Saturday, February 19, 2011

Campbell Soup Confirms Weakness

Campbell Soup $CPB gave results recently and confirmed the difficulties within the sector. From a macro-economic perspective Campbell Soup is faced with many challenges, many of which were outlined in a previous article

The major problem for Campbell Soup is that the US economy is increasingly seeing an uneven distribution of incomes which has been exacerbated by the recession. This means that they have little pricing power due to a lack of purchasing power by the overall US consumer. Campbell Soup does not have the ability of a Coach or a Nordstrom in being exposed to higher income demographics.

The lack of pricing power is causing margins to fall as food input and energy prices are rising. What makes it worse is that it is the emerging markets (where the jobs just got exported to) that are driving these prices higher. This leaves the lower income US citizen with little wage bargaining power and his discretionary spending power is crimped due to spending more of his income on food/energy. None of which, is good news for Campbell Soup.

It is no surprise to see Campbell struggling in the current environment and there is little attraction in buying the stock. Food inflation is around and Campbell Soup can't pass on the cost rises. I'm taking a pass here.

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