W&T Offshore, Inc. (WTI), Campbell Soup Company (CPB): Is Heavy Insider Ownership a Good Omen for Investors?

Campbell Soup

Meeting the expectations of consensus is good, but beating them is great. In 2Q13, Campbell reported a $0.70 EPS, beating the consensus estimate of $0.66. The company surpassed expectations due to an improved soup business, strong baking and snacks volumes, plus a reduction in taxes, share count, and marketing expenses.

Though soup sales grew modestly, I see this more as a resultant of colder winters and higher incidence of the flu. The company had very low marketing efforts attached to this rise in sales. That being said, Campbell’s new products, like “Go Soups” are ramping up sales very slowly. I feel that cutting back on the marketing and selling expenses (as it did in the last quarter) would not be in the best of interest for the company. The company’s marketing, general and administrative expense was ~22% of sales, which was flat YoY.  I feel that the cut in advertising spending as a percentage of sales usually helps boost near-term profits, but it will lead to an eroded brand recall and lower sales in the long-term.

Moving on to the baking and snacks business, this segment was up by 6.7% YoY, mainly driven by a strong growth in volume. The company benefited from the bankruptcy of Hostess. With Hostess out of market, Campbell got more shelf space at grocery stores to fill out the gap in demand and supply, and the volume of the baking & snacks business spiked. In the future, the company should be able to continue to capitalize on the gap created in the baking market by this bankruptcy.

Recent performance should continue in the future as well, but low marketing initiatives are a threat to the company’s profitability in the long-term. So I would stay neutral on the stock.