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Campbell Soup (CPB) Focuses on Pricing, Savings Amid Cost Woes

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Campbell Soup Company (CPB - Free Report) , like most other food players, is grappling with escalated cost concerns. Commodity, labor and logistics cost inflation are acting as hurdles for the company as reflected in its second-quarter fiscal 2022 results. While labor and service levels are improving, management expects inflation to persist in fiscal 2022, especially due to logistics.

The company’s fiscal 2022 view considers a rise in core inflation. For the fiscal, management 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 compared with $2.98 recorded in fiscal 2021.

However, Campbell Soup has been benefiting from its robust savings program and prudent pricing endeavors. The company expects its second wave of pricing to be reflected in the third quarter. CPB 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. It also expects a better second-half performance as it laps easier prior-year comparisons.

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

Cost Headwinds & Q2 Results

Campbell Soup reported 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. Net sales of $2,209 million decreased 3% year over year and missed the Zacks Consensus Estimate of $2,220 million.  Adjusted earnings from continuing operations tumbled 16% year over year to 69 cents per share.

During the second quarter, 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. The company, like other food players, is battling the high cost of commodities, labor and logistics. However, labor and service levels have been improving. Adjusted EBIT plunged 17% to reach $318 million, mainly due to lower sales volumes and a reduced adjusted gross margin. Core inflation is now likely to be in the low double digits for the fiscal compared with the high single-digit increase expected before. Management expects the impact to be more prevalent in the second half of the fiscal.

Zacks Investment Research
Image Source: Zacks Investment Research

Factors Working as Upsides

Campbell Soup has been progressing well with its cost-savings plan. Gains from the ongoing supply-chain productivity program, lower promotions and pricing offered respite to the company’s otherwise weak adjusted gross margin in the second quarter of fiscal 2022. During the quarter, Campbell generated savings worth $15 million as part of its multi-year cost-saving program. With this, the company generated total program-to-date savings of nearly $835 million. Management expects savings of $1 billion by the end of fiscal 2025. These factors, along with Campbell Soup’s prudent investments and strategic efforts in product innovation and brand building, bode well.

In December 2021, management unveiled the next phase of its growth strategy. CPB looks well-placed for growth due to three major aspects comprising its differentiated portfolio, a distinguished path to value creation and advanced capabilities, including marketing, innovation and e-commerce. Further, the company outlined three important strategies to continue driving growth across the soup category. These include reinforcing Campbell’s portfolio with solid brands, such as Campbell Soup's, Well Yes!, Pacific Foods, Chunky and Swanson, modernizing efforts, including new varieties and flavors and significant innovation. Management further cited that the sauces business is likely to grow to a $1-billion franchise through a 3% annual sales growth rate in the core business with brand and unit extensions. Campbell Soup’s Italian and Mexican sauce businesses gain momentum and are expected to continue expanding the market share.

In addition, management targets plant-based growth with its unique plant-powered drink V8 and innovative offerings, such as V8 Plus Protein. The Pacific Foods brand has also been performing impressively. The aforesaid endeavors will aid Campbell Soup to deliver organic net sales growth of 2%, adjusted EBIT of 4-6% and adjusted EPS of 6-8%. Management projects average annual growth from fiscal 2022 through fiscal 2025, buoyed by core expansion and enhanced innovation.

Shares of this Zacks Rank #3 (Hold) company have jumped 5.6% in the past six months compared with the industry’s growth of 2.8%.

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The Zacks Consensus Estimate for Flowers Foods’ current financial-year sales and EPS suggests growth of 7.2% and roughly 4%, respectively, from the year-ago reported figure. FLO has a trailing four-quarter earnings surprise of around 6%, on average.

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