Between its management shake-up and the rising probability that it could be acquired by a larger peer, Campbell Soup (NYSE:CPB) has seen a spike in investor interest lately. In fact, the packaged-food specialist's normally sleepy stock has had a volatile few months -- including a slump following its first-quarter earnings release in late May, and a spike in June on rumors of a pending merger.
Many key strategic questions will be answered when the company announces its second-quarter results on Thursday, Aug. 30. With that in mind, let's take a closer look at what investors can expect in next week's report.
Campbell Soup's business trends took a disappointing step lower in the most recently-reported quarter. Organic sales were flat, which marked a minor acceleration over the prior quarter's 2% drop. However, the bigger-picture revenue trends aren't encouraging. Organic sales fell 1% over the first three quarters of fiscal 2018, thanks mainly to declines in Campbell's core soup portfolio.
Profits paint an even gloomier picture. Adjusted gross profit margin fell to 32% of sales last quarter from 36% a year earlier, as input costs rose for commodities like dairy and meat. Campbell Soup wasn't able to pass along those rising expenses to customers, and so earnings took a surprising hit. "... [O]ur gross margin performance was below our expectations," CFO Anthony DiSilvestro said in late May. We'll find out on Aug. 30 whether the company's top- or bottom-line trends improved over the last few months, or if persistently weak demand continues to harm its growth and earnings power.
Campbell Soup's finances have been hampered by two other challenges that investors can expect to hear more about next week. First, the Campbell Fresh operating segment is looking for a rebound following last quarter's painful $600 million impairment charge. Due to falling carrot-crop yields and soaring manufacturing costs, that division hasn't produced nearly the level of sales growth and cash flow that management had hoped. In a conference call with Wall Street analysts, executives were blunt in calling the recent results "unacceptable," so investors can expect to hear updates on how Campbell plans to turn this segment around.
Meanwhile, the company's acquisition of the Snyder's-Lance snacking brand portfolio is producing the desired sales lift, but so far hasn't delivered much of an earnings payoff. Instead, it was a drag on overall profitability last quarter. Management believes the merger will begin meeting its optimistic initial projections soon, but shareholders will be looking for progress toward those goals in this report.
A new path forward?
Campbell Soup told investors in May that all options were on the table as the management team looks to boost returns following what's likely to be the company's fourth straight fiscal year of falling profits. After changing CEOs, the new team has been performing a full strategic review, whose results will be released in conjunction with the upcoming earnings report.
That turnaround plan might include a stepped-up restructuring initiative, or it could come with more aggressive moves like a spinoff of underperforming business lines or a merger with a rival food company. In any case, investors can expect to hear about some major changes aimed at addressing the mix of internal and external challenges that have undermined shareholder value over the last few years.