Campbell Soup (CPB, Financial) remains somewhat unappealing despite raising its net sales and adjusted EBIT growth targets for FY24 (Jul). Shares have declined over 6% from mid-May highs and are down slightly for the year. The updated FY24 guidance includes the impact of the Sovos Brands acquisition, which caused a minor dip in adjusted EPS, now estimated between $3.07-3.10 from $3.09-3.15.
However, several positive developments in Q3 suggest that CPB's recent correction may be nearing its end.
- Adjusted EPS of $0.75 increased by over 10% year-over-year, supported by a 6% rise in net sales to $2.37 billion. The integration of Sovos Brands, including Rao's Homemade and Michael Angelo's, has contributed to this growth. Organic net sales growth, excluding acquisition, divestiture, and currency impacts, remained flat year-over-year.
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Volumes improved sequentially, and organic net sales growth stabilized in Q3, particularly in the meals and beverage segment. Despite moderate pressure in the snacks business, CPB expects consumer demand for snacks to accelerate in the coming quarters.
- Management highlighted that summer holidays typically boost snack demand, aiding recovery in the second half of 2024.
- Margins improved in Q3, with adjusted gross margins increasing by 30 basis points year-over-year, thanks to supply chain productivity, cost-saving initiatives, and a favorable mix. CPB has been optimizing its plants and product suite to enhance margins, investing around $230 million through FY26 to modernize its supply chain.
- Looking ahead, CPB is optimistic about sustained demand in its meals and beverages division and expects continued positive momentum in its frozen products heading into Q4 (Jul). The focus on meal-stretching benefits its soup portfolio.
Despite inflationary pressures and the risk of increased private-label trade-down, CPB's portfolio remains resilient. The successful integration of Sovos Brands is crucial for ongoing growth, positioning CPB to reverse its recent downward trend.
