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What's in the Cards for Campbell Soup (CPB) in Q3 Earnings?

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Campbell Soup Company (CPB - Free Report) is scheduled to report third-quarter fiscal 2018 results on May 18, before the market opens.

In the last reported quarter, the company delivered a positive earnings surprise of 23.5%. Though it reported a negative earnings surprise in three of the four trailing quarters, it delivered an average beat of 1.3%.

What to Expect?

The question lingering in investors’ minds is whether this consumer products company will be able to deliver a positive earnings surprise in the quarter to be reported. The Zacks Consensus Estimate for the quarter under review is pegged at 61 cents, reflecting an increase of 3.4% year over year. Earnings estimates for the quarter have declined in the past 30 days. Moreover, analysts polled by Zacks expect revenues of $2.14 billion, up about 15.6% from the year-ago quarter.

Campbell Soup Company Price, Consensus and EPS Surprise

Campbell Soup Company Price, Consensus and EPS Surprise | Campbell Soup Company Quote

Campbell Soup has lagged the industry in the past month, reflecting a negative sentiment on the stock, ahead of the earnings release. The company’s shares have declined 5%, wider than the industry’s fall of 2.4%. The decline can be attributed to a volatile operating environment and a continued dismal performance at the company’s Campbell Fresh (C-Fresh) division.

Factors at Play

Persistent challenges in the U.S. soup category and Campbell Fresh division have been weighing on the stock’s performance. Further, the company’s margins remain under pressure, owing to higher cost inflation, escalated supply-chain expenses and an adverse mix. Moreover, the company anticipates gross margin for fiscal 2018 to decline nearly 1 percentage point due to higher inflation and logistics costs as well as the impact of increased promotional-spending for soup. Backed by the soft gross margin forecast, the company projects adjusted EBIT to decline 5-7% compared with 2-4%, guided earlier.

Further, Campbell Soup witnessed a 2% decline in organic sales in the fiscal second quarter, owing to lower volumes in the Americas Simple Meals and Beverages segment due to the persistent challenges in U.S. soup category. Notably, U.S. Soup sales declined 7% on account of a drop in condensed soups as well as ready-to-serve soups. This decline was mainly due to Campbell Soup’s failure to reach an agreement with a key customer on a promotional approach for soup in fiscal 2018. Further, the company’s C-Fresh division results disappointed, driven by headwinds in the super-premium juice category.

Campbell remains focused on getting the C-Fresh division back on growth track and solving its key customer issue, thereby expecting moderate soup sales in the second half of fiscal 2018. Entering the spring season, the company expects its initiatives to boost beverage results in the second half.  Further, the company’s solid focus on cost savings and core strategic imperatives are likely to drive growth in the long term. Despite efforts to improve these segments, the company anticipates sales growth to range from negative 1% to positive 1% for fiscal 2018.

Further, Campbell is progressing well with its cost-saving plan as it raised the annualized savings target to $500 million, which is expected to be achieved by the end of fiscal 2020. It is making acquisitions to enhance its brand portfolio and accelerate growth. Recently, Campbell completed the buyout of Snyder’s-Lance, Inc., which is likely to fortify its snacks portfolio.

What the Zacks Model Unveils

Our proven model does not show that Campbell Soup Company is likely to beat earnings estimates this quarter. This is because a stock needs to have both — a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Campbell Soup has an Earnings ESP of 0.00%. While the company’s Zacks Rank #2 increases the predictive power of ESP, we need to have a positive ESP to be confident about an earnings surprise.

Stocks With Favorable Combination

Here are some companies that you may want to consider as our model shows that these too have the right combination of elements to post an earnings beat.

United Natural Foods, Inc. (UNFI - Free Report) has an Earnings ESP of +1.73% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

The J. M. Smucker Company (SJM - Free Report) has an Earnings ESP of +0.41% and a Zacks Rank #3.

Flowers Foods, Inc. (FLO - Free Report) has an Earnings ESP of +3.85% and a Zacks Rank #3.

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