Campbell Soup – An Easily Acquired Taste for Conservative Investors

Michael is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Today, I’m focusing on Campbell Soup (NYSE: CPB). The company represents, I believe, a solid investment option. Here’s why.

Foundational strength: soup still strong

Company CEO Denise M. Morrison noted in a May earnings call, "Our U.S. Soup business delivered exceptionally strong third quarter performance. Condensed sales increased 11%, sales of our ready-to-serve soups increased 18% and sales in the broth business also rose 18%. Overall, the top line in U.S. Soup grew by 14% for the quarter."

What does this mean for investors? It means Campbell's core traditional business, what built the company in the first place, is still strong. Consumers still place their trust in Campbell's. Investors can too because the company has foundational strength from products that consumers identify the company with, even though Campbell's has branched into other food offerings.

Dividend upswing

Campbell’s dividend stands at $1.16 with a 2.40% yield. The company dependably pays dividends and has consistently increased its dividends since October of 2001.

Therefore, investors should note that there’s the potential for financial gains via not only stock price growth, but quarterly dividend distributions as well.

Extensive product family

Campbell has a bevy of ‘household name’ products with a rich history of appealing to consumers’ desires. Its North America ‘everyday brands’ include its soups, of course, plus its Bolthouse Farms, Prego, Plum Organics, Pepperidge Farm, Pace, Swanson, and V8 products.

Important for investors is that Campbell’s products take up extensive shelf space in North American supermarkets. The company’s a brand behemoth, which results in substantial sales and profits, with the attendant cash flow.

Widespread market penetration

The company has a strong presence in international markets. This includes Campbell’s and Arnott’s products in Asia Pacific, and Campbell’s, Erasco, Bla Band, Lacroix, Royco, and Liebig soups, among other products in Europe.

Important for investors is how Campbell tailors products to fit a market area. For example, the company offers Campbell's DeliSoup soups in Europe and Campbell's Real Stock NZ Recipes in the New Zealand market.

Therefore, Campbell’s marketing strategy is broad-based but focused. The company does not solely rely on the North American market, although, ultimately, North America is the strength of the company. However, some sales downturns in North America can be offset by sales in these other markets.

Foodservice

Campbell reaps sales and profits from its foodservice segment. It offers canned, dry, refrigerated and frozen products to the foodservice industry. This company division provides foodservice entities easy-to-prepare foods and targeted marketing programs to assist its customers in achieving foodservice success.

Why is all this important to investors? It’s another revenue stream for Campbell, and diversification away from just depending on consumer grocery store purchases. Campbell can have it both ways, in a sense. When away-from-home dining dips, Campbell captures the cook-at-home market. When eating out at restaurants experiences an upswing, it has that dynamic covered. When both are doing well, so does Campbell.

Operating margin

Campbell’s operating margin for the trailing twelve months is 15.90%. How does this compare to others in its industry? Hillshire Brands' (NYSE: SLE) is 9.20%; ConAgra Foods' (NYSE: CAG) is 10.39%.

For investors, looking at operating margin and comparing it to others in the industry is one way to scrutinize a stock’s worth. A high operating margin indicates that a corporation’s fundamental business is profitable, and that it is pricing goods properly and managing costs well.

What else is relevant for investors concerning Campbell’s competitors?

Hillshire Brands

Hillshire’s stock has also appreciated. It’s enjoyed a steady rise since February of 2009, when the stock closed at $7.71. A continued overall price upswing saw it recently close at $33.94 (August 8). For investors, this is a sign that Hillshire is operating fundamentally well in their industry.

Furthermore, Hillshire Brands’ stock has split five times since 1986. The most recent split being June 29, 2012.

For investors, a stock split means shares cost less; consequently new investors may be able to afford the shares and jump on board with a company. They can buy more shares at a lower price and hope significant price appreciation occurs in the coming quarters. Additionally, a stock split’s a pretty good indication that a company’s business is healthy.

The company also raised its quarterly dividend by 40% this month. Hillshire increased its dividend to $0.175 per share. Investors can note that Hillshire is rewarding income-loving investors this year and its yield, centered on this dividend increase, is 2.1%.

It’s been transition time for Hillshire Brands (formerly Sara Lee). It spun off its coffee and tea business in 2012. The takeaway for investors is that Hillshire Brands is concentrating on its meat business. The company has strong core brands including Jimmy Dean sausage and Ball Park hot dogs.

ConAgra Foods

ConAgra has healthy operating cash flow. For the year ended May 26, cash flow was $1.41 billion. This represents an increase over the $1.05 billion for the year ended May 27, 2012. This company can also pay its expenses and is generating good cash from its principal operations.

It’s profitable, with a profit margin of 5.00%. However, investors should note that Con Agra’s not garnering profit margin like Campbell, whose most recent profit margin was 8.87%, or Hillshire, whose most recent profit margin was a meaty 19.87%.

Revenues are strong for ConAgra and growing. Investors can take away that the company had revenue of $15.49 billion for fiscal 2013 in comparison to $13.37 billion for 2012 and $12.39 billion for 2011.

Investors should note the sales growth of some of ConAgra’s well-known and respected brands. Brands that sold more in fiscal 2013 included Hunt’s, PAM, Peter Pan, Banquet, Hebrew National, Marie Callender’s, Orville Redenbacher’s, and others. Again, strong core brands with loyal consumer followings contribute quite nicely to that aforementioned healthy operating cash flow.

Conclusion

My primary focus today was Campbell Soup. To me, Campbell represents an enterprise that fits with my conservative investing philosophy. I love companies that have well-loved, storied brands with significant market distribution and that take up loads of grocery store shelf space across the nation. It puts cash in supermarket registers and in investors' pockets.

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Michael Ugulini has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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