金寶湯 (CPB) 2002 Q3 法說會逐字稿

Good morning ladies and gentlemen,

and welcome to the third quarter earnings

teleconference for

Campbell Soup Company

At this time participants are

in a listen-only mode.

At the conclusion of the Company's

formal remarks, we will

conduct a formal question-and-answer

session.

At that time, I will provide

instructions on how to ask a

question.

At this time, I would like to

introduce the Vice President

of Investor Relations for

Campbell's Soup Company,

Mr. Leonard Gries.

Sir, please go ahead.

Thank you, good morning,

everyone,

and Welcome to Campbell's Soup

Company third quarter fiscal 2002

conference call.

With me this morning are Bob Schniffner,

Senior Vice President and Chief Financial Officer;

Jerry Lord, Vice President and Controller;

Sally [Shucraft], Assistant Controller, and

also participating today will be Doug Conant, President

and Chief Executive Officer.

You should have with you our

press release and fax sheet,

which will be referred to in

the call.

If you do not have the fax

sheet, you can receive one by

calling Cindy [Aggrero] and the Campbell

Investor Relations department

at 856-342-6427.

Our call this morning will last

approximately one hour.

If you need to listen on the

replay, you may call

1-800-873-5254.

Or 1-402-220-4776,

approximately two hours after

the call is complete.

It will run through midnight,

May 20th.

You may also listen by logging

on to our Web site at

www.campbellsoup.com and

clicking on the Web cast

banner.

Our discussion will contain

forward-looking statements

which reflect the Company's

current expectations about its

future plans and performance.

Including statements

concerning marketing

investments and earnings.

These forward-looking

statements rely on a number of

assumptions and estimates

which could be inaccurate and

which are subject to risks and

uncertainties.

Actual results could vary

materially from those

anticipated or expressed in

any forward-looking statement

made by the Company.

Please refer to the Company's

most recent Form 10-K and

subsequent filings for a

further discussion of these

risks and uncertainties.

The Company disclaims any

obligation or intent to update

the forward-looking statements in order

to reflect the events

or circumstances after the

date of this discussion.

Now, with the discussion of

our third quarter performance,

here's Jerry Lord.

Good morning, everyone.

First, a few reminders about

the presentation of our

numbers today.

In the first quarter, we

adopted new accounting

standards related to the

recognition, measurement and

income statement

classification of certain

consumer and trade promotional

expenses such as coupon redemption costs,

cooperative advertising

programs, and in-store display

incentives.

In the fourth quarter of last

year, we adopted new guidance

on the classification of

shipping and handling costs.

As a result, the following

reclassifications were made to

the third quarter and nine

months fiscal 2001 financial

statements.

Net sales were reduced by $168

million and $567 million,

respectively.

Cost of products sold was

increased by $45 million and

$150 million, respectively.

And SG&A expenses were reduced

by $213 million, and $717

million respectively.

All percentage comparisons

will be given before the

effect of currency.

On the fact sheet, reporting segments

show before and after currency

effects.

All numbers also exclude the

impact of Arnotts

manufacturing reconfiguration

of approximately one cent per

quarter, 3 cents year-to-date.

Also, I will remind you that

our first quarter 10-Q filed

last December contains the

restatement of fiscal 2001 by

quarter, and an annual

restatement of fiscal 2000,

for our new reporting

segments.

Now, let's turn to our

results.

Sales finished up 8% for the

quarter, at $1,317 million.

And Earnings Before Interest and

Taxes were $196 million, down

17% before the impact of

currency and the Australian

restructuring.

Sales growth of 8% for the

quarter breaks down as follows:

Volume mix was flat.

Pricing was up 1%.

Promotions, now included as

reductions of net sales, had no

impact.

Currency had no impact.

Acquisitions added 7%.

Gross margin declined slightly

from 44.1% to 43.4%, due

mainly to the continued mix

shift in U.S. soup towards

ready to serve, and quality

improvements on a number of

products.

Worldwide wet soup shipments

were flat for the quarter and

up 1% for the nine months.

International wet soup

shipments were down 3% for the

quarter and were up 2% for the

nine months year-to-date.

U.S. wet soup shipments were

up 2% for the quarter, and

flat for the nine months.

In line with our plans, total

marketing was up 5% before the

impact of currency and the

European acquisition.

Our marketing spending

year-to-date is up 14%.

Including the European

acquisition, spending

year-to-date is up 20%.

Unallocated expenses were up,

principally due to higher

compensation costs.

Net interest expense was $44

million, down $8 million

versus a year ago.

Higher interest expense due to

increased debt levels

resulting from our European

acquisition last year was more

than offset by very favorable

short-term rates.

The tax rate for the quarter

was 34.2%, just above a year

ago and consistent with our

expectations for the full

year.

Diluted earnings per share was

24 cents, and including

Australian restructuring, was

23 cents, compared to 30 cents

a year ago.

We are on track to deliver our

earnings per share target of

$1.30 for the year, excluding

Australian restructuring, as

we take advantage of

short-term interest rate

favorability to accelerate

certain infrastructure

investments, and to offset the

impact of lower volumes in

some of our businesses.

Now let's turn to operating

highlights by reporting

segment.

First, North America Soup and

Away From Home.

Sales of $516 million

were up 1%.

Operating earnings of $108

million were down 18%,

reflecting increased marketing

and infrastructure

investments.

As previously mentioned, U.S.

wet soup shipments were up 2%

for the quarter.

Let's take a further look at

U.S. Soup.

Shipments of condensed soup

declined 3%,

which is an improvement from

the rate of decline last

quarter.

For the nine months condensed

soup shipments are 6% below a

year ago.

Planned quality improvements

and increased marketing have

not yet substantially impacted

the condensed business.

And I'll say some more about

that shortly.

Ready-to-serve soup shipments

rose 9% for the quarter, and

the same amount for the nine

months.

New varieties and quality

improvements combined with

better advertising have all

worked well to give us a very

successful year in ready-to-serve

soups.

I'll mention just a few.

Improvements on our Campbell

Select chicken varieties of soups,

along with new Campbell Select

Italian Style Wedding soup and

improved Campbell Select New

England Clam Chowder

contributed to volume growth.

