Campbell Soup Reports Beat & Raise Quarter, Passes Inflation Costs Along To Shoppers

Campbell Soup Company CPB shares traded higher by 4.8% on Wednesday after the company reported strong earnings growth in its fiscal first quarter and raised its full-year guidance.

The Numbers: Campbell reported first-quarter adjusted EPS of $1.02 on revenue of $2.6 billion. Both numbers topped consensus analyst estimates of 88 cents and $2.45 billion, respectively. Revenue was up 15% from a year ago.

Related Link: Campbell Soup Inks Renewable Energy Agreement With Enel North America

Volumes fell 1% in the quarter, but CEO Mark Clouse said Campbell has successfully mitigated rising input costs by raising prices. Campbell is one of many food producers who have sacrificed volume growth to raise prices and pass along inflated input costs to consumers. As a result, volumes have dropped, but net income has risen.

Looking ahead, Campbell guided for annual sales growth of between 7% and 9%, up from its previous guidance of between 4% and 6% growth. Campbell also raised its full-year adjusted earnings growth guidance from a previous range of flat to 4% to a new range of between 2% and 5%.

Related Link: Morgan Stanley Is 'Cautious' On Campbell Soup's Long-Term Growth Prospects

Analyst Take: On Wednesday, Bank of America analyst Peter Galbo reiterated his Underperform rating and $46 price target for Campbell and said the solid quarter wasn't good enough to change his bearish thesis.

"While this morning’s print was solid in our view and demonstrates CPB’s improved execution, questions on lack of earnings flow through to the EPS line are likely to be raised given the magnitude of the beat in the quarter," Galbo said.

Benzinga's Take: Unfortunately, when companies like Campbell respond to rising costs by raising prices, it only contributes further to the inflation problem. If inflation triggers a recession at some point, consumers will no longer be able to afford higher-priced goods, and Campbell's band-aid to maintain earnings growth will stop working.

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