Campbell Soup Company (CPB) 23Q2 Update

Campbell Soup Company (CPB) reported stronger than expected 23Q2 net sales and profits (vs. my estimates).  Net sales were $2.49 billion, 12.5% above 22Q1 and 7% above my estimate.  Diluted Non-GAAP EPS was $0.80, up 6% YOY and better than my $0.75 estimate.

Sales benefited from 14 percentage points of net price realization offset partially by 2PP of lower sales volume.  The increase in prices plus productivity improvements more than offset cost inflation and lower volume, which drove a 30 bp increase in gross margin vs. the prior year.

Management has again raised guidance.  It now expects net sales growth for fiscal 2023 of 8.5%-10%, up from 7%-9%.  It has also raised the low end of its adjusted non-GAAP EPS range by $0.05 to $2.95-$3.00.  The bump in the low end of the earnings guidance seems conservative against such a strong quarterly result, but management said that part of the earnings gains will be offset by higher pension costs.  It also wants to see how its marketing and promotional programs pan out in 22H2.  With the consumer coming under increasing pressure (from inflation and a dwindling cash cushion), Campbell may have to walk back some of this year’s price increases over time by increasing promotions and discounts.

The price action in Campbell’s stock appears to reflect this concern.  Since my previous report, CPB’s stock’s total return is ‑2.9%, below the +3.4% return of the S&P 500 and the estimated +0.5% return of its peer group.  The stock rallied after the earnings report, but peaked at $56.04 on April 6, below its previous high of $57.01 on Dec. 28.  While yesterday’s solid 2.2% gain on a down day for the market was positive, Campbell’s stock chart suggests that its price momentum is waning. Based upon the updated guidance, my (non-GAAP) adjusted EPS estimates are little changed.  I am reducing my price target on the stock by $1 to $58, which is based upon a one-year forward P/E multiple of 18.5 applied to projected 2024 adjusted EPS of $3.13.  That represents a potential total return of 8.8%, which merits a performance rating of “3” (Neutral).

This is a summary of my recent report on Campbell Soup Company (CPB). To obtain a copy of the full report, please reach out to me using the contact information provided below.

April 26, 2023

Stephen P. Percoco
Lark Research
839 Dewitt Street
Linden, New Jersey 07036
(908) 975-0250

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