Campbell Soup (NYSE:CPB) posted decent results for the second quarter, a welcome relief for investors after a dismal performance in the first quarter. Campbell outperformed analysts' expectations on both earnings and revenue. The company's latest acquisition of Kelsen proved to be profitable for the company, as it was able to expand its business in China.
Reviewing the results
After a poor start to the fiscal year, Campbell came back with a good set of numbers in the second quarter. Sales from continuing operations increased 5.5% to $2.3 billion, and net earnings rose 71% to $325 million versus the year-ago period. The gross margin improved to 35.7% as compared to 35.2% last year. The acquisition of Kelsen added $92 million to revenue, and this is expected to further contribute to the top line this year, as sales are estimated to grow by 4%-5%.
It is all positive for Campbell, and the company is taking steps to keep this momentum going.
Campbell is working hard to increase its sales, especially soups. The company has launched eight new soups, including its first Latin-inspired soup, and is counting on them to boost results. The acquisition of Kelsen was a strategic move by Campbell, as it helped the company to gain market share in China and other developing markets, apart from increasing its product portfolio. Kelsen helped Campbell record 14% growth in the baking and snacks segment, and the momentum should carry forward as the acquisition is integrated further.
Campbell is also witnessing an improvement in trends in the industry. In the first quarter, the company's core business was subdued because of weakness in the U.S. consumer market. Campbell also invested considerable resources in the promotion of its new products and the Bolthouse farms brand. Also, the company recalled some of its plum organic products.
However, in the second quarter, the core business strengthened due to the late timing of the holiday season. Campbell's spending on marketing and promotions increased 3%, which was offset by its extraordinary performance in the sausage business. Campbell is expecting to reap the fruits of money spent on advertising and promotions going forward. Campbell is also expecting double-digit growth in sweet biscuits in Indonesia and Australia, and this should further add to its growth.
What makes Campbell better?
Campbell's investment in marketing, new products, and the Kelsen acquisition should help it grab market share from other food companies, such as General Mills and Kellogg. As Fool writer Adem Tahiri writes, "Neither Kellogg nor General Mills, for instance, have made the organic or veggie investments that Campbell has." Retail penetration of organic food is growing at around 20%, so Campbell has a head start over both Kellogg and General Mills in this space.
Also, despite being the priciest of the three stocks, Campbell could be the one with the most upside, as Tahiri would have us believe. He cites growth in the Plum Organics and Kelsen brands as the reasons why Campbell could be a better pick. Kellogg, on the other hand, is the cheapest of the three, but it is facing trouble in both the cereals and snacks markets. General Mills, meanwhile, is also seeing weakness in the cereals business and a drop in sales of Yoplait, its Greek yogurt. But Campbell is projecting better times ahead, making it a better choice.
The bottom line
With a trailing of P/E 26.7 and forward of P/E 16.5, Campbell looks promising. It is making some good moves, and there is a chance that it might take market share from its rivals. All of these factors make Campbell a stock that is good enough to add to your watchlist.
Shirish Mudholkar has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.