Campbell Soup Company (CPB) reported 24Q4 diluted GAAP loss per share of $0.01, compared with last year’s profit of $0.41. Non-GAAP EPS of $0.63, above last year’s $0.50, and matching my estimate of $0.63. Net sales were $2.39 billion, up 10.9% from 23Q4, due entirely to the acquisition of Sovos Brands. Organic net sales declined 1% vs. the prior year. The 24Q4 GAAP loss was due mostly to impairment charges of $129 million ($0.33 per share) associated with the sale of the Pop Secret popcorn business and also with certain salty snacks and cookie trademarks, collectively known as Allied Brands.
Management again saw this as a solid quarter, as it was pleased with sequential volume improvement and margin expansion. The company advanced its strategic initiatives in an “evolving consumer landscape” and a dynamic and competitive retail environment. Net sales in Meals & Beverage segment increased 28%, entirely due to Sovos Brands. M&B EBIT margins improved 350 bp to 17.6%. Snacks sales declined 3% organically, with 2% unfavorable price realization and a 1% decrease in third-party partner sales. Snacks EBIT margin increased 50 bp to 14.5%. The EBIT margin gains in M&B and Snacks were more than offset by higher corporate costs and exceptional items. Excluding those exceptional items, adjusted EBIT margin increased 260 bp to 14.3%.
Campbell’s anticipates fiscal 2025 net sales growth of 9%-11%, due mostly to Sovos. Organic net sales are expected to be flat to up 2%. Adjusted EBIT growth is pegged at 10%-11%, but this will be mostly offset by higher interest expense. Thus, adjusted EPS is anticipated to be $3.12-$3.22, up 1%-4%. My fiscal 2025 projections, which are in line with that guidance, show revenues of $10.6 billion, up 10.1%, GAAP EPS of $2.46 and adjusted EPS of $3.19.
At its investor day, besides announcing a proposed name change to “The Campbell’s Company,” management updated its financial algorithm. It now expects annual net (organic) sales growth (through 2027) of 2%-3%, adjusted EBIT growth of 4%-6% and adjusted EPS growth of 7%-9%. After 2027, it expects that adjusted EPS growth will slow to just above annual adjusted EBIT growth. Accordingly, my projections now show fiscal 2025 net sales of $10.8 billion, up 2.1%, GAAP EPS of $3.17, up 29.2%, and adjusted (non-GAAP) EPS of $3.42, up 7.1%.
Since my last report (7/1), Campbell’s stock has risen 9.4%, better than the S&P 500’s 5.2%, but below peers’ average 11.2% gain. Based upon the advance in CPB’s stock price and my valuation algorithm, I am raising my 12-month price target from $52 to $55. The price target equates to a one-year forward multiple of 17.4 times projected fiscal 2026 GAAP earnings of $3.17 and 16.1 times non-GAAP earnings of $3.42. (The non-GAAP multiple is below the peer group average of 16.3). The revised target price represents a potential return of 14.3%, including the stock’s 3.0% dividend yield. Accordingly, I am lowering my performance rating from “1” (Buy) to “2” (Outperform).
This is a summary of my recent update report on Campbell Soup Company (CPE). To obtain a copy of the full report, please reach out to me using the contact information provided below.
September 28, 2024. (Report published on September 27, 2024.)
Stephen P. Percoco
Lark Research
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