Campbell Soup Gains on Solid Snacks Segment & Saving Efforts

Campbell Soup Company CPB appears to be placed on safe grounds, courtesy of its robust growth endeavors. The company’s focus on its key North American market and strategy of offloading non-core businesses has been yielding results. Also, it has been benefiting from its solid cost-saving plan. Markedly, Campbell Soup’s Snacks division has been doing well, in particular, and remained all the more sturdy in third-quarter fiscal 2020, thanks to higher volumes stemming from increased at-home consumption amid the pandemic.

Solid results and expectations of continued demand increases encouraged management to raise its net sales, adjusted EBIT and adjusted EPS guidance for fiscal 2020, when it reported third-quarter results. Campbell Soup now expects both net sales and organic sales for fiscal 2020 to increase 5.5-6.5%. Earlier, both metrics were projected to be down 1% to up 1%. Adjusted EBIT is now expected to rise 12-14% compared with the previous view of 2-4% growth. Campbell now expects adjusted EPS in the range of $2.87-$2.92, which indicates growth of 25-27% from $2.30 reported in the year-ago period. Earlier, adjusted EPS was projected to grow 11-13% to $2.55-$2.60.

Incidentally, the Zacks Consensus Estimate for fiscal 2020 has moved north by 5% to $2.93 over the past 60 days. Further, the abovementioned upsides, especially Campbell Soup’s growth strategies, have helped its shares rally 21.2% in a year against the industry’s decline of 2.3%. Let’s delve deeper.

Campbell Soup Company Price, Consensus and EPS Surprise

Campbell Soup Company Price, Consensus and EPS Surprise

Campbell Soup Company price-consensus-eps-surprise-chart | Campbell Soup Company Quote

Growth Efforts in Place

Campbell Soup is progressing well with its cost-saving plan. During the third quarter, it generated savings worth $30 million as part of its multi-year, cost-saving program, which included synergies associated with the Snyder’s-Lance buyout. With this, the company has generated total program-to-date savings of $680 million. Management continues to anticipate cumulative annualized savings from continuing operations of $850 million by fiscal 2022-end. These factors along with prudent investments and strategic efforts toward product innovation and brand building are likely to help Campbell Soup counter cost inflation and retain its growth story.

Further, Campbell Soup has been focused on improving the performance of its Campbell Snacks and Campbell Meals and Beverages segments in the key North American market. In fact, the company is benefiting from its fast-growing Snacks business, which formed more than 45% of its top line in the third quarter of fiscal 2020. In this regard, Campbell Soup’s buyout of Snyder's-Lance (concluded in the third quarter of fiscal 2018) is enhancing its performance. Markedly, sales in this division rose 9% to $1,028 million. Excluding the divestiture impact, net sales ascended 12%, driven by higher volumes stemming from increased at-home consumption and solid base business performance.

The segment gained from advancements in fresh bakery products, Goldfish crackers, Pepperidge Farm cookies, Kettle Brand and Cape Cod potato chips, Pop Secret popcorn, Snyder’s of Hanover pretzels, Lance sandwich crackers, Late July snacks, and Snack Factory Pretzel Crisps. We believe that brands under the Snacks division will continue boosting performance, backed by enhanced marketing and innovation.

COVID-19 Demand

In the third quarter of fiscal 2020, organic sales gained 17%, backed by strength in Meals & Beverages and Snacks segments, courtesy of solid U.S. retail soup sales. Results gained from an unexpected rise in demand across the company’s brands, stemming from the increased at-home consumption amid coronavirus. Campbell Soup’s products were bought by millions of new households, leading to a more than 6-percentage-point increase in total household penetration in the third quarter. Other food stocks like TreeHouse Foods THS, Kraft Heinz KHC and B&G Foods BGS also benefited from the coronavirus-led demand spike.

Will Upsides Counter Hurdles?

During the third quarter of fiscal 2020, gross margin was partly affected by cost inflation and other supply-chain expenses (including costs associated with COVID-19). The company’s performance was adversely impacted by 300 basis points, with one-third of it being accountable to cost inflation. Overall input prices (on a rate basis) rose roughly 1.5%. Further, the company undertook several marketing investments in the quarter, with most of the spending focused on the soup portfolio. Within the Snacks segment, marketing expenses rose 11% and management intends to double its investments in the fourth quarter in order to retain new consumers. This is likely to weigh on profits to some extent.

Nevertheless, we expect the abovementioned upsides, including Campbell Soup’s sales drivers and saving efforts, to help counter these hurdles and keep the Zacks Rank #3 (Hold) company’s growth story on. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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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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