CAMPBELL SOUP CO. $32 (New York symbol CPB; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 318.7 million; Market cap: $10.2 billion; Price-to-sales ratio: 1.3; Dividend yield: 3.6%; TSINetwork Rating: Above Average; www.campbellsoupcompany.com) is the world’s largest maker of canned soups. It also makes Prego canned pasta and sauces, Pepperidge Farm cookies and V8 vegetable juices.
The company’s sales rose 1.7%, from $7.9 billion in 2007 to $8.0 billion in 2008 (fiscal years end July 31). Sales fell to $7.6 billion in 2009, but rose to $7.7 billion in 2011.
Erratic earnings set to stabilize
Earnings fell from $1.99 a share (or a total of $792 million) in 2007 to $1.75 a share (or $671 million) in 2008. Earnings rebounded to $2.42 a share (or $844 million) in 2010. In 2011, overall earnings fell to $802 million, but earnings per share remained unchanged at $2.42 due to fewer shares outstanding. Without unusual costs, including a 2010 charge related to the U.S. health-care law, which eliminates a subsidy that companies get for contributions to retired employees’ prescription-drug plans, earnings per share would have risen 2.8% in 2011, to $2.54 from $2.47.
Campbell gets 35% of its sales from its U.S. Simple Meals division, which sells soups and other canned foods. This division’s sales fell 6.4% in 2011, mainly because it had to increase its prices to offset rising ingredient costs. That cut its sales volumes by 5%.
Sales declined 0.4% at the U.S. beverage division (10% of overall sales) as higher advertising spending offset strong sales of new V8 drinks.
However, sales of snack foods (30% of overall sales) rose 9.2% in 2011 because of higher prices and strong demand for Goldfish brand crackers. Sales at the International Simple Meals division (20% of sales) rose 2.8%, mainly due to favourable foreign exchange rates. The North American Foodservice division (10% of sales) reported a 2.1% sales increase, as restaurants ordered more refrigerated soup.
Big plans for 2012
Spending on new product development rose 4.9% in 2011, to $129 million (or 1.7% of sales) from $123 million (or 1.6% of sales) in 2010.
This higher spending will help Campbell launch 35 new products in fiscal 2012, including new regionally inspired soups, such as Creole-style chicken, and more V8 drinks. In addition, the company is building a $30-million facility in Connecticut that will focus on new snacks and baked goods. Campbell also plans to spend $100 million to promote its new products in 2012.
The company can easily afford these investments. Its long-term debt of $2.4 billion is just 24% of its market cap. It also holds cash of $285 million, or $0.90 a share.
Low p/e for a global stalwart
Campbell’s higher development and advertising spending will limit its 2012 earnings to $2.30 a share. The stock trades at a 13.9 times that estimate. However, earnings should rebound to $2.50 a share in 2013. That gives the stock a p/e ratio of 12.8, which is low in light of Campbell’s well-known brands and strong global prospects. The $1.16 dividend yields 3.6%.
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