How Campbell Soup Is Staying Hot

Next Monday, Campbell Soup (CPB 0.29%) will release its latest quarterly results. The key to making smart investment decisions on stocks reporting earnings is to anticipate how they'll do before they announce results, leaving you fully prepared to respond quickly to whatever inevitable surprises arise. That way, you'll be less likely to make an uninformed knee-jerk reaction to news that turns out to be exactly the wrong move.

Soup might sound like a boring niche for a company, but shareholders certainly aren't complaining about the company's recent run to 15-year highs. But can the company keep growing? Let's take an early look at what's been happening with Campbell Soup over the past quarter, and what we're likely to see in its quarterly report.

Stats on Campbell Soup

Source: Yahoo! Finance.

Will Campbell Soup serve up piping-hot earnings this quarter?
Analysts have had mixed views on Campbell Soup's earnings in recent months, cutting $0.01 from their estimates for the just-ended quarter, but adding $0.02 to their fiscal 2013 and 2014 consensus. The stock has been anything but mixed, soaring more than 25% since early February.

Campbell faces a difficult situation right now. The company has done a great job of producing revenue growth, but not much of those sales gains have fallen through to the bottom line. Campbell has made some moves to try to cut costs, such as its decision in February to outsource its Mexican production through a new partnership with Grupo Jumex and Conservas La Costena, allowing it to close its own Mexican plant in Villagran. But still, food input costs remain a constant threat to the company's profits.

One secret to boosting margins in the food industry has been to make products more convenient. Campbell started offering its Go! Soup pouches, with premium pricing of around $3 per pouch compared to roughly $1.10 for a can of soup, and last quarter, the company reported a modest sales boost of 4% in its ready-to-serve soup category. Still, rivals Kellogg (K +0.00%) and General Mills (GIS 1.67%) have both come out with liquid-based offerings of their own and, although the companies are currently focusing on their core breakfast segments for their drinks, they may eventually compete against lunch and dinner offerings from Campbell and other food companies.

But Campbell also finds itself in the middle of a controversy over natural foods. The company has been criticized for including genetically modified organisms in soups it claims are "100% natural." General Mills faces a lawsuit over its corn-syrup containing "natural" granola bars, while Unilever faces a similar GMO allegation over its Ben & Jerry's ice cream subsidiary's "all natural" desserts. Campbell argued last week before a Florida court that the consumer class action should be dismissed because the company is subject to USDA and FDA regulation. Whether that argument will be successful remains to be seen.

In Campbell's quarterly report, watch the company's margins very closely. For Campbell to justify its big share-price increase, it really needs to turn more of its sales into profits. Otherwise, the stock could turn cold in a hurry.

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