Campbell Soup Company (NYSE:CPB) gave investors in CPB stock a double-whammy of negative news Thursday, as it missed Wall Street estimates and issued a disappointing forecast tied to its push into fresh foods. Now, investors have every reason to look at Campbell with a skeptical eye.
After all, they’ve just been burned.
The market was braced for bad news — shares have been in steady decline for two months — and yet Campbell Soup still managed to surprise investors with the depth of its poor showing. Indeed, CPB stock dropped more than 5% within minutes of the opening bell.
Campbell still is a winner for the year-to-date, but mounting woes in its fresh and organic and a recall earlier this year really flipped its trajectory. Two months ago, CPB was sitting on a year-to-date gain of roughly 30%. They were outperforming a then-lackluster S&P 500 by more than 25 percentage points.
But now, after the selloff heading into earnings and Thurday’s carnage, CPB is down 16% since its July 52-week high. It’s beating the broader market by just 2 percentage points — a lead it probably won’t hold for long.
Click to Enlarge For what it’s worth, the technicals are looking wobbly as well.
Heading into today, Campbell Soup stock hadn’t come anywhere near testing support at its 200-day moving average since November 2015. But a stinker of a earnings report and outlook caused the floor to cave in Thursday.
If there’s a bright spot to be gleaned in CPB’s stock chart, shares do indeed look oversold at this point.
CPB Stock: How Did We Get Here?
For the fiscal fourth quarter ended July 31, Campbell Soup reported a net loss of $81 million, or 26 cents a share, vs. a year-ago profit of $17 million, or 5 cents a share. On an adjusted basis — which is what the Street cares about — earnings from continuing operation fell to 46 cents a share from 49 cents a share. That missed analysts’ average estimate by 4 cents a share, based on a poll by Thomson Reuters.
That a pretty good-sized earnings miss.
CPB disappointed the Street on the top line as well. Sales ticked down 0.4% to $1.69 billion. Analysts were looking for revenue to come in flat year-over-year.
The biggest damage was done by the company’s fresh-foods business, where operating profit tumbled 62% year-over-year. Lower sales of carrots and carrot ingredients contributed to revenue decline of almost 5% in the Campbell Fresh segment. A recall of Bolthouse Farms Protein Plus drinks also took a toll on the unit.
Campbell’s four-year-old bet on fresh foods has yet to pay off. As CEO Denise Morrison acknowledged in a press release:
“The performance of our Campbell Fresh business, driven predominantly by execution issues, is disappointing. We have taken and are taking steps designed to ensure the business performs to its potential.”
We’ll see.
For now, the market needs to adjust to a weak outlook and the uncertainty that CPB can meet these lowered expectations. For the current fiscal year, the packaged foods company forecast adjusted earnings of $3 to $3.09 a share. The Street, however was modeling earnings per share of $3.14.
CPB needs to prove that its costly investments in fresh foods will be accretive to earrings sooner rather than later. After the latest quarter, the market is rightfully skeptical and should remain in “show me” mode at least until the company next report in three months.
This may be a buy-the-dip scenario. More likely, it’s a hold.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.
