Campbell said profits rose to $285 million, or 72 cents a share, in the fiscal second quarter ended Jan. 28, from $254 million, or 61 cents a share, a year earlier.
Excluding the gain on the sale of a Pepperidge Farm facility, earnings were 68 cents a share. Analysts, on average, forecast earnings of 63 cents a share, according to Thomson Financial.
Gross margins rose to 42.9% from 42.1%, as pricing and productivity gain exceeded cost increases, the company said.
But the company also reduced advertising and promotion spending, which could raise concern with analysts. A spokesman said the reduction was planned going into the quarter.
"I think some of the strength in operating profit is linked to lower marketing and advertising, so the quality of earnings is not that great," Arun Daniel, senior sector analyst, consumer discretionary and staples, at ING Investment Management, said. "But I think the fact that they raised the '07 outlook is positive." ING Investment Management owns about 800,000 Campbell shares.
Like many food companies, Campbell has raised prices to try to overcome rising costs, while also spending money to develop new products like low-sodium soups.
Sales rose 4.2 percent to $2.25 billion, though U.S. soup sales fell 1%. The second quarter is typically the largest sales quarter for the company as colder weather spurs soup consumption.
The company said retailers built up less soup inventory in the quarter than a year ago, likely due to the warmer weather. A spokesman said the company expects a correction in the third quarter, with retailers reducing inventory less than they did a year ago.
Sales in the baking and snacks business, which includes Pepperidge Farm, rose 6 percent, the company said.
Campbell said it now expects earnings from continuing operations to rise 10 percent to 12 percent in fiscal year 2007 from adjusted pro forma results of $1.73 in 2006. That is an increase from the company's forecast of a 5% to 7% increase.
Before Friday. Campbell shares traded at about 19 times estimated 2008 earnings, compared with a multiple of 16.9 for Progresso soup maker General Mills.