On any given rainy or sick day in the United States, there is one brand that frequently comes to mind: Campbell Soup Company (CPB). While this American food staple sells far more than just its famous canned soups, through its various brands such as Pepperidge Farms crackers and V8 vegetable drinks, the company's stock has not been nearly as warm and welcoming as its products.
At first glance, the company seems like a reasonable investment. Earning a 3.3% dividend yield and having a P/E of only 14.41, the stock is not particularly concerning and may even strike interest among dividend growth investors. However, digging deeper, not all is as it seems and there are several reasons to stay away from the stock altogether.
Sluggish, Low Growth
While growth has not been entirely elusive for Campbell Soup Company, it still suffers from the inherent troubles of growing such a simple and straightforward household staple product: canned soup, sauces, and simple packaged foods. Not exactly the most innovative, exciting products to foster growth.
The proof of this slow-growth business lies in the company's earnings results. The fourth-quarter earnings report for the period ended July 29, 2012, reported decreased adjusted net earnings of $0.41 cents per share -- down 5% from $0.43 cents per share in 2011. The adjustments excluded are the transaction costs associated with the acquisition of Bolthouse Farms, a supplier of fresh vegetable-based drinks and salad dressings, and costs associated with an ongoing restructuring program to help optimize logistics and production.
On a larger scale, the full-year 2012 results were either the same or worse compared to 2011, and even 2010:
- Total sales in 2012 were $7.701 billion, falling roughly between 2011 sales of $7.719 billion and 2010 total sales of $7.676 billion.
- Gross margin declined from 2011 almost 2% to 38.8%.
- Adjusted net earnings decreased 4% to $2.44 per share, down from $2.54 per share in 2011 and slightly down from $2.47 in 2010.
Looking at the breakdown of full-year 2012 results by segment, such as the Simple Meals and Sauces categories, increases or decreases in sales and revenue are mostly attributed to either changes in promotional spending, consumption and consumer demand, or inflation in food prices, rather than any one-time only excuses that an investor could brush off.
With the sampling of results above, comparing the last three fiscal years from 2010-12, it is clear to see that Campbell Soup remains, for the most part, stagnant, with positive or negative changes flip-flopping given enough time.
For the most part, earnings growth is mostly absent from Campbell Soup, leaving potential investors thirsty for hope. Even with the acquisition of Bolthouse Farms, earnings are only expected to rise 5-7 cents per share in 2013, or approximately 2%-3%. Looking at financial results alone, there is almost no reason for an investor to hold Campbell Soup for any significant amount of time, as it is seemingly a path leading nowhere.
The company's financial performance is conclusively stagnant, with small rises and drops being neutralized within a year or two. This is definitely not a stock that an investor looking for growth should consider. Even for an investor looking for a safe investment, such as for retirement income or merely to beat inflation in a low-interest banking environment, Campbell Soup still does not fit the bill for several reasons.
First, the company's dividend may provide a good yield at 3.3%, but it has a weak history. The quarterly dividend was last raised in January 2011 to $0.29 cents per share, an increase of 5.5%, and almost two years ago. Looking at the dividend history, we can see that the dividend has not always been raised every year, or even every two years, such as the lack of increase from October 2001 until August 2004 -- almost three years later. Additionally, the dividend was slashed almost 30% in 2001 to focus on research and development. Other dividend growth stocks, such as McDonald's (MCD) and Coca-Cola (KO), have increased their dividends every year without fail, while still developing and growing far faster than Campbell Soup.
Second, the stock has a beta of only 0.26, and, for the most part, has traded roughly in the same range over the last 12 years. An investor that purchased Campbell Soup in January 2000 would be down about 6.6%. Even a year timeline has little potential return for an investor, with the stock trading between $31.22 and $36.28 in the last 52 weeks.
The products from Campbell Soup may be tasty and fulfilling, but the stock is far from such a description. With stagnant long-term growth and performance, an uneventful stock chart, and a dividend of unreliable history, an investor is better suited toward other dividend-paying stocks with bright futures of growth (such as McDonald's, given the reasons listed in my article on the fast-food giant). Campbell Soup simply does not have enough going for it to be worth investing capital in.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.