It has been about a month since the last earnings report for Campbell Soup (CPB). Shares have added about 0.6% 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 Q4 Earnings Beat Estimates, Sales Up Y/Y
Campbell came out with robust fourth-quarter fiscal 2020 results, with earnings and revenues increasing double digits and cruising ahead of the Zacks Consensus Estimate. Results gained from rise in demand across the company’s brands, stemming from increased at-home consumption amid coronavirus.
Moreover, management provided a favorable view for first-quarter fiscal 2021, assuming that demand trends will remain favorable.
Adjusted earnings surged 50% year over year to 63 cents per share, surpassing the Zacks Consensus Estimate of 60 cents. The upside was backed by higher adjusted EBIT, reduced interest expenses and adjusted effective tax rate.
Net sales came in at $2,108 million, up 18% year over year, and surpassing the Zacks Consensus Estimate of $2,009 million. Organic sales (excluding the impact of divested European business and the additional week) rose 12% on the back of solid volumes in both Meals & Beverages and Snacks segments. This, in turn, was fueled by higher demand stemming from increased at-home consumption.
The company’s adjusted gross margin improved 190 basis points to 35.6% on favorable product mix, enhanced operating leverage, gains from supply-chain productivity enhancements, cost-saving actions and mark-to-market gains on outstanding commodity hedges. This was partly negated by cost inflation and other supply-chain expenses (including costs associated with COVID-19). Adjusted EBIT jumped 22% to $307 million, driven by higher sales volume and gross margin, somewhat negated by elevated marketing investments and adjusted administrative expenses.
Meals & Beverages: Sales in the division rallied 28% year over year to $1,018 million. Organic net sales (excluding currency impacts and the additional week) increased 19%, backed by strength in the U.S. retail business. The company witnessed gains in Prego pasta sauces, soups, V8 beverages and Campbell’s pasta. Moreover, the company saw sales growth in Canada. However, results were somewhat hampered by weakness in foodservice. Including the additional week in the quarter, U.S. soup sales advanced 52%, thanks to strength in condensed soups, broth and ready-to-serve soups.
Further, operating earnings in the Meals & Beverages segment surged 24% on higher sales volume and improved gross margin. This was partly offset by higher marketing spend and administrative expenses.
Snacks: Sales in this division rose 11% to $1,090 million. Organic net sales (excluding the impact of divestiture, the additional week and currency exchange rate) ascended 7%, 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, Snyder’s of Hanover pretzels and Late July snacks. Operating earnings in this segment were comparable with the prior year, as gains from higher sales volume were offset by elevated marketing expenses and lower gross margin.
As on Aug 2, 2020, Campbell’s cash and cash equivalents stood at $859 million, long-term debt were $4,994 million and total equity amounted to $2,569 million. Additionally, the company generated $ 1,396 million as net cash from operating activities for the twelve months ended Aug 2, 2020. Capital investments during fiscal 2020 were $299 million, as compared with $384 million in fiscal 2019.
Campbell paid out dividends worth $426 million during fiscal 2020 at the rate of 35 cents per share.
Other Developments & Q1 FY21 Outlook
During the quarter under review, Campbell generated savings worth $45 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 $725 million. Savings generated in fiscal 2020 amounted to $165 million. Further, management continues to anticipate cumulative annualized savings from continuing operations of $850 million by fiscal 2022-end.
Management assumes that demand and supply-chain conditions are likely to stay favorable for the company in first-quarter fiscal 20201. Accordingly, it expects net sales in the first-quarter to increase in the band of 5-7%. Adjusted EBIT is expected to rise 6-9%. Further, the company expects adjusted EPS in the range of 88-92 cents per share, indicating a growth of 13-18% from 78 cents reported in the year-ago quarter.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended upward during the past month.
At this time, Campbell has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. Following the exact same course, 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 B. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. 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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