Campbell Soup Tumbles Following Earnings, Analyst Worried About Incremental Pricing

© Reuters.

By Sam Boughedda

Campbell Soup (NYSE:CPB) shares tumbled Thursday after the company reported earnings before the open.

The company's shares are down more than 6% at the time of writing, trimming some of the gains made this year.

Campbell Soup reported fiscal fourth-quarter earnings of $0.56, in-line with the analyst estimate of $0.56, while Revenue for the quarter came in at $2 billion versus the consensus estimate of $1.98 billion.

"During fiscal 2022, we demonstrated a significant step up in execution across the company with improved supply chain performance and effective revenue management to counter inflation. Our solid foundation and momentum will serve us well in fiscal 2023 as we continue to make progress on unlocking Campbell's full growth potential," said Mark Clouse, Campbell's President and CEO.

Gross margin decreased to $571 million from $587 million in the prior year, while marketing and selling expenses increased 2% to $179 million, driven by higher selling expenses.

Campbell Soup sees FY2023 EPS between $2.85 and $2.95, versus the consensus of $2.85. In addition, it sees sales up between 4% and 6%.

Following the report, A Goldman Sachs analyst, who has a Sell rating and $43 price target on the stock, said: "All-in, there were few surprises in results, but we nonetheless expect the stock to modestly lag peers given the lack of surprises contrasts with what has largely been a revenue driven beat-and-raise cycle from Food peers of late."

Meanwhile, a JPMorgan analyst stated they "think investors were generally looking for bigger top and bottom lines in 4Q, if for no other reason than it would be consistent with what some other producers are printing. They didn't get these. And we are hearing this morning from investors concerned that CPB's promo spending in Snacks was a 4% headwind to the top line, by far the biggest number the segment has seen since FY16 (at least). So there are some concerns about the direction ahead for promos in general, which we appreciate." Goldman has a Neutral rating on the stock.

A Morgan Stanley analyst, who has an Equal-Weight rating and $48 price target on the stock, explained: "CPB's Q4 results were in-line with expectations across essentially every metric, reflecting solid organic sales growth and its second consecutive quarter of YoY gross margin expansion given last year's easy compares. However, CPB is one of the few Packaged Food companies that did not meaningfully exceed consensus organic sales/EPS forecasts."

Finally, an RBC Capital Markets analyst told investors in his note that "Campbell Soup's supply chain issues have started to improve due to improved labor."

The RBC analyst, who has a Sector Perform rating and $46 price target on the shares, added: "Pricing has also come in with elasticities lower than normal. However, we worry that incremental pricing will be harder to get through, especially as retailers continue to face margin pressures. We also see trade down as a risk, which is already starting to show up in the data (though we believe ongoing macro pressures could bring more consumers into at-home food categories from out of home). We expect the snacks business (~50% of company sales) to be strong due to improved mobility, but believe achieving 17% margins over the next few years could be a stretch goal given ongoing inflation"