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Shoppers filled their grocery baskets with Campbell Soup Co. products, from canned soup to snacks, which drove blowout fiscal third-quarter earnings, but also posed inventory challenges.
Campbell’s CPB, -0.71% reported earnings and sales that exceeded FactSet expectations, and raised its full-year guidance at a time when many companies are pulling their financial outlook all together due to the uncertainty from the coronavirus pandemic.
Campbell’s now expects sales to rise 5.5% to 6.5%, compared with previous guidance for a 1% sales decline to a 1% increase. Adjusted earnings are forecast to be $2.87 to $2.92, rising 25% to 27%. Previous guidance was for a rise of 11% to 13% from $2.55 to $2.60.
“We did see pressure on share, which although never a good thing, we believe reflects challenges in availability rather than conscious consumer switching,” said Mark Clouse, Campbell chief executive, in pre-recorded earnings comments, during a discussion of the soup business. “With in-market consumption surges as high as 140%, we significantly depleted inventory in the initial stages of the pandemic.”
There were also problems keeping Goldfish brand snacks and some baked items in stock.
Read:More consumers are willing to head to stores than to dine out at restaurants, S&P Global finds
Sales were up 20% in the meals & beverages category, which includes soup, Prego pasta sauce, Pace Mexican foods and more. Snacks were up 9%. That category also includes Pepperidge Farms cookies and both Cape Cod and Kettle brand potato chips.
“The relevance of certain center-store categories like soup will likely increase and require more in-store inventory, with perhaps a more limited assortment to optimize shelf sets for in-store and online click-and-collect demand,” said Clouse.
Campbell’s says millennials have been buying their products in greater numbers, a trend that began even before the coronavirus pandemic.
“We gained millions of households across all generations, with the largest gain being the millennial cohort,” said Clouse. “Perhaps most exciting is the repeat rates we are seeing for these new households and the positive engagement with consumers we are experiencing in social and digital platforms.”
JPMorgan analysts were curious about why less soup consumption in the summer, about half compared with the winter, hasn’t helped with the capacity issues.
“First, the company’s soup manufacturing is spread out more evenly throughout the year than its consumption (in June, e.g., product is already being made for customers’ fall push),” analysts wrote. JPMorgan said they spoke with executives, including Clouse, after the earnings announcement.
“And second, because of pantry stuffing, retailers are short on inventory right now and trying to rebuild stocks ASAP. Capacity constraints should be less in 4Q than in 3Q, but we do not think they fully clear up until FY21.”
JPMorgan said the implied forecast for the fourth quarter is “conservative,” but maintain their neutral stock rating and move their price target up $1 to $53.
“[W]e do not have quite a strong enough valuation argument for a more constructive rating, performance may have peaked in 3Q, and Campbell’s is still losing share in soup,” JPMorgan said.
UBS analysts also think the guidance could be conservative.
“Investors appear more focused on FY21 than FQ4, with many finding the forward 12-month event path less compelling as Campbell’s laps COVID benefits in its highest margin category,” analysts led by Steven Strycula wrote.
UBS rates Campbell’s stock sell and raised its price target by $1 to $45.
Campbell’s shares have slipped 1.8% for the year to date while the S&P 500 index SPX, -0.66% is down 3.6% for the period.
