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Campbell Soup (CPB) Looks Appetizing on Solid Brands & Pricing

Campbell Soup Company CPB is benefiting from a strong brand portfolio and effective pricing actions. The branded convenience food products provider is gaining from strength in its Snacks business and innovations. The company is focused on cost-saving efforts amid a rising inflationary environment.

The factors mentioned above drove the company’s second-quarter fiscal 2023 results, with the top and the bottom line surpassing the Zacks Consensus Estimate and increasing year over year. Also, management raised its fiscal 2023 view.

Let’s delve deeper.

Zacks Investment Research
Zacks Investment Research

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Impressive Q2 Results & View

In the second quarter of fiscal 2023, Campbell Soup’s adjusted earnings rose 16% to 80 cents per share, mainly driven by higher adjusted earnings before interest and taxes (EBIT). Net sales of $2,485 million increased 12% on favorable net price realization and brand strength. Organic net sales grew 13% year over year. CPB’s total dollar consumption rose 10% year over year and 20% compared with three years ago.

During its second-quarter fiscal 2023 earnings, management increased its full-year net sales outlook and pulled up the midpoint of adjusted EBIT and adjusted earnings per share (EPS) outlook. The company’s higher revenue expectations reflect strength in brands, favorable price elasticities and continued supply chain execution. For fiscal 2023, Campbell Soup now expects 8.5-10% net sales and organic sales growth. Earlier, management had expected 7-9% net sales and organic sales growth for fiscal 2023. Adjusted EPS is now envisioned to be up 3.5-5% to come in at $2.95-$3.00. Earlier, adjusted EPS was projected to be up 2-5%.

Snacks Business Fuels Growth

Campbell Soup is benefitting from its growing Snacks business. In the second quarter of fiscal 2023, net sales in its snack division rose 15% (also organically) to $1,077 million. The upside can be attributed to sales of power brands which rose 20%. Sales growth was fueled by a rise in cookies and crackers, specifically Goldfish crackers, Pepperidge Farm cookies and salty snacks, Snyder's of Hanover pretzels, among others. Favorable net price realization and volume/mix increases contributed to the upside.

For the company’s Snacks business, in-market dollar consumption increased 20% in aggregate on all eight power brands. Management is on track to drive solid momentum on innovation for its snack brands. The business is likely to tap incremental sales, backed by a proven growth model with strength in the power snacks brands and higher innovation.

Will Hurdles be Countered?

In the second quarter of fiscal 2023, Campbell Soup’s marketing and selling expenses increased 10% on higher advertising, consumer promotion and selling expenses. Adjusted administrative expenses rose 9% to $157 million thanks to increased general administrative costs and inflation. Management expects inflation in the low teens for fiscal 2023.

The company’s strategy of concentrating on supply-chain efficiencies, curtailing costs and reinvesting part of these savings in areas with high-growth potential is noteworthy. In the fiscal second quarter, it generated $10 million in savings under its multi-year cost-saving program, including Snyder’s-Lance synergies. Management remains on track to deliver savings worth $1 billion by fiscal 2025-end. These factors and Campbell Soup’s prudent investment and strategic efforts toward product innovation and brand building bode well.

The Zacks Rank #3 (Hold) company’s stock has gained 13.7% in the past six months compared with the industry’s 10.6% growth.

Solid Staple Bets

Some better-ranked consumer staple stocks are General Mills GIS, Beyond Meat BYND and Kimberly-Clark Corporation KMB.

General Mills, a branded consumer foods company, currently carries a Zacks Rank #2 (Buy). GIS has a trailing four-quarter earnings surprise of 8.1%, on average. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for General Mills’ current fiscal-year sales and earnings suggests growth of 6.3% and 7.4%, respectively, from the corresponding year-ago reported figures.

Beyond Meat, which develops, manufactures, markets and sells plant-based meat products, currently carries a Zacks Rank #2. BYND has a trailing four-quarter negative earnings surprise of 29.3%, on average.

The Zacks Consensus Estimate for Beyond Meat’s current fiscal-year earnings suggests an increase of 39.7% from the year-ago reported number.

Kimberly Clark is engaged in the manufacture and marketing of a wide range of consumer products around the world. It currently has a Zacks Rank of 2. KMB has a trailing four-quarter earnings surprise of 1.4%, on average.

The Zacks Consensus Estimate for Kimberly Clark’s current financial year sales and earnings suggests growth of 1.7% and 5.2%, respectively, from the year-ago reported numbers.


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