A month has gone by since the last earnings report for Campbell Soup Company (CPB - Free Report) . Shares have lost nearly 6% in the past month, underperforming the market.
Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? 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 Tops Q2 Earnings, Keeps FY17 Guidance
Campbell Soup posted second quarter of fiscal 2017 results, wherein adjusted earnings of $0.91 per share jumped 5% year over year and also exceeded the Zacks Consensus Estimate of $0.88. Including one-time items, Campbell’s earnings slumped 61% to $0.33 in the quarter.
Net sales of $2,171 million slipped 1% and also lagged the Zacks Consensus Estimate of $2,217.5 million. Benefits from favorable currency movements were more than offset by soft organic sales. Organic sales dipped 2% on account of weak volumes and greater promotional spending.
Further, the company’s adjusted gross margin expanded 70 basis points to 38% in the reported quarter, thus continuing with its gross margin expansion trend. The upside was mainly backed by productivity enhancements and benefits from cost-curtailing efforts, partly negated by increased promotional expenditure, cost inflation and escalated supply chain expenses (mainly due to increased carrot costs).
However, adjusted earnings before interest and taxes (EBIT) for the quarter dipped 1% to $417 million, owing to soft sales and greater marketing and selling costs. This was partly compensated by improved gross margin.
Campbell 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 second quarter of fiscal 2017, sales at the division remained flat year over year at $1,231 million. Excluding the favorably currency impact, sales slipped 1% on account of softness in V8 beverages, somewhat compensated by benefits from solid sales from soup, Prego pasta sauces and Plum products. During the quarter, sales for U.S. soup climbed 1%, fuelled by strength in ready-to-serve soups, offset by a drop in both broth and condensed soups.
Global Biscuits and Snacks: Sales at the division also remained flat at $680 million. On a currency-neutral basis, sales for the segment dropped 1% as gains from strong Pepperidge Farm products sales was more than offset by a decline in Kelsen.
Campbell Fresh: Sales at this segment declined 8% year over year to $260 million, accountable to soft sales of carrots, Bolthouse Farms refrigerated beverages and Garden Fresh Gourmet, partly compensated by solid refrigerated soup sales. Management stated that carrot sales were largely hampered by weather-related hurdles, while Bolthouse Farms Protein PLUS drinks witnessed capacity constraints owing to the recall made in Jun 2016. Overall, the performance by this division was below management’s expectations.
Campbell ended the quarter with cash and cash equivalents of $309 million, long-term debt of $2,293 million and total shareholders’ equity of $1,479 million. Further, the company generated $667 million as cash flow from operations during the first half of fiscal 2017.
Fiscal 2017 Outlook
Management is disappointed with second-quarter sales, mainly due to weakness across Campbell Fresh and V8 beverages. While C- Fresh plays a vital role in Campbell’s overall business, management stated that it expects recovery at the segment to be slower. In fact, it doesn’t expect this segment to witness growth this fiscal. Nonetheless, the company sees immense potential in its packaged fresh category. Also, it remains impressed with the solid momentum across its core U.S. soup, simple meals and Pepperidge Farm snacks businesses.
Additionally, Campbell is running ahead of schedule with regard to its cost-savings plan announced in fiscal 2015. The company expects to achieve its savings target of $300 million by the end of fiscal 2017, which marks a year in advance. Gaining from this success, the company raised its cost savings target from $300 million by fiscal 2018-end to $450 million by fiscal 2020-end. Further, the company is committed toward augmenting its top line in the second half of fiscal 2017.
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 likely to grow in the 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.
How Have Estimates Been Moving Since Then?
Following the release, investors have witnessed a downward trend in fresh estimates. There have been five revisions lower for the current quarter.
At this time, Campbell Soup's stock has a great Growth Score of 'A', though it is lagging a lot on the momentum front with a 'D'. Charting a somewhat similar path, the stock was allocated a grade of 'C' on the value side, putting it in the middle 20% 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.
Our style scores indicate that the stock is more suitable for growth investors than value investors.
Estimates have been broadly trending downward for the stock. The magnitude of this revision also indicates a downward shift. Interestingly, the stock has a Zacks Rank #3 (Hold). We are looking for an inline return from the stock in the next few months.