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Campbell (CPB) Falls Despite Q2 Earnings & Revenues Beat

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Campbell Soup CompanyCPB posted second-quarter fiscal 2018 results, wherein both earnings and sales surpassed the Zacks Consensus Estimate and improved year over year. The company delivered a positive earnings surprise after three consecutive earnings misses while sales returned to positive after four straight misses.

However, shares of the company have lost nearly 3.4% in the pre-market trading as management stated that it was a dismal quarter on account of persistent challenges in the U.S. soup category as well as Campbell Fresh division. In fact, this segment delivered lower-than-expected results due to difficulties in the super premium juice category.

In the last three months, Campbell's shares have declined 4.1% against the industry 's gain of 0.3%.

Q2 Highlights

Adjusted earnings of $1.00 per share increased 9.9% year over year and also outpaced the Zacks Consensus Estimate of 81 cents. Including one-time items, Campbell reported earnings of 95 cents per share that was significantly up from 33 cents in the year-ago quarter.

Net sales of $2,180 million inched up 0.4% and also came ahead of the Zacks Consensus Estimate of $2,174 million. However, organic sales dipped 2% on account of lower volumes mainly in the Americas Simple Meals and Beverages segment.

Further, the company's adjusted gross margin contracted 2.2 percentage points to 35.2%. The decline was mainly due to cost inflation, escalated supply chain expenses and adverse mix, somewhat negated by productivity improvements as well as gains from cost savings.

Campbell Soup Company Price, Consensus and EPS Surprise

Campbell Soup Company Price, Consensus and EPS Surprise | Campbell Soup Company Quote

Moreover, adjusted EBIT in the quarter was down 4% to $402 million on lower gross margin, compensated with lower marketing and selling costs as well as a rise in other income.

Segment Analysis

The Latin America business is managed as part of the Global Biscuits and Snacks segment starting from fiscal 2018. Earlier, this formed part of the Americas Simple Meals and Beverages segment.

Campbell reports its results under three segments namely, Americas Simple Meals and Beverages, Global Biscuits and Snacks, and Campbell Fresh.

Americas Simple Meals and Beverages: In second-quarter fiscal 2018, sales at the division dipped 2% year over year to $1,196 million. Also, the segment's organic sales were down 4% mainly due to softness in V8 Beverages and soup sales, somewhat mitigated by benefits in the Canada retail business. Excluding gains from the Pacific Foods buyout, sales at the U.S. soup decreased 7% on account of a drop in condensed soups as well as ready-to-serve soups. However, broth sales were comparable to last year.

Global Biscuits and Snacks: Sales at this division rose 4% at $726 million. Excluding the impact of currency tailwinds, organic sales grew 3% backed by Pepperidge Farm snacks strength representing growth in Goldfish crackers, cookies and benefits from Kelsen cookies in China. Further, Arnott's biscuits' sales were comparable to the previous year, excluding the positive effect from currency.

Campbell Fresh: Sales at this segment dipped 1% to $257 million mainly on lower sales at Bolthouse Farms refrigerated beverages.

Financials

Campbell ended the quarter with cash and cash equivalents of $196 million, long-term debt of $2,247 million and total equity of $1,949 million. Additionally, the company generated $660 million as cash flow from operations, in the first six months of fiscal 2018.

Other Developments

In the quarter under review, management has completed the buyout of Pacific Foods to widen its foothold in the organic soup and broth categories. Further, it agreed to buy the leading snacks maker - Snyder's-Lance, Inc. - which is likely to strengthen Campbell Soup's portfolio of snacking brands, thus making it a snacking leader.

Meanwhile, Campbell Soup remains on track with its multi-year cost-savings initiative as it achieved $20 million of savings in the fiscal second quarter, bringing the entire program-to-date savings to $365 million. Furthermore, the company has raised the annualized savings target from $450 million to $500 million, which is expected to be achieved by the end of fiscal 2020.

Fiscal 2018 Outlook

Campbell remains focused on getting its C-Fresh division back on growth track and solving its key customer issue, thereby expecting moderate soup sales in the second half of fiscal 2018. Going into the spring season, the company expects its initiatives to boost beverage results in the second half. Further, its solid focus on cost savings and core strategic imperatives are likely to drive growth in the long term.

Management updated its outlook for fiscal 2018 to include the effects of the Pacific Foods buyout as well as the Tax Cuts and Jobs Act. The company projects sales growth to range from negative 1% to positive 1%. Also, adjusted EBIT is expected to decline in the band of negative 7% to negative 5%. Adjusted earnings are envisioned in the band of $3.10-$3.17 per share, representing increase of 2-4%. The Zacks Consensus Estimate is currently pegged at $2.95, which is likely to witness an upward revision.

Campbell carries a Zacks Rank #3 (Hold).

Looking For Solid Food Stocks? Check These

Some better-ranked stocks in the same industry are Post Holdings, Inc. POST , McCormick & Company, Incorporated MKC and Lamb Weston Holdings, Inc. LW . While Post Holdings sports a Zacks Rank #1 (Strong Buy), McCormick and Lamb Weston carry a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank stocks here .

Post Holdings with a long-term earnings growth rate of 14% has delivered a positive earnings surprise of 7.3% last quarter.

McCormick with a long-term earnings growth rate of 9.4% has pulled off an average positive earnings surprise of 4.3% in the trailing four quarters.

Lamb Weston with a long-term earnings growth rate of 12% has delivered an average positive earnings surprise of 7.9% in the last four quarters.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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