Campbell Soup Company (NYSE: CPB) is as hot as a rich bowl of steaming broth. You just knew some sort of goofy pun like that was coming since the stock hit a new 52-week high today of $39 and change. Why is the stock reacting so well?
Campbell reported earnings on Thursday that pleased Wall Street. Net sales increased almost 13%. Adjusted earnings from continuing operations came in at $0.26 per share, a huge increase over the $0.15 per share in adjusted earnings that was booked last year at this time. According to Earnings.com, the beat on the bottom line wasn't huge, but it was still a beat -- Campbell came in one penny ahead of expectations. This was an overall impressive performance, and it looks as if the company is exploiting its brand potential in an effective manner so that price increases can be passed on. One negative is that volume decreased during the quarter, but the decline wasn't large at 1%. More significant is the fact that a 53rd week added 8% to the top line. Still, I think Campbell is doing well enough. And if oil prices continue to drop, the soup giant might find it easier to navigate the current inflationary environment.
The stock has been thriving exceptionally well during the turmoil of the financial markets. It truly has been a defensive stock, even better than The Coca-Cola Company (NYSE: KO) and PepsiCo (NYSE: PEP). I really see no reason for Campbell's stock to decline in the short term. I think it has momentum behind it. However, with the dollar gaining some strength as of late, I would worry a little about buying the stock at the 52-week high, although it does still sport a tasty dividend yield even at these levels. If you do buy now, a stop would probably be good to use.
Disclosure: I own Coca-Cola; positions can change at any time.
U.S. stock futures were much lower Thursday, indicating a tough start for Wall Street today -- the seventh anniversary of the 9/11 attacks. Investors sentiment was mired by concerns over the financial sector as Lehman and WaMu continue to have difficulties and braced themselves for a slew of economic reports including weekly initial claims, trade deficit for July and inflation figures for international trade for August. Meanwhile, oil declined as Saudi Arabia broke ranks on OPEC.
Lehman Brothers Holdings Inc. (NYSE: LEH) tried to calm investors Wednesday when it presented its rescue plan including the sale of its investment arm. But investors don't seem convinced and are frustrated with the company and its CEO, the longest serving CEO on Wall Street. Too much planning and intent, not enough action. After plunging 45% Tuesday, LEH stock was down another 7% or so Wednesday to $7.25 on Wednesday. They are shedding another 14.5% in pre-market trading at 7:32 am. [Update 9:00 a.m.: Following the several downgrades, Lehman shares are plunging over 40% in pre-market trading. Stock futures are drastically lower as well, indicating stock will likely open much lower.]
Washington Mutual (NYSE: WM) shares have been sharing the same fate as Lehman's lately, as they plunged to their lowest point in nearly two decades Wednesday, diving 29.7% to close at $2.32 - a 17-year low. As of 7:33 a.m., shares are declining another 2.6% in pre-market trading. WaMu is expected to have losses in its mortgage portfolio expected of $19 billion, and some believe it could be Wall Street's next casualty.
And as if that wasn't enough, The Wall Street Journalreports that there will be hearings on alleged tax shelters provided to hedge funds by investment banks including Citigroup (NYSE: C) and Merrill Lynch (NYSE: MER).
Heinz (NYSE: HNZ) beat analyst expectations, and mine for that matter, when it released its first-quarter report on Thursday. Wall Street was looking for about 66 cents per share on the bottom line. Heinz delivered 72 per cents share, a figure that represents a 14% growth rate. This was achieved with the help of a 15% rise in top-line sales.
Management mentioned that organic sales were aided pretty evenly by volume growth and pricing strategies. Looks like brand equity wins the day yet again. People are simply willing to pay for their name brands. This isn't to say that generic, private-label items won't always be a concern for companies like Heinz, as well as competitors such as Hershey (NYSE: HSY), Kraft (NYSE: KFT), Campbell Soup (NYSE: CPB), PepsiCo (NYSE: PEP) and General Mills (NYSE: GIS). They always will be.
Heinz is proving to be one heck of a defensive business during this tough recession. The only segment where the company is having problems is in its U.S. Foodservice where sales and operating income declined. Not so surprising, I suppose, since some restaurants are having trouble getting patrons through the door. People may be willing to spend for Heinz ketchup in the supermarket, but if they're not willing to go to the local casual-dining hangout, then those places won't be demanding as much Heinz ketchup for their tables.
Heinz (NYSE: HNZ), famous maker of thick-and-rich ketchups and other foodstuffs, is due to report first-quarter results on Thursday. So, what might be in store for the company? Are we looking at a lot of growth for the bottom line?
