew to 18.6% from 17.3% last year. Earnings from continuing operations rose 12%, and earnings per share were up 16% from last year to $1.90 per share.
Despite now being a smaller company as a result of several spin-offs and divestitures, cash from operations (defined as net income plus noncash charges) actually grew from $1.18 billion to $1.24 billion this year, while capital spending was well under control. Plus, 1998 was only 52 weeks while 1997 was 53 weeks.
1998 was another year of good underlying growth. Volume growth was 4% compared to 3% last year, edging closer to the 5% to 6% volume growth that management is aiming for. Better cost control and increased pricing helped lead to the 7% sales growth in an otherwise nearly flat domestic soup market.
Campbell has less than 1% of income coming from emerging markets. Also, all of the businesses divested were lower margin products, and the company is now focused on its strongest lines of business.
Soups and Sauces. Campbell's largest division simmered with $4.4 billion in sales, up 8% before currency impacts, with net earnings up 10%. Worldwide soup volume grew 4% with sales increasing by 9%. Soup volume in the U.S. was up 1% for the year, matching the overall consumption growth of 1%.
Of note, the company's soup volume grew 20% in Australia, and market share reached 35%, up 10 points, while Canada and Japan reported double-digit soup sales growth as well. Also, the success story continues in the UK, where sales remain strong (see Fool UK). Campbell's market share of French soup sales grew again, and is now over 60%. The company's share of the German market grew, too, up 3.1 points to over 54% market share.
Campbell's "V8 Splash" is a big hit and the sales run rate of the product is now $220 million.
Biscuits and Confections. Things were pretty sweet in this line of business, too. Campbell achieved $1.4 billion in sales, up 7% before currencies, but flat with currencies. Earnings grew 18% as each business contributed to growth (Pepperidge Farm, Godiva, and Arnotts in Australia). Goldfish are doing well and alternative sales channels are meeting success. Campbell experienced gain in market share in cookies, crackers, fresh bread and frozen cakes. Arnotts is growing and cost initiatives are working well. Campbell management feels that it has capitalized this business and so it is now applying what it calls "the Pepperidge Farm formula" to it -- meaning that it will work to leverage the strong product and grow volume.
Godiva is growing well. Same-store sales were up double-digits for the year.
Food Service. Sales grew 4% to $455 million and earnings rose 11% for the year.
The Future. Campbell Soup is beginning 1999 as a more focused company with good things happening in Europe and Australia, to name just two areas, and a new advertising program will mark the new fiscal year.
Management is confident in its ability to achieve earnings growth in the top quartile of its industry, as it has the past eight years running. Of note: whereas in the past Campbell Soup saw higher earnings growth in the first half of the year, it will now have a more even year of earnings growth due to increased spending in the first half resulting in higher earnings in the second. This means it will have lower earnings growth compared to years past in the first half of the year, but it will be compensated for in the second half, where Campbell's will have higher earnings growth than in the past. It should all even-out in the end.
New products include ready-to-serve tomato soup and microwaveable soup. Also, "Simply Home Soups" is restaging soup in a glass, and a new recipe platform and cookbooks are outlining how to use soup to cook healthy meals. The "Labels for Education" program has begun, and "Soup navigator" is the ongoing idea of resetting grocery store shelves to enhance sales. Only 40% of Campbell's shelves are set in the way the company wishes, and the goal is 50%.
Also, soup stations are on the horizon as a growth business, and fresh refrigerated soup is in the future. Much bigger opportunities are also available for V8 Splash. The company has reorganized itself to make a "beverage unit" that will take advantage of the worldwide beverage market. Finally, Goldfish are now first shipping outside the United States.
The company announced a new share repurchase program in fiscal 1998. It plans to buy another $2 billion worth of shares over the coming five years (aiming to buy 2% of outstanding shares annually). As promised, Campbell is on track to saving $200 million due to cost reductions. An additional $150 million in 1999 will be saved and will show in earnings. Acquisitions and spin-offs are on track, and the main focus is now on volume growth. The company is in an excellent position to continue to grow earnings. Campbell now consists of only number-one leading brands: Campbell Soup, Pace and Prego sauces, Godiva Chocolates, Pepperidge Farm, Swanson, and Arnotts.
Volume and Price Mix. Fourth quarter volume and price mix for the new Campbell was as follows: base volume in the fourth quarter was up 2%, price was up 2% and acquisitions added 1%, for 5% total. After currency adjustments, it was under 2%.
Earnings Growth. Again, earnings growth could be in single digits in the first half of fiscal 1999, while for the year 13% to 14% earnings growth -- in the top quartile of the industry -- is most likely. Single-digit growth might happen in the first half due to the mentioned increase in costs, and better earnings growth should follow in the second half. Overall, Campbell should achieve the same annual earnings growth that is in the top quartile of the industry -- 13% to 15%.
Spending and Pricing. Capital expenditures of $252 million last year should rise to the $300 million range next year due to related cost reduction programs (ah, the irony -- you need to spend to save). Depreciation & amortization was $260 million in fiscal 1998, and next year should be $280 to $290 million. Working capital consumption rose from $260 million to $320 million in fiscal 1998. Next year better control of working capital is expected, with little overall change in the numbers.
Product pricing will likely rise as in the past (1% to 2%), though the company is reluctant to talk about it, and U.S. soup volume could grow slightly more than usual due to increased advertising and new products. Campbell is aiming for a long-term 5% to 6% soup volume growth rate -- an aggressive goal.
The company having begun business in 1869, off we go into fiscal 1999... all systems go.
Related Links:
-- Quarter Four 1998 Earnings Announcement
-- Drip Portfolio, 09/04/98: Campbell's Earnings and Margins.
(The Campbell Soup Company is a holding in The Motley Fool's real-money Drip Portfolio. Fool on!)
* A Fool conference call synopsis represents an effort to highlight the salient points of a conference call and should not be taken as an authoritative accounting or transcription of the entire event. Note: Statements made by a company other than historical information may constitute forward-looking statements for which the company can claim protection under the Safe Harbor Act. Please consult the company's filings with the SEC for information on risk factors which might cause actual results to differ materially from the information contained in these forward-looking statements.