Campbell Soup Co reported a higher-than-expected quarterly profit on Monday, helped by price increases and easing costs for ingredients including grains that offset a drop in sales.

The world's largest soup maker also raised its sales and profit expectations for the fiscal year and its shares advanced 0.5 percent.

Sales fell 2.1 percent to $2.2 billion from a year ago, when Campbell's sales jumped 3 percent in the wake of a financial markets crisis. U.S. soup sales were down 3 percent during the first quarter, following a 12 percent jump in the year-earlier quarter.

The company, whose other brands include Pepperidge Farm cookies and Prego pasta sauce, has benefited in the last year as consumers prepared more meals at home. The company has also reined in costs, allowing it to increase its gross margin to 41.9 percent from 38.7 percent a year earlier.

Campbell's saw sharp declines in its ready-to-serve soups such as its Select Harvest line, although sales of its Chunky soups rose.

We built momentum in the latter part of the quarter when, as planned, we significantly stepped up our marketing and merchandising programs, Chief Executive Douglas Conant said in a statement.

Campbell earned $304 million, or 87 cents a share, in the first quarter that ended November 1, up from $260 million, or 70 cents a share, a year earlier. Analysts, on average, had forecast 81 cents per share, according to Thomson Reuters I/B/E/S.

IMPROVING SOUP SALES

In a call with analysts, Conant said U.S. soup sales were improving and had risen 10 percent in October. A sluggish U.S. economy and high unemployment are likely to keep shoppers turning to its brands, analysts said.

Consumers are eating more meals at home, and that plays to their strengths, said Jack Russo, an analyst with Edward Jones.

Russo said the company's condensed soup products in particular were benefiting but that some of Campbell's higher end products, such as its Pepperidge Farm line, were flat as a result of shifting customer spending.

On the call, Conant said that the company was competing ferociously with products such as frozen meals.

For the year, Campbell now expects sales to rise 4 percent to 5 percent, versus a prior forecast of 3 percent to 4 percent. It forecast fiscal 2010 adjusted earnings per share would rise 9 percent to 11 percent, including an expected lift from currency translation. It previously forecast a 5 percent to 7 percent gain.

Campbell's shares were up about 18 cents, or 0.5 percent, at $34.30 in late morning trade on New York Stock Exchange trading.

(Reporting by Phil Wahba, editing by Maureen Bavdek, Dave Zimmerman)