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Campbell Soup (CPB) Q3 Earnings Beat Estimates, Sales Improve

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Campbell Soup Company (CPB - Free Report) released third-quarter fiscal 2019 results, wherein both top and bottom lines came ahead of the Zacks Consensus Estimate. Moreover, sales improved year on year, backed by gains from the buyout of Snyder’s-Lance. The company’s Global Biscuits and Snacks unit also performed well. Such upsides boosted investors’ confidence, as the stock gained nearly 4% in the pre-market trading session on Jun 5.

In the reported quarter, the company inked a deal to sell the Bolthouse Farms business and completed the sale of U.S. refrigerated soup and Garden Fresh Gourmet businesses. Owing to such changes, the Campbell Fresh segment is now reported as discontinued operations. Also, management made adjustments to its fiscal 2019 outlook, in order to reflect the impact of the divestitures.

Q3 Highlights

Adjusted earnings of 56 cents per share plunged 20% year over year but beat the Zacks Consensus Estimate of 46 cents. On the basis of continuing operations only, adjusted earnings declined 5%. The downside came due to higher interest expenses, partly mitigated by a lower tax rate. Revenue recognition changes had a favorable impact of a penny.

On a combined basis, net sales of $2,388 million climbed 12% year over year, primarily backed by gains from the Snyder’s-Lance buyout. The top line also surpassed the Zacks Consensus Estimate of $2,351 million. If only continuing operations are considered, sales improved 16% to $2,178 million. Organic sales remained flat year on year, as benefits from Snacks and Global Biscuits were offset by declines in Meals and Beverages.

Moving on, the company’s adjusted combined gross margin inched up 0.4 percentage points to 31.6%. Considering only continuing operations, adjusted gross margin declined 2.1 percentage points to 33.4%, which included a negative impact of about 170 basis points from the recent acquisitions. Apart from this, gross margin contraction could be attributed to cost inflation. This was somewhat compensated by productivity improvements, lower promotional spending, gains from pricing as well as cost saving initiatives.

Adjusted EBIT increased 5% to $323 million driven by incremental earnings from acquisitions, partly countered by softness in the base business. Based on continuing operations, adjusted EBIT dropped 2% to $316 million, owing to softness in the base business, partly made up by gains from the recent buyouts.

Segment Analysis

Meals and Beverages: Sales at the division dipped 1% to $1,024 million. Further, the segment’s organic sales remained flat year on year, as gains from Canada were offset by declines in Prego pasta sauces and V8 beverages in the United States.

U.S. soup sales were flat year on year, as benefits from broth were countered by softness in ready-to-serve and condensed soups.

Global Biscuits and Snacks: Sales at this division soared 37% at $1,154 million. Excluding gains from the Snyder’s-Lance’s buyout and currency headwinds, organic sales improved 3% driven by advancements in Pepperidge Farm. Markedly, Pepperidge Farm sales have been rising for 18 consecutive quarters.

Net sales from discontinued operations amounted to $210 million in the quarter.

Financials

Campbell ended the quarter with cash and cash equivalents of $202 million, total debt of $9,280 million and total equity of $1,237 million. Additionally, the company generated $1,148 million as net cash from operating activities in the first nine months of fiscal 2019.

Other Developments & Fiscal 2019 Outlook

During the quarter under review, Campbell generated savings worth $55 million as part of its multi-year, cost-savings program, which included synergies associated with Snyder’s-Lance’s buyout. This takes Campbell’s savings from the program to $605 million. On a year-to-date basis, savings from the program stand at $150 million. Further, management anticipates generating cumulative annualized savings from continuing operations of $850 million by fiscal 2022 end.

Considering the impacts of Campbell Fresh divestitures, management has made adjustments to its fiscal 2019 outlook. It now projects fiscal 2019 sales in the range of $9,075-$9,125 million compared with $9,975-$10,100 million anticipated earlier.

Adjusted EBIT is expected in the band of $1,390-$1,410 million compared with the earlier view of $1,370-$1,410 million.

Adjusted earnings per share are envisioned in the range of $2.50 to $2.55, depicting an improvement from the earlier projection of $2.45-$2.53.



Price Performance & Zacks Rank

We note that Campbell’s shares have declined 0.3% in the past six months compared with the industry’s decline of 3.4%. The company currently carries a Zacks Rank #4 (Sell).

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