Why Campbell Soup Stock Has Grown Cold



Sluggish performance

Campbell Soup (CPB) stock has fallen ~13.7% on a YTD (year-to-date) basis as of July 3. In the past month, it has fallen 9.6%.

CPB’s sluggish performance in both sales and profitability has disappointed investors, and the company has failed to drive margin growth, despite restructuring initiatives. Weak volumes, input cost inflation, and higher promotional spending have remained a drag.

By contrast, peers including Hershey (HSY), Mondelēz (MDLZ), Kellogg (K), and Kraft Heinz (KHC) have managed to drive margins on the back of cost-saving initiatives.

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CPB’s sales and EPS

During the last reported quarter, Campbell Soup’s sales and EPS (earnings per share) failed to meet Wall Street’s expectations and witnessed a YoY (year-over-year) decline, while margins have deteriorated.

The company’s EPS fell 9.2% YoY as sales deleverage, higher input costs, and increased promotions took a toll on profitability. Organic sales fell 1%, reflecting higher promotional discounts. The company’s largest business segment, Americas Simple Meals and Beverages, saw lower sales due to a fall in soups and V8 beverages. Sales in this segment are likely to remain low going forward as a result of declining soup sales.

The Fresh segment’s sales have also been falling recently and are expected to remain low in fiscal 2017 due to production constraints.

Outlook remains bleak

Given its lackluster performance in the past three quarters and its persistent challenges, CPB’s fiscal 4Q17 results are expected to disappoint investors. Its management believes that industry-wide challenges aren’t likely to subside in the near term and that these will continue to impact sales.

The management anticipates that sales will either remain flat or fall 1% in fiscal 2017, though it expects margins to improve on a YoY basis, driven by cost-saving measures. CPB’s bottom-line results are projected to benefit from share buybacks.

In the next part, we’ll discuss what’s dragging General Mills down.


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