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Campbell (CPB) Stock Up on Q1 Earnings Beat; View Intact (Revised)

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Campbell Soup Company (CPB - Free Report) posted first-quarter fiscal 2017 results, wherein earnings exceeded our estimate, alongside rising year over year. Further, sales remained decent and management also retained its view for fiscal 2017. Notably, shares of the company jumped 3.6% in the pre-market trading session following the earnings announcement.

Aided by lower costs, adjusted earnings of $1.00 per share jumped 5% year over year and exceeded the Zacks Consensus Estimate of 95 cents.

Net sales of $2,202 million were almost in line with both the year-ago figure as well as the Zacks Consensus Estimate. Benefits from favorable currency movements were offset by soft organic sales.

Organic sales dipped 1% on account of soft Campbell Fresh performance, somewhat compensated by strength noted in the Global Biscuits and Snacks segment.

Further, the company’s adjusted gross margin expanded 120 basis points to 39.1% in the reported quarter, thus reverting to its gross margin expansion trend. The upside was mainly backed by improved margins in Americas Simple Meals and Beverages segment. Further, margin gained from productivity enhancements and benefits from cost-curtailing efforts, partly negated by cost inflation and escalated carrot and beverage supply chain expenses at the Campbell Fresh segment.

Adjusted earnings before interest and taxes (EBIT) for the quarter inched up 1% to $486 million, thanks to improved gross margin and reduced administrative costs, somewhat offset by greater marketing and selling costs.

Segment Analysis

As part of the efforts to align its business structure with its strategy, the company had realigned its business segments, with effect from the first quarter of fiscal 2016. Campbell now reports its results under three segments, namely Americas Simple Meals and Beverages, Global Biscuits and Snacks, and Campbell Fresh.

Americas Simple Meals and Beverages: In first-quarter fiscal 2017, sales at the division were flat year over year at $1,297 million. Benefits from increased sales of Plum products were offset by a fall in V8 beverages. During the quarter, sales for U.S. soup were in line with the year-ago quarter as strength witnessed across ready-to-serve soups and broth was offset by a drop in condensed soups.
Global Biscuits and Snacks: Sales at the division rose 3% to $671 million. On a currency-neutral basis, sales for the segment inched up 1%, backed by improvements in Pepperidge Farm products.

Campbell Fresh: Sales at this segment declined 6% year over year to $234 million, accountable to soft sales of carrots and Bolthouse Farms refrigerated beverages. Further, sales at the segment were hampered by persistent supply constraints related to the voluntary recall of Bolthouse Farms Protein PLUS drinks, which occurred in Jun 2016.

CAMPBELL SOUP Price, Consensus and EPS Surprise

CAMPBELL SOUP Price, Consensus and EPS Surprise | CAMPBELL SOUP Quote


Campbell ended the quarter with cash and cash equivalents of $290 million, long-term debt of $2,298 million, and total shareholders’ equity of $1,598 million. Further, the company generated $221 million as cash flow from operations during the first quarter of fiscal 2017.

Fiscal 2017 Outlook

Management remains impressed with the solid start to the fiscal year, as the first quarter witnessed an improvement in earnings, EBIT as well as gross margin. Going forward, Campbell remains committed toward augmenting top-line growth and managing costs efficiently.

While results were somewhat dented by Campbell Fresh, management remains focused on getting its Bolthouse Farms Protein PLUS drinks capacity on track, alongside striving to get old carrot consumers back by enhancing product quality. Given the endeavors to improve Campbell Fresh’s performance, better trends across the U.S. soup business, expected benefits from the upcoming launch of Well Yes! ready-to-serve soup and strength across Pepperidge Farm, the company remains positive about its growth prospects.

That said, management reiterated its fiscal 2017 outlook. Campbell still anticipates sales growth for fiscal 2017 to range from flat to a 1% increase. Adjusted EBIT is expected to rise by 1%−4% year over year. Finally, adjusted earnings for the fiscal are envisioned to grow in a range of 2%−5% to $3.00−$3.09 per share. Currency headwinds are expected to have a nominal impact on the company’s fiscal 2017 performance.

Zacks Rank

Campbell Soup currently carries a Zacks Rank #3 (Hold). Better-ranked stocks in the miscellaneous food space include Sysco Corporation (SYY - Free Report) , Ingredion Incorporated (INGR - Free Report) and Lancaster Colony Corporation (LANC - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Sysco Corporation’s earnings have outperformed the Zacks Consensus Estimate by an average of 11.7% in the trailing four quarters. Moreover, its long-term EPS growth rate of 8.8% and positive estimate revisions over the past 30 days bode well.

Ingredion Incorporated, with a long-term EPS growth rate of 11%, has seen positive estimate revisions for 2016, over the past 30 days. The company also flaunts a solid earnings surprise history.

Lancaster Colony has posted positive earnings surprises consistently for three quarters now. Also, the company has seen its estimates move north in the past 30 days.

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(We are reissuing this article to correct a mistake. The original article, issued on Nov 22, 2016, should no longer be relied upon.)

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