Campbell Soup warns higher costs to hit second-quarter margins

Cans of Campbell's Soup are displayed in a supermarket in New York City, U.S. February 15, 2017. REUTERS/Brendan McDermid/File Photo

Dec 8 (Reuters) - Campbell Soup Co (CPB.N) on Wednesday warned its current-quarter gross margins will be under pressure due to higher labor and raw material expenses, even as it beat Wall Street expectations for first-quarter profit.

A sharp rise in inflation and a tight supply chain environment caused by the pandemic has driven up shipping and labor costs, denting margins of packaged food companies and forcing them to bump up product prices.

Campbell, which like its peers Kraft Heinz (KHC.O) and Conagra Brands (CAG.N) has raised product prices over the year to offset cost inflation, said the benefit from higher prices will materialize only at the end of the current quarter.

The Prego pasta sauces maker, which reaffirmed its full-year sales and profit forecast, said it expects core inflation in high-single-digits for the year and it will have "a more pronounced impact" in the second half.

Campbell, however, added that some of the supply pressures were easing and forecast current-quarter sales to rise sequentially.

Shares of Camden, New Jersey-based Campbell, which have fallen about 15% this year, were flat in premarket trade.

Excluding one-time items, the Cape Cod potato chips maker earned 89 cents per share in the first quarter ended Oct. 31, beating analysts' estimates of 81 cents, according to Refinitiv IBES data.

However, net sales declined 4.4% to $2.24 billion, below estimates of $2.28 billion, as at-home dining trends waned with consumers heading out to restaurants after COVID-19 curbs eased.

Reporting by Deborah Sophia in Bengaluru; Editing by Vinay Dwivedi

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