Campbell Soup 2Q profit up; U.S. soup sales fall

HADDONFIELD, N.J. -- The Campbell Soup Co. said Monday that it made strategic errors in its relaunch last fall of Chunky ready-made soups, but the world's largest soup maker said its second-quarter profit still rose 11 percent from a year earlier.

It was the third straight quarter the company's profit rose from a year earlier as it benefited from cost-cutting and from stabilizing prices for its ingredient and packaging -- even as its sales fell.

The company hoped the new healthier versions of its Chunky soups would become a prime option in the increasingly competitive world of at-home meals as people continue eating at home to save money during the recession -- especially after sales to the products' mainstay customers, football-watching men, had flattened.

But the company's ready-to-serve soup sales fell 18 percent for the second quarter, largely because of a decline in Chunky sales.

The company, whose products also include V8 juices and Prego sauces, said it should have promoted the new Chunky soups more heavily, offering more coupons and sales to go along with its ad campaign.

Nonetheless, its profit rose to $259 million, or 74 cents per share, as its revenue rose 1 percent to $2.15 billion. Condensed soup sales were flat. The profit figure met Wall Street expectations, but the revenue fell short of the $2.23 billion forecast on average by analysts surveyed by Thomson Reuters.

After CEO and President Douglas Conant described the ready-to-serve revenue drop as a promotional "hiccup" during a conference call with analysts Monday -- and insisted the drop wasn't evidence that consumers wouldn't buy soup -- he had several testy exchanges with analysts.

Eric Katzman, who follows the food industry for Deutsche Bank, said Campbell, based in Camden, N.J., may be misreading its results.

"The consumer's acting differently given the pressure they're under," Katzman said. "I don't know whether you and your team are ready to deal with it if this isn't just a promotional issue, but a bigger challenge to $3-plus dollar per can for ready-to-serve versus whatever Kraft is putting out mac and cheese for."

He acknowledged that, while Chunky did well when compared to competing soups, it stumbled alongside other easy meals, like frozen dinners.

"If there's something I would challenge us for, it's that we were so focused on competing within soup we didn't adequately prepare for competition outside soup," he said.

Conant said sales for the third quarter, which ends in April, would be better.

Last week, the company cut its full-year sales outlook but maintained its full-year earnings outlook.

Conant said ready-to-serve sales must pick up quickly if Campbell is to meet that target, however.

The company laid out a plan last week for further cutting its soup-making costs, including using fewer bases and dicing vegetables fewer ways.

For the second quarter, the company reported higher sales of Pepperidge Farm Goldfish crackers and Prego pasta sauce. Sales of Pace Mexican sauce and Pepperidge Farm cookies fell.

Its international sales of soups, sauces and drinks rose by 12 percent, largely because of more favorable exchange rates.

For the year to date, the company has earned $563 million, or $1.61 per share, on sales of $4.36 billion -- up from earnings of $493 million, or $1.34 per share, on sales of $4.37 billion in the first half of fiscal 2009.

By midday, the company's stock was trading at $33.49, down 44 cents, or 1.3 percent.