Soup's on! Yes, Fools, it's time once again to check in on the fortunes of that maker of cures for the common cold, that wintertime tummy-warmer, Campbell Soup (NYSE:CPB). Campbell's reports its fiscal Q2 2006 earnings tomorrow morning.

Wall Street Wisdom:

  • General consensus. Eighteen analysts follow Campbell, out of which six rate the stock a buy, and one a sell; the rest counsel holding it.
  • Revenues. Analysts believe sales grew just 3% over the last year, to $2.29 billion. Last quarter, the company grew sales just 1% -- all of which can be attributed to favorable currency exchange movements.
  • Earnings. Likewise earnings. Analysts believe they increased just 3.5% to $0.59 per share. Think that's slow?

Margin watch:
In the most recent quarterly report, CEO Douglas R. Conant noted that Campbell's improved its profit margin in fiscal Q1 2006 and was aiming to boost its sales this year and achieve 5% to 7% pro forma profits growth (pro forma because several variables combined to boost Campbell's profits in Q1, including a tax credit and a change in accounting for inventories). Judging from the chart below, Campbell's is indeed turning its ship around. Rolling gross, operating and net margins have been on the rise sequentially for the last four quarters.

Margins %

8/04

10/04

1/05

5/05

7/05

10/05

Gross

41.1

40.7

40.2

40.2

40.5

40.9

Op.

16

15.8

15.5

15.7

16

16.2

Net

9.1

9.1

9

9

9.4

10.3
All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-months performance for the quarters ended in the named months.

Foolish lookout:
I suspect analysts may be undershooting the mark with their earnings estimates for Campbell's. Sales growth of 3% isn't much -- essentially, the company can achieve that just by raising prices at the rate of inflation. If the company can manage that, then the improving trends in margins should easily allow Campbell's profits growth to outperform its sales growth by half a percent.

On a per-share basis, Campbell's shareholders should also benefit from the company's announced $600 million share-buyback plan. If fully implemented, it could reduce the company's share count by as much as 5% -- magnifying any profit gains firmwide. Thus we have the two items to focus on tomorrow: Are the margins improving as planned, and is the share count falling?

Fool contributor Rich Smith does not own shares of Campbell Soup.