Are you hungry already? Well, you'll just have to wait. Campbell Soup (NYSE:CPB) doesn't report its Q1 2006 earnings until Monday. Have a glass of milk for now; it'll tide you over.
The good news is that there should be plenty of soup to go around come Monday. Investors don't seem to be throwing elbows for seats at the table on this one, though. The consensus of the dozen or more analysts polled for their predictions is that Campbell will report minimal sales growth (just 1.7%) and flat earnings against the year-ago quarter ($0.56 per share).
Strangely, that doesn't jibe very well with what the company itself was telling investors just two months ago. In recounting its successes and failures for fiscal 2005, Campbell CEO Douglas Conant predicted "continued margin improvement in the new fiscal year." (Speaking of which, I have no idea what "improvement" Conant was referring to. The firm posted a gross margin of 42.7% in fiscal H2 2005, which was a deterioration both sequentially from the 43.7% gross achieved in H1, and year-over-year from the 45.3% gross achieved in fiscal H2 2004.)
Conant also predicted the company would post 3% to 4% sales growth and 5% to 7% earnings growth in fiscal 2006. However, he asked that this earnings growth be calculated from a revised version of the company's profits history. Although Campbell earned $1.71 per share in fiscal 2005, it did not expense options at that time. Now that it must expense options, the company has pointed out that it would have earned just $1.64 per share if it had expensed options last year. Thus, the company's new and improved prediction for total profits this year comes in at $1.72 to $1.75.
Foolish investors should watch closely on Monday for the following:
- How far will Campbell's go toward making the new earnings target? It needs to make significant progress in order to maintain its credibility on the full-year numbers. Why? The quarter on which it reports Monday has historically comprised about 33% of the company's total profits in any given fiscal year.
- Keep an eye out for any gross-margin improvements Conant may have mentioned last year. I still can't find them -- perhaps you can.
The past is often prelude. Read about Campbell's past in:
If you're looking for great stocks at great prices, let Fool co-founders Tom and David Gardner be your guides with a free trial subscription to our Motley Fool Stock Advisor newsletter service.
Fool contributor Rich Smith does not own shares of Campbell Soup.
