Campbell Soup Company (NYSE:CPB) cooked up a tasty little meal for investors Monday when it announced 2008 earnings should come in on the high side of estimates and then added a share buyback for dessert.
Earnings News
When the company released it's Q3 earnings on May 19, Campbell also said that it expects adjusted net earnings per share growth between 5-7% from the fiscal 2007 adjusted base of $1.95. Now the company has said earnings should come in on the high side of that range. That comes out to about $2.05-2.09 per share after you run the numbers.
Analysts are currently expecting the company to earn $2.06 a share. An upside surprise sure would be nice, and it should attract both retail and institutional investors to the stock.
This is also a great sign for Campbell as the other players in the food space haven't exactly been reporting very upbeat news as of late. For example, just last week well-known food manufacturer General Mills (NYSE:GIS) reported a fiscal fourth quarter profit decline, and Kraft (NYSE:KFT) saw its Q1 numbers drop 13%.
There is a caveat, however. Campbell's forecast is very upbeat, but the food industry is hard to predict. Rising costs could hurt profit going forward.
Campbell Stock: Mmm Mmm Good
Campbell's board authorized a $1.2 billion share buyback program. This is great news for two reasons. The fact that the board is willing to lay out precious capital to buyback shares speaks volumes about where it thinks the stock is headed. It could easily dedicate those funds toward advertising, marketing, debt reduction or any one of a number of other things.
The sum itself also stands out: $1.2 billion is not chump change. Currently the stock trades at about $34 per share, which means at that price it could repurchase about 35 million shares. That's big given that the stock trades just under 2 million shares per day on average. (To find out what these programs achieve and what they mean for stockholders, read A Breakdown Of Stock Buybacks.)
Bottom Line
In my opinion the buyback program and the upbeat 08’ forecast is good news. In short, while I don't find its story particularly sexy - let's face it, we're talking about soup - I do think the stock is a good play at these levels. As a bonus the shares pay a small dividend. The current yield is 2.7%.
To learn how consumer staple companies can protect your portfolio, read Survival Tips For A Stormy Market.