Campbell Soup (CPB) Shows Strategic Resilience Amid Challenges
Campbell Soup Company CPB has made significant progress in advancing its strategic plan, demonstrating resilience in the face of a challenging and changing consumer landscape. The company is well-positioned to capitalize on various opportunities within its portfolio to align with evolving consumer trends. CPB’s Snacks business has been performing well for a while now.
The impressive momentum, coupled with the pending acquisition of Sovos Brands, positions Campbell Soup for growth. However, the company projected a decline in volumes for the first half of fiscal 2024 on its first-quarter fiscal 2024 earnings call. CPB is also battling cost inflation, though it has been moderating from the year-ago period levels.
Factors Adding Flavor to CPB
On its first-quarter earnings call, Campbell Soup stated that it has optimized its strategies and plans, focusing on three key areas. These include ensuring product affordability and maintaining competitive pricing within the boundaries of margin goals, sustaining marketing and innovation initiatives and adhering to a disciplined and balanced spending approach, with a focus on high return on investment (ROI) and impactful plans.
Management’s consistent execution has been noteworthy, with robust and sustained performance across the supply chain, successful innovations, effective marketing programs and recent share trend improvements. Management expects these focus areas to aid sequential improvement throughout the year, driving momentum in revenues, volumes, market share and profit margins, especially into the second half of fiscal 2024.
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This Zacks Rank #3 (Hold) company expects modest earnings and margin improvements in fiscal 2024, mainly weighted to the second half. This reflects a moderating inflationary landscape, together with ongoing productivity enhancements. For fiscal 2024, adjusted EBIT is forecasted to be up 3-5%. Adjusted EPS is envisioned to increase 3-5% to the $3.09-$3.15 band.
Campbell Soup’s Snacks business has been a driver, which formed 44.2% of total sales in the first quarter of fiscal 2024. Net sales in the division rose 1% on an organic basis, attributed to sales of power brands, which rose 5%.
Sales growth was fueled by a rise in cookies and crackers, specifically Goldfish crackers and Lance sandwich crackers. Favorable net price realization contributed to the upside, which was partially offset by volume/mix declines. Management’s DSD transformation initiative is expected to fuel further growth and margins in the Snacks division.
Cost Headwinds & More
Campbell Soup has been witnessing cost inflation for a while. The company expects core inflation to stay in the low-single-digit range in fiscal 2024 compared with 12% in fiscal 2023. Apart from this, adjusted marketing and selling expenses rose 9% to $220 million in the first quarter due to a 6% increase in advertising and consumer promotion expenses. The persistence of these trends could hurt margins.
Apart from this, the company is navigating a volatile consumer landscape. This affected first-quarter fiscal 2024 results, wherein organic net sales dipped 1% due to the soft volume/mix (down 5%), somewhat offset by net price realization (up 3%). For fiscal 2024, organic sales growth is likely to come between flat and an increase of 2%. Although management expects sequential improvements in fiscal 2024, it expects volumes to decline in the first half.
Wrapping Up
Despite the abovementioned headwinds, Campbell Soup looks well-placed due to its strategic priorities and savings plan. 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 noteworthy.
Through the first quarter of fiscal 2024, CPB generated $895 million in savings under its multi-year cost-saving program, including Snyder’s-Lance synergies. Management remains on track to deliver savings worth $1 billion by the fiscal 2025-end.
The company’s shares have decreased 2.8% in the past six months compared with the industry’s decline of 7.3%.
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