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Pandemic-Led Demand Aids Campbell Soup (CPB), High Costs Hurt
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Campbell Soup Company (CPB - Free Report) is benefiting from growth in at-home food consumption trends amid the coronavirus pandemic. Also, the company’s fast-growing Snacks business is yielding well. Apart from these, Campbell Soup’s cost-saving plans are providing a cushion amid rising expenses. Let’s discuss further.
What’s Working in Campbell Soup’s Favor?
Escalated at-home cooking trend has been driving Campbell Soup’s growth for a while. In fact, burgeoning demand amid the pandemic bolstered second-quarter fiscal 2021 results, with the top and the bottom line advancing year over year. This reflects strength across the Snacks and the Meals & Beverages segments. Further, earnings surpassed the Zacks Consensus Estimate in the quarter. Organic sales increased 5%, courtesy of 4% improvement in volume and mix. The upside can be attributed to pandemic-led demand, which was somewhat negated by declines in Foodservice business.
We note that Campbell Soup’s Snacks business has been yielding well. The segment contributed almost 43% to the company’s top line in the second quarter of fiscal 2021. Segmental net sales were up 4% during the quarter. The division benefited from higher volume, which can be attributed to strength in majority of the company’s power brands. Also, reduced promotional spending on supply constrained brands was a reason. Moreover, operating earnings in the unit moved up 6%, courtesy of gains in sales volume and reduced selling expenses. Well, brands under the snacking category are likely to continue boosting performance, backed by innovations and favorable customer response.
Apart from these, Campbell Soup has been progressing well with its cost 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 likely to drive growth. During fiscal second quarter, Campbell Soup generated savings worth more than $20 million as part of its multi-year cost-saving program. This included synergies associated with the Snyder’s-Lance buyout. With this, the company generated total program-to-date savings of nearly $760 million. Management continues to anticipate annualized savings of $850 million by fiscal 2022-end. These factors along with this Zacks Rank #3 (Hold) company’s prudent investment and strategic efforts toward product innovation and brand building are likely to continue fueling profitability.
Hurdles on Way
Campbell Soup has been struggling with cost inflation for a while. During fiscal second quarter, adjusted gross margin contracted 10 basis points to 34.3%, thanks to cost inflation, other operational costs and pandemic-induced expenses. Additionally, higher adjusted administrative expenses were a drag on the company’s adjusted earnings before interest and taxes (EBIT) performance in the quarter.
Management, in its last earnings call, highlighted that it expects fiscal third-quarter net sales and EBIT to remain more challenged than the fourth quarter. Notably, third-quarter performance is expected to reflect adverse supply challenges stemming from recent winter storms. The company saw nearly two weeks of disruption at its Paris, Texas facility thanks to the recent winter storms.
Nevertheless, the abovementioned upsides are likely to help the company stay poised amid the barriers. Shares of Campbell Soup have increased 3.5% in the past three months compared with the industry’s growth of 5.6%.
Medifast, Inc. (MED - Free Report) — currently carrying a Zacks Rank #2 — has a trailing four-quarter earnings surprise of 17.4%, on average.
The J. M. Smucker Company (SJM - Free Report) , currently carrying a Zacks Rank #2, has a long-term earnings growth rate of 1.7%.
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Pandemic-Led Demand Aids Campbell Soup (CPB), High Costs Hurt
Campbell Soup Company (CPB - Free Report) is benefiting from growth in at-home food consumption trends amid the coronavirus pandemic. Also, the company’s fast-growing Snacks business is yielding well. Apart from these, Campbell Soup’s cost-saving plans are providing a cushion amid rising expenses. Let’s discuss further.
What’s Working in Campbell Soup’s Favor?
Escalated at-home cooking trend has been driving Campbell Soup’s growth for a while. In fact, burgeoning demand amid the pandemic bolstered second-quarter fiscal 2021 results, with the top and the bottom line advancing year over year. This reflects strength across the Snacks and the Meals & Beverages segments. Further, earnings surpassed the Zacks Consensus Estimate in the quarter. Organic sales increased 5%, courtesy of 4% improvement in volume and mix. The upside can be attributed to pandemic-led demand, which was somewhat negated by declines in Foodservice business.
We note that Campbell Soup’s Snacks business has been yielding well. The segment contributed almost 43% to the company’s top line in the second quarter of fiscal 2021. Segmental net sales were up 4% during the quarter. The division benefited from higher volume, which can be attributed to strength in majority of the company’s power brands. Also, reduced promotional spending on supply constrained brands was a reason. Moreover, operating earnings in the unit moved up 6%, courtesy of gains in sales volume and reduced selling expenses. Well, brands under the snacking category are likely to continue boosting performance, backed by innovations and favorable customer response.
Apart from these, Campbell Soup has been progressing well with its cost 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 likely to drive growth. During fiscal second quarter, Campbell Soup generated savings worth more than $20 million as part of its multi-year cost-saving program. This included synergies associated with the Snyder’s-Lance buyout. With this, the company generated total program-to-date savings of nearly $760 million. Management continues to anticipate annualized savings of $850 million by fiscal 2022-end. These factors along with this Zacks Rank #3 (Hold) company’s prudent investment and strategic efforts toward product innovation and brand building are likely to continue fueling profitability.
Hurdles on Way
Campbell Soup has been struggling with cost inflation for a while. During fiscal second quarter, adjusted gross margin contracted 10 basis points to 34.3%, thanks to cost inflation, other operational costs and pandemic-induced expenses. Additionally, higher adjusted administrative expenses were a drag on the company’s adjusted earnings before interest and taxes (EBIT) performance in the quarter.
Management, in its last earnings call, highlighted that it expects fiscal third-quarter net sales and EBIT to remain more challenged than the fourth quarter. Notably, third-quarter performance is expected to reflect adverse supply challenges stemming from recent winter storms. The company saw nearly two weeks of disruption at its Paris, Texas facility thanks to the recent winter storms.
Nevertheless, the abovementioned upsides are likely to help the company stay poised amid the barriers. Shares of Campbell Soup have increased 3.5% in the past three months compared with the industry’s growth of 5.6%.
Better-Ranked Food Stocks
The Hain Celestial (HAIN - Free Report) , currently carrying a Zacks Rank #2 (Buy), has a trailing four-quarter earnings surprise of 26.7%, on average. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Medifast, Inc. (MED - Free Report) — currently carrying a Zacks Rank #2 — has a trailing four-quarter earnings surprise of 17.4%, on average.
The J. M. Smucker Company (SJM - Free Report) , currently carrying a Zacks Rank #2, has a long-term earnings growth rate of 1.7%.
Zacks Top 10 Stocks for 2021
In addition to the stocks discussed above, would you like to know about our 10 best buy-and-hold tickers for the entirety of 2021?
Last year's 2020 Zacks Top 10 Stocks portfolio returned gains as high as +386.8%. Now a brand-new portfolio has been handpicked from over 4,000 companies covered by the Zacks Rank. Don’t miss your chance to get in on these long-term buys.
Access Zacks Top 10 Stocks for 2021 today >>