Earnings Scorecard: Campbell Soup Company

Sep. 8.11 | About: Campbell Soup (CPB)

Recently, worldwide manufacturer and marketer of high-quality, branded convenience food products, Campbell Soup Company (NYSE:CPB) announced its financial results for the fourth-quarter of 2011. Street analysts had nearly a week to ponder the news. In the subsequent paragraphs, we cover the recent earnings announcement, analysts' estimate revisions as well as the Zacks Rank and long-term recommendation on the stock.

Earnings Review

Campbell reported robust fiscal 2011 fourth-quarter adjusted earnings of 43 cents per share, beating the Zacks Consensus Estimate of 37 cents. The company also outpaced earnings of 33 cents a share posted in the fourth quarter of fiscal 2010.

During the quarter, net sales inched up 5.9% from the prior-year quarter to $1,607.0 million, marginally beating the Zacks Consensus Estimate of $1,572.0 million. The increase was primarily due to a 2.0% spike in price and sales allowances and favorable currency translations of 5.0%, partially offset by a negative impact from volume and mix of 2.0%.

Guidance

Campbell expects sales to increase in the range of 0.0% to 2.0% in fiscal 2012. The company forecasts adjusted earnings for the fiscal to decline at a clip of 5.0% to 7.0% from the adjusted base of $2.54 per share.

Agreement of Estimate Revisions

Estimate Revision trends for the upcoming first and second quarter of fiscal 2012 portrayed mixed sentiments among most of the analysts. Over the last 7 days, 2 out of 17 analysts revisiting their estimates have adjusted it in downward direction while 1 analyst has upgraded it for the upcoming first quarter of fiscal 2012. For second-quarter 2013, 2 analysts have downgraded and 2 have upgraded their estimates.

Further, 7 analysts covering the stock revisited their estimates for fiscal 2012, over the last 7 days and adjusted it in the upward direction. However, over the last 7 days, 1 analyst downgraded and 2 analysts upgraded their estimates for fiscal 2013.

Magnitude of Estimate Revisions

As a result of the mixed sentiment seen among analysts over the past one week, the Zacks Consensus Estimate for the upcoming first and second quarter of 2012 have remained unchanged in the last 7 days to 81 cents and 66 cents per share, respectively.

Moreover, the Zacks Consensus Estimate for fiscal 2012 remains unchanged at $2.38 per share, over the last 7 days. While Zacks Consensus Estimate for fiscal 2013 has been lowered by 1 cent to $2.53 per share.

Our Recommendation

Campbell Soup is one of the world's leading manufacturers of convenience food products. Furthermore, a strong portfolio of well-established brands, including Campbell's, Erasco, Liebig, Pepperidge Farm, V8, Pace, Prego, Swanson, and Arnott's offer a competitive edge to the company and strengths its well-established position in the market.

Moreover, the premium soup segment is underdeveloped in the U.S. with only 6% market share. Hence, management believes that a breakthrough opportunity lies in offering premium aseptically packaged and refrigerated soups.

The company has expanded into the premium refrigerated soup business, which will increase production by approximately 50%. Therefore, management expects to generate incremental retail sales from this category.

However, the raw and packaging materials used in the company's business include tomato paste, grains, beef, poultry, vegetables, steel, glass, paper and resin. Many of these materials are subject to price fluctuations from a number of factors. Rising commodity prices may undermine the company's future performance.

Above all, Campbell Soup operates in a highly competitive food industry and experiences worldwide competition in all of its principal products from such well-established rivals as General Mills Inc. (GIS) and H.J. Heinz Company (HNZ). This may dent the company's performance.

Currently, Campbell Soup currently has a Zacks #3 Rank, implying a short-term Hold rating on the stock. The company retains a long-term Neutral recommendation.