New Chunky items contributed

to strong growth for that

brand as well.

Swanson broth shipments were

down 3% for the quarter, but

are running up 3%

year-to-date.

Lower promotional spending

around the Easter holiday and

increased competitive spending

contributed to the quarter's

volume decline.

Viewed from a cooking and

eating basis, let's look at

how soup shipments fared.

Please note that this

classification combines

condensed and ready-to-serve

and is categorized by consumer

behavior.

Cooking soups declined 3% for

the quarter.

Eating soups were up 3% for

the quarter.

Now, just a few comments about

our going-forward program on

condensed.

As previously discussed, we

are making significant capital

investments this year

and over the next two fiscal

years in our soup plants.

We are installing new

processing technology that

allows us to put more garnish

in the soup, cook it for less

time, and at lower

temperatures.

As a result, the products look

better and taste better.

We have accelerated plans to

begin the process of bringing

these improved products to

market, and by the Fall we

should have our key vegetable

varieties upgraded.

Three of our top 20 condensed

soups are in this group, and

five of our top 40.

We target to have these

products on the shelf for next

soup season, and we believe

consumers will notice a big

difference with these improved

condensed varieties.

However, the major portion of

our work for condensed will

have to wait for fiscal 2004.

That's not to say we won't

have other news on condensed

next year.

We will make tomato soup

improvements by December and

improvements on two other cream soups that are not

related to the new processing

technology.

Additionally, our new Soup at

Hand will debut in the Fall.

This ready-to-serve soup,

designed for out-of-home

consumption, is an important

step in addressing portability

and convenience

as we increase efforts to

boost overall soup growth.

Now, let's turn briefly to the

remaining parts of this

reporting segment, which is

Away From Home and Canada.

Away From Home sales up versus

a year ago, led by strong soup

sales in chain accounts and

in traditional food service

outlets.

Canada sales were slightly

ahead of a year ago, led by

soup shipments.

Canada is having a strong year

on the top line, driven by all

businesses, but especially by

soup.

Now turning to North America

sauces and beverages.

Sales declined 1% to $276

million, driven by lower

volumes and operating profits

declined 22% to $56 million.

Prego shipments were up

slightly due to Prego Pasta Bake

cooking sauce, the new sauce

that turns dry macaroni into a

baked pasta entree

without pre-cooking the pasta.

However, we have experienced

softness in our base Prego sauce business, primarily as

a result of aggressive

competitive promotions.

Pace shipments were up,

responding to restored

advertising and consumer

promotions.

Franco American canned pasta

shipment showed double digit

declines, mainly due to

aggressive promotion by

competition.

Shipments of other prepared

foods, including Franco

American Gravy, Swanson canned

poultry, and Campbell's beans

also declined.

V-8 Vegetable Juice shipments

were up strongly, reflecting

positive consumer response to

sustained television and print

advertising.

V-8 Splash shipments were down.

As previously mentioned,

we have introduced two new

lemonades into the market for

the important Summer season

as we continue to work product

mix and distribution.

In Latin America, shipments

increased significantly off

a small base.

Now turning to biscuits and

confectionary.

Sales for the quarter rose 5%

to $357 million.

Sales were up in all three

businesses: Arnotts in

Australia, Pepperidge Farm,

and Godiva.

Earnings rose 5% to 46 million

dollars, as volume growth

overall was partially offset

by lower same-store sales at

Godiva.

Pepperidge Farm delivered

solid sales performance with

increased shipments in cookies,

crackers, fresh bakery, and

frozen bread.

The introduction of dessertless

cookies and Goldfish sandwich

crackers, as well as strong sales of

Milano cookies, and

distribution gains on

single-serve items, were the

primary drivers of growth.

During the quarter, Goldfish

crackers became number-one

selling cheese cracker in food, drug, and mass merchandise

outlets. New varieties of Farmhouse

bread and rolls and the

introduction of Pepperidge

Farm bagels drove growth in

the bakery category.

At Arnotts, sales were up

strongly, with new rice-based

snack products, and premium emporio

cookies showing good consumer

acceptance.

Godiva sales were up for the

quarter, reflecting the

addition of new stores around

the world and strong

comparable store sales in

Japan.

Comparable store sales in

North America were still down

in the quarter.

However, we are seeing some

improvements as the business

begins to recover from the

repercussions of September

the 11th.

Now, turning to International

soup and sauces.

Sales were up significantly

from $140 million to $222

million, and operating

earnings rose from $14 million

to $19 million, driven by the

European acquisition completed

in the fourth quarter of

fiscal 2001.

Excluding the impact of the

acquisition and currency,

sales declined 3% and

operating earnings declined

significantly.

The earnings declines reflect

increases in infrastructure

and marketing investment

across most of the portfolio,

as well as sales softness in

our U.K. business.

A chief component of the

infrastructure spending was

the European rollout of our

new global strategic sourcing

initiative. This is planned to drive

significant cost savings in

the future.

The recently acquired European

dry soup and sauces business

continues to meet earnings

expectations.

Now let's turn to the balance

sheet and cash flow.

Total debt at quarter end was

$3.6 billion, up from $3.1

billion a year ago,

but down from $4 billion at

the end of fiscal 2001.

Free cash flow for the nine

months was $717 million,

compared to $831 million a

year ago, well ahead of our

year-to-date expectations.

This performance reflects the

increased marketing and

infrastructure investment,

offset by further working

capital reductions on top of

strong performance a year ago.

We are very pleased with this

result.

Now let's conclude.

The first year of our

transformation plan has had

some challenging and unusual

events.

But we think we've made good

progress in the first year of

our plan.

Investment behind ready-to-serve

soups, V-8 and Pace have

had very tangible results,

and give us confidence that we

have a winning formula for

these products.

Worldwide wet soup volume is

up 1% year-to-date, and U.S.

soup volume is flat.

However, ready-to-serve soup

volume has been strong this

year, and in the third quarter

condensed declines moderated.

We are accelerating plans to

bring to market key condensed

soups improved by new

technology.

