NEW YORK (AP) — Campbell Soup Co. said Monday that its U.S. soup sales fell in its third quarter as it ditched the heavy discounts and found consumers stocked up less.
But its overall results beat expectations as its baked goods and snacks which include Pepperidge Farm products, Goldfish crackers and Milano cookies sold well.
Campbell, known for its soups in iconic red and white cans, said that despite the drop in U.S. soup sales, it will step up advertising and new product offerings to drive demand rather than relying on price cuts.
The company, like all food makers, is also facing higher food costs and plans to raise prices in the U.S. to offset that.
Overall, the Camden, N.J.-based company said net income rose 11 percent to $187 million, or 57 cents per share, for the three months ended May 1 compared with $168 million, or 49 cents per share, a year earlier.
That beat analyst expectations for earnings of 52 cents per share, according to FactSet.
Revenue edged up to $1.81 billion from $1.80 billion a year ago, matching expectations.
Sales in the company's baking and snacking unit rose 10 percent. Foodservice segment sales were up 5 percent. Sales of soup, sauces and beverages outside the U.S. rose 7 percent.
But sales in its U.S. soup, sauce and beverage unit fell 8 percent. The company blamed lower volume due in part to fewer promotions and higher prices that deterred some customers.
"The soup category is being shopped (for) differently than in former years," said Chief Operating Officer Denise Morrison in a call with analysts. "There is evidence stock-up trips are down."
While Morrison said the company wasn't satisfied with weak soup sales, it continues to believe a focus on advertising and new products will help drive results because consumers aren't responding as much as they once did to discounts.
The main reason for the sales decline is due to a tough comparison with last year's quarter, when promotional discounts on soup were at their height, Morrison said.
"We are stepping up our game across the company with plans that include innovation, brand marketing excellence, superior consumer insights and relentless cost management," Morrison said.
Analysts said the weak soup sales weren't unexpected. S&P packaged foods analyst Tom Graves in a note to investors that he is raising his opinion on Campbell shares to "Hold" from "Sell."
"U.S. soup sales look soft, but we are impressed by the sales and profit increases from some other areas," he said.
For the fiscal year ending in July, Campbell Soup expects adjusted earnings per share to decline between 1 and 3 percent from 2010 adjusted results of $2.47.It predicts sales will be virtually flat.
Shares fell 66 cents, or 1.9 percent, to $34.58 in midday trading. The stock has traded between $32.66 and $37.59 during the past year.
AP Business Writer Samantha Bomkamp in New York contributed to this report.