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In the case of
Campbell Soup Company(CPB - Get Report), which is as iconic as any brand on the shelves, investors can't seem to make up their minds. Like the porridge in the Goldilocks story, shares have been too hot or too cold.
After starting the year at $34.67 per share, Campbell steamed up more than 40%, reaching $48.83 on March 20. Since that high mark, however, it's as if investors have lost their appetite even though consumers did not. Now, although the stock is still up more than 23% year to date, shares of Campbell have cooled off, losing more than 12% over the past five months. After what I think was a solid year-end performance, one that went completely unnoticed, I believe these shares are just warming up.
If you've been following this sector for a while, there is nothing that analysts love to scrutinize more than "organic growth," which measures a company's operational performance using only internal resources and excluding events like acquisitions. As with, say,
ConAgra Foods(CAG), which has been growing
solely through acquisitions, organic growth is something Campbell has been struggling to produce, including posting organic growth of just 1% this quarter.
To that end, I believe the emphasis on Campbell's organic growth is valid. But to the extent it negates a 13% year-over-year revenue improvement, I don't believe that to be the case. Just to put things in proper context, the nutritional/health concerns, which have plagued the soft drink industry and caused weak volumes across the globe, have done nothing to impact upon either Coca-Cola or Pepsi stock, even though both of their recent performances were "flat."
I won't deny that Campbell's 4% decline in sales volume was a disappointment. Although a lot is being made about the 2% drop in non-GAAP gross margins, that the company still advanced operating profit by 2% suggests that management continues to have a good pulse on this business. For that matter,
Nestle(NSRGY), which has become the gold standard in this industry, hasn't exactly outperformed Campbell in terms of growth, either.