Campbell Soup: Forex Is Good Food

Campbell Soup Co. (CPB) released earnings yesterday which were considered decent (better than estimated), raised guidance and beat the performance of the broader market by 5bps (+1.41% on the day). Let's take a look at the big news:

Campbell now expects fiscal 2010 sales growth of 4 to 5 percent and adjusted EBIT growth of 6 to 7 percent, up from its original guidance of 3 to 4 percent for sales and 5 to 6 percent for EBIT. The company now expects to deliver adjusted EPS growth of 9 to 11 percent from the fiscal 2009 adjusted base of $2.21, up from its original estimate of 5 to 7 percent. This guidance includes the impact of currency translation, which at quarter-end rates of exchange would be favorable by 3 to 4 percentage points.

Let's dig a little:

International Soup, Sauces and Beverages sales fell 2% which was helped by ForEx gains (+2%) and price and sales allowances (+4%). Not entirely reassuring. Baking and snacking sales rose 4%, currency and sales allowances added 4% (promotional spending dragged it down by 3%).

CPB resembles a large number of reporting entities where top line growth is anemic, margins have moderately increased an foreign exchange is the salvation of earnings. At some point, investors will demand sustainable growth which begins at the top (line) and falls to the bottom (line). Cost cuts and ForEx cannot last forever (well, given the trajectory of the dollar, this could last a while).

Disclosure: No positions.