Campbell Soup (NYSE: CPB) turned in a decent second quarter this week, with earnings rising 11%, thanks in part to expanded margins. However, not everything in the soup world is "mmm, mmm good."

Revenue rose just 1%, and volume fell 2%. Worryingly, U.S. soup revenue was down 8%; last week the company announced a new strategic plan to get soup sales back on track. While international sales rose 12%, favorable currency exchange accounted for all of that gain, as price increases offset a volume decline of 2%. Clearly, value-seeking consumers wanted cheaper meal alternatives than soup.

On the bright side, Campbell saw margin improvement from productivity gains and lower commodity costs. Packaged-food companies have enjoyed some tailwinds in the last year as food commodity costs eased. That's partly reflected in Campbell's margin improvement over the past few quarters:

Metric

Q1 '09

Q2 '09

Q3 '09

Q4 '09

Q1 '10

Q2 '10

Gross Margin

39.0%

39.8%

40.6%

43.0%

41.9%

40.5%

Faced with lower sales expectations, higher margins should help Campbell's profitability in the second half of its fiscal year -- if Campbell can achieve them. However, the company reiterated its EPS targets for its full fiscal year, despite lowering its revenue growth estimates from 4%-5% to 2.5%-3.5%.

Some – but not all – of Campbell's peers are also sitting in neutral. Kraft's (NYSE: KFT) organic revenue growth came in below 1% during the fourth quarter. Kellogg's (NYSE: K) Q4 EPS growth stayed flat, while sales fell 1%.

However, other competitors have shown better execution. General Mills (NYSE: GIS) grew earnings per share by 13% in its most recent quarter and raised its full-year earnings expectations. Heinz (NYSE: HNZ) raised 2010 forecasts, thanks to a combination of strength in emerging markets and impressive 4% volume growth in the U.S.

So where does that leave Campbell as an investment? The company has some work to do in the short term. But it offers iconic brands, sports a 3.3% dividend, and sells for only 12.5 times forward earnings. I don't think Campbell is a screaming buy today, but a bumpy 2010 may provide entry points that will reward investors willing to wait out today's watered-down sales.

A hearty bowl of further Foolishness:

H.J. Heinz is a Motley Fool Income Investor choice. Try any of our Foolish newsletter services free for 30 days.

Fool contributor Tom Winner does not owns shares of any company mentioned in this article. The Motley Fool has a disclosure policy.