Higher at-home consumption amid the coronavirus pandemic is an upside for food companies like the Campbell Soup Company CPB. Notably, escalating demand conditions have been fueling volumes across the company’s Snacks as well as Meals & Beverages segments. Industry experts believe that such trends are likely to prevail in 2021, as consumers have begun realizing the health benefits of cooking and dining at home. However, the pandemic-led high input costs have been a roadblock for the company. Let’s delve deeper.
Favorable Demand Boosts Volumes
We note that Campbell kicked off fiscal 2021 on a solid note with stellar first-quarter results. Both sales and earnings surpassed the Zacks Consensus Estimate and increased year over year. The upside was backed by sturdy volume growth on skyrocketing demand. Notably, it witnessed strong volume growth in the Meals & Beverages and the Snacks segments. Also, volumes gained from enhanced retailer soup inventories.
Campbell’s Snacks business, which accounts for a considerable chunk of its revenues, has been witnessing rapid growth lately. Management highlighted that demand for unique and differentiated snacks was high during the first quarter as at-home consumption witnessed a spurt.
Going ahead, this Zacks Rank #3 (Hold) company expects the elevated demand scenario to stay. Therefore, it is undertaking increased brand investments. Accordingly, it expects net sales and adjusted EBIT in the second quarter to increase in the band of 5-7% each, year on year. Furthermore, the company envisions adjusted EPS in the range of 81-83 cents per share that indicates growth of 12-15% from the adjusted earnings per share of 72 cents reported in the year-ago quarter.
Will Savings Efforts Cushion Cost Hurdles?
Campbell has been struggling with cost inflation for a while now. During the first quarter of fiscal 2021, gross margin was partly impacted by rise in net supply-chain expenses, which resulted from inflation and costs associated with COVID-19. Additionally, elevated marketing investments and adjusted administrative expenses were a drag on the company’s adjusted EBIT performance in the first quarter. Such downsides are exerting pressure on the stock, which inched down 1.6% in the past six months compared with the industry’s rise of 13.2%
Nevertheless, we expect Campbell’s prudent cost-saving efforts to cushion the impacts stemming from rising costs. Speaking of savings initiatives, Campbell generated savings worth $15 million during the first quarter, which included synergies associated with the Snyder’s-Lance buyout. With this, the company has generated total program-to-date savings of $740 million. Management anticipates cumulative annualized savings from continuing operations of $850 million by fiscal 2022-end.
These factors along with strategic efforts toward product innovation and brand building are likely to boost investor’s optimism in the stock in the forthcoming periods.
Looking for Solid Food Stocks? Check These
The Hain Celestial Group, Inc. HAIN, carrying a Zacks Rank #2 (Buy), has a trailing four-quarter earnings surprise of 24.6%, on average. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Sysco Corporation SYY, also with a Zacks Rank of 2, has a long-term earnings growth rate of 11%.
B&G Foods, Inc. BGS has a Zacks Rank #2, and a trailing four-quarter earnings surprise of 9.3%, on average.
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