Campbell Soup Stays Neutral

Campbell Soup Company (CPB - Analyst Report) has remained successful in increasing its profitability through continued focus on brand expansion and effective cost management. However, we have maintained our long-term ‘Neutral’ recommendation on the stock as we remain slightly cautious due to rising input costs and intense competition.

Campbell recently reported its first-quarter fiscal 2013 results (ended October 2012).In accordance with its strategy of brand expansion and cost management, Campbell once again reported better-than-expected bottom-line results. The company’s quarterly earnings of 88 cents per share were 7.3% higher than the year-ago quarter’s earnings and were also ahead of the Zacks Consensus Estimate of 85 cents.

Further, Campbell continues to anticipate a sales growth in the range of 10%–12% and earnings between $2.51 and $2.57 per share in fiscal 2013.

Going forward, the company’s Bolthouse acquisition will prove to be accretive to its fiscal 2013 top and bottom lines. In addition, the company intends to boost its top line and increase return on investment through a new strategic framework, primarily focusing on brand expansion, and launch nearly 50 new products in fiscal 2013 while emphasizing on brand advertisement and consumer promotional activities.

We believe that Campbell’s prudent investment and strategic initiatives toward product innovation and brand building will increase its customer base and profitability. Moreover, the company’s continuous focus on research and development, to further differentiate its higher-margin sauce brands, will strengthen its competitive position in the international market.

On the flip side, rising commodity costs, intense competition from other established players and exposure to unfavorable foreign currency fluctuations may undermine the company’s growth prospects.

Due to its high exposure to international market, Campbell Soup remains prone to currency fluctuations, which is a major reason for continuous decline in its International Simple Meals and Beverages segment. Sales at this segment dipped 1.0% to $354.0 million in the first quarter 2013, primarily due to 1% decline in volume and mix and 3% negative impact from currency translation.

Moreover, Campbell operates in a highly-competitive food industry and experiences worldwide competition in all its principal products from well-established rivals like General Mills and H. J. Heinz, which may dent its performance going forward.

The above analysis supports our unbiased view on the stock. Campbell bears a Zacks #3 (Hold) Rank, while its prime competitors General Mills, Inc. (GIS - Analyst Report) and H. J. Heinz Company (HNZ) carry Zacks #2 (Buy) and Zacks #3 (Hold) Ranks, respectively.