Tuesday, March 17, 2009

Campbells Soup Reports Hedges as a Drag on Earnings

Just to demonstrate that folks in other industries "guess wrong" too...

CHICAGO (Reuters) - Consumers looking for relief from rising food prices are not likely to see any price cuts soon from Campbell Soup Co (CPB), which is still dealing with high commodity costs under previously set contracts.

Sales of the world's largest soup maker have been helped by consumers eating more at home, and the company sees little need to cut prices, especially while margins remain under pressure, CEO Douglas Conant said at the Reuters Food and Agriculture Summit in Chicago.

"Quite frankly, sales are growing, our marketplace presence is growing, consumer purchases are actually growing faster than sales," Conant said. "Clearly we're having a good year, we've had the best year in soup that I've experienced in my nine years here."

"So it's not likely we're going to be reducing prices in the near term."

But Conant also said that strategy could change if commodity prices come down and margins improve.

Like many food companies, Campbell locks in some costs for grains and other ingredients through commodity hedges. The company hedged some commodities when prices were at historic highs last year and those hedges run until July, Conant said.

"As those hedges come off and if our margins start to turn around, then we'll reconsider that, but that's premature to talk about," Conant said about the possibility of lowering prices.

"We're hopeful our margins will improve in the second half but for the full year, at best they'll be flat," Conant said. "So we won't recover everything we lost in the first half."

But do you see the concept of sticky margins in action?

Hat tip to DealBreaker.

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