On Thursday, September 11 pre-market, Campbell Soup Co. (CPB) reported Q4 earnings of $0.24 per share or $89 million on $1.7 billion in revenue vs. $0.16 per share or $61 million on $1.5 billion in revenue a year ago, up 46% in profit (see conference call transcript). Excluding the sales of its Godiva and Australian salty snacks businesses, CPB would have earned $0.26 per share. Analysts expected $0.25 per share on $1.7 billion in revenue, beating estimates by $0.01 per share and coming in-line with revenue targets. Shares dropped at the open, filled its gap, and drifted higher to close at $39, up 3.8% or $1.42.
CPB’s U.S. sales were impressive, rising 15% compared to a year ago. The introduction of new, healthier products won the hearts (and mouths) of consumers, especially through its Chunky soups. Later this month, CPB will introduce the Select Harvest brand of soups, dedicated toward natural vegetables and grains and another V8 soup. Given that Q4 is typically the weakest quarter for CPB (summer is not soup season, obviously), CPB performed well despite the fact that 8% of sales came from an extra week for the quarter and 4% came from favorable currency rates.
The U.S. Soup, Sauces, and Beverages unit increased sales by 12% to $673 million vs. $601 million a year ago. Campbell’s brand sales increased 6%, ready-to-serve soups increased 5%, and the Swanson brand increased 13%. Excluding the extra week, U.S. soup sales increased 1%. The International Soup, Sauces and Beverages unit increased sales by 17%, mainly helped by an 11% add-on due to favorable currency rates. Sales in Europe, Canada, and Asia all increased.
The Baking and Snacking unit increased sales by 13% to $533 million vs. $471 million a year ago. Sales were led by Goldfish crackers, Baked Naturals, Arnott’s and Pepperidge Farms snacks. I personally recommend Pepperidge Farms Baked Naturals Pretzel Thins - 0 grams of fat and 110 calories per serving.
The N. American Foodservice unit increased sales by 7% to $147 million vs. $138 million a year ago with the extra week contributing the most by adding 8% to revenues. Without the extra week, sales actually declined and operating earnings amounted to $0 due to $7 million in costs designed to improve long-term profitability.
Besides the weakening U.S. economy, the main threat to CPB’s bottom line is the sustained increase in commodities prices and other expenses (expenses increased 12% for the fiscal year). In 2009, management expects costs for ingredients, packaging, and energy to rise 9-10%, up from 7-8% so far in 2008. In response, CPB is gradually increasing prices with noticeable increases in the beginning of 2009.
Currently, 15 firms publish recommendations on CPB with 4 “Buy” ratings and 11 “Hold” ratings. The most recent action occurred on September 3 when Soleil Securities initiated coverage with a “Buy” rating and a price target of $44. Expect more ratings action in the coming weeks.
CPB hit a new 52-week high. Yesterday, only 17 NYSE issues made new highs, while 241 made new lows. In addition, CPB is up about 5% YTD vs. -17% for the S&P 500. CPB is one of the very few that are significantly outperforming the market. Technically, this is a major signal for a continuation to the upside. Not only has CPB successfully tested the 50-day, but also broke through $38 resistance and filled the continuation gap on the same day. CPB is highly likely to continue to outperform the market.