Why Is Campbell (CPB) Up 0.1% Since Last Earnings Report?
It has been about a month since the last earnings report for Campbell Soup (CPB). Shares have added about 0.1% in that time frame, underperforming 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 its most recent earnings report in order to get a better handle on the important drivers.
Campbell Soup Q1 Earnings Top Estimates, Sales Drop Y/Y
Campbell Soup reported first-quarter fiscal 2024 results. Adjusted earnings tumbled 11% year over year to 91 cents per share due to lower adjusted EBIT and slightly elevated interest expenses, somewhat made up by lower shares outstanding. However, the bottom line came ahead of the Zacks Consensus Estimate of 87 cents.
Net sales of $2.52 billion decreased 2% year over year compared with the Zacks Consensus Estimate of $2.51 billion. Organic net sales dipped 1% year over year. The downside can be attributed to the soft volume/mix (down 5%), somewhat offset by net price realization (up 3%). Our model suggested a volume/mix decline of 4.9% and a pricing increase of 2.9% for the quarter under review.
The adjusted gross profit declined to $809 million from $829 million reported in the year-ago quarter. The adjusted gross profit margin contracted 10 basis points (bps) to 32.1% due to the adverse volume/mix, ongoing cost inflation and increased other supply-chain costs. These were somewhat offset by favorable net price realization, supply-chain productivity improvements and cost-saving efforts.
Adjusted marketing and selling expenses rose 9% to $220 million due to a 6% increase in advertising and consumer promotion expenses (A&C). Adjusted EBIT declined 9% to $407 million due to reduced gross profit, elevated adjusted marketing and selling costs as well as changes in pension and postretirement benefit income, partly countered by lower adjusted administrative expenses.
Segmental Analysis
Meals & Beverages: Net sales declined 4% year over year to $1,404 million. Organic sales dropped 3% due to softness in U.S. retail products (especially U.S. soup and beverages), partially compensated by strength in foodservice. The favorable net price realization was more than offset by the adverse volume/mix. Sales of U.S. soup fell by 5%. Operating earnings in the unit declined 13%, primarily due to the reduced gross profit.
Snacks: Net sales in the division fell 1% (up 1% organically) to $1,114 million. The upside can be attributed to sales of eight 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. Segmental operating earnings jumped 5%, driven by the increased gross profit.
Other Details & Guidance
As of the end of the first quarter, Campbell Soup had cash and cash equivalents of about $91 million and total debt of $4,706 million. Campbell Soup generated $174 million in cash flow from operations in the first quarter. Capital expenditures were $143 million in the said period.
Through the first quarter of fiscal 2024, the company 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.
Management reiterated its guidance for fiscal 2024 based on the first-quarter show. The pending buyout of Sovos Brands is not included in the current fiscal 2024 view. For fiscal 2024, the company expects net sales growth in the range of a 0.5% decline to an increase of 1.5%. Organic sales growth is likely to range between flat and an increase of 2%. Adjusted EBIT is forecasted to be up 3-5%. Adjusted EPS is envisioned to increase 3-5% to $3.09-$3.15.
Management expects volume declines in the first half of fiscal 2024, along with sequential improvements resulting in positive trends in the second half. Apart from this, net sales are likely to reflect lower contributions from pricing and disciplined promotion levels. Finally, CPB expects modest earnings and margin improvements in the fiscal, weighted to the second half. This reflects a moderating inflationary landscape, together with ongoing productivity enhancements.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended downward during the past month.
VGM Scores
Currently, Campbell has an average Growth Score of C, a grade with the same score on the momentum front. Charting a somewhat similar path, 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 B. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. 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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Campbell Soup Company (CPB) : Free Stock Analysis Report
