CAMPBELL SOUP CO. $43 (New York symbol CPB; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 315.0 million; Market cap: $13.5 billion; Price-to-sales ratio: 1.7; Dividend yield: 2.9%; TSINetwork Rating: Above Average; www.campbellsoupcompany.com) is the world’s largest maker of canned soups. It also makes Prego canned pasta and sauces, Pepperidge Farm cookies and V8 vegetable juices. Wal-Mart accounts for 19% of its sales.

Diverse businesses add strength

The company’s sales rose 6.1%, from $7.6 billion in 2009 to $8.1 billion in 2013 (fiscal years end July 31). That’s partly due to acquisitions of related businesses, including Bolthouse Farms, a producer of carrots, dressings and fruit juices that it bought for $1.55 billion in August 2012. Bolthouse added $756 million to Campbell’s 2013 sales.

In June 2013, the company paid $249 million for Plum, a leading organic-food producer. Businesses like these cut Campbell’s reliance on canned foods.

Campbell’s earnings have been more erratic than its sales. Its profits rose 9.7%, from $771 million in 2009 to $846 million in 2011. Due to fewer shares outstanding, earnings per share jumped 18.1%, from $2.15 to $2.54. Earnings then fell to $2.44 a share (or $783 million) in 2012, mainly due to rising ingredient costs. However, they rebounded to $2.48 a share (or $786 million) in 2013.

The company is now restructuring, including closing plants in North America and Russia. It has also sold the bulk of its money-losing European simple meals business for $542 million. In all, Campbell ex- pects to cut its annual costs by $150 million when it completes these moves in 2015.

200 new products in 2014

Savings from the company’s restructuring are helping it launch 200 new products this year.

In 2013, its research spending rose 10.3%, to $128 million (or 1.6% of its sales) from $116 million (or 1.5% of sales) in 2012. Its marketing costs also increased 0.6%, to $947 million (or 11.8% of sales) in 2013 from $941 million (or 13.1% of sales).

The company’s lower operating costs are also giving it more room for dividend hikes. It recently raised its payout by 7.6%. The new annual rate of $1.25 a share yields 2.9%.

Campbell borrowed the cash it needed to buy Bolthouse and Plum. However, the extra cash flow from these businesses is helping it pay down its debt. As of January 26, 2014, Campbell’s long-term debt of $2.25 billion was a moderate 17% of its market cap. It was also down 23.6% from $2.9 billion a year earlier.

Takeover possibility is a bonus

The company’s 2014 earnings should rise to $2.55 a share, and the stock trades at a reasonable 16.9 times that estimate. As well, last year’s acquisition of rival Heinz fueled speculation that Campbell could also become a takeover target. Insiders control over 40% of the company, but a high price could entice them to sell.

We feel investors should treat Campbell’s takeover appeal as a bonus and not the sole reason to invest.

Campbell Soup is a buy.