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Campbell (CPB) Gains on Strong Demand Amid Input Cost Woes
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The coronavirus pandemic has been encouraging consumers to cook and dine at home. This has been acting as a significant upside for several food industry players, including Campbell Soup Company (CPB - Free Report) . Markedly, the company has been witnessing growth in its Meals & Beverages and Snacks segments owing to escalating demand. Apart from this, the company has been gaining from cost-saving initiatives as well as investments in brand growth. However, pandemic-led high input costs have been a roadblock for the company. That said, let’s take a closer look at the factors impacting the performance of this well-known convenience food products company.
High Demand Fuels Growth
Campbell’s fourth-quarter performance was mainly steered by strong demand conditions, stemming from increased at-home consumption. The trend favored the company’s top line in the said quarter, which rose 18% year over year. Moreover, organic sales rose 12% on the back of solid volumes in Meals & Beverages and Snacks segments. The company also saw increased household penetration across key brands. This led to a 4-percentage-point increase in total company household penetration during the fourth quarter.
Campbell’s Snacks business, which accounts for a considerable chunk of its revenues, has been witnessing rapid growth lately. In terms of products, the segment has been witnessing growth in fresh bakery items, Goldfish crackers, Pepperidge Farm cookies, Kettle Brand and Cape Cod potato chips, Snyder’s of Hanover pretzels and Late July snacks. Apart from strong demand, the company’s Snacks business has been benefitting from the buyout of Snyder's-Lance. We believe that brands under the snacking category will continue boosting performance, backed by enhanced marketing and innovation.
Prudent Savings Plans
Campbell is progressing well with its cost-saving endeavors. The company focuses on generating savings by boosting supply chain efficiencies. During the fourth quarter, the company generated savings worth $45 million as part of its multi-year, cost-saving program, which included synergies associated with the Snyder’s-Lance buyout. With this, the company generated total program-to-date savings of $725 million. Savings generated in fiscal 2020 amounted to $165 million. Further, management continues to anticipate cumulative annualized savings from continuing operations of $850 million by fiscal 2022-end.
High Costs a Concern
Campbell has been struggling with cost inflation for a while now. During the fourth quarter, gross margin was partly impacted by cost inflation and other supply-chain expenses (including costs associated with COVID-19). Cost inflation and other factors adversely impacted performance by 210 basis points. Overall, input prices (on a rate basis) rose nearly 1.5%.
Further, the company undertook several marketing investments in the fourth quarter under the Snacks and Meals & Beverages segments. Overall marketing and selling expenses escalated 37%, with advertising and consumer promotion expenses nearly doubling. The company plans to continue investing in marketing ventures. This is likely to build pressure on profits to some extent.
Wrapping Up
We expect Campbell’s prudent cost-saving efforts to help fight off the high input cost hurdles. Apart from this, gains from product mix, enhanced operating leverage, supply-chain efficiencies and commodity hedges are likely to help offset cost-related woes.
Moreover, this Zacks Rank #3 (Hold) company is expected to keep gaining from consumers’ inclination toward at-home consumption. In fact, management expects demand and supply-chain conditions to stay favorable in first-quarter fiscal 2021. Accordingly, it expects net sales in the first quarter to increase in the band of 5-7% year over year.
We note that shares of Campbell have gained 1.9% in a year, which is in line with industry's growth.
The Hain Celestial Group, Inc. (HAIN - Free Report) , also flaunting a Zacks Rank #1, has a trailing four-quarter earnings surprise of 24.6%, on average.
Blue Apron Holdings, Inc. , with a Zacks Rank #2 (Buy), has a trailing four-quarter earnings surprise of 30.2%, on average.
Just Released: Zacks’ 7 Best Stocks for Today
Experts extracted 7 stocks from the list of 220 Zacks Rank #1 Strong Buys that has beaten the market more than 2X over with a stunning average gain of +24.3% per year.
