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What’s Behind Campbell Soup’s Q3 EPS Beat?

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Updated

Earnings beat the estimate

Campbell Soup (CPB) reported better-than-expected third-quarter earnings. Campbell Soup’s adjusted EPS of $0.56 beat analysts’ estimate of $0.47. However, the earnings fell ~5% on a YoY (year-over-year) basis, which reflected lower margins and higher interest expenses.

The lower effective tax rate combined with productivity and cost-savings, higher pricing, and less promotional spending helped the company beat analysts’ expectations. Lower taxes contributed $0.05 to Campbell Soup’s bottom line. However, higher interest expenses had a negative impact of $0.07. Campbell Soup’s adjusted combined EPS fell ~20% on a YoY basis.

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Campbell Soup’s gross margin improved sequentially. However, the gross margin continued to decline on a YoY basis. During the third quarter, Campbell Soup’s adjusted gross margin fell by 210 basis points to 33.4%. Input cost inflation and other factors dragged the gross margin by 350 basis points. The negative mix dragged the gross margin by 170 basis points.

However, supply-chain productivity and cost-savings contributed 150 basis points and 60 basis points to the gross margin. Higher pricing added 110 basis points.

Outlook

The company’s management expects to report adjusted earnings of $2.50–$2.55. Earlier, the EPS was projected to be $2.45–$2.53. An expected improvement in the operating performance and a decline in interest costs will likely support Campbell Soup’s earnings.

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