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Campbell Serves Up Lukewarm Quarter

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Soup maker beats estimates, not expectations.

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On Thursday New Jersey-based Campbell Soup (CPB) reported a fourth-quarter gain of $0.24 a share on revenues of $89 million. For those keeping track, that's a sweet bump from the $0.16 a share on revenues of $61 million it turned in for the comparable period last year. According to Reuters, if you exclude restructuring items, the soup maker actually earned $0.26 a share.

That's good news and a penny north of what the Street had been looking for. There were other positives, too.

For example, per the company's earnings release, US soup sales for the quarter increased 15%. And soup sales have the potential to be strong going forward. It's generally pretty cheap, not to mention delicious. In this economy I consider that a plus.

I was likewise impressed by Campbell's share buyback program. Its release indicated that during fiscal 2008 the company bought back 26 million shares (if you follow my column, you know I get the warm and fuzzies when I see repurchases of this nature). I think the buyback's a great sign the board thinks the stock ultimately has some upside.

On the downside, while total sales came in around $1.7 billion -- a 13% jump over the approximately $1.52 billion it booked in the comparable period last year -- its own press release explained that:

  • Currency added 4%.
  • The 53rd week added 8% (yes, there was an extra wheel built into the fourth quarter).


I think that takes some of the shine off the top line number.

Given the high cost of ingredients and the competitive nature of the food business in general, I'm also concerned about its margins .

The aforementioned Reuters article reports that the company expects costs for ingredients, packaging and energy to rise between 9% and 10% in 2009, up from the 7% to 8% percent increase it saw in 2008.

The company's full-year gross margin of 39.6% also caught my eye; it was 100 basis points lower than what it reported in the prior year.

Overall, there was good and bad baked into the quarter. Although I'm optimistic the shares can head higher, I remain cautious.

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No positions in stocks mentioned.

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