Campbell Soup -- Mature Stock, Good Value Play Ahead of Earnings

NEW YORK (TheStreet) -- The struggles of the packaged food industry may not go away anytime soon. Weak sales volumes and lower margins are real impediments to growth. April retail sales data show consumers are not spending as much on goods as the market hoped.

Nonetheless, that hasn't stopped investors from warming up to Campbell Soup (CPB), whose shares are up more than 6% year to date.  

Not only has CPB bested the broader market, the stock has also outperformed the 4.5% gains in the packaged food sector. But Campbell is just getting started. More gains are on the way.

Headquartered in Camden, N.J., Campbell will report fiscal third-quarter earnings results Friday, May 22,  before the opening bell. The company best known for its soups, Pepperidge Farm snacks, V8 products and Spaghettios, has fed consumers for almost 100 years. Campbell must now convince it can serve investors more profits in the years ahead.

To do that, the company needs to shore up its margins, which -- as with most packaged-food companies -- have been under pressure. Last quarter, the 310 basis-point margin decline, which was 32.6% of sales, negatively impacted the bottom line.

Campbell was able to offset the cost inflation by lowering its own input costs and expenses. Marketing and selling expenses were down 10% year over year to $242 million, which lead to earnings coming in at 66 cents per share, matching analysts' estimates last quarter. Remarkably, this was achieved even as revenue declined more than 2%, to $2.23 billion.

Campbell shares continue to outperform the packaged food sector. The company does a solid job managing not only a weak consumer spending environment, but also the negative impact of a strong U.S. dollar that devalues sales in overseas markets.

What's more, when combining the company's first two fiscal quarters of 2015, the company has delivered 2% organic growth, which is impressive given all of the factors discussed above. Organic growth is an important metric because it highlights the real underlying performance of the company since it excludes contributions from things like mergers and acquisitions.

In that vein, with four of the company's five reporting segments delivering organic sales growth for the first two quarters of the year, Campbell is on the right path toward achieving better results in the second half of the year. This combined with the company having realigned its operating segments to establish a clearer focus, Campbell looks poised to not only win market share from competitors, it could also enhance its brand value.

In other words, regardless of what Friday's earnings results may reveal, patience is still the best play here.

There's still plenty of value in CPB stock. If Campbell can maintain its course or even slightly improve its results in the second half of the year, CPB stock -- at around $46 -- could reach $50 by year-end. With its strong quarterly dividend of 31 cents per share, yielding 2.68%, and its year-to-date 6% gain, CPB can still satisfy.

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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