Campbell Soup (CPB) 24Q3 Update

Campbell Soup Company (CPB) reported 24Q3 diluted GAAP EPS of $0.44, below last year’s $0.53.  Non-GAAP EPS was $0.76, above last year’s $0.68, and in line with my estimate of $0.75.  Net sales were $2.37 billion, 6.3% above 23Q3.  The company completed the $2.6 billion acquisition of Sovos Brands on March 12.

Management saw this as a solid quarter, with the company advancing every aspect of its business.  Since taking a closer look after completing the acquisition, it is more confident about Sovos’s growth potential in premium pasta sauces and related products.  The Snacks business has been pressured by consumer belt tightening; but it has begun to see modest improvement and management expects a full recovery by 25H1.  Meals & Beverages achieved sequential volume improvement and comparable YOY organic sales growth.  Soup gained share during the quarter, as consumers continue to focus on stretchable meals, with notable gains in cooking soups and broths.  Campbell’s is also focusing on optimizing its supply chain and enhancing its manufacturing and distribution network to maintain competitive advantage.

As a result of these trends and the Sovos acquisition, the company now anticipates fiscal 2024 sales growth of 3% to 4% (up from -0.5% to +1.5%).  Organic sales are expected to slip by 1-2 percentage points.  Adjusted EBIT growth is anticipated to be 6.5% to 7.0%, up from 3% to 5% previously.  Adjusted EPS is expected to be $3.07-$3.10, down from previous guidance of $3.09-$3.15, but better than my previous forecast of $3.00 (which had anticipated more of a negative initial impact from Sovos).

Updated for 24Q3 results and guidance, I now project fiscal 2024 GAAP EPS of $2.32 (down from $2.74 previously, due mostly to higher than anticipated restructuring and acquisition costs) and non-GAAP EPS of $3.08 (up from $3.00).  For fiscal 2025, I anticipate GAAP EPS of $2.65 and non-GAAP EPS of $3.23.  My fiscal 2025 projections anticipate meaningful operating margin improvement – about 300 bp – on Sovos Brands’ historical results, as well as a 50 bp operating margin increase in Campbell’s base business.

Since my last report (12/8), Campbell’s stock has earned a total return of 7%, below the S&P 500’s 20.0%, but above peers’ average 4.0% decline.  Since Campbell’s performance remains on track, I am raising my 12-month price target from $50 to $52.  The price target represents a one-year forward multiple of 19.5 times projected fiscal 2025 GAAP earnings of $2.61 and 16.0 times projected fiscal 2025 non-GAAP earnings of $3.23 (which is below the peer group average of 16.5).  The revised target price represents a potential return of 18%, including the stock’s 3.2% dividend yield.  Accordingly, I am maintaining my performance rating of “1” (Buy).

This is a summary of my recent update 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.

July 2, 2024 (Report published on July 1, 2024.)

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

© 2015-2024 by Stephen P. Percoco, Lark Research.   All rights reserved.

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