Campbell Soup Simmers Ahead of First-Quarter Earnings

Campbell's steady performance and outlook are the real reasons to warm up to its shares.
By Richard Saintvilus ,

Campbell Soup (CPB) - Get Report , known for its Pepperidge Farm snacks, V8 products and SpaghettiOs, will report first-quarter fiscal 2016 earnings results before the opening bell Tuesday. As with the rest of the packaged-foods industry, weak revenue and slumping margins have been a challenge for the New Jersey-based company. But it would be a mistake to give up on this winner just yet.

Campbell continues to make money, figuring out ways to offset inflation costs by slashing not only its capital expenses, but also its own input costs. This example of capital controls is one reason among many that CPB stock has climbed more than 11% in 2015, including 11% gains in the past 12 months, besting the S&P 500 (SPX) . Based on fiscal 2017 consensus estimates of $2.75 a share, suggesting 6% year-over-year earnings growth, CPB stock is poised to rise during the quarters and years ahead.

For the quarter that ended in October, analysts on average expect earnings to be 76 cents a share on revenue of $2.22 billion, compared to the year-ago quarter when Campbell earned 74 cents a share on revenue of $2.26 billion. For the full year, ending in July 2016, earnings are projected to climb 5% year over year to $2.59 a share, while revenue of $8.12 billion would yield a year-over-year increase of about 0.5%.

It's true that the implied 2% revenue decline for the first quarter is a concern. It hasn't helped that Campbell, which has large international operations, also suffers the negative impact of the strong U.S. dollar that devalues sales in overseas markets. At the same time, the company has seemingly pushed the right buttons to beat Wall Street's earnings estimates in two straight quarters.

In its fiscal fourth quarter, for instance, owing to productivity improvements, higher selling prices and lower promotional spending, Campbell raised its adjusted- gross-margin rate by 180 basis points to 36.1%. This move helped the company beat analysts' earnings-per-share estimates even when fourth-quarter revenue declined by almost 9% year over year.

Despite the projected 1.7% decline in first-quarter revenue, there are plenty of reasons to own CPB stock, including ongoing savings the company is likely to realize from its capital program. What's more, Campbell pays a quarterly dividend of 31.5 cents a share, yielding 2.43% annually -- some 43 basis points higher than the average payer in the S&P 500 Index.

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.

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