We're wrapping up our plans

for next year, which include some

very exciting new programs and

products to help drive the

second year of our plan.

These plans include the launch

of new Soup at Hand

nationally.

There is good momentum in

biscuits and confectionary,

with Godiva starting to show

some recovery.

While North America's sauces

and beverages had

disappointing results this

year, we have innovation

projects for fiscal 2003 that

should improve future

performance.

We have successfully

integrated our European

acquisition, and we are now

spending our time

addressing marketplace and

competitive issues.

As part of the transformation

plan, we announced an increase

in capital spending from $200

million to $300 million this

year.

We are on track to accomplish four

key projects, including

the Australian plant

reconfiguration, the new

Pepperidge Farm bakery in

Connecticut, the key

processing technology

improvements in the U.S. soup

plants, and new information

technology projects that

support enhanced capabilities.

Not only have we executed

all these projects as planned,

but we are now estimating that

we will be able to accomplish

this at a spending level of

$280 million, slightly below

our original budget of $300

million.

Interest expense has been

favorable, offsetting the

weakness of Godiva, sauces, and

beverages, and allowing us to

invest in

infrastructure capabilities

and still keep us on track to

deliver $1.30 EPS this fiscal

year, excluding the impact of

the Australian restructuring.

Our cash flow is strong, and

we have reduced debt

significantly versus year-end

fiscal 2001.

This concludes my formal

discussion.

And I'll now turn it back to

Len for the question-and-answer

session.

Thank you, Jerry.

Jessica, I'll ask if you would begin the

polling process for questions

please.

Thank you, sir.

At this time, we're ready to

begin the question-and-answer

session.

If you would like to ask a

question, please press star-1

on your touchtone phone.

To cancel your question, please press star-2.

Once again, that's star-1 to ask a questions and star-2 to cancel.

Our first question comes from

Mr. Terry Vivins from Bear

Sterns.

Good morning, Terry.

Good morning, everyone.

Couple of questions.

I guess this one might be for

Doug.

First of all, congratulations

on coming in better than

expected on the condensed

improvements, sequentially.

I guess the question is, Doug,

is in the second quarter

marketing on the condensed

line was flat.

I know you were up ready to serve

there.

The 5% marketing struck me as

a little bit on the light side.

Could you address that, and

also help us understand the

relative apportionment between

condensed and ready-to-serve

there?

Terry, thank you for the

encouraging words regarding our

performance in the third

quarter on condensed.

Obviously, we are clearly not

satisfied with where we are,

however, we have a long way to

go to get the formula exactly

right.

But the decline, you're right,

the declines did moderate from

a 12% decline in the second

quarter to 3% in the third

quarter.

And as we stated at Cagney, we did

tactically adjust our spending

accordingly.

We don't get into the details

on spend by segment, but we

did address it as we said we

would.

And we're learning as we we're

going.

And we'll do better next

quarter than this quarter in

terms of managing our

spending.

And it's a continuous

improvement process.

But we feel like we're headed in

the right direction.

Do you have anything to

add to that, Bob?

Terry, I will say that in

fact we did have a stronger

condensed marketing program in

the third quarter.

It was more on the tactical

trade promotion side.

And we think that that clearly

had some impact on moderating

condensed declines.

And, you know, so we feel good about

that.

As far as the overall level of

marketing spending in the

third quarter, that was

consistent with our plan.

We'll have a much stronger

fourth quarter.

We expect total marketing to

be up in excess of 10% in the

fourth quarter.

But you know, the 5% was as

planned, and, you know, I'll leave it at

that.

I would assume that fourth

quarter above also you're

going to be putting more money

into the Soup at Hand, which I

understand you'll push pretty

hard?

Well, it's really not going

to be a really heavy spend in

the fourth quarter for Soup at

Hand.

We're going to start spending

aggressively in the first

quarter of fiscal year '03.

Okay.

Terry, this is Doug.

One other thing.

I'm not telling you anything

you don't know.

But particularly in soup, hey,

it's a game of inches here.

And we're going to have to --

we're going to grind it out,

and tactical spending is an

important part of how you

compete in soup.

And we'll get better at it.

But this -- there's a part of

this category that just

demands good analytical rigor

in terms of way you manage

your business and good

tactical management of your

spent.

And so we're focused on that,

while we also trying to do the

breakthrough things like Soup

at Hand. We have got to do both

those things well. We've got to

grind it out, but we also have

to have breakthroughs.

We think Soup at Hand might be

one of those breakthroughs.

Okay.

And of course, you do have

tough comparisons, as well.

Just wanted to ask one more

thing, and I'll yield the floor

quickly. As you look at the

other North American division,

the sauces, Prego is up but

just by a little bit, with base Prego down.

Franco American seems to really

run into some tough sledding

and still with V-8 Splash, I'm

not exactly sure what's going on there.

Are you disappointed with the

way those kind of secondary

brands have responded so far

this year?

Well, we're clearly not

satisfied.

But I'd say we're making

important progress.

If I look at on a year on year

basis, Prego is up behind some

innovation and increase

spending.

We've got to manage the way we

spend better in Prego, just like we do in soup.

But, fundamentally it's up.

We've brought innovation to

the category.

It's become more competitive and

now we've got to be more competitive, and we've got to be smarter and

sharper.

But -- fundamentally, I think we will be.

In terms of beverages, we

continue to struggle on the

V-8 Splash proposition.

But quite honestly, I'm

optimistic about our beverage

future going forward.

I think we have a team in

place to manage the beverage

business, which is infinitely stronger

than the team we had a year

ago.

We have -- I think we have a

solid base, and I think we're

going to surprise some people

in beverages next year.

We're also getting good

traction on our spend with V-8 Red, which is where

our advertising has been

focused for the second half of

this year, and you'll see that

it's tracking up nicely in

terms of consumer take away.

In terms of Franco American,

that's a tough category for us, and we

haven't addressed it

adequately, and that does need

to be addressed. As, quite frankly, do the

other items in that division

which typically we don't get

to in a discussion like this.

Like the gravies and the

canned poultries and the

beans.

So we clearly have work to do,

but we've got a team in place

to address it.

And we'll play through it.

