Consumer staples manufacturer Campbell Soup Company (NYSE:CPB) continued its divestment of nonperforming and noncore businesses in the first quarter of its fiscal 2020 year. The consumer packaged goods (CPG) stalwart sold its European chips business to privately held Valeo Foods in October, which reduced current-quarter sales and earnings in the report released Wednesday morning. Outside of this deal, the company presented a mixed quarter to investors, as strength in snacks was offset by weaker sales in Campbell's meals and beverages segment.
As we walk through important details from the last three months, note that all comparative numbers are presented against the prior-year quarter.
The first quarter: A bird's-eye view
|Metric||Q1 2020||Q1 2019||Change|
|Revenue||$2.18 billion||$2.20 billion||0.1%|
|Net income||$166.0 million||$194.0 million||(14.4%)|
|Diluted earnings per share||$0.55||$0.64||(14.1%)|
- The company attributed most of its earnings per share (EPS) decline to the European chips sale to Valeo, which was completed on Oct. 11 at a price of $80 million. Adjusting for this transaction and other items, EPS from continuing operations of $0.78 represented an improvement of 10% over fiscal Q1 2019's adjusted EPS of $0.71.
- Organic sales decreased by 1% as promotional adjustments undercut pricing power during the quarter.
- Meals and beverages sales decreased by 3% to $1.2 billion, which the company attributed to the timing of U.S. soup shipments around the Thanksgiving holiday and lower food service sales. These effects were partially offset by strength in the Prego pasta sauce brand.
- The snacks segment improved its top line by 2% to $989 million. Management cited momentum in several brands and product lines, including Goldfish crackers, Cape Cod and Kettle brand potato chips, Pepperidge Farm cookies, and bakery products. Some of the momentum was cooled by declines in sales of the Snyder's-Lance portfolio's partner brands.
- Campbell achieved $45 million in savings during the last three months under its continuing cost-savings initiative, including synergies from the Snyder's-Lance merger (which was completed in May of 2018). The company has pocketed $605 million in savings so far in its multiyear program and aims to reach $850 million in cumulative savings by fiscal year-end 2022.
- Adjusted gross margin inched up 30 basis points, to 33.8%. Despite higher promotional spending and commodity inflation, the organization improved gross profitability through increased productivity, its cost-savings initiatives, and price adjustments.
Management's thoughts on the quarter
In summarizing the last three months, CEO Mark Clouse lauded increased market share in core product categories, implicitly endorsing the company's strategy to divest underperforming brands and exit the fresh foods business while doubling down on packaged meals, soups, and snacks:
Our performance to start the new fiscal year was largely in-line with our expectations and builds upon the solid foundation we set in fiscal 2019. I was especially pleased that our in-market consumption grew more than 1% in measured channels. Additionally, we grew soup share for the first time in 10 quarters, one of the early signs of progress in our three-year journey to revitalize this business. Strong in-market consumption on U.S. soup was offset by the timing of shipments related to the Thanksgiving holiday. In Snacks, we delivered another quarter of strong marketplace performance with 8 of 9 power brands growing or holding share, while we continued to make steady progress integrating the business and delivering cost synergies.
An adjustment to the 2020 outlook
To incorporate the effect of its European chip business disposition, Campbell reduced its full-year sales projection by 2 percentage points. The company now expects sales growth of -1% to +1% against fiscal 2019 revenue of $8.1 billion, versus previous guidance of 1% to 3% growth. The change doesn't impact organic sales guidance, which still anticipates -1% to 1% growth.
The sales projection revision also won't impact Campbell's fiscal 2020 earnings outlook. The company still expects adjusted EBIT (earnings before interest and taxes) to expand by 2% to 4% over the $1.27 billion in adjusted EBIT generated in fiscal 2019. Similarly, its adjusted EPS projection remains at $2.50 to $2.55. Shareholders appeared pleased with both the quarter's results and the reaffirmation of Campbell's EPS outlook, as shares were higher by roughly 2% in midmorning trade on Wednesday.