The Campbell Soup Company (NYSE: CPB) gave a mixed earnings report last week on its recently ended fourth quarter. But when you unpack the data and look at a couple of side stories, the value soup company finds itself in an interesting position going forward. Unfavorable currency exchange rates, some necessary commodity hedging and the shedding of certain European trademarks all dampened earnings, but beneath those events was a solid operations story for Campbell's.

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Mixed Results
Campbell's net earnings fell off by 22% for the fourth quarter this year versus last year's same quarter, with $69 million in profits compared with $89 million in last year's fourth quarter. On a per share basis, this came out to 20 cents this year versus 24 cents last year. Revenue was $1.53 billion for the quarter, off from $1.72 billion in last year's same quarter, though that quarter had one extra week. Excluding the charges and extraordinary items, however, the operating earnings were $107 million or 30 cents a share, more encouraging numbers. Sales of soups in the U.S. rose, while the company pegged its outlook at 5-7% growth for next year, expecting the economy to normalize, though there are other stirrings in the food industry.

The Forty-Billion Dollar Gorilla
Kraft Foods (NYSE: KFT), with its $40 billion market cap and the largest food company in the nation, made big news with its recent bid of Cadbury (NYSE: CBY), as possible consolidation in the food industry has come front and center. Warren Buffett, whose Berkshire Hathaway (NYSE: BRK.A) owns more than 9% of Kraft and is the largest stakeholder, supports the deal and even feels Kraft stock is undervalued right now. In comments to analysts, in reference to the path of large, diversified food companies such as Kraft, Campbell Soup Chief Executive Douglas Conant mentioned that he liked the way his company was positioned, and that Campbell's focus in a few core categories will deliver shareholder value, in the near and long term.

Differences in Food Companies
There are some differences in the large food companies which might not make consolidation such a given, or make it easy or profitable. Some are large and diversified, others more narrowly focused. Con Agra (NYSE: CAG), for example, while large and diversified with a highly-regarded product line and a currently favorable P/E, also has a low-price-to-sales ratio, so not everything is firing on all cylinders for the major food producers. Del Monte Foods (NYSE: DLM), which recently had a strong earnings report despite the lingering recession, is humming along, so it may just want to keep going in that direction.

As for Campbell's more direct soup competitors, powerful General Mills (NYSE: GIS) with its Progresso Soups and Heinz (NYSE: HNZ) with its soups and sauces are both doing well. Heinz looks better as it's staying with its core categories much like Campbell, whereas General Mills, though large and diversified, may not be moved to make any major acquisitions, as GIS doesn't need to. Simply put, in the food space, many of these companies can continue to grow by staying put as the economy moves toward recovery, so consolidation, while an option, may remain just that.

The Bottom Line: Campbell's Look Ahead
With Campbell forecasting modest but steady growth and reaffirming its commitment to staying in its core area, this is one of those companies that can seem either stodgy or solid. It's a good dividend payer, no small thing in what has been a horrendous stock market and economy, so although it's traditionally a slow-grower, slow growth is still growth. That's nothing to be sneered at, especially after the last year in the market. (To learn more, check out The Industry Handbook: The Retailing Industry.)

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