Campbell (CPB) Misses on Q4 Earnings & Sales, Stock Down

After either meeting or beating estimates for a decade, Campbell Soup Company CPB succumbed to an earnings miss in fourth-quarter fiscal 2016. Moreover, results declined year over year with the top line lagging estimates as well. Clearly, this instilled a negative sentiment among investors as shares of the company dropped 4.8% in the pre-market trading session following the earnings announcement.

Adjusted earnings of 46 cents per share fell short of the Zacks Consensus Estimate of 50 cents and also dropped 6% from the prior-year quarter figure.

CAMPBELL SOUP Price, Consensus and EPS Surprise
 

CAMPBELL SOUP Price, Consensus and EPS Surprise | CAMPBELL SOUP Quote

Net sales of $1,687 million lagged both the year-ago figure and the Zacks Consensus Estimate of $1,693 million by 0.4%. Benefits from the Garden Fresh buyout were more than offset by adverse currency movements and weak organic sales.

Organic sales dipped 1% on account of soft Campbell Fresh performance that in turned was a result of a fall in carrot and carrot ingredients coupled with the voluntary recall of Bolthouse Farms Protein PLUS drinks.

Further, the company’s adjusted gross margin contracted 80 basis points (bps) to 32.4% in the reported quarter, thus breaking its five-quarter-long record of posting adjusted gross margin expansion. Factors that weighed upon gross margin were higher promotional expenditure, inflation, the impact of Bolthouse Farms product recall, greater carrot costs, somewhat compensated by productivity enhancements.

Adjusted earnings before interest and taxes (EBIT) for the quarter declined 2% to $253 million, owing to dismal gross margin, greater advertising and consumer promotion, partly offset by lower administrative costs.

Segment Analysis

As part of the efforts to align its business structure with its strategy, the company had realigned its business segments, with effect from the first quarter of fiscal 2016. Campbell now reports its results under three segments, namely Americas Simple Meals and Beverages, Global Biscuits and Snacks, and Campbell Fresh.

Americas Simple Meals and Beverages: In the fiscal fourth quarter, sales at the division were flat year over year at $842 million. Benefits from increased sales of Plum and Prego pasta sauces were offset by a fall in V8 beverages and soup. During the quarter, sales for U.S. soup fell 2% due to declines in ready-to-serve soups, somewhat compensated by an improvement in broth.
 
Global Biscuits and Snacks: Sales at the division rose 1% to $622 million. On a currency neutral basis, sales for the segment inched up 2%, backed by improvements in Pepperidge Farm Goldfish crackers and Arnott’s biscuits.

Campbell Fresh: Sales at this segment declined 5% year over year to $223 million. Excluding the acquisition of Garden Fresh Gourmet, segment sales plunged 12%, accountable to soft sales of carrot and carrot ingredients and Bolthouse Farms premium refrigerated beverages. This was somewhat compensated by strength noted in fresh soup and Bolthouse Farms salad dressings.

Fiscal 2016: At a Glance

Campbell’s adjusted earnings for fiscal 2016 increased 11% year over year to $2.94 per share. However, the figure missed the Zacks Consensus Estimate of $2.97. Net sales of $7,961 million dropped 1% from fiscal 2015, while it exceeded our estimate of $7,952 million.

Financials

Campbell ended the year with cash and cash equivalents of $296 million, long-term debt of $2,141 million, and total shareholders’ equity of $1,533 million. Further, the company generated $1,463 million as cash flow from operations during fiscal 2016.

Despite being disappointed with its Campbell Fresh performance, management intends to bring the same on the right track to drive long-term profitability. Also, it remains on track to boost its top line in fiscal 2017. Given these factors, the confidence in the company’s long-term potential and its solid fiscal 2016 profit performance, management announced a 12% hike in its quarterly dividend from 31.2 cents to 35 cents per share. This will be payable on Oct 31, 2016, to shareholders on record as of Oct 12.

Fiscal 2017 Outlook

Further, the company anticipates sales growth for fiscal 2017 to range from flat to a 1% increase. Adjusted EBIT is expected to rise by 1%−4% year over year. Finally, adjusted earnings for the fiscal are envisioned to grow in a range of 2%−5% to $3.00−$3.09 per share. Currency headwinds are expected to have a nominal impact on the company’s fiscal 2017 performance.

Zacks Rank

Campbell Soup currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the same industry are Ingredion Incorporated INGR, Omega Protein Corporation OME and Tate & Lyle plc TATYY, each with a Zacks Rank #1 (Strong Buy).

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