Campbell's Hearty Despite Earnings Slip (CPB)

Despite a 7.4% year-over-year increase in second quarter sales, Campbell Soup Company (NYSE:CPB) posted a 3.9% decline in second quarter net income. Higher energy costs and elevated input prices were to blame.

Despite the recent slip in earnings, the company has a lot going for it that should draw Wall Street's attention going forward. It has a new focus on healthy foods, and it should be able to offset rising input costs in the quarters ahead.

Between the Lines
Looking into Campbell's earnings press release, there are several important points to note:

1. Even though the company's bottom line declined in the second quarter, the company still posted a profit of $274 million.
   
   
2. Investors are sure to like news of the finalization the departure of the company's Godiva unit and a tax gain from the prior quarter's sale of an idle Pepperidge Farm facility.
   
   
3. Sales are up across the board and for the first two fiscal quarters, revenue clocked in at $4.403 billion, a solid 7% increase.
   
   
4. Perhaps most importantly, the company has been working hard to increase exposure to the rising trend in health-conscious products including low-sodium soups and V-8 products. In fact, the company's V-8 Fusion drink saw a double-digit sales increase. What's more, executives know that American's are increasingly busy these days, so management has concentrated on providing ready-to-serve products.
   
   

Healthy Soup Reiterated
Sometimes Wall Street can be a funny place. Intuitively, it would seem when a company reports declining earnings, the stock should decline. However, many analysts and funds know to keep on eye on the horizon, instead of the past. With this in mind, much of Campbell's buying support from the earnings announcement is coming from the company's reiteration of full-year profits. Specifically, net income is expected to clock in at $2.04-2.08 per share, a 5-7% increase over 2007.

The guidance is a double edged sword though, if the company meets the range on the top end, shareholders will likely rejoice. However, if the final two quarters fail to impress, look out below. Regardless, the company has now stated that it expects to pull through in the final two quarters of the year. (For related reading, see Can Earnings Guidance Accurately Predict The Future?)

Another positive aspect of Campbell is the dividend of 88 cents per share, a 2.8% yield. With the company's overall operations looking healthy and with a solid dividend, another portion of the post-earnings news buying is likely coming from funds or institutions who not only believe the company will come hit the high-end of profit guidance for the year, but also feel the dividend is extremely fair for the current share price.

The Bottom Line
What hurt the company in the second quarter is higher commodity prices and elevated energy costs. But these are problems virtually every businesses have to contend with today. The proof of the pudding is how a company deals with these issues, and whether top-line growth can offset input costs. And, given that revenue was up 7% in the recent quarter, there's no need to assume the sky is falling. What's more, Wall Street always has the final say on news, especially during earnings, and the fact that the stock traded higher, shows buyers believe in the company, despite the quarter.