Campbell’s (NYSE:CPB) Is So Much More Than Soup

Campbell’s Is A Buy Buy Buy

Campbell Soup Company NYSE: CPB is so much more than just soup and it is time that investors wizen up to that fact. The company has been diversifying its portfolio for years and now stands as a leading diversified consumer staple with long-term growth in its sights. The FQ2 outlook may have disappointed the market but that’s just a case of over-eager investors and over-zealous expectations. Looking at it from the investment perspective and asking myself the question do I want to own this stock the answer is a resounding yes.

Campbell’s Beats Top And Bottom Line Consensus Estimates

Campbell Soup Company delivered a very solid fiscal 1^st quarter with revenue up 7.3% from the same time last year. The revenue beat the consensus by $0.02 billion or about 0.80% and significant because the consensus estimates and company guidance has been edging higher. Revenue was driven by an 8% increase in organic sales that in turn is due to a 6% increase in volume and a 2% impact of cost-savings from reduced promotional spending. On a segment basis, the Meals & Beverage segment saw sales jump 12% on a YOY basis to beat consensus while Snacks increased only 1%.

Mark Clouse, Campbell’s President and CEO, stated, “Fiscal 2021 is off to a strong start with first-quarter sales growth across both divisions and double-digit gains in EBIT and EPS. Our Meals & Beverages division continued to drive impressive sales and margin growth as we positioned our brands to align with macro consumer trends, and retailers rebuilt inventory for the holidays and the heart of soup season. Snacks continued to deliver strong results while increasing capacity in key power brands. We continue to build a high-performing Snacks business with differentiated brands and improving margins.”

Moving down the report, the company’s adjusted gross margin improved 100 basis points over last year. The gain is due to a combination of product mix and spending. The company was able to cut another $15 million in spending in-line with its long-term goals. Cost savings are centered on synergies achieved through the Snyder’s-Lance takeover. The gains in revenue and gross margin carried through to the bottom line with an 18% increase in adjusted earnings. The EPS of $1.02 beat the consensus by $0.11 on an adjusted basis and $0.20 on a GAAP basis.

Looking forward, the company’s guidance is fantastic from my perspective but a little bit shy of what the market was expecting. The company is looking for FQ2 revenue to grow in the range of 5% to 7% with adjusted EPS in the range of $0.81 to $0.83 versus the $0.83 consensus target. The mitigating factor is that sales accelerated on a QoQ basis to beat the consensus this quarter, with COVID on the rise and winter upon us there is reason to believe the Q2 guidance is cautious.

Campbell Soup Company Is A High-Yield, Low-Value Consumer Staple

Assuming the consumer staples sector is one that you want to own (if it’s not it should be) Campbell Soup Company is a high-yield low-value stock with at least modest growth in the forecast. And that is YOY growth, not just QoQ growth like some of them have been posting. Among the highest-valued consumer staples are Clorox (NYSE:CLX) and Hormel (NYSE:HRL). Both of these stocks are trading at 25X times their earrings and yielding only 2.0% compared to Campbell’s 3.10%.

And the payout is safe. Not only is the company’s payout ratio, balance sheet, and cash flow in support of this idea but the company just increased the distribution by 6%. The stock goes ex-dividend on 1/7/2021.

The Technical Outlook: Campbell’s Falls On The News

Price action in shares of CPB did not respond favorably to the FQ1 report but, once again, I think that is just the market throwing a tantrum for not getting more than what it wanted. The indicators are a bit weak and price action is below the short-term moving average so there may be further downside ahead. That said, the next targets for strong support are near $46 and $45 offering deeper value and higher yield. The risk of waiting is that price action is showing some signs of support now.