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Campbell Soup in Fiscal 2016: What’s the Raised Guidance?

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Fiscal 2016 guidance

Campbell Soup (CPB) raised its earnings guidance for fiscal 2016 just one week before this earnings release. This increased guidance was based on better-than-expected results for the second quarter. In the second quarter earnings release, Campbell Soup mentioned that there is no change to the previously provided guidance for fiscal 2016. It continues to expect the net sales change year-over-year to be -1%–0% for 2016. The company expects the adjusted EBIT (earnings before interest and tax) to increase 10%–13%. The adjusted EPS (earnings per share) is expected to rise 9%–12% or $2.88–$2.96.

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This guidance includes a -2 percentage point currency translation effect and a 1 percentage point impact on the Garden Fresh Gourmet acquisition. The EBIT and EPS guidance changes reflect the company’s improved gross margin performance and benefits from cost-saving initiatives. The gross margin is expected to expand by ~175 basis points. It will mainly benefit from cost-saving initiatives and productivity gains.

Update on cost-saving initiatives

The company mentioned that its three-year cost-saving initiative is delivering better-than-expected results with $50 million in 2Q16. As a result, it increased its savings target from $250 million to $300 million. The company expects to achieve it by the close of fiscal 2018. Previously, it estimated $80 million of incremental savings from these cost reduction initiatives in fiscal 2016. Now, the estimate is $120–$140 million.

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Dividend and share repurchase

Campbell Soup paid total dividends of $197 million in the quarter. The regular quarterly dividend on its stock of $0.312 was paid on February 1, 2016, to shareholders of record at the close of business on January 11, 2016. The company managed to raise earnings and pay a consistent quarterly dividend to its shareholders despite falling revenue. It has a dividend yield of 2.06% as of February 25, 2016. In the last five years, the dividend increased at an average annual rate of 0.9%. It repurchased $86 million in shares in 1H16 out of which 50 million were part of the strategic share repurchase program. The balance of the repurchases was made to offset the dilution from equity-based compensation.

Competitors

The company’s rivals in the industry include Hormel Foods (HRL), Pinnacle Foods (PF), Mead Johnson (MJN), and WhiteWave Foods (WWAV). Hormel, Pinnacle, and WhiteWave reported positive YTD (year-to-date) returns of 10.9%, 2.1%, and 0.21%. Mead Johnson reported YTD returns of 7.1%, respectively, as of February 25, 2016.

The First Trust Consumer Staples AlphaDEX ETF (FXG) and the Guggenheim S&P 500 Equal Weight Consumer Staples ETF (RHS) invest 4.8% and 2.6%, respectively, in Hormel Foods stock.

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