Campbell Soup Co. (CPB) posted fiscal 2010 third-quarter adjusted earnings of 54 cents per share, which surpassed the Zacks Consensus Estimate of 51 cents. Quarterly earnings also came in ahead of 48 cents per share recorded in the year-ago period.

During the quarter, Campbell’s net sales grew nearly 7% to $1.8 billion from $1.7 billion in the year-ago period. The growth was mainly driven by favorable currency translations along with a 4% growth in volume and mix and a 1% gain from price and sales allowances, partially offset by a 3% decline from higher promotional spending.

The U.S. Soup, Sauces and Beverages division’s sales rose 5% year-over-year as beverages grew 13%, while broth and ready-to-serve soup sales increased by 9% and 4%, respectively. However, segment sales were partially offset by a 1% decline in condensed soups.

Sales of the Baking and Snacking segment recorded a growth of 11% year-over-year, mainly due to the acquisition of Ecce Panis Inc., a producer of artisan breads. Growth was also aided by the cookies and crackers business, which continued to witness higher sales of Goldfish snack crackers. In Australia, sales growth was driven by favorable currency translation and continued growth in Arnott’s.

Campbell’s International Soups and Sauces segment expanded 11% year-over-year, primarily due to higher sales in Europe, driven by positive currency translation and higher sales in Germany, partially offset by lower sales in France. Asia-Pacific and Canada also contributed to higher sales due to favorable currency translations.

Campbell’s quarterly gross margin grew 60 basis points (bps) to 41.2% from 40.6% in the year-ago quarter, primarily due to productivity improvements, partially offset by cost inflation. However, operating margin contracted 80 bps year-over-year to 16.2% as higher gross margin was more than offset by increased employee benefit costs and selling expenses.

At quarter-end, Campbell had cash and cash equivalents of $80 million, while its debt-to-capitalization ratio was 58.5%, compared to $61 million of cash and a debt-to-capitalization of 63.3% in the prior-year quarter. During the first nine months of fiscal 2010, the company generated $859 million of cash from operations and deployed $315 million towards share buybacks and $260 million towards Campbell’s U.S. pension plan.

Moving forward, Campbell continues to expect sales to expand by 2.5% to 3.5% in fiscal 2010, while adjusted earnings is now expected to grow at the higher end of its previous forecast of 9% to 11%, which is approximately between $2.41 and $2.45 per share. The guidance is in line with the Zacks Consensus Estimate of $2.45 per share, which has remained constant over the past 2 months.

We presently have a Neutral recommendation on the stock.

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