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Campbell (CPB) Up 8.2% Since Last Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for Campbell Soup (CPB - Free Report) . Shares have added about 8.2% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Campbell due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Campbell Soup Q4 Earnings Beat Estimates, Sales Improve

Campbell Soup released fourth-quarter fiscal 2019 results. Adjusted earnings from continuing operations were 42 cents per share and advanced 14% year over year, courtesy of lower adjusted tax. The company’s bottom line surpassed the Zacks Consensus Estimate of 41 cents. Including Campbell International, adjusted earnings in the quarter were 50 cents while adjusted net earnings were 49 cents.

Net sales from continuing operations were $1,780 million, reflecting rise of 2%, owing to growth in the Meals & Beverages, and Snacks units. The Zacks Consensus Estimate for the company’s sales was pegged at $2,004 million. Including Campbell International, net sales amounted to $2,024 million. Further, organic net sales improved 2%.

Moving on, the company’s gross margin improved 260 basis points (bps) to 34%. Adjusted gross margin inched up 0.6 percentage points to reach 33.7%. Expansion in gross margin was mainly driven by improved supply-chain productivity, and gains from cost-saving efforts and lapping costs.

Adjusted EBIT rose 1% to $252 million, driven by higher sales and earnings, partly countered by increased marketing and selling expenses. On a combined basis, adjusted EBIT amounted to $288 million.

Segment Analysis

Management is in the process of divesting Campbell International, which is likely to be concluded in the first half of fiscal 2020. The international unit was previously included in the Global Biscuits and Snacks segment. As a result of this divestiture, from now on the company will report operations under two main segments, Meals & Beverages, and Snacks.

Meals & Beverages: Sales at this division were flat year over year at $813 million. Further, the segment’s organic sales grew 1%, indicating solid performance from the U.S. soup business. U.S. soup sales advanced 3%, owing to gains from ready-to-serve and condensed soups. This was partially countered by softness in broth. Operating earnings in the Meals & Beverages segment declined 3% to $151 million, owing to cost inflation and incentive compensation expenses.

Snacks: Sales at this division went up 3% to $967 million. Organic sales improved 4%. The segment gained from advancements in Pepperidge Farm bakery products, Kettle Brand potato chips, Snack Factory Pretzel Crisps, Late July snacks and Goldfish crackers. Operating earnings in this category grew 2% and reached $133 million. Sales gains and cost savings were partly countered by cost inflation as well as higher marketing expenses and incentive compensation.

Financials

Campbell ended the quarter with cash and cash equivalents of $179 million, total debt of $8,712 million, and total equity of $1,112 million. Additionally, the company generated $1,398 million as net cash from operating activities in fiscal 2019.

Other Developments & Fiscal 2020 Outlook

During the quarter under review, Campbell generated savings worth $45 million as part of its multi-year cost-saving program, which included synergies associated with the Snyder’s-Lance buyout. In fiscal 2019, savings from the program amounted to $165 million. Further, management continues to anticipate cumulative annualized savings from continuing operations of $850 million by fiscal 2022 end.

Management provided its outlook for fiscal 2020. It projects sales to rise 1-3% year over year. Adjusted EBIT is expected to rise 2-4% while adjusted earnings per share are likely to rise 9-11%. The guidance for fiscal 2020 takes into consideration gains from an additional 53rd week.

Moreover, management highlighted that proceeds from the sale of Campbell Fresh and Campbell International are being used to curtail debt load.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month. The consensus estimate has shifted -9.44% due to these changes.

VGM Scores

Currently, Campbell has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% 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.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. It's no surprise Campbell has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.


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