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Tickers in this Article: CPB, GIS, WMT, COST, KO, K, KFT
I'm not sure if it's the market volatility that has me seeking comfort foods, or if it's the reality that if the markets keep going like this, I'll be eating a lot more condensed soup, but something prompted me to check into Campbell Soup's (NYSE:CPB) latest quarterly report.

Q4's Ingredients
For the fourth quarter at least, the story at this soup kitchen is pricing. Sales were up 5% for the quarter (adjusted from the extra week), with volumes down 1% and prices up 5%. Looking at the largest business units, U.S. soup, sauce and beverage sales were up about 4% (again, adjusted for the extra week), with baking and snacking up 5%, and international soup, sauce and beverage sales up 9%.

That's pretty good top line growth for a company like this, but it's not all smooth sailing in my book. The gross margin fell from the year-ago period (38.7% versus 39.1%) as the cost of goods jumped over 13%. On the flip side, management kept the operating expenses under good control, leading to a roughly two percentage point increase in operating margins. (To learn more about what goes on "between the lines", check out Analyzing Operating Margins.)

Even here, though, I see a reason for caution. Holding marketing expenses flat when trying to raise prices leaves open the possibility of General Mills (NYSE:GIS) taking share in soups, or customers opting for the private label brands at Wal-Mart (NYSE:WMT) or Costco (Nasdaq:COST). In fact, looking at the market share data, that may well be happening, though not yet at a pace that worries me.

Is Cash a Cause for Concern?
I am also a little cautious on the company's cash management strategies. Operating cash flow for this year was about $800 million, and the company is looking to spend about $400 million next year on capital expenditures. Now, I am not opposed to the idea of share buybacks, but I do not believe companies should go in hock to pay for them. Of course, it is reasonable to expect that operating cash flow can increase next year and there is no requirement that the company spend exactly $400 million on buybacks. So there is leeway here, but I would advise investors to keep an eye on the cash. (To learn more, check out Operating Cash Flow: Better Than Net Income?)

Can Management Keep Stirring the Pot
I have followed Campbell Soup for a while, and I have to admit that management seems more on the ball than a few years ago. Management seems to be focused more on innovation than in the past, and they're certainly pushing ahead into new markets like Russia and China. I also like maneuvers like last year's agreement with Coca-Cola (NYSE:KO) to distribute V-8 and other beverages. It also does not hurt that the company just hired a CFO who comes from one of the company's largest retailers, Delhaize (NYSE:DEG). These are all positive moves in my book, as resting on your laurels in this industry is pretty much an invitation to the likes of Kellogg (NYSE:K) and Kraft Foods (NYSE:KFT) to come eat your lunch.

The Bottom Line
When you look at the equities of the major food producers, you can see that the notion of taking sanctuary in consumer staples has already played out in the market. Campbell Soup is no different, and though the company boasts solid returns on capital, it does not look undervalued today. I can appreciate the idea of trying to "buy safety" in today's market, but just remember that when everybody else is making the same "safe trade", it does not stay safe for long.

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