Campbell Soup Company (NYSE:CPB) announced its results for the company’s fourth fiscal quarter of the year (as well as for the full year) on Tuesday morning (the company has a fiscal year ending in July). The company narrowly beat earnings expectations as it reported EPS of 40 cents, up from 31 cents in the fourth quarter of last year. As with many consumer staples companies, Campbell Soup Company owns a number of other brands such as Goldfish, Prego, and Pepperidge Farm and the total market capitalization of the company is over $11 billion at current prices. However, “simple meals” are by far its largest source of revenue, giving the company very little exposure to the broader economy (the stock’s beta is 0.3).
Revenue for the quarter was about flat compared to the fourth quarter of last year, with simple meals buoying the company’s operations. For the full year, revenue was also roughly the same as for the previous fiscal year. Campbell doesn’t have much downside from poor economic conditions but also does not benefit from the low growth that has occurred over the past year either. Net income has fallen slightly, from about $810 million to about $770 million, but thanks to a reduced share count EPS only fell by a penny. Over the course of the year, the company repurchased 12.6 million shares, about half of what the company had authorized in June 2011. For next year, Campbell Soup Company estimates EPS of $2.51 to $2.57. At the midpoint of this range, $2.54, the stock trades at 14 times earnings (compared to 15 times trailing earnings). This doesn’t seem exceptionally high or low for the company; it pays a 3.3% dividend yield, and we’ve seen some buybacks as mentioned, but it’s hard to see much future growth in the cards for such a defensive company.
Considering its size, Campbell Soup does not get much attention from hedge funds. The largest position reported in 13F filings for the second quarter out of the funds we track belonged to billionaire Jim Simons’s Renaissance Technologies, which reported that it had more than doubled its holdings to 1.1 million shares (see more stock picks from Renaissance Technologies). Winton Capital Management, a quantitative fund managed by David Harding, increased its stake 78% between April and June to about 380,000 shares (find more stocks in Winton’s portfolio). Clint Carlson’s Carlson Capital initiated a small position in the stock in the second quarter, finishing June with about 160,000 shares.
Fellow consumer staples companies include General Mills (NYSE:GIS), Heinz (NYSE:HNZ), and Kraft (NASDAQ:KFT). These peers are all larger than Campbell, at market capitalizations ranging from $18 billion for Heinz to $74 billion for Kraft. All lean towards the defensive, with General Mills in particular sporting a beta of 0, and all reported low to moderate earnings growth in their most recent quarter compared to the same period in the previous year. However, sell-side analysts expect better EPS growth from these companies over the next several quarters. Despite trailing price-to-earnings ratios that are well above Campbell’s (17, 19, and 21 for General Mills, Heinz, and Kraft respectively), forward earnings multiples fall to match the smaller company’s. Dividend yields at these comparable companies are similar to Campbell’s as well, with all four stocks clustered between 2.8% and 3.7%.
We think that these peers deserve slightly higher trailing multiples than Campbell, but aren’t sure about the market appearing to price them higher on a growth basis as well. Given that all four consumer staples companies we’ve discussed here are at similar forward multiples and pay comparable dividend yields as well, we would generally prefer the company which depends on the least growth to achieve these forward earnings targets, and that’s Campbell. There is a case for General Mills as an even more defensive stock that trades at a fairly small premium based on trailing earnings, so investors whose portfolios are highly exposed to the market may prefer cereal over soup.