Bear of the Day: Campbell Soup Company (CPB)

Based in Camden, NJ, Campbell Soup Company CPB, together with its subsidiaries, is a worldwide manufacturer and marketer of high-quality, branded convenience food products. Its brands are sold in approximately 120 countries, but the company’s principal operating regions include North America, France, Germany, Belgium, and Australia. Campbell owns widely-recognized brands like the name-sake Campbell’s, Pepperidge Farm, Bolthouse Farms, Arnott’s, V8, Swanson, Pace, Prego, Royal Dansk, and Garden Fresh Gourmet.

Q3 Earnings Recap

Net sales of $1.98 billion decreased 11% year-over-year, while adjusted EPS dropped 31% to $0.57 per share.

Revenue for Campbell’s Meals & Beverages and Snacks segments both declined, down 14% and 8%, respectively. Both divisions were impacted by volume declines within the each portfolio due to less people stocking up on shelf-stable items and pantry essentials than they did during lockdown.

Adjusted gross margin declined 290 basis points to 31.8% because of inflationary impacts and other supply chain costs.

Fiscal year-to-date cash flow from operations decreased from $1.1 billion in the prior year to $881 million.

CEO Mark Clouse explained in the earnings press release that Campbell faced expected and unexpected headwinds in the third quarter, from pronounced inflation-related pressures to the ongoing, negative effects Covid-19 still has on its business.

Bottom Line

CPB is now a Zacks Rank #5 (Strong Sell).

Seven analysts have cut their full year earnings outlook over the past 60 days. Campbell’s bottom line is expected to decline 1.36% year-over-year, and the consensus estimate has fallen $0.16 to $2.91 per share for fiscal 2021. Next year’s earnings consensus has dropped as well, and Wall Street now expects earnings to decrease a slight 0.88% to $2.88.

Shares have been volatile so far in 2021. Year-to-date, CPB is down 8.8% compared to the S&P 500’s gain of 17.2%.

Looking ahead, management anticipates inflationary pressures will continue in Q4; the pandemic will also “remain a headwind from a margin perspective.” Net sales are expected to decline 3.5% to 5% and adjusted EPS to be in the range of $2.90 to 42.93 per share, reflecting a year-over-year decline of -2% to -1%.

However, Campbell is still optimistic that it will be able to deliver on the growth strategies it’s put in place, and of the “underlying strength” of its brands.

But until then, potential investors may want to wait on the sidelines until the outlook improves.

Those who are interested in adding consumer staples stock to their portfolio could consider U.S. Foods USFD. USFD is a #1 (Strong Buy) on the Zacks Rank. One analysts has raised their earnings outlook for the current fiscal year, and earnings are set to soar about 1,689% year-over-year.

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