CHICAGO Campbell Soup Co (CPB.N) on Monday said it expected to report fiscal-year profit at the upper end of its forecast range and announced a $1.2 billion stock buyback, sending its shares up nearly 6 percent.
The forecast was a relief for Campbell investors. The shares have suffered in recent weeks as the company reported a decline in U.S. soup sales and concerns over soaring commodity costs hit food stocks.
At Friday's close, Campbell shares had lost more than 10 percent of their value since the largest U.S. soup maker reported the drop in U.S. sales in its quarterly earnings report on May 19.
"How things had been going had implied that getting to the high end of that range was going to be tough to do," Edward Jones food analyst Matt Arnold said. "Their guidance implies that things had gotten a bit better.
The company estimated earnings for the fiscal year ending August 3 to show an increase around the upper end of a 5 percent to 7 percent range from the adjusted $1.95 per share it reported for fiscal 2007.
That forecast range is equal to $2.05 to $2.10 a share. Analysts on average were expecting $2.04, according to Reuters Estimates.
Campbell's soup sales have fallen as the company raised prices to offset soaring commodity costs. It was also pressured by General Mills Inc's (GIS.N) Progresso brand, which promoted a line of "light" soups endorsed by Weight Watchers International Inc (WTW.N).
Campbell, which is meeting with analysts and investors on Tuesday, did not say what had improved since the middle of May, although even at that time it said earnings would be within its forecast range for the year.
"That could be a lower tax rate or a number of other things," Victory Capital Management analyst Dave Kolpak said. "I'm not really sure that there's a whole lot of concrete news here."
Analysts also hesitated to extrapolate the Campbell news onto the rest of the food sector.
Normally, the industry would be a favored play in a weak economy and bear market because people still need to eat. In fact, food companies have said they benefit from cash-strapped consumers dining at home instead of out at restaurants.
But soaring prices for grain, oil and other commodities have caused investors to treat food and other consumer products companies with more caution this time around, said Morningstar analyst Gregg Warren.
Food companies have been forced to raise prices in order to cope with rising costs, putting them in a precarious position where consumers could trade down to lower-priced private-label competitors.
"This is an environment we really haven't seen in 30 years, since the days of stagflation," Kolpak said.
While foodmakers generally have been holding market share despite the price hikes and week economy, Kroger Co (KR.N), the largest U.S. supermarket operator, said sales of its store brands had increased in the most recent quarter.
Food stocks in general have also fallen this month, with the Standard & Poor's U.S. packaged foods index .15GSPFOOD down more than 8 percent since June 5. The index was up 0.8 percent on Monday.
But the Campbell forecast, coupled with General Mills' fiscal 2008 earnings coming in above analysts' estimates earlier this month, indicates the packaged food companies are holding their own, Edward Jones analyst Arnold said.
"We view this as a positive for the whole food group," Arnold said. "You've had weak stock prices for the last couple of weeks, even though we have another example of a company meeting or exceeding its guidance."
Arnold could not name other food companies that might meet or beat expectations in the coming weeks. Warren said companies like H.J. Heinz Co HNZ.N or Sara Lee Corp SLE.N could get some benefit in the current environment, but that was because the weak dollar boosts their international sales.
As to stock repurchases, Campbell said it planned to complete an earlier buyback by the end of this fiscal year using $600 million in proceeds from the sale of the Godiva chocolate business.
The new $1.2 billion plan will be in place through the end of fiscal 2011, the company said.
Campbell shares were up $1.82, or 5.7 percent, at $34 in afternoon New York Stock Exchange trade.
(Reporting by Brad Dorfman, editing by Gerald E. McCormick and Lisa Von Ahn)