Consumers turn to Campbell Soup
Posted
Sep 30 2008, 01:37 PM
by
Anthony Mirhaydari
Rating:
Campbell Soup Company, the world's largest soup producer, was the only stock in the S&P 500 index that finished higher in Monday's market massacre.
"If you have no confidence in your banking system and no confidence in the financial markets," said Tom Sowanick, chief investment strategist of Clearbrook Financial in Princeton, N.J., "the only thing you can have confidence in is the ability to build a bunker." Filled, apparently, with cans of chicken noodle.
Households continue to trim their budgets by switching to store brands, reducing restaurant visits, cutting back on bottled water, getting rid of the SUV, and reeling in that daily Starbucks habit. American families are rediscovering the value of soup and halting a long-term sales decline in Campbell's traditional condensed products.
Investors hope this will be enough to improve on a disappointing 1% growth in U.S. soup sales last year. Assuming the difficult economic environment continues, this is more than likely. After all, Campbell has an 80% share of the condensed soup market.
A new marketing campaign is in the works to take advantage of the situation. During a recent conference call, CEO Douglas Conant noted that "we clearly recognize there's a value proposition there and we're going to exploit it." Steps being taken include better separation of more expensive ready-to-serve soups from the condensed items in supermarket aisles, offering pricing promotions, and teaming with Kraft to offer cheap meal recipes such as grilled-cheese sandwiches and tomato soup.
From a profitability standpoint, Campbell enjoys much higher margins on its condensed soups compared to its fancier Select Harvest and recently launched V8-brand pureed soups. Still, rising costs for inputs like tomato paste and beef are a concern, forcing the company to announce a 4% price increase a few weeks ago. This comes on top of a previous round of price increases taken back in February.
Management is looking for 2009 earnings per share growth to come in between 5% and 7%, for a result of $2.19 to $2.24. Besides heavy spending on marketing here at home, the company is looking to expand into Russia and China where only 3% of the soup market is commercialized.
Image credit: Wikimedia Commons
(Disclosure: I don’t control a position in any of the companies mentioned)
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