It has been about a month since the last earnings report for Campbell Soup (CPB Quick QuoteCPB - Free Report) . Shares have added about 0.3% 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 catalysts.

Campbell Q3 Earnings & Sales Lag Estimates, EPS View Cut

Campbell Soup reported soft results for third-quarter fiscal 2021. Adjusted earnings from continuing operations tumbled 31% year over year to 57 cents per share, which fell short of the Zacks Consensus Estimate of 66 cents. The downside was a result of reduced adjusted EBIT.

Net sales of $1,984 million decreased 11% year on year and missed the Zacks Consensus Estimate of $2,001.3 million. Further, organic sales declined 12%, as the company lapped the year-ago period’s unexpected food demand surge stemming from the elevated at-home consumption at the beginning of the pandemic.

The company’s adjusted gross margin contracted 290 basis points to 31.8%. The downside was caused by cost inflation, other supply-chain expenses, adverse mix and reduced operating leverage. Nevertheless, gains from improvement in supply-chain productivity, cost-saving efforts and changes in mark-to-mark adjustments offered respite. Adjusted EBIT plunged 27% to reach $283 million mainly on account of lower sales volumes and reduced adjusted gross margin, somewhat made up by a decline in marketing and selling costs.

Meals & Beverages: Net sales declined 14% year over year to $1,039 million, with organic sales down 15%. The downside mainly resulted from declines in all U.S. retail products (including U.S. soup and Prego pasta sauces), along with softness across Canada and foodservice. Volumes in U.S. retail were hurt as the company lapped the year-ago period’s major demand increase. U.S. soup sales fell 21% due to weakness in condensed soups, broth and ready-to-serve soups. Operating earnings in the unit tanked 35%.
 
Snacks: Net sales in this division were down 8% (both reported and organic) to $945 million. The segment was hurt by weakness in salty snacks like Pop Secret popcorn, Cape Cod potato chips and Snyder's of Hanover pretzels, along with softness in Lance sandwich crackers, partner brands and fresh bakery. Volumes were partly affected by the lapping of solid demand in the year-ago period. Segmental operating earnings declined 29%.

Other Financial Details

As of May 2, 2021, Campbell’s total cash and cash equivalents stood at $209 million, long-term debt was $4,997 million and total equity amounted to $2,995 million. The company generated $881 million as cash flow from operations during the nine months ended May 2. Also, capital investments amounted to $190 million in that period. Additionally, management authorized a new anti-dilutive share buyback plan worth up to $250 million, which is effective from today. That said, the company’s buyback program of March 2017 remains suspended.

During the third quarter, Campbell generated savings worth $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 $780 million. Management continues to anticipate annualized savings of $850 million by fiscal 2022-end.

Fiscal 2021 Guidance

Based on its third-quarter results and impacts from the divestiture of the Plum baby food and snacks business (on May 3), management revised its guidance for fiscal 2021. Also, the company expects to encounter continued margin pressure in the fourth quarter due to transitioning out from the pandemic-led landscape as well as stronger inflation. Pricing actions are expected to take shape in fiscal 2022 beginning. Moreover, management highlighted that fiscal 2020 included an additional week, which was estimated to contribute 2 percentage points to net sales and about 4 cents to the bottom line.

For fiscal 2021, the company now expects net sales to decline in a band of 3-3.5% compared with a 2.5-3.5% decrease expected earlier. Organic net sales are anticipated to fall 0.7-1.2% now, in comparison with a 0.5-1.5% decline projected before. Adjusted EBIT is now envisioned to decline 4-5%. Earlier, adjusted EBIT growth was forecasted in the range of a 1% decline to a 1% increase. Finally, adjusted EPS is envisioned in the range of $2.90-$2.93 now, indicating a 1-2% dip from the figure reported in the year-ago period. Prior to this, the bottom line was anticipated to be $3.03-$3.11 per share, indicating growth of 3-5% from adjusted EPS of $2.95 reported in the prior year.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended downward during the past month. The consensus estimate has shifted -12.43% due to these changes.

VGM Scores

At this time, Campbell has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. However, 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 C. 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. It's no surprise Campbell has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.