Okay.

Thanks very much.

Next question, Jessica?

Yes sir, our next question

comes from Mr. John McMillan from

Prudential Securities.

Good morning everybody.

Hi, John.

Forgive me if I don't say

congratulations, but just in

terms of, Doug, you've done

probably the budgeting for

next year.

I don't know if you want to

come out with formal guidance

and the FAS-142 kind of changes that, but

can you update us on your

thoughts, what next year might

look like?

The short answer is no,

John.

A little elaboration

on it would be that we are in fact

in the midst of the budgeting process

right now, and so I wouldn't

have a complete answer for you

anyway.

But I think our --well, I know our

guidance really remains the

same.

We will grow next year.

And the issue is how much.

And we're just working through

the details of it.

We've got a couple of

interesting things going on.

We're lapping an unusual

Winter last year, and we're

lapping 9/11, and it just

makes it unusually tricky to

manage your way through that.

So that's what we're dealing

with, and we can provide more

guidance at a later date.

Yeah.

John, let me say that our

intention will be to give you

some guidance at the time we

release full-year '02

financial results.

Okay.

Just follow-up John, on

the 142, we can give you some

guidance.

You know, on the 142, I

think -- in the last

conference call, we offered up

a 10 cent impact.

It's actually going to be a

little bit more than that

because of the acquisition of

goodwill. And we are now

forecasting about a 13 cent

differential.

And then when you talk about

growth it's incremental for

that benefit?

Yes.

Okay.

And Jerry, can you give us the

impact to operating earnings

of the acquisition last year?

You gave some kind of number

of up 17, excluding currency.

But what operating income

would have been down,

excluding the acquisition?

I don't think we're

necessarily wanting to go into

that detail.

One of the reasons is that the

business is now fully

integrated into our base.

So in the early months when

we were still working through

transition services and we

could really pinpoint what was

the earnings from the

acquisition, then it was

reasonable to talk about it.

But now that it's fully

integrated and we have costs

shared and allocated between

the two, I think it really

becomes a dangerous place to

go.

So we don't really want to

share where we think that is.

Okay.

But you used a number of down

17 -- I calculate operating

income down about 15% reported,

and you're talking about a

number down 17%.

That's just the impact of

currency, the negative impact

of currency?

Yes, that's the difference.

And --

You're looking at the fax

sheet?

I just want to make sure that we're --

No, I was just listening to

your words earlier on.

I can work it out with Len --

I can work it out with Len

afterwards.

The cold filtered technology,

Doug or Bob, you were

planning to roll this out over

three years.

There's now an intent, I guess,

to roll it out over one year.

Is that correct?

John, our plans haven't

changed, fundamentally.

The full -- and it's more

than -- it's a series of

technologies which have been --

have been given a handle of

cold blend technology, but it's a

series of technologies that

bundle together, we think,

create a unique competitive

advantage for us.

But cold blend is certainly

part of that.

Our plan was to be fully

operational with that on

condensed soup and fiscal year

2004, and we will be.

We are trying to pull some of

that into fiscal year 2003.

And we're trying to move as

quickly as humanly possible

there.

But it's -- and we are making good

progress.

We're addressing -- we're

going to be creating upgraded

soups that account for about

20% of our condensed soup

declines.

So it's meaningful.

But there's another 80% of our

condensed soup issues that

aren't going to be addressed until

fiscal year 2004.

The other part of that -- while

we would be getting the

formulation work done this

year, the easy-open can

features are not anticipated

until fiscal year 2004, so

even the benefit upgrades we have

coming to market, which have

tested extremely well, won't

have the full bundle of

benefits until fiscal year

2004.

Now, I understand this Soup

at Hand is basically the same

thing as the Soup the Sip

we've already seen.

Is that wrong?

No, we have an enhanced

name for it. It's been --

we've showcased it before.

We've done some tweaking of

the concept, while we were in

test market this past year.

We had learnings

from test market that

influenced the product

modestly, but essentially it's

a similar product proposition

to what we've shown you before.

Yeah, what you got at Cagney, John, when

we passed those out, I mean it just really -- the name of

the product going to market is

different than what you had

there.

But that's the product, yes.

Thanks a lot.

Thanks for everything.

Okay, John.

Next question, Jessica?

Our next question

comes from David Nelson from

Credit Suisse First Boston.

Good morning.

Hi, David.

Do you think you benefited

in soup from some of the

disarray we seem to be seeing at Progresso in the

last quarter?

Well, I hope so.

And I hope it continues.

David, I'm sorry, David,

this is Doug.

Yeah.

I think we -- first and

foremost, really talking about

ready-to-serve soup when we

talk about competing with

Progresso.

And I think it's a combination

of a real step-up in our

marketing activities on ready-to-serve,

and I think we would

have grown anyway at a

substantial rate, and I think

we will continue to grow.

Clearly, there was a little

disarray acknowledged by

General Mills

during the transition.

We might have benefited from

that modestly.

They're strengthening right

now.

They're starting to show signs

of vitality.

So we might have benefited.

We have yet to see whether

Progresso will be able to

compete with our higher level

of competitive profile.

They've never had a compete

with us at the level we're now

competing at.

So we just have to wait and

see.

On the promotion you're

putting behind the soup, it

seems the last quarter most

all of it was behind condensed

and the prior quarter behind

ready-to-serve.

Do you anticipate that kind of,

all one way, all toward

one then all toward another

going forward?

And also, overall do you think

it will have to go up as

Progresso comes on?

I think we're going to have

to manage the spending mix.

I think we have a good, solid spending

profile now, and we're just

going to have to manage the

mix carefully.

We have the pendulum swinging

here as we're learning as

we're going.

And I think we'll find the

right balance, and we'll have

to adjust that balance based

on the competitive ferocity we

encounter in each segment.

The -- we feel good.

RTS business was up 9% in

the quarter, and we were --

with moderated spending, given

a certain competitive profile in RTS,

and we were able to moderate

the decline in condensed.

But we have to manage that.

So you will see some movement.

I don't think you will see it

as profound as you might have

seen from the second quarter

to the third quarter.

