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Why Did Campbell Soup’s Fiscal 2Q16 Earnings Rise 22%?

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Earnings rose 22%

In its preliminary results for 2Q16, Campbell Soup (CPB) mentioned that it expected its adjusted EPS (earnings per share) for the quarter to be ~$0.87. The EPS was in line with the expectations. This demonstrated a YoY (year-over-year) rise of ~23% compared to EPS of $0.71 in fiscal 2Q15. The EPS also surpassed analysts’ estimates by 9%. Growth in operating profit aided by gross margin expansion along with benefits from cost-saving initiatives contributed $0.22 to the EPS growth. However, the reduced share count because of Campbell Soup’s strategic share repurchase program didn’t impact the EPS. The increase in net interest expense for the quarter didn’t impact the EPS. The higher tax rate of 31.6% and currency translation had a negative impact of $0.04 and $0.03, respectively, on the EPS.

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The analysts that follow the company are expecting it to grow earnings at an average annual rate of 4.5% over the next five years. This year, analysts are forecasting a 20.5% rise in the earnings compared to last year. Analysts expect earnings growth next year of 0.34% compared to this year’s forecast earnings.

New reportable segments

In fiscal 2016, Campbell Soup formed three new divisions. The company started reporting operating results for the three new segments—Americas Simple Meals and Beverages, Global Biscuits and Snacks, and Campbell Fresh. The Americas Simple Meals and Beverages segment includes the retail and food service channel businesses in the US, Canada, and Latin America.

The products included in this segment are Campbell’s tomato juice, Prego pasta sauces, Campbell’s condensed and ready-to-serve soups, Campbell’s gravies, pasta, beans, and dinner sauces, Pace Mexican sauces, Swanson canned poultry, Plum food and snacks, Swanson broth and stocks, and V8 juices and beverages.

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Global Biscuits and Snacks includes products like Arnott’s biscuits in Australia and Asia-Pacific, Kelsen cookies globally, and Pepperidge Farm cookies, crackers, bakery, and frozen products in the US. Also included in this segment are simple meals and shelf-stable beverages in Australia and Asia-Pacific.

Campbell Fresh includes carrot ingredients, Garden Fresh Gourmet salsa, hummus, Bolthouse Farms fresh carrots, dips and tortilla chips, refrigerated beverages, and refrigerated salad dressings, and the US refrigerated soup business.

Peers’ earnings

Campbell Soup’s rivals in the industry are Hormel Foods (HRL), Hain Celestial (HAIN), and Treehouse Foods (THS). They reported EPS of $0.43, $0.55, and $0.85 for their last quarter, respectively. To gain exposure to Campbell Soup, you can invest in ETFs such as the PowerShares S&P 500 Low Volatility Portfolio (SPLV) and the Guggenheim Defensive Equity ETF (DEF). They invest 2.3% of their portfolios in Campbell Soup, respectively.

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