Tickers in this Article: CPB, GIS, K, HNZ, SLE, KFT
Campbell Soup (NYSE:CPB) reported a slight earnings increase even though soup sales were down, providing debate material for Wall Street as to how the soup biz is doing during this recession. More than that, the food business has traditionally been solid during recessions, but Campbell and other large food companies have been struggling through the last year, confirming how unusually deep this recession has been. Wall Street, therefore, is not jumping on Campbell Soup stock, which remains near its year low of around $25, and is also staying away from other food stocks.

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Hot or Cold?
What Wall Street analysts disliked about Campbell's report was that the earnings increase was achieved via controlling costs rather than increasing top line revenue. Campbell's U.S. soup sales decreased by 2% for the quarter, and the last several month's sales in the soup industry in the U.S. have fallen 4% year-over-year, according to data researcher Information Resources, Inc. Campbell, however, points out that its soup sales performance year-to-date is up 6%. Analysts are convinced, however, that the battle between Campbell Soup Select Harvest and General Mills' (NYSE:GIS) Progresso Soups has helped fragment the market and that overall market demand may be shrinking for soup.

(NYSE:HNZ), another food company with exposure in the soup area, reported dampened earnings for the quarter - earnings per share (EPS) of 55 cents vs. last year's same quarter 61 cents - when it reported on May 28. Heinz is famously noted for its line of tomato ketchups and sauces, so weaker demand does not just apply to soup. (EPS helps investors analyze earnings in relation to changes in new-share capital, for more see Getting The Real Earnings.)

Others at the Table
General Mills, which is a combatant in the soup wars with Campbell, is mainly known for its cereal products such as Cheerios, and has been working through the Cheerios cholesterol claims which the FDA recently slammed. It has also had to deal with the salmonella-peanut issues, along with several other food companies, so there are concerns other than the recessionary environment, as General Mills' earnings have been slightly off its main cereal competitor. However, Kellogg's (NYSE:K), despite facing the salmonella-peanut problem from the Peanut Corp. of America plants, posted 47 cents EPS for the recent quarter versus last year's same quarter of 44 cents, exclusive of charges. Kellogg's also increased its revenues for the quarter by 4.6%. The company was negatively impacted, as were all the multinational food companies, by the foreign currency exchange rates. Kellogg's, however, stands out for producing top line revenue increases in what is still a recessionary environment.

Hot Dog Wars
It isn't just soups, cereal, ketchup or other basic, inexpensive foods that are feeling the pressure. Sara Lee (NYSE:SLE), with its Ball Park hot dogs is currently battling Kraft Foods (NYSE:KFT) with its Oscar Mayer Jumbo Franks, not only on food store shelves and in consumers' stomachs, but in court as well. Things got serious when Sara Lee objected to Kraft's contention that its Jumbo Franks are 100% beef. Serious stakes here, as the hot dog trade has become once again robust as consumers have turned to cheaper foods during this recession.

Smithfield Foods
(NYSE:SFD), the number one pork producer, reports that hot dog sales, after suffering a ten-year decline, are rising. So it's hot dog supremacy at stake for Sara Lee and Kraft. Both companies, like the others except for Kellogg's and Campbell's, are still looking at what has become an almost standard 10% decline in quarterly earnings. (These companies may not be flashy but they offer investors structure and diversification A Guide To Consumer Staples.)

Don't Expect Profits to Boil
Despite Campbell pointing out that annual soup sales are up, the trend had been down as shown by the 4% drop in sales that occurred in the past 24 weeks ending April 19. This downward trend, along with Wall Street's concerns about the potential shifting of the overall soup market, means that Campbell is in a "show me" mode on the Street. So, the company will have to come out boiling with earnings increases in the next few quarters, if Campbell's wishes to continue to hold its position as a leading force in the food industry.

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