Campbell Soup Company reported a 14% increase in adjusted net earnings per share in its first fiscal 2010 quarter -- up to $0.87 versus $0.76 in the same period last year, despite an overall sales decline of 2% and a 3% decline in U.S. soup sales.

Net earnings for the quarter ended Nov. 1 were $304 million -- or $0.87 per share -- compared with $260 million, or $0.70 per share, in the prior year.

Gross margin increased from 38.7% in last year's Q1 to 41.9%, largely driven by supply-chain productivity improvements and pricing increases.

The company raised its guidance for the year. It is now projecting 4% to 5% sales growth and adjusted earnings before interest and taxes (EBIT) growth of 6% to 7%, versus its original guidance of 3% to 4% sales growth and 5% to 6% EBIT. Campbell is now projecting adjusted EPS growth of 9% to 111% from a fiscal 2009 adjusted base of $2.21, up from its original estimate of 5% to 7%.

Volume and mix and increased promotion spending were responsible for the 2% overall sales decline, to $2.2 billion.

Total marketing and selling expenses decreased by 7.5%, to $284 million compared with $307 million in the prior year, which included significant advertising costs associated with major soup initiatives. Lower advertising costs also reflected a reduction in media rates and a shift to trade promotion, according to Campbell.

U.S. soups' 3% decline was against a significant, 12% gain in last year's first quarter, which was driven by the launches of Campbell's Select Harvest soups, Campbell's V8 premium soups and Swanson stock, as well as increased marketing support across the portfolio.

However, President and CEO Douglas R. Conant said that Campbell built momentum in the latter part of the quarter -- when, as planned, the company significantly stepped up its U.S. soups marketing and merchandising programs. "Looking ahead, we're optimistic about our U.S. soup business, led by the renovated Campbell's Chunky line, innovations in our condensed portfolio and our Swanson broth business," he said.

Total US Soup, Sauces and Beverages sales declined by 5%, to $1.14 billion. Volume and mix subtracted 6% and increased promotion spending subtracted 1%, against 2% added by price and sales allowances. Beverage sales decreased, primarily due to a decline in V8 vegetable juice sales. After double-digit growth in fiscal 2009's first quarter, Prego pasta sauce and Pace Mexican sauce sales also decreased, primarily due to increased competition.

Baking and Snacking sales rose 4%, to $530 million, with volume and mix adding 1% and price and sales allowances adding 2%. Pepperidge Farm sales were flat: Bakery gains were offset by declines in cookies and crackers (although Goldfish crackers continued solid growth).

International Soup, Sauces and Beverages declined by 2%, to $374 million, with volume/mix subtracting 3%, divestitures subtracting 3%, and increased promotional spending subtracting 2%, against increased pricing and sales allowances.

North America Foodservice declined 2%, with volume/mix subtracting 4%, also against increased pricing and sales allowances.

This news story is important. I recommend that everyone read it.