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Why Campbell Soup's Earnings Might Disappoint in Fiscal 1Q18

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Part 4
Why Campbell Soup's Earnings Might Disappoint in Fiscal 1Q18 PART 4 OF 5

Will Campbell Soup’s Margins Improve in Fiscal 1Q18?

How margins have fared in the previous quarter

Campbell Soup (CPB) has managed to improve margins during the last quarter despite the negatives stemming from volumes deleverage and input cost inflation primarily in carrot prices. Strong productivity and cost savings have helped the company to improve gross margins on a YoY (year-over-year) basis. Plus, lower selling and marketing costs further supported EBIT (earnings before interest and tax) margin growth.

During the last reported quarter, Campbell Soup’s adjusted gross margin rose 80 basis points, while adjusted EBIT margins expanded 190 basis points, reflecting increased savings.

Will Campbell Soup’s Margins Improve in Fiscal 1Q18?

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Cost savings could drive margins

Going forward, Campbell Soup’s margins could improve on a YoY basis driven by increased supply-chain productivity savings. Meanwhile, lower promotional spending and reduction in selling and marketing expenses could further help margins growth. However, a continued decline in volumes and inflation in input costs are expected to remain a drag.

Margins of the company’s peers took a hit from the rising costs and soft volume trends. Hershey’s (HSY) gross margin fell by 30 basis points in 3Q17, reflecting higher manufacturing, packaging, and distribution expenses. Mondelēz’s (MDLZ) 3Q17 adjusted gross margin contracted 60 basis points due to inflation in input costs coupled with higher trade spending. Meanwhile, Kellogg’s (K) gross margin remained flat during the last reported quarter as benefits from cost-savings were offset by adjustments in price in its US Snacks segment.

J.M. Smucker’s (SJM) fiscal 2Q18 margins are expected to remain muted on account of lower profitability in the US (SPY) coffee segment.

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