Also, again, this is a very

unusual soup season that we

just came off of, between our

relaunch in the unusual

weather conditions, and the

sale of -- the ownership

change on Progresso.

This has been a very unusual

soup season.

So, it's hard to draw any

conclusions from -- in my

opinion, from what's happened

here.

Let me just ask you more broadly,

are you -- what level of trade

are you seeing out there?

Are you seeing a real

acceleration that some others are

talking about?

David, this is Bob

SCHNIFFNER.

We're not seeing any

significant trade deloading.

Okay.

Maybe one more.

You took 1% in pricing. Where was that?

Where are you getting pricing?

It's really the net effect

of improved sales realization,

including pricing.

So -- in some cases, it's

small pricing in Pepperidge

and Arnotts, in other cases we

have fewer allowance payments,

fewer damage claims it.

It all comes through on that line.

No significant pricing on the

North American businesses.

Fantastic. Thank you.

Okay.

Thanks, David.

Next question, Jessica?

Our next question

from Mr. Bill Leech of Bank of

America Securities.

Good morning.

Hi, Bill.

I was wondering if you all could you talk about

Private Label?

There was a period you seemed

you were stunting Private Label's growth,

but recently it seems to have come back

with a vengeance, particularly in ready-to-serve

where the last [IRI] showed volume over 20% for the three

months and ready-to-serve

Private Label.

Could you talk about what you're

doing to combat that?

Bill, Private Label is

clearly a challenge

that we are going to have to

take on.

And we have been focused on

getting our house in order,

competing with Progresso, and

creating some competitive

insulation versus the balance

of the marketplace.

We think we're on a path to do

that.

We are going to have to deal

more competitively with

Private Label.

It is going to grow to its

natural level.

And it's something we're going

to have to address.

The condensed piece is one

that we're addressing head-on

with our benefit upgrade

program and our

differentiation program.

And we're going to have to have similar

programs on RTS over time, and we have those in the

pipeline for activity in '05 -- excuse me -- in '03,

'04, and '05.

Bill, I think you do see

whenever you have a category

that's been growing the way

this has been growing, that, you know,

you're going to see a lot more

activity coming from not just

other branded manufacturers

but the Private Label, as well.

There's been, you know, there's fairly aggressive

activity in that area.

So, it's part of that whole formula of

how you have to go after an entire

category.

Doug, do you continue to be

satisfied with your price

versus Private Label?

Well, I'd love to have a

smaller price cap.

If there's anything you can do

to help us out.

It's obviously always

challenging when you're

number-one competitor is your

customer.

And we are satisfied with our

price gaps.

Our RTS business is up a solid

9%.

And so we think we can

continue to grow our business

with the right price value

proposition.

We think we're close to that

in RTS.

We have to make sure we

maintain that as we have a bigger

competitor profile exhibited in Private

Label.

So, we're comfortable with it.

We always like it see it

improve, but this is

a game we can play

and we can win.

Okay.

Just lastly, as you think

about 2003, you said you

expected to have growth, and just [conceptually] your

sales are still basically flat

and it seems like you're going to have to raise

spending again next year.

Why should we expect any

material earnings growth next

year, excluding FAS 142?

Well, I think there's a few

things there.

Number one is that I think we've learned a

lot about our spend this year,

and we think we can improve

the productivity of that spend

next year.

I think second of all, we are

working very hard on cost

reduction in this business.

We have a number of

initiatives which we've

invested considerably in this

year, which we think will

harvest some productivity

savings next year.

And, you know, I think those are probably

the two significant reasons

why we think we can grow the

bottom line next year.

And just to build on that a

bit, we are lapping a

challenging year this year,

between the challenging

weather conditions, the

challenging 9/11 impact on

Godiva. We think we can

recover from those things,

and we're putting in plans -- we're putting plans in

place to do that, which should

give us solid top-line

performance as well.

And with our market structure that's

going to help.

Okay.

Thanks.

Next question, Jessica.

Our next question

comes from Mr. Eric Catsman

from Deutche Bank.

Hi, good morning,

everybody.

Hi, Eric.

Few questions.

I guess as a food analyst, we

don't normally talk too much

about technology.

So, I guess to what extent is

this technology that you're

putting in to thwart Private

Label or anybody else in

condensed?

To what extent is that,

proprietary?

Do you have a lead time in

terms of the new technology you're

putting into the plants?

And talk about how much leeway

that will give you or

advantage versus private label,

and I'll follow up.

Eric, this is Doug.

We're very confident that no

one in the world has access to

technology and thermal

technology and in soup technology

like the Campbell Soup

Company, and we think that's a

very leveragable proposition.

Around the world, we are in

every form of soup in an

in-depth way, whether it's aseptic

in boxes, pouches,

bottles or all the other

thermal processing

technologies.

We are leveraging that really

for the first time as a global

entity.

And we are going to be

introducing, over time, a series

of technologies that are going to allow us

to, we believe, have sustainable

competitive advantage in

thermal processing of soup

here in the U.S.

The first series of those are

focused on condensed.

And it's more than the

cold-blend technology.

It is a bundle of technologies

around a series of processing

steps that we're not going to

get into.

But put together, it gives us

something that we don't

believe can be duplicated.

Not only that, but -- and we haven't

discussed that a great length

yet, but behind this round of

technology we're bringing to

bear against condensed, we

have a series of other

technologies which will give

us further competitive

insulation into '05, '06 and '07.

So, this is an area where we

just have to win.

And so we're very comfortable

with our capabilities here and

our ability to differentiate

ourselves.

Has that technology when

you test marketed it with

consumers and taste profiles

given you like an 80-20, you

know, win

versus the competition?

Can you share with us like how

dramatic this technology

appears to be in lifting

consumer spending habits?

We have tested it, and we

have very encouraging test

results.

But -- and they're profound

wins.

However, it's just the

beginning.

We're going to layer on other

activities on top of that that

are going to keep that

improvement process going so

that the measure of our

success, over time, is going to

be how we layer on the

technology advances to win

over the long-term.

But in the near-term, I can

tell you even the products

we're bringing to market next

year are significantly

preferred products versus both

current and Private Label, and

other branded.

