Campbell Soup Q3 Earnings Top, Net Sales View Raised

Campbell Soup Company CPB came out with third-quarter fiscal 2024 results, wherein the top and bottom lines increased year over year and beat their respective Zacks Consensus Estimate. While the top line gained from the recent acquisition of Sovos Brands (concluded in March 2024), the bottom line was driven by factors like enhanced supply-chain productivity and cost savings.
Campbell Soup updated its guidance to include the impacts of its Sovos Brands acquisition and the anticipated performance of the base business. The company raised its net sales and adjusted EBIT guidance for fiscal 2024 while curtailing its view for organic net sales and adjusted earnings per share.

Quarterly Highlights

Adjusted earnings came in at 75 cents, up 10% from the year-ago quarter's figure. The bottom line came ahead of the Zacks Consensus Estimate of 70 cents. Earnings growth was backed by higher adjusted EBIT and the reduced adjusted effective tax rate, partly negated by increased adjusted interest expenses.

Net sales of $2,369 million grew 6% year over year, surpassing the Zacks Consensus Estimate of $2,340 million. Sales were backed by the Sovos Brands acquisition. Organic net sales and the volume/mix remained flat year over year.
The company's adjusted gross profit was $740 million, up from $689 million reported in the prior-year quarter. The adjusted gross profit margin expanded 30 basis points (bps) to 31.2%. The uptick can be attributed to improved supply chain productivity and gains from cost savings efforts. These factors negated elevated cost inflation and other supply chain costs. Our model suggested adjusted gross margin growth of 20 bps to 31.1%.
Adjusted marketing and selling expenses grew 2% to $198 million. Adjusted administrative expenditures rose 1% to $156 million.
The adjusted EBIT jumped 13% to $354 million, mainly driven by the increased adjusted gross profit, somewhat offset by higher adjusted expenses, including marketing and selling, administrative, research and development and other expenses.

Segmental Analysis

Meals & Beverages: Net sales in the segment came in at $1,272 million. Sales surged 15% year over year on the Sovos Brands acquisition. Excluding this, organic sales remained flat year over year as foodservice increases were negated by soft U.S. retail products sales. The volume/mix remained unfavorable to the tune of 1%, while net price realization declined 1%. Sales of U.S. soup rose 2%. Operating earnings in the unit ascended 26%. Our model also suggested a 1% dip in pricing for the third quarter.
Snacks: Net sales in the division amounted to $1,097 million. Segment sales fell 2%. Excluding the divestiture of the Emerald nuts business, organic net sales dropped 1% due to declines in third-party partner brands, contract manufacturing, frozen products and fresh bakery, somewhat made up by elevated net sales of eight power brands. While net price realization remained flat, the volume/mix was down 1%. Segmental operating earnings tumbled 7%. We had expected pricing to be up 0.5%.

Other Financial Details

As of the end of the reported quarter, Campbell Soup had cash and cash equivalents of $107 million and total debt of $7,179 million. CPB generated $897 million in net cash from operating activities for the nine months ended Apr 28, 2024. Capital expenditures were $376 million in the said period. CPB paid $334 million in cash dividends and bought back nearly $46 million worth of shares.
At quarter-end, it had nearly $301 million remaining under its current $500-million share repurchase plan and about $58 million remaining under its $250 million anti-dilutive share repurchase plan.
Through the third quarter of fiscal 2024, the company generated $940 million in savings under its multi-year cost-saving program, including Snyder's-Lance synergies. Management remains on track to deliver savings worth $1 billion by the fiscal 2025-end. CPB also achieved cost synergies of $3 million associated with the integration of Sovos Brands and expects to generate around $50 million in annual ongoing savings by the fiscal 2026-end.

Fiscal 2024 Guidance

For fiscal 2024, the company expects net sales growth in the range of 3-4%, which is likely to be backed by contributions from the Sovos Brands acquisition. Earlier, net sales growth was expected between a 0.5% decline and an increase of 1.5%.
The company now expects organic net sales growth to be nearly flat to down 1%.  Management stated that it is currently tracking toward the midpoint of this updated organic sales growth view, indicating the consumer recovery pace. Organic sales growth was earlier anticipated to range between flat and 2% growth.
Adjusted EBIT growth is likely to be roughly 6.5-7% for the combined business compared with the earlier view of 3-4% growth. The updated guidance includes contributions from the Sovos Brands acquisition, reduced adjusted marketing and selling expenses and positive price realization, productivity and cost savings, which are likely to offset inflation and other supply-chain costs.
Adjusted EPS is now envisioned to increase 2-3% to the $3.07-$3.10 band in fiscal 2024 compared with $3.00 delivered in fiscal 2023. The view includes anticipated dilution from the abovementioned acquisition to the tune of 1-2 cents per share. Adjusted EPS was projected to increase 3-5% to $3.09-$3.15 on the second-quarter earnings call.
Campbell Soup anticipates gaining momentum in the fourth quarter, marked by steady year-over-year volume growth, double-digit increases in both adjusted EBIT and adjusted earnings per share and sustained progress in integrating Sovos Brands.
Shares of this Zacks Rank #3 (Hold) company have risen 2% in the past three months against the industry's decline of 3.2%.

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