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Campbell Soup Disappoints in 4Q17, Stock Took a Beating

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Campbell Soup Disappoints in 4Q17, Stock Took a Beating PART 1 OF 4

Campbell Soup Reported Weaker 4Q17 Earnings

EPS versus consensus

Campbell Soup (CPB) reported weaker-than-expected fiscal 4Q17 results on August 31, 2017. After the report, the company’s shares fell 8.1% and closed at $46.20. Campbell Soup’s adjusted EPS (earnings per share) of $0.52 per share rose 13.0% YoY (year-over-year) but missed analysts’ consensus estimate. Analysts expected the company to report earnings of $0.55 per share. For fiscal 2017, Campbell Soup posted EPS of $3.04, which was slightly below analysts’ expectation.

Campbell Soup Reported Weaker 4Q17 Earnings

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What impacted the EPS?

Campbell Soup’s EPS benefited from incremental supply chain productivity savings. Meanwhile, lower costs related to the reduction in adjusted selling and marketing expenses and a lower share count supplemented the bottom-line growth.

However, lower sales due to lower volumes in its soups and V8 beverages and a higher effective tax rate remained a drag. Increased input costs (due to the inflation in carrot prices) and higher costs associated with quality enhancement and production restraint restricted the EPS growth rate.

Most of Campbell Soup’s peers also reported strong EPS growth due to increased productivity and cost savings amid the soft sales trend. Kellogg’s (K) 2Q17 EPS rose 6.6% YoY. Kraft Heinz’s (KHC2Q17 bottom line rose 15.3% YoY, which reflected the benefit of higher costs and productivity savings. Higher costs and savings more than offset the negatives stemming from sales deleverage. Conagra Brands (CAG) and General Mills (GIS) also posted healthy bottom-line growth during their last reported quarter.

In contrast, J.M. Smucker’s (SJM) fiscal 1Q18 EPS fell 18.8% YoY. Lower sales and more planned expenses took a toll on its profitability.

Outlook

Campbell Soup’s management expects its fiscal 2018 adjusted EPS to remain flat or rise 2%. Lower soup sales in the US (SPY), inflated input costs, and higher interest expenses will likely restrict the bottom-line growth. However, increased cost and productivity savings and share buybacks are projected to supplement the EPS growth rate in fiscal 2018.

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