So, we're definitely on the

right track, and much more to

come.

Okay.

That's helpful.

Thank you.

And Bob, in terms of next year,

obviously, it's more or less

our job to

predict your sales and stuff.

But could you at least give us some

kind of guidance on, you know, should

interest expense continue to

decline, is your tax rate

going to drop?

Just a few things below the

line to kind of help us out,

because we have to come up

with the numbers before you

release results in September.

Let me just say in fact we

don't expect our interest

expense to decline, because I

think at some point if you

look out at the interest rate

future curves, the trend is

definitely for increasing

short-term rates.

So, I think that would be too

much to ask for absolute

dollars of interest expense to

go down next year.

As far as the tax rate is

concerned, my expectation now

is that our tax rate will be

approximately the same as it

is this year.

And you know, that's give or

take a few basis points.

Okay.

All right.

Thank you very much.

Okay.

Next question, Jessica?

Yes, sir.

Our next question comes from

Mr. Leonard [Cheetlebomb] of

Merrill Lynch.

Hey, Len.

Good morning.

Doug, when you came in to

Campbell and looked at it,

I've got to suspect you had an

idea in your mind as to how

much advertising it would take

to really get the soup area

moving, et cetera.

Can you give us kind of what the

guidelines are? I mean, is it going

to take an extra three,

400 million dollars over the

next couple years, or is it going to be a

multiple of that?

You can give us some idea of

what you think it's going to

take to get this moving in the

right direction?

And what kind of a return on

that investment would you

expect?

Well, Len, I think the --

our going-forward posture is

that we're in the right range

on spent.

We think there's enormous

productivity opportunities

here.

And the key for us to really

uncork the potential here is

to get -- to not only get the

media -- the advertising and

consumer spent right, but it's

also to get the trade spent

right and the -- make that

more effective, but

importantly to get the

innovation funnel going so that we

have a more strongly

differentiated portfolio of products.

And so, I think the whole -- within

the context of the whole mix

we're managing, the spend is

in the right vicinity.

We just have to improve the

productivity of it.

And we have to leverage it

with better differentiation of

our products and services.

Let me just try to ask the question just

a little differently. I think the new product innovations

and what's come out of the R&D labs in the

past has been good on short

shot basis, and you're looking

obviously at a longer product

stream now than ever before,

and that you should be commended

for.

But at the end of the day, we

still have to get the

consumer to put their hand

around a can of soup and put it in

the shopping basket, and you've

got to drive that through spend.

And it seems to me to wallow in

percentages is one thing, but

I'd like to get some kind of a

feel here as to what the

absolute dollar amount needs,

whether it's been underspent

in the past I don't care.

I'm just trying to figure out, are we going to be spending

over the next three years, again an

extra 500, 750 million bucks,

and should that drive --

should we get a one-for-one

return on that beginning in

year two or three, as we try

and reinvigorate the consumer

spending pattern?

There's got to be some linkage

here, and I'm trying to find

it.

Well, I don't know that I'm

going to have a satisfactory

answer for you.

We've done a lot of modeling of

the -- hypothetical modeling

of what is the right spend

mix?

Believe me, we went through

all those gyrations when we did

the transformation plan.

And I come back to thinking that we have, in my

opinion, the right general

range on advertising consumer

and trade.

The mix may shift, but we have

enough spend there to be

competitive.

Where we spent the money, we're

getting good return.

As I shared at Cagney, the bulk of the spend was

against -- in soup was against

ready-to-serve soups, and we

feel good about the spend

there.

We feel good about the return

on the spend.

We're spending -- the other

increases in spending were

against Prego, which is up,

were against Pace, which is

up,

were against V-8 Red, that's

up.

Was against the Pepperidge Farm

portfolio, all four major

categories in Pepperidge Farm

are responding.

We have to do a better job of

managing the spend.

But I think in total, we've

got the right range.

Okay.

Fine.

One last question. When we

start to go into the Summer

Solstice here,

rest period, are

you looking at this as a time

to start to work product in, or

are you just going to bunch it

in this the fourth quarter of the year?

I hope you're not implying -- if you think

we're getting

any rest right now, Len --!

[ laughter ]

Let me rephrase the

question, as you are getting

ready to load, prepare, in the fourth quarter,

should we start looking for newer products

hitting the market now, or is

it going be just like a blitz in the

fourth quarter--

in the September to December

period?

We have a planned flow and a

product.

I don't think you're going to see any --

you're not going to see any

major flow in the fourth

quarter.

We're being very planful with

this.

We're not trying to build any

inventories at any peak times.

We're trying to dial into the

planning windows of our major

customers.

And so you're going to see a

very planful flow as opposed

to maybe some of the behavior

you might have seen in the past.

Thank you very much.

Okay, Jessica, next

question.

Yes, sir.

Our next question comes from

John O'Neil from UBS Warburg.

Good morning, everyone.

Hey, John.

You gave us increases in

marketing for the quarter and

the year for the overall company.

Can you give us the percentage

change for the soup business,

North American soup business?

John, we don't really talk

about it individually by those -- by

product categories.

It's kind of a big product category.

Well, it is. I know.

And believe me, soup spending

was up.

Yeah.

It was up more than the 5%.

It was up more in the

average in both cases? Is that fair to assume?

Oh, yeah.

Right.

Specifically, no.

We don't want to get into

percentages.

I Understand.

As far as the initiatives that

are being accelerated on the

condensed line for next year,

what portion of the condensed

line will have the new

technology or product

improvements?

I'm sorry, John?

What portion of the

condensed line will have the

new product improvements in

fiscal '03?

It's about -- John, it's

about one-third of the other

eating line, which is about

roughly a quarter of the

condensed line.

So it's a third of a quarter.

I'll have to bring my calculator out.

So I think one 12th.

It's like 10% for next year.

It's an important 10%, in that

it's 10% of the business, but

about 20% of the decline, the

areas where we have declined.

So, it's an important measure,

but it's not enough to say

we're going to

fundamentally change the

profile.

Right.

And then, how big a brand do

you think the Soup at Hand can

become?

What does your testing and

modeling suggest?

