A Taste for Soup When Everyone's Watching Corn
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Back in April I talked about an upcoming initiative by the Campbell Soup Company (NYSE: CPB) called "Campbell's Go Soup" that would see the company introducing new flavors of soup in pouches instead of the company's iconic cans. At the time I could see the advantages for Campbell in the form of lowered production costs and potentially increased sales, but something about the idea left me skeptical. A lot has happened since then, of course, and I'd all but forgotten about Campbell's bold new endeavor until the other day when I went down the soup and pasta isle to pick up some garden rotini. There it was, in all its supposed glory: Go Soup.
I didn't actually buy any, though I will admit that some of the varieties sounded pretty good. I might pick some up next time I go to the store, even though the pouches were bigger than I expected them to be and straddled that fine line between decent design and corny as all get-out. Like I said in April, I don't need my soup to be fun... I just need it to be good. I can ignore corny packaging if the soup inside is made of tasty goodness, and I'm now officially curious as to whether those intriguing flavors can really deliver where it counts.
Taking a quick peek at Campbell's performance since April—it seemed full of ups and downs. Prices climbed into May, then dropped significantly heading into June. Things have been working their way up since then, dipping every now and then but generally seeing positive growth to the point that share prices are a little over a dollar higher than they were when I first wrote about the company. With a new product line on the market there's plenty of room to grow, but Campbell may have one significant advantage over some of the other companies you'll see in the grocery aisles: Corn. Or more precisely, the lack thereof.
The drought that's ravaged the United States has taken its toll on corn producers, and while some companies like General Mills (NYSE: GIS) aren't taking too much of a hit because they bought early there are a lot of food producers out there who need a lot of corn and are paying whatever they can get it for. Even General Mills isn't completely immune since a portion of its corn wasn't prepurchased and when corn goes up other costs such as the dairy used by its recently-added Yoplait division go up as well. Even General Mills' Progresso Soup line may be hit by these costs somewhat since Progresso offers multiple soup varieties that contain corn. They're doing good in spite of these increased costs, but the company would arguably do better if we'd gotten more rain this summer.
Campbell Soup doesn't have this problem, though. They do use some corn in the making of their soups, but not nearly as much as some of their competitors use. The company is still affected by corn-fueled inflation, of course, but even that isn't as severe as some other companies face because of the number of soup varieties they make using other produce such as the tomatoes that went into Andy Warhol's soup can.
The company has a recent acquisition that might help it to excel. The company recently purchased Bolthouse Farms, a producer of juice-based beverages, salad dressings and fresh carrots. Bolthouse will continue running as a separate product line, and Campbell Soup estimates that the products will add 5 to 7 cents to their earnings per share in the 2013 fiscal year. It's not a bad purchase since Bolthouse has a decent following already, and more importantly it adds more products to Campbell's lineup that don't rely on corn as a major ingredient.
When all is said and done, companies that rely heavily on corn are likely going to find it increasingly difficult to maintain prices and make a profit. This is going to drive consumer costs higher without seeing a significant increase in company profits because if next summer ends up like this one then it's not going to matter much whether the corn is prepurchased or not. Those companies that can maintain their prices will benefit the most, and at the forefront will be products like Campbell Soup and its varieties.
It's all speculative at this point, of course. As it stands, Campbell Soup is experiencing an upward trend and recently hit a 52-week high. Between its new product line and the acquisition of Bolthouse there's a good chance that the company will continue to grow as well. Given the projected benefit from Bolthouse and how well the company is placed in case of another scorcher next summer, Campbell could be a strong long-term investment. Even if it does come in a pouch.
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