It has been about a month since the last earnings report for Campbell Soup Company CPB. Shares have lost about 3.3% in that time frame, underperforming the market.
Will the recent negative trend continue leading up to the stock's next earnings release, or is it 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 Misses on Q3 Earnings & Revenues, Cuts Sales View
Campbell Soup posted the third quarter of fiscal 2017 results, wherein adjusted earnings of $0.59 per share dropped 9% year over year, falling short of the Zacks Consensus Estimate of $0.64. Including one-time items, Campbell’s earnings fell 2% to $0.58 in the quarter.
Net sales of $1,853 million slipped 1% and also lagged the Zacks Consensus Estimate of $1,870 million, mainly owing to soft organic sales. Organic sales dipped 1% on account of greater promotional spending, whereas volumes remained flat. Further, weak organic sales across the Americas Simple Meals and Beverages and Campbell Fresh segments could only be partly compensated by improved results at the company’s Global Biscuits and Snacks segment.
Further, the company’s adjusted gross margin contracted 40 basis points to 36.6% in the reported quarter, thus crushing the gross margin expansion trend. The downside was mainly accountable to increased promotional expenditure; cost inflation and escalated supply chain expenses, somewhat offset by productivity enhancements and benefits from cost-curtailing efforts.
Moreover, adjusted EBIT for the quarter declined 2% to $305 million, owing to soft sales and gross margin contraction, partly negated by reduced marketing and selling costs.
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 third-quarter fiscal 2017, sales at the division dipped 2% year over year to $982 million, on account of softness in V8 beverages and soup sales, somewhat compensated by strength noted in Prego pasta sauces. During the quarter, sales for U.S. soup dropped 4%, on account of a drop in broth and condensed soups, partly cushioned by strength in ready-to-serve soups.
Global Biscuits and Snacks: Sales at this division rose 2% to $623 million, backed by strength across Pepperidge Farm and Arnott’s biscuits.
Campbell Fresh: Sales at this segment declined 6% year over year to $248 million, accountable to soft sales of Bolthouse Farms refrigerated beverages.
Campbell ended the quarter with cash and cash equivalents of $1,790 million, long-term debt of $2,270 million and total shareholders’ equity of $1,490 million. Further, the company generated $1,011 million as cash flow from operations during the first three quarters of fiscal 2017.
Fiscal 2017 Outlook
Given a soft quarter and tough operating environment, management lowered its sales outlook. However, the company expects its solid ongoing cost savings initiatives to counter the weak sales, which encouraged management to raise the lower end of its previously issued EBIT and earnings per share views. Also, management remains optimistic about sustaining momentum at its Global Biscuits and Snacks division, which was the only saving grace in Campbell’s otherwise drab performance.
That said, management now anticipates sales growth for fiscal 2017 to range from negative 1% to flat, compared to the old forecast of flat to a 1% increase. Adjusted EBIT is now expected to rise 2–4% year over year, compared with 1−4% growth expected before. Finally, adjusted earnings for the fiscal are now envisioned to grow in the range of 3–5% to $3.04–$3.09 per share. Earlier, the company had projected adjusted EPS to increase 2–5% to $3.00−$3.09 per share.
Currency headwinds are still expected to have a nominal impact on the company’s fiscal 2017 performance.
How Have Estimates Been Moving Since Then?
Following the release, investors have witnessed an upward trend in fresh estimates. There have been four revisions higher for the current quarter compared to one lower.
Campbell Soup Company Price and Consensus
Campbell Soup Company Price and Consensus | Campbell Soup Company Quote
At this time, Campbell's stock has a nice Growth Score of 'B', though it is lagging a lot on the momentum front with an 'F'. However, the stock was allocated a grade of 'B' on the value side, putting it in the top 40% 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.
Our style scores indicate that the stock is suitable for growth and value investors.
Estimates have been trending upward for the stock. The magnitude of these revisions also looks promising. Notably, the stock has a Zacks Rank #3 (Hold). We are expecting an inline return from the stock in the next few months.
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