Shares of Campbell Soup (CPB), the food manufacturer, ended Tuesday's trading session unchanged. Before the market opened, Campbell Soup reported its fourth quarter and full year results.
Fourth Quarter Results
Campbell Soup reported fourth quarter revenues of $1.61 billion, up 0.4% on the year. Sales came in just above analysts expectations of $1.60 billion. Higher volumes and a favorable product mix boosted revenues by 3%. The sales growth was offset by the negative impact of a strong dollar and higher promotional spending.
Gross margins fell by 130 basis points to 38.5%, as a result of food cost inflation and higher promotional spending.
The company net earned $127 million, or $0.40 per diluted share. Earnings compare to last years earnings per share of $0.31 per share. Adjusted earnings fell by 8% to $130 million, as last year's earnings were severely impacted by restructuring charges. Adjusted earnings per share fell by 2 cents to $0.41 per share. On average, analysts expected Campbell Soup to earn $0.38 per share.
Full year sales came in at $7.71 billion. Campbell Soup net earned $774 million, or $2.41 per share.
CEO Denise Morrison commented on the results, "In the fourth quarter, we generated organic sales growth, with gains across most of our portfolio, including strong sales in U.S. Soup and U.S. Simple Meals. Retailers continue to respond favorably to our new product development, and we have started shipping new products for fiscal 2013 launches."
For its fiscal 2013, Campbell expects to grow its sales between 10 and 12%, to a level around $8.5-$8.6 billion. Adjusted EBIT are expected to grow by 4-6%, while adjusted earnings per share are expected to grow by 3-5%.
Adjusted earnings per share, are expected to come in between $2.51 and $2.57 for the full year. The outlook, includes the impact of the Bolthouse Farms business. The acquisition will boost annual sales by $750 million, and earnings by $0.05-$0.07 per share. On average, analysts expected full year earnings of $2.52 per share.
Campbell Soup ended its final quarter with $335 million in cash and equivalents. The company operates with short and long term debt of $2.79 billion, for a net debt position of around $2.5 billion.
The market currently values Campbell Soup at $11.1 billion. Based on the full year outlook for 2013, the market values the firm at 0.8 times annual revenues. Campbell is valued at 14 times annual earnings.
Other competitors including H.J. Heinz (HNZ) trade at 1.5 times annual revenues. Its larger competitor trades at 18 times trailing annual earnings.
Currently Campbell Soup pays a quarterly dividend of $0.29 per share, for an annual dividend yield of 3.3%.
Year to date, shares of Campbell Soup trade with gains of a mere 5%. Shares have traded within a $30-$36 trading range, during the first eight months of the year.
Over the past five years, shares traded as high as $40 in 2008. Shares fell to lows of $25 during the recession in 2009, but have traded in a $30-$36 trading range ever since for most of the past years.
Between 2008 and 2012, revenues stagnated from $8.0 billion to $7.7 billion. For the next year significant revenue growth is driven by the acquisition of Bolthouse Farms. Net income fell from $1.16 billion to $774 million, in the meantime. Earnings per share, fell less as the number of shares outstanding was reduced by roughly 15% as a result of share repurchase programs. Annual dividends rose from $0.88 per in 2008 to a current annual rate of $1.16 per share.
Investors in Campbell Soup should not expect miracle returns. Revenues are stagnating, while profits remain stable. Investors should applaud the shareholder-friendly financial strategy. Campbell has boosted its annual dividend yield to 3.3%, and at the same time has repurchased its own shares. Furthermore, acquisitions offer some prospects for growth.
Long term investors starving for dividend yield, could pick up the shares. One should expect modest long term capital gains.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.