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Campbell Soup: Disappointment in Fiscal 3Q17, Stock Fell

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Campbell Soup: Disappointment in Fiscal 3Q17, Stock Fell PART 1 OF 4

Campbell Soup Missed Its Fiscal 3Q17 EPS Estimate

Stock fell due to earnings miss

Campbell Soup (CPB) reported lower-than-expected fiscal 3Q17 earnings (ended April 30, 2017) on May 19, 2017. The adjusted EPS (earnings per share) of $0.59 missed Wall Street analysts’ estimate of $0.64 and fell 9.2% YoY (year-over-year). Following the company’s dismal 3Q17 performance, the company’s stock fell 2%.

Campbell Soup Missed Its Fiscal 3Q17 EPS Estimate

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What’s behind the lower EPS?

Lower-than-expected sales due to a decline in consumer spending, cost inflation, and a sharp increase in the adjusted tax rate (650 basis points to 35%) led to a decrease in Campbell Soup’s EPS. Food companies in the US (SPY) are struggling as sales growth remains scarce due to consumers’ shift towards healthy food and lower spending on account of delayed tax refunds. E-commerce players are coming into the food and grocery space. In order to remain competitive, retailers continue to offer low pricing. Lower prices put pressure on margins.

In comparison, Tyson Foods (TSN), which reported its fiscal 2Q17 results on May 8, also disappointed investors. The company’s adjusted EPS missed analysts’ estimate and fell 5.6% YoY. Meanwhile, Kraft Heinz (KHC), which reported its 1Q17 results on May 3, reported adjusted EPS of $0.84 that fell short of analysts’ consensus estimate.

Outlook

The company’s fiscal 4Q17 EPS will likely be impacted negatively by the sluggish sales environment and persisting challenges. Management thinks that the challenges probably won’t ease in the near term. Like most of its peers, Campbell Soup is relying on cost-saving measures to drive EPS growth amid the soft sales landscape. Increased sales in the Global Biscuits and Snacks division and higher anticipated gross margins and share repurchases are expected to cushion bottom line growth.

Management revised its EPS guidance. Now, management expects the bottom line to increase 3%–5% in fiscal 2017—compared to its previous guidance range of 2%–5%.

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