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Campbell's (CPB) Stock Loses Sheen: Tumbles 14% in 3 Months

Campbell Soup Company CPB is clearly off investors’ radar, especially after it slashed its earnings outlook for fiscal 2018, following third-quarter results. Shares of this convenience foods provider have lost 6.5% since the quarterly outcome, while this Zacks Rank #5 (Strong Sell) stock has tumbled 14.3% in the past three months compared with the industry’s decline of 0.8%.



Campbell’s third-quarter performance was a disappointment for management, mainly due to factors hurting the gross margin and soft Campbell Fresh (C-Fresh) performance. In fact, Campbell has been witnessing strained margins for a while now. In third-quarter fiscal 2018, adjusted gross margin contracted 390 basis points, mainly due to cost inflation, escalated supply-chain expenses (particularly in C-Fresh) and promotional spending (especially in Americas Simple Meals and Beverages) along with dilutive effect from recent buyouts.

The cost inflation stemmed from increased prices of dairy, steel cans, meat and aluminum along with greater-than-expected rise in transportation and logistics expenses. Gross margin softness and higher adjusted marketing and selling expenses also weighed on Campbell’s EBIT margin. Management now expects fiscal 2018 gross margin to decline nearly 3 percentage points, which is worse than its previous forecast of 1% decline. Gross margin is expected to bear the brunt of cost inflation, weakness across C-Fresh, increased promotions and unfavorable mix due to the acquired businesses. Consequently, adjusted EBIT is now expected to decline in the band of 6-8% compared with prior guidance of decrease in the range of 5-7%.

Moving to C-Fresh, results in this segment came way below management’s expectations in the third quarter. Though organic sales rose 1%, the segment posted an operating loss of $19 million, as against earnings of $1 million recorded in the year-ago period. This was accountable to dismal gross margin, which, in turn, was a result of lower manufacturing efficiencies and carrot crop yields along with inflated transportation and logistics expenses.

Unfortunately, management expects its ongoing challenges to persist, which along with its increased investment spending is likely to hurt fiscal 2019 performance. As for fiscal 2018, the company now expects cost inflation of about 4%, due to sudden rise in transport and logistics costs. This along with weakness in C-Fresh and high promotional expenditure compelled management to lower its earnings outlook for fiscal 2018. Also, Snyder's-Lance’s buyout is likely to impact results.

Adjusted earnings are now envisioned in the band of $2.85-$2.90 per share, reflecting a decline of 5-6% from fiscal 2017. Earlier, management projected earnings per share in the $3.10-$3.17 band, which reflected growth of 2-4% from last year. These factors have also caused a downtrend in the Zacks Consensus Estimate for fiscal 2018, which has gone down from $3.09 to $2.87 since management’s dismal view.

Let’s see if Campbell’s focus on expanding the fast-growing snacking and organic foods categories, and robust cost-savings initiatives can do any good to the dwindling stock.

Unsure About Campbell? Check These Food Stocks

MEDIFAST INC MED, with a Zacks Rank #1 (Strong Buy), has delivered positive earnings surprises in the past three quarters. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Chefs' Warehouse, Inc. CHEF, with long-term earnings per share growth rate of 22%, flaunts a Zacks Rank #2 (Buy).

B&G Foods BGS, with a Zacks Rank #2, has seen positive estimate revisions in the past 30 days.

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