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Campbell (CPB) Q2 Earnings Top Estimates, Sales Decline Y/Y

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Campbell Soup Company (CPB - Free Report) reported soft second-quarter fiscal 2022 results, wherein the top and bottom lines declined year over year and the former missed the Zacks Consensus Estimate. Industry-wide supply-chain disruptions and inflation more than offset the benefits from positive pricing and sales allowances.

Management retained the overall fiscal 2022 view. Campbell remains on track with its multi-year cost-saving program, with $15 million generated in the fiscal second quarter. Total program-to-date savings amounted to nearly $835 million. Management expects savings of $1 billion by the end of fiscal 2025.

Campbell Soup Company Price, Consensus and EPS Surprise

Campbell Soup Company Price, Consensus and EPS Surprise

Campbell Soup Company price-consensus-eps-surprise-chart | Campbell Soup Company Quote

Quarterly Highlights

Adjusted earnings from continuing operations tumbled 16% year over year to 69 cents per share but surpassed the Zacks Consensus Estimate by a penny. The downside was a result of inflation as well as supply-chain headwinds across the industry.

Net sales of $2,209 million decreased 3% year over year and missed the Zacks Consensus Estimate of $2,220 million. However, sales rose 2% from the second quarter of fiscal 2021. Organic sales declined 2% year over year due to a lower volume and mix (stemming from labor and supply hurdles in the industry), somewhat made up by pricing and sales allowances as well as reduced promotional spending. The metric grew 3% from the second quarter of fiscal 2021.
The company's adjusted gross margin contracted 340 basis points to 30.4%. The downside was caused by elevated cost inflation and other supply-chain expenses along with an adverse volume/mix. This was partly compensated by pricing efforts, supply-chain productivity enhancements, reduced promotional expenditure and saving initiatives.

Adjusted EBIT plunged 17% to reach $318 million, mainly due to lower sales volumes and a reduced adjusted gross margin. This was somewhat negated by reduced marketing and selling costs.

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Segment Analysis

Meals & Beverages: Net sales declined 3% year over year to $1,275 million, with organic sales declining 2%. The downside mainly resulted from volume declines in all U.S. retail products (including U.S. soup and Campbell’s pasta) and in Canada. This was partially compensated by foodservice gains.

Volumes were hurt by supply hurdles related to labor and materials availability. Price and sales allowances remained stable. U.S. soup sales fell 1% due to weakness in condensed soups, partly offset by gains across broth and ready-to-serve soups. Operating earnings in the unit tanked 19%.

Snacks: Net sales in the division were down 3% (also organically) to $934 million. Sales of power brands increased 3%. Sales were hurt by lower sales in non-core businesses as well as in certain salty snacks. Volume declines due to major supply-chain headwinds were partially negated by the overall favorable price and sales allowances and reduced promotional expenditure. Segmental operating earnings declined 14%.

Other Financial Details

As of Jan 30, 2022, Campbell's total cash and cash equivalents stood at $357 million, long-term debt was $4,565 million and total equity amounted to $3,352 million. CPB generated $766 million as cash flow from operations in the first half of fiscal 2022. Capital investments amounted to $129 million in the said period.

In the fiscal first half, management paid out dividends worth $228 million and repurchased 1.5 million shares worth $65 million. The company had nearly $475 million remaining in its existing $500-million share repurchase program as of the end of the second quarter. This is in addition to the $250-million anti-dilutive share repurchase program announced in the third quarter of fiscal 2021, out of which $174 million worth of shares are remaining.

Fiscal 2022 Guidance

Management retained the guidance for fiscal 2022. The view considers continued strength in demand for the rest of fiscal 2022, with a stable supply rebound and better service levels, especially in the fourth quarter (as labor recovers). However, core inflation is now likely to be in the low double-digits for the full year. Management expects the second wave of pricing to be reflected in the third quarter. Campbell anticipates managing inflation with pricing, supply-chain productivity enhancements and saving endeavors. These factors, together with a better labor outlook and easier year-over-year comparisons, are likely to lead to margin progress and earnings recovery in the second half of fiscal 2022.

For fiscal 2022, the company expects net sales of flat to down 2%, with organic sales between down 1% and up 1%. The sale of Plum baby food and snacks business is expected to affect fiscal 2022 sales by 1 percentage point. Adjusted EBIT is forecast to be down 4.5-1.5%. Adjusted earnings per share (EPS) are envisioned in the range of $2.75-$2.85 for fiscal 2022.

Shares of this Zacks Rank #3 (Hold) company have declined 2% in the past six months compared to the industry's growth of 2%.

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