Campbell Soup (NYSE:CPB) reported earnings for the first quarter yesterday. Is the company famous for its branded broths a good investment idea?

Net sales saw a robust gain of 8%, coming in at approximately $2.2 billion. Operating income rose 15% to $438 million. Net income dropped on a GAAP basis year over year by 4%, to $291 million. The company also presented pro forma earnings that exclude certain charges to enhance comparability. Under the pro forma numbers, Campbell produced net profit from continuing operations growth of 19% to $269 million and a net income that appreciated by 20% to $0.66 per share. There's a further reconciliation included that takes into account recent share repurchases based on a divestiture -- Campbell highlights pro forma results that explain what the earnings gain would have been had the shares outstanding been reduced in the prior quarter. On a per-share basis, the growth drops down to 16%.

Whether or not you wish to focus on the share repurchase activity (that might be a bit too pro forma, in my opinion), I think Campbell did a good job this quarter in terms of earnings growth, and it reminded me to revisit a bearish take on the soup purveyor that I proffered in 2005. I talked about how free cash flow was on the decline at the time. Taking a look at the latest 10-K, I see that free cash flow is now on the rise, signaling something of a turnaround in Campbell's prospects. Check out this table (numbers in millions):

FY 2006

FY 2005

FY 2004

Net cash from operating activities




Capital expenditures




Free cash flow




Dividends paid




Things have certainly improved, and there seems to be room for more dividend increases; Rick Munarriz reported last month that Campbell hiked its quarterly payout by 11% -- this is the third year in a row that the company has upped its dividend. Looking at statistics peppered throughout the release, we see that total soup sales rose a healthy 10%. Sales for U.S. soup, sauce, and beverage products rose 8%, while international soup and sauces advanced 11% on good volume and currency effects. The baking and snacking segment scored an increase worth 6% -- the Pepperidge Farm brand did very well in the quarter, driven by those famous Goldfish crackers and the 100-calorie pack gimmick. Overall operating income was driven by efficiencies and price increases.

All of this tells me that Campbell is succeeding with its product management and its marketing initiatives. If it can continue to do so, the company should be able to grow cash flows over time. Brian Gorman wrote about the company's last quarter. He found it encouraging in certain respects, even in the face of competition from Motley Fool Income Investor selection Unilever (NYSE:UN), which is responsible for Lipton Cup-a-Soup, and rival General Mills (NYSE:GIS), which supplies soup lovers with Progresso.

As I stated, I was a bit of a bear on the company, and although I'm not necessarily ready to rush over to the bull camp, I have to admit that I am warming up to the idea of Campbell as an investment idea. I'll be watching for a better yield on the stock -- it currently yields about 2.1%, based on its annual dividend of $0.80. I'd put this on a watch list to keep track of any rise in the yield.

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Fool contributor Steven Mallas owns none of the companies mentioned. As of this writing, he was ranked 1,185 out of 13,678 investors in the Motley Fool CAPS system. Don't know what CAPS is? Check it out. The Fool has a disclosure policy.