Well, according to Earnings.com, analysts aren't looking for much growth at all. Last year at this time, Heinz served up 63 cents per share. Wall Street seems to be looking for three measly pennies of growth! Can Heinz beat the 66 cents per share that analysts believe it will report?
Looking at some past price history, I can't say that I'm overly optimistic that Heinz will beat the expectations by too much (if it beats at all, that is). Remember that consumer-products companies are having one heck of a time with inflation. Raising prices is key to survival, but those higher price-tags must be accepted by the consumer base.
Increased marketing spending also is important during times like these since many businesses want to see if they can capture some market share while the competition is hurting.
So investors will want to carefully evaluate the margins and volume of sales when Heinz issues its earnings release. This has been par for the course for businesses such as Hershey (NYSE: HSY), Kraft (NYSE: KFT), Campbell Soup (NYSE: CPB), PepsiCo (NYSE: PEP), and General Mills (NYSE: GIS).
On Monday July 28, Kraft (NYSE: KFT) will be reporting its earnings results for the second quarter. Kraft is a well-known manufacturer of supermarket foodstuffs. We all know the brands: Oreo cookies, Nabisco, Oscar Meyer and many, many others.
It should be a defensive stock, just like Campbell Soup (NYSE: CPB) or PepsiCo (NYSE: PEP), right? Well, it is and it isn't. It's defensive in the sense that, as the cliche goes, people still want to eat their favorite foods even during recessionary times. It isn't in the sense that the stock is down by 16% (as of this writing) in the one-year time period. It does have a nice dividend yield, however, and Warren Buffet seems to like it.
What should investors be looking for on Monday? Well, they should definitely be looking at the margins. Is Kraft navigating this inflationary period in as efficient a manner as possible? I think Kraft will do OK in this regard. I'm not expecting any sort of wide expansion of gross margin, but I think management will report stability in this area.
Hershey (NYSE: HSY) , which recently reported numbers for its own quarter (see Brent Archer's idea for a trade involving Hershey options), did well in keeping margin-erosion at bay. Hershey also beat estimates by a penny. Considering that Kraft beat analyst estimates last quarter, that it has a good history of going beyond expectations and that Hershey was able to beat, then I would have to say that Kraft should have no problem beating on Monday. Hershey has had its share of troubles lately, keep in mind.
According to The Wall Street Journal, Campbell Soup (NYSE: CPB) plans on executing a nice buyback program for its stock. The company will repurchase perhaps as much as 10% of its shares over time. Also, earnings will probably come in near the top point of the previously stated range. So, should you rush in and invest in Campbell just because of this buyback?
My opinion: Probably not if you're looking to merely trade the name, but if you're looking to hold for the long term, you'll probably be all right. Although Campbell Soup's stock isn't near a 52-week low as of this writing, I notice that Coca-Cola (NYSE: KO), PepsiCo (NYSE: PEP), and Kraft (NYSE: KFT) aren't too far from theirs. It's been a crazy time for the markets, and it amazes me that a stock like Coke isn't being perceived as a safe haven. I know there are some reasons out there for its weakness in terms of growth prospects and the like, but still, I've watched it drop quite a bit in very recent times (I own Coke), and I'm a bit surprised at its current price action considering the recession.
So, even though Campbell's buyback is great news for shareholders who already own the stock, I'm not sure I'd initiate a position myself. Although I am looking for stocks to buy, I just haven't been able to ignore the technical damage that's been inflicted upon the big averages by the bears and am reticent at putting new money to work in short-term trades. I think management might be doing the right thing with its buyback from a shareholder standpoint, but from a trading perspective, I would not be buying along with them.
Disclosure: I own Coke; positions can change at any time.
Deutsche Telekom (NYSE:DT) was upgraded to "overweight" from "neutral" at JP Morgan, according toMarketWatch. The financial news site also reports that France Telecom (NYSE:FTE) was upped to "buy" from "neutral" at Merrill Lynch.
Stifel Nicolaus & Co reiterated its "hold" rating on Campbell Soup (NYSE:CPB) ahead of the company annual meeting according to the AP.
Merrill Lynch resumed coverage of Home Depot (NYSE:HD) with an "underperform" rating, according toBriefing.com. The news service also reports that JP Morgan initiated Comcast (NASDAQ:CMCSA) with an "overweight" rating.
Douglas A. McIntyre is an editor at 247wallst.com.
MOST NOTEWORTHY: Siemens, Con-Way, Old Dominion Freight and Yahoo! were today's noteworthy upgrades:
Goldman added Siemens (NYSE: SI) to their Conviction Buy List on valuation, as they believe investors are overlooking potential catalysts for the stock, such as the company's buyback and margin expansion opportunities. Shares remain Buy rated.
