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Why Is Campbell (CPB) Down 0.2% Since Last Earnings Report?

A month has gone by since the last earnings report for Campbell Soup (CPB). Shares have lost about 0.2% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Campbell 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 drivers.

Campbell Q1 Earnings & Sales Top Estimates, Dividend Up

Campbell Soup posted solid fiscal 2021 results. Both earnings and sales cruised past the Zacks Consensus Estimate and advanced year over year, reflecting strength across the Snacks as well as the Meals & Beverages segments. Notably, the company’s adjusted EBIT and bottom line registered double-digit growth. Robust earnings and cash flows also encouraged management to announce a 6% dividend hike, instilling confidence in the company’s long-term prospects.

Quarterly Highlights

Adjusted earnings surged 31% year over year to $1.02 per share, surpassing the Zacks Consensus Estimate of 91 cents. This upside was backed by higher adjusted EBIT and reduced net interest expense. Markedly, this represents Campbell’s ninth straight quarter of earnings beat in a row.

Net sales came in at $2,340 million, up 7% year on year, and outpacing the Zacks Consensus Estimate of $2,317 million. This top-line growth was fueled by increases in both Snacks as well as the Meals & Beverages segments. Further, organic net sales (excluding the impact from the European chips business divestiture in fiscal 2020) advanced 8% on the back of solid volume and mix, along with reduced promotional spending. Volumes were driven by rising demand as at-home consumption remained high amid the pandemic. Also, enhanced retailer soup inventories boosted volumes.

The company’s adjusted gross margin expanded 100 basis points to 24.8% on improved mix and moderated promotional expenditure. This was partly negated by a slight increase in net supply-chain expenses, which, in turn, was a result of cost inflation and costs associated with COVID-19. Adjusted EBIT jumped 18% to $463 million, driven by greater sales volume, higher gross margin and reduced selling costs – somewhat countered by elevated marketing investments and adjusted administrative expenses.

Segment Analysis

Meals & Beverages: Net sales (reported and organic) climbed 12% year over year to $1,342 million, backed by strength in the U.S. retail products. The company witnessed gains in Prego pasta sauces, U.S. soup, V8 beverages, Pace Mexican sauces and Campbell’s pasta. Moreover, the company saw sales growth in Canada. Volumes in U.S. retail and Canada were aided by elevated demand on increased at-home consumption. However, results were somewhat hampered by weakness in foodservice. U.S. soup sales advanced 21%, thanks to the in-market gains in condensed soups and broth, moderated promotions and retailers reconstructing inventory for the soup season.

Additionally, operating earnings in the Meals & Beverages segment jumped 18% on higher sales volume and improved gross margin. This was partly offset by higher marketing spend.

Snacks: Sales in this division inched up 1% to $998 million. Excluding the impact of the European chips business divestiture, organic sales ascended 4%, driven by the company’s power brands. The segment gained from advancements in fresh bakery products, Late July snacks, Kettle Brand potato chips, Pepperidge Farm cookies, Pop Secret popcorn as well as Snack Factory Pretzel Crisps. This, along with reduced promotions, boosted the segment. Operating earnings in this segment grew 11% on reduced selling costs and marketing costs, as well as higher sales volume — partially negated by elevated administrative costs.

Financials

As on Nov 1, 2020, Campbell’s total cash and cash equivalents stood at $722 million, long-term debt was $4,996 million and total equity amounted to $2,773 million. The company generated $180 million as cash flow from operations during the fiscal first quarter, wherein capital investments amounted to $74 million.

Campbell paid out dividends worth $108 million during the quarter at the rate of 35 cents per share. Concurrently, management announced a 6% hike in its quarterly dividend, taking it to 37 cents per share ($1.48 on an annualized basis). The raised dividend is payable on Feb 1, 2021 to shareholders of record as on Jan 9.

Other Developments & Guidance

During the reported quarter, Campbell generated savings worth $15 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 $740 million. Management continues to anticipate annualized savings of $850 million by fiscal 2022-end.

Management expects the elevated demand scenario to stay amid the pandemic, and is also focused on undertaking increased brand investments. Accordingly, it expects net sales and adjusted EBIT in the second quarter to increase in the band of 5-7% each. Furthermore, the company envisions adjusted EPS in the range of 81-83 cents per share, indicating growth of 12-15% from the adjusted earnings per share of 72 cents reported in the year-ago quarter. The Zacks Consensus Estimate for second-quarter earnings is currently pegged at 83 cents per share.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended upward during the past month.

VGM Scores

At this time, Campbell has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the second quintile 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 upward for the stock, and the magnitude of these revisions has been net zero. 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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