A Profitable Stew for Campbell Soup

Strong overseas soup sales and the popularity of lower-salt brands prompt Campbell to boost its full-year income outlook; stock hits 52-week high

Campbell Soup's (CPB) effort to invigorate the staid business of soups and broths is proving profitable. Led with a spirit of innovation and a new focus on "premium" soup products under CEO Douglas R. Conant, the world's biggest soup maker raised its full-year income forecast on Feb. 16 as it reported a 12% bump in quarterly results.

The Camden, N.J. food company said it expects per-share income to increase 10% to 12%, above its previous forecast of 5% to 7%. The news powered Campbell shares nearly 7% to a new 52-week high of $42.29 on the New York Stock Exchange.

Net income came in at $285 million, or 72 cents a share, from $254 million, or 61 cents a share, in the same period last year. On an operating basis, which excludes a gain of $14 million from selling an unused factory in Connecticut, the company earned $270 million, or 68 cents a share. Analysts surveyed by Thomson Financial expected a profit of 63 cents per share.

Sales rose 4% to $2.25 billion from $2.16 billion. The company's brands also include Pepperidge Farm snacks, Godiva chocolates and Prego pasta sauces.

In August, 2006, Campbell launched a portfolio of new lower-sodium products with sea salt, which helps the foods maintain their full-flavor but with reduced sodium levels. "We are encouraged by the early performance of our lower sodium soups, featuring natural sea salt," Conant said in a press release announcing the earnings. "Initial trial and repeat purchases of these products have exceeded our plans and they are contributing to our growth."

Still, it wasn't all rosy news. Campbell saw U.S. soup sales dip 1%, which it blamed on less demand for condensed soups and ready-to-serve soup meals.

In a client note Feb. 16, UBS analyst David Palmer said he expects that lower customer inventories in the quarter, "together with colder recent weather, could set the stage" for stronger shipments in the fiscal third quarter. Palmer raised his target price on the stock to $42.

Campbell shares have gained 100% since March, 2003, the year Conant took over, more than double other comparable food companies (see BusinessWeek.com, 12/4/06, "Lighting a Fire Under Campbell").

With the company's guidance, Standard & Poor's equity analyst Tom Graves hiked his full-year per-share income forecast to $1.95 from $1.90. He also boosted his target on the stock price by $4 to $42. "We expect improved-convenience and lower-salt products to help longer-term soup sales," Graves wrote in a note to clients. (S&P, like BusinessWeek.com, is owned by McGraw-Hill Cos.)

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