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Why Campbell Soup Stock Fell More than 12% on May 18

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May. 21 2018, Published 11:35 a.m. ET

What’s to blame?

The Campbell Soup Company (CPB) stock is trading at a record low. It fell ~12.4% on May 18. CEO Denise Morrison’s abrupt exit and persisting sales and margin headwinds have raised concerns over the company’s strategy and portfolio.

Morrison’s exit was in the offing given the company’s sluggish sales in the past three years. Besides, the company’s Fresh segment, which had been expected to turn its business around, failed to leave its mark or do any good for the company. Despite the company’s poor sales and earnings performance, none would have expected Morrison’s departure in such a hasty manner. As the company searches to find her successor, Keith McLoughlin has been named the interim CEO of Campbell Soup.

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Campbell Soup has been struggling to lift sales in its Americas Simple Meals and Beverages segment. Sales for soups and V8 beverages continue to fall as consumers are shifting toward healthy snacking options. Issues with a key retailer and increased trade promotions in efforts to drive volumes also remain a drag.

The company’s Fresh segment remains challenged as low carrot yields, manufacturing inefficiencies, and higher-than-expected inflation in costs continue to hurt its profitability.

Campbell Soup has lowered its fiscal 2018 EPS (earnings per share) guidance, as higher-than-expected trade spending, inflation in commodities accelerated by import tariffs, and higher transportation and logistics costs are likely to hurt its profitability. Lower sales of soups and V8 beverages are also expected to remain a drag. Moreover, increased interest expenses related to higher debt levels and a higher interest rate are expected to hurt the company’s bottom line.

CPB underperforms

Food stocks have underperformed the benchmark index on a YTD (year-to-date) basis as soft sales, higher promotional spending, and cost pressures have taken a toll on their margins. As for Campbell Soup, its stock has fallen 28.6% on a YTD basis. In comparison, the S&P 500 Index (SPX) has risen ~1.5% YTD.

Meanwhile, shares of the Kraft Heinz Company (KHC), the Hershey Company (HSY), the J.M. Smucker Company (SJM), the Kellogg Company (K), and Mondelēz (MDLZ) have witnessed falls of 27.0%, 19.4%, 13.1%, 11.5%, and 7.4%, respectively, YTD.

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