Technology

Campbell (CPB) Up 6.3% Since Last Earnings Report: Can It Continue?

A month has gone by since the last earnings report for Campbell Soup (CPB). Shares have added about 6.3% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Campbell due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Campbell Soup Q2 Earnings Beat Estimates, Sales Up Y/Y

Campbell released second-quarter fiscal 2019 results, wherein both top and bottom lines came ahead of the Zacks Consensus Estimate. Moreover, sales improved year on year. Also, management has reiterated its outlook. However, earnings plunged year over year and organic sales remained flat, owing to sluggishness in some of the segments.

Q2 Highlights

Adjusted earnings of 77 cents per share dipped 23% year over year, however beat the Zacks Consensus Estimate of 70 cents. The downside came due to a fall in EBIT in the base business, increased tax rates, as well as dilutive impacts from the buyouts of Snyder’s-Lance and Pacific Foods. These were partially mitigated by favorable impacts of nearly 3 cents from revenue-recognition changes.

Net sales of $2,713 million climbed 24% year over year, primarily backed by gains from the Snyder’s-Lance and Pacific Foods buyouts. The top-line figure also surpassed the Zacks Consensus Estimate of $2,692 million. However, organic sales remained flat year on year, as benefits from Snacks and Global Biscuits were offset by declines in Meals and Beverages as well as Campbell Fresh.

Moving on, the company’s adjusted gross margin contracted 4.3 percentage points to 30.9%, which included a negative impact of about 200 basis points from the recent acquisitions. Apart from this, the gross margin contraction was accountable to cost inflation, escalated supply-chain expenses and increased promotional spending. This was somewhat compensated by productivity improvements and gains from cost savings.

Adjusted EBIT dropped 1% to $399 million, owing to softness in the base business, partly made up by gains from the recent buyouts.

Adjusted tax rate in the quarter was 24.1%, reflecting an increase of 5.2 percentage points.

Segment Analysis

Meals and Beverages: Sales at the division inched up 1% to $1,230 million. Further, the segment’s organic sales were down 1% due to softness across Prego pasta sauces, Plum and Canada, partially made up by gains in V8 Energy V8 vegetable juice beverages.  

Excluding gains from the Pacific Foods buyout, U.S. soup sales were flat year on year, as benefits from broth and ready-to-serve soups were countered by softness in condensed soups.

Global Biscuits and Snacks: Sales at this division soared 76% at $1.243 million. Excluding gains from the Snyder’s-Lance’s buyout and currency headwinds, organic sales improved 3%, driven by advancements in Pepperidge Farm and Arnott’s biscuits. Markedly, Pepperidge Farm sales have been rising for 17 consecutive quarters.

Campbell Fresh: Sales at this segment slipped 7% to $239 million on account of softness in refrigerated soup, Garden Fresh Gourmet and Bolthouse Farms refrigerated beverages. This was somewhat compensated by increased carrot sales.

Financials

Campbell ended the quarter with cash and cash equivalents of $203 million, total debt of $9,457 million and total equity of $1,278 million. Additionally, the company generated $846 million as net cash from operating activities in the first six months of fiscal 2019.

Other Developments & Fiscal 2019 Outlook

During the quarter under review, Campbell generated savings worth $50 million as part of its multi-year cost-savings program, which included synergies associated with Snyder’s-Lance’s buyout. This brings Campbell’s savings from the program to $550 million. The first-half savings from the program stand at $95 million. Further, management anticipates generating cumulative annualized savings of $945 million by fiscal 2022 end.

The company also unveiled selling its Garden-Fresh Gourmet business. Prior to this, the company had announced plans to sell the Everett refrigerated soup plant. Both these businesses form part of the Campbell Fresh unit. Such actions form part of the company’s strategic portfolio-refinement initiatives. According to such plans, management is in the process of selling the Campbell International and Campbell Fresh business units, in order to boost efficiency and financial strength.

Additionally, management highlighted that the company is on track with strategic initiatives, including stabilization of the core business, integration of acquired businesses, enhance cost savings and strengthen portfolio.

That said, the company reiterated its guidance. It projects fiscal 2019 sales of $9,975-$10,100 million ($7,925-$8,050 million on a proforma basis). The projections include sales of nearly $1,500-$1,550 million from the buyouts of Snyder’s-Lance and Pacific Foods.

Adjusted EBIT is expected to be $1,370-$1,410 million, while it is likely to range between $1,230 million and $1,270 million, on a proforma basis.

Adjusted earnings per share are envisioned to be $2.45-$2.53, while proforma earnings are estimated to be $2.40-$2.50 per share.
 

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -8.27% due to these changes.

VGM Scores

At this time, Campbell has an average Growth Score of C, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Campbell has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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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.

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