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Campbell Soup stock up

By Chris Burritt
BLOOMBERG
Sunday, Nov 23, 2008, Page 12

An undated handout provided to the media on Oct. 7 shows one of Andy Warhol’s Campbell’s Soup Can (Vegetable) paintings from 1962. PHOTO: BLOOMBERG

Judging by Dayna Neumann’s pantry, Campbell Soup Co may turn the US recession into rising sales, just as it did in the last two contractions.

Neumann’s family in Louisville, Kentucky, is bracing “for a rough road ahead,” the 32-year-old working mother said. After her 30-year-old husband, Nick, substituted US$1.75 Campbell Chunky soup for restaurant lunches in September, she started buying as many as 15 cans at a time.

The recession will make next year “the year of condensed soup, driven by the backdrop of severe economic pressure on the consumer,” Mitchell Pinheiro, a Philadelphia-based analyst at Janney Montgomery Scott LLC, wrote in a note last Thursday.

The appeal of a cheap meal is turning the world’s largest soupmaker, which says it sells to 85 percent of US households, into an outperformer in hard times. The shares led the 12-company Standard & Poor’s Packaged Foods Index over the past three months, and their 0.87 percent loss this year beat the S&P 500 by almost 48 percentage points.

Camden, New Jersey-based Campbell is “acknowledged as a way to weather a recession,” said Edgar Roesch, a Soleil Securities Corp analyst in New York who rates the shares “buy.”

Campbell may outdistance General Mills Inc, maker of Progresso soup, in shipments next year, said Terry Bivens, a JPMorgan Chase & Co analyst in New York.

BUY RECOMMENDATIONS

Bivens, the top-ranked analyst in a Bloomberg survey for his returns on Campbell recommendations, raised the 12-month target price last Monday to US$44.50, 26 percent higher than Thursday’s US$35.42 close in New York Stock Exchange composite trading. Second-ranked analyst Pinheiro yesterday recommended buying the shares, citing condensed soup as the company’s “most profitable business.”

The food producer has survived 28 recessions, two world wars and the Great Depression over its 139-year existence.

“Historically, Campbell’s soup sales have done well during tough economic times as consumers look for value,” said spokesman Anthony Sanzio.

Campbell’s US soup sales accelerated by 6 percent in the fiscal 12 months ended July 2001, a period that included part of a recession running from March through November of that year, figures from the National Bureau of Economic Research in Cambridge, Massachusetts showed.

Soup sales rose 7 percent in the year ended July 1990 and 5 percent in the next 12 months, overlapping the contraction from July 1990 through March 1991.

NO RECESSION HERE

As the economy has slowed this year, the company’s soup sales in Wal-Mart Stores Inc have climbed 12 percent to 14 percent since late August, said Alton Stump, an analyst at Longbow Research in Independence, Ohio, who polled managers at 50 locations. He has a “neutral” rating on Campbell.

“There will not be a recession in eating,” said Harry Balzer, who has studied US eating habits for more than 30 years for NPD Group, a market research firm based in Port Washington, New York. “There will only be winners and losers.”

Rising home foreclosures and unemployment that pushed consumer confidence to its lowest level last month triggered “a shift to value,” Balzer said.

Fifty-seven percent of households are serving leftovers for dinner, Balzer said, versus an historic mean of 55 percent. US workers took an average of 42 homemade meals to work in the 12 months through February, the most since 1995, he said.

The current recession will give an advantage to suppliers who help consumers “moderate food costs without cooking more,” Balzer said.

Campbell controls about 70 percent of the US$5 billion-a-year US soup market and is offering two-cans-for-US$1 deals recently to maintain the lead.

TWO FOR US$1

Sales of the iconic red-and-white cans of condensed soup, which must be mixed with water, advanced 6 percent in the quarter ended Aug. 3, the company said. Ready-to-serve varieties increased 5 percent as Americans ate at home more, it said.

Campbell plans to report quarterly earnings tomorrow. Profit of US$0.77 a share, versus US$0.70 a year earlier, is projected by 14 analysts surveyed by Bloomberg.

Measured by shipments to retailers, Campbell’s volume will increase an estimated 3.5 percent this year and 3.9 percent next year, said JPMorgan’s Bivens. He projects decelerating shipments for General Mills, cereal maker Kellogg Co and Sara Lee Corp, which sells sausages and desserts.
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