The price action in Campbell Soup Company (NYSE: CPB) shed 7% in the wake of the Q4 earnings report but income investors should be cheering the news. Campbell Soup Company is a high-yielding value among consumer staples (NYSEARCA: XLP) stocks, a buy-and-hold name for income investors, and it just went on sale. Yes, the Q4 results were only as-expected and the guidance was tepid, but neither is worth a high-single-digit decline in share prices, especially with risk-off names back in favor. The decline is driven more by the CEO commentary than anything else and even it is not as bad as it may sound. The company says inflationary pressures are still a risk but growth is still expected on the top and bottom lines and there is an opening for outperformance as well.
"With previous pricing actions fully reflected on (the) shelf, and elasticities expected to be slightly above fiscal 2022 levels, the company expects sales growth in both divisions. The company expects improved supply chain execution and disciplined investment in its brands to drive further share recovery. Productivity improvements and cost savings initiatives will continue to play an important role in mitigating inflation, which is expected to remain elevated."
Campbell Soup Company Canned By Inflation?
Campbell Soup Compay had a good quarter with revenue of $1.99 billion growing 6.4% over last year. The revenue also beat the Marketbeat.com consensus figures but by a slim margin and pricing played a large role. The company says pricing increases of 14% more than offset a 4% decline in volume and a 3% increase in promotional spending but did not indicate if additional pricing increases would be forthcoming. On a segment basis, both the Meals and Snacks segments grew a net 6% with differing results in regard to volume and promotional spending. The Snacks segment saw its volume fall by 3% compared to 6% for Meals but it came at the cost of higher promotional activity which was centered in the segment.
Moving down to the margin, the news is mixed with the GAAP margins shrinking considerably and the adjusted margin growing. The mitigating factor is the GAAP margins were deeply impacted by changes in pension-related accounts and other one-off events that don’t reflect the underlying business. The adjusted margin widened at the gross and operating levels and left the adjusted EPS of $0.56 up 8% from last year and in line with expectations. The takeaway, however, is the adjusted operating margin did not widen as much as expected and did not reflect the slim margin of outperformance on the bottom line. This weakness, however, small, is reflected in the guidance as well and helped to sour the sentiment.
The company is guiding F2023 revenue to a range of 4% to 6% versus the 2.77% consensus. The range is a bit wide but well above the consensus figures and supported by pricing actions put in place over the last year. The bad news is that margins will not widen to match and the adjusted EPS of $2.85 to $2.95 don’t compare well to the consensus of $2.92. The takeaway here is the guidance is still in-line with the expectations and leaves some room for outperformance which is no reason for the stock to fall as much as it has. The stock is trading at only 16.5X its earnings and paying 3.15% in yield at this level making it one of the best value-to-yield combinations in the group so any additional downside will most likely be limited. Kraft-Heinz (NASDAQ: KHC) stands out as a better combination at 14X and 4.25% yield but only just.
The Technical Outlook: Campbell Soup Company Falls To Support
The price action in Campbell Soup Company fell hard but it is still above a firm support level at the $45 region. This level is coincident with a strong-looking level of support that formed earlier this year and should be able to hold prices from falling any further. If not, shares of CPB could move down to the $42 range where they’d be a bigger value and higher yield.
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