In my slightly tilted world, soup is one of the greatest culinary creations of all time. I would have to put it right up there with the peanut butter-and-jelly sandwich and meatballs and spaghetti. You can throw just about anything into a good soup and let the blending of ingredients produce a magical result.
There was very little magic in Campbell Soup's (NYSE:CPB) fourth-quarter earnings; in fact, the world's leading soup maker has struggled recently to regain any momentum at all. (In addition to being known for its basic red and white soup can, Campbell's also makes the delicious Pepperidge Farm cookies, V8 tomato juice, and Prego pasta sauce.)
Campbell's fourth-quarter net sales declined 2%, as the quarter was one week shorter than last year. If you want to compare "apples to apples," then the fourth-quarter sales would have been up 5% if the time periods were the same. Earnings (before restructuring charges) were $0.17 per share, which was a penny below both the analysts' consensus estimate and last year's results. Earnings for fiscal 2004 were right on target at $1.58 per share, aided by double-digit international soup and sauces sales growth; strong sales gains were produced in France, Belgium, and the Asia Pacific region, which offset declines in the U.K. and Germany.
The CEO mentioned "strong" fourth-quarter sales and "good momentum" as the company enters a new fiscal year. The fact is that Campbell's has been treading tomato soup for a few quarters now, and investors appear to be a bit restless. The shares have dropped nearly 10% since March and appear to lack any momentum, which would have to be sparked by a corporate catalyst. Management expects an earnings increase of 5% to 7% for fiscal 2005, which would put earnings at about $1.66 to $1.69.
With companies such as Heinz (NYSE:HNZ) tightening its focus in the face of unstable commodity prices, other Campbell's competitors such as Kraft (NYSE:KFT) and General Mills (NYSE:GIS) will probably follow suit. Campbell's recently announced a restructuring that will effectively tighten cost controls and improve margins. The company's plan for "driving quality growth" involved cutting 300 jobs and implementing new sales and distribution methods. Campbell's has also set annual targets of 3% to 4% sales growth and 5% to 7% earnings-per-share growth.
The Campbell shares, which are trading at nearly 16 times the projected fiscal 2005 earnings estimate of $1.67 per share, appear to be a little bloated relative to the company's 6% expected earnings growth rate. The balancing variables leveling the fairly valued shares are the company's 2.44% dividend yield, its healthy $744 million cash flow, and its tremendous brand-name recognition.
Grab a spoon and warm your insides with these other opinions:
Fool contributor Phil Wohl spent more than 12 years on Wall Street and now concentrates his writing on more fictional characters. He has no stake in any firm mentioned above.
