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Why Campbell Soup’s Bottom Line Could Continue to Decline

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What’s hurting CPB’s EPS?

Campbell Soup (CPB) has exceeded analysts’ adjusted earnings estimate in the past five quarters, which is an encouraging sign. However, the company’s bottom line declined in the past three quarters, reflecting increased cost pressure and higher interest expenses.

In the first and second quarters of fiscal 2019, Campbell Soup’s adjusted earnings fell 14.1% and 23.0%, respectively, reflecting increased input and supply-chain costs, weakness in the base business, and higher interest expenses.

In comparison, other major food companies are witnessing pressure on earnings from higher raw material and packaging costs and a rise in interest expenses owing to the increase in debt taken to finance their recent acquisitions.

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General Mills (GIS), J.M. Smucker (SJM), Conagra Brands (CAG), Kellogg (K), and Hershey (HSY) continue to witness increased cost pressure on margins, which in turn is affecting their EPS growth rate. Meanwhile, higher interest expenses related to the funding of their recent acquisitions further remains a drag.

Outlook

We expect soft organic sales, cost headwinds, and increased interest costs to continue to hurt Campbell Soup’s adjusted earnings in the coming quarters. Analysts expect Campbell Soup’s bottom line to decline by more than 30% in the third quarter of fiscal 2019. Meanwhile, its full-year EPS are projected to fall ~14%.

Analysts expect the company’s bottom line to improve in fiscal 2020. However, the rate of growth is projected to be in the low to mid-single digits.

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