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Campbell (CPB) Gains on Strong Demand Amid Input Cost Woes
The coronavirus pandemic has been encouraging consumers to cook and dine at home. This has been acting as a significant upside for several food industry players, including Campbell Soup Company (CPB - Free Report) . Markedly, the company has been witnessing growth in its Meals & Beverages and Snacks segments owing to escalating demand. Apart from this, the company has been gaining from cost-saving initiatives as well as investments in brand growth. However, pandemic-led high input costs have been a roadblock for the company. That said, let’s take a closer look at the factors impacting the performance of this well-known convenience food products company.
High Demand Fuels Growth
Campbell’s fourth-quarter performance was mainly steered by strong demand conditions, stemming from increased at-home consumption. The trend favored the company’s top line in the said quarter, which rose 18% year over year. Moreover, organic sales rose 12% on the back of solid volumes in Meals & Beverages and Snacks segments. The company also saw increased household penetration across key brands. This led to a 4-percentage-point increase in total company household penetration during the fourth quarter.
Campbell’s Snacks business, which accounts for a considerable chunk of its revenues, has been witnessing rapid growth lately. In terms of products, the segment has been witnessing growth in fresh bakery items, Goldfish crackers, Pepperidge Farm cookies, Kettle Brand and Cape Cod potato chips, Snyder’s of Hanover pretzels and Late July snacks. Apart from strong demand, the company’s Snacks business has been benefitting from the buyout of Snyder's-Lance. We believe that brands under the snacking category will continue boosting performance, backed by enhanced marketing and innovation.
Prudent Savings Plans
Campbell is progressing well with its cost-saving endeavors. The company focuses on generating savings by boosting supply chain efficiencies. During the fourth quarter, the company generated savings worth $45 million as part of its multi-year, cost-saving program, which included synergies associated with the Snyder’s-Lance buyout. With this, the company generated total program-to-date savings of $725 million. Savings generated in fiscal 2020 amounted to $165 million. Further, management continues to anticipate cumulative annualized savings from continuing operations of $850 million by fiscal 2022-end.
High Costs a Concern
Campbell has been struggling with cost inflation for a while now. During the fourth quarter, gross margin was partly impacted by cost inflation and other supply-chain expenses (including costs associated with COVID-19). Cost inflation and other factors adversely impacted performance by 210 basis points. Overall, input prices (on a rate basis) rose nearly 1.5%.
Further, the company undertook several marketing investments in the fourth quarter under the Snacks and Meals & Beverages segments. Overall marketing and selling expenses escalated 37%, with advertising and consumer promotion expenses nearly doubling. The company plans to continue investing in marketing ventures. This is likely to build pressure on profits to some extent.
Wrapping Up
We expect Campbell’s prudent cost-saving efforts to help fight off the high input cost hurdles. Apart from this, gains from product mix, enhanced operating leverage, supply-chain efficiencies and commodity hedges are likely to help offset cost-related woes.
Moreover, this Zacks Rank #3 (Hold) company is expected to keep gaining from consumers’ inclination toward at-home consumption. In fact, management expects demand and supply-chain conditions to stay favorable in first-quarter fiscal 2021. Accordingly, it expects net sales in the first quarter to increase in the band of 5-7% year over year.
We note that shares of Campbell have gained 1.9% in a year, which is in line with industry's growth.
Looking for More Solid Food Stocks? Check These
United Natural Foods, Inc. (UNFI - Free Report) , which currently sports a Zacks Rank #1 (Strong Buy), has a trailing four-quarter earnings surprise of 4.8%, on average.. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Hain Celestial Group, Inc. (HAIN - Free Report) , also flaunting a Zacks Rank #1, has a trailing four-quarter earnings surprise of 24.6%, on average.
Blue Apron Holdings, Inc. , with a Zacks Rank #2 (Buy), has a trailing four-quarter earnings surprise of 30.2%, on average.
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Experts extracted 7 stocks from the list of 220 Zacks Rank #1 Strong Buys that has beaten the market more than 2X over with a stunning average gain of +24.3% per year.
These 7 were selected because of their superior potential for immediate breakout.
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