Campbell Soup CompanyCPB posted second-quarter fiscal 2017 results, wherein earnings marked its second consecutive beat. Also, earnings improved on a year-over-year basis. Though sales remained drab owing to dismal Campbell Fresh performance, management retained its outlook for fiscal 2017.
While the stock didn't react much to the announcement in the pre-market trading session, this Zacks Rank #2 (Buy) company has gained 16% in the last three months, outperforming the Zacks categorized Food - Miscellaneous/Diversified industry's gain of 5.4%.
Q2 in Details
Aided by lower costs, adjusted earnings of 91 cents per share jumped 5% year over year and also exceeded the Zacks Consensus Estimate of 88 cents. Including one-time items, Campbell's earnings slumped 61% to 33 cents in the quarter.
Net sales of $2,171 million slipped 1% and also lagged the Zacks Consensus Estimate of $2,217.5 million. Benefits from favorable currency movements were more than offset by soft organic sales. Organic sales dipped 2% on account of weak volumes and greater promotional spending.
Further, the company's adjusted gross margin expanded 70 basis points to 38% in the reported quarter, thus continuing with its gross margin expansion trend. The upside was mainly backed by productivity enhancements and benefits from cost-curtailing efforts, partly negated by increased promotional expenditure, cost inflation and escalated supply chain expenses (mainly due to increased carrot costs).
However, adjusted earnings before interest and taxes (EBIT) for the quarter inched down 1% to $417 million, owing to soft sales and greater marketing and selling costs. This was partly compensated by improved gross margin.
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 2017, sales at the division remained flat year over year at $1,231 million. Excluding the favorably currency impact, sales slipped 1% on account of softness in V8 beverages, somewhat compensated by benefits from solid sales from soup, Prego pasta sauces and Plum products. During the quarter, sales for U.S. soup climbed 1%, fuelled by strength in ready-to-serve soups, offset by a drop in both broth and condensed soups.
Global Biscuits and Snacks : Sales at the division also remained flat at $680 million. On a currency-neutral basis, sales for the segment dropped 1% as gains from strong Pepperidge Farm products sales was more than offset by a decline in Kelsen.
Campbell Fresh : Sales at this segment declined 8% year over year to $260 million, accountable to soft sales of carrots, Bolthouse Farms refrigerated beverages and Garden Fresh Gourmet, partly compensated by solid refrigerated soup sales. Management stated that carrot sales were largely hampered by weather-related hurdles, while Bolthouse Farms Protein PLUS drinks witnessed capacity constraints owing to the recall made in Jun 2016. Overall, the performance by this division was below management's expectations.
Campbell ended the quarter with cash and cash equivalents of $309 million, long-term debt of $2,293 million and total shareholders' equity of $1,479 million. Further, the company generated $667 million as cash flow from operations during the first half of fiscal 2017.
Campbell Soup Company Price, Consensus and EPS Surprise
Fiscal 2017 Outlook
Management is disappointed with second-quarter sales, mainly due to weakness across Campbell Fresh and V8 beverages. While C - Fresh plays a vital role in Campbell's overall business, management stated that it expects recovery at the segment to be slower than expected. In fact, it doesn't expect this segment to witness growth this fiscal. Nonetheless, the company sees immense potential in its packaged fresh category. Also, it remains impressed with the solid momentum across its core U.S. soup, simple meals and Pepperidge Farm snacks businesses.
Additionally, Campbell is running ahead of schedule with regard to its cost-savings plan announced in fiscal 2015. The company expects to achieve its savings target of $300 million by the end of fiscal 2017, which marks a year in advance. Gaining from this success, the company raised its cost savings target from $300 million by fiscal 2018-end to $450 million by fiscal 2020-end. Further, the company is committed toward augmenting its top line in the second half of fiscal 2017.
That said, management reiterated its fiscal 2017 outlook. Campbell still anticipates sales growth for fiscal 2017 to range from flat to a 1% increase. Adjusted EBIT is expected to rise by 1−4% year over year. Finally, adjusted earnings for the fiscal are likely to grow in the range of 2-5% to $3.00−$3.09 per share. Currency headwinds are expected to have a nominal impact on the company's fiscal 2017 performance.
Other well-ranked stocks in the miscellaneous food space include Lamb Weston Holdings, Inc. LW , with a Zacks Rank #1 (Strong Buy), and Ingredion Incorporated INGR and Conagra Brands, Inc. CAG , each carrying a Zacks Rank #2. You can see the complete list of today's Zacks #1 Rank stocks here.
Lamb Weston's earnings outperformed the Zacks Consensus Estimate in the last reported quarter. Moreover, its positive estimate revisions over the past 60 days bode well.
Ingredion Incorporated, with a long-term EPS growth rate of 11%, has seen positive estimate revisions for 2017, over the past 30 days. The company also flaunts a solid earnings surprise history.
Conagra has outperformed earnings estimates by an average of 13.3% in the trailing four quarters. Also, the company, with a long-term EPS growth rate of 8%, has seen its estimates for the current fiscal move north in the past 60 days.
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