Campbell Jumps on Upbeat Q1 Earnings, Raised FY16 View

Campbell Soup Company CPB began fiscal 2016 on a strong note, reporting better-than-expected top and bottom-line results for the first quarter. Adjusted earnings from continuing operations of 95 cents per share was way ahead of the Zacks Consensus Estimate of 76 cents and rose 22% from the prior-year quarter.
 

Shares of the company jumped nearly 2% in the pre-market trading session following the upbeat fiscal first-quarter performance.

Net sales fell nearly 2% to $2,203 million from $2,255 million in the prior-year quarter but surpassed the Zacks Consensus Estimate of $2,201 million. Sales in the quarter were mainly impacted by currency headwinds. However, on an organic basis, sales were flat as the benefit of improved selling price and lesser promotional spending was negated by lower volumes.

Further, the company's adjusted gross margin improved for the third straight quarter as it continued to enhance its supply chain performance. Adjusted gross margin expanded 260 basis points (bps) from the prior-year quarter level. Other factors that benefited gross margin include productivity enhancements, increased selling prices and lower promotional expenditure, offset by input cost inflation.

Adjusted earnings before interest and tax (EBIT) jumped 23% year over year to $479 million mainly due to higher adjusted gross margins, reduced adjusted marketing and selling costs and lower adjusted administrative expenses, partly offset by negative foreign currency impact.

Segment Analysis

As part of its efforts to align its business structure with its strategy, the company has realigned its business segments effective from the first quarter of fiscal 2016. The company will now report its results under three segments namely, Americas Simple Meals and Beverages, Global Biscuits and Snacks and Campbell Fresh.

Americas Simple Meals and Beverages: In the fiscal first quarter, sales at the division fell 2% year over year to $1,302 million, while organic sales fell 1%. Increase in price and sales allowances benefited sales but results were impacted by decline in volume and mix. During the quarter, sales for U.S. soup declined 3% due to declines in ready-to-serve soups and broth, offset by improvement in condensed soup. On the other hand, other simple meals gained mainly from increased sales of Prego pasta sauces, Campbell's dinner sauces and the new Prego and Pace ready meals.

Operating income rose 19% year over year to $363 million, primarily because of increased gross margin and lower marketing and selling expenses.

Global Biscuits and Snacks: Sales at the division dipped 6% year over year to $652 million. Organic sales for the segment rose 2% on the back of improvements in Pepperidge Farm products and organic sales gain of Arnott's in Australia.

The segment's operating income jumped 16% to $114 million from the year-ago period, primarily due to higher gross margin, better volumes and lesser selling expenses, offset by currency impacts.

Campbell Fresh: Sales of this segment rose 8% to $249 million. Excluding the acquisition of Garden Fresh Gourmet, segment sales were down 3% as the benefits from sale of Bolthouse Farms' premium refrigerated beverages and salad dressings were slightly offset by lower carrot ingredients, fresh carrots and refrigerated soup sales.

The segment's operating income doubled to $18 million from $9 million driven by gross margin expansion and the impact of acquisition.

Fiscal 2016 Outlook

Based on the improved margin performance in the fiscal first quarter, the company has raised its adjusted earnings per share and EBIT guidance for fiscal 2016. However, citing increased impact of currency translations, Campbell lowered its sales guidance for the fiscal.  

The company now anticipates sales growth to range between negative 1% and flat, compared to the previous forecast of 0–1% growth. The sales guidance for the fiscal year now reflects a 3 percentage point negative impact from foreign currency translations (previously 2 percentage points) and the impact of the Garden Fresh Gourmet acquisition.

Further, adjusted EBIT is projected to increase in the range of 4% to 7% compared with the prior guidance of 3% to 5%. Adjusted earnings for fiscal 2016 are expected to be in the range of $2.75–$2.83, reflecting growth of 4% to 7% from $2.65 reported in fiscal 2015. Earlier, the company projected earnings per share growth of 3%–5%.

Currently, Campbell Soup carries a Zacks Rank #3 (Hold).

Stocks to Consider

Some better-ranked stocks in the same industry include B&G Foods Inc. BGS and Omega Protein Corp. OME, each with a Zacks Rank #1 (Strong Buy), and Diamond Foods, Inc. DMND, carrying a Zacks Rank #2 (Buy).

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