Campbell Soup (CPB) will announce its fiscal 2020 first-quarter result before the markets open on December 4. We expect Campbell Soup to continue the momentum in sales and earnings. We expect the divestiture of underperforming businesses and focus on core business will help drive organic sales in the first quarter.
Meanwhile, we believe the company’s lean structure, debt reduction, and cost-savings are expected to drive its bottom-line growth.
Notably, Campbell Soup divested Campbell Fresh, Arnott’s, and some of its international operations, which are now part of discontinued businesses. The proceeds from divestitures will help Campbell Soup reduce debt and generate cost-savings, which, in turn, is likely to support its bottom line.
Campbell Soup earnings: Consensus estimates
Analysts expect Campbell Soup’s combined net sales to decline by 18% YoY (year-over-year) to $2.2 billion in the first quarter. However, we believe Campbell Soup’s revenues from continued operations are likely to improve YoY.
We believe growth in US Soup sales, Prego Pasta sauces, and Pace Mexican sauces to sustain momentum and drive organic sales in the Meals and Beverages segment. However, the growth in organic sales likely to be driven by higher pricing. Volumes could continue to take a hit from weakness in the V8 beverages and broth.
Meanwhile, in the Snacks segment, revenues could continue to benefit from balanced growth in both volumes and pricing. Momentum in Pepperidge Farm bakery products, Snack Factory Pretzel Crisps, and Kettle Brand potato chips are likely to drive the top line.
Analysts expect Campbell Soup’s combined earnings to be $0.71 per share, implying a YoY decline of about 10%. However, its adjusted earnings could continue to improve, reflecting higher underlying sales and cost-savings.
We expect Campbell Soup’s margins to benefit from supply-chain productivity and cost-savings. Moreover, lower YoY debt is likely to support first-quarter earnings. Also, a lower effective tax rate could cushion its bottom line.
Revisiting last quarter’s performance
Campbell Soup impressed with its previous quarter performance. Campbell Soup’s combined sales and earnings beat Wall Street’s expectations. Moreover, Campbell Soup’s revenues from continued operations improved 2% YoY, thanks to the higher organic sales.
Campbell Soup’s combined adjusted earnings of $0.50 per share beat analysts’ estimates by a wide margin.
CPB expects to sustain the growth momentum in fiscal 2020. CPB now expects revenues from continuing operations to rise by 1% to 3% in fiscal 2020. Moreover, adjusted earnings are expected to increase by 9% to 11% YoY.
Campbell Soup stock performance
Similar to most of its peers, Campbell Soup stock generated significant returns for its shareholders so far this year. Campbell Soup stock is up about 41% on a year-to-date basis and has outperformed the broader markets.
The stellar rise in CPB stock is due to its impressive performance during fiscal 2019. Campbell Soup’s top-line beat Wall Street’s expectations in all four quarters of fiscal 2019. Moreover, CPB’s bottom line exceeded Wall Street’s estimates. Notably, Campbell Soup’s adjusted earnings beat Wall Street’s expectations by a wide margin in fiscal 2019. For instance, CPB beat analysts’ estimate by an average of 15.7% in the last four quarters, which is impressive.
Besides Campbell Soup stock, other major food stocks also created a significant amount of wealth for their investors so far this year. Shares of General Mills (GIS), Conagra Brands (CAG), and Hershey (HSY) are up about 37%, 35%, and 38%, respectively, so far this year.