Baird upgraded LTLs Con-Way (NYSE: CNW) and Old Dominion Freight (NASDAQ: ODFL) to Outperform from Neutral based on valuations, less fuel exposure, and better business models than TLs.
Soleil upgraded Yahoo! (NASDAQ: YHOO) to Hold from Sell on valuation, as the stock is near their $22 target.
Kaufmann has started The Knot (NASDAQ: KNOT) as a "buy," according to the AP.
Soleil upgraded Yahoo! (NASDAQ: YHOO) to "hold" from "sell," according toBriefing.com. The news service also reports that Stanford initiated Time Warner (NYSE: TWX) with a "buy" rating.
Campbell Soup (NYSE: CPB) raised to Overweight from Equalweight at Lehman, according to 24/7 Wall St.
Late last year, the Campbell Soup Company (NYSE: CPB) sold off Godiva Chocolatier for a cool $850 million. So why give up such a prized brand?
Well, it will mean that Campbell can focus on its core business of soups and snacks. Next, the chocolate market is highly competitive -- especially in light of the recent deal between Mars and Wm. Wrigley Jr. Company (NYSE: WWY).
The deal was also a big help for the Q1 results. Net income went from $217 million, or $0.55 per share, to $532 million, or $1.40 per share. Revenue increased 7.4% to $1.88 billion. Unfortunately, soup revenues were meager, falling 3%. Simply put, Campbell's competitors are getting the upper hand. It also doesn't help that there is commodities inflation.
On the conference call, Campbell was upbeat. After all, the company is launching a variety of health-conscious offerings. But so far, investors aren't convinced. In today's trading, Campbell's shares fell 6% to $33.70. It was the lowest level in eight years.
Today started out as a good day, but traders went back to "do the opposite of what feels good." The Conference Board showed that April's leading economic indicators were +0.1%. Oil also stayed above $127 per barrel.
Here are the unofficial closing prices for US index levels:
Amazon.com (NASDAQ: AMZN) saw a sharp rise with shares up over 7% at $82.22 late in the day after Goldman Sachs added it to the CONVICTION BUY LIST.
Campbell's Soup (NYSE: CPB) saw a 5% drop by the end of the day to $34.06 after a disappointing result.
Lowe's Companies (NYSE: LOW) saw a 2.5% drop to $24.25 by the end of the day after the company's earnings came in line but guidance was weak.
Pacific Ethanol Inc. (NASDAQ: PEIX) saw shares rise an unbelievable 49% with shares at $4.78 late in the day after the battered ethanol producer beat earnings expectations.
SanDisk Corp. (NASDAQ: SNDK) was down over 8% at $29.74 in the final minutes today after making cautious comments at a JPMorgan investor conference.
Jon Ogg produces and edits the "10 Stocks Under $10" newsletter and he does not own securities in the companies he covers.
If you were paying close attention to this column last week, you would have sidestepped some of the pain and misery investors in many of the stocks discussed have suffered lately. Of late, we have seen the general direction of the markets turn positive, even in the face of news to the contrary.
Perhaps it is because investors have an appetite for stocks, since there seems to be few investment alternatives. Real estate is off limits and the yield on bonds and other fixed-income investments is pathetically low.
The theme for the week ahead is SMOOTH SAILING. In this week's column, we delve into some stocks that will be announcing earnings, and that may benefit from the changing tide of investor sentiment. To be sure, there will be several areas of choppiness as we continue to be bombarded by the stormy realities of a turbulent economy.
Monday, May 19
The chart for Campbell Soup (NYSE: CPB) looks M'm M'm good. Sporting a smooth line with nary a ripple over the past 12 months, management has done a great job at keeping both company earnings and share price up, even in the face of significant food inflation. While shares have been condensing during the past few months, recently they have been rising with a series of higher highs and higher lows. Be on the outlook for earnings of 44 cents per share on revenue expectations of $1.89 billion. Now that I think of it. That's a lot of soup wrapped in tin-plated steel -- one of many materials that has seen its price almost double in the past six months.
U.S. stock futures were much lower Thursday, indicating a tough start for Wall Street today -- the seventh anniversary of the 9/11 attacks. Investors sentiment was mired by concerns over the financial sector as Lehman and WaMu continue to have difficulties and braced themselves for a slew of economic reports including weekly initial claims, trade deficit for July and inflation figures for international trade for August. Meanwhile, oil declined as Saudi Arabia 
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