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Campbell (CPB) Up 2.8% Since Last Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for Campbell Soup (CPB - Free Report) . Shares have added about 2.8% 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 the most recent earnings report in order to get a better handle on the important catalysts.

Campbell Soup’s Q2 Earnings Beat Estimates, Sales Up Y/Y

Campbell Soup reported second-quarter fiscal 2021 results, with the top and the bottom line advancing year over year, reflecting strength across the Snacks as well as the Meals & Beverages segments. Further, earnings surpassed the Zacks Consensus Estimate while sales missed the same.

Quarterly Highlights

Adjusted earnings surged 17% year over year to 84 cents per share, surpassing the Zacks Consensus Estimate of 83 cents. The upside was backed by higher adjusted EBIT as well as reduced adjusted net interest expenses.

Net sales came in at $2,279 million, up 5% year on year. However, the metric missed the Zacks Consensus Estimate of $2,299.2 million. Further, organic sales also increased 5%. The upside was driven by 4% improvement in volume and mix thanks to elevated demand stemming from increased at-home food consumption trend amid the pandemic. However, this was countered by declines in foodservice as well as partner brands in the Snyder's-Lance portfolio. Moreover, reduced promotional expenses net of price and sales allowances led to a 1% rise in net sales growth.

The company’s adjusted gross margin contracted 10 basis points to 34.3%. The downside was caused by cost inflation, other operational costs and pandemic-induced expenses. Nevertheless, gains from improvement in supply chain productivity, cost-saving efforts and moderate promotional expenses offered some respite.

Adjusted EBIT were up 8% to reach $393 million mainly driven by increased sales volumes. This was somewhat negated by higher adjusted administrative expenses.

Segment Analysis

Meals & Beverages: Net sales (reported and organic) increased 6% year over year to $1,300 million, backed by strength in U.S retail products. The company witnessed gains in U.S. soup, V8 beverages, Prego pasta sauces and Campbell’s pasta. Volume in U.S. retail was aided by higher food demand led by pandemic-induced increased at-home consumption. This was somewhat offset by declines in foodservice business thanks to pandemic-led restriction. U.S. soup sales went up 10%, mainly due to volume gains in condensed soups and ready-to-serve soups.

Additionally, operating earnings in the unit increased 7%. The upside was mainly on the back of gains from sales volume. This was somewhat negated by reduced gross margin performance as well as increased administrative costs.

Snacks: Net sales in this division were up 4% to $979 million. The segment 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. The company gained from strength in salty snacks like Kettle Brand potato chips, Late July snacks, Cape Cod potato chips and Pop Secret popcorn. Also, fresh bakery like Pepperidge Farm Farmhouse contributed to the growth. However, these were somewhat offset by declines in partner brands in the Snyder's-Lance portfolio and Lance sandwich crackers thanks to supply constraints.

Segmental operating earnings moved up 6%, courtesy of gains in sales volume and reduced selling expenses. However, higher marketing investment and administrative expenses as well as drab gross margin performance put pressure on the metric.

Financials

As on Jan 31, 2021, Campbell Soup’s total cash and cash equivalents stood at $946 million, long-term debt was $4,996 million and total equity amounted to $2,925 million. The company generated $611 million as cash flow from operations during six months ended Jan 31. Also, capital investments amounted to $132 million in that period.

Other Developments & Fiscal 2021 Guidance

During the reported quarter, Campbell generated savings worth more than $20 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 nearly $760 million. Management continues to anticipate annualized savings of $850 million by fiscal 2022-end.

Owing to the solid first-half fiscal 2021 results, management is outlining its full year guidance. The company expects net sales in fiscal 2021 to decline in the band of 2.5-3.5%, while organic net sales are anticipated to fall 0.5-1.5%. Further, the company projects adjusted EBIT in the range of 1% decline to 1% growth. Incidentally, adjusted earnings per share (EPS) is envisioned in the range of $3.03-$3.11, indicating growth of 3-5% from adjusted EPS of $2.95 reported in the prior year.  

Notably, the guidance indicates cycling the pandemic-related related increase in demand during the second half of fiscal 2020. Also, the company anticipates sequential improvement in margin for the rest of fiscal 2021. Additionally, fiscal 2020 results included an extra week of results.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review.

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 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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