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Will Campbell's (CPB) Initiatives Help Lift the Stock?

Zacks Equity Research

Shares of Campbell Soup Company CPB have underperformed both the Zacks categorized Food – Miscellaneous/Diversified industry and the broader sector in the past three months. The stock was down 8.2% in contrast to the industry’s gain of 0.7%. Further, the Zacks categorized Consumer Staples sector rose 7.5% over the said time frame. In fact, its shares declined 9.7% since it reported second-quarter fiscal 2017 results.

Additionally, the estimates have been moving south over the past 60 days. The Zacks Consensus Estimate of $3.07 for fiscal 2017 and $3.24 for fiscal 2018 declined 3 cents and 2 cents, respectively. Also, management’s adjusted earnings projection for fiscal 2017 are likely to grow in the range of 2–5% to $3.00−$3.09 per share.

Moreover, the Zacks Consensus Estimate of 64 cents for the fiscal third quarter has decreased by 3 cents in the said time period. Also, the current estimate for the said quarter is down nearly 1.5% from the prior-year quarter.  

Campbell’s top line has missed the Zacks Consensus Estimate in seven of the trailing eight quarters. In fact, in the fiscal second quarter, sales fell year over year mainly due to weakness across Campbell Fresh and V8 beverages, along with soft organic sales. The performance of the Campbell Fresh division has been disappointing of late because of weak carrot sales and lingering effect of the Bolthouse Farms product recall. In the quarter, sales at this division dropped 8% year over year. Moving ahead, management expects growth at Campbell Fresh division to remain sluggish.

Despite top-line weakness, management at Campbell is striving hard to bring itself back on the growth trajectory. The company has undertaken strategic plans such as cost-saving measures, enhancement of its brand portfolio and other initiatives to achieve profitable growth.

We note that Campbell remains on track with its cost savings plan, which is running ahead of schedule. Currently, management anticipates achieving its savings target of $300 million by the end of fiscal 2017, thereby marking a year in advance. In addition, the company raised its cost savings target from $300 million by fiscal 2018 end to $450 million by fiscal 2020 end. Moreover, the company’s strategy of concentrating on supply chain efficiencies, along with curtailing costs and reinvesting part of these savings in areas with high growth potential is likely to drive growth.

Evidently, Campbell’s four-point strategy proves that it remains focused on achieving profitable and sustainable growth. These strategies aim at raising the level of transparency about the food that it produces and the ingredients used; portfolio diversification; shift toward advertising via mobile and digital devices and strengthening the presence of its snacks brands across geographies, particularly in Asia. Further, the company is also undertaking acquisitions and joint ventures in a bid to enhance its brand portfolio.

Thus, it would be better to wait and see if these initiatives help the Zacks Rank #3 (Hold) stock to rise in the near future.

Key Picks

Better-ranked stocks in the same industry include Conagra Brands, Inc. CAG, Pinnacle Foods Inc. PF and Lamb Weston Holdings, Inc. LW, each with a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Conagra Brands, with a long-term earnings growth rate of 8% rose 12.6% in the past year.

Pinnacle Foods, with a long-term earnings growth rate of 8.3% has surged 32.1% in the past year.

Lamb Weston Holdings, with a long-term earnings growth rate of 3.2% has jumped nearly 41% in the past six months.

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ConAgra Foods Inc. (CAG): Free Stock Analysis Report
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