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Reasons behind Campbell Soup’s Raised Guidance for Fiscal 2016

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Raised guidance for fiscal 2016

One week before its fiscal 2Q16 earnings release, Campbell Soup (CPB) raised its earnings guidance for fiscal 2016. This increased guidance is based on better-than-expected results for the second quarter. The company continues to expect net sales change year-over-year to be in the range of -1% to 0% for 2016.

The company expects adjusted EBIT (earnings before interest and taxes) to increase 10%–13%. The earlier expectation was 4%–7%. Adjusted EPS (earnings per share) is expected to rise 9%–12%, or $2.88–$2.96. The previous expectations for EPS were to increase 4%–7%.

This guidance includes a 2-percentage-point negative currency translation effect and a 1-percentage-point positive impact on the Garden Fresh Gourmet acquisition. EBIT and EPS guidance changes reflect the company’s improved gross margin performance and cost savings.

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The company mentioned that its three-year cost savings initiative is delivering better-than-expected results. So it increased its savings target from $250 million to $300 million. The company expects to achieve it by the close of fiscal 2018. It had previously estimated $80 million of incremental savings from these cost reduction initiatives in fiscal 2016. However, the estimate is now $120–$140 million.

Dividend declared

Campbell declared a regular quarterly dividend on its stock of $0.31 per share on November 19, 2015. The quarterly dividend was paid on February 1, 2016, to shareholders of record at the close of business on January 11, 2016. The company has managed to raise earnings and pay a consistent quarterly dividend to its shareholders in spite of falling revenues. It has a dividend yield of 2.1% as of February 18, 2016. In the last five years, the dividend has increased at an average annual rate of 0.9%.

The company’s rivals in the industry include Hormel Foods (HRL), Flowers Foods (FLO), and Pilgrim’s Pride (PPC). Pilgrim’s Pride reported YTD (year-to-date) returns of 4.1%, while Hormel Foods and Flowers Foods reported YTD returns of 8.4% and -24.3%, respectively, as of February 18, 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 HRL stock.

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