Earning Report: Campbell, Heinz, Krispy Kreme
 

EARNINGS OUTLOOK
Rising costs adding up for foodmakers
Results due from Heinz, Campbell Soup, Krispy Kreme
By William Spain, CBS.MarketWatch.com
Last Update: 5:05 PM ET May 22, 2004

CHICAGO (CBS.MW) -- Investors can expect to hear about rising commodity prices and the biggest fad diet ever next week, when a trio of food companies roll out their numbers.

Campbell Soup will serve up its latest financials before the opening bell Monday, with Heinz and Krispy Kreme coming along the following morning.

While Campbell (CPB: news, chart, profile) and Heinz (HNZ: news, chart, profile) will reap revenue windfalls from the weak dollar, both will also likely speak of a raw material squeeze as prices of everything from meat to milk have soared in the intervening period.

Krispy Kreme (KKD: news, chart, profile) will also feel some of that commodity-price pain but it is the low-carb diet popularized by the late Dr. Robert Atkins that currently has the company's holders crying in their dough: In early May, the company said consumers are shunning its "flour-based food" and lowered its profit forecast, sending shares of the onetime highflier into the hole.

Campbell is expected to earn 32 cents per share on revenues of $1.64 billion in its fiscal third quarter, according to the average estimate of analysts polled by Thomson First Call. That is up very slightly from 31 cents and $1.6 billion in the year-ago quarter. When Campbell reported its fiscal second quarter at the end of February, it cited favorable currency exchange, volume and price increases for a 9 percent jump in revenue.

Wall Street is looking for Heinz to earn 58 cents per share on revenue of $2.3 billion in its fiscal fourth quarter, vs. 52 cents and $2.2 billion in the same quarter a year ago. It also cited a weak dollar, along with some new products, for its 33 percent jump in earnings when it last reported on Feb. 24.

Analyst's focus

In a pair of notes earlier this month, Merrill Lynch analyst Leonard Teitelbaum took a look at what to expect -- and what to look for -- from the two food companies this time around.

At Heinz, he is expecting an 8 percent to 9 percent increase in operating profit, with gains in all segments. North American consumer products are " estimated to rise due to ongoing productivity improvements, partially offset by lower sales" with U.S. food service up "on higher sales and pricing, partially offset by continued higher raw material costs."

The key issues Teitelbaium will watch for are how the North American consumer products business is performing given recent lackluster results, whether the company has been successful in reversing a negative move in baby food in Italy and "if recent positive trends in U.S. food service are sustainable."

At Campbell, he will be looking closely to whether "the company [can] deliver 8 percent [earnings] growth or will the growth rate likely decline," along with sales and margin trends in North American soup "and the impact of low carb diets and difficult competitive dynamics on Pepperidge Farm."

Shares of Heinz ended the week at $37.01 versus a March peak of $39.11 and a year-long nadir of $31 almost exactly one year ago. Campbell closed at $26.40, compared to its 52- week high of $28.70 on March 2 and low of $22.30 on May 19, 2003

Krispy Kreme

Krispy Kreme is expected to earn 24 cents per share on revenue of $185 million compared to 21 cents and $149 million in the same quarter a year ago.

On May 7, the company sliced its profit outlook to 23 cents per share, excluding asset-impairment charges, for the first quarter, 4 cents below the Street view at the time.

The increasing popularity of low-carb diets "had little discernable effect on our business last year," said Scott Livengood, Krispy Kreme's CEO, in the warning. "However, recent market data suggests consumer interest in reduced carbohydrate consumption has heightened significantly following the beginning of the year and has accelerated in the last two to three months."

At the same time, Krispy Kreme said it plans to sell off its Montana Mills operation and won't spend any more money to develop the bread-making concept. As a result, the company will take a pretax asset-impairment charge of about $35 million to $40 million in the first quarter, along with charges of $2 million to $4 million in subsequent quarters. In addition, Krispy Kreme identified six factory stores that it said aren't performing up to expectations and will be closed.

Shares of Krispy Kreme were hammered about 30 percent the session after breaking that news. It closed at $19.63 Friday, after scraping to a 52-week low of $19 the day before. In August 2003, the stock was trading just shy of $50.
William Spain is a reporter for CBS.MarketWatch.com in Chicago