Campbell Soup (CPB -0.78%) stood out in late November by posting solid gains. The stock price jump wasn't powered by a return to healthy operating trends, and in fact the consumer packaged food specialist posted reduced sales and lower profitability in its fiscal first-quarter report.
However, Campbell Soup had some good news to report to investors around its restructuring efforts, demand for its core products, and its outlook for the fiscal year ahead.
Let's take a closer look.
The business continued to struggle with weak demand trends to kick off fiscal 2019. Organic sales fell 3%, to mark no improvement over the prior quarter's results, for one. Profitability declined sharply, too, with gross profit margin diving to 31.6% of sales from 36.5% a year ago. The company was forced to again rely on aggressive price cuts to keep inventory moving through its retailing partners.
Looking deeper into the results, there were some encouraging metrics that suggest its rebound may be gaining steam. Soup sales fell by 6%, for example, which was an improvement over the prior quarter's 14% dive. Moreover, executives revealed in a conference call with analysts that positive momentum continued into the fiscal second quarter as soup sales returned to growth in October. Campbell Soup also got back into positive territory in its key V8 juice franchise.
Management announced in late August that they would seek to sell the Campbell Fresh and Campbell International segments that together represented over $2 billion of sales last year. In an update, they said they've been seeing "strong initial interest" for these assets, and they expect to settle on a buyer before the end of the current fiscal year. The cash raised from the sale should mainly go toward paying down debt.
Campbell Soup also made strides toward increasing its financial efficiency by reaching $45 million of its planned $150 million savings plan during the quarter. Combined with cuts from the integration of the new snack business, that success will go a long way toward achieving the long-term cost cuts management has targeted. By 2022, in fact, the company is hoping to have lowered Campbell Soup's annual expense profile by nearly $1 billion. Investors are seeing early gains from the cuts in the form of improved cash flow, which jumped to $231 million from $188 million a year ago.
A brighter outlook
Executives still see 2019 as a transition year for the business as sales and profits decline. On the bright side, the worst of its writedown charges appear to be behind it, and Campbell Soup even managed to fix the major supply chain issues that hampered results earlier in the quarter. Those positive execution results, combined with improving demand trends in key soup, juice, and snack franchises, are putting the company in position for better growth ahead.
Specifically, Campbell Soup affirmed its forecast of organic growth of between 1% and 2% this year, which would mark its first expansion by that metric in four years. Adjusted earnings, bolstered by cost cuts and efficiency gains, should rise by a more robust 7% to 9%.
Those gains aren't especially strong, especially given the company's recent market share losses and massive restructuring charges. However, the latest numbers confirm that the business is stabilizing while suggesting that Campbell Soup has a path back toward the sustainable growth that investors have been waiting for several years to see.