Our modeling is very -- our

testing and modeling are very

encouraging.

But in my opinion, this is

going to be a

product that could, over time,

grow significantly where our

modeling has it.

We're not going getting into

forecasting the volume.

But in my opinion, we're going

to sell all we can make this

year.

And you had nice sales and

profit growth in the biscuits

and confectionary division.

Do you expect that to continue

into the fourth quarter of

next year?

John, we think our

innovation funnel there is

strong.

So, we would expect continued

solid performance from that

group of businesses.

And obviously, the big

question mark is Godiva,

in terms of how quickly that

business will return.

We've seen some pretty

positive developments recently,

but time will tell.

John, just building on that,

Pepperidge Farm and Arnotts

have very solid activities

that should maintain their

momentum going through next

year.

Both on the innovation front,

but also on the distribution

front.

We're being more aggressive on

the single-serve product lines,

both in Arnotts and in

Pepperidge Farm, and that's showing

us good incremental volume

potential, and we're also

starting to crack the code in

terms of being able to broaden

our distribution profile in

Pepperidge Farm here in the

United States, which gives us

some upside there, as well.

Great.

Thank you.

Next question, Jessica?

Yes, sir, our

next question comes from Jane

[Maring] from Salomon Smith

Barney.

You sound French today,

Jane.

Wee, I am! It's "Ma-ring."

Boy, I'm so thrown off from

that.

I have a couple questions.

First of all, could you drill

down a little more from what

is going on in the U.K.

and what you're doing about

it?

That's first of all.

Jane, this is Bob.

Our issues there are primarily

involved with the base

Campbell's and Home Pride

businesses in the U.K.

We are, you know, we've had some

category issues that obviously

we feel somewhat responsible

for because, you know, in most

cases we have significant

shares of those categories,

and again, you know, we

believe the -- you know, the

fix is, in fact, related to innovation

as well as good, solid,

consistent marketing

strategies. And we're hard at

work to, you know, to revive

those businesses.

Is it a issue mainly with

your branded competitors, with

private label, or any kind of

changes at the retailers?

Jane, this is Doug.

Hi, Doug.

Just to build on that.

We do have -- there are -- our

customers are challenging in

the U.K.

You know that.

There's a real trend towards

chilled foods there, which has

affected our -- some of our

sauce businesses.

There's also, it's also a very

competitive marketplace.

Our biggest challenge is to

get back on our game, however.

The last year, we were

focused -- we doubled the size

of our U.K. business

overnight with the Unilever -- with the acquisition

of Unilever Culinary Brands.

And we've stressed our system

significantly as we try to

integrate that business.

And in my opinion,

that integration

caused us to -- the challenge of

that integration caused us to

take our eye off the ball in

terms of managing our base

business.

Hmm. Where have we heard this

before?

So we continue to --

fortunately, it's in the U.K.

Right.

And not here on U.S. Soup.

But it's an area that we're

going to just have to manage

the balance better.

Jane, this is Bob again.

Let me add one other item

there.

We also have a Private Labels

soup business in the U.K.

And, you know, that business does absorb

some planned overhead.

And it's proven to be a pretty

volatile business for us.

And so, in fact, one of the things that

in fact we are also in the

process of looking at is how

we in fact manage that

business going forward.

So, that's another item that, in

fact, we're taking a hard look

at.

Like you would consider

seeding that business

altogether?

No. Not -- you know, I won't comment on all the

alternatives we're in fact looking at.

Okay.

Second question, have you

decided how you're going to

price the upgraded condensed

product yet?

And if so, can you share that

with us?

We -- everything we've

announced to date is we're

maintaining our price profile,

and that's the point of view

we're going to continue to

maintain.

Okay.

And then on a

broader issue, Doug, how do

you feel about the overall

portfolio right now of the

Company?

I mean, notwithstanding some

of the things that you have to fix.

But is it broad enough both in

terms of category, mix of

businesses, and

geographically, you know, or as you

get towards the end of your

three-year plan, do you think

the focus becomes more on

portfolio changes?

As I stated before, I'm

very comfortable with the

portfolio we have.

I think we've got an adequate

range of products that all

work together, and I think we

have adequate geographic

coverage.

Of course, we're always looking

at opportunities to upgrade

that profile.

One of the benefits we did

have when we came in here was

the portfolio was -- had been really

streamlined nicely by prior

management.

And so what we're working with

today, we're comfortable with

going forward.

However, we're always looking

to improve it.

We have a fundamental philosophy around

our portfolio and how we're going to

manage it going forward, and that's "staying

close to home will take you a

long way."

The concept being that we're

comfortable with our going to

fees and we'll stay there.

We don't expect any

breakthroughs into new

geography in the future, and

we're comfortable with our general

categories and our adjacent categories where we can

leverage our skills, assets

and capabilities to compete.

So that having been said, we

are actively looking at a

variety of options to

strengthen the portfolio,

globally.

Okay.

Can share those options?

I think it's a little preliminary for that.

It's a little early.

But we're active.

Okay.

Thank you.

Jessica, how many

more questions do we have in queue?

Three.

Okay. Let's take those and then

we're going to have to wrap up.

Thank you.

Our next question comes from

Mitch [Feraro] from Janney Montgomery

Scott.

Good morning.

Hi, Mitch.

Couple things.

First, are there or could you

address any execution risks in

these processed changes you're

making in the condensed

segment?

And obviously you're not going

all at once, but seems like

next year you have to shut

down plants and install

equipment and make sure it's

all running.

Is there anything that we

should worry about?

No, we have -- Mitch, this

is Doug.

We have a very competent

supply chain operation that

works well with our R&D group

on thermal process technology.

We know exactly what we need

to do.

We know how to do it.

We have a plan to do it.

And so we see no issues on

that front.

MITCH [FERARO] Did it have -- did that play

into the fact that you're

spacing that out over two

years?

Or is that a --

Absolutely.

We did not overcommit to a

plan that we couldn't execute.

So, we've developed a plan which

is manageable in terms of our

ability to execute it.

The return profile and the

spending profile.

Okay.

