Still Neutral on Campbell Soup - Analyst Blog

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We retained our long-term Neutral recommendation on high-quality foods and simple meals manufacturer Campbell Soup Company ( CPB ) as we remain impressed by the company's strategic initiatives to boost its top line and return on investment. In our view, these initiatives will set a platform for profitable growth in the long term. However, we expect to see more color on the success of these initiatives and thus remain on the side lines for the time being.

For some time now, Campbell has been working hard to augment its new strategic framework, primarily focused on brand expansion. During the first three quarters of 2012, the company made significant progress in this direction, which includes stabilization of the North American soup and simple meal business, overseas expansion, and growth of healthy beverages and baked snacks business. The company has launched 52 new products so far in fiscal 2012 while emphasizing on brand advertisement and consumer promotional activities.

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

In the recent quarter, Campbell managed to beat the Zacks Consensus Estimate. The company's earnings per share of 56 cents per share surpassed the Zacks Consensus Estimate of 52 cents. Net sales of $1,821 million also came ahead of the Zacks Consensus Estimate of $1,812 million.

Looking ahead, Campbell retained its fiscal 2012 guidance, targeting sales growth in the flat to 2% range. The company also reiterated its adjusted earnings per share guidance of $2.35 to $2.42, reflecting a decline of 5%-7% from 2011 earnings per share of $2.54.

Though Campbell has shown significant progress with the product launches, there remains risk of consumer acceptance attached to it. This brings in uncertainty regarding the time when gains from these launches will be reflected in the company's top line. Further, it remains to be seen how far the company's innovations will compensate for the company's recent strained performance in the condensed and ready-to-serve soup categories.

Moreover, Campbell operates in a highly competitive food industry and experiences worldwide competition in all its principal products from such well-established rivals as General Mills Inc. ( GIS ) and H. J. Heinz Co. ( HNZ ). This may dent the company's performance.

Currently, Campbell Soup has a Zacks #3 Rank, implying a short-term Hold rating on the stock.


 
CAMPBELL SOUP (CPB): Free Stock Analysis Report
 
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HEINZ (HJ) CO (HNZ): Free Stock Analysis Report
 
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Stocks

Referenced Stocks: CPB , GIS , HNZ

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