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Campbell Serves Up Wholesome Numbers

Posted: Nov 25, 2009 11:23 AM by Sham Gad

Tickers in this Article: TIF, SBUX, K, TSN, CPB

Following along similar food businesses like Tyson (NYSE:TSN), Campbell Soup Company's (NYSE:CPB) fiscal first-quarter results were generally solid. It would seem that the worst is behind Campbell and the rest, as it also forecasted better days ahead.

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Homemade Success
Net profit was up 14% to 87 cents per share in the quarter, which was supported by improvements across all segments. As for sales, the top line was down 2%. The sales number has become a very popular figure these days due to the fact that profitability for many is being driven by cost reductions versus strong sales performance. Yet the relatively minor sales decline of names like Campbell, Tyson, Kellogg (NYSE:K) and other food based companies compared to discretionary businesses like Starbucks (Nasdaq:SBUX) is illustrating a very important theme going forward: businesses that focus on more essential products will likely find it much easier to navigate during this uncertain economic environment.

Campbell's margins benefited from more efficient operations, as the company delivered gross margins of 42% against 39% a year ago. These boring businesses that sell soup, meat and cereal are poised to benefit going forward as all consumers substitute dining out for dining in.

Friendly Price
Going forward, investors may wish to give these bigger, more stable enterprises a closer look. When you compare the operating results that they are reporting to those of lesser quality companies, they are deserving of more favorable valuations. Names like Campbell and Kraft (NYSE:KFT) are trading for 16-17 times earnings and pay out attractive dividend yields, while names like Tiffany (NYSE:TIF) are trading for 33 times earnings. Tiffany is a fine company, but I'll take a seller of foods at 17 times earnings versus a seller of jewelry at 33 times earnings in this economy. Sooner or later, I think Mr. Market may come to the same conclusion, as the operating strength of such businesses becomes more evident.

Bottom Line
The once boring big name stocks are some of the best valuations in the market today. Over time, as the numbers speak for themselves, so should the share price. (For further reading, check out The Value Investor's Handbook.)

By Sham Gad

Sham Gad is the Managing Partner of Gad Partners Fund's, value inspired investment partnerships modeled after the Buffett Partnerships of the 1950's. Previously, Gad ran the Gad Investment Group and delivered annualized returns of 22% from 2002 to 2005. Gad is also the author of "The Business of Value Investing" which will be out in the fall of 2009. Gad earned his MBA at the University of Georgia in May of 2007. Gad runs a value investing blog. He can also be reached by visiting the Gad Partners Funds site. When not writing or analyzing businesses, Gad enjoys hanging out with his wife Maggie, reading, golf, and yoga

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