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Campbell Stock Up 50% YTD: Will Momentum Stay in New Year?

Zacks Equity Research

Campbell Soup Company CPB is well positioned for the New Year, given its portfolio refinement efforts and cost-saving initiatives. Further, the company’s snacks business is performing well and likely to remain a major driver. These upsides have helped this Zacks Rank #3 (Hold) stock showcase a solid run this year despite cost-related headwinds.

Incidentally, Campbell’s shares have surged 50% year to date, outperforming the industry’s growth of 19.7%. Let’s take a closer look at the factors aiding the company, which has a long-term earnings per share growth rate of 6% and a VGM Score of B.

Campbell’s Growth Plans Underway

Campbell has been undertaking several actions to increase focus on areas with greater potential, which includes its key North American business. Keeping in these lines, the company divested Campbell Fresh in fiscal 2019 and Kelsen Group on Sep 23.  Further, it anticipates concluding the sale of Arnott’s and some of Campbell International operations in the second quarter. Additionally, the company divested its European chips business in October. These actions will help the company increase focus on the core North American market, which were part of the company’s portfolio review and Board-led strategy.

Notably, Campbell has been committed to shifting its overall portfolio toward the fast-growing snacking category, which is expected to form about half of the company’s proforma sales in the future. Markedly, it acquired Snyder's-Lance in the third quarter of fiscal 2018, which is enhancing the performance of the snacking business. In fact, buyouts have been aiding the company’s Meals and Beverages unit as well. Incidentally, the company acquired leading organic broth and soup producer, Pacific Foods, in 2017 to expand in the fast-growing organic food space.

The company’s Snacks segment sales went up 2% to $989 million in first-quarter fiscal 2020. The segment gained from advancements in Pepperidge Farm cookies, Kettle Brand potato chips, Goldfish crackers, Cape Cod and fresh bakery products. Management expects the brands under the snacking category to continue boosting performance, backed by enhanced marketing and innovation.

Wrapping Up

During the first quarter of fiscal 2020, operating earnings in the Meals & Beverages segment declined 3% to $282 million, due to cost inflation and lower sales. Also, input cost inflation weighed on the segment’s gross margin. Higher input costs stemmed from escalated prices of steel cans along with higher vegetable and flower costs, among others. Management earlier stated that it expects overall cost inflation of nearly 3% in 2020, which is likely to affect profits.

Additionally, Campbell’s sales are likely to bear adverse impacts from the European chips business divestiture in the near term.  Nonetheless, the company still expects adjusted EBIT to rise 2-4% in fiscal 2020, wherein adjusted earnings per share are anticipated to grow 9-11% to $2.50-$2.55. This is likely to be backed by the aforementioned drivers, as well as the company’s cost-saving efforts.

Markedly, Campbell’s focus on supply-chain efficiencies along with curtailing costs and reinvesting part of these savings in areas with high growth potential is likely to drive growth. During the last earnings call, the company stated that it had generated savings of $605 million from its multi-year, cost-saving program. Such upsides are likely to help this renowned convenience foods provider keep up the impressive run.  

Don’t Miss These Solid Consumer Staple Stocks

Boston Beer SAM, with a Zacks Rank #2 (Buy), has a long-term earnings per share growth rate of 10%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Beyond Meat BYND, with a Zacks Rank #2, has an impressive earnings surprise record.

Newell Brands NWL, also with a Zacks Rank #2, has a long-term earnings per share growth rate of 6%.

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