By Martinne Geller
NEW YORK (Reuters) - Campbell Soup Co
Campbell, the world's largest soup maker, reported weaker-than-expected quarterly sales on Friday after aggressive promotions on canned soup failed to boost sales as much as planned, due in part to deep discounting by rival brand Progresso, owned by General Mills Inc
Campbell's promotions also hurt margins, leading to lower quarterly earnings that matched Wall Street estimates.
Campbell said it now expects 2011 earnings per share to fall between 1 and 3 percent on sales ranging from down 1 percent to up 1 percent. In November, it forecast growth of 2 to 4 percent for earnings and 1 to 3 percent for sales, which was lower than the goals it gave in September.
"The overall competitive environment remains challenging throughout the food industry, particularly in the U.S.," said Campbell Chief Executive Douglas Conant, who will step down in July.
Conant will likely be succeeded by Chief Operating Officer Denise Morrison, who most recently ran the North American soup, sauce and beverage unit, which also includes Prego pasta sauces and V8 juice drinks.
Campbell's U.S. soup sales fell 4 percent in the fiscal second quarter, ended January 30, surprising analysts and investors who thought soup would have sold well given this winter's severe weather.
The U.S. soup business has endured several winters of weak sales despite an economic downturn that made investors anticipate stronger sales. Last year, consumers bought discounted frozen meals instead of soup.
Campbell said it plans to ease up on promotions in the second half of its fiscal year and will instead focus on advertising and other strategies to strengthen its brand.
Its success hinges on the behavior of Progresso, said JP Morgan analyst Terry Bivens.
"The prognosis is not good, if January data are any indication," Bivens said in a research note. He said Nielsen data showed Progresso's volume jumped 30 percent in the four weeks ended January 22.
Bivens noted, however, that sales in Campbell's baking and snacking business, which includes Pepperidge Farm Goldfish crackers, rose 8 percent in the second quarter.
"Still, the Campbell shares sink or swim with the U.S. soup business," he said.
The shares were down 4.75 percent to $33.28 in midday trade on the New York Stock Exchange. They sank to a 52-week low of $32.66 in heavy morning trading. Before the decline they were roughly flat year-to-date.
Campbell's net income fell to $239 million, or 71 cents per share, in the second quarter, from $259 million, or 74 cents per share, a year earlier.
Analysts on average were expecting 71 cents per share, according to Thomson Reuters I/B/E/S.
Sales fell 1 percent to $2.13 billion, shy of analysts' forecast of $2.15 billion.
(Reporting by Martinne Geller, editing by Dave Zimmerman and John Wallace)
