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Campbell (CPB) Up 1.8% 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 1.8% in that time frame, underperforming 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 drivers.

Campbell Q1 Earnings Top, Sales View Cut on Divestiture

Campbell released first-quarter fiscal 2020 results. Adjusted earnings from continuing operations advanced 10% year over year to 78 cents and surpassed the Zacks Consensus Estimate of 69 cents. The upside was backed by greater adjusted EBIT and reduced interest expenses.

Net sales dropped 1% to $2,183 million, owing to softness in the Meals & Beverages unit, somewhat compensated by strength in the Snacks unit. Further, the top line missed the Zacks Consensus Estimate of $2,194 million.

Moving on, adjusted gross margin improved 0.3 percentage points on the back of cost-saving efforts, productivity enhancements and gains from the recent pricing actions. This was partly negated by cost inflation and elevated promotional expenditure.

Adjusted EBIT rose 6% to $392 million, driven by reduced adjusted administrative costs, greater adjusted other income and enhanced gross margin.

Segment Analysis

Meals & Beverages: Sales at this division dropped 3% year over year to $1,194 million. Further, the segment’s organic sales dropped 3%. Sales were marred by unfavorable timing of U.S. soup shipments. Notably, U.S. soup sales declined 3%, due to adverse movements in retailer inventory levels across broth and condensed soups. Sales of ready-to-serve soups were flat year over year. The segment gained some respite from improvements in Prego pasta sauces. Operating earnings in the Meals & Beverages segment declined 3% to $282 million, due to cost inflation and lower sales.

Snacks: Sales at this division rose 2% to $989 million. Organic sales also improved 2%. The segment gained from advancements in Pepperidge Farm cookies, Kettle Brand potato chips, Goldfish crackers, Cape Cod and fresh bakery products. Operating earnings in this category were flat at $125 million as cost-saving efforts and supply-chain productivity plans were offset by elevated marketing and cost inflation.

Financials

Campbell ended the quarter with long-term debt of $6,706 million and total equity of $1,249 million. Additionally, the company generated $182 million as net cash from operating activities in the first quarter. Campbell paid out dividends worth $107 million during the first quarter at the rate of 35 cents per share.

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. With this, the company has generated total program-to-date savings of $605 million. Further, management continues to anticipate cumulative annualized savings from continuing operations of $850 million by fiscal 2022-end.

For fiscal 2020, net sales are now projected between a decline of 1% and an increase of 1% compared with the previous guidance of 1-3% growth. Organic sales are also expected in the same range as net sales. Adjusted EBIT is still expected to rise 2-4% and adjusted earnings per share 9-11% to $2.50-$2.55.

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, Campbell International and the European chips business are being used to curtail debt load.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision. The consensus estimate has shifted -7.98% due to these changes.

VGM Scores

Currently, Campbell has a nice Growth Score of B, a grade with the same score on the momentum front. 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.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Campbell has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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