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Why Is Campbell (CPB) Down 2.2% Since Last Earnings Report?

A month has gone by since the last earnings report for Campbell Soup (CPB). Shares have lost about 2.2% in that time frame, outperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Campbell due for a breakout? 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 catalysts.

Campbell Soup Beats on Q1 Earnings & Sales Estimates

Campbell Soup released first-quarter fiscal 2019 results. Adjusted earnings of 79 cents per share slumped 14% year over year, though it beat the Zacks Consensus Estimate of 69 cents. The downside was led by a fall in adjusted EBIT on base business, somewhat cushioned by reduced adjusted tax rate. Adjusted tax rate fell 3.9 percentage points to 24.3%.

Net sales of $2,694 million surged 25% year over year, backed by gains from buyouts of Snyder's-Lance and Pacific Foods. Organic sales dropped 3% mainly due to reduced volumes and increased promotions. Nonetheless, net sales came ahead of the Zacks Consensus Estimate of $2,677 million.

Moving on, the company's adjusted gross margin contracted 4.9 percentage points to 31.6%, which included a negative impact of about 190 basis points from the recent buyouts. 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 2% to $410 million, driven by alterations in revenue recognition. Also, adjusted EBIT was hurt by softness in the base business, partly made up by gains from recent buyouts.

Segment Analysis

Campbell reports results under three segments, namely Meals and Beverages, Global Biscuits and Snacks, and Campbell Fresh. The Latin America business is managed as part of the Global Biscuits and Snacks segment starting from fiscal 2018. Earlier, this division formed part of the Americas Simple Meals and Beverages segment.

Meals and Beverages: Sales at the division remained flat year over year at $1,244 million. Further, the segment's organic sales were down 5% due to softness across U.S. soup, Prego pasta sauces and Canadian sales. Excluding gains from the Pacific Foods buyout and impacts from the changes in revenue recognition, U.S. soup sales fell 6% on account of lower sales of condensed soups and ready-to-serve soups. This was partly compensated by higher broth sales. U.S. soup sales were hampered by greater market competition and promotions.

Global Biscuits and Snacks: Sales at this division soared 77% at $1,218 million. Excluding gains from the Snyder's-Lance's buyout and currency headwinds, organic sales slipped 1% due to soft sales of Kelsen cookies in the United States. Notably, Goldfish crackers sales rose marginally, but continued being hurt by the voluntary recall made in July.

Campbell Fresh: Sales at this segment slipped 1% to $232 million on account of softness in 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 $205 million, total debt of $9,846 million and total equity of $1,415 million. Additionally, the company generated $231 million as net cash from operating activities in the first quarter.

Other Developments & Fiscal 2019 Outlook

During the quarter under review, Campbell generated savings worth $45 million as part of its multi-year cost-savings program, which included synergies associated with Snyder's-Lance's buyout. This brings Campbell's year-to-date savings to $500 million. Further, management anticipates generating cumulative annualized savings of $945 million by fiscal 2022 end.

The company is on track with its strategic priorities and also initiated the process of selling Campbell International and Campbell Fresh. Management expects fiscal 2019 to be a transitional year, and is on track to bring a turnaround to its business. That said, the company reiterated its guidance, considering the company's divestiture plans. Campbell also reaffirmed its outlook on a proforma basis.

The company 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.

VGM Scores

At this time, Campbell has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. 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.


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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