Why These 9 Food Stocks Will Likely Underperform S&P 500 in 2017

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Part 2
Why These 9 Food Stocks Will Likely Underperform S&P 500 in 2017 PART 2 OF 10

Campbell Soup Has Been Hit the Worst

Sales projected to decline

Campbell Soup (CPB) stock is down by 22.8% on a YTD (year-to-date) basis as of September 26, 2017. Much of this decline followed the company’s sluggish fiscal 4Q17 earnings and tepid outlook. Campbell Soup’s sales are falling as the graph below shows. Meanwhile, the company posted a YoY (year-over-year) decline in sales for three consecutive quarters of fiscal 2027. The trend is likely to continue in fiscal 2018.

Campbell Soup’s management expects the company’s fiscal 2018 top line to remain flat or fall 2%. An anticipated decline in soup sales in the US (SPY), lower promotional support, and retailers destocking inventories are expected to remain a drag on the company’s Americas Simple Meals and Beverages segment. Meanwhile, Campbell Soup also sees lower demand for its V8 beverages, which could further pressure the top line. However, the Global Biscuits and Snacks and Campbell Fresh segments are projected to see improved results, though at a slower rate.

Campbell Soup Has Been Hit the Worst

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Profitability at risk

Campbell Soup, like most of its peers like Kellogg (K), Hershey (HSY), and Kraft Heinz (KHC), has managed to report higher margins despite the volume leverage. The company’s focus on productivity and cost-cutting measures has resulted in higher profitability.

However, the company’s profitability stands at risk as declining volumes, rising input costs (especially carrots), an anticipated increase in interest expenses, and lower share repurchases compared to the prior year are expected to adversely impact the company’s profitability in fiscal 2018.

Management expects fiscal 2018 adjusted EBIT to see -1% to 1% growth. Meanwhile, the company’s adjusted EPS is projected to remain flat or rise up to 2%.


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