What about -- just one last

question; in your biscuit and

confectionary segment, you

don't specifically talk about

profitability in the three

groups, but you said sales

were up in each group.

How about profits in each

group?

Well, you're right, we don't get

into the group profitability.

I mean, the individual unit

profitability.

But what I would say is all of

our operations are in line

with our expectations.

That's up?

In total, that's up.

You know, Mitch, we've been

pretty clear about the Godiva

business.

And clearly, that's a pretty

fixed-cost business.

So when you're top line gets, you know,

gets hit a little bit, clearly that

has repercussions on the

bottom line.

Absolutely.

I'm sorry, Mitch.

My response was more along the

biscuit side of that equation.

Godiva we've been very clear.

Right.

And just one last detail --

Bob, I think you mentioned it

in the terms of cap-x.

The new bakery in Hartford,

you just broke ground on it, I

believe.

That's correct.

So only a small portion of

the 72 million will be in

this year, is that correct?

About a third.

About a third?

Roughly.

Okay, and two-thirds next

year.

That's correct.

Okay.

Thank you.

Okay.

Next question, Jessica.

Thank you.

Our next question from Andrew

Lazare from Lehman Brothers.

Good morning.

Just briefly, how will you -- can you give us a little more sense on how

you will sort of market and

merchandise -- let's say this [vegetable cluster]

as it comes to market --

in other words, will you

package it differently?

How will you call attention to

it more aggressively aside

from just spending more in

marketing?

Will it be shelved differently?

And how will some the sales

force initiatives you've been doing perhaps help that process?

This is Doug again, sorry.

There are several initiatives

that are going to help us call

attention to it.

Certainly we'll be doing it

through advertising and

packaging

in terms of the label.

But also we have a major

shelving initiative we're in

the process of unveiling,

really leveraging our superior

understanding of the soup

category that is -- that will

be resetting a significant

share of the shelves in this

country this Fall,

as we try to help the -- our

customers improve category

profitability.

As we do that, products that

are differentiated and have

news will be more prominent.

So there's a major shelving

initiative going on, as well as

the advertising promotion and

packaging.

You've been working on that

initiative for a while, right?

Well, we've been developing.

Developing, right.

We've been developing it

over the past year, and we've

taken it to our customers in

the past four months, and

there's been -- it's resonated

with them and

we're very optimistic

about it.

That's helpful. Thank you.

Our last question, Jessica?

Yes, sir.

And that's from Art Cecil from

T. Roe Price.

Good morning.

Good morning, Art.

I was just wondering if you

all feel it might be

reasonable for analysts to

look at the experience that

you have in '03, with the

upgraded technologies soup

products as a window on what

to expect for that overall

program, as it unfolds in '04

and beyond.

Art, yeah, I think we'll --

as we get a little later into

the year, we'll look at the

possibility of being able to

show you what some of that

looks like.

Well, I mean, as you have

results in fiscal '03 with

this 10% of the line, and to

the extent that it shows an [overlapping speakers] --

I see, yes.

I'm wondering if that can

be used as a way to forecast how well

this whole program --[overlapping speakers]--

Art, sorry.

This is Doug.

What we're pulling forward is

going to be the execution

around what we call our

"vegetable cluster."

Right.

And it's a small percentage.

The package will not be fully

differentiated in terms of the easy-open can feature.

And we won't get the

synergistic effect of the

entire line changing.

It will be a point of

encouragement, but it won't

be -- I don't think it will be

an adequate data point for

forecasting the performance of

the line.

I think it will be suboptimal.

Okay.

Everything we've looked at

in the past, and you know this,

whenever we've had benefit

upgrades around any item off

our line, we've seen very good

responsiveness from the

consumer.

Right.

And we expect that from

this line, but we don't --

it's going to be -- it's not

enough of the change and not

enough of the line to be able

to read it.

Okay.

Thank you.

Secondly, as far as the

capital spending guidance for

'02, it looks like it's down

about $20 million from what we

had before.

Does that suggest at all that

the '03 capital spending

numbers are going to be further below

expected earlier, as well?

Art, we're in fact right in the

middle of our planning for '03,

so, you know, I'd be premature in

offering any point of view on

that.

I would say, we feel good

we can operate within the

range that we have.

And it's just a question of

can we tighten it?

If we can, we will.

But it's premature to make the call.

Thank you.

And we're doing all the

projects, Art.

I mean it's just a matter of being

able to deliver them under

what our budget was.

Finally, Doug, you

mentioned early on in the

Q&A with respect to the Franco

American business, I guess,

including gravy and beans and so

forth, you talked about these

are products, tough category,

and they need to be addressed.

I'm sort of curious, because it

seems like a lot of companies

today are increasingly moving

away from what they call their

minor brands, reducing their

SKU exposure, and even

recognizing that prior

management has done a lot of

that for Campbell,

I'm just curious, how you --

what you might have been

referring to when you used the

term "needs to be addressed."

Well, Art,

let me elaborate on that a little

further for you.

When I arrived back in January

of last year, we had a North

American operation that

managed soup, food, beverages,

everything, in North America.

Very early on, we identified

that one of the adverse

impacts under that system was

that the non-soup businesses

were not being adequately

addressed.

And we shared that with you at

the transformation plan in

July.

We -- and by September, we had

broken those two business

units fully apart and we

staffed what we -- the sauce

and beverage area that we now

report on.

And we have the most

significant management focus

on those businesses that we've

had in the last decade.

The focus there, obviously,

was on Prego, Pace, and

beverages first if foremost.

And we're addressing all those

areas, and we are now getting

our arms fully around the

Franco American and the other

line -- other items.

Okay.

And so it's -- we're just

getting there now.

I will tell you it's an

important part of that

portfolio.

It is profitable and it is

growable, but it does require

attention that it's just now

getting.

Okay.

So, you meant needs to be

addressed operationally, rather

than strategically.

Absolutely.

Okay. Well, thank you very much.

Okay.

Jessica I think that's

going to be all, we have time

for today.

I want to thank everyone for

joining us this morning on the

conference call.

And if you have any follow-up

questions, please give me a

call at 856-342-6428.

That concludes

today's teleconference.

You may disconnect at this

time.