Campbell Soup Stock is Warming Up for a Breakout

Food and beverage maker Campbell Soup Company NYSE: CPB shares are attempting to stage a breakout after bouncing off the $40.00 support level. The grocery stockpiling phenomena of the pandemic may have dissipated, but the demand for groceries have continued to strengthen amid inflationary pressures and supply chain disruption. Logistics pressures stemming from rising freight costs have been passed onto consumers with higher prices which have improved margins for producers and distributors. The Company has stated that second half financial performance is expected to improve as its recent price actions, improving supply chain and labor conditions should be fully reflected in the market. The Russia Ukraine conflict’s impact on commodities prices can have an indirect effect. The goal is to momentum build back up in the second half of the year. Prudent investors looking to get discounted exposure into this iconic food player can watch for opportunistic pullbacks in shares of Campbell Coup.

Q2 Fiscal 2022 Earnings Release

On March 9, 2022, Campbell released its fiscal second-quarter 2022 results for the quarter ending January 2021. The Company reported an earnings-per-share (EPS) profit of $0.69 excluding non-recurring items versus consensus analyst estimates for a profit of $0.68, a $0.01 EPS beat. Revenues fell (-3.1%) year-over-year (YoY) to $2.21 billion missing analyst estimates for $2.25 billion for the quarter. Campbell Soup CEO Mark Clouse commented, "As expected, our second quarter was challenging as we lapped a difficult comparison and navigated labor and supply constraints, made even tougher by the Omicron surge. However, heading into the second half of the fiscal year, we are seeing labor availability and service levels improve, better mitigation of inflation with pricing, and strong levels of demand all underpinning our confidence in our delivery of full-year guidance.”

Flat Guidance

Campbell reaffirmed fiscal full-year 2022 EPS of $2.75 to $2.85 versus $2.78 consensus analyst estimates. The Company expects revenues to come in between $8.31 billion to $8.47 billion versus $8.42 billion consensus analyst estimates.

Conference Call Takeaways

CEO Clouse explained how the quarter was expectedly challenging due to industry-wide labor constraints and materials availability compounded by the Omicron surge. He expects inflation to remain persistent and notably in relation to logistics. The Russian conflict with Ukraine doesn’t affect them directly but could impact commodity prices which do. Organic net sales fell (-2%) due to labor and supply shortages, while consumption rose 9% on a two-year basis. Supporting supply is the key driver of the pressure. CEO Clouse expects the Company to recover distribution to fully support its portfolio by the second half of the year. As for the core soup business, he stated, “We performed very well and brought in additional millennial and Gen Z buyers to both our condensed eating and cooking varieties in the second quarter. On total U.S. Soup, household penetration in the quarter was up versus both the prior year and two years ago. And importantly, we continue to see more consumers participating in the soup category and purchasing our soup brands compared to pre-pandemic levels. While dollars spent per buyer increased due to our pricing actions, volume per buyer remained relatively stable to pre-pandemic levels, despite specific supply constraints in the quarter.” Its soup and broth lines posted the second largest holiday in five years. The Chunky brand experienced a 25% consumption growth and 2 points market share growth in the past two-years. This is a second half story with the improvement in supply chain, distribution costs and raised pricing along with cost cutting initiatives.

CPB Opportunistic Pullback Levels

Using the rifle charts on the weekly and daily time frames provides a precision view of the landscape for CPB stock. The weekly rifle chart bottomed near the $40.00 Fibonacci (fib) level. The weekly rifle chart has a cluster of moving averages (MA) converging in a make or break set-up. The weekly 5-period MA sits at $43.95, 15-period MA sits at $44.29, 50-period MA sits at $44.17, and the 200-period MA sits at $44.15. The weekly stochastic is falling to the 50-band. The weekly market structure low (MSL) buy triggered on the breakout through $41.67. The weekly lower Bollinger Bands (BBs) sit at $39.40, and the weekly upper BBs sit at $47.98. The daily rifle chart uptrend has a rising 5-period MA at $44.52 as it coiled off the daily 50-period MA at $43.95 on a rising 15-period MA at $43.54 and 200-period MA at $43.19. The daily upper BBs sit at $46.11 and lower BBs at $40.11. Prudent investors can scale in at opportunistic pullback levels at the $44.19 fib, $43.45 fib, $42.62 fib, $41.67 weekly MSL trigger, and the $40.00 fib level. Upside trajectories range from the $49.26 fib level up towards the $54.76 fib level.