Campbell Soup Company CPB looks well placed, thanks to a strong Snacks business and robust saving efforts. Further, the company has been recently gaining from the burgeoning demand stemming from increased at-home consumption amid coronavirus. These factors bolstered the company’s results in third-quarter fiscal 2020, which was released last week.
During the quarter, both earnings and revenues increased double digits and the former cruised ahead of the Zacks Consensus Estimate. Also, solid results and expectations of continued demand increases encouraged this Zacks Rank #2 (Buy) company to raise its net sales, adjusted EBIT and adjusted EPS guidance for fiscal 2020. We note that the consensus mark for fiscal 2020 earnings has gone up by a penny to $2.89 over the past seven days. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Campbell Soup Company Price, Consensus and EPS Surprise
Campbell Soup Company price-consensus-eps-surprise-chart | Campbell Soup Company Quote
COVID-19-Led Demand Boosts Q3 & Fiscal 2020 Guidance
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. Other food stocks like Kellogg K, Kraft Heinz KHC and B&G Foods BGS also benefited from the coronavirus-led demand spike. 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.
Campbell Soup now expects both net sales and organic sales for fiscal 2020 to increase in the range of 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. The guidance for fiscal 2020 takes into consideration gains from an additional 53rd week. The company 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.
Snacks Unit Strength
Campbell Soup is benefiting from its fast-growing Snacks business, which formed more than 45% of the company’s top line in the third quarter of fiscal 2020. In this regard, its 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 a 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 and Snack Factory Pretzel Crisps, among others. We believe that brands under the snacking category will continue boosting performance, backed by enhanced marketing and innovation.
Savings Plan to Aid
Campbell Soup is progressing well with its cost-savings 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. Incidentally, the company’s adjusted gross margin improved 100 basis points to 34.7% in the quarter on favorable product mix, enhanced operating leverage, gains from supply-chain productivity enhancements and cost-saving actions. Moreover, adjusted EBIT jumped 31% to $386 million, driven by higher gross margin and sales.
Management continues to anticipate cumulative annualized savings from continuing operations of $850 million by fiscal 2022-end. These factors along with prudent investment and strategic efforts toward product innovation and brand building are likely to help Campbell Soup counter cost inflation and retain its growth story.
Shares of the company have gained 3.2% in the past six months against the industry’s decline of 1.6%.
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